Note 7 - Segment Reporting

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

7.   Segment Reporting

The Company has two reportable segments for financial reporting purposes – Domestic and International. The Domestic segment includes the legacy Generac business (excluding its traditional Latin American export operations), and the acquisitions that are based in the U.S. and Canada, all of which have revenues that are substantially derived from the U.S. and Canada. The International segment includes the legacy Generac business’s Latin American export operations, and the Ottomotores, Tower Light, Pramac, Motortech and Selmec acquisitions, all of which have revenues that are substantially derived from outside the U.S and Canada. Both reportable segments design and manufacture a wide range of power generation equipment, 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 and regional considerations.

The Company's product offerings consist primarily of power generation equipment, energy technology solutions, and other power products geared for varying end customer uses. Residential products and commercial & industrial (C&I) products are each a similar class of products based on similar power output and end customer. The breakout of net sales between residential, C&I, and other products by reportable segment is as follows:

	Net Sales by Segment
	Three Months Ended March 31, 2020
Product Classes	Domestic		International		Total
Residential products	$	243,830	$	13,789	$	257,619
Commercial & industrial products		95,827		76,239		172,066
Other		36,373		9,857		46,230
Total net sales	$	376,030	$	99,885	$	475,915

	Net Sales by Segment
	Three Months Ended March 31, 2019
Product Classes	Domestic		International		Total
Residential products	$	204,259	$	13,571	$	217,830
Commercial & industrial products		120,825		88,299		209,124
Other		31,414		11,985		43,399
Total net sales	$	356,498	$	113,855	$	470,353

Residential products consist primarily of automatic home standby generators ranging in output from 6kW to 60kW, portable generators, energy storage and monitoring 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 in turn sell or rent the product to the end consumer, including installation and maintenance services. In some cases, residential products are sold direct to the end consumer. Substantially all of the residential products revenues are transferred to the customer at a point in time.

C&I products consist of larger output stationary generators used in C&I applications and fueled by diesel, natural gas, liquid propane and bi-fuel, with power outputs ranging from 10kW up to 3,250kW. Also included in C&I products are commercial-grade mobile generators, light towers, mobile heaters and mobile pumps. These products are predominantly sold 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 in turn sell or rent the product to the end customer, including installation and maintenance services. In some cases, C&I products are sold direct to the end customer. Substantially all of the C&I products revenues are transferred to the customer at a point in time.

Other products and services consist primarily of aftermarket service parts and product accessories sold to our dealers, the amortization of extended warranty deferred revenue, and remote monitoring subscription 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.

Management evaluates the performance of its segments based primarily on Adjusted EBITDA, which is reconciled to Income before provision for income taxes below. The computation of Adjusted EBITDA is based on the definition contained in the Company’s credit agreements.

	Adjusted EBITDA
	Three Months Ended March 31,
	2020			2019
Domestic	$	82,775		$	81,228
International		3,250			5,900
Total adjusted EBITDA	$	86,025		$	87,128
Interest expense		(9,053	)		(10,272	)
Depreciation and amortization		(16,116	)		(12,607	)
Non-cash write-down and other adjustments (1)		(2,284	)		1,400
Non-cash share-based compensation expense (2)		(4,574	)		(3,594	)
Transaction costs and credit facility fees (3)		(234	)		(1,286	)
Business optimization expenses (4)		(512	)		(169	)
Other		(397	)		154
Income before provision for income taxes	$	52,855		$	60,754

(1) Includes certain foreign currency and purchase accounting related adjustments, gains/losses on disposal of assets, and unrealized mark-to-market adjustments on commodity contracts.

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

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

(4) Represents severance and other non-recurring restructuring charges related to the consolidation of certain of our facilities.

In the fourth quarter of 2019, management determined that the Latin American export operations of the legacy Generac business (GPS LATAM) should have been included in the International reportable segment beginning in 2018. Previously, GPS LATAM was reported in the Domestic segment, in amounts that were not material. To reflect this change, management has chosen to correct the net sales and adjusted EBITDA by segment as follows: For the first quarter ended in 2019, net sales of $2,750, and adjusted EBITDA of $(253), were moved from the Domestic segment to the International segment.

The Company’s sales in the United States represented approximately 77% and 72% of total sales for the three months ended March 31, 2020 and 2019, respectively. Approximately 82% and 80% of the Company’s identifiable long-lived assets were located in the United States at  March 31, 2020 and December 31, 2019, respectively.