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Includes a specific warranty provision recorded during the third quarter of 2022 in the amount of $37,338 to address certain clean energy product warranty-related matters. Represents unfavorable impact from the strengthening of the U.S. dollar against foreign currencies during the three and nine months ended September 30, 2022, particularly the Euro and British Pound. Represents severance and other restructuring charges related to the consolidation of certain operating facilities and organizational functions. 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 $5.8 million 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 $17.9 million for a clean energy product customer that filed for bankruptcy as well as a warranty provision of $37.3 million to address certain clean energy product warranty-related matters. 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. 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. Represents the write-off of original issue discount and capitalized debt issuance costs due to voluntary debt prepayment. Represents unrealized gains of $52,995 on the interest rate swaps, net of tax effect of $(13,381) for the nine months ended September 30, 2022. Represents unrealized gains of $1,394 on the interest rate swaps, net of tax effect of $(349) for the three months ended September 30, 2023. Represents favorable impact from the weakening of the U.S. dollar against foreign currencies during the nine months ended September 30, 2023, particularly the Euro, British Pound, and Mexican Peso. Represents $11,490 of contingent deferred consideration for the Pramac buyout. See Note 3, "Redeemable Noncontrolling Interest". 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Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

(Mark One)

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  
 

For the quarterly period ended September 30, 2023

  

OR

  

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  
 

For the transition period from             to

 

Commission File Number 001-34627

 

GENERAC HOLDINGS INC.

(Exact name of registrant as specified in its charter)

 

Delaware

20-5654756

(State or other jurisdiction of

(IRS Employer

incorporation or organization)

Identification No.)

  

S45 W29290 Hwy 59, Waukesha, WI

53189

(Address of principal executive offices)

(Zip Code)

 

(262) 544-4811

(Registrant's telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

GNRC

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

 

As of November 1, 2023, there were 61,431,577 shares of registrant's common stock outstanding.

 

 

 
Table of Contents

  

 

GENERAC HOLDINGS INC.

TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION
     

Item 1.

Financial Statements

  
     
 

Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022

1
     
 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022

2
     
 

Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2023 and 2022

3
     
 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022

4
     
 

Notes to Condensed Consolidated Financial Statements

5
     

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

16
     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27
     

Item 4.

Controls and Procedures

27
   

PART II. OTHER INFORMATION
     

Item 1.

Legal Proceedings

27
     

Item 1A.

Risk Factors

27
     

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

28
     
Item 3. Defaults Upon Senior Securities 28
     
Item 4. Mine Safety Disclosures 28
     
Item 5. Other Information 28
     

Item 6.

Exhibits

28
     
 

Signatures

29

 

 
Table of Contents

 

 
 

PART I. FINANCIAL INFORMATION

 


Item 1.           Financial Statements

 

Generac Holdings Inc.

Condensed Consolidated Balance Sheets
(U.S. Dollars in Thousands, Except Share and Per Share Data)
(Unaudited)

 

  

September 30,

  

December 31,

 
  

2023

  

2022

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $161,525  $132,723 

Accounts receivable, less allowance for credit losses of $29,580 and $27,664 at September 30, 2023 and December 31, 2022, respectively

  589,226   522,458 

Inventories

  1,311,129   1,405,384 

Prepaid expenses and other current assets

  105,169   121,783 

Total current assets

  2,167,049   2,182,348 
         

Property and equipment, net

  511,893   467,604 
         

Customer lists, net

  188,513   206,987 

Patents and technology, net

  426,552   454,757 

Other intangible assets, net

  30,317   41,719 

Tradenames, net

  219,012   227,251 

Goodwill

  1,417,564   1,400,880 

Deferred income taxes

  17,140   12,746 

Operating lease and other non-current assets

  188,301   175,170 

Total assets

 $5,166,341  $5,169,462 
         

Liabilities and stockholders’ equity

        

Current liabilities:

        

Short-term borrowings

 $74,346  $48,990 

Accounts payable

  394,168   446,050 

Accrued wages and employee benefits

  56,454   45,741 

Accrued product warranty

  70,572   89,141 

Other accrued liabilities

  267,217   349,389 

Current portion of long-term borrowings and finance lease obligations

  37,337   12,733 

Total current liabilities

  900,094   992,044 
         

Long-term borrowings and finance lease obligations

  1,465,141   1,369,085 

Deferred income taxes

  113,390   125,691 

Deferred revenue

  160,264   143,726 

Operating lease and other long-term liabilities

  155,326   169,190 

Total liabilities

  2,794,215   2,799,736 
         

Redeemable noncontrolling interests

  5,639   110,471 
         

Stockholders’ equity:

        

Common stock, par value $0.01, 500,000,000 shares authorized, 73,108,913 and 72,701,257 shares issued at September 30, 2023 and December 31, 2022, respectively

  732   728 

Additional paid-in capital

  1,064,418   1,016,138 

Treasury stock, at cost, 11,739,423 and 11,284,350 shares at September 30, 2023 and December 31, 2022, respectively

  (880,858)  (808,491)

Excess purchase price over predecessor basis

  (202,116)  (202,116)

Retained earnings

  2,423,346   2,316,224 

Accumulated other comprehensive loss

  (41,614)  (65,102)

Stockholders’ equity attributable to Generac Holdings Inc.

  2,363,908   2,257,381 

Noncontrolling interests

  2,579   1,874 

Total stockholders' equity

  2,366,487   2,259,255 

Total liabilities and stockholders’ equity

 $5,166,341  $5,169,462 

 

See notes to condensed consolidated financial statements.

 

1
Table of Contents
 

 

Generac Holdings Inc.

Condensed Consolidated Statements of Comprehensive Income

(U.S. Dollars in Thousands, Except Share and Per Share Data)

(Unaudited)

 

   

Three Months Ended September 30,

    

Nine Months Ended September 30,

  
   

2023

    

2022

    

2023

    

2022

  
                                 

Net sales

   $ 1,070,667     $ 1,088,258     $ 2,958,997     $ 3,515,505  

Costs of goods sold

     694,880       727,154       1,982,290       2,336,668  

Gross profit

     375,787       361,104       976,707       1,178,837  
                                 

Operating expenses:

                                

Selling and service

     117,929       170,381       334,360       388,690  

Research and development

     43,312       39,985       129,074       121,328  

General and administrative

     83,052       37,464       199,108       132,036  

Amortization of intangibles

     26,718       25,751       78,934       77,681  

Total operating expenses

     271,011       273,581       741,476       719,735  

Income from operations

     104,776       87,523       235,231       459,102  
                                 

Other (expense) income:

                                

Interest expense

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

Investment income

     1,160       451       2,789       620  

Loss on extinguishment of debt

     -       -       -       (3,743 )

Other, net

     (1,167 )     (420 )     (1,664 )     331  

Total other expense, net

     (24,714 )     (15,483 )     (71,737 )     (38,095 )
                                 

Income before provision for income taxes

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

Provision for income taxes

     19,428       11,594       43,184       86,028  

Net income

     60,634       60,446       120,310       334,979  

Net income attributable to noncontrolling interests

     257       2,176       2,305       6,492  

Net income attributable to Generac Holdings Inc.

   $ 60,377     $ 58,270     $ 118,005     $ 328,487  
                                 

Net income attributable to Generac Holdings Inc. per common share - basic:

   $ 0.98     $ 0.84     $ 1.74     $ 4.69  

Weighted average common shares outstanding - basic:

     61,368,440       63,249,881       61,552,949       63,480,161  
                                 

Net income attributable to Generac Holdings Inc. per common share - diluted:

   $ 0.97     $ 0.83     $ 1.72     $ 4.61  

Weighted average common shares outstanding - diluted:

     62,091,163       64,267,638       62,362,743       64,630,346  
                                 

Comprehensive income attributable to Generac Holdings Inc.

   $ 37,041     $ 21,683     $ 141,463     $ 264,912  

 

See notes to condensed consolidated financial statements.

 

2
Table of Contents
 

 

Generac Holdings Inc.

Condensed Consolidated Statements of Stockholders' Equity

(U.S. Dollars in Thousands, Except Share Data)

(Unaudited)

 

 

  

Generac Holdings Inc.

         
                      

Excess Purchase Price

  

Retained

  

Accumulated

             
          

Additional

          

Over

  

Earnings

  

Other

  

Total

         
  

Common Stock

  

Paid-In

  

Treasury Stock

  

Predecessor

  

(Accumulated

  

Comprehensive

  

Stockholders'

  

Noncontrolling

     
  

Shares

  

Amount

  

Capital

  

Shares

  

Amount

  

Basis

  

Deficit)

  

Income (Loss)

  

Equity

  

Interest

  

Total

 

Balance at July 1, 2023

  73,097,016  $732  $1,053,759   (10,858,348) $(779,892) $(202,116) $2,363,015  $(16,216) $2,419,282  $2,474  $2,421,756 

Unrealized gain on interest rate swaps, net of tax of $349

                              1,045   1,045       1,045 

Foreign currency translation adjustment

                         (26,443)  (26,443)  (93)  (26,536)
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price  11,897   –   732                   732      732 

Net share settlement of restricted stock awards

            (5,495)  (699)           (699)     (699)

Stock repurchases

           (875,580)  (100,267)           (100,267)     (100,267)

Share-based compensation

         9,927                   9,927      9,927 

Redemption value adjustment

                      (46)     (46)     (46)

Net income

                      60,377      60,377   198   60,575 
                                             

Balance at September 30, 2023

  73,108,913  $732  $1,064,418   (11,739,423) $(880,858) $(202,116) $2,423,346  $(41,614) $2,363,908  $2,579  $2,366,487 

 

  

Generac Holdings Inc.

         
                      

Excess Purchase Price

  

Retained

  

Accumulated

             
          

Additional

          

Over

  

Earnings

  

Other

  

Total

         
  

Common Stock

  

Paid-In

  

Treasury Stock

  

Predecessor

  

(Accumulated

  

Comprehensive

  

Stockholders'

  

Noncontrolling

     
  

Shares

  

Amount

  

Capital

  

Shares

  

Amount

  

Basis

  

Deficit)

  

Income (Loss)

  

Equity

  

Interest

  

Total

 

Balance at January 1, 2023

  72,701,257  $728  $1,016,138   (11,284,350) $(808,491) $(202,116) $2,316,224  $(65,102) $2,257,381  $1,874  $2,259,255 

Unrealized gain on interest rate swaps, net of tax of $772

                         2,309   2,309      2,309 

Foreign currency translation adjustment

                         21,179   21,179   (38)  21,141 

Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price

  396,713   4   2,563                   2,567      2,567 

Net share settlement of restricted stock awards

            (45,611)  (5,496)           (5,496)     (5,496)

Stock repurchases

           (875,580)  (100,267)           (100,267)     (100,267)

Share-based compensation

         30,306                   30,306      30,306 

Payment of contingent consideration

  10,943   –   15,411   466,118   33,396            48,807      48,807 

Redemption value adjustment

                      (10,883)     (10,883)     (10,883)

Net income

                      118,005      118,005   743   118,748 
                                             

Balance at September 30, 2023

  73,108,913  $732  $1,064,418   (11,739,423) $(880,858) $(202,116) $2,423,346  $(41,614) $2,363,908  $2,579  $2,366,487 

 

  

Generac Holdings Inc.

         
                      

Excess Purchase Price

      

Accumulated

             
          

Additional

          

Over

      

Other

  

Total

         
  

Common Stock

  

Paid-In

  

Treasury Stock

  

Predecessor

  

Retained

  

Comprehensive

  

Stockholders'

  

Noncontrolling

     
  

Shares

  

Amount

  

Capital

  

Shares

  

Amount

  

Basis

  

Earnings

  

Income (Loss)

  

Equity

  

Interest

  

Total

 

Balance at July 1, 2022

  72,588,588  $727  $967,819   (8,755,451) $(475,294) $(202,116) $2,210,582  $(82,839) $2,418,879  $883  $2,419,762 

Unrealized gain on interest rate swaps, net of tax of $4,647

                         13,757   13,757      13,757 

Foreign currency translation adjustment

                         (51,324)  (51,324)  (396)  (51,720)

Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price

  51,413   1   1,321                   1,322      1,322 

Net share settlement of restricted stock awards

            (455)  (110)           (110)     (110)

Stock repurchases

           (536,633)  (123,900)           (123,900)     (123,900)

Share-based compensation

         6,861                   6,861      6,861 

Redemption value adjustment

                      (5,225)     (5,225)     (5,225)

Net income

                      58,270      58,270   588   58,858 
                                             

Balance at September 30, 2022

  72,640,001  $728  $976,001   (9,292,539) $(599,304) $(202,116) $2,263,627  $(120,406) $2,318,530  $1,075  $2,319,605 

 

  

Generac Holdings Inc.

         
                      

Excess Purchase Price

      

Accumulated

             
          

Additional

          

Over

      

Other

  

Total

         
  

Common Stock

  

Paid-In

  

Treasury Stock

  

Predecessor

  

Retained

  

Comprehensive

  

Stockholders'

  

Noncontrolling

     
  

Shares

  

Amount

  

Capital

  

Shares

  

Amount

  

Basis

  

Earnings

  

Income (Loss)

  

Equity

  

Interest

  

Total

 

Balance at January 1, 2022

  72,386,017  $725  $952,939   (8,667,031) $(448,976) $(202,116) $1,965,957  $(54,755) $2,213,774  $313  $2,214,087 

Unrealized gain on interest rate swaps, net of tax of $13,381

                         39,614   39,614      39,614 

Foreign currency translation adjustment

                         (105,265)  (105,265)  (470)  (105,735)

Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price

  253,984   3   (361)                  (358)     (358)

Net share settlement of restricted stock awards

            (88,875)  (26,428)           (26,428)     (26,428)

Stock repurchases

           (536,633)  (123,900)           (123,900)     (123,900)

Share-based compensation

         23,423                   23,423      23,423 

Redemption value adjustment

                      (30,817)     (30,817)     (30,817)

Net income

                      328,487      328,487   1,232   329,719 
                                             

Balance at September 30, 2022

  72,640,001  $728  $976,001   (9,292,539) $(599,304) $(202,116) $2,263,627  $(120,406) $2,318,530  $1,075  $2,319,605 

 

See notes to condensed consolidated financial statements.

 

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Generac Holdings Inc.

Condensed Consolidated Statements of Cash Flows

(U.S. Dollars in Thousands)

(Unaudited)

 

   

Nine Months Ended September 30,

  
   

2023

    

2022

  

Operating activities

                

Net income

   $ 120,310     $ 334,979  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

                

Depreciation

     45,215       39,043  

Amortization of intangible assets

     78,934       77,681  

Amortization of original issue discount and deferred financing costs

     2,902       2,261  

Loss on extinguishment of debt

     –       3,743  

Deferred income taxes

     (18,715 )     (83,272 )

Share-based compensation expense

     30,306       23,423  

Gain on disposal of assets

     (538 )     (555 )

Other noncash charges

     380       7,037  

Net changes in operating assets and liabilities, net of acquisitions:

                

Accounts receivable

     (68,975 )     (20,810 )

Inventories

     101,894       (353,618 )

Other assets

     32,175       (7,033 )

Accounts payable

     (57,866 )     (136,289 )

Accrued wages and employee benefits

     10,244       (17,418 )

Other accrued liabilities

     (70,622 )     105,544  

Excess tax benefits from equity awards

     (920 )     (17,068 )

Net cash provided by (used in) operating activities

     204,724       (42,352 )
                 

Investing activities

                

Proceeds from sale of property and equipment

     1,933       2,049  

Proceeds from sale of investment

     –       1,308  

Proceeds from beneficial interests in securitization transactions

     2,533       2,745  

Contribution to equity method investment

     (6,627 )     (14,930 )

Purchase of long-term investment

     (2,592 )     –  

Expenditures for property and equipment

     (77,718 )     (64,833 )

Acquisition of business, net of cash acquired

     (15,974 )     (11,421 )

Net cash used in investing activities

     (98,445 )     (85,082 )
                 

Financing activities

                

Proceeds from short-term borrowings

     49,078       237,182  

Proceeds from long-term borrowings

     345,384       935,614  

Repayments of short-term borrowings

     (25,910 )     (239,550 )

Repayments of long-term borrowings and finance lease obligations

     (233,101 )     (540,481 )

Stock repurchases

     (100,267 )     (123,900 )

Payment of contingent acquisition consideration

     (4,979 )     (16,135 )

Payment of debt issuance costs

     –       (10,330 )

Purchase of additional ownership interest

     (104,844 )     (375 )

Cash dividends paid to noncontrolling interest of subsidiary

     –       (309 )

Taxes paid related to equity awards

     (10,068 )     (40,472 )

Proceeds from exercise of stock options

     7,139       13,627  

Net cash (used in) provided by financing activities

     (77,568 )     214,871  
                 

Effect of exchange rate changes on cash and cash equivalents

     91       (4,865 )
                 

Net increase in cash and cash equivalents

     28,802       82,572  

Cash and cash equivalents at beginning of period

     132,723       147,339  

Cash and cash equivalents at end of period

   $ 161,525     $ 229,911  

 

See notes to condensed consolidated financial statements.

 

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Generac Holdings Inc.
Notes to Condensed Consolidated Financial Statements

(U.S. Dollars in Thousands, Except Share and Per Share Data)

(Unaudited)

 

 

 

1.   Description of Business and Basis of Presentation

 

Founded in 1959, Generac Holdings Inc. ("the Company") is a leading global designer and manufacturer of a wide range of energy technology solutions. The Company provides power generation equipment, energy storage systems, energy management devices & solutions, and other power products and services serving the residential, light commercial, and industrial markets. Generac’s power products and solutions are available globally through a broad network of independent dealers, distributors, retailers, e-commerce partners, wholesalers, and equipment rental companies, as well as sold direct to certain end user customers.

 

Over the years, the Company has executed a number of acquisitions that support its strategic plan (as discussed in Item 1 of the Annual Report on Form 10-K for the year ended December 31, 2022). A summary of acquisitions affecting the reporting periods presented include:

 

 ●In June 2022, the Company acquired Electronic Environments Co. LLC and related subsidiaries (collectively "EEC"). Headquartered in Marlborough, Massachusetts, EEC is an industrial generator distributor as well as a provider of data center and telecom facility design, build, maintenance, and repair services.
 ●In October 2022, the Company acquired BPAC, Inc. ("Blue Pillar"), an industrial IoT platform developer that designs, deploys, and manages industrial IoT network software solutions to enable distributed energy generation monitoring and control.
 ●In February 2023, the Company acquired REFU Storage Systems ("REFUstor"), headquartered in Pfullingen, Germany. REFUstor is a developer and supplier of battery storage hardware products, advanced software, and platform services for the commercial and industrial energy storage market.

 

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries that are consolidated in conformity with U.S. generally accepted accounting principles ("GAAP"). All intercompany amounts and transactions have been eliminated in consolidation.

 

The condensed consolidated balance sheet as of September 30, 2023, the condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2023 and 2022, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022, have been prepared by the Company and have not been audited. In the opinion of management, all adjustments (which include only normal recurring adjustments except where disclosed) necessary for the fair presentation of the financial position, results of operation, and cash flows have been made. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

 

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2022.

 

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New Accounting Pronouncements

 

Changes to GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of accounting standard updates ("ASUs") to the FASB Accounting Standards Codification ("ASC"). ASUs issued were assessed and have already been adopted in a prior period or determined to be either not applicable or are not expected to have a material impact on the Company’s consolidated financial statements.

 
 

2.   Acquisitions

 

Fiscal 2023 Acquisitions

 

On February 1, 2023, the Company acquired REFUstor, headquartered in Pfullingen, Germany. REFUstor is a developer and supplier of battery storage hardware products, advanced software, and platform services for the commercial and industrial energy storage market.

 

The Company recorded its preliminary purchase price allocation for REFUstor during the first quarter of 2023, based on its estimates of the fair value of the acquired assets and assumed liabilities. Purchase accounting will be finalized prior to March 31, 2024, and there have not been any material changes to the balances acquired as of September 30, 2023. The accompanying condensed consolidated financial statements include the results of REFUstor from the date of acquisition through September 30, 2023. Pro forma and other financial information are not presented as the effects of the REFUstor acquisition are not material to the Company's results of operations or financial position prior to the acquisition date. 

 

Fiscal 2022 Acquisitions

 

On June 30, 2022, the Company acquired EEC. Headquartered in Marlborough, Massachusetts, EEC is an industrial generator distributor as well as a provider of data center and telecom facility design, build, maintenance, and repair services.

 

On October 3, 2022, the Company acquired Blue Pillar, an industrial IoT platform developer that designs, deploys, and manages industrial IoT network software solutions to enable distributed energy generation monitoring and control.

 

The combined purchase price for these two acquisitions was $25,654, net of cash acquired. The Company recorded its preliminary purchase price allocation for EEC and Blue Pillar during the second quarter and fourth quarter of 2022, respectively, based on its estimates of the fair value of the acquired assets and assumed liabilities. Purchase accounting for EEC was finalized in the second quarter of 2023 and did not result in material adjustments to the Company's preliminary estimates. The Company will finalize the purchase accounting for Blue Pillar in the fourth quarter of 2023. Through the third quarter of 2023, the combined purchase price for EEC and Blue Pillar has increased to $27,456 due to working capital adjustments. The accompanying condensed consolidated financial statements include the results of the acquired businesses since the dates of acquisition through September 30, 2023. Pro forma and other financial information are not presented as the effects of the 2022 acquisitions are not material to the Company's results of operations or financial position prior to the acquisition dates. 

 

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3.   Redeemable Noncontrolling Interest

 

On March 1, 2016, the Company acquired a 65% ownership interest in PR Industrial S.r.l. and its subsidiaries ("Pramac"). The 35% noncontrolling interest in Pramac had an acquisition date fair value of $34,253 and was recorded as a redeemable noncontrolling interest in the condensed consolidated balance sheets, as the noncontrolling interest holder had within its control the right to require the Company to redeem its interest in Pramac. In May 2021, the Company exercised its call option rights and paid a purchase price of $27,164 to purchase an additional 15% ownership interest in Pramac, bringing the Company's total ownership interest in Pramac to 80%. On March 8, 2023, the Company and the noncontrolling interest holder entered into an agreement whereby the Company acquired the remaining 20% ownership interest in Pramac for a purchase price of $116,754, which brought the Company's total ownership interest in Pramac to 100%. The purchase price included $105,264 of initial consideration (which included a cash payment of $104,844 and a $420 gain on a foreign currency settlement in the first quarter of 2023) and $11,490 of contingent deferred consideration to be paid in up to 135,205 restricted shares that were issued based on the twenty day volume weighted average price of the Company’s stock ending on December 31, 2022, and which shall vest upon achievement of certain earnings targets at the end of the earn-out period, December 31, 2025. 

 

On February 1, 2019, the Company acquired a 51% ownership interest in Captiva Energy Solutions Private Limited ("Captiva"). The 49% noncontrolling interest in Captiva had an acquisition date fair value of $3,165 and was recorded as a redeemable noncontrolling interest in the condensed consolidated balance sheets, as the noncontrolling interest holder had within its control the right to require the Company to redeem its interest in Captiva. The noncontrolling interest holder has a put option to sell his interest to the Company any time after five years from the date of acquisition, or earlier upon the occurrence of certain circumstances. Further, the Company has a call option that it may redeem any time after five years from the date of acquisition, or earlier upon the occurrence of certain circumstances. The put and call option price is based on a multiple of earnings, subject to the terms of the acquisition agreement. In March 2022, the Company signed an agreement to purchase an additional 15% ownership interest in Captiva for a purchase price of $461, bringing the Company's total ownership interest in Captiva to 66%. In May 2022, the Company signed an amendment to the purchase agreement resulting in a revised purchase price of $375, which was paid with cash on hand.

 

The redeemable noncontrolling interests are recorded at the greater of the initial fair value, increased or decreased for the noncontrolling interests’ share of comprehensive income (loss), or the estimated redemption value, with any adjustments to the redemption value impacting retained earnings, but not net income. However, the redemption value adjustments are reflected in the earnings per share calculation, as detailed in Note 13, “Earnings Per Share,” to the condensed consolidated financial statements. The following table presents the changes in the redeemable noncontrolling interest for both Captiva and Pramac:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Balance at beginning of period

 $5,688  $82,830  $110,471  $58,050 

Net income

  58   1,589   1,728   5,261 

Foreign currency translation

  (153)  (2,708)  (689)  (6,817)

Purchase of additional ownership interest

  -   -   (116,754)  (375)

Redemption value adjustment

  46   5,225   10,883   30,817 

Balance at end of period

 $5,639  $86,936  $5,639  $86,936 

 
 

4.   Derivative Instruments and Hedging Activities

 

The Company records all derivatives in accordance with ASC 815, Derivatives and Hedging, which requires derivative instruments to be reported on the condensed consolidated balance sheets at fair value and establishes criteria for designation and effectiveness of hedging relationships. The Company is exposed to market risk such as changes in commodity prices, foreign currencies and interest rates. The Company does not hold or issue derivative financial instruments for trading purposes.

 

The Company periodically utilizes commodity derivatives and foreign currency forward purchase and sales contracts in the normal course of business. Because these contracts do not qualify for hedge accounting, the related gains and losses are recorded in the Company’s condensed consolidated statements of comprehensive income. These gains and losses are not material to the Company’s condensed consolidated financial statements for the periods presented.

 

Interest Rate Swaps

 

In 2017, the Company entered into twenty interest rate swap agreements, the final four of which expired in  May 2023. In March 2020, the Company entered into three additional interest rate swap agreements which were still outstanding as of September 30, 2023.

 

In June 2022, in conjunction with the amendments to the Company's credit agreements discussed further in Note 11, “Credit Agreements,” the Company amended its interest rate swaps to match that of the underlying debt and reconfirmed hedge effectiveness. The Company formally documented all relationships between interest rate hedging instruments and the related hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions. These interest rate swap agreements qualify as cash flow hedges and therefore, the effective portions of their gains or losses are reported as a component of accumulated other comprehensive loss ("AOCL") in the condensed consolidated balance sheets.

 

The amount of gains, net of tax recognized, for the three and nine months ended September 30, 2023, were $1,045 and $2,309, respectively. The amount of gains, net of tax recognized, for the three and nine months ended September 30, 2022, were $13,757 and $39,614, respectively. The cash flows of the swaps are recognized as adjustments to interest expense each period. The ineffective portions of the derivatives’ changes in fair value, if any, are immediately recognized in earnings.

 

Fair Value 

 

The following table presents the fair value of all of the Company’s derivatives:

 

  

September 30, 2023

  

December 31, 2022

 
Commodity contracts $9  $- 

Foreign currency contracts

  (181)  94 

Interest rate swaps

  52,360   49,279 

 

In the condensed consolidated balance sheets, the fair value of the commodity contracts is included in prepaid expenses and other current assets. The fair value of the foreign currency contracts is included in other accrued liabilities at  September 30, 2023, and included in prepaid expenses and other current assets at December 31, 2022. The fair value of the interest rate swaps is included in operating lease and other non-current assets. Excluding the impact of credit risk, the fair value of the derivative contracts as of September 30, 2023, and December 31, 2022, is an asset of $54,388 and $51,184, respectively, which represents the amount the Company would receive to exit all of the agreements on those dates.

 

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5.   Fair Value Measurements

 

ASC 820-10, Fair Value Measurement, defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring basis or nonrecurring basis. ASC 820-10 clarifies fair value is an exit price, representing the amount that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the pronouncement establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The Company believes the carrying amount of its financial instruments (cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, short-term borrowings, and revolving facility borrowings), excluding Term Loan borrowings, approximates the fair value of these instruments based on their short-term nature. The fair value of the Term Loan B borrowing, which has a net carrying value of $524,529, was $530,000 (Level 2) at September 30, 2023, as calculated based on independent valuations which contain inputs and significant value drivers that are observable. The fair value of Term Loan A approximates the carrying value. 

 

For the fair value of the derivatives measured on a recurring basis, refer to the fair value table in Note 4, “Derivative Instruments and Hedging Activities,” to the condensed consolidated financial statements. The fair value of all derivative contracts is classified as Level 2. The valuation techniques used to measure the fair value of derivative contracts, all of which have counterparties with high credit ratings, were based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data. The fair value of the derivative contracts above considers the Company’s credit risk in accordance with ASC 820-10.

 

Contingent Consideration

 

Certain of the Company's business combinations involve potential payment of future consideration contingent upon the achievement of certain milestones. As part of purchase accounting, a liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized within general and administrative expenses in the Company's condensed consolidated statements of comprehensive income. The fair value measurement of contingent consideration is typically categorized as a Level 3 liability, as the measurement amount is based primarily on significant inputs that are not observable in the market.

 

At September 30, 2023, the fair value of contingent consideration for Chilicon Power LLC ("Chilicon") and Pramac is $38,746 and is included in other long-term liabilities in the condensed consolidated balance sheets. At December 31, 2022, the Company had contingent consideration of $49,500 in other accrued liabilities and $32,033 in other long-term liabilities in the condensed consolidated balance sheets. The earn-out period for the contingent consideration for Chilicon extends through December 31, 2028. The earn-out period for the contingent consideration for Pramac extends through December 31, 2025. 

 

The following table provides a reconciliation of the activity for contingent consideration: 

 

Beginning balance, January 1, 2023

 $81,533 

Changes in fair value

  - 

Additional contingent consideration (1)

  11,490 

Payment of contingent consideration (2)

  (53,786)

Present value interest accretion

  (491)

Ending balance, September 30, 2023

 $38,746 

 

(1) Represents $11,490 of contingent deferred consideration for the Pramac buyout. See Note 3, "Redeemable Noncontrolling Interest". 

(2) Includes payments of $479 in cash and $44,521 in shares for the ecobee acquisition, $4,286 in shares for the Chilicon acquisition, and $4,500 in cash for the Mean Green Products ("Mean Green") acquisition. The payment of common stock is accounted for as a non-cash item in the condensed consolidated statement of cash flows. 

 

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6.   Accumulated Other Comprehensive Loss

 

The following table presents a disclosure of changes in AOCL during the three and nine months ended September 30, 2023 and 2022, net of tax:

 

  

Foreign Currency Translation Adjustments

   

Unrealized Gain (Loss) on Cash Flow Hedges

   

Total

 

Beginning Balance – July 1, 2023

 $(53,923)  $37,707   $(16,216)

Other comprehensive income (loss)

  (26,443)

(1)

  1,045 

(2)

  (25,398)

Ending Balance – September 30, 2023

 $(80,366)  $38,752   $(41,614)

 

  

Foreign Currency Translation Adjustments

   

Unrealized Gain (Loss) on Cash Flow Hedges

   

Total

 

Beginning Balance – July 1, 2022

 $(106,645)  $23,806   $(82,839)

Other comprehensive income (loss)

  (51,324)

(3)

  13,757 

(4)

  (37,567)

Ending Balance – September 30, 2022

 $(157,969)  $37,563   $(120,406)

 

  

Foreign Currency Translation Adjustments

   

Unrealized Gain (Loss) on Cash Flow Hedges

   

Total

 

Beginning Balance – January 1, 2023

 $(101,545)  $36,443   $(65,102)

Other comprehensive income (loss)

  21,179 

(5)

  2,309 

(6)

  23,488 

Ending Balance – September 30, 2023

 $(80,366)  $38,752   $(41,614)

 

  

Foreign Currency Translation Adjustments

   

Unrealized Gain (Loss) on Cash Flow Hedges

   

Total

 

Beginning Balance – January 1, 2022

 $(52,704)  $(2,051)  $(54,755)

Other comprehensive income (loss)

  (105,265)

(3)

  39,614 

(7)

  (65,651)

Ending Balance – September 30, 2022

 $(157,969)  $37,563   $(120,406)

 

 (1)Represents unfavorable impact from the strengthening of the U.S. dollar against foreign currencies during the three months ended September 30, 2023, particularly the Euro, British Pound, and Mexican Peso.
 

(2)

Represents unrealized gains of $1,394 on the interest rate swaps, net of tax effect of $(349) for the three months ended September 30, 2023. 

 (3)Represents unfavorable impact from the strengthening of the U.S. dollar against foreign currencies during the three and nine months ended September 30, 2022, particularly the Euro and British Pound.
 (4)Represents unrealized gains of $18,404 on the interest rate swaps, net of tax effect of $(4,647) for the three months ended September 30, 2022.
 (5)Represents favorable impact from the weakening of the U.S. dollar against foreign currencies during the nine months ended September 30, 2023, particularly the Euro, British Pound, and Mexican Peso.
 (6)Represents unrealized gains of $3,081 on the interest rate swaps, net of tax effect of $(772) for the nine months ended September 30, 2023.
 (7)Represents unrealized gains of $52,995 on the interest rate swaps, net of tax effect of $(13,381) for the nine months ended September 30, 2022.

 

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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.

 

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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.

 

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8.   Balance Sheet Details

 

Inventories consist of the following:

 

  

September 30,

  

December 31,

 
  

2023

  

2022

 

Raw material

 $766,826  $798,340 

Work-in-process

  14,365   14,899 

Finished goods

  529,938   592,145 

Total

 $1,311,129  $1,405,384 

 

Property and equipment consists of the following:

 

  

September 30,

  

December 31,

 
  

2023

  

2022

 

Land and improvements

 $22,811  $22,589 

Buildings and improvements

  255,165   243,553 

Machinery and equipment

  261,170   229,593 

Dies and tools

  41,536   37,343 

Vehicles

  10,920   9,807 

Office equipment and systems

  178,364   148,166 

Leasehold improvements

  8,494   6,849 

Construction in progress

  59,536   52,522 

Gross property and equipment

  837,996   750,422 

Accumulated depreciation

  (326,103)  (282,818)

Total

 $511,893  $467,604 

 

Total property and equipment includes finance leases of $27,168 and $24,719 on  September 30, 2023, and  December 31, 2022, respectively, primarily consisting of buildings and improvements. Amortization of finance lease right of use assets is recorded within depreciation expense in the condensed consolidated statements of comprehensive income. The initial measurement of new finance lease right of use assets is accounted for as a non-cash item in the condensed consolidated statements of cash flows.

 

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9.   Product Warranty Obligations

 

The Company records a liability for standard product warranty obligations accounted for as assurance warranties at the time of sale of the product to a customer based upon historical warranty experience. The Company also records a liability for specific warranty matters when they become known and are reasonably estimable. The following is a tabular reconciliation of the Company’s standard product warranty liability accounted for as an assurance warranty:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Balance at beginning of period

 $122,222  $110,338  $138,011  $94,213 

Payments

  (24,427)  (22,677)  (76,069)  (54,135)

Provision for warranty issued

  18,136   19,076   51,353   62,169 

Changes in estimates for pre-existing warranties (1)

  3,630   38,571   6,266   43,061 

Balance at end of period

 $119,561  $145,308  $119,561  $145,308 

 

(1) Includes a specific warranty provision recorded during the third quarter of 2022 in the amount of $37,338 to address certain clean energy product warranty-related matters.

 

Additionally, the Company sells extended warranty coverage for certain products, which it accounts for as a service warranty. The sales of extended warranties are recorded as deferred revenue, and typically have a duration of five to ten years. The deferred revenue related to extended warranty coverage is amortized over the duration of the extended warranty contract period, following the standard warranty period, using the straight-line method. Revenue is recognized on extended warranty contracts when the revenue recognition criteria are met, resulting in ratable recognition over the contract term. The amortization of deferred revenue is recorded to net sales in the condensed consolidated statements of comprehensive income. The following is a tabular reconciliation of the deferred revenue related to extended warranty coverage:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Balance at beginning of period

 $140,922  $121,898  $132,813  $111,647 

Deferred revenue contracts issued

  10,615   10,324   30,774   31,202 

Amortization of deferred revenue contracts

  (6,414)  (5,470)  (18,464)  (16,097)

Balance at end of period

 $145,123  $126,752  $145,123  $126,752 

 

The timing of recognition of the Company’s deferred revenue balance related to extended warranties as of  September 30, 2023, is as follows:

 

Remainder of 2023

 $6,521 

2024

  27,066 

2025

  28,060 

2026

  24,554 

2027

  19,461 

After 2027

  39,461 

Total

 $145,123 

 

Standard product warranty obligations and extended warranty related deferred revenues are included in the condensed consolidated balance sheets as follows:

 

  

September 30,

  

December 31,

 
  

2023

  

2022

 

Product warranty liability

        

Current portion - Accrued product warranty

 $70,572  $89,141 

Long-term portion - other long-term liabilities

  48,989   48,870 

Total

 $119,561  $138,011 
         

Deferred revenue related to extended warranties

        

Current portion - other accrued liabilities

 $23,597  $30,291 

Long-term portion - Deferred revenue

  121,526   102,522 

Total

 $145,123  $132,813 

 
 

10.   Contract Balances

 

While the Company’s standard payment terms are less than one year, the specific payment terms and conditions in its customer contracts vary. In certain cases, the Company’s customers pay for their goods in advance. These prepayments are recognized as customer deposits (contract liabilities) and recorded in other accrued liabilities in the condensed consolidated balance sheets. The balance of customer deposits was $17,871 and $33,551 on  September 30, 2023, and December 31, 2022, respectively. During the nine months ended September 30, 2023, the Company recognized revenue of $30,252 related to amounts included in the December 31, 2022, customer deposit balance. The Company typically recognizes revenue within one year of the receipt of the customer deposit.

 

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11.   Credit Agreements

 

Short-term borrowings included in the condensed consolidated balance sheets as of September 30, 2023, and December 31, 2022, consisted of borrowings by the Company’s foreign subsidiaries on local lines of credit totaling $74,346 and $48,990, respectively.

 

Long-term borrowings are included in the condensed consolidated balance sheets as follows:

 

  

September 30,

  

December 31,

 
  

2023

  

2022

 

Tranche A Term Loan

 $750,000  $750,000 

Tranche B Term Loan

  530,000   530,000 

Original issue discount and deferred financing costs

  (13,666)  (16,568)

Revolving Facility

  200,000   90,000 

Finance lease obligation

  30,235   27,420 

Other

  5,909   966 

Total

  1,502,478   1,381,818 

Less: current portion of debt

  33,823   10,083 

Less: current portion of finance lease obligation

  3,514   2,650 

Total

 $1,465,141  $1,369,085 

 

Maturities of the Company's Tranche A Term Loan Facility, Tranche B Term Loan Facility, and Revolving Facility outstanding at September 30, 2023, are as follows:

 

  

Tranche A Term Loan

  

Tranche B Term Loan

  

Revolving Facility

  

Total

 

2023

 $9,375  $-  $-  $9,375 

2024

  28,125   -   -   28,125 

2025

  46,875   -   -   46,875 

2026

  65,625   530,000   -   595,625 

2027

  600,000   -   200,000   800,000 

Total

 $750,000  $530,000  $200,000  $1,480,000 

 

The Tranche B Term Loan Facility matures on December 13, 2026, while the Tranche A Term Loan Facility and Revolving Facility mature on June 29, 2027. The Tranche A Term Loan Facility principal is repayable in quarterly installments with the first maturity in  September 2023. Payment on the Tranche A Term Loan Facility is due on the last day of the quarter, or the following business day if the last day of the quarter is a non-business day. 

 

The Company’s credit agreements originally provided for a $1,200,000 term loan B credit facility ("Tranche B Term Loan Facility") and included a $300,000 uncommitted incremental term loan on that facility. The Tranche B Term Loan Facility initially bore interest at rates based on either a base rate plus an applicable margin of 1.75% or adjusted LIBOR rate plus an applicable margin of 2.75%, subject to a LIBOR floor of 0.75%. After a number of amendments, the Tranche B Term Loan Facility currently bears interest at rates based on either a base rate plus an applicable margin of 0.75% or adjusted Secured Overnight Financing Rate ("SOFR") rate plus an applicable margin of 1.75%, subject to a SOFR floor of 0.00%. The interest rate for the Tranche B Term Loan Facility as of September 30, 2023, was 7.18%. 

 

The Tranche B Term Loan Facility does not require an Excess Cash Flow payment if the Company’s net secured leverage ratio is maintained below 3.75 to 1.00. As of September 30, 2023, the Company’s net secured leverage ratio was 2.25 to 1.00, and the Company was in compliance with all covenants of the Tranche B Term Loan Facility. There are no financial maintenance covenants on the Tranche B Term Loan Facility.

 

In June 2022, the Company amended and restated its existing credit agreements ("Amended Credit Agreement") resulting in a new term loan facility in an aggregate principal amount of $750,000 ("Tranche A Term Loan Facility"), established a new revolving facility with an available borrowing amount of $1,250,000 ("Revolving Facility"), terminated the former asset-based lending facility ("ABL Facility"), and replaced all LIBOR provisions in the existing Tranche B Term Loan Facility with SOFR provisions. Proceeds received by the Company from the Tranche A Term Loan Facility were used to repay the total existing outstanding balance on the Company's former ABL Facility and to make a $250,000 voluntary prepayment on the Tranche B Term Loan Facility, with the remaining funds to be used for future general corporate purposes. As a result of these prepayments, the Company wrote off $3,546 of original issue discount and capitalized debt issuance costs during the second quarter of 2022 as a loss on extinguishment of debt in the condensed consolidated statements of comprehensive income. 

 

The Tranche A Term Loan Facility and the Revolving Facility initially bore interest at a rate based on adjusted SOFR plus an applicable margin of 1.5% through December 31, 2022, subject to a SOFR floor of 0.0%. Beginning on January 1, 2023, the Tranche A Term Loan Facility and the Revolving Facility bear interest at a rate based on adjusted SOFR plus an applicable margin between 1.25% and 1.75%, based on the Company's total leverage ratio and subject to a SOFR floor of 0.0%. The interest rate for the Tranche A Term Loan Facility and the Revolving Facility as of September 30, 2023, was 7.10%. 

 

The Tranche A Term Loan Facility and the Revolving Facility added certain financial covenants that require the Company to maintain a total leverage ratio below 3.75 to 1.00 as well as an interest coverage ratio above 3.00 to 1.00. As of September 30, 2023, the Company’s total leverage ratio was 2.37 to 1.00, and the Company's interest coverage ratio was 7.00 to 1.00. The Company was in compliance with all other covenants of the Amended Credit Agreement as of September 30, 2023. 

 

The Tranche B Term Loan Facility, Tranche A Term Loan Facility and Revolving Facility are guaranteed by substantially all of the Company’s wholly-owned domestic restricted subsidiaries and are secured by associated collateral agreements which pledge a first priority lien on virtually all of the Company’s assets, including fixed assets and intangibles, cash, trade accounts receivable, inventory, and other current assets and proceeds thereof. 

 

In connection with the June 2022 refinancing and in accordance with ASC 470-50, the Company capitalized $10,330 of fees paid to creditors as deferred financing costs on long-term borrowings and expensed $800 of transaction fees. The Company evaluated on a lender-by-lender basis if the debt related to returning lenders on the Revolving Facility was significantly modified or not, resulting in the write-off of $197 in unamortized deferred financing costs related to the former ABL Facility as a loss on extinguishment of debt in the condensed consolidated statements of comprehensive income. 

 

As of September 30, 2023, there was $200,000 outstanding under the Revolving Facility, leaving $1,049,945 of unused capacity, net of outstanding letters of credit. Total availability on the Revolving Facility is reduced to $822,111 under the Company's most restrictive debt covenants. 

 

See Note 4, "Derivative Instruments and Hedging Activities" and Item 7A of the Annual Report on Form 10-K for further information on interest rate swaps that are currently outstanding and partially offset the above interest rate expense. 

 

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12.   Stock Repurchase Program

 

In September 2020, the Company’s Board of Directors approved a stock repurchase program, which commenced on October 27, 2020, and allowed for the repurchase of up to $250,000 of the Company's common stock over a 24-month period. That program was exhausted in the third quarter of 2022. In  July 2022, the Company's Board of Directors approved another stock repurchase program, which commenced on August 5, 2022, and allows for the repurchase of up to $500,000 of the Company's common stock over a 24-month period. Pursuant to the approved program, the Company may repurchase its common stock from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions and other considerations. The repurchases may be executed using open market purchases, privately negotiated agreements or other transactions. The actual timing, number and value of shares repurchased under the program will be determined by management at its discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, applicable legal requirements, and compliance with the terms of the Company’s credit agreements. The repurchases may be funded with cash on hand, available borrowings, or proceeds from potential debt or other capital markets sources. The stock repurchase program may be suspended or discontinued at any time without prior notice. During the third quarter of 2023, the Company repurchased 875,580 shares of its common stock for $100,267. There were no share repurchases under the program during the first and second quarters of 2023. During the third quarter of 2022, the Company repurchased 536,633 shares of its common stock for $123,900. There were no share repurchases under the program during the first and second quarters of 2022. Since the inception of all stock repurchase programs (starting in August 2015), the Company has repurchased 12,624,293 shares of its common stock for $877,396 (at an average cost per share of $69.50). Periodically, the Company has reissued shares out of Treasury stock, including for earnout payments. 

 
 

13. Earnings Per Share

 

Basic earnings per share is calculated by dividing net income attributable to the common shareholders of the Company by the weighted average number of common shares outstanding during the period, exclusive of restricted shares. Except where the result would be anti-dilutive, diluted earnings per share is calculated by assuming the vesting of unvested restricted stock and the exercise of stock options, as well as the satisfaction of certain contingent consideration conditions as of the end of the period. Refer to Note 3, “Redeemable Noncontrolling Interest”, to the condensed consolidated financial statements for further information regarding the accounting for redeemable noncontrolling interests within earnings per share.

 

The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Numerator

                

Net income attributable to Generac Holdings Inc.

 $60,377  $58,270  $118,005  $328,487 

Redeemable noncontrolling interest redemption value adjustment

  (46)  (5,225)  (10,883)  (30,817)

Net income attributable to common shareholders

 $60,331  $53,045  $107,122  $297,670 
                 

Denominator

                

Weighted average shares, basic

  61,368,440   63,249,881   61,552,949   63,480,161 

Dilutive effect of stock compensation awards (1)

  722,723   1,006,814   809,794   1,139,242 

Dilutive effect of contingently issued shares

  -   10,943   -   10,943 

Diluted shares

  62,091,163   64,267,638   62,362,743   64,630,346 
                 

Net income attributable to common shareholders per share

                

Basic

 $0.98  $0.84  $1.74  $4.69 

Diluted

 $0.97  $0.83  $1.72  $4.61 

 

(1) Excludes approximately 370,000 and 344,000 stock options and restricted stock awards for the three and nine months ended September 30, 2023,respectively, because they would be anti-dilutive. Excludes approximately 85,000 and 44,000 stock options and restricted stock awards for the three and nine months ended September 30, 2022, respectively, because they would be anti-dilutive. 

 
 

14. Income Taxes

 

The effective income tax rates for the nine months ended September 30, 2023 and 2022, were 26.4% and 20.4%, respectively. The increase in the effective tax rate was primarily due to a significantly lower benefit from equity compensation coupled with lower year-over-year pre-tax book income in the current year, and certain favorable discrete tax items in the prior year which did not repeat.

 
 

15. Commitments and Contingencies

 

The Company has an arrangement with a finance company to provide floor plan financing for certain dealers. The Company receives payment from the finance company after shipment of product to the dealer. The Company participates in the cost of dealer financing up to certain limits and has agreed to repurchase products repossessed by the finance company, but does not indemnify the finance company for any credit losses they incur. The amount financed by dealers which remained outstanding under this arrangement on September 30, 2023, and December 31, 2022, was $168.5 million and $212.2 million, respectively.

 

On August 1, 2022, Power Home Solar, LLC d/b/a Pink Energy (“PHS”) filed a lawsuit in the Western District of Virginia against Generac Power Systems, Inc., a wholly-owned subsidiary of the Company (“Generac Power”). The complaint alleges breaches of warranty, product liability, and other various causes of action against Generac Power relating to the sale and performance of certain clean energy equipment and seeks to recover damages, including consequential damages, that PHS allegedly incurred. The Company disputes the allegations in the complaint, including that PHS can seek consequential damages or amounts greater than the $25.0 million liability cap set forth in the agreement between the parties. On September 23, 2022, Generac Power moved to dismiss the complaint and compel arbitration consistent with the parties’ agreement. On October 7, 2022, PHS filed a Chapter 7 bankruptcy petition in the Western District of North Carolina that identified Generac Power as one of its outstanding creditors. The petition listed a $17.7 million liability to Generac Power, which PHS characterized as disputed. The $17.7 million claim relates to equipment that Generac Power sold to PHS but was not paid for. After filing of the bankruptcy petition, the parties filed a joint motion to toll PHS’s deadline to respond to the motion to dismiss and all other pretrial deadlines to allow the bankruptcy trustee to evaluate the complaint, which motion was granted on October 11, 2022. The Trustee has not yet taken further action in this lawsuit. Generac Power intends to vigorously defend against the claims in the complaint, in whichever forum they may proceed.

 

On October 28, 2022, Daniel Haak filed a putative class action lawsuit against Generac Power in the Middle District of Florida. The complaint alleges breaches of warranty, tort-based, and unjust enrichment claims against Generac Power relating to the sale and performance of certain clean energy products, and seeks to recover damages, including consequential damages, that the plaintiff and putative class allegedly incurred. Generac Power disputes the allegations and intends to vigorously defend against the claims in the complaint, including that plaintiff and the putative class can seek consequential damages.

 

Eight additional putative class actions were filed by consumers of Generac clean energy products between November 21, 2022 and July 5, 2023. These complaints assert claims for breaches of warranty, tort-based, statutory, and unjust enrichment claims against Generac Power and/or the Company and seek to recover damages, including consequential damages, that plaintiffs and putative classes allegedly incurred. In some of these cases, the Company as well as Generac Power has been named as a defendant. The cases were filed in or removed to the federal district courts for the Eastern District of Wisconsin (Basler, et al. v. Generac Power Systems, Inc., Case No. 22-cv-01386; Dillon v. Generac Power Systems, Inc., Case No. 23-cv-00034; Kates v. Generac Power Systems, Inc., et al., Case No. 23-cv-00892; and Zukas, et al., v. Generac Power Systems, Inc., et al., Case No. 23-cv-00874), the Northern District of California (Moon v. Generac Power Systems, Inc., et al., Case No. 22-cv-09183; Hufton, et al., v. Generac Power Systems, Inc., et al., Case No. 23-cv-02462), the Eastern District of California (Locatell v. Generac Power Systems, Inc., et al., Case No. 23-cv-00203), and the Eastern District of North Carolina (Baltimore, et al. v. Generac Power Systems, Inc., Case No. 23-cv-00217). Generac Power and the Company dispute the allegations and intend to vigorously defend against the claims in the complaints.

 

On March 3, 2023, the plaintiff in the Moon case filed a motion (the “MDL Motion”) to transfer that case and other pending putative class actions seeking relief for alleged harm purportedly arising in connection with a Generac clean energy product, to a proposed multidistrict litigation. The Judicial Panel on Multidistrict Litigation issued orders that ultimately resulted in all of the putative class actions being coordinated and consolidated for pretrial proceedings in the Eastern District of Wisconsin. Plaintiffs filed their consolidated master complaint on September 1, 2023, and the Company moved to dismiss on October 31, 2023. Generac Power and the Company intend to vigorously defend against the consolidated master complaint.

 

On December 1, 2022, Oakland County Voluntary Employees’ Beneficiary Association and Oakland County Employees’ Retirement System filed a putative securities class action lawsuit against the Company and certain of its officers in the Eastern District of Wisconsin. On January 20, 2023, the California Ironworkers Field Pension Trust filed a related putative securities class action, also in the United States District Court for the Eastern District of Wisconsin. Both complaints assert claims for alleged violation of federal securities law related to disclosures of quality issues in Generac Power’s clean energy product, reliance on channel partners, and accounting for warranty reserves. The plaintiffs seek to represent a class of individuals who purchased or otherwise acquired common stock between April 29, 2021 and November 1, 2022 and seek unspecified compensatory damages and other relief on behalf of a purported class of purchasers of the Company’s stock. On March 14, 2023, the court consolidated the two actions. On May 30, 2023, the court appointed a lead plaintiff. On July 31, 2023, the lead plaintiff filed a consolidated complaint, which raised an additional claim for alleged violation of federal securities law related to the Company’s disclosures concerning demand for home standby generators. The Company moved to dismiss the consolidated complaint on October 9, 2023. The Company disputes the allegations in the operative consolidated complaint and intends to vigorously defend against the claims in the consolidated class action.

 

On February 3, 2023, a purported Company shareholder filed a shareholder derivative action against certain of the Company’s officers and directors in the United States District Court for the Eastern District of Wisconsin. The complaint seeks unspecified damages on behalf of the Company and certain other relief, such as certain reforms to corporate governance practices. The complaint (in which the Company is named as a nominal defendant) generally alleges, among other things, breaches of fiduciary duties in connection with the oversight of the Company’s public statements and legal compliance, and that the Company was damaged as a result of the breaches of fiduciary duties, and the defendants were unjustly enriched. The complaint also alleges, among other things, violations of Sections 14(a), 10(b) and 20(a) of the Securities Exchange Act of 1934, abuse of control, gross mismanagement, and waste of corporate assets. On March 6, 2023, a second shareholder derivative action, making substantially similar allegations, was filed in the same court against certain of the Company’s officers and directors. The complaint (in which the Company is named as a nominal defendant) asserts a single claim for breach of fiduciary duty and seeks unspecified damages on behalf of the Company and certain other relief. On May 2, 2023, the court consolidated the two actions. On May 30, 2023, the court entered an order staying the consolidated action.

 

Between March 20, 2023, and April 11, 2023, three shareholder derivative actions were filed in the Circuit Court of Waukesha County, Wisconsin. The complaints (in which the Company is named as a nominal defendant) assert breaches of fiduciary duty and unjust enrichment, among other claims, based generally on alleged misrepresentations in the Company’s public statements and filings relating to the Company’s clean energy product, reliance on channel partners, and accounting for warranty reserves, among other allegations. Each complaint seeks unspecified damages on behalf of the Company and certain other relief, including certain corporate governance reforms. On June 1, 2023, the court entered an order consolidating the three actions, appointing lead plaintiffs’ counsel, and staying the consolidated actions. The Company disputes the allegations in the shareholder derivative actions and intends to vigorously defend against the claims in the complaints.

 

On  October 28, 2022, Generac Power received a grand jury subpoena from the U.S. Attorney for the Eastern District of Michigan, as a result of which the Company became aware of an enforcement investigation by the U.S. Department of Justice (“DOJ”). The subpoena requests similar documents and information provided by the Company to the U.S. Environmental Protection Agency (“EPA”) and the California Air Resources Board (“CARB”) in response to civil document requests related to the Company’s compliance with emissions regulations for approximately 1.85 thousand portable generators produced by the Company in 2019 and 2020 and sold in 2020. The Company is cooperating with both the DOJ and the EPA and CARB inquiries.

 

On  November 30, 2022, the U.S. CPSC notified the Company of its intention to recommend the imposition of a civil penalty for failing to timely submit a report under section 19(a)(4) of the CPSA, 15 U.S.C. § 2068(a)(4), in relation to certain portable generators that were subject to a voluntary recall previously announced on  July 29, 2021. On May 3, 2023, the parties entered into a mutual settlement agreement. The agreement does not constitute an admission by Generac or a determination by the CPSC that Generac violated the CPSA. The terms of the settlement agreement require the Company to (i) abide by certain customary agency requirements regarding the ongoing commitment to the Company’s internal CPSA compliance practices and program, and (ii) pay a civil fine of $15.8 million. On July 21, 2023, Generac Power received a grand jury subpoena from the U.S. Attorney for the Eastern District of Wisconsin, as a result of which the Company became aware of a continuing inquiry by the DOJ related to its statutory obligations under the CPSA in connection with this matter. The Company is cooperating fully with this investigation and, at this time, is unable to predict the eventual scope, duration or final outcome of such investigation.

 

In 2019, EcoFactor, Inc. started a litigation campaign against smart thermostat manufacturers, including ecobee, Inc., which was acquired by the Company in 2021. EcoFactor accused ecobee of infringing its patents in three lawsuits filed in the United States District Court for the Western District of Texas and one lawsuit pending in the United States District Court for the District of Delaware. On June 23, 2023, a jury issued a verdict in a consolidated action in the Western District of Texas (Case Nos. 21-cv-00428-ADA and 20-cv-00078-ADA) finding that ecobee infringed one of the two patents at issue and awarded a lump-sum payment of $5.4 million for past and future damages. On August 23, 2023, the court issued its final judgment in favor of EcoFactor for $5.4 million, on a total lump-sum basis, together with interest and costs. ecobee filed a motion for judgment as a matter of law and intends to appeal the judgment. There are presently two remaining trials involving EcoFactor. EcoFactor claims ecobee infringes two patents in Case No. 22-cv-00033-ADA, which is scheduled for a jury trial in the Western District of Texas on September 16, 2024, and accuses ecobee of infringing three patents in Case No. 21-cv-00323-ADA, which is currently scheduled for trial on December 11, 2023, in the District of Delaware. ecobee denies infringement and intends to vigorously defend each of the lawsuits.

 

On March 8, 2022, Ollnova Technologies Limited, a non-practicing entity, filed a patent infringement lawsuit against ecobee in the United States District Court for the Eastern District of Texas (Case No. 22-cv-00072-JRG). Ollnova claimed that ecobee infringes on four of its patents. On October 5, 2023, a jury issued a verdict finding one of Ollnova’s patents invalid and that ecobee infringed at least one of the claims of the asserted patents and awarded a lump-sum payment of $11.5 million. ecobee intends to file motions for judgment as a matter of law and an appeal of any adverse verdict.

 

On June 9, 2023, Spartronics Vietnam, Inc., a contract manufacturer of Generac Power’s clean energy products, filed two lawsuits against Generac Power and sub-suppliers accusing Generac Power of fraud, breaching its supply agreement with Spartronics, tortiously interfering with Spartronics’ relationships with its sub-suppliers, and requesting a determination of rights under the parties’ agreements (Spartronics Vietnam, Inc. v. Generac Power Systems, Inc., et al., Case No. 23-cv-00957-MWB (M.D. Pa.); Spartronics Vietnam, Inc. v. Generac Power Systems, Inc., et al., Case No. GD-23-7206 (Pa. Allegheny Cnty.)). Spartronics made similar claims against Generac Power in third-party complaints in lawsuits Spartronics is defending brought by its suppliers (EXIM & Mfr Enter. v. Spartronics Vietnam, Inc., Case No. 23-cv-00660-MWB (M.D. Pa.); JC Global, Inc. v. Spartronics (M.D. Fla. 23-cv-1155); and Circuit Interruption Tech. v. Spartronics Vietnam, Inc., Case No. 23-cv-2140-WMW-DLM (D. Minn.)). Generac Power denies the allegations in the complaints, including that Generac Power is responsible for Spartronics purchasing practices, and has sought and will seek dismissal of the actions in favor of arbitration, as required by Generac Power’s supply agreement with Spartronics, and intends to pursue available claims in connection with the arbitration. 

 

In the opinion of management, it is presently unlikely that any legal or regulatory proceedings pending against or involving the Company will have a material adverse effect on the Company’s financial condition, results of operations or cash flows. However, in many of these matters, it is inherently difficult to determine whether a loss is probable or to estimate the size or range of the possible loss given the variety and potential outcomes of actual and potential claims, the uncertainty of future rulings, the behavior or incentives of adverse parties, and other factors outside the control of the Company. Accordingly, the Company’s loss reserves may change from time to time, and actual losses could exceed the amounts reserved by an amount that could be material to the Company’s consolidated financial position, results of operations or cash flows in any particular reporting period.

 

 

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Item 2.          Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This quarterly report contains forward-looking statements that are subject to risks and uncertainties. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “forecast,” “project,” “plan,” “intend,” “believe,” “confident,” “may,” “should,” “can have,” “likely,” “future,” “optimistic” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

 

The forward-looking statements contained in this quarterly report are based on assumptions that we have made in light of our industry experience and on our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this report, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. The forward-looking statements contained in this quarterly report include estimates regarding:

 

 

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our business, financial and operating results, and future economic performance; 
 

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proposed new product and service offerings; and 
 

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management's goals, expectations, objectives, and other similar expressions concerning matters that are not historical facts.

 

Factors that could affect our actual financial results and cause them to differ materially from those anticipated in the forward-looking statements include:

 

 

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frequency and duration of power outages impacting demand for our products;
 

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fluctuations in cost and quality of raw materials required to manufacture our products;
  ● availability of both labor and key components from our manufacturing operations and global supply chain, including single-sourced components and contract manufacturers, needed in producing our products;
 

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the possibility that the expected synergies, efficiencies and cost savings of our acquisitions will not be realized, or will not be realized within the expected time period;
 

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the risk that our acquisitions will not be integrated successfully;
  ● the impact on our results of possible fluctuations in interest rates, foreign currency exchange rates, commodities, product mix, logistics costs and regulatory tariffs;
 

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difficulties we may encounter as our business expands globally or into new markets;
 

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our dependence on our distribution network;
 

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 our ability to remain competitive by investing in, developing or adapting to changing technologies and manufacturing techniques, as well as protecting our intellectual property rights;
 

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loss of our key management and employees;
 

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increase in product and other liability claims or recalls;
 

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failures or security breaches of our networks, information technology systems, or connected products;
 

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 changes in laws and regulations regarding environmental, health and safety, product compliance, or international trade that affect our products, operations, or customer demand;
  ● significant legal proceedings, claims, lawsuits, or government investigations; and
  ● changes in durable goods spending by consumers and businesses or other macroeconomic conditions, impacting demand for our products. 

 

Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual results may vary in material respects from those projected in any forward-looking statements. A detailed discussion of these and other factors that may affect future results is contained in our filings with the Securities and Exchange Commission, including in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 and in Part II, Item 1A of this Quarterly Report on Form 10-Q. Stockholders, potential investors and other readers should consider these factors carefully in evaluating the forward-looking statements.

 

Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

 

Overview

 

Generac is a leading energy technology solutions company that provides backup and prime power generation systems for residential and commercial and industrial (C&I) applications, solar and battery storage solutions, energy management devices and energy services, advanced power grid software platforms, and engine and battery-powered tools and equipment. As an energy technology solutions company that is “Powering a Smarter World”, our corporate purpose is to lead the evolution to more resilient, efficient, and sustainable energy solutions around the world.

 

We have a long history of providing power generation products across a variety of applications, and we maintain one of the leading market positions in the power equipment markets in North America and an expanding presence internationally. We believe we have one of the widest ranges of products in the power generation marketplace, including residential, commercial and industrial standby generators; as well as portable and mobile generators used in a variety of applications. In recent years, the Company has been evolving its business model to focus on building out an ecosystem of energy technology products, solutions, and services for home and business purposes. As part of this evolution, we have made significant investments into rapidly growing markets such as residential clean energy storage, solar module-level power electronics (MLPE), and energy monitoring and management devices, all of which are distributed energy resources (DERs) that can be aggregated into virtual power plants (VPPs) within grid services programs. In addition, we have been leveraging our leading position in the growing market for natural gas fueled generators to expand into applications beyond standby power, allowing us to participate in Energy-as-a-Service and microgrid projects for C&I customers. We believe natural gas represents a cleaner transition fuel to more renewable and energy storage sources compared to diesel.

 

We have also made investments in next-generation platforms and controls for both residential and C&I applications that facilitate the connection of our products to the grid. Expanding these capabilities will enable the increasing utilization of our equipment as DERs as the nascent market for grid services expands over the next several years. Our growing presence in grid services programs will enhance the value of our power generation and storage products that might otherwise sit idle, as they are now able to be dispatched and orchestrated as part of a distributed energy solution, thereby generating additional return-on-investment for the home or business owner while also delivering value to utilities and grid operators by helping to balance, support and enhance the reliability of the electrical grid. As the traditional centralized utility model evolves over time, we believe that a more decarbonized, digitized, and decentralized grid infrastructure will develop, and Generac’s energy technology solutions are uniquely and strategically positioned to participate in this next-generation grid referred to as “Grid 2.0”.

 

As our traditional power generation markets remain impacted by multiple mega-trends that are driving increased penetration of our products, we believe we are in an excellent position to execute on this opportunity given our competitive strengths. In addition, our focus on more resilient, efficient and sustainable energy solutions has dramatically increased our served addressable market, and as a result, we believe that Generac is well-positioned for success over the long-term.

 

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Mega-Trends, Strategic Growth Themes, and Additional Business Drivers

 

In 2021, we unveiled our “Powering A Smarter World” strategic plan, which serves as the framework for the significant investments we have made and will continue to make to capitalize on the long-term growth prospects of Generac. Our enterprise strategy is based on a number of key mega-trends that we believe will drive several significant strategic growth themes for our business. See our Annual Report on Form 10-K for the year ended December 31, 2022 for more information on our "Powering A Smarter World" strategic plan.

 

Key Mega-Trends:

 

 

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 “Grid 2.0”: which is the evolution of the traditional electrical utility model as supply/demand imbalances are created due to the accelerating adoption of renewable energy generation and the “electrification of everything” in society’s energy consumption. It includes the decarbonization, digitization, and decentralization of the grid and a migration toward distributed energy resources that is expected to drive demand for a variety of clean energy and grid services solutions going forward.
 

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 Impact of climate change: which includes the expectation of more volatile and severe weather driving increased power outage activity, and more global regulation accelerating renewable investments. 
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Natural gas as an important transition fuel to the future: as natural gas will remain in demand as a source of cleaner, reliable power generation for backup power and beyond standby applications, compared to diesel fuel. 
  ● Legacy infrastructure needs a major investment cycle: to rebuild and upgrade aging networks and systems including transportation, water and power.
  ● Telecommunications infrastructure shifting to next generation: which involves the “5G” architecture that will enable new technologies requiring significant improvement in network uptime through backup power solutions.
  ● Home as a Sanctuary: in recent years, there has been a trend of more people working, shopping, entertaining, aging in place, and generally spending more time at home. As a result of this and the “electrification of everything” trend, homeowners are becoming increasingly sensitive to power outages due to lost productivity and functionality. These trends combined with ongoing elevated power outage activity has led to significantly increased awareness regarding the importance and need for backup power security.

 

Strategic Growth Themes:

 

Power quality issues continue to increase. Power disruptions are an important driver of consumer awareness for back-up power and have historically influenced demand for generators, both in the United States and internationally. Increased frequency and duration of major power outage events, that have a broader impact beyond a localized level, increase product awareness and may drive consumers to accelerate their purchase of a standby or portable generator during the immediate and subsequent period, which we believe may last for six to twelve months following a major outage event. Energy storage systems offer similar resiliency advantages to consumers and can benefit from these same awareness drivers, at least for short duration power outages. The optional standby market for C&I power generation is also driven by power quality issues and the related need for backup power. Attitudes around climate change have shifted and undergone increased global focus, and an aging and underinvested electrical grid infrastructure remains highly vulnerable to the expectation of more volatile and severe weather. Additionally, rapid growth in renewable power sources such as solar and wind is resulting in increased intermittency of supply, further impairing the reliable supply of electricity at a time when demand is starting to increase meaningfully with the electrification of a wide range of consumer and commercial products, including transportation, HVAC systems, and other major appliances. These developments are causing a growing supply/demand imbalance for grid operators across North America, which has led to recent high-profile examples of rolling blackouts necessary to maintain grid integrity. In fact, the North American Electric Reliability Corporation has labeled significant portions of the continent as being at high risk of resource adequacy shortfalls during normal seasonal peak conditions in the 2023-2027 period due in part to these supply/demand dynamics. Further, in California, Public Safety Power Shutoff events have occurred whereby public utilities are turning off power supply to their customers under certain circumstances to prevent their transmission equipment from starting wildfires, which we anticipate may continue in the future. Taken together, we expect these factors to continue driving increased awareness and demand for Generac’s products within multiple categories.

 

Home standby penetration opportunity is significant. Many potential customers are still not aware of the costs and benefits of automatic backup power solutions. With only approximately 5.75% penetration of the addressable market of homes in the United States (which we define as single-family detached, owner-occupied households with a home value of over $150,000, as defined by the U.S. Census Bureau's 2021 American Housing Survey for the United States), we believe there are significant opportunities to further penetrate the residential standby generator market both domestically and internationally. We believe by expanding our distribution network, continuing to develop our product lines, and targeting our marketing efforts, we can continue to build awareness and increase penetration for our home standby generators. Additionally, Smart Grid Ready capabilities have the potential to turn an asset previously utilized only in emergency power outage situations into a source of recurring revenue for the homeowner and a contributor to grid stability for utilities and grid operators, therefore driving incremental interest in the product category.

 

Solar, storage, and energy management markets developing quickly. We believe the electric utility landscape will undergo significant changes in the decade ahead due to rising utility rates, grid instability and power quality issues, environmental concerns, and the continuing performance and cost improvements in renewable energy and batteries. On-site power generation from renewable sources such as solar and wind, and cleaner-burning natural gas generators, is projected to become more prevalent as will the need to monitor, manage, and store this power – potentially developing into a significant market opportunity. We expect to further advance our capabilities in clean energy by increasing our product development, sourcing, distribution, and marketing efforts, as we leverage our significant competencies in the residential standby generator market to augment our market position in the emerging residential solar, storage, monitoring and management markets. Additionally, these markets are receiving an increasing level of regulatory and legislative support, most notably from the Inflation Reduction Act that was passed in 2022. This legislation includes significant subsidies and investment tax credits for consumers and business over the coming decade and provides necessary opportunity for long-term, value-creating investments for market participants.

 

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Grid services and Energy-as-a-Service open new revenue streams.  We expect the evolution of the traditional electrical utility model toward decarbonized, digitized, and decentralized solutions will continue to drive the need for grid operators to access and control DERs. This will require highly intelligent software platforms that are able to optimize an increasingly complex supply and demand equation, such as our Concerto software platform. As the grid services market matures, Generac will continue to explore opportunities beyond the traditional software-as-a-service subscription model, including but not limited to the aggregation and sale of power from a fleet of DERs in performance-based contracts, wholesale power market participation, turn-key solutions that combine hardware and software with services, and other monitoring and management services. Additionally, growing interest in our C&I products across a variety of “beyond standby” applications is driving an increase in demand for subscription-like models for end customers, in which Generac will partner with third parties to deliver peace of mind and resiliency solutions while also enabling contributions to grid stability with minimal upfront capital outlays. The significant advancements made in recent years in the connectivity of our products is core to these newer capabilities, which play a key role in the evolution of Generac into an energy technology solutions company.

 

Natural gas generators driving growth.  We believe natural gas will continue to be an important and cleaner transition fuel of the future, in comparison to diesel, as the world continues to shift towards lower emission power generation sources. Demand for natural gas generators continues to represent an increasing portion of the overall C&I market, which we believe will continue to grow at a faster rate than traditional diesel fueled generators. We also continue to explore and expand our capabilities within new gaseous generator market opportunities, including continuous-duty, prime rated, distributed generation, demand response, microgrids and overall use as a distributed energy resource in areas where grid stability is needed. Many of these applications are made possible by our natural gas generators having Smart Grid Ready capabilities, which allows for end users to participate in available grid services programs, helping to offset the purchase price of the equipment over the product’s lifespan. Expanding our natural gas product offering into larger power nodes is also a part of this growth theme in taking advantage of the continuing shift from diesel to natural gas generators.

 

Rollout of 5G will require improved network quality.  As the number of “connected” devices continues to rapidly increase and wireless networks are now being considered critical infrastructure in the United States, network reliability and up-time are necessary for our increasingly connected society. This will require highly resilient cell tower sites across the network, and therefore necessitates the need for backup power sources on site at these cell towers. Generac is the leading supplier of backup power to the telecommunications market in the United States, where approximately half of all existing tower sites have yet to be hardened with backup power. As more mission-critical data is transmitted over wireless networks, we believe this penetration rate must increase considerably to maintain a higher level of reliability across the network. Increased adoption of high-speed wireless networks around the globe may lead to similar demand trends internationally as growing cell tower density and the need for onsite backup power expand the market opportunity for our international telecom products. We have relationships with key Tier 1 carriers and tower companies globally in addition to having the distribution partners to support the global market from a service standpoint. We believe these factors coupled with Generac’s ability to customize solutions to each customer’s needs help us to maintain our strength within the global telecommunications market.

 

Other Business Drivers

 

Impact of residential investment cycle. The market for a number of our residential products is affected by the residential investment cycle and overall consumer confidence and sentiment. When homeowners are confident of their household income, the value of their home and overall net worth, they are more likely to invest in their home. These trends can have an impact on demand for residential generators and energy storage systems. Trends in the new housing market, highlighted by residential housing starts, can also impact demand for these products. Softer consumer spending for home improvement continued in the quarter as expected, impacting demand for residential product shipments. Demand for outdoor power equipment is also impacted by several of these factors, as well as weather patterns. Finally, the existence of renewable energy mandates, investment tax credits and other subsidies, which have become even more prevalent with the recent passing of the Inflation Reduction Act, can also have an impact on the demand for solar and energy storage systems. 

 

Impact of business capital investment and other economic cycles. The global market for our commercial and industrial products is affected by different capital investment cycles, which can vary across the numerous regions around the world in which we participate. These cycles include non-residential building construction, durable goods and infrastructure spending, as well as investments in the exploration and production of oil & gas, as businesses or organizations either add new locations or make investments to upgrade existing locations or equipment. These trends and market conditions can have a material impact on demand for these products. The capital investment cycle may differ for the various commercial and industrial end markets that we serve including light commercial, retail, office, telecommunications, industrial, data centers, healthcare, construction, oil & gas and municipal infrastructure, among others. The market for these products is also affected by general economic and geopolitical conditions in the countries where we serve, as well as credit availability in those regions.

 

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Factors Affecting Results of Operations

 

We are subject to various factors that can affect our results of operations, which we attempt to mitigate through factors we can control, including continued product development, expanded distribution, pricing, cost control, and hedging. Certain operational and other factors that affect our business include the following:

 

Effect of commodity, currency, component price fluctuations, and resource availability.    Industry-wide price fluctuations of key commodities, such as steel, copper and aluminum, along with other components we use in our products, as well as changes in labor costs required to produce our products, can have a material impact on our results of operations. Acquisitions in recent years have increased our use of advanced electronic components and battery cells, as well as further expanded our commercial and operational presence outside of the United States. Our international acquisitions, along with our existing global supply chain, expose us to fluctuations in foreign currency exchange rates and regulatory tariffs that can also have a material impact on our results of operations. 

 

We have historically attempted to mitigate the impact of any inflationary pressures through improved product design and sourcing, manufacturing efficiencies, price increases, and select hedging transactions. We have implemented multiple price increases over the past couple of years to help mitigate the impact of rising costs, and we continue to realize the benefit of these pricing actions in 2023. Our results are also influenced by changes in fuel prices in the form of freight rates, which in some cases are accepted by our customers and in other cases are paid by us.

 

Seasonality.    Although there is demand for our products throughout the year, in each of the past five years, approximately 19% to 25% of our net sales occurred in the first quarter, 22% to 28% in the second quarter, 24% to 28% in the third quarter and 23% to 31% in the fourth quarter, with different seasonality depending primarily on the occurrence, timing and severity of major power outage activity in each year. Major outage activity is unpredictable by nature and, as a result, our sales levels and profitability may fluctuate from period to period. The seasonality experienced during a major power outage, and for the subsequent quarters following the event, will vary relative to other periods where no major outage events occurred. 

 

Russia-Ukraine Conflict.    In February 2022, Russia commenced military action against Ukraine. In response, the U.S. and certain other countries imposed significant sanctions and export controls against Russia, Belarus and certain individuals and entities connected to Russian or Belarusian political, business, and financial organizations. In March 2022, we announced our suspension of operations and sales in Russia. Our sales to customers in Russia and Ukraine represented less than 1% of our total revenue for the year ended December 31, 2021, and therefore the impact on our financial results has not been and is not expected to be material. However, the situation remains uncertain, and it is difficult to predict the impact that the conflict and actions taken in response to the conflict will have on our business. In particular, the situation could increase our costs, disrupt our supply chain, significantly hinder our ability to find materials or key single-sourced components we need to make certain products, or otherwise adversely affect our business and results of operations. 

 

Factors influencing interest expense.    Interest expense can be impacted by a variety of factors, including market fluctuations in SOFR, interest rate election periods, interest rate swap agreements, repayments or borrowings of indebtedness, and amendments to our credit agreements. In connection with our credit agreement amendment in June 2022, SOFR became the new benchmark interest rate for the new Tranche A Term Loan Facility and the Revolving Facility, and all LIBOR provisions in the existing Tranche B Term Loan Facility were replaced with SOFR provisions. During the nine months ended September 30, 2023, interest expense increased compared to the nine months ended September 30, 2022, primarily due to higher interest rates and borrowings. Refer to Note 11, “Credit Agreements,” to the condensed consolidated financial statements for further information.

 

Factors influencing provision for income taxes and cash income taxes paid.   The increase in the effective tax rate was primarily due to a significantly lower benefit from equity compensation coupled with lower year-over-year pre-tax book income in the current year, and certain favorable discrete tax items in the prior year which did not repeat. On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (the Act). The Act in part provides funding and tax incentives for certain clean energy products and projects. While the Act did not impact the current quarter results, we will continue to review the Act and any regulations or guidance issued by the U.S. Treasury Department or by a state which may provide a tax benefit or expense. We will update our future tax provisions based on new regulations or guidance accordingly. 

 

Acquisitions.   Over the years, we have executed a number of acquisitions that support our strategic plan. A summary of the recent acquisitions can be found in Note 1, “Description of Business and Basis of Presentation,” to the condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q, and in Item 8 (Note 1, “Description of Business”) of the Annual Report on Form 10-K for the year ended December 31, 2022. 

 

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Results of Operations

 

Three months ended September 30, 2023, compared to the three months ended September 30, 2022

 

The following table sets forth our consolidated statements of operations information for the periods indicated:

 

   

Three Months Ended September 30,

                  

(U.S. Dollars in thousands)

  

2023

    

2022

    

$ Change

    

% Change

  
                                 

Net sales

   $ 1,070,667     $ 1,088,258     $ (17,591 )     -1.6 %

Costs of goods sold

     694,880       727,154       (32,274 )     -4.4 %

Gross profit

     375,787       361,104       14,683       4.1 %

Operating expenses:

                                

Selling and service

     117,929       170,381       (52,452 )     -30.8 %

Research and development

     43,312       39,985       3,327       8.3 %

General and administrative

     83,052       37,464       45,588       121.7 %

Amortization of intangible assets

     26,718       25,751       967       3.8 %

Total operating expenses

     271,011       273,581       (2,570 )     -0.9 %

Income from operations

     104,776       87,523       17,253       19.7 %

Total other expense, net

     (24,714 )     (15,483 )     (9,231 )     -59.6 %

Income before provision for income taxes

     80,062       72,040       8,022       11.1 %

Provision for income taxes

     19,428       11,594       7,834       67.6 %

Net income

     60,634       60,446       188       0.3 %

Net income attributable to noncontrolling interests

     257       2,176       (1,919 )     -88.2 %

Net income attributable to Generac Holdings Inc.

   $ 60,377     $ 58,270     $ 2,107       3.6 %

 

The following tables set forth our reportable segment information for the periods indicated:
  

   

Net Sales by Reportable Segment

                  
   

Three Months Ended September 30,

                  

(U.S. Dollars in thousands)

  

2023

    

2022

    

$ Change

    

% Change

  

Domestic

   $ 886,365     $ 931,132     $ (44,767 )     -4.8 %

International

     184,302       157,126       27,176       17.3 %

Total net sales

   $ 1,070,667     $ 1,088,258     $ (17,591 )     -1.6 %

 

   

Total Sales by Reportable Segment

  
   

Three Months Ended September 30, 2023

    

Three Months Ended September 30, 2022

  
   

External Net Sales

    

Intersegment Sales

    

Total Sales

    

External Net Sales

    

Intersegment Sales

    

Total Sales

  

Domestic

   $ 886,365     $ 7,640     $ 894,005     $ 931,132     $ 15,485     $ 946,617  

International

     184,302       23,293       207,595       157,126       25,416       182,542  

Intercompany elimination

     -       (30,933 )     (30,933 )     -       (40,901 )     (40,901 )

Total net sales

   $ 1,070,667     $ -     $ 1,070,667     $ 1,088,258     $ -     $ 1,088,258  

 

   

Adjusted EBITDA by Reportable Segment

                  
   

Three Months Ended September 30,

                  
   

2023

    

2022

    

$ Change

    

% Change

  

Domestic

   $ 160,270     $ 159,810     $ 460       0.3 %

International

     28,332       24,006       4,326       18.0 %

Total Adjusted EBITDA

   $ 188,602     $ 183,816     $ 4,786       2.6 %

 

The following table sets forth our product class information for the periods indicated:

 

    Net Sales by Product Class                  
   

Three Months Ended September 30,

                  

(U.S. Dollars in thousands)

  

2023

    

2022

    

$ Change

    

% Change

  

Residential products

   $ 565,087     $ 664,115     $ (99,028 )     -14.9 %

Commercial & industrial products

     384,533       311,186       73,347       23.6 %

Other

     121,047       112,957       8,090       7.2 %

Total net sales

   $ 1,070,667     $ 1,088,258     $ (17,591 )     -1.6 %

 

Net sales.   Domestic segment total sales (including inter-segment sales) decreased 6% to $894.0 million as compared to $946.6 million in the prior year quarter, with minimal favorable impact from acquisitions. The decline was driven by lower residential product sales primarily due to lower home standby and portable generator shipments as compared to the prior year. This was partially offset by growth in C&I product sales, highlighted by strong shipments to industrial distributors and direct customers for “beyond standby” applications.

 

International segment total sales (including inter-segment sales) increased 14% to $207.6 million as compared to $182.5 million in the prior year quarter, with acquisitions and foreign currency providing an approximate 11% favorable impact to revenue growth for the quarter. The sales growth for the segment was driven by varying levels of C&I product growth in most regions, partially offset by weaker portable generator sales in Europe.

 

In addition, total contribution from non-annualized acquisitions for the third quarter of 2023 was $4.6 million, including $0.5 million for the domestic segment and $4.1 million for the international segment.

 

Gross profit.   Gross profit margin was 35.1% as compared to 33.2% in the prior year third quarter. The increase in gross margin was primarily driven by lower raw material and logistics costs and production efficiencies. These margin benefits were partially offset by the impact of unfavorable sales mix.

 

Operating Expenses.   Operating expenses decreased by $2.6 million, or 0.9%, as compared to the third quarter of 2022. The operating expenses in the current quarter include $22.1 million of charges related to certain patent litigation matters (see Note 15, “Commitments and Contingencies” for additional information). The operating expenses in the prior year quarter include a $37.3 million provision for clean energy product warranty-related matters and a $17.9 million provision for bad debt related to a clean energy product customer that filed bankruptcy. The remaining increase in operating expenses is due to increased employee and marketing costs in the current year and a favorable contingent consideration adjustment in the prior year. 

 

Other Expense.   The increase in other expense, net was driven primarily by higher interest expense due to higher interest rates and borrowings than the prior year quarter. 

 

Provision for income taxes.   The effective income tax rates for the three months ended September 30, 2023 and 2022, were 24.3% and 16.1%, respectively. The increase in the effective tax rate was primarily due to the prior year quarter including certain favorable discrete tax items and a larger benefit from equity compensation as compared to the current year quarter.

 

Net income attributable to Generac Holdings Inc.   Net income attributable to Generac Holdings Inc. was $60.4 million compared to $58.3 million in the prior year third quarter. This increase was primarily driven by the factors outlined above. 

 

Adjusted EBITDA.   Adjusted EBITDA for the domestic segment in the third quarter of 2023 was $160.3 million, or 17.9% of domestic segment total sales, as compared to $159.8 million in the prior year, or 16.9% of total sales. This margin improvement was primarily driven by favorable price and cost benefits, partially offset by unfavorable sales mix and higher employee and marketing expenses.

 

Adjusted EBITDA for the international segment in the third quarter of 2023, before deducting for non-controlling interests, was $28.3 million, or 13.6% of international segment total sales, as compared to $24.0 million, or 13.2% of total sales, in the prior year. This modest margin improvement was primarily driven by favorable price, cost and mix benefits.

 

Adjusted Net Income.   Adjusted Net Income of $101.9 million for the three months ended September 30, 2023, decreased 9.1% from $112.2 million for the three months ended September 30, 2022. This decrease was primarily driven by the impact of various add-backs in the current and prior year quarters.

 

See “Non-GAAP Measures” for a discussion of how we calculate Adjusted EBITDA and Adjusted Net Income and the limitations on their usefulness. 

 

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Table of Contents

 

 

Results of Operations

 

Nine months ended September 30, 2023, compared to the nine months ended September 30, 2022

 

The following table sets forth our consolidated statements of operations information for the periods indicated:

 

   

Nine Months Ended September 30,

                  

(U.S. Dollars in thousands)

  

2023

    

2022

    

$ Change

    

% Change

  
                                 

Net sales

   $ 2,958,997     $ 3,515,505     $ (556,508 )     -15.8 %

Costs of goods sold

     1,982,290       2,336,668       (354,378 )     -15.2 %

Gross profit

     976,707       1,178,837       (202,130 )     -17.1 %

Operating expenses:

                                

Selling and service

     334,360       388,690       (54,330 )     -14.0 %

Research and development

     129,074       121,328       7,746       6.4 %

General and administrative

     199,108       132,036       67,072       50.8 %

Amortization of intangible assets

     78,934       77,681       1,253       1.6 %

Total operating expenses

     741,476       719,735       21,741       3.0 %

Income from operations

     235,231       459,102       (223,871 )     -48.8 %

Total other expense, net

     (71,737 )     (38,095 )     (33,642 )     -88.3 %

Income before provision for income taxes

     163,494       421,007       (257,513 )     -61.2 %

Provision for income taxes

     43,184       86,028       (42,844 )     -49.8 %

Net income

     120,310       334,979       (214,669 )     -64.1 %

Net income attributable to noncontrolling interests

     2,305       6,492       (4,187 )     -64.5 %

Net income attributable to Generac Holdings Inc.

   $ 118,005     $ 328,487     $ (210,482 )     -64.1 %

 

The following tables set forth our reportable segment information for the periods indicated:
  

   

Net Sales by Reportable Segment

                  
   

Nine Months Ended September 30,

                  

(U.S. Dollars in thousands)

  

2023

    

2022

    

$ Change

    

% Change

  

Domestic

   $ 2,395,292     $ 3,003,237     $ (607,945 )     -20.2 %

International

     563,705       512,268       51,437       10.0 %

Total net sales

   $ 2,958,997     $ 3,515,505     $ (556,508 )     -15.8 %

 

   

Total Sales by Reportable Segment

  
   

Nine Months Ended September 30, 2023

    

Nine Months Ended September 30, 2022

  
   

External Net Sales

    

Intersegment Sales

    

Total Sales

    

External Net Sales

    

Intersegment Sales

    

Total Sales

  

Domestic

   $ 2,395,292     $ 33,960     $ 2,429,252     $ 3,003,237     $ 44,742     $ 3,047,979  

International

     563,705       84,078       647,783       512,268       59,075       571,343  

Intercompany elimination

     -       (118,038 )     (118,038 )     -       (103,817 )     (103,817 )

Total net sales

   $ 2,958,997     $ -     $ 2,958,997     $ 3,515,505     $ -     $ 3,515,505  

 

   

Adjusted EBITDA by Reportable Segment

                  
   

Nine Months Ended September 30,

                  
   

2023

    

2022

    

$ Change

    

% Change

  

Domestic

   $ 331,134     $ 572,159     $ (241,025 )     -42.1 %

International

     94,088       79,532       14,556       18.3 %

Total Adjusted EBITDA

   $ 425,222     $ 651,691     $ (226,469 )     -34.8 %

 

The following table sets forth our product class information for the periods indicated:

    Net Sales by Product Class                  
   

Nine Months Ended September 30,

                  

(U.S. Dollars in thousands)

  

2023

    

2022

    

$ Change

    

% Change

  

Residential products

   $ 1,482,538     $ 2,337,072     $ (854,534 )     -36.6 %

Commercial & industrial products

     1,131,876       899,263       232,613       25.9 %

Other

     344,583       279,170       65,413       23.4 %

Total net sales

   $ 2,958,997     $ 3,515,505     $ (556,508 )     -15.8 %

 

Net sales.   Domestic segment total sales (including inter-segment sales) declined $618.7 million, or 20.3%, to $2,429.3 million in the nine months ended September 30, 2023,with the impact of acquisitions contributing approximately 2% revenue growth for the nine month period. The decline in sales was driven primarily by lower home standby generator shipments due to higher field inventory levels, as well as a decline in portable generator and clean energy product shipments. This decline was partially offset by strong C&I product sales growth across most channels, highlighted by national rental equipment, industrial distributors, and other direct customers for "beyond standby" applications.  

 

International segment total sales (including inter-segment sales) increased $76.4 million, or 13.4%, to $647.8 million, with the net impact of acquisitions and foreign currency contributing approximately 4% revenue growth for the nine month period. The sales growth for the segment was primarily driven by strength in nearly all regions around the world, partially offset by weaker portable generator sales in Europe. 

 

In addition, total contribution from non-annualized acquisitions for the nine months ended September 30, 2023, was $64.1 million, including $56.8 million for the domestic segment and $7.3 million for the international segment.

 

Gross profit.   Gross profit margin for the nine months ended September 30, 2023, was 33.0% compared to 33.5% in the prior year comparable period. This decline in margin was primarily due to the impact of unfavorable sales mix, partially offset by higher pricing and lower raw material and logistics costs. 

 

Operating Expenses.   Operating expenses for the nine months ended September 30, 2023, increased $21.7 million or 3.0%, as compared to the prior year comparable period. The operating expenses in the current period include a $5.8 million provision for a regulatory matter with the CPSC and $22.1 million of legal charges related to patent litigation (see Note 15, “Commitments and Contingencies” for additional information) as well as an increase in employee and marketing costs. The operating expenses in the prior period include a $37.3 million provision for clean energy product warranty-related matters and a $17.9 million provision for bad debt related to a clean energy product customer that filed for bankruptcy, as well as a favorable contingent consideration adjustment. 

 

Other Expense.   The increase in other expense, net was driven primarily by higher interest expense due to higher interest rates and borrowings compared to the prior year comparable period. The increase was partially offset by a $3.7 million non-cash write-off of original issue discount and deferred financing costs due to a $250 million prepayment of our Tranche B Term Loan Facility in the prior year period.

 

Provision for income taxes.   The effective income tax rates for the nine months ended September 30, 2023 and 2022, were 26.4% and 20.4%, respectively. The increase in the effective tax rate was primarily due to a significantly lower benefit from equity compensation coupled with lower year comparable period pre-tax book income in the current year period compared to the prior.

 

Net income attributable to Generac Holdings Inc.   Net income attributable to Generac Holdings Inc. for the nine months ended September 30, 2023, was $118.0 million as compared to $328.5 million in the prior year comparable period. This decrease was primarily driven by the factors outlined above. 

 

Adjusted EBITDA.   Adjusted EBITDA for the domestic segment in the nine months ended September 30, 2023, was $331.1 million or 13.6% of total domestic segment total sales, as compared to $572.2 million, or 18.8%, in the prior year comparable period. This lower margin performance was primarily driven by the significant impact of unfavorable sales mix and reduced operating leverage on lower shipments.The impact of acquisitions and investments for future growth also negatively affected margins during the period.These headwinds were partially offset by favorable price and cost benefits.

 

Adjusted EBITDA for the international segment in the nine months ended September 30, 2023, before deducting for non-controlling interests, was $94.1 million, or 14.5% of international segment total sales, as compared to $79.5 million, or 13.9%, of total sales, in the prior year comparable period.  This stronger margin performance was primarily driven by favorable price and cost benefits and improved operating leverage on higher sales volume.

 

Adjusted Net Income.   Adjusted Net Income of $209.1 million for the nine months ended September 30, 2023, decreased 50.8% from $425.3 million for the nine months ended September 30, 2022. This decrease was primarily driven by lower net income due to the factors outlined above, together with the impact of various add-backs in the first nine months of the current and prior years.

 

See “Non-GAAP Measures” for a discussion of how we calculate Adjusted EBITDA and Adjusted Net Income and the limitations on their usefulness. 

 

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Liquidity and Financial Condition

 

Our primary cash requirements include payment for our raw materials and components, salaries and benefits, facility and lease costs, operating expenses, interest and principal payments on our debt, and capital expenditures. We finance our operations primarily through cash flow generated from operations and, if necessary, borrowings under our revolving credit facility.

 

Our credit agreements originally provided for a $1.2 billion term loan B credit facility ("Tranche B Term Loan Facility") and currently include a $300.0 million uncommitted incremental term loan facility. Additionally, our credit agreements originally provided for a $500.0 million ABL Facility that was paid off and terminated in June 2022.

 

In June 2022, we amended and restated our existing credit agreements ("Amended Credit Agreement") resulting in a new term loan facility in an aggregate principal amount of $750 million ("Tranche A Term Loan Facility"), established a new revolving facility with an available borrowing amount of $1.25 billion ("Revolving Facility"), terminated the former ABL Facility, and replaced all LIBOR provisions in the existing Tranche B Term Loan Facility with SOFR provisions. Proceeds received from the Tranche A Term Loan Facility were used to repay the total existing outstanding balance on our former ABL Facility and make a $250 million voluntary prepayment on the Tranche B Term Loan Facility, with the remaining funds to be used for future general corporate purposes. As a result of these prepayments, we wrote off $3.5 million of original issue discount and capitalized debt issuance costs during the second quarter of 2022 as a loss on extinguishment of debt in the condensed consolidated statements of comprehensive income. The Revolving Facility was unfunded at closing.

 

As of September 30, 2023, there was $530 million outstanding under the Tranche B Term Loan Facility, $750 million outstanding under the Tranche A Term Loan Facility, and $200 million of borrowings on our Revolving Facility, leaving $1,049.9 million of unused capacity, net of outstanding letters of credit. Our Tranche B Term Loan Facility bears interest at rates based on either a base rate plus an applicable margin of 0.75% or adjusted SOFR rate plus an applicable margin of 1.75%, subject to a SOFR floor of 0.0%. Beginning on January 1, 2023, the Tranche A Term Loan Facility and Revolving Facility bear interest at a rate based on adjusted SOFR plus an applicable margin between 1.25% and 1.75%, based on our total leverage ratio and subject to a SOFR floor of 0.0%. At September 30, 2023, the interest rates for the Tranche A Term Loan Facility, Revolving Facility, and Tranche B Term Loan Facility were 7.10%, 7.10%, and 7.18%, respectively. See Note 4, "Derivative Instruments and Hedging Activities" and Item 7A of the Annual Report on Form 10-K for the year ended December 31, 2022, for further information on interest rate swaps that are currently outstanding and partially offset the above interest expense. 

 

The Tranche B Term Loan Facility matures on December 13, 2026, while the Tranche A Term Loan Facility and Revolving Facility mature on June 29, 2027. The Tranche A Term Loan Facility principal is repayable in quarterly installments with the first maturity in September 2023. Payment on the Tranche A Term Loan Facility is due on the last day of the quarter, or the following business day if the last day of the quarter is a non-business day. Payments on the Revolving Facility are not due until 2027. The maturity schedule on these facilities is as follows:

 

2023

 $ 9,375

2024

   28,125

2025

   46,875

2026

   595,625

2027

   800,000

Total

 $ 1,480,000

 

The Tranche B Term Loan Facility does not require an Excess Cash Flow payment (as defined in the Amended Credit Agreement) if our net secured leverage ratio is maintained below 3.75 to 1.00. As of September 30, 2023, our net secured leverage ratio was 2.25 to 1.00. The Tranche A Term Loan Facility and the Revolving Facility added certain financial covenants that require us to maintain a total leverage ratio below 3.75 to 1.00 as well as an interest coverage ratio above 3.00 to 1.00. As of September 30, 2023, our total leverage ratio was 2.37 to 1.00, and our interest coverage ratio was 7.00 to 1.00. We were in compliance with all other covenants of the Amended Credit Agreement as of September 30, 2023. 

 

As of September 30, 2023, we had $1,211.4 million of available liquidity, comprised of $161.5 million of cash and cash equivalents and $1,049.9 million available under our Revolving Facility, net of outstanding letters of credit. As of September 30, 2023, total liquidity is reduced to $983.6 million under our most restrictive debt covenants and consists of $161.5 million of cash and cash equivalents and $822.1 million available under our Revolving Facility. We believe we have a strong liquidity position that allows us to execute our strategic plan and provides the flexibility to continue to invest in future growth opportunities. 

 

In September 2020, our Board of Directors approved a stock repurchase program, which commenced on October 27, 2020, and allowed for the repurchase of up to $250.0 million of our common stock over a 24-month period. That program was exhausted in the third quarter of 2022. In July 2022, our Board of Directors approved another stock repurchase program, which commenced on August 5, 2022, and allows for the repurchase of up to $500.0 million of our common stock over a 24-month period. Pursuant to the approved program, we may repurchase our common stock from time to time, in amounts and at prices we deem appropriate, subject to market conditions and other considerations. The repurchases may be executed using open market purchases, privately negotiated agreements or other transactions. The actual timing, number and value of shares repurchased under the program will be determined by management at our discretion and will depend on a number of factors, including the market price of our common stock, general market and economic conditions, applicable legal requirements, and compliance with the terms of our credit agreements. The repurchases may be funded with cash on hand, available borrowings, or proceeds from potential debt or other capital markets sources. The stock repurchase program may be suspended or discontinued at any time without prior notice. During the third quarter of 2023, we repurchased 875,580 shares of our common stock for $100.3 million. There were no share repurchases under the program during the first and second quarters of 2023. During the third quarter of 2022, we repurchased 536,633 shares our common stock for $123.9 million. There were no share repurchases under the program during the first and second quarters of 2022. Since the inception of all stock repurchase programs (starting in August 2015), we have repurchased 12,624,293 shares of common stock for $877.4 million (at an average cost per share of $69.50). We have periodically reissued shares out of Treasury stock, including for earnout payments. 

 

See Note 11, “Credit Agreements,” and Note 12, "Stock Repurchase Program," to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for more information on our credit agreements and stock repurchase program.

 

We have an arrangement with a finance company to provide floor plan financing for selected dealers. This arrangement provides liquidity for our dealers by financing dealer purchases of products with credit availability from the finance company. We receive payment from the finance company after shipment of product to the dealer, and our dealers are given a longer period of time to pay the finance company. If our dealers do not pay the finance company, we may be required to repurchase the applicable inventory held by the dealer. We do not indemnify the finance company for any credit losses they may incur. Total dealer purchases financed under this arrangement accounted for approximately 17% and 16% of net sales for the nine months ended September 30, 2023 and 2022, respectively. The amount financed by dealers which remained outstanding was $168.5 million and $212.2 million as of September 30, 2023 and December 31, 2022, respectively.

 

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Long-term Liquidity

 

We believe that our cash and cash equivalents, cash flow from operations, and availability under our Revolving Facility and other short-term lines of credit will provide us with sufficient capital to continue to grow our business in the future. We may use a portion of our cash flow to pay principal on our outstanding debt, as well as repurchase shares of our common stock, impacting the amount available for working capital, capital expenditures, acquisitions, and other general corporate purposes. As we continue to expand our business, we may require additional capital to fund working capital, capital expenditures or acquisitions.

 

Cash Flow

 

Nine months ended September 30, 2023, compared to the nine months ended September 30, 2022

 

The following table summarizes our cash flows by category for the periods presented:

 

   

Nine Months Ended September 30,

                  

(U.S. Dollars in thousands)

  

2023

    

2022

    

$ Change

    

% Change

  
                                 

Net cash provided by (used in) operating activities

   $ 204,724     $ (42,352 )   $ 247,076       583.4 %

Net cash used in investing activities

     (98,445 )     (85,082 )     (13,363 )     -15.7 %

Net cash (used in) provided by financing activities

     (77,568 )     214,871       (292,439 )     -136.1 %

 

The increase in operating cash flows for the nine months ended September 30, 2023, primarily represents a significantly lower investment in working capital as compared to the prior year, partially offset by lower operating earnings.

 

Net cash used in investing activities for the nine months ended September 30, 2023, primarily represents cash payments of $77.7 million related to the purchase of property and equipment, $16.0 million for the acquisition of REFUstor, $6.6 million for a tax equity investment, and a $2.6 million minority investment in Rolling Energy Resources and Earth Foundry. These were partially offset by cash proceeds from beneficial interests in securitization transactions of $2.5 million and proceeds from the sale of property and equipment of $1.9 million. 

 

Net cash used in investing activities for the nine months ended September 30, 2022, primarily represents cash payments of $64.8 million related to the purchase of property and equipment, $14.9 million for a contribution to a tax equity investment, and $11.4 million related to the acquisition of businesses, which were partially offset by cash proceeds from beneficial interests in securitization transactions of $2.7 million, cash proceeds from the sale of property and equipment of $2.0 million, and cash proceeds from the sale of an investment of $1.3 million.

 

Net cash used in financing activities for the nine months ended September 30, 2023, primarily represents proceeds of $345.4 million from long-term borrowings, $49.1 million from short-term borrowings, and $7.1 million from the exercise of stock options. These cash proceeds were more than offset by $104.8 million in cash payments used to purchase the remaining ownership interest in Pramac, $100.3 million used for stock repurchases, $259.0 million of debt repayments ($25.9 million of short-term borrowings and $233.1 million of long-term borrowings and finance lease obligations), $10.1 million of taxes paid related to equity awards, and $5.0 million for payment of contingent acquisition consideration. 

 

Net cash provided by financing activities for the nine months ended September 30, 2022, primarily represents proceeds of $935.6 million from long-term borrowings, $237.2 million from short-term borrowings, and $13.6 million from the exercise of stock options. These cash proceeds were partially offset by $780.0 million of debt repayments ($239.6 million of short-term borrowings and $540.4 million of long-term borrowings and finance lease obligations), $123.9 million of stock repurchases, $40.5 million of taxes paid related to equity awards, $16.1 million of contingent consideration for acquired businesses, and $10.3 million for payment of debt issuance costs. 

 

Contractual Obligations

 

There have been no material changes to our contractual obligations since the February 22, 2023 filing of our Annual Report on Form 10-K for the year ended December 31, 2022, except for the changes in outstanding borrowings and interest rates as discussed in Note 11, “Credit Agreements,” to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

 

Critical Accounting Policies and Estimates

 

As discussed in our Annual Report on Form 10-K for the year ended December 31, 2022, in preparing the financial statements in accordance with U.S. GAAP, management is required to make estimates and assumptions that have an impact on the asset, liability, revenue and expense amounts reported. These estimates can also affect supplemental information disclosures of the Company, including information about contingencies, risk and financial condition. The Company believes, given current facts and circumstances, its estimates and assumptions are reasonable, adhere to U.S. GAAP, and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from estimates, and estimates may vary as new facts and circumstances arise. The Company makes routine estimates and judgments in determining net realizable value of accounts receivable, inventories, property and equipment, prepaid expenses, product warranties and other reserves. Management believes the Company’s most critical accounting estimates and assumptions are in the following areas: goodwill and other indefinite-lived intangible asset impairment assessment; business combinations and purchase accounting; and income taxes.

 

There have been no material changes in our critical accounting policies since the February 22, 2023 filing of our Annual Report on Form 10-K for the year ended December 31, 2022.

 

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Non-GAAP Measures

 

Adjusted EBITDA

 

To supplement our condensed consolidated financial statements presented in accordance with U.S. GAAP, we provide the computation of Adjusted EBITDA attributable to the Company, which 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 certain 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, certain specific provisions, and adjusted EBITDA attributable to noncontrolling interests, as set forth in the reconciliation table below.

 

We view Adjusted EBITDA as a key measure of our performance. We present Adjusted EBITDA not only due to its importance for purposes of our credit agreements but also because it assists us in comparing our performance across reporting periods on a consistent basis as it excludes items that we do not believe are indicative of our core operating performance. Our management uses Adjusted EBITDA:

 

 

•

for planning purposes, including the preparation of our annual operating budget and developing and refining our internal projections for future periods;
 

•

to allocate resources to enhance the financial performance of our business;
 

•

as a benchmark for the determination of the bonus component of compensation for our senior executives under our management incentive plan, as described further in our 2023 Proxy Statement;
 

•

to evaluate the effectiveness of our business strategies and as a supplemental tool in evaluating our performance against our budget for each period; and
 

•

in communications with our Board of Directors and investors concerning our financial performance.

 

We believe Adjusted EBITDA is used by securities analysts, investors, and other interested parties in the evaluation of the Company. Management believes the disclosure of Adjusted EBITDA offers an additional financial metric that, when coupled with results prepared in accordance with U.S. GAAP and the reconciliation to U.S. GAAP results, provides a more complete understanding of our results of operations and the factors and trends affecting our business. We believe Adjusted EBITDA is useful to investors for the following reasons:

 

 

•

Adjusted EBITDA and similar non-GAAP measures are widely used by investors to measure a company's operating performance without regard to items that can vary substantially from company to company depending upon financing and accounting methods, book values of assets, tax jurisdictions, capital structures, and the methods by which assets were acquired;
 

•

investors can use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of the Company, including our ability to service our debt and other cash needs; and
 

•

by comparing our Adjusted EBITDA in different historical periods, our investors can evaluate our operating performance excluding the impact of items described below.

 

The adjustments included in the reconciliation table listed below are presented to illustrate the operating performance of our business in a manner consistent with the presentation used by our management and Board of Directors. These adjustments eliminate the impact of a number of items that:

 

 

•

we do not consider indicative of our ongoing operating performance, such as non-cash write-downs and other charges, non-cash gains, write-offs relating to the retirement of debt, severance costs, and other restructuring-related business optimization expenses;
 

•

we believe to be akin to, or associated with, interest expense, such as administrative agent fees, revolving credit facility commitment fees, and letter of credit fees; or
 

•

are non-cash in nature, such as share-based compensation.

 

We explain in more detail in footnotes (a) through (f) below why we believe these adjustments are useful in calculating Adjusted EBITDA as a measure of our operating performance.

 

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Adjusted EBITDA does not represent, and should not be a substitute for, net income or cash flows from operations as determined in accordance with U.S. GAAP. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of the limitations are:

 

 

•

Adjusted EBITDA does not reflect our capital expenditures, or future requirements for capital expenditures or contractual commitments;
 

•

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
 

•

Adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
 

•

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
 

•

several of the adjustments that we use in calculating Adjusted EBITDA, such as non-cash write-downs and other charges, while not involving cash expense, do have a negative impact on the value of our assets as reflected in our consolidated balance sheet prepared in accordance with U.S. GAAP; and
 

•

other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

 

Furthermore, as noted above, one of our uses of Adjusted EBITDA is as a benchmark for determining elements of compensation for our senior executives. At the same time, some or all of these senior executives have responsibility for monitoring our financial results, generally including the adjustments in calculating Adjusted EBITDA (subject ultimately to review by our Board of Directors in the context of the Board's review of our quarterly financial statements). While many of the adjustments (for example, transaction costs and credit facility fees) involve mathematical application of items reflected in our financial statements, others involve a degree of judgment and discretion. While we believe all of these adjustments are appropriate, and while the quarterly calculations are subject to review by our Board of Directors in the context of the Board's review of our quarterly financial statements and certification by our Chief Financial Officer in a compliance certificate provided to the lenders under our Amended Credit Agreement, this discretion may be viewed as an additional limitation on the use of Adjusted EBITDA as an analytical tool.

 

Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only supplementally.

 

The following table presents a reconciliation of net income to Adjusted EBITDA attributable to Generac Holdings Inc.:

 

 

   

Three Months Ended September 30,

    

Nine Months Ended September 30,

  

(U.S. Dollars in thousands)

  

2023

    

2022

    

2023

    

2022

  
                                 

Net income attributable to Generac Holdings Inc.

   $ 60,377     $ 58,270     $ 118,005     $ 328,487  

Net income attributable to noncontrolling interests

     257       2,176       2,305       6,492  

Net income

     60,634       60,446       120,310       334,979  

Interest expense

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

Depreciation and amortization

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

Provision for income taxes

     19,428       11,594       43,184       86,028  

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

     2,055       (6,840 )     (5,257 )     (10,025 )

Non-cash share-based compensation expense (b)

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

Loss on extinguishment of debt (c)

     -       -       -       3,743  

Transaction costs and credit facility fees (d)

     921       1,250       3,161       3,831  

Business optimization and other charges (e)

     5,291       622       8,151       3,371  

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

     22,113       55,265       27,913       55,265  

Other

     575       (61 )     443       (951 )

Adjusted EBITDA

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

Adjusted EBITDA attributable to noncontrolling interests

     493       3,632       4,146       10,799  

Adjusted EBITDA attributable to Generac Holdings Inc.

   $ 188,109     $ 180,184     $ 421,076     $ 640,892  

 

(a)  Represents gains/losses on the disposition 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. We believe that adjusting net income for these non-cash charges and gains is useful for the following reasons:

 

  •

The gains/losses on disposals of assets and sales of certain investments result from the sale of assets that are no longer useful in our business and therefore represent gains or losses that are not from our core operations.
  •

The adjustments for unrealized mark-to-market gains and losses on commodity contracts represent non-cash items to reflect changes in the fair value of forward contracts that have not been settled or terminated. We believe it is useful to adjust net income for these items because the charges do not represent a cash outlay in the period in which the charge is incurred, although Adjusted EBITDA must always be used together with our U.S. GAAP statements of comprehensive income and cash flows to capture the full effect of these contracts on our operating performance.
  • Purchase accounting and contingent consideration related adjustments relate to the acquisition of businesses and the accounting related to those acquisitions.

 

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

 

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

 

(d)  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.

 

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

 

(f)  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 $5.8 million for a matter with the CPSC concerning the imposition of civil 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 amount recorded in the third quarter of 2022 represents a specific bad debt provision of $17.9 million for a clean energy product customer that filed for bankruptcy as well as a warranty provision of $37.3 million to address certain clean energy product warranty-related matters.

 

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Adjusted Net Income

 

To further supplement our condensed consolidated financial statements in accordance with U.S. GAAP, we provide the computation of Adjusted Net Income attributable to the Company, which is defined as net income before noncontrolling interest adjusted for the following items: amortization of intangible assets, amortization of deferred financing costs and original issue discount related to our debt, intangible impairment charges (if any), certain transaction costs and other purchase accounting adjustments, losses on extinguishment of debt, business optimization and other charges, certain specific provisions, certain other non-cash gains and losses or charges, and adjusted net income attributable to noncontrolling interests, as set forth in the reconciliation table below. 

 

We believe Adjusted Net Income is used by securities analysts, investors and other interested parties in the evaluation of the Company’s operations. Management believes the disclosure of Adjusted Net Income offers an additional financial metric that, when used in conjunction with U.S. GAAP results and the reconciliation to U.S. GAAP results, provides a more complete understanding of our ongoing results of operations, and the factors and trends affecting our business.

 

The adjustments included in the reconciliation table listed below are presented to illustrate the operating performance of our business in a manner consistent with the presentation used by investors and securities analysts. Similar to the Adjusted EBITDA reconciliation, these adjustments eliminate the impact of a number of items we do not consider indicative of our ongoing operating performance or cash flows, such as amortization costs, transaction costs and write-offs relating to the retirement of debt. 

 

Similar to Adjusted EBITDA, Adjusted Net Income does not represent, and should not be a substitute for, net income or cash flows from operations as determined in accordance with U.S. GAAP. Adjusted Net Income has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of the limitations are:

 

 

•

Adjusted Net Income does not reflect changes in, or cash requirements for, our working capital needs;
 

•

although amortization is a non-cash charge, the assets being amortized may have to be replaced in the future, and Adjusted Net Income does not reflect any cash requirements for such replacements; and
 

•

other companies may calculate Adjusted Net Income differently than we do, limiting its usefulness as a comparative measure.

 

The following table presents a reconciliation of net income to Adjusted Net Income attributable to Generac Holdings Inc.: 

 

 

   

Three Months Ended September 30,

    

Nine Months Ended September 30,

  

(U.S. Dollars in thousands, except share and per share data)

  

2023

    

2022

    

2023

    

2022

  
                                 

Net income attributable to Generac Holdings Inc.

   $ 60,377     $ 58,270     $ 118,005     $ 328,487  

Net income attributable to noncontrolling interests

     257       2,176       2,305       6,492  

Net income

     60,634       60,446       120,310       334,979  

Amortization of intangible assets

     26,718       25,751       78,934       77,681  

Amortization of deferred finance costs and original issue discount

     981       974       2,902       2,261  

Loss on extinguishment of debt (a)

     -       -       -       3,743  

Transaction costs and other purchase accounting adjustments (b)

     356       (7,605 )     1,743       (7,651 )

(Gain)/loss attributable to business or asset dispositions (c)

     -       -       (119 )     (229 )

Business optimization and other charges (d)

     5,291       622       8,151       3,371  

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

     22,113       55,265       27,913       55,265  

Tax effect of add backs

     (13,887 )     (21,233 )     (28,476 )     (36,907 )

Adjusted net income

     102,206       114,220       211,358       432,513  

Adjusted net income attributable to noncontrolling interests

     257       2,031       2,305       7,199  

Adjusted net income attributable to Generac Holdings Inc.

   $ 101,949     $ 112,189     $ 209,053     $ 425,314  
                                 

Adjusted net income per common share attributable to Generac Holdings Inc. - diluted:

   $ 1.64     $ 1.75     $ 3.35     $ 6.58  

Weighted average common shares outstanding - diluted:

     62,091,163       64,267,638       62,362,743       64,630,346  

 

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

 

(b)  Represents transaction costs incurred directly in connection with any investment, as defined in our credit agreement, equity issuance or debt issuance or refinancing, and certain purchase accounting and contingent consideration adjustments.

 

(c)  Represents gains and losses attributable to the disposition of a business or assets occurring in other than ordinary course, as defined in our credit agreement.

 

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

 

(e)  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 $5.8 million for a matter with the CPSC concerning the imposition of civil 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 amount recorded in the third quarter of 2022 represents a specific bad debt provision of $17.9 million for a clean energy product customer that filed for bankruptcy as well as a warranty provision of $37.3 million to address certain clean energy product warranty-related matters.

 

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New Accounting Standards

 

Refer to Note 1, “Description of Business and Basis of Presentation,” to the condensed consolidated financial statements for further information on the new accounting standards applicable to the Company.

 

Item 3.          Quantitative and Qualitative Disclosures about Market Risk

 

Refer to Note 4, “Derivative Instruments and Hedging Activities,” to the condensed consolidated financial statements for a discussion of changes in commodity, currency and interest rate related risks and hedging activities. Otherwise, there have been no material changes in market risk from the information provided in Item 7A (Quantitative and Qualitative Disclosures About Market Risk) of our Annual Report on Form 10-K for the year ended December 31, 2022.

 

Item 4.           Controls and Procedures

 

Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes during the three months ended September 30, 2023, in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1.          Legal Proceedings

 

See Note 15, "Commitments and Contingencies," to the condensed consolidated financial statements for further information on the Company's legal proceedings.

 

Item 1A.       Risk Factors

 

There have been no material changes in our risk factors since the February 22, 2023 filing of our Annual Report on Form 10-K for the year ended December 31, 2022.

 

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Item 2.           Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

 

The following table summarizes the stock repurchase activity for the three months ended September 30, 2023, which consisted of stock repurchases made as authorized under previously announced stock repurchase programs, as well as the withholding of shares upon the vesting of restricted stock awards to pay related withholding taxes on behalf of the recipient:

 

   

Total Number of Shares Purchased

    

Average Price Paid per Share

    

Total Number Of Shares Purchased As Part Of Publicly Announced Plans Or Programs

    

Approximate Dollar Value Of Shares That May Yet Be Purchased Under The Plans Or Programs

  
                                 
07/01/2023 – 07/31/2023     29     $ 148.94       -     $ 278,059,869  
08/01/2023 – 08/31/2023     664,485     $ 113.06       664,400     $ 202,945,634  
09/01/2023 – 09/30/2023     216,561     $ 119.02       211,180     $ 177,793,103  

Total

     881,075     $ 114.52                  

 

For equity compensation plan information, please refer to our Annual Report on Form 10-K for the year ended December 31, 2022. For information on the Company’s stock repurchase plans, refer to Note 12, “Stock Repurchase Program,” to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

 

Item 3.           Defaults Upon Senior Securities

 

None.

 

Item 4.           Mine Safety Disclosures

 

None.

 

 

Item 5.           Other Information

 

During the three months ended September 30, 2023, no director or officer of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

 
 

Item 6.           Exhibits

 

Exhibits
Number

  

Description

31.1*

Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   

31.2*

Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   

32.1**

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.
   

32.2**

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.
   

101*

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Statements of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) related Notes to Condensed Consolidated Financial Statements.
   

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 formatted as inline XBRL (included in Exhibit 101).
   

 

* Filed herewith.

**

Furnished herewith

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Generac Holdings Inc.
   
 

By:

/s/ York A. Ragen
   

York A. Ragen
   

Chief Financial Officer
(Duly Authorized Officer and Principal Financial and Accounting Officer)

 

Dated: November 7, 2023

 

29

Exhibit 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 

 

I, Aaron Jagdfeld, certify that:

 

 

1.

I have reviewed this quarterly report on Form 10-Q of Generac Holdings Inc.; 

 

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 

 

 

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

 

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; 

 

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

 

 

d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 

 

 

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 

 

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 

 

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

 

Date:  November 7, 2023

 

 

/s/ Aaron Jagdfeld

 

 

 

Name:

 

Aaron Jagdfeld

 

 

 

Title:

 

Chief Executive Officer

 

 

 

Exhibit 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 

 

I, York A. Ragen, certify that:

 

 

1.

I have reviewed this quarterly report on Form 10-Q of Generac Holdings Inc.; 

 

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 

 

 

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

 

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; 

 

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

 

 

d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 

 

 

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 

 

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 

 

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

 

Date: November 7, 2023

 

 

/s/ York A. Ragen

 

 

 

Name:

 

York A. Ragen

 

 

 

Title:

 

Chief Financial Officer

 

 

Exhibit 32.1

 

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

        Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chief Executive Officer of Generac Holdings Inc. (the “Company”), does hereby certify that to my knowledge:

 

 

1.

the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2023 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

 

2.

the information contained in the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2023 fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

Date: November 7, 2023

 

 

/s/ Aaron Jagdfeld

 

 

 

Name:

 

Aaron Jagdfeld

 

 

 

Title:

 

Chief Executive Officer

 

 

Exhibit 32.2

 

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

        Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chief Financial Officer of Generac Holdings Inc. (the “Company”), does hereby certify that to my knowledge:

 

 

1.

the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2023 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

 

2.

the information contained in the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2023 fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

Date: November 7, 2023

 

 

/s/ York A. Ragen

 

 

 

Name:

 

York A. Ragen

 

 

 

Title:

 

Chief Financial Officer

 

 

 

 

 

 

 

 
v3.23.3
Document And Entity Information - shares
 9 Months Ended
Sep. 30, 2023
Nov. 01, 2023
Document Information [Line Items]    
Entity Central Index Key 0001474735  
Entity Registrant Name GENERAC HOLDINGS INC.  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2023  
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2023  
Document Transition Report false  
Entity File Number 001-34627  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 20-5654756  
Entity Address, Address Line One S45 W29290 Hwy 59  
Entity Address, City or Town Waukesha  
Entity Address, State or Province WI  
Entity Address, Postal Zip Code 53189  
City Area Code 262  
Local Phone Number 544-4811  
Title of 12(b) Security Common Stock, $0.01 par value  
Trading Symbol GNRC  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   61,431,577
v3.23.3
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Sep. 30, 2023
Dec. 31, 2022
Current assets:    
Cash and cash equivalents $ 161,525 $ 132,723
Accounts receivable, less allowance for credit losses of $29,580 and $27,664 at September 30, 2023 and December 31, 2022, respectively 589,226 522,458
Inventories 1,311,129 1,405,384
Prepaid expenses and other current assets 105,169 121,783
Total current assets 2,167,049 2,182,348
Property and equipment, net 511,893 467,604
Customer lists, net 188,513 206,987
Patents and technology, net 426,552 454,757
Other intangible assets, net 30,317 41,719
Tradenames, net 219,012 227,251
Goodwill 1,417,564 1,400,880
Deferred income taxes 17,140 12,746
Operating lease and other non-current assets 188,301 175,170
Total assets 5,166,341 5,169,462
Current liabilities:    
Short-term borrowings 74,346 48,990
Accounts payable 394,168 446,050
Accrued wages and employee benefits 56,454 45,741
Accrued product warranty 70,572 89,141
Other accrued liabilities 267,217 349,389
Current portion of long-term borrowings and finance lease obligations 37,337 12,733
Total current liabilities 900,094 992,044
Long-term borrowings and finance lease obligations 1,465,141 1,369,085
Deferred income taxes 113,390 125,691
Deferred revenue 160,264 143,726
Operating lease and other long-term liabilities 155,326 169,190
Total liabilities 2,794,215 2,799,736
Redeemable noncontrolling interests 5,639 110,471
Stockholders’ equity:    
Common stock, par value $0.01, 500,000,000 shares authorized, 73,108,913 and 72,701,257 shares issued at September 30, 2023 and December 31, 2022, respectively 732 728
Additional paid-in capital 1,064,418 1,016,138
Treasury stock, at cost, 11,739,423 and 11,284,350 shares at September 30, 2023 and December 31, 2022, respectively (880,858) (808,491)
Excess purchase price over predecessor basis (202,116) (202,116)
Retained earnings 2,423,346 2,316,224
Accumulated other comprehensive loss (41,614) (65,102)
Stockholders’ equity attributable to Generac Holdings Inc. 2,363,908 2,257,381
Noncontrolling interests 2,579 1,874
Total stockholders' equity 2,366,487 2,259,255
Total liabilities and stockholders’ equity $ 5,166,341 $ 5,169,462
v3.23.3
Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - USD ($)
$ in Thousands
Sep. 30, 2023
Dec. 31, 2022
Allowance for credit losses $ 29,580 $ 27,664
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 500,000,000 500,000,000
Common stock, shares issued (in shares) 73,108,913 72,701,257
Treasury stock, shares (in shares) 11,739,423 11,284,350
v3.23.3
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Net sales $ 1,070,667 $ 1,088,258 $ 2,958,997 $ 3,515,505
Costs of goods sold 694,880 727,154 1,982,290 2,336,668
Gross profit 375,787 361,104 976,707 1,178,837
Operating expenses:        
Selling and service 117,929 170,381 334,360 388,690
Research and development 43,312 39,985 129,074 121,328
General and administrative 83,052 37,464 199,108 132,036
Amortization of intangibles 26,718 25,751 78,934 77,681
Total operating expenses 271,011 273,581 741,476 719,735
Income from operations 104,776 87,523 235,231 459,102
Other (expense) income:        
Interest expense (24,707) (15,514) (72,862) (35,303)
Investment income 1,160 451 2,789 620
Loss on extinguishment of debt [1] 0 0 0 (3,743)
Other, net (1,167) (420) (1,664) 331
Total other expense, net (24,714) (15,483) (71,737) (38,095)
Income before provision for income taxes 80,062 72,040 163,494 421,007
Provision for income taxes 19,428 11,594 43,184 86,028
Net income 60,634 60,446 120,310 334,979
Net income attributable to noncontrolling interests 257 2,176 2,305 6,492
Net income attributable to Generac Holdings Inc. $ 60,377 $ 58,270 $ 118,005 $ 328,487
Net income attributable to Generac Holdings Inc. per common share - basic: (in dollars per share) $ 0.98 $ 0.84 $ 1.74 $ 4.69
Weighted average common shares outstanding - basic: (in shares) 61,368,440 63,249,881 61,552,949 63,480,161
Net income attributable to Generac Holdings Inc. per common share - diluted: (in dollars per share) $ 0.97 $ 0.83 $ 1.72 $ 4.61
Weighted average common shares outstanding - diluted: (in shares) 62,091,163 64,267,638 62,362,743 64,630,346
Comprehensive income attributable to Generac Holdings Inc. $ 37,041 $ 21,683 $ 141,463 $ 264,912
[1] Represents the write-off of original issue discount and capitalized debt issuance costs due to voluntary debt prepayment.
v3.23.3
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)
$ in Thousands
Common Stock [Member]
Additional Paid-in Capital [Member]
Treasury Stock, Common [Member]
Excess Purchase Price over Predecessor Basis [Member]
Retained Earnings [Member]
AOCI Attributable to Parent [Member]
Parent [Member]
Noncontrolling Interest [Member]
Total
Balance (in shares) at Dec. 31, 2021 72,386,017   (8,667,031)            
Balance at Dec. 31, 2021 $ 725 $ 952,939 $ (448,976) $ (202,116) $ 1,965,957 $ (54,755) $ 2,213,774 $ 313 $ 2,214,087
Unrealized gain (loss) on interest rate swaps, net of tax 39,614 39,614 39,614
Foreign currency translation adjustment (105,265) (105,265) (470) (105,735)
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price (in shares) 253,984                
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price $ 3 (361) (358) (358)
Net share settlement of restricted stock awards $ (26,428) (26,428) (26,428)
Net share settlement of restricted stock awards (in shares)     (88,875)            
Stock repurchases (in shares)   (536,633)            
Stock repurchases $ (123,900) (123,900) (123,900)
Share-based compensation 23,423 23,423 23,423
Redemption value adjustment (30,817) (30,817) (30,817)
Net income attributable to Generac Holdings Inc. 328,487 328,487   328,487
Net income               1,232  
Net income                 329,719
Balance (in shares) at Sep. 30, 2022 72,640,001   (9,292,539)            
Balance at Sep. 30, 2022 $ 728 976,001 $ (599,304) (202,116) 2,263,627 (120,406) 2,318,530 1,075 2,319,605
Balance (in shares) at Jun. 30, 2022 72,588,588   (8,755,451)            
Balance at Jun. 30, 2022 $ 727 967,819 $ (475,294) (202,116) 2,210,582 (82,839) 2,418,879 883 2,419,762
Unrealized gain (loss) on interest rate swaps, net of tax 13,757 13,757 13,757
Foreign currency translation adjustment (51,324) (51,324) (396) (51,720)
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price (in shares) 51,413                
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price $ 1 1,321 1,322 1,322
Net share settlement of restricted stock awards $ (110) (110) (110)
Net share settlement of restricted stock awards (in shares)     (455)            
Stock repurchases (in shares)   (536,633)            
Stock repurchases $ (123,900) (123,900) (123,900)
Share-based compensation 6,861 6,861 6,861
Redemption value adjustment (5,225) (5,225) (5,225)
Net income attributable to Generac Holdings Inc. 58,270 58,270   58,270
Net income               588  
Net income                 58,858
Balance (in shares) at Sep. 30, 2022 72,640,001   (9,292,539)            
Balance at Sep. 30, 2022 $ 728 976,001 $ (599,304) (202,116) 2,263,627 (120,406) 2,318,530 1,075 2,319,605
Balance (in shares) at Dec. 31, 2022 72,701,257   (11,284,350)            
Balance at Dec. 31, 2022 $ 728 1,016,138 $ (808,491) (202,116) 2,316,224 (65,102) 2,257,381 1,874 2,259,255
Unrealized gain (loss) on interest rate swaps, net of tax 2,309 2,309 2,309
Foreign currency translation adjustment 21,179 21,179 (38) 21,141
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price (in shares) 396,713                
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price $ 4 2,563 2,567 2,567
Net share settlement of restricted stock awards $ (5,496) (5,496) (5,496)
Net share settlement of restricted stock awards (in shares)     (45,611)            
Stock repurchases (in shares)   (875,580)            
Stock repurchases $ (100,267) (100,267) (100,267)
Share-based compensation 30,306 30,306 30,306
Redemption value adjustment (10,883) (10,883) (10,883)
Net income attributable to Generac Holdings Inc. 118,005 118,005   118,005
Net income               743  
Net income                 118,748
Payment of contingent consideration (in shares) 10,943   466,118            
Payment of contingent consideration $ 0 15,411 $ 33,396 48,807 48,807
Balance (in shares) at Sep. 30, 2023 73,108,913   (11,739,423)            
Balance at Sep. 30, 2023 $ 732 1,064,418 $ (880,858) (202,116) 2,423,346 (41,614) 2,363,908 2,579 2,366,487
Balance (in shares) at Jun. 30, 2023 73,097,016   (10,858,348)            
Balance at Jun. 30, 2023 $ 732 1,053,759 $ (779,892) (202,116) 2,363,015 (16,216) 2,419,282 2,474 2,421,756
Unrealized gain (loss) on interest rate swaps, net of tax           1,045 1,045   1,045
Foreign currency translation adjustment (26,443) (26,443) (93) (26,536)
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price (in shares) 11,897                
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price $ 0 732 732 732
Net share settlement of restricted stock awards $ (699) (699) (699)
Net share settlement of restricted stock awards (in shares)     (5,495)            
Stock repurchases (in shares)   (875,580)            
Stock repurchases $ (100,267) (100,267) (100,267)
Share-based compensation 9,927 9,927 9,927
Redemption value adjustment (46) (46) (46)
Net income attributable to Generac Holdings Inc. 60,377 60,377   60,377
Net income               198  
Net income                 60,575
Balance (in shares) at Sep. 30, 2023 73,108,913   (11,739,423)            
Balance at Sep. 30, 2023 $ 732 $ 1,064,418 $ (880,858) $ (202,116) $ 2,423,346 $ (41,614) $ 2,363,908 $ 2,579 $ 2,366,487
v3.23.3
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) (Parentheticals) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Unrealized gain (loss) on interest rate swaps, tax $ 349 $ 4,647 $ 772 $ 13,381
v3.23.3
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Dec. 31, 2022
Operating activities          
Net income $ 60,634 $ 60,446 $ 120,310 $ 334,979  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Depreciation     45,215 39,043  
Amortization of intangible assets 26,718 25,751 78,934 77,681  
Amortization of original issue discount and deferred financing costs     2,902 2,261  
Loss on extinguishment of debt [1] 0 0 0 3,743  
Deferred income taxes     (18,715) (83,272)  
Share-based compensation expense [2] 9,927 6,861 30,306 23,423  
Gain on disposal of assets     (538) (555)  
Other noncash charges     380 7,037  
Net changes in operating assets and liabilities, net of acquisitions:          
Accounts receivable     (68,975) (20,810)  
Inventories     101,894 (353,618)  
Other assets     32,175 (7,033)  
Accounts payable     (57,866) (136,289)  
Accrued wages and employee benefits     10,244 (17,418)  
Other accrued liabilities     (70,622) 105,544  
Excess tax benefits from equity awards     (920) (17,068)  
Net cash provided by (used in) operating activities     204,724 (42,352)  
Investing activities          
Proceeds from sale of property and equipment     1,933 2,049  
Proceeds from sale of investment     0 1,308  
Proceeds from beneficial interests in securitization transactions     2,533 2,745  
Contribution to equity method investment     (6,627) (14,930)  
Purchase of long-term investment     (2,592) 0  
Expenditures for property and equipment     (77,718) (64,833)  
Acquisition of business, net of cash acquired     (15,974) (11,421)  
Net cash used in investing activities     (98,445) (85,082)  
Financing activities          
Proceeds from short-term borrowings     49,078 237,182  
Proceeds from long-term borrowings     345,384 935,614  
Repayments of short-term borrowings     (25,910) (239,550)  
Repayments of long-term borrowings and finance lease obligations     (233,101) (540,481)  
Stock repurchases     (100,267) (123,900)  
Payment of contingent acquisition consideration     (4,979) (16,135)  
Payment of debt issuance costs     0 (10,330)  
Purchase of additional ownership interest     (104,844) (375)  
Cash dividends paid to noncontrolling interest of subsidiary     0 (309)  
Taxes paid related to equity awards     (10,068) (40,472)  
Proceeds from exercise of stock options     7,139 13,627  
Net cash (used in) provided by financing activities     (77,568) 214,871  
Effect of exchange rate changes on cash and cash equivalents     91 (4,865)  
Net increase in cash and cash equivalents     28,802 82,572  
Cash and cash equivalents at beginning of period     132,723 147,339 $ 147,339
Cash and cash equivalents at end of period $ 161,525 $ 229,911 $ 161,525 $ 229,911 $ 132,723
[1] Represents the write-off of original issue discount and capitalized debt issuance costs due to voluntary debt prepayment.
[2] Represents share-based compensation expense to account for stock options, restricted stock, and other stock awards over their respective vesting periods.
v3.23.3
Note 1 - Description of Business and Basis of Presentation
 9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Business Description and Basis of Presentation [Text Block]

1.   Description of Business and Basis of Presentation

 

Founded in 1959, Generac Holdings Inc. ("the Company") is a leading global designer and manufacturer of a wide range of energy technology solutions. The Company provides power generation equipment, energy storage systems, energy management devices & solutions, and other power products and services serving the residential, light commercial, and industrial markets. Generac’s power products and solutions are available globally through a broad network of independent dealers, distributors, retailers, e-commerce partners, wholesalers, and equipment rental companies, as well as sold direct to certain end user customers.

 

Over the years, the Company has executed a number of acquisitions that support its strategic plan (as discussed in Item 1 of the Annual Report on Form 10-K for the year ended December 31, 2022). A summary of acquisitions affecting the reporting periods presented include:

 

 ●In June 2022, the Company acquired Electronic Environments Co. LLC and related subsidiaries (collectively "EEC"). Headquartered in Marlborough, Massachusetts, EEC is an industrial generator distributor as well as a provider of data center and telecom facility design, build, maintenance, and repair services.
 ●In October 2022, the Company acquired BPAC, Inc. ("Blue Pillar"), an industrial IoT platform developer that designs, deploys, and manages industrial IoT network software solutions to enable distributed energy generation monitoring and control.
 ●In February 2023, the Company acquired REFU Storage Systems ("REFUstor"), headquartered in Pfullingen, Germany. REFUstor is a developer and supplier of battery storage hardware products, advanced software, and platform services for the commercial and industrial energy storage market.

 

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries that are consolidated in conformity with U.S. generally accepted accounting principles ("GAAP"). All intercompany amounts and transactions have been eliminated in consolidation.

 

The condensed consolidated balance sheet as of September 30, 2023, the condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2023 and 2022, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022, have been prepared by the Company and have not been audited. In the opinion of management, all adjustments (which include only normal recurring adjustments except where disclosed) necessary for the fair presentation of the financial position, results of operation, and cash flows have been made. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

 

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2022.

 

New Accounting Pronouncements

 

Changes to GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of accounting standard updates ("ASUs") to the FASB Accounting Standards Codification ("ASC"). ASUs issued were assessed and have already been adopted in a prior period or determined to be either not applicable or are not expected to have a material impact on the Company’s consolidated financial statements.

 
v3.23.3
Note 2 - Acquisitions
 9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Business Combination Disclosure [Text Block]

2.   Acquisitions

 

Fiscal 2023 Acquisitions

 

On February 1, 2023, the Company acquired REFUstor, headquartered in Pfullingen, Germany. REFUstor is a developer and supplier of battery storage hardware products, advanced software, and platform services for the commercial and industrial energy storage market.

 

The Company recorded its preliminary purchase price allocation for REFUstor during the first quarter of 2023, based on its estimates of the fair value of the acquired assets and assumed liabilities. Purchase accounting will be finalized prior to March 31, 2024, and there have not been any material changes to the balances acquired as of September 30, 2023. The accompanying condensed consolidated financial statements include the results of REFUstor from the date of acquisition through September 30, 2023. Pro forma and other financial information are not presented as the effects of the REFUstor acquisition are not material to the Company's results of operations or financial position prior to the acquisition date. 

 

Fiscal 2022 Acquisitions

 

On June 30, 2022, the Company acquired EEC. Headquartered in Marlborough, Massachusetts, EEC is an industrial generator distributor as well as a provider of data center and telecom facility design, build, maintenance, and repair services.

 

On October 3, 2022, the Company acquired Blue Pillar, an industrial IoT platform developer that designs, deploys, and manages industrial IoT network software solutions to enable distributed energy generation monitoring and control.

 

The combined purchase price for these two acquisitions was $25,654, net of cash acquired. The Company recorded its preliminary purchase price allocation for EEC and Blue Pillar during the second quarter and fourth quarter of 2022, respectively, based on its estimates of the fair value of the acquired assets and assumed liabilities. Purchase accounting for EEC was finalized in the second quarter of 2023 and did not result in material adjustments to the Company's preliminary estimates. The Company will finalize the purchase accounting for Blue Pillar in the fourth quarter of 2023. Through the third quarter of 2023, the combined purchase price for EEC and Blue Pillar has increased to $27,456 due to working capital adjustments. The accompanying condensed consolidated financial statements include the results of the acquired businesses since the dates of acquisition through September 30, 2023. Pro forma and other financial information are not presented as the effects of the 2022 acquisitions are not material to the Company's results of operations or financial position prior to the acquisition dates. 

 
v3.23.3
Note 3 - Redeemable Noncontrolling Interest
 9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Redeemable Noncontrolling Interest [Text Block]

3.   Redeemable Noncontrolling Interest

 

On March 1, 2016, the Company acquired a 65% ownership interest in PR Industrial S.r.l. and its subsidiaries ("Pramac"). The 35% noncontrolling interest in Pramac had an acquisition date fair value of $34,253 and was recorded as a redeemable noncontrolling interest in the condensed consolidated balance sheets, as the noncontrolling interest holder had within its control the right to require the Company to redeem its interest in Pramac. In May 2021, the Company exercised its call option rights and paid a purchase price of $27,164 to purchase an additional 15% ownership interest in Pramac, bringing the Company's total ownership interest in Pramac to 80%. On March 8, 2023, the Company and the noncontrolling interest holder entered into an agreement whereby the Company acquired the remaining 20% ownership interest in Pramac for a purchase price of $116,754, which brought the Company's total ownership interest in Pramac to 100%. The purchase price included $105,264 of initial consideration (which included a cash payment of $104,844 and a $420 gain on a foreign currency settlement in the first quarter of 2023) and $11,490 of contingent deferred consideration to be paid in up to 135,205 restricted shares that were issued based on the twenty day volume weighted average price of the Company’s stock ending on December 31, 2022, and which shall vest upon achievement of certain earnings targets at the end of the earn-out period, December 31, 2025. 

 

On February 1, 2019, the Company acquired a 51% ownership interest in Captiva Energy Solutions Private Limited ("Captiva"). The 49% noncontrolling interest in Captiva had an acquisition date fair value of $3,165 and was recorded as a redeemable noncontrolling interest in the condensed consolidated balance sheets, as the noncontrolling interest holder had within its control the right to require the Company to redeem its interest in Captiva. The noncontrolling interest holder has a put option to sell his interest to the Company any time after five years from the date of acquisition, or earlier upon the occurrence of certain circumstances. Further, the Company has a call option that it may redeem any time after five years from the date of acquisition, or earlier upon the occurrence of certain circumstances. The put and call option price is based on a multiple of earnings, subject to the terms of the acquisition agreement. In March 2022, the Company signed an agreement to purchase an additional 15% ownership interest in Captiva for a purchase price of $461, bringing the Company's total ownership interest in Captiva to 66%. In May 2022, the Company signed an amendment to the purchase agreement resulting in a revised purchase price of $375, which was paid with cash on hand.

 

The redeemable noncontrolling interests are recorded at the greater of the initial fair value, increased or decreased for the noncontrolling interests’ share of comprehensive income (loss), or the estimated redemption value, with any adjustments to the redemption value impacting retained earnings, but not net income. However, the redemption value adjustments are reflected in the earnings per share calculation, as detailed in Note 13, “Earnings Per Share,” to the condensed consolidated financial statements. The following table presents the changes in the redeemable noncontrolling interest for both Captiva and Pramac:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Balance at beginning of period

 $5,688  $82,830  $110,471  $58,050 

Net income

  58   1,589   1,728   5,261 

Foreign currency translation

  (153)  (2,708)  (689)  (6,817)

Purchase of additional ownership interest

  -   -   (116,754)  (375)

Redemption value adjustment

  46   5,225   10,883   30,817 

Balance at end of period

 $5,639  $86,936  $5,639  $86,936 

 
v3.23.3
Note 4 - Derivative Instruments and Hedging Activities
 9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

4.   Derivative Instruments and Hedging Activities

 

The Company records all derivatives in accordance with ASC 815, Derivatives and Hedging, which requires derivative instruments to be reported on the condensed consolidated balance sheets at fair value and establishes criteria for designation and effectiveness of hedging relationships. The Company is exposed to market risk such as changes in commodity prices, foreign currencies and interest rates. The Company does not hold or issue derivative financial instruments for trading purposes.

 

The Company periodically utilizes commodity derivatives and foreign currency forward purchase and sales contracts in the normal course of business. Because these contracts do not qualify for hedge accounting, the related gains and losses are recorded in the Company’s condensed consolidated statements of comprehensive income. These gains and losses are not material to the Company’s condensed consolidated financial statements for the periods presented.

 

Interest Rate Swaps

 

In 2017, the Company entered into twenty interest rate swap agreements, the final four of which expired in  May 2023. In March 2020, the Company entered into three additional interest rate swap agreements which were still outstanding as of September 30, 2023.

 

In June 2022, in conjunction with the amendments to the Company's credit agreements discussed further in Note 11, “Credit Agreements,” the Company amended its interest rate swaps to match that of the underlying debt and reconfirmed hedge effectiveness. The Company formally documented all relationships between interest rate hedging instruments and the related hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions. These interest rate swap agreements qualify as cash flow hedges and therefore, the effective portions of their gains or losses are reported as a component of accumulated other comprehensive loss ("AOCL") in the condensed consolidated balance sheets.

 

The amount of gains, net of tax recognized, for the three and nine months ended September 30, 2023, were $1,045 and $2,309, respectively. The amount of gains, net of tax recognized, for the three and nine months ended September 30, 2022, were $13,757 and $39,614, respectively. The cash flows of the swaps are recognized as adjustments to interest expense each period. The ineffective portions of the derivatives’ changes in fair value, if any, are immediately recognized in earnings.

 

Fair Value 

 

The following table presents the fair value of all of the Company’s derivatives:

 

  

September 30, 2023

  

December 31, 2022

 
Commodity contracts $9  $- 

Foreign currency contracts

  (181)  94 

Interest rate swaps

  52,360   49,279 

 

In the condensed consolidated balance sheets, the fair value of the commodity contracts is included in prepaid expenses and other current assets. The fair value of the foreign currency contracts is included in other accrued liabilities at  September 30, 2023, and included in prepaid expenses and other current assets at December 31, 2022. The fair value of the interest rate swaps is included in operating lease and other non-current assets. Excluding the impact of credit risk, the fair value of the derivative contracts as of September 30, 2023, and December 31, 2022, is an asset of $54,388 and $51,184, respectively, which represents the amount the Company would receive to exit all of the agreements on those dates.

 
v3.23.3
Note 5 - Fair Value Measurements
 9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

5.   Fair Value Measurements

 

ASC 820-10, Fair Value Measurement, defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring basis or nonrecurring basis. ASC 820-10 clarifies fair value is an exit price, representing the amount that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the pronouncement establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The Company believes the carrying amount of its financial instruments (cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, short-term borrowings, and revolving facility borrowings), excluding Term Loan borrowings, approximates the fair value of these instruments based on their short-term nature. The fair value of the Term Loan B borrowing, which has a net carrying value of $524,529, was $530,000 (Level 2) at September 30, 2023, as calculated based on independent valuations which contain inputs and significant value drivers that are observable. The fair value of Term Loan A approximates the carrying value. 

 

For the fair value of the derivatives measured on a recurring basis, refer to the fair value table in Note 4, “Derivative Instruments and Hedging Activities,” to the condensed consolidated financial statements. The fair value of all derivative contracts is classified as Level 2. The valuation techniques used to measure the fair value of derivative contracts, all of which have counterparties with high credit ratings, were based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data. The fair value of the derivative contracts above considers the Company’s credit risk in accordance with ASC 820-10.

 

Contingent Consideration

 

Certain of the Company's business combinations involve potential payment of future consideration contingent upon the achievement of certain milestones. As part of purchase accounting, a liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized within general and administrative expenses in the Company's condensed consolidated statements of comprehensive income. The fair value measurement of contingent consideration is typically categorized as a Level 3 liability, as the measurement amount is based primarily on significant inputs that are not observable in the market.

 

At September 30, 2023, the fair value of contingent consideration for Chilicon Power LLC ("Chilicon") and Pramac is $38,746 and is included in other long-term liabilities in the condensed consolidated balance sheets. At December 31, 2022, the Company had contingent consideration of $49,500 in other accrued liabilities and $32,033 in other long-term liabilities in the condensed consolidated balance sheets. The earn-out period for the contingent consideration for Chilicon extends through December 31, 2028. The earn-out period for the contingent consideration for Pramac extends through December 31, 2025. 

 

The following table provides a reconciliation of the activity for contingent consideration: 

 

Beginning balance, January 1, 2023

 $81,533 

Changes in fair value

  - 

Additional contingent consideration (1)

  11,490 

Payment of contingent consideration (2)

  (53,786)

Present value interest accretion

  (491)

Ending balance, September 30, 2023

 $38,746 

 

(1) Represents $11,490 of contingent deferred consideration for the Pramac buyout. See Note 3, "Redeemable Noncontrolling Interest". 

(2) Includes payments of $479 in cash and $44,521 in shares for the ecobee acquisition, $4,286 in shares for the Chilicon acquisition, and $4,500 in cash for the Mean Green Products ("Mean Green") acquisition. The payment of common stock is accounted for as a non-cash item in the condensed consolidated statement of cash flows. 

 
v3.23.3
Note 6 - Accumulated Other Comprehensive Loss
 9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Comprehensive Income (Loss) Note [Text Block]

6.   Accumulated Other Comprehensive Loss

 

The following table presents a disclosure of changes in AOCL during the three and nine months ended September 30, 2023 and 2022, net of tax:

 

  

Foreign Currency Translation Adjustments

   

Unrealized Gain (Loss) on Cash Flow Hedges

   

Total

 

Beginning Balance – July 1, 2023

 $(53,923)  $37,707   $(16,216)

Other comprehensive income (loss)

  (26,443)

(1)

  1,045 

(2)

  (25,398)

Ending Balance – September 30, 2023

 $(80,366)  $38,752   $(41,614)

 

  

Foreign Currency Translation Adjustments

   

Unrealized Gain (Loss) on Cash Flow Hedges

   

Total

 

Beginning Balance – July 1, 2022

 $(106,645)  $23,806   $(82,839)

Other comprehensive income (loss)

  (51,324)

(3)

  13,757 

(4)

  (37,567)

Ending Balance – September 30, 2022

 $(157,969)  $37,563   $(120,406)

 

  

Foreign Currency Translation Adjustments

   

Unrealized Gain (Loss) on Cash Flow Hedges

   

Total

 

Beginning Balance – January 1, 2023

 $(101,545)  $36,443   $(65,102)

Other comprehensive income (loss)

  21,179 

(5)

  2,309 

(6)

  23,488 

Ending Balance – September 30, 2023

 $(80,366)  $38,752   $(41,614)

 

  

Foreign Currency Translation Adjustments

   

Unrealized Gain (Loss) on Cash Flow Hedges

   

Total

 

Beginning Balance – January 1, 2022

 $(52,704)  $(2,051)  $(54,755)

Other comprehensive income (loss)

  (105,265)

(3)

  39,614 

(7)

  (65,651)

Ending Balance – September 30, 2022

 $(157,969)  $37,563   $(120,406)

 

 (1)Represents unfavorable impact from the strengthening of the U.S. dollar against foreign currencies during the three months ended September 30, 2023, particularly the Euro, British Pound, and Mexican Peso.
 

(2)

Represents unrealized gains of $1,394 on the interest rate swaps, net of tax effect of $(349) for the three months ended September 30, 2023. 

 (3)Represents unfavorable impact from the strengthening of the U.S. dollar against foreign currencies during the three and nine months ended September 30, 2022, particularly the Euro and British Pound.
 (4)Represents unrealized gains of $18,404 on the interest rate swaps, net of tax effect of $(4,647) for the three months ended September 30, 2022.
 (5)Represents favorable impact from the weakening of the U.S. dollar against foreign currencies during the nine months ended September 30, 2023, particularly the Euro, British Pound, and Mexican Peso.
 (6)Represents unrealized gains of $3,081 on the interest rate swaps, net of tax effect of $(772) for the nine months ended September 30, 2023.
 (7)Represents unrealized gains of $52,995 on the interest rate swaps, net of tax effect of $(13,381) for the nine months ended September 30, 2022.

 
v3.23.3
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.

 
v3.23.3
Note 8 - Balance Sheet Details
 9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Supplemental Balance Sheet Disclosures [Text Block]

8.   Balance Sheet Details

 

Inventories consist of the following:

 

  

September 30,

  

December 31,

 
  

2023

  

2022

 

Raw material

 $766,826  $798,340 

Work-in-process

  14,365   14,899 

Finished goods

  529,938   592,145 

Total

 $1,311,129  $1,405,384 

 

Property and equipment consists of the following:

 

  

September 30,

  

December 31,

 
  

2023

  

2022

 

Land and improvements

 $22,811  $22,589 

Buildings and improvements

  255,165   243,553 

Machinery and equipment

  261,170   229,593 

Dies and tools

  41,536   37,343 

Vehicles

  10,920   9,807 

Office equipment and systems

  178,364   148,166 

Leasehold improvements

  8,494   6,849 

Construction in progress

  59,536   52,522 

Gross property and equipment

  837,996   750,422 

Accumulated depreciation

  (326,103)  (282,818)

Total

 $511,893  $467,604 

 

Total property and equipment includes finance leases of $27,168 and $24,719 on  September 30, 2023, and  December 31, 2022, respectively, primarily consisting of buildings and improvements. Amortization of finance lease right of use assets is recorded within depreciation expense in the condensed consolidated statements of comprehensive income. The initial measurement of new finance lease right of use assets is accounted for as a non-cash item in the condensed consolidated statements of cash flows.

 
v3.23.3
Note 9 - Product Warranty Obligations
 9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Product Warranty Disclosure [Text Block]

9.   Product Warranty Obligations

 

The Company records a liability for standard product warranty obligations accounted for as assurance warranties at the time of sale of the product to a customer based upon historical warranty experience. The Company also records a liability for specific warranty matters when they become known and are reasonably estimable. The following is a tabular reconciliation of the Company’s standard product warranty liability accounted for as an assurance warranty:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Balance at beginning of period

 $122,222  $110,338  $138,011  $94,213 

Payments

  (24,427)  (22,677)  (76,069)  (54,135)

Provision for warranty issued

  18,136   19,076   51,353   62,169 

Changes in estimates for pre-existing warranties (1)

  3,630   38,571   6,266   43,061 

Balance at end of period

 $119,561  $145,308  $119,561  $145,308 

 

(1) Includes a specific warranty provision recorded during the third quarter of 2022 in the amount of $37,338 to address certain clean energy product warranty-related matters.

 

Additionally, the Company sells extended warranty coverage for certain products, which it accounts for as a service warranty. The sales of extended warranties are recorded as deferred revenue, and typically have a duration of five to ten years. The deferred revenue related to extended warranty coverage is amortized over the duration of the extended warranty contract period, following the standard warranty period, using the straight-line method. Revenue is recognized on extended warranty contracts when the revenue recognition criteria are met, resulting in ratable recognition over the contract term. The amortization of deferred revenue is recorded to net sales in the condensed consolidated statements of comprehensive income. The following is a tabular reconciliation of the deferred revenue related to extended warranty coverage:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Balance at beginning of period

 $140,922  $121,898  $132,813  $111,647 

Deferred revenue contracts issued

  10,615   10,324   30,774   31,202 

Amortization of deferred revenue contracts

  (6,414)  (5,470)  (18,464)  (16,097)

Balance at end of period

 $145,123  $126,752  $145,123  $126,752 

 

The timing of recognition of the Company’s deferred revenue balance related to extended warranties as of  September 30, 2023, is as follows:

 

Remainder of 2023

 $6,521 

2024

  27,066 

2025

  28,060 

2026

  24,554 

2027

  19,461 

After 2027

  39,461 

Total

 $145,123 

 

Standard product warranty obligations and extended warranty related deferred revenues are included in the condensed consolidated balance sheets as follows:

 

  

September 30,

  

December 31,

 
  

2023

  

2022

 

Product warranty liability

        

Current portion - Accrued product warranty

 $70,572  $89,141 

Long-term portion - other long-term liabilities

  48,989   48,870 

Total

 $119,561  $138,011 
         

Deferred revenue related to extended warranties

        

Current portion - other accrued liabilities

 $23,597  $30,291 

Long-term portion - Deferred revenue

  121,526   102,522 

Total

 $145,123  $132,813 

 
v3.23.3
Note 10 - Contract Balances
 9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]

10.   Contract Balances

 

While the Company’s standard payment terms are less than one year, the specific payment terms and conditions in its customer contracts vary. In certain cases, the Company’s customers pay for their goods in advance. These prepayments are recognized as customer deposits (contract liabilities) and recorded in other accrued liabilities in the condensed consolidated balance sheets. The balance of customer deposits was $17,871 and $33,551 on  September 30, 2023, and December 31, 2022, respectively. During the nine months ended September 30, 2023, the Company recognized revenue of $30,252 related to amounts included in the December 31, 2022, customer deposit balance. The Company typically recognizes revenue within one year of the receipt of the customer deposit.

 
v3.23.3
Note 11 - Credit Agreements
 9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Debt Disclosure [Text Block]

11.   Credit Agreements

 

Short-term borrowings included in the condensed consolidated balance sheets as of September 30, 2023, and December 31, 2022, consisted of borrowings by the Company’s foreign subsidiaries on local lines of credit totaling $74,346 and $48,990, respectively.

 

Long-term borrowings are included in the condensed consolidated balance sheets as follows:

 

  

September 30,

  

December 31,

 
  

2023

  

2022

 

Tranche A Term Loan

 $750,000  $750,000 

Tranche B Term Loan

  530,000   530,000 

Original issue discount and deferred financing costs

  (13,666)  (16,568)

Revolving Facility

  200,000   90,000 

Finance lease obligation

  30,235   27,420 

Other

  5,909   966 

Total

  1,502,478   1,381,818 

Less: current portion of debt

  33,823   10,083 

Less: current portion of finance lease obligation

  3,514   2,650 

Total

 $1,465,141  $1,369,085 

 

Maturities of the Company's Tranche A Term Loan Facility, Tranche B Term Loan Facility, and Revolving Facility outstanding at September 30, 2023, are as follows:

 

  

Tranche A Term Loan

  

Tranche B Term Loan

  

Revolving Facility

  

Total

 

2023

 $9,375  $-  $-  $9,375 

2024

  28,125   -   -   28,125 

2025

  46,875   -   -   46,875 

2026

  65,625   530,000   -   595,625 

2027

  600,000   -   200,000   800,000 

Total

 $750,000  $530,000  $200,000  $1,480,000 

 

The Tranche B Term Loan Facility matures on December 13, 2026, while the Tranche A Term Loan Facility and Revolving Facility mature on June 29, 2027. The Tranche A Term Loan Facility principal is repayable in quarterly installments with the first maturity in  September 2023. Payment on the Tranche A Term Loan Facility is due on the last day of the quarter, or the following business day if the last day of the quarter is a non-business day. 

 

The Company’s credit agreements originally provided for a $1,200,000 term loan B credit facility ("Tranche B Term Loan Facility") and included a $300,000 uncommitted incremental term loan on that facility. The Tranche B Term Loan Facility initially bore interest at rates based on either a base rate plus an applicable margin of 1.75% or adjusted LIBOR rate plus an applicable margin of 2.75%, subject to a LIBOR floor of 0.75%. After a number of amendments, the Tranche B Term Loan Facility currently bears interest at rates based on either a base rate plus an applicable margin of 0.75% or adjusted Secured Overnight Financing Rate ("SOFR") rate plus an applicable margin of 1.75%, subject to a SOFR floor of 0.00%. The interest rate for the Tranche B Term Loan Facility as of September 30, 2023, was 7.18%. 

 

The Tranche B Term Loan Facility does not require an Excess Cash Flow payment if the Company’s net secured leverage ratio is maintained below 3.75 to 1.00. As of September 30, 2023, the Company’s net secured leverage ratio was 2.25 to 1.00, and the Company was in compliance with all covenants of the Tranche B Term Loan Facility. There are no financial maintenance covenants on the Tranche B Term Loan Facility.

 

In June 2022, the Company amended and restated its existing credit agreements ("Amended Credit Agreement") resulting in a new term loan facility in an aggregate principal amount of $750,000 ("Tranche A Term Loan Facility"), established a new revolving facility with an available borrowing amount of $1,250,000 ("Revolving Facility"), terminated the former asset-based lending facility ("ABL Facility"), and replaced all LIBOR provisions in the existing Tranche B Term Loan Facility with SOFR provisions. Proceeds received by the Company from the Tranche A Term Loan Facility were used to repay the total existing outstanding balance on the Company's former ABL Facility and to make a $250,000 voluntary prepayment on the Tranche B Term Loan Facility, with the remaining funds to be used for future general corporate purposes. As a result of these prepayments, the Company wrote off $3,546 of original issue discount and capitalized debt issuance costs during the second quarter of 2022 as a loss on extinguishment of debt in the condensed consolidated statements of comprehensive income. 

 

The Tranche A Term Loan Facility and the Revolving Facility initially bore interest at a rate based on adjusted SOFR plus an applicable margin of 1.5% through December 31, 2022, subject to a SOFR floor of 0.0%. Beginning on January 1, 2023, the Tranche A Term Loan Facility and the Revolving Facility bear interest at a rate based on adjusted SOFR plus an applicable margin between 1.25% and 1.75%, based on the Company's total leverage ratio and subject to a SOFR floor of 0.0%. The interest rate for the Tranche A Term Loan Facility and the Revolving Facility as of September 30, 2023, was 7.10%. 

 

The Tranche A Term Loan Facility and the Revolving Facility added certain financial covenants that require the Company to maintain a total leverage ratio below 3.75 to 1.00 as well as an interest coverage ratio above 3.00 to 1.00. As of September 30, 2023, the Company’s total leverage ratio was 2.37 to 1.00, and the Company's interest coverage ratio was 7.00 to 1.00. The Company was in compliance with all other covenants of the Amended Credit Agreement as of September 30, 2023. 

 

The Tranche B Term Loan Facility, Tranche A Term Loan Facility and Revolving Facility are guaranteed by substantially all of the Company’s wholly-owned domestic restricted subsidiaries and are secured by associated collateral agreements which pledge a first priority lien on virtually all of the Company’s assets, including fixed assets and intangibles, cash, trade accounts receivable, inventory, and other current assets and proceeds thereof. 

 

In connection with the June 2022 refinancing and in accordance with ASC 470-50, the Company capitalized $10,330 of fees paid to creditors as deferred financing costs on long-term borrowings and expensed $800 of transaction fees. The Company evaluated on a lender-by-lender basis if the debt related to returning lenders on the Revolving Facility was significantly modified or not, resulting in the write-off of $197 in unamortized deferred financing costs related to the former ABL Facility as a loss on extinguishment of debt in the condensed consolidated statements of comprehensive income. 

 

As of September 30, 2023, there was $200,000 outstanding under the Revolving Facility, leaving $1,049,945 of unused capacity, net of outstanding letters of credit. Total availability on the Revolving Facility is reduced to $822,111 under the Company's most restrictive debt covenants. 

 

See Note 4, "Derivative Instruments and Hedging Activities" and Item 7A of the Annual Report on Form 10-K for further information on interest rate swaps that are currently outstanding and partially offset the above interest rate expense. 

 
v3.23.3
Note 12 - Stock Repurchase Program
 9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Treasury Stock [Text Block]

12.   Stock Repurchase Program

 

In September 2020, the Company’s Board of Directors approved a stock repurchase program, which commenced on October 27, 2020, and allowed for the repurchase of up to $250,000 of the Company's common stock over a 24-month period. That program was exhausted in the third quarter of 2022. In  July 2022, the Company's Board of Directors approved another stock repurchase program, which commenced on August 5, 2022, and allows for the repurchase of up to $500,000 of the Company's common stock over a 24-month period. Pursuant to the approved program, the Company may repurchase its common stock from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions and other considerations. The repurchases may be executed using open market purchases, privately negotiated agreements or other transactions. The actual timing, number and value of shares repurchased under the program will be determined by management at its discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, applicable legal requirements, and compliance with the terms of the Company’s credit agreements. The repurchases may be funded with cash on hand, available borrowings, or proceeds from potential debt or other capital markets sources. The stock repurchase program may be suspended or discontinued at any time without prior notice. During the third quarter of 2023, the Company repurchased 875,580 shares of its common stock for $100,267. There were no share repurchases under the program during the first and second quarters of 2023. During the third quarter of 2022, the Company repurchased 536,633 shares of its common stock for $123,900. There were no share repurchases under the program during the first and second quarters of 2022. Since the inception of all stock repurchase programs (starting in August 2015), the Company has repurchased 12,624,293 shares of its common stock for $877,396 (at an average cost per share of $69.50). Periodically, the Company has reissued shares out of Treasury stock, including for earnout payments. 

 
v3.23.3
Note 13 - Earnings Per Share
 9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Earnings Per Share [Text Block]

13. Earnings Per Share

 

Basic earnings per share is calculated by dividing net income attributable to the common shareholders of the Company by the weighted average number of common shares outstanding during the period, exclusive of restricted shares. Except where the result would be anti-dilutive, diluted earnings per share is calculated by assuming the vesting of unvested restricted stock and the exercise of stock options, as well as the satisfaction of certain contingent consideration conditions as of the end of the period. Refer to Note 3, “Redeemable Noncontrolling Interest”, to the condensed consolidated financial statements for further information regarding the accounting for redeemable noncontrolling interests within earnings per share.

 

The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Numerator

                

Net income attributable to Generac Holdings Inc.

 $60,377  $58,270  $118,005  $328,487 

Redeemable noncontrolling interest redemption value adjustment

  (46)  (5,225)  (10,883)  (30,817)

Net income attributable to common shareholders

 $60,331  $53,045  $107,122  $297,670 
                 

Denominator

                

Weighted average shares, basic

  61,368,440   63,249,881   61,552,949   63,480,161 

Dilutive effect of stock compensation awards (1)

  722,723   1,006,814   809,794   1,139,242 

Dilutive effect of contingently issued shares

  -   10,943   -   10,943 

Diluted shares

  62,091,163   64,267,638   62,362,743   64,630,346 
                 

Net income attributable to common shareholders per share

                

Basic

 $0.98  $0.84  $1.74  $4.69 

Diluted

 $0.97  $0.83  $1.72  $4.61 

 

(1) Excludes approximately 370,000 and 344,000 stock options and restricted stock awards for the three and nine months ended September 30, 2023,respectively, because they would be anti-dilutive. Excludes approximately 85,000 and 44,000 stock options and restricted stock awards for the three and nine months ended September 30, 2022, respectively, because they would be anti-dilutive. 

 
v3.23.3
Note 14 - Income Taxes
 9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

14. Income Taxes

 

The effective income tax rates for the nine months ended September 30, 2023 and 2022, were 26.4% and 20.4%, respectively. The increase in the effective tax rate was primarily due to a significantly lower benefit from equity compensation coupled with lower year-over-year pre-tax book income in the current year, and certain favorable discrete tax items in the prior year which did not repeat.

 
v3.23.3
Note 15 - Commitments and Contingencies
 9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]

15. Commitments and Contingencies

 

The Company has an arrangement with a finance company to provide floor plan financing for certain dealers. The Company receives payment from the finance company after shipment of product to the dealer. The Company participates in the cost of dealer financing up to certain limits and has agreed to repurchase products repossessed by the finance company, but does not indemnify the finance company for any credit losses they incur. The amount financed by dealers which remained outstanding under this arrangement on September 30, 2023, and December 31, 2022, was $168.5 million and $212.2 million, respectively.

 

On August 1, 2022, Power Home Solar, LLC d/b/a Pink Energy (“PHS”) filed a lawsuit in the Western District of Virginia against Generac Power Systems, Inc., a wholly-owned subsidiary of the Company (“Generac Power”). The complaint alleges breaches of warranty, product liability, and other various causes of action against Generac Power relating to the sale and performance of certain clean energy equipment and seeks to recover damages, including consequential damages, that PHS allegedly incurred. The Company disputes the allegations in the complaint, including that PHS can seek consequential damages or amounts greater than the $25.0 million liability cap set forth in the agreement between the parties. On September 23, 2022, Generac Power moved to dismiss the complaint and compel arbitration consistent with the parties’ agreement. On October 7, 2022, PHS filed a Chapter 7 bankruptcy petition in the Western District of North Carolina that identified Generac Power as one of its outstanding creditors. The petition listed a $17.7 million liability to Generac Power, which PHS characterized as disputed. The $17.7 million claim relates to equipment that Generac Power sold to PHS but was not paid for. After filing of the bankruptcy petition, the parties filed a joint motion to toll PHS’s deadline to respond to the motion to dismiss and all other pretrial deadlines to allow the bankruptcy trustee to evaluate the complaint, which motion was granted on October 11, 2022. The Trustee has not yet taken further action in this lawsuit. Generac Power intends to vigorously defend against the claims in the complaint, in whichever forum they may proceed.

 

On October 28, 2022, Daniel Haak filed a putative class action lawsuit against Generac Power in the Middle District of Florida. The complaint alleges breaches of warranty, tort-based, and unjust enrichment claims against Generac Power relating to the sale and performance of certain clean energy products, and seeks to recover damages, including consequential damages, that the plaintiff and putative class allegedly incurred. Generac Power disputes the allegations and intends to vigorously defend against the claims in the complaint, including that plaintiff and the putative class can seek consequential damages.

 

Eight additional putative class actions were filed by consumers of Generac clean energy products between November 21, 2022 and July 5, 2023. These complaints assert claims for breaches of warranty, tort-based, statutory, and unjust enrichment claims against Generac Power and/or the Company and seek to recover damages, including consequential damages, that plaintiffs and putative classes allegedly incurred. In some of these cases, the Company as well as Generac Power has been named as a defendant. The cases were filed in or removed to the federal district courts for the Eastern District of Wisconsin (Basler, et al. v. Generac Power Systems, Inc., Case No. 22-cv-01386; Dillon v. Generac Power Systems, Inc., Case No. 23-cv-00034; Kates v. Generac Power Systems, Inc., et al., Case No. 23-cv-00892; and Zukas, et al., v. Generac Power Systems, Inc., et al., Case No. 23-cv-00874), the Northern District of California (Moon v. Generac Power Systems, Inc., et al., Case No. 22-cv-09183; Hufton, et al., v. Generac Power Systems, Inc., et al., Case No. 23-cv-02462), the Eastern District of California (Locatell v. Generac Power Systems, Inc., et al., Case No. 23-cv-00203), and the Eastern District of North Carolina (Baltimore, et al. v. Generac Power Systems, Inc., Case No. 23-cv-00217). Generac Power and the Company dispute the allegations and intend to vigorously defend against the claims in the complaints.

 

On March 3, 2023, the plaintiff in the Moon case filed a motion (the “MDL Motion”) to transfer that case and other pending putative class actions seeking relief for alleged harm purportedly arising in connection with a Generac clean energy product, to a proposed multidistrict litigation. The Judicial Panel on Multidistrict Litigation issued orders that ultimately resulted in all of the putative class actions being coordinated and consolidated for pretrial proceedings in the Eastern District of Wisconsin. Plaintiffs filed their consolidated master complaint on September 1, 2023, and the Company moved to dismiss on October 31, 2023. Generac Power and the Company intend to vigorously defend against the consolidated master complaint.

 

On December 1, 2022, Oakland County Voluntary Employees’ Beneficiary Association and Oakland County Employees’ Retirement System filed a putative securities class action lawsuit against the Company and certain of its officers in the Eastern District of Wisconsin. On January 20, 2023, the California Ironworkers Field Pension Trust filed a related putative securities class action, also in the United States District Court for the Eastern District of Wisconsin. Both complaints assert claims for alleged violation of federal securities law related to disclosures of quality issues in Generac Power’s clean energy product, reliance on channel partners, and accounting for warranty reserves. The plaintiffs seek to represent a class of individuals who purchased or otherwise acquired common stock between April 29, 2021 and November 1, 2022 and seek unspecified compensatory damages and other relief on behalf of a purported class of purchasers of the Company’s stock. On March 14, 2023, the court consolidated the two actions. On May 30, 2023, the court appointed a lead plaintiff. On July 31, 2023, the lead plaintiff filed a consolidated complaint, which raised an additional claim for alleged violation of federal securities law related to the Company’s disclosures concerning demand for home standby generators. The Company moved to dismiss the consolidated complaint on October 9, 2023. The Company disputes the allegations in the operative consolidated complaint and intends to vigorously defend against the claims in the consolidated class action.

 

On February 3, 2023, a purported Company shareholder filed a shareholder derivative action against certain of the Company’s officers and directors in the United States District Court for the Eastern District of Wisconsin. The complaint seeks unspecified damages on behalf of the Company and certain other relief, such as certain reforms to corporate governance practices. The complaint (in which the Company is named as a nominal defendant) generally alleges, among other things, breaches of fiduciary duties in connection with the oversight of the Company’s public statements and legal compliance, and that the Company was damaged as a result of the breaches of fiduciary duties, and the defendants were unjustly enriched. The complaint also alleges, among other things, violations of Sections 14(a), 10(b) and 20(a) of the Securities Exchange Act of 1934, abuse of control, gross mismanagement, and waste of corporate assets. On March 6, 2023, a second shareholder derivative action, making substantially similar allegations, was filed in the same court against certain of the Company’s officers and directors. The complaint (in which the Company is named as a nominal defendant) asserts a single claim for breach of fiduciary duty and seeks unspecified damages on behalf of the Company and certain other relief. On May 2, 2023, the court consolidated the two actions. On May 30, 2023, the court entered an order staying the consolidated action.

 

Between March 20, 2023, and April 11, 2023, three shareholder derivative actions were filed in the Circuit Court of Waukesha County, Wisconsin. The complaints (in which the Company is named as a nominal defendant) assert breaches of fiduciary duty and unjust enrichment, among other claims, based generally on alleged misrepresentations in the Company’s public statements and filings relating to the Company’s clean energy product, reliance on channel partners, and accounting for warranty reserves, among other allegations. Each complaint seeks unspecified damages on behalf of the Company and certain other relief, including certain corporate governance reforms. On June 1, 2023, the court entered an order consolidating the three actions, appointing lead plaintiffs’ counsel, and staying the consolidated actions. The Company disputes the allegations in the shareholder derivative actions and intends to vigorously defend against the claims in the complaints.

 

On  October 28, 2022, Generac Power received a grand jury subpoena from the U.S. Attorney for the Eastern District of Michigan, as a result of which the Company became aware of an enforcement investigation by the U.S. Department of Justice (“DOJ”). The subpoena requests similar documents and information provided by the Company to the U.S. Environmental Protection Agency (“EPA”) and the California Air Resources Board (“CARB”) in response to civil document requests related to the Company’s compliance with emissions regulations for approximately 1.85 thousand portable generators produced by the Company in 2019 and 2020 and sold in 2020. The Company is cooperating with both the DOJ and the EPA and CARB inquiries.

 

On  November 30, 2022, the U.S. CPSC notified the Company of its intention to recommend the imposition of a civil penalty for failing to timely submit a report under section 19(a)(4) of the CPSA, 15 U.S.C. § 2068(a)(4), in relation to certain portable generators that were subject to a voluntary recall previously announced on  July 29, 2021. On May 3, 2023, the parties entered into a mutual settlement agreement. The agreement does not constitute an admission by Generac or a determination by the CPSC that Generac violated the CPSA. The terms of the settlement agreement require the Company to (i) abide by certain customary agency requirements regarding the ongoing commitment to the Company’s internal CPSA compliance practices and program, and (ii) pay a civil fine of $15.8 million. On July 21, 2023, Generac Power received a grand jury subpoena from the U.S. Attorney for the Eastern District of Wisconsin, as a result of which the Company became aware of a continuing inquiry by the DOJ related to its statutory obligations under the CPSA in connection with this matter. The Company is cooperating fully with this investigation and, at this time, is unable to predict the eventual scope, duration or final outcome of such investigation.

 

In 2019, EcoFactor, Inc. started a litigation campaign against smart thermostat manufacturers, including ecobee, Inc., which was acquired by the Company in 2021. EcoFactor accused ecobee of infringing its patents in three lawsuits filed in the United States District Court for the Western District of Texas and one lawsuit pending in the United States District Court for the District of Delaware. On June 23, 2023, a jury issued a verdict in a consolidated action in the Western District of Texas (Case Nos. 21-cv-00428-ADA and 20-cv-00078-ADA) finding that ecobee infringed one of the two patents at issue and awarded a lump-sum payment of $5.4 million for past and future damages. On August 23, 2023, the court issued its final judgment in favor of EcoFactor for $5.4 million, on a total lump-sum basis, together with interest and costs. ecobee filed a motion for judgment as a matter of law and intends to appeal the judgment. There are presently two remaining trials involving EcoFactor. EcoFactor claims ecobee infringes two patents in Case No. 22-cv-00033-ADA, which is scheduled for a jury trial in the Western District of Texas on September 16, 2024, and accuses ecobee of infringing three patents in Case No. 21-cv-00323-ADA, which is currently scheduled for trial on December 11, 2023, in the District of Delaware. ecobee denies infringement and intends to vigorously defend each of the lawsuits.

 

On March 8, 2022, Ollnova Technologies Limited, a non-practicing entity, filed a patent infringement lawsuit against ecobee in the United States District Court for the Eastern District of Texas (Case No. 22-cv-00072-JRG). Ollnova claimed that ecobee infringes on four of its patents. On October 5, 2023, a jury issued a verdict finding one of Ollnova’s patents invalid and that ecobee infringed at least one of the claims of the asserted patents and awarded a lump-sum payment of $11.5 million. ecobee intends to file motions for judgment as a matter of law and an appeal of any adverse verdict.

 

On June 9, 2023, Spartronics Vietnam, Inc., a contract manufacturer of Generac Power’s clean energy products, filed two lawsuits against Generac Power and sub-suppliers accusing Generac Power of fraud, breaching its supply agreement with Spartronics, tortiously interfering with Spartronics’ relationships with its sub-suppliers, and requesting a determination of rights under the parties’ agreements (Spartronics Vietnam, Inc. v. Generac Power Systems, Inc., et al., Case No. 23-cv-00957-MWB (M.D. Pa.); Spartronics Vietnam, Inc. v. Generac Power Systems, Inc., et al., Case No. GD-23-7206 (Pa. Allegheny Cnty.)). Spartronics made similar claims against Generac Power in third-party complaints in lawsuits Spartronics is defending brought by its suppliers (EXIM & Mfr Enter. v. Spartronics Vietnam, Inc., Case No. 23-cv-00660-MWB (M.D. Pa.); JC Global, Inc. v. Spartronics (M.D. Fla. 23-cv-1155); and Circuit Interruption Tech. v. Spartronics Vietnam, Inc., Case No. 23-cv-2140-WMW-DLM (D. Minn.)). Generac Power denies the allegations in the complaints, including that Generac Power is responsible for Spartronics purchasing practices, and has sought and will seek dismissal of the actions in favor of arbitration, as required by Generac Power’s supply agreement with Spartronics, and intends to pursue available claims in connection with the arbitration. 

 

In the opinion of management, it is presently unlikely that any legal or regulatory proceedings pending against or involving the Company will have a material adverse effect on the Company’s financial condition, results of operations or cash flows. However, in many of these matters, it is inherently difficult to determine whether a loss is probable or to estimate the size or range of the possible loss given the variety and potential outcomes of actual and potential claims, the uncertainty of future rulings, the behavior or incentives of adverse parties, and other factors outside the control of the Company. Accordingly, the Company’s loss reserves may change from time to time, and actual losses could exceed the amounts reserved by an amount that could be material to the Company’s consolidated financial position, results of operations or cash flows in any particular reporting period.

 

 
v3.23.3
Insider Trading Arrangements
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2023
Insider Trading Arr Line Items    
Material Terms of Trading Arrangement [Text Block]  

Item 5.           Other Information

 

During the three months ended September 30, 2023, no director or officer of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

 
Rule 10b5-1 Arrangement Adopted [Flag] false  
Non-Rule 10b5-1 Arrangement Adopted [Flag] false  
Rule 10b5-1 Arrangement Terminated [Flag] false  
Non-Rule 10b5-1 Arrangement Terminated [Flag] false  
v3.23.3
Note 3 - Redeemable Noncontrolling Interest (Tables)
 9 Months Ended
Sep. 30, 2023
Notes Tables  
Redeemable Noncontrolling Interest [Table Text Block]
  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Balance at beginning of period

 $5,688  $82,830  $110,471  $58,050 

Net income

  58   1,589   1,728   5,261 

Foreign currency translation

  (153)  (2,708)  (689)  (6,817)

Purchase of additional ownership interest

  -   -   (116,754)  (375)

Redemption value adjustment

  46   5,225   10,883   30,817 

Balance at end of period

 $5,639  $86,936  $5,639  $86,936 
v3.23.3
Note 4 - Derivative Instruments and Hedging Activities (Tables)
 9 Months Ended
Sep. 30, 2023
Notes Tables  
Schedule Of Derivative Assets (Liabilities) at Fair Value [Table Text Block]
  

September 30, 2023

  

December 31, 2022

 
Commodity contracts $9  $- 

Foreign currency contracts

  (181)  94 

Interest rate swaps

  52,360   49,279 
v3.23.3
Note 5 - Fair Value Measurements (Tables)
 9 Months Ended
Sep. 30, 2023
Notes Tables  
Schedule of Business Acquisitions by Acquisition, Contingent Consideration [Table Text Block]

Beginning balance, January 1, 2023

 $81,533 

Changes in fair value

  - 

Additional contingent consideration (1)

  11,490 

Payment of contingent consideration (2)

  (53,786)

Present value interest accretion

  (491)

Ending balance, September 30, 2023

 $38,746 
v3.23.3
Note 6 - Accumulated Other Comprehensive Loss (Tables)
 9 Months Ended
Sep. 30, 2023
Notes Tables  
Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]
  

Foreign Currency Translation Adjustments

   

Unrealized Gain (Loss) on Cash Flow Hedges

   

Total

 

Beginning Balance – July 1, 2023

 $(53,923)  $37,707   $(16,216)

Other comprehensive income (loss)

  (26,443)

(1)

  1,045 

(2)

  (25,398)

Ending Balance – September 30, 2023

 $(80,366)  $38,752   $(41,614)
  

Foreign Currency Translation Adjustments

   

Unrealized Gain (Loss) on Cash Flow Hedges

   

Total

 

Beginning Balance – July 1, 2022

 $(106,645)  $23,806   $(82,839)

Other comprehensive income (loss)

  (51,324)

(3)

  13,757 

(4)

  (37,567)

Ending Balance – September 30, 2022

 $(157,969)  $37,563   $(120,406)
  

Foreign Currency Translation Adjustments

   

Unrealized Gain (Loss) on Cash Flow Hedges

   

Total

 

Beginning Balance – January 1, 2023

 $(101,545)  $36,443   $(65,102)

Other comprehensive income (loss)

  21,179 

(5)

  2,309 

(6)

  23,488 

Ending Balance – September 30, 2023

 $(80,366)  $38,752   $(41,614)
  

Foreign Currency Translation Adjustments

   

Unrealized Gain (Loss) on Cash Flow Hedges

   

Total

 

Beginning Balance – January 1, 2022

 $(52,704)  $(2,051)  $(54,755)

Other comprehensive income (loss)

  (105,265)

(3)

  39,614 

(7)

  (65,651)

Ending Balance – September 30, 2022

 $(157,969)  $37,563   $(120,406)
v3.23.3
Note 7 - Segment Reporting (Tables)
 9 Months Ended
Sep. 30, 2023
Notes Tables  
Disaggregation of Revenue [Table Text Block]
  

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 
Reconciliation of Revenue from Segments to Consolidated [Table Text Block]
  

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 
Schedule of Segment Reporting Information, by Segment [Table Text Block]
  

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 
v3.23.3
Note 8 - Balance Sheet Details (Tables)
 9 Months Ended
Sep. 30, 2023
Notes Tables  
Schedule of Inventory, Current [Table Text Block]
  

September 30,

  

December 31,

 
  

2023

  

2022

 

Raw material

 $766,826  $798,340 

Work-in-process

  14,365   14,899 

Finished goods

  529,938   592,145 

Total

 $1,311,129  $1,405,384 
Property, Plant and Equipment [Table Text Block]
  

September 30,

  

December 31,

 
  

2023

  

2022

 

Land and improvements

 $22,811  $22,589 

Buildings and improvements

  255,165   243,553 

Machinery and equipment

  261,170   229,593 

Dies and tools

  41,536   37,343 

Vehicles

  10,920   9,807 

Office equipment and systems

  178,364   148,166 

Leasehold improvements

  8,494   6,849 

Construction in progress

  59,536   52,522 

Gross property and equipment

  837,996   750,422 

Accumulated depreciation

  (326,103)  (282,818)

Total

 $511,893  $467,604 
v3.23.3
Note 9 - Product Warranty Obligations (Tables)
 9 Months Ended
Sep. 30, 2023
Notes Tables  
Schedule of Product Warranty Liability [Table Text Block]
  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Balance at beginning of period

 $122,222  $110,338  $138,011  $94,213 

Payments

  (24,427)  (22,677)  (76,069)  (54,135)

Provision for warranty issued

  18,136   19,076   51,353   62,169 

Changes in estimates for pre-existing warranties (1)

  3,630   38,571   6,266   43,061 

Balance at end of period

 $119,561  $145,308  $119,561  $145,308 
  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Balance at beginning of period

 $140,922  $121,898  $132,813  $111,647 

Deferred revenue contracts issued

  10,615   10,324   30,774   31,202 

Amortization of deferred revenue contracts

  (6,414)  (5,470)  (18,464)  (16,097)

Balance at end of period

 $145,123  $126,752  $145,123  $126,752 
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Table Text Block]

Remainder of 2023

 $6,521 

2024

  27,066 

2025

  28,060 

2026

  24,554 

2027

  19,461 

After 2027

  39,461 

Total

 $145,123 
Product Warranty Obligations Included In Consolidated Balance Sheet [Table Text Block]
  

September 30,

  

December 31,

 
  

2023

  

2022

 

Product warranty liability

        

Current portion - Accrued product warranty

 $70,572  $89,141 

Long-term portion - other long-term liabilities

  48,989   48,870 

Total

 $119,561  $138,011 
         

Deferred revenue related to extended warranties

        

Current portion - other accrued liabilities

 $23,597  $30,291 

Long-term portion - Deferred revenue

  121,526   102,522 

Total

 $145,123  $132,813 
v3.23.3
Note 11 - Credit Agreements (Tables)
 9 Months Ended
Sep. 30, 2023
Notes Tables  
Schedule of Long-Term Debt Instruments [Table Text Block]
  

September 30,

  

December 31,

 
  

2023

  

2022

 

Tranche A Term Loan

 $750,000  $750,000 

Tranche B Term Loan

  530,000   530,000 

Original issue discount and deferred financing costs

  (13,666)  (16,568)

Revolving Facility

  200,000   90,000 

Finance lease obligation

  30,235   27,420 

Other

  5,909   966 

Total

  1,502,478   1,381,818 

Less: current portion of debt

  33,823   10,083 

Less: current portion of finance lease obligation

  3,514   2,650 

Total

 $1,465,141  $1,369,085 
Schedule of Maturities of Long-Term Debt [Table Text Block]
  

Tranche A Term Loan

  

Tranche B Term Loan

  

Revolving Facility

  

Total

 

2023

 $9,375  $-  $-  $9,375 

2024

  28,125   -   -   28,125 

2025

  46,875   -   -   46,875 

2026

  65,625   530,000   -   595,625 

2027

  600,000   -   200,000   800,000 

Total

 $750,000  $530,000  $200,000  $1,480,000 
v3.23.3
Note 13 - Earnings Per Share (Tables)
 9 Months Ended
Sep. 30, 2023
Notes Tables  
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Numerator

                

Net income attributable to Generac Holdings Inc.

 $60,377  $58,270  $118,005  $328,487 

Redeemable noncontrolling interest redemption value adjustment

  (46)  (5,225)  (10,883)  (30,817)

Net income attributable to common shareholders

 $60,331  $53,045  $107,122  $297,670 
                 

Denominator

                

Weighted average shares, basic

  61,368,440   63,249,881   61,552,949   63,480,161 

Dilutive effect of stock compensation awards (1)

  722,723   1,006,814   809,794   1,139,242 

Dilutive effect of contingently issued shares

  -   10,943   -   10,943 

Diluted shares

  62,091,163   64,267,638   62,362,743   64,630,346 
                 

Net income attributable to common shareholders per share

                

Basic

 $0.98  $0.84  $1.74  $4.69 

Diluted

 $0.97  $0.83  $1.72  $4.61 
v3.23.3
Note 2 - Acquisitions (Details Textual) - USD ($)
$ in Thousands
 9 Months Ended 12 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Dec. 31, 2022
Payments to Acquire Businesses, Net of Cash Acquired $ 15,974 $ 11,421  
EEC and Blue Pillar [Member]      
Payments to Acquire Businesses, Net of Cash Acquired $ 27,456   $ 25,654
v3.23.3
Note 3 - Redeemable Noncontrolling Interest (Details Textual) - USD ($)
$ in Thousands
 1 Months Ended 9 Months Ended
Mar. 08, 2023
Feb. 01, 2019
May 31, 2022
Mar. 31, 2022
May 31, 2021
Sep. 30, 2023
Sep. 30, 2022
Mar. 01, 2016
Payments for Repurchase of Redeemable Noncontrolling Interest           $ 104,844 $ 375  
Pramac [Member]                
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners         20.00%     35.00%
Captiva Energy Solutions [Member]                
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners   49.00%            
Pramac [Member]                
Business Acquisition, Percentage of Voting Interests Acquired         15.00%     65.00%
Redeemable Noncontrolling Interest, Equity, Fair Value, Total               $ 34,253
Payments for Repurchase of Redeemable Noncontrolling Interest $ 116,754       $ 27,164      
Business Combination, Step Acquisition, Equity Interest in Acquiree, including Subsequent Acquisition, Percentage, Total 100.00%       80.00%      
Business Combination, Consideration Transferred $ 105,264              
Payments to Acquire Businesses, Gross 104,844              
Gain (Loss), Foreign Currency Transaction, before Tax 420              
Business Combination, Consideration Transferred, Liabilities Incurred $ 11,490              
Pramac [Member] | Restricted Shares for Contingent Consideration [Member                
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in shares) 135,205              
Captiva Energy Solutions [Member]                
Business Acquisition, Percentage of Voting Interests Acquired   51.00%   15.00%        
Redeemable Noncontrolling Interest, Equity, Fair Value, Total   $ 3,165            
Payments for Repurchase of Redeemable Noncontrolling Interest       $ 461        
Business Combination, Step Acquisition, Equity Interest in Acquiree, including Subsequent Acquisition, Percentage, Total       66.00%        
Business Acquisition, Noncontrolling Interest, Term of Put Option (Year)   5 years            
Captiva Energy Solutions [Member] | Amendment to Purchase Agreement [Member]                
Payments for Repurchase of Redeemable Noncontrolling Interest     $ 375          
v3.23.3
Note 3 - Redeemable Noncontrolling Interest - Redeemable Noncontrolling Interest (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Redemption value adjustment $ (46) $ (5,225) $ (10,883) $ (30,817)
Redeemable Noncontrolling Interest [Member]        
Balance 5,688 82,830 110,471 58,050
Net income 58 1,589 1,728 5,261
Foreign currency translation (153) (2,708) (689) (6,817)
Purchase of additional ownership interest 0 0 (116,754) (375)
Redemption value adjustment 46 5,225 10,883 30,817
Balance $ 5,639 $ 86,936 $ 5,639 $ 86,936
v3.23.3
Note 4 - Derivative Instruments and Hedging Activities (Details Textual)
$ in Thousands
 1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2023
USD ($)
Mar. 31, 2020
Sep. 30, 2023
USD ($)
Sep. 30, 2022
USD ($)
Sep. 30, 2023
USD ($)
Sep. 30, 2022
USD ($)
Dec. 31, 2017
Dec. 31, 2022
USD ($)
Other Comprehensive Income (Loss), Cash Flow Hedge, Gain (Loss), after Reclassification and Tax     $ 1,045 $ 13,757 $ 2,309 $ 39,614    
Derivative Assets (Liabilities), Net Fair Value of Derivative Contracts, Excluding Impact of Credit Risk $ 54,388   54,388   $ 54,388     $ 51,184
Commodity Contract [Member]                
Derivative, Number of Instruments Held, Total       0   0    
Interest Rate Swap [Member]                
Number of New Contracts Entered   3         20  
Other Comprehensive Income (Loss), Cash Flow Hedge, Gain (Loss), after Reclassification and Tax $ 2,309   $ 1,045 $ 13,757   $ 39,614    
v3.23.3
Note 4 - Derivative Instruments and Hedging Activities - Fair Value of Derivatives (Details) - Fair Value, Inputs, Level 2 [Member] - USD ($)
$ in Thousands
Sep. 30, 2023
Dec. 31, 2022
Commodity Contract [Member]    
Derivative $ 9 $ 0
Foreign Exchange Contract [Member]    
Derivative (181) 94
Interest Rate Swap [Member]    
Derivative $ 52,360 $ 49,279
v3.23.3
Note 5 - Fair Value Measurements (Details Textual) - USD ($)
$ in Thousands
 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Mar. 08, 2023
Dec. 31, 2022
Long-Term Debt $ 1,480,000      
Payment for Contingent Consideration Liability, Financing Activities 4,979 $ 16,135    
Pramac [Member]        
Business Combination, Contingent Consideration, Liability     $ 11,490  
ecobee Inc. [Member]        
Payment for Contingent Consideration Liability, Financing Activities 479      
Contingent Consideration, Share Payments, Value 44,521      
Acquisition of Chilicon [Member]        
Contingent Consideration, Share Payments, Value 4,286      
Mean Green [Member]        
Payment for Contingent Consideration Liability, Financing Activities 4,500      
Other Long-term Liabilities [Member]        
Business Combination, Contingent Consideration, Liability 38,746     $ 32,033
Other Accrued Liabilities [Member]        
Business Combination, Contingent Consideration, Liability       $ 49,500
Fair Value, Inputs, Level 2 [Member]        
Debt Instrument, Fair Value Disclosure 530,000      
Term Loan [Member]        
Long-Term Debt $ 524,529      
v3.23.3
Note 5 - Fair Value Measurements - Reconciliation of Contingent Consideration (Details) - Contingent Consideration Liability [Member]
$ in Thousands
 9 Months Ended
Sep. 30, 2023
USD ($)
Balance $ 81,533
Changes in fair value 0
Additional contingent consideration (1) 11,490 [1]
Payment of contingent consideration (2) (53,786) [2]
Present value interest accretion (491)
Balance $ 38,746
[1] Represents $11,490 of contingent deferred consideration for the Pramac buyout. See Note 3, "Redeemable Noncontrolling Interest".
[2] Includes payments of $479 in cash and $44,521 in shares for the ecobee acquisition, $4,286 in shares for the Chilicon acquisition, and $4,500 in cash for the Mean Green Products ("Mean Green") acquisition. The payment of common stock is accounted for as a non-cash item in the condensed consolidated statement of cash flows.
v3.23.3
Note 6 - Accumulated Other Comprehensive Loss (Details Textual) - Accumulated Gain (Loss), Net, Cash Flow Hedge, Parent [Member] - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Other Comprehensive Income (Loss), before Reclassifications, before Tax $ 1,394 $ 18,404 $ 3,081 $ 52,995
Other Comprehensive Income (Loss) before Reclassifications, Tax $ 349 $ 4,647 $ 772 $ 13,381
v3.23.3
Note 6 - Accumulated Other Comprehensive Loss - Disclosure of Changes in Accumulated Other Comprehensive Loss (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Balance $ 2,421,756 $ 2,419,762 $ 2,259,255 $ 2,214,087
Balance 2,366,487 2,319,605 2,366,487 2,319,605
Accumulated Foreign Currency Adjustment Attributable to Parent [Member]        
Balance (53,923) (106,645) (101,545) (52,704)
Other comprehensive income (loss) (26,443) [1] (51,324) [2] 21,179 [3] (105,265) [2]
Balance (80,366) (157,969) (80,366) (157,969)
Accumulated Gain (Loss), Net, Cash Flow Hedge, Parent [Member]        
Balance 37,707 23,806 36,443 (2,051)
Other comprehensive income (loss) 1,045 [4] 13,757 [5] 2,309 [6] 39,614 [7]
Balance 38,752 37,563 38,752 37,563
AOCI Attributable to Parent [Member]        
Balance (16,216) (82,839) (65,102) (54,755)
Other comprehensive income (loss) (25,398) (37,567) 23,488 (65,651)
Balance $ (41,614) $ (120,406) $ (41,614) $ (120,406)
[1] Represents unfavorable impact from the strengthening of the U.S. dollar against foreign currencies during the three months ended September 30, 2023, particularly the Euro, British Pound, and Mexican Peso.
[2] Represents unfavorable impact from the strengthening of the U.S. dollar against foreign currencies during the three and nine months ended September 30, 2022, particularly the Euro and British Pound.
[3] Represents favorable impact from the weakening of the U.S. dollar against foreign currencies during the nine months ended September 30, 2023, particularly the Euro, British Pound, and Mexican Peso.
[4] Represents unrealized gains of $1,394 on the interest rate swaps, net of tax effect of $(349) for the three months ended September 30, 2023.
[5] Represents unrealized gains of $18,404 on the interest rate swaps, net of tax effect of $(4,647) for the three months ended September 30, 2022.
[6] Represents unrealized gains of $3,081 on the interest rate swaps, net of tax effect of $(772) for the nine months ended September 30, 2023.
[7] Represents unrealized gains of $52,995 on the interest rate swaps, net of tax effect of $(13,381) for the nine months ended September 30, 2022.
v3.23.3
Note 7 - Segment Reporting (Details Textual)
$ in Thousands
 3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2023
USD ($)
Mar. 31, 2023
USD ($)
Sep. 30, 2022
USD ($)
Sep. 30, 2023
USD ($)
Sep. 30, 2022
USD ($)
Dec. 31, 2022
Number of Reportable Segments       2    
Provision for Product Charges [1] $ 22,113   $ 55,265 $ 27,913 $ 55,265  
Standard Product Warranty Accrual, Warranty Provision     $ 37,338      
Geographic Concentration Risk [Member] | Revenue Benchmark [Member] | UNITED STATES            
Concentration Risk, Percentage 79.00%   82.00% 77.00% 82.00%  
Geographic Concentration Risk [Member] | Long-lived Assets [Member] | UNITED STATES            
Concentration Risk, Percentage       75.00%   77.00%
Product [Member]            
Provision for Product Charges   $ 5,800,000        
Clean Energy Product [Member]            
Accounts Receivable, Credit Loss Expense (Reversal)     $ 17,926,000      
Standard Product Warranty Accrual, Warranty Provision     $ 37,338,000      
[1] 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 $5.8 million 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 $17.9 million for a clean energy product customer that filed for bankruptcy as well as a warranty provision of $37.3 million to address certain clean energy product warranty-related matters.
v3.23.3
Note 7 - Segment Reporting - Net Sales by Products and Services (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Net sales $ 1,070,667 $ 1,088,258 $ 2,958,997 $ 3,515,505
Residential Power Products [Member]        
Net sales 565,087 664,115 1,482,538 2,337,072
Commercial and Industrial Power Products [Member]        
Net sales 384,533 311,186 1,131,876 899,263
Other Products and Services [Member]        
Net sales 121,047 112,957 344,583 279,170
Domestic [Member]        
Net sales 886,365 931,132 2,395,292 3,003,237
Domestic [Member] | Residential Power Products [Member]        
Net sales 539,775 635,772 1,389,112 2,246,113
Domestic [Member] | Commercial and Industrial Power Products [Member]        
Net sales 238,212 196,485 700,941 515,771
Domestic [Member] | Other Products and Services [Member]        
Net sales 108,378 98,875 305,239 241,353
International [Member]        
Net sales 184,302 157,126 563,705 512,268
International [Member] | Residential Power Products [Member]        
Net sales 25,312 28,343 93,426 90,959
International [Member] | Commercial and Industrial Power Products [Member]        
Net sales 146,321 114,701 430,935 383,492
International [Member] | Other Products and Services [Member]        
Net sales $ 12,669 $ 14,082 $ 39,344 $ 37,817
v3.23.3
Note 7 - Segment Reporting - Total Sales by Reportable Segment (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Total sales $ 1,070,667 $ 1,088,258 $ 2,958,997 $ 3,515,505
External Net Sales [Member]        
Total sales 1,070,667 1,088,258 2,958,997 3,515,505
Intersegment Sales [Member]        
Total sales 0 0 0 0
Intersegment Eliminations [Member]        
Total sales (30,933) (40,901) (118,038) (103,817)
Intersegment Eliminations [Member] | External Net Sales [Member]        
Total sales 0 0 0 0
Intersegment Eliminations [Member] | Intersegment Sales [Member]        
Total sales (30,933) (40,901) (118,038) (103,817)
Domestic [Member]        
Total sales 886,365 931,132 2,395,292 3,003,237
Domestic [Member] | Operating Segments [Member]        
Total sales 894,005 946,617 2,429,252 3,047,979
Domestic [Member] | Operating Segments [Member] | External Net Sales [Member]        
Total sales 886,365 931,132 2,395,292 3,003,237
Domestic [Member] | Operating Segments [Member] | Intersegment Sales [Member]        
Total sales 7,640 15,485 33,960 44,742
International [Member]        
Total sales 184,302 157,126 563,705 512,268
International [Member] | Operating Segments [Member]        
Total sales 207,595 182,542 647,783 571,343
International [Member] | Operating Segments [Member] | External Net Sales [Member]        
Total sales 184,302 157,126 563,705 512,268
International [Member] | Operating Segments [Member] | Intersegment Sales [Member]        
Total sales $ 23,293 $ 25,416 $ 84,078 $ 59,075
v3.23.3
Note 7 - Segment Reporting - Segment Information (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
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) [1] (2,055) 6,840 5,257 10,025
Non-cash share-based compensation expense (2) [2] (9,927) (6,861) (30,306) (23,423)
Loss on extinguishment of debt [3] 0 0 0 (3,743)
Transaction costs and credit facility fees (4) [4] (921) (1,250) (3,161) (3,831)
Business optimization and other charges (5) [5] (5,291) (622) (8,151) (3,371)
Provision for regulatory, legal, and clean energy product charges (6) [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
Domestic [Member]        
Total adjusted EBITDA 160,270 159,810 331,134 572,159
International [Member]        
Total adjusted EBITDA $ 28,332 $ 24,006 $ 94,088 $ 79,532
[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 $5.8 million 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 $17.9 million for a clean energy product customer that filed for bankruptcy as well as a warranty provision of $37.3 million to address certain clean energy product warranty-related matters.
v3.23.3
Note 8 - Balance Sheet Details (Details Textual) - USD ($)
$ in Thousands
Sep. 30, 2023
Dec. 31, 2022
Finance Lease, Right-of-Use Asset, after Accumulated Amortization $ 27,168 $ 24,719
v3.23.3
Note 8 - Balance Sheet Details - Inventories (Details) - USD ($)
$ in Thousands
Sep. 30, 2023
Dec. 31, 2022
Raw material $ 766,826 $ 798,340
Work-in-process 14,365 14,899
Finished goods 529,938 592,145
Total $ 1,311,129 $ 1,405,384
v3.23.3
Note 8 - Balance Sheet Details - Property and Equipment (Details) - USD ($)
$ in Thousands
Sep. 30, 2023
Dec. 31, 2022
Property and equipment, gross $ 837,996 $ 750,422
Accumulated depreciation (326,103) (282,818)
Total 511,893 467,604
Land and Land Improvements [Member]    
Property and equipment, gross 22,811 22,589
Building and Building Improvements [Member]    
Property and equipment, gross 255,165 243,553
Machinery and Equipment [Member]    
Property and equipment, gross 261,170 229,593
Dies and Tools [Member]    
Property and equipment, gross 41,536 37,343
Vehicles [Member]    
Property and equipment, gross 10,920 9,807
Office Equipment [Member]    
Property and equipment, gross 178,364 148,166
Leasehold Improvements [Member]    
Property and equipment, gross 8,494 6,849
Construction in Progress [Member]    
Property and equipment, gross $ 59,536 $ 52,522
v3.23.3
Note 9 - Product Warranty Obligations (Details Textual) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2022
Sep. 30, 2023
Standard Product Warranty Accrual, Warranty Provision $ 37,338  
Minimum [Member]    
Extended Warranty Term (Year)   5 years
Maximum [Member]    
Extended Warranty Term (Year)   10 years
v3.23.3
Note 9 - Product Warranty Obligations - Reconciliation of Product Warranty Liability (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Balance at beginning of period $ 122,222 $ 110,338 $ 138,011 $ 94,213
Payments (24,427) (22,677) (76,069) (54,135)
Provision for warranty issued 18,136 19,076 51,353 62,169
Changes in estimates for pre-existing warranties (1) [1] 3,630 38,571 6,266 43,061
Balance at end of period 119,561 145,308 119,561 145,308
Balance at beginning of period 140,922 121,898 132,813 111,647
Deferred revenue contracts issued 10,615 10,324 30,774 31,202
Amortization of deferred revenue contracts (6,414) (5,470) (18,464) (16,097)
Balance at end of period $ 145,123 $ 126,752 $ 145,123 $ 126,752
[1] Includes a specific warranty provision recorded during the third quarter of 2022 in the amount of $37,338 to address certain clean energy product warranty-related matters.
v3.23.3
Note 9 - Product Warranty Obligations - Recognition of Deferred Revenue Related to Extended Warranties (Details)
$ in Thousands
Sep. 30, 2023
USD ($)
Revenue performance obligation $ 145,123
v3.23.3
Note 9 - Product Warranty Obligations - Recognition of Deferred Revenue Related to Extended Warranties 2 (Details)
$ in Thousands
Sep. 30, 2023
USD ($)
Revenue performance obligation $ 145,123
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-10-01  
Revenue performance obligation 6,521
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-01-01  
Revenue performance obligation 27,066
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2025-01-01  
Revenue performance obligation 28,060
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2026-01-01  
Revenue performance obligation 24,554
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2027-01-01  
Revenue performance obligation 19,461
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2028-01-01  
Revenue performance obligation $ 39,461
v3.23.3
Note 9 - Product Warranty Obligations - Recognition of Deferred Revenue Related to Extended Warranties (Details) (Parentheticals)
Sep. 30, 2023
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-10-01  
Revenue performance period (Year) 3 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-01-01  
Revenue performance period (Year) 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2025-01-01  
Revenue performance period (Year) 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2026-01-01  
Revenue performance period (Year) 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2027-01-01  
Revenue performance period (Year) 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2028-01-01  
Revenue performance period (Year) 1 year
v3.23.3
Note 9 - Product Warranty Obligations - Deferred Product Obligations (Details) - USD ($)
$ in Thousands
Sep. 30, 2023
Jun. 30, 2023
Dec. 31, 2022
Sep. 30, 2022
Jun. 30, 2022
Dec. 31, 2021
Current portion - Accrued product warranty $ 70,572   $ 89,141      
Long-term portion - other long-term liabilities 48,989   48,870      
Total 119,561 $ 122,222 138,011 $ 145,308 $ 110,338 $ 94,213
Current portion - other accrued liabilities 23,597   30,291      
Long-term portion - Deferred revenue 121,526   102,522      
Total $ 145,123 $ 140,922 $ 132,813 $ 126,752 $ 121,898 $ 111,647
v3.23.3
Note 10 - Contract Balances (Details Textual) - USD ($)
$ in Thousands
 9 Months Ended
Sep. 30, 2023
Dec. 31, 2022
Contract with Customer, Liability $ 17,871 $ 33,551
Contract with Customer, Liability, Revenue Recognized $ 30,252  
v3.23.3
Note 11 - Credit Agreements (Details Textual) - USD ($)
$ in Thousands
 1 Months Ended 3 Months Ended 7 Months Ended 9 Months Ended
Jan. 01, 2023
May 31, 2013
Jun. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Jun. 30, 2022
Dec. 31, 2022
Sep. 30, 2023
Sep. 30, 2022
Short-Term Debt       $ 74,346     $ 48,990 $ 74,346  
Gain (Loss) on Extinguishment of Debt, Total [1]       0 $ 0     $ 0 $ (3,743)
Revolving Credit Facility [Member]                  
Line of Credit Facility, Maximum Borrowing Capacity     $ 1,250,000     $ 1,250,000      
Covenant Maximum Total Leverage Ratio               3.75  
Covenant Minimum Interest Coverage Ratio               3  
Total Leverage Ratio               2.37  
Interest Coverage Ratio               7  
Debt Issuance Costs, Net, Total     10,330     10,330      
Debt Instrument, Fee Amount     800     800      
Long-Term Line of Credit       200,000       $ 200,000  
Line of Credit Facility, Remaining Borrowing Capacity       1,049,945       1,049,945  
Line of Credit Facility, Current Borrowing Capacity       $ 822,111       $ 822,111  
ABL Revolving Credit Facility [Member]                  
Write off of Deferred Debt Issuance Cost     197            
Tranche B Term Loan Facility [Member]                  
Long-Term Debt, Maturity Date   Dec. 13, 2026              
Line of Credit Facility, Maximum Borrowing Capacity   $ 1,200,000              
Uncommitted Incremental Term Loan Facility   $ 300,000              
Debt Instrument, SOFR Floor       0.00%       0.00%  
Debt Instrument, Interest Rate, Effective Percentage       7.18%       7.18%  
Repayments of Long-Term Debt, Total     $ 250,000            
Gain (Loss) on Extinguishment of Debt, Total           $ 3,546      
Tranche B Term Loan Facility [Member] | Maximum [Member]                  
Threshold for Secured Leverage Ratio Excess Cash Flow Payment Requirement               3.75  
Secured Leverage Ratio               2.25  
Tranche B Term Loan Facility [Member] | Base Rate [Member]                  
Debt Instrument, Basis Spread on Variable Rate   1.75%           0.75%  
Tranche B Term Loan Facility [Member] | Adjusted LIBOR Rate [Member]                  
Debt Instrument, Basis Spread on Variable Rate   2.75%              
Tranche B Term Loan Facility [Member] | LIBOR Floor Rate [Member]                  
Debt Instrument, Basis Spread on Variable Rate   0.75%              
Tranche B Term Loan Facility [Member] | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member]                  
Debt Instrument, Basis Spread on Variable Rate               1.75%  
Tranche A Term Loan Facility and Revolving Credit Facility [Member]                  
Long-Term Debt, Maturity Date     Jun. 29, 2027     Jun. 29, 2027      
Debt Instrument, SOFR Floor 0.00%   0.00%     0.00%      
Debt Instrument, Interest Rate, Effective Percentage       7.10%       7.10%  
Tranche A Term Loan Facility and Revolving Credit Facility [Member] | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member]                  
Debt Instrument, Basis Spread on Variable Rate             1.50%    
Tranche A Term Loan Facility and Revolving Credit Facility [Member] | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Maximum [Member]                  
Debt Instrument, Basis Spread on Variable Rate 1.75%                
Tranche A Term Loan Facility and Revolving Credit Facility [Member] | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Minimum [Member]                  
Debt Instrument, Basis Spread on Variable Rate 1.25%                
Tranche A Term Loan Facility [Member]                  
Line of Credit Facility, Maximum Borrowing Capacity     $ 750,000     $ 750,000      
[1] Represents the write-off of original issue discount and capitalized debt issuance costs due to voluntary debt prepayment.
v3.23.3
Note 11 - Credit Agreements - Long-term Borrowings (Details) - USD ($)
$ in Thousands
Sep. 30, 2023
Dec. 31, 2022
Original issue discount and deferred financing costs $ (13,666) $ (16,568)
Finance lease obligation 30,235 27,420
Other 5,909 966
Total 1,502,478 1,381,818
Less: current portion of debt 33,823 10,083
Less: current portion of finance lease obligation (3,514) (2,650)
Total 1,465,141 1,369,085
Revolving Credit Facility [Member]    
Revolving Facility 200,000 90,000
Tranche A Term Loan Facility [Member]    
Term Loan 750,000 750,000
Tranche B Term Loan Facility [Member]    
Term Loan $ 530,000 $ 530,000
v3.23.3
Note 11 - Credit Agreements - Maturities of Long-term Borrowings Outstanding (Details)
$ in Thousands
Sep. 30, 2023
USD ($)
2023 $ 9,375
2024 28,125
2025 46,875
2026 595,625
2027 800,000
Total 1,480,000
Tranche A Term Loan Facility [Member]  
2023 9,375
2024 28,125
2025 46,875
2026 65,625
2027 600,000
Total 750,000
Tranche B Term Loan Facility [Member]  
2023 0
2024 0
2025 0
2026 530,000
2027 0
Total 530,000
ABL Revolving Credit Facility [Member]  
2023 0
2024 0
2025 0
2026 0
2027 200,000
Total $ 200,000
v3.23.3
Note 12 - Stock Repurchase Program (Details Textual) - USD ($)
$ / shares in Units, $ in Thousands
 1 Months Ended 3 Months Ended 9 Months Ended 98 Months Ended
Aug. 31, 2022
Sep. 30, 2020
Sep. 30, 2023
Jun. 30, 2023
Mar. 31, 2023
Sep. 30, 2022
Jun. 30, 2022
Mar. 31, 2022
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Aug. 05, 2022
Stock Repurchase Program, Authorized Amount   $ 250,000                   $ 500,000
Stock Repurchase Program, Period in Force (Month) 24 years 24 months                    
Treasury Stock, Value, Acquired, Cost Method     $ 100,267     $ 123,900     $ 100,267 $ 123,900    
Treasury Stock, Common [Member]                        
Treasury Stock, Shares, Acquired (in shares)     875,580     536,633     875,580 536,633    
Treasury Stock, Value, Acquired, Cost Method     $ 100,267     $ 123,900     $ 100,267 $ 123,900    
Stock Repurchase Program [Member] | Treasury Stock, Common [Member]                        
Treasury Stock, Shares, Acquired (in shares)     875,580 0 0 536,633 0 0     12,624,293  
Treasury Stock, Value, Acquired, Cost Method     $ 100,267     $ 123,900         $ 877,396  
Shares Acquired, Average Cost Per Share (in dollars per share)                     $ 69.5  
v3.23.3
Note 13 - Earnings Per Share (Details Textual) - shares
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Share-Based Payment Arrangement [Member]        
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) 370,000 85,000 344,000 44,000
v3.23.3
Note 13 - Earnings Per Share - Reconciliation of Basic and Diluted Earnings Per Share (Details) - USD ($)
$ / shares in Units, $ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Net income attributable to Generac Holdings Inc. $ 60,377 $ 58,270 $ 118,005 $ 328,487
Redeemable noncontrolling interest redemption value adjustment (46) (5,225) (10,883) (30,817)
Net income attributable to common shareholders $ 60,331 $ 53,045 $ 107,122 $ 297,670
Weighted average shares, basic (in shares) 61,368,440 63,249,881 61,552,949 63,480,161
Dilutive effect of stock compensation awards (in shares) [1] 722,723 1,006,814 809,794 1,139,242
Dilutive effect of contingently issued shares (in shares) 0 10,943 0 10,943
Diluted shares (in shares) 62,091,163 64,267,638 62,362,743 64,630,346
Net income attributable to Generac Holdings Inc. per common share - basic: (in dollars per share) $ 0.98 $ 0.84 $ 1.74 $ 4.69
Net income attributable to Generac Holdings Inc. per common share - diluted: (in dollars per share) $ 0.97 $ 0.83 $ 1.72 $ 4.61
[1] Excludes approximately 370,000 and 344,000 stock options and restricted stock awards for the three and nine months ended September 30, 2023, respectively, because they would be anti-dilutive. Excludes approximately 85,000 and 44,000 stock options and restricted stock awards for the three and nine months ended September 30, 2022, respectively, because they would be anti-dilutive.
v3.23.3
Note 14 - Income Taxes (Details Textual)
 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Effective Income Tax Rate Reconciliation, Percent 26.40% 20.40%
v3.23.3
Note 15 - Commitments and Contingencies (Details Textual) - USD ($)
Oct. 05, 2023
Aug. 23, 2023
Jun. 23, 2023
May 03, 2023
Aug. 01, 2022
Sep. 30, 2023
Dec. 31, 2022
Oct. 07, 2022
Amount Financed by Dealers           $ 168,500 $ 212,200  
Power Home Solar, LLC [Member] | Collectibility of Receivables [Member]                
Accounts Receivable, before Allowance for Credit Loss               $ 17,700
Consumer Product Safety Commission [Member]                
Settlement Agreement, Civil Fine Payments       $ 15,800        
Power Home Solar, LLC Against Generac Power Systems, Inc. [Member] | Minimum [Member]                
Loss Contingency, Damages Sought, Value         $ 25,000      
Case Nos. 21-cv-00428-ADA and 20-cv-00078-ADA [Member]                
Litigation Settlement, Amount Awarded to Other Party   $ 5,400,000 $ 5,400,000          
Case No. 22-cv-00072-JRG [Member] | Subsequent Event [Member]                
Litigation Settlement, Amount Awarded to Other Party $ 11,500,000              
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