Note 7 - Segment Reporting

6 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

7.   Segment Reporting

The Company has two reportable segments for financial reporting purposes – Domestic and International. The Domestic segment includes the legacy Generac business (excluding its traditional Latin American export operations), and the acquisitions that are based in the U.S. and Canada, all of which have revenues substantially derived from the U.S. and Canada. The International segment includes the legacy Generac business’ Latin American export operations, and the Ottomotores, Tower Light, Pramac, Motortech, Selmec, Deep Sea, and Off Grid Energy 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 and regional considerations.

The Company's product offerings consist primarily of power generation equipment, energy storage systems, grid service devices & solutions, and other power products geared for varying end customer uses. Residential products and 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 and services by reportable segment is as follows:

	Net Sales by Segment
	Three Months Ended June 30, 2022
Product Classes	Domestic		International		Total
Residential products	$	860,014	$	35,999	$	896,013
Commercial & industrial products		173,549		135,799		309,348
Other		73,868		12,162		86,030
Total net sales	$	1,107,431	$	183,960	$	1,291,391

	Net Sales by Segment
	Three Months Ended June 30, 2021
Product Classes	Domestic		International		Total
Residential products	$	583,341	$	16,650	$	599,991
Commercial & industrial products		143,654		110,641		254,295
Other		57,151		8,544		65,695
Total net sales	$	784,146	$	135,835	$	919,981

	Net Sales by Segment
	Six Months Ended June 30, 2022
Product Classes	Domestic		International		Total
Residential products	$	1,610,341	$	62,616	$	1,672,957
Commercial & industrial products		319,286		268,791		588,077
Other		142,478		23,735		166,213
Total net sales	$	2,072,105	$	355,142	$	2,427,247

	Net Sales by Segment
	Six Months Ended June 30, 2021
Product Classes	Domestic		International		Total
Residential products	$	1,105,556	$	36,584	$	1,142,140
Commercial & industrial products		261,533		195,153		456,686
Other		109,795		18,794		128,589
Total net sales	$	1,476,884	$	250,531	$	1,727,415

Residential products consist primarily of automatic home standby generators ranging in output from 7.5kW to 150kW, portable generators, energy storage systems, energy management devices & solutions, and other outdoor power equipment. These products are predominantly sold through independent residential dealers, national and regional retailers, e-commerce merchants, electrical/HVAC/solar wholesalers, solar installers, and outdoor power equipment dealers. The residential products revenue consists of the sale of the product to our distribution partners, which in turn sell or rent the product to the end consumer, including installation and maintenance services. In some cases, residential products are sold direct to the end consumer. Substantially all of the residential products revenues are transferred to the customer at a point in time.

C&I products consist of larger output stationary generators used in C&I applications with power outputs up to 3,250kW. Also included in C&I products are mobile generators, light towers, mobile energy storage systems, mobile heaters, mobile pumps, and related controllers. 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 in turn sell or rent the product to the end customer, including installation and maintenance services. In some cases, C&I products are sold direct to the end customer. Substantially all of the C&I products revenues are transferred to the customer at a point in time.

Other consists primarily of aftermarket service parts and product accessories sold to our customers, the amortization of extended warranty deferred revenue, remote monitoring and grid services subscription revenue, as well as certain installation and maintenance service revenue. The aftermarket service parts and product accessories are generally transferred to the customer at a point in time, while the extended warranty revenue and subscription revenue are recognized over the life of the contract. Other service revenue is recognized when the service is performed.

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

	Three Months Ended June 30, 2022									Three Months Ended June 30, 2021
	Domestic		International		Eliminations			Total		Domestic		International		Eliminations			Total
External net sales	$	1,107,431	$	183,960	$	-		$	1,291,391	$	784,146	$	135,835	$	-		$	919,981
Intersegment sales		18,987		19,334		(38,321	)		-		8,798		6,549		(15,347	)		-
Total sales	$	1,126,418	$	203,294	$	(38,321	)	$	1,291,391	$	792,944	$	142,384	$	(15,347	)	$	919,981

	Six Months Ended June 30, 2022									Six Months Ended June 30, 2021
	Domestic		International		Eliminations			Total		Domestic		International		Eliminations			Total
External net sales	$	2,072,105	$	355,142	$	-		$	2,427,247	$	1,476,884	$	250,531	$	-		$	1,727,415
Intersegment sales		29,257		33,659		(62,916	)		-		15,479		8,552		(24,031	)		-
Total sales	$	2,101,362	$	388,801	$	(62,916	)	$	2,427,247	$	1,492,363	$	259,083	$	(24,031	)	$	1,727,415

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 June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Domestic	$	241,928		$	203,931		$	412,349		$	411,004
International		29,534			13,748			55,526			20,869
Total adjusted EBITDA	$	271,462		$	217,679		$	467,875		$	431,873
Interest expense		(10,235	)		(7,721	)		(19,789	)		(15,444	)
Depreciation and amortization		(39,098	)		(21,229	)		(77,559	)		(39,466	)
Non-cash write-down and other adjustments (1)		(4,607	)		(1,173	)		3,185			2,695
Non-cash share-based compensation expense (2)		(7,735	)		(6,973	)		(16,562	)		(12,421	)
Loss on extinguishment of debt (3)		(3,743	)		(831	)		(3,743	)		(831	)
Transaction costs and credit facility fees (4)		(1,592	)		(5,172	)		(2,581	)		(6,086	)
Business optimization and other charges (5)		(1,590	)		-			(2,749	)		(159	)
Other		601			(309	)		890			(577	)
Income before provision for income taxes	$	203,463		$	174,271		$	348,967		$	359,584

(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 non-cash write-off of original issue discount and deferred financing costs due primarily to a voluntary prepayment of Term Loan debt.

(4)	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.
(5)	The current year period predominantly represents severance and other non-recurring restructuring charges related to the suspension of operations at certain of our facilities.

The Company’s sales in the U.S. represented approximately 82% of total sales for the three months ended June 30, 2022 and 2021. The Company’s sales in the U.S. represented approximately 82% and 83% of total sales for the six months ended June 30, 2022 and 2021, respectively. Approximately 77% and 75% of the Company’s identifiable long-lived assets were located in the U.S. at  June 30, 2022 and December 31, 2021, respectively.