0001474735 GENERAC HOLDINGS INC. false --12-31 FY 2023 33,925 27,664 0.01 0.01 500,000,000 500,000,000 73,195,055 72,701,257 13,057,298 11,284,350 0 0 0 0 0 0 3,923 3,919 3,819 1,028 5 5 0 0 0 0 0 0 0 20 3 147 2 80 96,595 91,694 84,833 58,065 5 10 24 74,480 112,945 4 10 17,376 3 3 27,223 1,886 true false false false Represents favorable impact from the weakening of the U.S. dollar against foreign currencies during the year ended December 31, 2023, particularly the Euro, British Pound, and Mexican Peso. Recorded in the operating lease and other long-term liabilities line within the consolidated balance sheets Represents the non-cash write-off of original issue discount and deferred financing costs due primarily to a voluntary prepayment of debt. Represents severance and other restructuring charges related to the consolidation of certain operating facilities and organizational functions. Recorded in the other accrued liabilities line within the consolidated balance sheets Includes a specific warranty provision recorded during the third quarter of 2022 in the amount of $37,338 to address certain clean energy product related matters. he contingent consideration for the period ended June 30, 2022, was paid during the fourth quarter of 2022 in the amount of $47,123 in shares of common stock, or 196,531 shares of common stock, and $542 was paid with cash on hand. Additionally, during the fourth quarter of 2022, the Company entered into a definitive agreement to accelerate the measurement and payment for the remaining contingent consideration period ending June 30, 2023. The parties agreed to a final payment amount of $45,000 issued with 466,188 shares of common stock and $479 of cash. The $45,000 was paid during the first quarter of 2023. Recorded in the operating lease and other assets line within the consolidated balance sheets Includes a specific credit loss provision of $17,926 recorded during the third quarter of 2022 for a clean energy product customer that filed for bankruptcy. Represents unfavorable impact from the strengthening of the U.S. dollar against foreign currencies during the year ended December 31, 2022, particularly the Euro and British Pound. Represents the following significant and unusual charges not indicative of our ongoing operations: • a provision for judgments and legal expenses related to certain patent and securities lawsuits - $28,340 in 2023. • a provision 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 - $5,800 in 2023; $10,000 in 2022. • a bad debt provision and additional customer support costs for a clean energy product customer that filed for bankruptcy in 2022 – $4,350 additional customer support costs in 2023; $17,926 bad debt provision 2022. • a warranty provision to address certain clean energy product warranty-related matters - $37,338 in 2022. Includes a payment for a purchase option reasonably certain to be exercised in 2025. Represents unrealized gains of $51,352 on the interest rate swaps, net of tax effect of $(12,858) for the year ended December 31, 2022. Payable on the third business day after December 31, 2023. With the adoption of ASU 2016-09 in 2017, excess tax benefits from equity awards are reflected within the provision for income taxes rather than within the consolidated balance sheet. Includes additional pro forma intangible amortization from all acquisitions as though the transactions had occurred on January 1, 2021 of $111, $2,465, and $70,152 for the years ended December 31, 2023, 2022, and 2021, respectively. Represents share-based compensation expense to account for stock options, restricted stock and other stock awards over their respective vesting periods. 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. 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 acquisition. The payment of common stock is accounted for as a non-cash item in the consolidated statement of cash flows. Result of adopting ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Includes a payment for a purchase option reasonably certain to be exercised in 2025. Represents unrealized losses of $10,678 on the interest rate swaps, net of tax effect of $(2,674) for the year ended December 31, 2023. Recorded in the current portion of long-term borrowings and finance lease obligations line within the consolidated balance sheets There were no awards with an anti-dilutive impact for the years ended December 31, 2021, 2020 and 2019. Recorded in the property and equipment, net line within the consolidated balance sheets Payable in common stock issued upon achievement of certain performance targets within 45 calendar days following the conclusion of the earnout period, December 31, 2025. Recorded in the long-term borrowings and finance lease obligations line within the consolidated balance sheets Represents $11,490 of contingent deferred consideration for the Pramac buyout. See Note 3, "Redeemable Noncontrolling Interest". Deductions from the allowance for doubtful accounts equal accounts receivable written off against the allowance, less recoveries, as well as foreign currency translation adjustments. Deductions from the reserves for inventory excess and obsolete items equal inventory written off against the reserve as items were disposed of, as well as foreign currency translation adjustments. Represents severance and other restructuring charges related to the consolidation of certain operating facilities and organizational functions. 1 1 1 1 1 00014747352023-01-012023-12-31 iso4217:USD 00014747352023-06-30 xbrli:shares 00014747352024-02-16 thunderdome:item 00014747352023-12-31 00014747352022-12-31 iso4217:USDxbrli:shares 00014747352022-01-012022-12-31 00014747352021-01-012021-12-31 0001474735us-gaap:CommonStockMember2020-12-31 0001474735us-gaap:AdditionalPaidInCapitalMember2020-12-31 0001474735us-gaap:TreasuryStockCommonMember2020-12-31 0001474735gnrc:ExcessPurchasePriceOverPredecessorBasisMember2020-12-31 0001474735us-gaap:RetainedEarningsMember2020-12-31 0001474735us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-31 0001474735us-gaap:ParentMember2020-12-31 0001474735us-gaap:NoncontrollingInterestMember2020-12-31 00014747352020-12-31 0001474735us-gaap:CommonStockMember2021-01-012021-12-31 0001474735us-gaap:AdditionalPaidInCapitalMember2021-01-012021-12-31 0001474735us-gaap:TreasuryStockCommonMember2021-01-012021-12-31 0001474735gnrc:ExcessPurchasePriceOverPredecessorBasisMember2021-01-012021-12-31 0001474735us-gaap:RetainedEarningsMember2021-01-012021-12-31 0001474735us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-12-31 0001474735us-gaap:ParentMember2021-01-012021-12-31 0001474735us-gaap:NoncontrollingInterestMember2021-01-012021-12-31 0001474735us-gaap:CommonStockMember2021-12-31 0001474735us-gaap:AdditionalPaidInCapitalMember2021-12-31 0001474735us-gaap:TreasuryStockCommonMember2021-12-31 0001474735gnrc:ExcessPurchasePriceOverPredecessorBasisMember2021-12-31 0001474735us-gaap:RetainedEarningsMember2021-12-31 0001474735us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-31 0001474735us-gaap:ParentMember2021-12-31 0001474735us-gaap:NoncontrollingInterestMember2021-12-31 00014747352021-12-31 0001474735us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-12-31 0001474735us-gaap:ParentMember2022-01-012022-12-31 0001474735us-gaap:CommonStockMember2022-01-012022-12-31 0001474735us-gaap:AdditionalPaidInCapitalMember2022-01-012022-12-31 0001474735us-gaap:TreasuryStockCommonMember2022-01-012022-12-31 0001474735gnrc:ExcessPurchasePriceOverPredecessorBasisMember2022-01-012022-12-31 0001474735us-gaap:RetainedEarningsMember2022-01-012022-12-31 0001474735us-gaap:NoncontrollingInterestMember2022-01-012022-12-31 0001474735us-gaap:CommonStockMember2022-12-31 0001474735us-gaap:AdditionalPaidInCapitalMember2022-12-31 0001474735us-gaap:TreasuryStockCommonMember2022-12-31 0001474735gnrc:ExcessPurchasePriceOverPredecessorBasisMember2022-12-31 0001474735us-gaap:RetainedEarningsMember2022-12-31 0001474735us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-31 0001474735us-gaap:ParentMember2022-12-31 0001474735us-gaap:NoncontrollingInterestMember2022-12-31 0001474735us-gaap:CommonStockMember2023-01-012023-12-31 0001474735us-gaap:AdditionalPaidInCapitalMember2023-01-012023-12-31 0001474735us-gaap:TreasuryStockCommonMember2023-01-012023-12-31 0001474735gnrc:ExcessPurchasePriceOverPredecessorBasisMember2023-01-012023-12-31 0001474735us-gaap:RetainedEarningsMember2023-01-012023-12-31 0001474735us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-12-31 0001474735us-gaap:ParentMember2023-01-012023-12-31 0001474735us-gaap:NoncontrollingInterestMember2023-01-012023-12-31 0001474735us-gaap:CommonStockMember2023-12-31 0001474735us-gaap:AdditionalPaidInCapitalMember2023-12-31 0001474735us-gaap:TreasuryStockCommonMember2023-12-31 0001474735gnrc:ExcessPurchasePriceOverPredecessorBasisMember2023-12-31 0001474735us-gaap:RetainedEarningsMember2023-12-31 0001474735us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-31 0001474735us-gaap:ParentMember2023-12-31 0001474735us-gaap:NoncontrollingInterestMember2023-12-31 xbrli:pure 0001474735us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMembergnrc:OneCustomerMember2023-01-012023-12-31 0001474735us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMembergnrc:OneCustomerMember2022-01-012022-12-31 0001474735us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2023-01-012023-12-31 0001474735us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2021-01-012021-12-31 0001474735us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2022-01-012022-12-31 0001474735us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMembergnrc:NoCustomerMember2023-01-012023-12-31 0001474735us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMembergnrc:NoCustomerMember2022-01-012022-12-31 0001474735us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMembergnrc:NoCustomerMember2021-01-012021-12-31 0001474735gnrc:CleanEnergyProductMember2022-07-012022-09-30 utr:Y 0001474735us-gaap:LandImprovementsMembersrt:MinimumMember2023-12-31 0001474735us-gaap:LandImprovementsMembersrt:MaximumMember2023-12-31 0001474735us-gaap:BuildingAndBuildingImprovementsMembersrt:MinimumMember2023-12-31 0001474735us-gaap:BuildingAndBuildingImprovementsMembersrt:MaximumMember2023-12-31 0001474735us-gaap:MachineryAndEquipmentMembersrt:MinimumMember2023-12-31 0001474735us-gaap:MachineryAndEquipmentMembersrt:MaximumMember2023-12-31 0001474735gnrc:DiesAndToolsMembersrt:MinimumMember2023-12-31 0001474735gnrc:DiesAndToolsMembersrt:MaximumMember2023-12-31 0001474735us-gaap:VehiclesMembersrt:MinimumMember2023-12-31 0001474735us-gaap:VehiclesMembersrt:MaximumMember2023-12-31 0001474735us-gaap:OfficeEquipmentMembersrt:MinimumMember2023-12-31 0001474735us-gaap:OfficeEquipmentMembersrt:MaximumMember2023-12-31 0001474735us-gaap:LeaseholdImprovementsMembersrt:MinimumMember2023-12-31 0001474735us-gaap:LeaseholdImprovementsMembersrt:MaximumMember2023-12-31 0001474735gnrc:TermLoanMember2023-12-31 0001474735us-gaap:FairValueInputsLevel2Member2023-12-31 0001474735gnrc:OtherAccruedLiabilitiesMember2022-12-31 0001474735gnrc:OtherLongtermLiabilitiesMember2022-12-31 0001474735gnrc:ContingentConsiderationLiabilityMember2022-12-31 0001474735gnrc:ContingentConsiderationLiabilityMember2023-01-012023-12-31 0001474735gnrc:ContingentConsiderationLiabilityMember2023-12-31 0001474735gnrc:PramacMember2023-03-082023-03-08 0001474735gnrc:EcobeeIncMember2023-01-012023-12-31 0001474735gnrc:AcquisitionOfChiliconMember2023-01-012023-12-31 0001474735gnrc:MeanGreenMember2023-01-012023-12-31 0001474735gnrc:EECAndBluePillarMember2022-01-012022-12-31 0001474735gnrc:EECAndBluePillarMember2023-01-012023-12-31 0001474735gnrc:AcquisitionOfDeepSeaMember2021-06-012021-06-01 0001474735gnrc:AcquisitionOfDeepSeaMember2021-06-01 0001474735gnrc:AcquisitionOfChiliconMember2021-07-022021-07-02 0001474735gnrc:AcquisitionOfChiliconMember2021-07-02 0001474735gnrc:AcquisitionOfOffGridEnergyMember2021-09-012021-09-01 0001474735gnrc:AcquisitionOfOffGridEnergyMember2021-09-01 0001474735gnrc:AcquisitionOfOffGridEnergyMember2022-07-012022-09-30 0001474735gnrc:EcobeeIncMember2021-12-012021-12-01 0001474735gnrc:EcobeeIncMember2022-10-012022-12-31 0001474735gnrc:EcobeeIncMember2023-01-012023-03-31 0001474735gnrc:EcobeeIncMember2021-12-31 0001474735gnrc:Other2021AcquisitionsMember2021-01-012021-12-31 0001474735gnrc:The2023AcquistionsMember2023-12-31 0001474735gnrc:The2022AcquisitionsMember2022-12-31 0001474735gnrc:AcquisitionOfDeepSeaMember2021-12-31 0001474735gnrc:AllOther2021AcquisitionsMember2021-12-31 0001474735gnrc:The2021AcquisitionsMember2021-12-31 0001474735srt:ProFormaMember2023-01-012023-12-31 0001474735srt:ProFormaMember2022-01-012022-12-31 0001474735srt:ProFormaMember2021-01-012021-12-31 0001474735gnrc:AllAcquisitionsMember2023-01-012023-12-31 0001474735gnrc:AllAcquisitionsMember2022-01-012022-12-31 0001474735gnrc:AllAcquisitionsMember2021-01-012021-12-31 0001474735gnrc:PramacMember2016-03-01 0001474735gnrc:PramacMember2016-03-01 0001474735gnrc:PramacMember2021-05-012021-05-31 0001474735gnrc:PramacMember2021-05-31 0001474735gnrc:PramacMember2021-05-31 0001474735gnrc:PramacMember2023-03-08 0001474735gnrc:CaptivaEnergySolutionsMember2019-02-01 0001474735gnrc:CaptivaEnergySolutionsMember2019-02-01 0001474735gnrc:CaptivaEnergySolutionsMember2019-02-012019-02-01 0001474735gnrc:CaptivaEnergySolutionsMember2022-03-31 0001474735gnrc:CaptivaEnergySolutionsMember2022-03-012022-03-31 0001474735gnrc:CaptivaEnergySolutionsMember2022-05-31 0001474735gnrc:CaptivaEnergySolutionsMember2022-05-012022-05-31 0001474735gnrc:RedeemableNoncontrollingInterestMember2022-12-31 0001474735gnrc:RedeemableNoncontrollingInterestMember2021-12-31 0001474735gnrc:RedeemableNoncontrollingInterestMember2020-12-31 0001474735gnrc:RedeemableNoncontrollingInterestMember2023-01-012023-12-31 0001474735gnrc:RedeemableNoncontrollingInterestMember2022-01-012022-12-31 0001474735gnrc:RedeemableNoncontrollingInterestMember2021-01-012021-12-31 0001474735gnrc:RedeemableNoncontrollingInterestMember2023-12-31 0001474735us-gaap:CommodityContractMemberus-gaap:NondesignatedMemberus-gaap:CostOfSalesMember2023-01-012023-12-31 0001474735us-gaap:CommodityContractMemberus-gaap:NondesignatedMemberus-gaap:CostOfSalesMember2022-01-012022-12-31 0001474735us-gaap:CommodityContractMemberus-gaap:NondesignatedMemberus-gaap:CostOfSalesMember2021-01-012021-12-31 0001474735us-gaap:CommodityContractMember2023-12-31 0001474735us-gaap:CommodityContractMember2022-12-31 0001474735us-gaap:ForeignExchangeContractMember2023-12-31 0001474735us-gaap:ForeignExchangeContractMember2022-12-31 0001474735us-gaap:InterestRateSwapMember2017-01-012017-12-31 0001474735us-gaap:InterestRateSwapMember2020-03-012020-03-31 0001474735us-gaap:InterestRateSwapMember2023-01-012023-12-31 0001474735us-gaap:InterestRateSwapMember2022-01-012022-12-31 0001474735us-gaap:InterestRateSwapMember2021-01-012021-12-31 0001474735us-gaap:ForeignExchangeContractMemberus-gaap:FairValueInputsLevel2Member2023-12-31 0001474735us-gaap:ForeignExchangeContractMemberus-gaap:FairValueInputsLevel2Member2022-12-31 0001474735us-gaap:InterestRateSwapMemberus-gaap:FairValueInputsLevel2Member2023-12-31 0001474735us-gaap:InterestRateSwapMemberus-gaap:FairValueInputsLevel2Member2022-12-31 0001474735us-gaap:AccumulatedTranslationAdjustmentMember2022-12-31 0001474735us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-12-31 0001474735us-gaap:AccumulatedTranslationAdjustmentMember2023-01-012023-12-31 0001474735us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2023-01-012023-12-31 0001474735us-gaap:AccumulatedTranslationAdjustmentMember2023-12-31 0001474735us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2023-12-31 0001474735us-gaap:AccumulatedTranslationAdjustmentMember2021-12-31 0001474735us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2021-12-31 0001474735us-gaap:AccumulatedTranslationAdjustmentMember2022-01-012022-12-31 0001474735us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-01-012022-12-31 0001474735gnrc:ResidentialPowerProductsMembergnrc:DomesticMember2023-01-012023-12-31 0001474735gnrc:ResidentialPowerProductsMembergnrc:InternationalMember2023-01-012023-12-31 0001474735gnrc:ResidentialPowerProductsMember2023-01-012023-12-31 0001474735gnrc:CommercialAndIndustrialPowerProductsMembergnrc:DomesticMember2023-01-012023-12-31 0001474735gnrc:CommercialAndIndustrialPowerProductsMembergnrc:InternationalMember2023-01-012023-12-31 0001474735gnrc:CommercialAndIndustrialPowerProductsMember2023-01-012023-12-31 0001474735gnrc:OtherProductsAndServicesMembergnrc:DomesticMember2023-01-012023-12-31 0001474735gnrc:OtherProductsAndServicesMembergnrc:InternationalMember2023-01-012023-12-31 0001474735gnrc:OtherProductsAndServicesMember2023-01-012023-12-31 0001474735gnrc:DomesticMember2023-01-012023-12-31 0001474735gnrc:InternationalMember2023-01-012023-12-31 0001474735gnrc:ResidentialPowerProductsMembergnrc:DomesticMember2022-01-012022-12-31 0001474735gnrc:ResidentialPowerProductsMembergnrc:InternationalMember2022-01-012022-12-31 0001474735gnrc:ResidentialPowerProductsMember2022-01-012022-12-31 0001474735gnrc:CommercialAndIndustrialPowerProductsMembergnrc:DomesticMember2022-01-012022-12-31 0001474735gnrc:CommercialAndIndustrialPowerProductsMembergnrc:InternationalMember2022-01-012022-12-31 0001474735gnrc:CommercialAndIndustrialPowerProductsMember2022-01-012022-12-31 0001474735gnrc:OtherProductsAndServicesMembergnrc:DomesticMember2022-01-012022-12-31 0001474735gnrc:OtherProductsAndServicesMembergnrc:InternationalMember2022-01-012022-12-31 0001474735gnrc:OtherProductsAndServicesMember2022-01-012022-12-31 0001474735gnrc:DomesticMember2022-01-012022-12-31 0001474735gnrc:InternationalMember2022-01-012022-12-31 0001474735gnrc:ResidentialPowerProductsMembergnrc:DomesticMember2021-01-012021-12-31 0001474735gnrc:ResidentialPowerProductsMembergnrc:InternationalMember2021-01-012021-12-31 0001474735gnrc:ResidentialPowerProductsMember2021-01-012021-12-31 0001474735gnrc:CommercialAndIndustrialPowerProductsMembergnrc:DomesticMember2021-01-012021-12-31 0001474735gnrc:CommercialAndIndustrialPowerProductsMembergnrc:InternationalMember2021-01-012021-12-31 0001474735gnrc:CommercialAndIndustrialPowerProductsMember2021-01-012021-12-31 0001474735gnrc:OtherProductsAndServicesMembergnrc:DomesticMember2021-01-012021-12-31 0001474735gnrc:OtherProductsAndServicesMembergnrc:InternationalMember2021-01-012021-12-31 0001474735gnrc:OtherProductsAndServicesMember2021-01-012021-12-31 0001474735gnrc:DomesticMember2021-01-012021-12-31 0001474735gnrc:InternationalMember2021-01-012021-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:ExternalNetSalesMembergnrc:DomesticMember2023-01-012023-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:ExternalNetSalesMembergnrc:InternationalMember2023-01-012023-12-31 0001474735us-gaap:IntersegmentEliminationMembergnrc:ExternalNetSalesMember2023-01-012023-12-31 0001474735gnrc:ExternalNetSalesMember2023-01-012023-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:IntersegmentSalesMembergnrc:DomesticMember2023-01-012023-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:IntersegmentSalesMembergnrc:InternationalMember2023-01-012023-12-31 0001474735us-gaap:IntersegmentEliminationMembergnrc:IntersegmentSalesMember2023-01-012023-12-31 0001474735gnrc:IntersegmentSalesMember2023-01-012023-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:DomesticMember2023-01-012023-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:InternationalMember2023-01-012023-12-31 0001474735us-gaap:IntersegmentEliminationMember2023-01-012023-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:ExternalNetSalesMembergnrc:DomesticMember2022-01-012022-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:ExternalNetSalesMembergnrc:InternationalMember2022-01-012022-12-31 0001474735us-gaap:IntersegmentEliminationMembergnrc:ExternalNetSalesMember2022-01-012022-12-31 0001474735gnrc:ExternalNetSalesMember2022-01-012022-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:IntersegmentSalesMembergnrc:DomesticMember2022-01-012022-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:IntersegmentSalesMembergnrc:InternationalMember2022-01-012022-12-31 0001474735us-gaap:IntersegmentEliminationMembergnrc:IntersegmentSalesMember2022-01-012022-12-31 0001474735gnrc:IntersegmentSalesMember2022-01-012022-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:DomesticMember2022-01-012022-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:InternationalMember2022-01-012022-12-31 0001474735us-gaap:IntersegmentEliminationMember2022-01-012022-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:ExternalNetSalesMembergnrc:DomesticMember2021-01-012021-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:ExternalNetSalesMembergnrc:InternationalMember2021-01-012021-12-31 0001474735us-gaap:IntersegmentEliminationMembergnrc:ExternalNetSalesMember2021-01-012021-12-31 0001474735gnrc:ExternalNetSalesMember2021-01-012021-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:IntersegmentSalesMembergnrc:DomesticMember2021-01-012021-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:IntersegmentSalesMembergnrc:InternationalMember2021-01-012021-12-31 0001474735us-gaap:IntersegmentEliminationMembergnrc:IntersegmentSalesMember2021-01-012021-12-31 0001474735gnrc:IntersegmentSalesMember2021-01-012021-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:DomesticMember2021-01-012021-12-31 0001474735us-gaap:OperatingSegmentsMembergnrc:InternationalMember2021-01-012021-12-31 0001474735us-gaap:IntersegmentEliminationMember2021-01-012021-12-31 0001474735gnrc:PatentsAndSecuritesMember2023-01-012023-12-31 0001474735us-gaap:ProductMember2023-01-012023-12-31 0001474735us-gaap:ProductMember2022-01-012022-12-31 0001474735gnrc:CleanEnergyProductMember2023-01-012023-12-31 0001474735gnrc:CleanEnergyProductMember2022-01-012022-12-31 0001474735gnrc:DomesticMember2023-12-31 0001474735gnrc:DomesticMember2022-12-31 0001474735gnrc:DomesticMember2021-12-31 0001474735gnrc:InternationalMember2023-12-31 0001474735gnrc:InternationalMember2022-12-31 0001474735gnrc:InternationalMember2021-12-31 0001474735us-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMembercountry:US2023-01-012023-12-31 0001474735us-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMembercountry:US2022-01-012022-01-01 0001474735us-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMembercountry:US2021-01-012021-12-31 0001474735gnrc:LonglivedAssetsMemberus-gaap:GeographicConcentrationRiskMembercountry:US2023-01-012023-12-31 0001474735gnrc:LonglivedAssetsMemberus-gaap:GeographicConcentrationRiskMembercountry:US2022-01-012022-12-31 0001474735us-gaap:LandAndLandImprovementsMember2023-12-31 0001474735us-gaap:LandAndLandImprovementsMember2022-12-31 0001474735us-gaap:BuildingAndBuildingImprovementsMember2023-12-31 0001474735us-gaap:BuildingAndBuildingImprovementsMember2022-12-31 0001474735us-gaap:MachineryAndEquipmentMember2023-12-31 0001474735us-gaap:MachineryAndEquipmentMember2022-12-31 0001474735gnrc:DiesAndToolsMember2023-12-31 0001474735gnrc:DiesAndToolsMember2022-12-31 0001474735us-gaap:VehiclesMember2023-12-31 0001474735us-gaap:VehiclesMember2022-12-31 0001474735us-gaap:OfficeEquipmentMember2023-12-31 0001474735us-gaap:OfficeEquipmentMember2022-12-31 0001474735us-gaap:LeaseholdImprovementsMember2023-12-31 0001474735us-gaap:LeaseholdImprovementsMember2022-12-31 0001474735us-gaap:ConstructionInProgressMember2023-12-31 0001474735us-gaap:ConstructionInProgressMember2022-12-31 0001474735us-gaap:TradeNamesMember2023-12-31 0001474735us-gaap:TradeNamesMember2022-12-31 0001474735us-gaap:CustomerListsMember2023-12-31 0001474735us-gaap:CustomerListsMember2022-12-31 0001474735gnrc:PatentsAndTechnologyMember2023-12-31 0001474735gnrc:PatentsAndTechnologyMember2022-12-31 0001474735us-gaap:ComputerSoftwareIntangibleAssetMember2023-12-31 0001474735us-gaap:ComputerSoftwareIntangibleAssetMember2022-12-31 0001474735us-gaap:NoncompeteAgreementsMember2023-12-31 0001474735us-gaap:NoncompeteAgreementsMember2022-12-31 0001474735gnrc:OperatingLeaseAndOtherAssetsMember2023-12-31 0001474735gnrc:OperatingLeaseAndOtherAssetsMember2022-12-31 0001474735gnrc:OtherAccruedLiabilitiesMember2023-12-31 0001474735gnrc:OperatingLeaseAndOtherLongtermLiabilitiesMember2023-12-31 0001474735gnrc:OperatingLeaseAndOtherLongtermLiabilitiesMember2022-12-31 0001474735gnrc:OtherAccruedLiabilitiesAndOperatingLeaseAndOtherLongtermLiabilitiesMember2023-12-31 0001474735gnrc:OtherAccruedLiabilitiesAndOperatingLeaseAndOtherLongtermLiabilitiesMember2022-12-31 0001474735gnrc:FinanceLeaseAndOtherAssetsMember2023-12-31 0001474735gnrc:FinanceLeaseAndOtherAssetsMember2022-12-31 0001474735gnrc:CurrentPortionOfLongtermBorrowingsAndFinanceLeaseObligationsMember2023-12-31 0001474735gnrc:CurrentPortionOfLongtermBorrowingsAndFinanceLeaseObligationsMember2022-12-31 0001474735gnrc:FinanceLeaseAndOtherLongtermLiabilitiesMember2023-12-31 0001474735gnrc:FinanceLeaseAndOtherLongtermLiabilitiesMember2022-12-31 0001474735gnrc:OtherAccruedLiabilitiesAndFinanceLeaseAndOtherLongtermLiabilitiesMember2023-12-31 0001474735gnrc:OtherAccruedLiabilitiesAndFinanceLeaseAndOtherLongtermLiabilitiesMember2022-12-31 00014747352022-07-012022-09-30 0001474735srt:MinimumMember2023-01-012023-12-31 0001474735srt:MaximumMember2023-01-012023-12-31 00014747352024-01-012023-12-31 00014747352025-01-012023-12-31 00014747352026-01-012023-12-31 00014747352027-01-012023-12-31 00014747352028-01-012023-12-31 0001474735gnrc:TrancheATermLoanFacilityMember2023-12-31 0001474735gnrc:TrancheATermLoanFacilityMember2022-12-31 0001474735gnrc:TrancheBTermLoanFacilityMember2023-12-31 0001474735gnrc:TrancheBTermLoanFacilityMember2022-12-31 0001474735us-gaap:RevolvingCreditFacilityMember2023-12-31 0001474735us-gaap:RevolvingCreditFacilityMember2022-12-31 0001474735gnrc:TrancheATermLoanFacilityMember2023-12-31 0001474735gnrc:TrancheBTermLoanFacilityMember2023-12-31 0001474735gnrc:ABLRevolvingCreditFacilityMember2023-12-31 0001474735gnrc:OtherTermLoanFacilityMember2023-12-31 0001474735gnrc:TrancheBTermLoanFacilityMember2013-05-31 0001474735gnrc:TrancheBTermLoanFacilityMember2021-12-31 0001474735gnrc:TrancheBTermLoanFacilityMemberus-gaap:BaseRateMember2013-05-312013-05-31 0001474735gnrc:TrancheBTermLoanFacilityMembergnrc:AdjustedLIBORRateMember2013-05-312013-05-31 0001474735gnrc:TrancheBTermLoanFacilityMembergnrc:LIBORFloorRateMember2013-05-312013-05-31 0001474735gnrc:TrancheBTermLoanFacilityMemberus-gaap:BaseRateMember2023-01-012023-12-31 0001474735gnrc:TrancheBTermLoanFacilityMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-01-012023-12-31 0001474735gnrc:TrancheBTermLoanFacilityMembersrt:MaximumMember2023-01-012023-12-31 0001474735gnrc:TermLoanMembersrt:MaximumMember2023-01-012023-12-31 0001474735gnrc:ABLRevolvingCreditFacilityMemberus-gaap:BaseRateMember2015-05-012015-05-31 0001474735gnrc:ABLRevolvingCreditFacilityMembergnrc:AdjustedLIBORRateMember2015-05-012015-05-31 0001474735gnrc:ABLRevolvingCreditFacilityMember2021-05-01 0001474735gnrc:ABLRevolvingCreditFacilityMember2021-05-31 0001474735gnrc:ABLRevolvingCreditFacilityMembersrt:MinimumMemberus-gaap:BaseRateMember2021-05-012021-05-31 0001474735gnrc:ABLRevolvingCreditFacilityMembersrt:MaximumMemberus-gaap:BaseRateMember2021-05-012021-05-31 0001474735gnrc:ABLRevolvingCreditFacilityMembersrt:MinimumMembergnrc:LIBORFloorRateMember2021-05-012021-05-31 0001474735gnrc:ABLRevolvingCreditFacilityMembersrt:MaximumMembergnrc:LIBORFloorRateMember2021-05-012021-05-31 0001474735gnrc:ABLRevolvingCreditFacilityMember2021-05-012021-05-31 0001474735gnrc:TrancheBTermLoanFacilityMember2021-04-012021-06-30 0001474735gnrc:TrancheATermLoanFacilityMember2022-06-30 0001474735us-gaap:RevolvingCreditFacilityMember2022-06-30 0001474735gnrc:TrancheBTermLoanFacilityMember2022-06-012022-06-30 0001474735gnrc:TrancheBTermLoanFacilityMember2022-04-012022-06-30 0001474735gnrc:TrancheATermLoanFacilityAndRevolvingCreditFacilityMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2022-01-012022-12-31 0001474735gnrc:TrancheATermLoanFacilityAndRevolvingCreditFacilityMember2022-12-31 0001474735gnrc:TrancheATermLoanFacilityAndRevolvingCreditFacilityMembersrt:MinimumMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-01-012023-01-01 0001474735gnrc:TrancheATermLoanFacilityAndRevolvingCreditFacilityMembersrt:MaximumMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-01-012023-01-01 0001474735gnrc:TrancheATermLoanFacilityAndRevolvingCreditFacilityMember2023-12-31 0001474735us-gaap:RevolvingCreditFacilityMember2022-01-012022-12-31 0001474735us-gaap:RevolvingCreditFacilityMember2023-01-012023-12-31 0001474735gnrc:ABLRevolvingCreditFacilityMember2022-06-012022-06-30 00014747352020-09-30 00014747352022-08-05 00014747352020-09-012020-09-30 0001474735us-gaap:SubsequentEventMember2024-02-12 utr:M 0001474735us-gaap:SubsequentEventMember2022-02-122024-02-12 0001474735gnrc:StockRepurchaseProgramMemberus-gaap:TreasuryStockCommonMember2023-01-012023-12-31 0001474735gnrc:StockRepurchaseProgramMemberus-gaap:TreasuryStockCommonMember2022-01-012022-12-31 0001474735gnrc:StockRepurchaseProgramMemberus-gaap:TreasuryStockCommonMember2021-01-012021-12-31 0001474735gnrc:StockRepurchaseProgramMemberus-gaap:TreasuryStockCommonMember2015-08-012023-12-31 0001474735us-gaap:EmployeeStockOptionMember2023-01-012023-12-31 0001474735us-gaap:EmployeeStockOptionMember2022-01-012022-12-31 0001474735us-gaap:EmployeeStockOptionMember2021-01-012021-12-31 0001474735gnrc:SavingsPlan401kMember2023-01-012023-12-31 0001474735gnrc:SavingsPlan401kMember2022-01-012022-12-31 0001474735gnrc:SavingsPlan401kMember2021-01-012021-12-31 00014747352010-02-10 0001474735gnrc:EquityIncentivePlanPlanMember2023-01-012023-12-31 0001474735gnrc:EquityIncentivePlanPlanMember2022-01-012022-12-31 0001474735gnrc:EquityIncentivePlanPlanMember2021-01-012021-12-31 0001474735gnrc:The2019EquityIncentivePlanMember2019-06-13 0001474735gnrc:The2019EquityIncentivePlanMember2023-01-012023-12-31 0001474735gnrc:The2019EquityIncentivePlanMember2022-01-012022-12-31 0001474735gnrc:The2019EquityIncentivePlanMember2021-01-012021-12-31 0001474735srt:MinimumMember2022-01-012022-12-31 0001474735srt:MaximumMember2022-01-012022-12-31 0001474735srt:MinimumMember2021-01-012021-12-31 0001474735srt:MaximumMember2021-01-012021-12-31 0001474735us-gaap:EmployeeStockOptionMember2021-01-012021-12-31 0001474735us-gaap:EmployeeStockOptionMember2023-01-012023-12-31 0001474735us-gaap:EmployeeStockOptionMember2022-01-012022-12-31 00014747352020-01-012020-12-31 0001474735us-gaap:EmployeeStockOptionMember2023-12-31 0001474735us-gaap:RestrictedStockMember2023-01-012023-12-31 0001474735us-gaap:PerformanceSharesMember2023-01-012023-12-31 0001474735srt:MinimumMember2023-12-31 0001474735srt:MaximumMember2023-12-31 0001474735us-gaap:RestrictedStockMember2022-01-012022-12-31 0001474735us-gaap:RestrictedStockMember2021-01-012021-12-31 0001474735us-gaap:RestrictedStockMember2023-12-31 0001474735gnrc:RestrictedStockAndPerformanceSharesMember2023-01-012023-12-31 0001474735gnrc:RestrictedStockAndPerformanceSharesMember2022-01-012022-12-31 0001474735gnrc:RestrictedStockAndPerformanceSharesMember2021-01-012021-12-31 0001474735srt:BoardOfDirectorsChairmanMember2023-01-012023-12-31 0001474735srt:BoardOfDirectorsChairmanMember2022-01-012022-12-31 0001474735srt:BoardOfDirectorsChairmanMember2021-01-012021-12-31 0001474735gnrc:PowerHomeSolarLlcAgainstGeneracPowerSystemsIncMembersrt:MinimumMember2022-08-012022-08-01 0001474735gnrc:ConsumerProductSafetyCommissionMember2023-05-032023-05-03 0001474735gnrc:CaseNos21cv00428adaAnd20cv00078adaMember2023-06-232023-06-23 0001474735gnrc:CaseNos21cv00428adaAnd20cv00078adaMember2023-12-272023-12-27 0001474735gnrc:CaseNo22cv00072JRGMember2023-10-152023-10-15 00014747352023-01-012023-03-31 00014747352023-04-012023-06-30 00014747352023-07-012023-09-30 00014747352023-10-012023-12-31 00014747352022-01-012022-03-31 00014747352022-04-012022-06-30 00014747352022-10-012022-12-31 0001474735us-gaap:AllowanceForCreditLossMember2022-12-31 0001474735us-gaap:AllowanceForCreditLossMember2023-01-012023-12-31 0001474735us-gaap:InventoryValuationReserveMember2022-12-31 0001474735us-gaap:InventoryValuationReserveMember2023-01-012023-12-31 0001474735us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2022-12-31 0001474735us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2023-01-012023-12-31 0001474735us-gaap:AllowanceForCreditLossMember2021-12-31 0001474735us-gaap:AllowanceForCreditLossMember2022-01-012022-12-31 0001474735us-gaap:InventoryValuationReserveMember2021-12-31 0001474735us-gaap:InventoryValuationReserveMember2022-01-012022-12-31 0001474735us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2021-12-31 0001474735us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2022-01-012022-12-31 0001474735us-gaap:AllowanceForCreditLossMember2020-12-31 0001474735us-gaap:AllowanceForCreditLossMember2021-01-012021-12-31 0001474735us-gaap:InventoryValuationReserveMember2020-12-31 0001474735us-gaap:InventoryValuationReserveMember2021-01-012021-12-31 0001474735us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2020-12-31 0001474735us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2021-01-012021-12-31 0001474735gnrc:AaronJagdfeldMember2023-01-012023-12-31 0001474735gnrc:AaronJagdfeldMember2023-12-31
 

 

Table of Contents

 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-K

(Mark One)

 

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

For the fiscal year ended December 31, 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
(State or other jurisdiction of incorporation or organization)

20-5654756
(IRS Employer Identification No.)

  

S45 W29290 Hwy 59, Waukesha, WI
(Address of principal executive offices)

53189
(Zip Code)

 

(262) 544-4811
(Registrant’s telephone number, including area code)

 

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

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

 


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

 

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 filerAccelerated 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. 

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ 

 

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

 

The aggregate market value of the voting common equity held by non-affiliates of the registrant on June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter, was approximatel$9.0 billion based on the closing price reported for such date on the New York Stock Exchange.

 

As of February 16, 2024, 60,269,310 shares of the registrant's common stock were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s Annual Report to Stockholders for the year ended December 31, 2023 furnished to the Securities and Exchange Commission are incorporated by reference into Part II of this Form 10-K. Portions of the registrant’s Proxy Statement for the 2024 Annual Meeting of Stockholders (the “2024 Proxy Statement”), which will be filed by the registrant on or prior to 120 days following the end of the registrant’s fiscal year ended December 31, 2023, are incorporated by reference into Part III of this Form 10-K.

 



 

 

 

 

2023 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

 

   

Page

PART I

     

Item 1.

Business

2

Item 1A.

Risk Factors

14

Item 1B.

Unresolved Staff Comments

21
Item 1C. Cybersecurity 21

Item 2.

Properties

21

Item 3.

Legal Proceedings

22

Item 4.

Mine Safety Disclosures

22
 

PART II

     

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

22
Item 6. [Removed and Reserved] 24

Item 7.

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

24

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 8.

Financial Statements and Supplementary Data

36

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

71

Item 9A.

Controls and Procedures

71
Item 9B. Other Information 72

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

72
 

PART III

     

Item 10.

Directors, Executive Officers and Corporate Governance

72

Item 11.

Executive Compensation

72

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

72

Item 13.

Certain Relationships and Related Transactions, and Director Independence

72

Item 14.

Principal Accountant Fees and Services

72
 

PART IV

     

Item 15.

Exhibits and Financial Statement Schedules

72

Item 16.

Form 10-K Summary

76

 

 

 

 

Forward-Looking Statements

 

This annual 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 annual 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 annual report include estimates regarding:

 

 

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

 

proposed new product and service offerings; and

 

management's goals, expectations and 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:

 

 

fluctuations in cost, availability, and quality of raw materials, key components and labor required to manufacture our products;
  our dependence on a small number of contract manufacturers and component suppliers, including single-source suppliers;
  our ability to protect our intellectual property rights or successfully defend against third party infringement claims;
 

increase in product and other liability claims, warranty costs, recalls, or other claims;

  significant legal proceedings, claims, fines, penalties, tax assessments, lawsuits or government investigations;
 

our ability to consummate our share repurchase programs;
 

our failure or inability to adapt to, or comply with, current or future changes in applicable laws and regulations;

 

scrutiny regarding our ESG practices;
  our ability to develop and enhance products and gain customer acceptance for our products;
  frequency and duration of power outages impacting demand for our products;
 

changes in durable goods spending by consumers and businesses or other macroeconomic conditions, impacting demand for our products;
  our ability to accurately forecast demand for our products and effectively manage inventory levels relative to such forecast;
 

our ability to remain competitive;
  our dependence on our dealer and distribution network;
  market reaction to changes in selling prices or mix of products;
  loss of our key management and employees;
  disruptions from labor disputes or organized labor activities;
  our ability to attract and retain employees;
  disruptions in our manufacturing operations;
  changes in U.S. trade policy;
  the possibility that the expected synergies, efficiencies and cost savings of our acquisitions, divestitures, restructurings, or realignments will not be realized, or will not be realized within the expected time period;
  risks related to sourcing components in foreign countries;
  compliance with environmental, health and safety laws and regulations;
  government regulation of our products;
  failures or security breaches of our networks, information technology systems, or connected products;
  our ability to make payments on our indebtedness;
  terms of our credit facilities that may restrict our operations;
  our potential need for additional capital to finance our growth or refinancing our existing credit facilities; 
  risks of impairment of the value of our goodwill and other indefinite-lived assets;
  volatility of our stock price; and
  potential tax liabilities.

 

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 Item 1A of this Annual Report on Form 10-K. 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.

 

 

Table of Contents

 

 

PART I

 

Item 1. Business

 

Overview

 

Generac is a leading energy technology solutions company that provides backup and prime power generation products for residential and commercial & industrial (C&I) applications, solar + battery storage systems, energy monitoring & management devices and services, and engine- & 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 product portfolio by building out ecosystems of energy technology products, solutions, and services for homes and businesses. As part of this evolution, we have made significant investments into growing markets such as residential and C&I energy storage, solar module-level power electronics (MLPE), energy monitoring & management devices, and electric vehicle (EV) charging. Central to these ecosystems are the Company’s next-generation connectivity devices, controls capabilities, and software platforms that facilitate the integration of our products and support the growing utilization of such distributed energy resources (DERs) in grid services programs. In addition, we have been leveraging our leading position in the growing market for natural gas fueled generators, which we believe represents a cleaner transition fuel compared to diesel, to expand into applications beyond standby power, allowing us to participate in Energy-as-a-Service and microgrid projects for C&I customers. 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 continue to grow due to 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.

 

Company History

 

Generac was founded in 1959 to commercialize a line of affordable portable generators that offered superior performance and features. The Company’s success through the years has been built upon engineering expertise, manufacturing excellence and our innovative approaches to the market. This has driven our growth into becoming a leading provider of power equipment for a variety of applications within residential, commercial, and industrial markets.

 

In 1980, we expanded beyond portable generators into the industrial power generation market with the introduction of our first stationary generators that provided up to 200kW of power output. We introduced our first residential standby generator in 1989 and expanded our industrial product offering and global distribution system in the 1990s, forming a series of alliances that rapidly increased our sales. Our growth accelerated in the 2000s as we expanded our purpose-built line of residential and commercial automatic standby generators and implemented our multi-layered, omni-channel distribution philosophy. Throughout the 2000s, a number of high-profile power outage events also helped to increase the awareness and need for backup power and home standby generators. In 2006, the founder of Generac sold the company to affiliates of CCMP Capital Advisors, LLC, together with certain other investors and members of our management. In February 2010, we completed our initial public offering (IPO) of the Company’s common stock. Since then, we have scaled our sales & marketing capabilities and systems, while also building the Generac brand into one of the leading names in backup power around the nation.

 

Soon after going public, we implemented our “Powering Ahead” enterprise strategy. This strategic plan accelerated the Company’s transition from primarily a North America focused, emergency backup generator company into a more diversified industrial technology company with the addition of new and adjacent product categories and an expanded global presence, primarily through a series of acquisitions. In 2018, we transitioned to a new enterprise strategy called “Powering Our Future”, which drove further share gains in new and existing markets, capitalized on Generac’s leadership in natural gas gensets, established our connectivity strategy, and provided the foundation for the Company’s evolution into an energy technology solutions company, including our initial acquisitions within the residential clean energy space. This ultimately led to the introduction of our “Powering A Smarter World” enterprise strategy in 2021. Our current strategic plan continues the evolution of Generac’s business model that pairs traditional and emerging power generation, conversion, and storage technologies with new monitoring, management and grid services capabilities to provide solutions for the dynamic challenges presented by today’s energy landscape.

 

2

 

 

Significant Investments in Energy Technology Solutions

 

We’ve been providing power generation and resiliency solutions for homes and businesses for decades. Leveraging that expertise in power generation, Generac has made significant investments in recent years to expand its capabilities into energy technology solutions, beginning with the March 2019 acquisition of Neurio Technology Inc., a leading energy data company focused on monitoring technology and sophisticated analytics to optimize energy use within a home or business. This was followed by the April 2019 acquisition of Pika Energy Inc. (Pika Energy), a designer and manufacturer of battery storage technologies that capture and store solar or other power sources for homeowners and businesses. In October 2020, the Company acquired Enbala Power Networks Inc., one of the leading providers of distributed energy optimization and control software that helps support the operational stability of the world’s power grids. In July 2021, Generac added to its residential clean energy portfolio with the acquisition of Chilicon Power LLC (Chilicon), a designer and provider of grid-interactive rooftop power inversion devices and monitoring solutions for the solar market. With these acquisitions, Generac has established a presence in the rapidly developing residential clean energy market, focused on solar and battery storage solutions, as well as grid services platforms that can leverage any of our product offerings that are capable of being grid-connected.

 

In December 2021, Generac acquired ecobee Inc. (ecobee), a leader in sustainable home technology solutions. In addition to smart home thermostatic controls and other smart home devices, ecobee offers its customers the ability to participate in energy services programs, which allow homeowners to reduce energy consumption and utility bills via intelligent HVAC controls. The acquisition represents a major step forward in the Company’s efforts to provide an integrated residential energy ecosystem that includes a sophisticated user interface platform to allow homeowners to take charge of their energy generation, storage, consumption, and management. We believe ecobee’s solutions, serving as the central hub of our residential energy ecosystem, together with its product and software development expertise will prove to be a differentiator for Generac when combined with our growing suite of energy technology solutions.

 

In December 2023, Generac made a minority investment in Wallbox N.V. (Wallbox) (NYSE: WBX), a global leader in smart EV charging and energy management solutions. Along with the investment, Generac and Wallbox are expected to collaborate to provide Wallbox’s full suite of EV charging solutions to Generac’s customers and distribution partners. Also in 2023, we opened a dedicated engineering center of excellence in Reno, Nevada that will house the development and testing of batteries, switches, power electronics, and other clean energy solutions.

 

As we look to the future, we expect to make continued investment in the people, processes, and capabilities involved in the development of these residential energy technologies, as we work to further broaden our product offering and distribution network. Additionally, the favorable policy backdrop for these markets, underscored by the Inflation Reduction Act and other state regulations, provides the necessary visibility to drive potential long-term, value-creating investments. With this opportunity in front of us, we plan to build out our residential energy technology capabilities and our suite of products and solutions as we expect to play an important role in the transition to a cleaner, more sustainable, and more reliable electric grid.

 

Generac’s efforts in expanding its energy technology solutions cover C&I and international markets as well. In June 2021, the Company acquired Deep Sea Electronics Limited, a UK-based designer and manufacturer of advanced controls for a range of power generation and other applications used around the world. In September 2021, Generac acquired Off Grid Energy Ltd., a designer and manufacturer of industrial-grade mobile energy storage systems serving predominantly rental markets. The Company advanced its C&I connectivity strategy with the October 2022 acquisition of Blue Pillar, an industrial internet of things (IoT) platform developer that designs, deploys, and manages industrial IoT solutions. Blue Pillar provides a foundation to build out a connectivity solution for our C&I products to further enable their use in grid services programs. In February 2023, Generac acquired REFU Storage Systems GmbH (REFU), a developer and supplier of battery storage and inverter hardware products, advanced software, and platform services for the commercial and industrial markets. REFU’s energy storage systems will complement and enhance our current global product offerings and is expected to further accelerate our development of new technologies as we continue to provide our commercial and industrial consumers with leading solutions for their adoption of renewable energy. Additionally, in 2023 Generac launched a series of stationary battery energy storage systems for commercial and industrial applications in the North American market that will help us advance our capabilities in microgrid projects. These acquisitions and related organic initiatives will collectively help lay the groundwork to further advance our energy technology strategies across C&I markets around the world.

 

For a complete summary of recent acquisitions, please see Note 1, “Description of Business,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

 

Products and Solutions

 

We design, manufacture, and distribute a broad range of energy technology products and solutions. We design and manufacture stationary, portable, and mobile power generators with single-engine outputs ranging between 800W and 3,250kW. We have developed a line of energy storage systems for use in residential solar-plus-storage applications. We also have a line of stationary and mobile energy storage systems that serve global commercial and industrial markets. We have a growing selection of energy monitoring and management devices and solutions that we expect to serve as the central hub or controls platform for our residential and C&I energy ecosystems. We participate in the market for grid services by providing distributed energy optimization and control software. We design and manufacture other power products including light towers and a broad line of outdoor power equipment that we refer to as “chore products”, which includes a variety of property maintenance equipment powered by both engines and batteries. We classify our products into three categories based on similar ranges of power output geared for varying end customer uses: Residential products, C&I products, and "Other products and services". The following summary outlines these categories, including their key attributes and customer applications.

 

Residential Products

 

Our residential automatic standby generators range in output from 7.5kW to 150kW, which predominantly operate on natural gas and liquid propane, and are permanently installed with an automatic transfer switch, which we also manufacture. Air-cooled engine residential standby generators range in outputs from 7.5kW to 26kW and serve as an emergency backup for small to medium-sized homes. Liquid-cooled engine generators serve as emergency backup for larger homes and small businesses and range in output from 22kW to 150kW.

 

 

3

Table of Contents

 

As the product category leader, we believe we have the broadest line of home standby generators in the marketplace. Every home standby generator that we offer is equipped with Mobile Link™. This remote monitoring capability is a standard, WiFi-enabled feature that allows our customers to check the status of their generator remotely from their smart phone or tablet, and also provides the capability to similarly receive maintenance and service alerts. The data that is provided by this remote monitoring functionality allows us to better understand our installed base of products, while optimizing both product quality and customer satisfaction. In 2021, we expanded our residential connectivity strategy with the acquisition of Tank Utility Inc. (Tank Utility), an IoT propane tank monitoring solutions company. This addition provides incremental value to our dealers and peace of mind to owners of our home standby generators that use propane as a fuel source.

 

Leveraging the technologies acquired in the 2019 acquisition of Pika Energy, we have developed a line of clean energy products marketed under the Generac brand and using the PWRcell™ brand name. This residential storage solution consists of a system of batteries, an inverter, photovoltaic (PV) optimizers, power electronic controls, and other components. This system captures and stores electricity from solar panels or other power sources and helps reduce home energy costs while also protecting homes from shorter duration power outages. PWRcell systems can range in size from 9kWh up to 36kWh of storage capacity. In 2022, we launched PWRmanager, the second generation of our load management controls, allowing customers to program and remotely control certain loads in a home and thereby manage battery run times from their smart phones or tablets.

 

In 2021, we acquired ecobee, a leader in sustainable smart home solutions such as smart thermostats and a suite of home monitoring products, all designed with a focus on energy conservation, convenience, peace of mind and comfort. ecobee’s smart home energy management devices and complementary sensors intelligently optimize heating and cooling systems, often the largest energy consuming system within a home, to deliver significant energy savings for homeowners. In 2023, ecobee launched a line of smart doorbell cameras, which integrates with ecobee’s products and helps to drive increased consumer engagement with their platform. The capabilities acquired via ecobee and Tank Utility, paired with our existing Mobile Link remote monitoring system, provide the foundation for Generac’s residential connectivity strategy, which will be integral in the continued development of our smart home energy ecosystem.

 

Importantly, we are leveraging ecobee’s technologies and software development expertise to develop a user interface platform at the center of our home energy ecosystem that will allow homeowners to monitor and control Generac’s entire suite of products using a “single pane of glass”. In 2023, we took our first steps towards this goal by successfully integrating our home standby generators and propane tank monitors with the ecobee platform. We believe the integration of our products and solutions in a single cohesive ecosystem will drive additional peace of mind and energy efficiency benefits for homeowners.

 

This functionality will also help enable connection to our grid services distributed energy resource management software (DERMS) called Concerto. All of our residential energy technology products and home standby generators come with grid-connection capabilities, enabling consumers to connect and enroll their distributed energy resources in available grid services programs. These solutions can provide material value to homeowners in the form of lower utility costs, while also helping grid operators retain capacity to address supply/demand imbalances on the grid.

 

We continue to develop new Generac-branded energy technology products that we expect to bring to market as we build out a broader energy management ecosystem, giving our distributors access to a more diverse line-up of products that can serve a variety of applications. For example, our recent investment in Wallbox is expected to allow us to participate in the rapidly developing home EV charging market by offering co-branded EV charging technologies through our expansive distribution network.

 

We also provide a broad product line of portable and inverter generators that range in size from 800W to 18kW, as well as multiple portable battery solutions that provide clean, emission-free power at the push of a button. These products can help serve as an emergency home backup source of electricity and are also used for construction and recreational purposes. Our portable generators are targeted at homeowners, with price points ranging between the consumer value end of the market through the premium homeowner market; at professional contractors, starting at the value end through the premium contractor segment; and at the recreational market with our inverter generator products, which are quieter than traditional portable generators. In addition, we offer manual transfer switches to supplement our portable generator product offering.

 

We provide a broad product line of outdoor power equipment referred to as “chore products”, which are used in property maintenance applications for larger-acreage residences, commercial properties, municipalities, and farms. These products include trimmers, field and brush mowers, log splitters, stump grinders, chipper shredders, lawn and leaf vacuums, pressure washers and water pumps. We also offer commercial-grade, battery-powered turf care products through Mean Green Products, which was acquired in 2020. In addition to Generac’s efforts to expand Mean Green’s production capacity and distribution capabilities, this acquisition will help to accelerate the electrification of our higher-powered lineup of chore products. Chore products are largely sold in North America through direct-to-consumer online catalogs, retail hardware stores, and outdoor power equipment dealers, primarily under the DR® brand name.

 

Residential products comprised 51.3%, 63.8% and 65.8%, respectively, of total net sales in 2023, 2022 and 2021.

 

4

 

Commercial & Industrial Products

 

We offer a full line of C&I generators that are sold around the world. We are a leader in cleaner-burning natural gas fueled generators, and also have a full offering of C&I generators that are fueled by diesel and Bi-FuelTM. We believe we have one of the broadest product offerings in the industry with power outputs ranging from 10kW up to 3,250kW. Through the Deep Sea acquisition in 2021, we have expanded our capabilities in the design and manufacture of advanced controls for a range of C&I power generation applications, such as microgrids and “beyond standby” configurations. Our natural gas C&I stationary generators have grid-connection capabilities, enabling our customers to generate an incremental return on investment by connecting and enrolling their generator as a distributed energy resource in grid services applications where available.

 

Our light-commercial standby generators and related transfer switches include a full range of affordable systems from 22kW to 150kW, providing three-phase power sufficient for most small and mid-sized businesses such as grocery stores, convenience stores, restaurants, gas stations, pharmacies, retail banks, small health care facilities and other small-footprint retail applications. Our light-commercial generators predominantly run on natural gas and liquid propane.

 

We design and manufacture a broad product line of modularized and configured stationary generators and related transfer switches for various industrial standby, continuous-duty, and prime rated applications. Our single-engine industrial generators range in output from 10kW up to 3,250kW, include stationary and containerized packages, and can include our Modular Power Systems (MPS) technology that extends our product range up to much larger multi-megawatt systems through an integrated paralleling configuration. Over the past several years, we have introduced larger and higher-powered gaseous-fueled generators, with the highest output of 1,000kW for a single-engine set. Our industrial standby generators are primarily used as emergency backup for larger applications (such as healthcare, telecom, datacom, commercial office, retail, municipal and manufacturing markets, to name a few). In recent years, we've focused our efforts to utilize our gaseous-fueled generators in "beyond standby" applications including distributed generation and microgrid projects and have developed purpose-built products for these applications that have grid-connected capability. This grid-connected functionality and the significant expansion of our in-house advanced controls capabilities further enhances the potential utilization of our generators in these applications.

 

Our MPS technology combines the power of several smaller generators to produce the output of a larger generator, providing our customers with redundancy and scalability in a cost-effective manner. For larger industrial applications, our MPS products offer customers an efficient, affordable way to scale their standby power needs, while offering superior reliability given their built-in redundancy which allows individual units to be taken off-line for routine maintenance while retaining coverage for critical circuits.

 

We also offer a full line of industrial transfer switches to meet varying needs from light commercial applications all the way up to the most demanding mission-critical installations. In recent years, we have significantly increased and upgraded our industrial transfer switch product offering, which we believe will help to enhance our attachment rate and related market share for these products. Generac’s innovative feature set and flexible platforms offer a variety of switching configurations to meet almost any project needs.

 

We also design and manufacture a broad product line of C&I mobile products such as light towers and mobile generators, which provide temporary lighting and power for various end markets around the world (such as road and commercial construction, energy, mining, military, and special events). We also offer commercial mobile pumps, heaters, and dust-suppression equipment for a wide variety of applications. All of our mobile products are typically sold to national and regional rental companies who then rent the equipment to the end user.

 

We have continued to expand our portfolio of energy technology solutions for C&I applications. In 2021, we acquired Off Grid Energy, a European based manufacturer of mobile energy storage systems predominantly used in the rental markets. In 2023, we acquired REFU, a European based provider of stationary energy storage systems and related inverter products. We also organically introduced a line of larger stationary battery energy storage systems for C&I applications in the North American market. We believe these collective product offerings will enable us to capture market share of the rapidly expanding Battery Energy Storage System (or BESS) market in the future. Our BESS solutions are primarily targeted at “behind-the-meter” applications for on-site energy storage. We expect to leverage our leading position as a provider of traditional stationary generators to gain share in the global BESS market. This expertise is particularly beneficial for multi-asset solutions that combine generators with energy storage assets, providing the many benefits of behind-the-meter storage with longer duration outage protection. We also continue to develop other energy technology products, such as mobile battery-powered light towers, as well as hybrid mobile solutions that pair a battery with a diesel engine to reduce emissions and noise pollution. In addition, we continue to provide various gaseous-engine control systems and accessories, which are used in our natural gas generators, as well as sold to other gas-engine manufacturers and aftermarket customers.

 

C&I products comprised 37.2%, 27.6% and 26.7%, respectively, of total net sales in 2023, 2022 and 2021.

 

5

Table of Contents

 

Other Products and Services

 

Our “Other products and services” category primarily consists of aftermarket service parts and product accessories sold to our customers, installation and maintenance services, extended warranty revenue, grid services revenue, remote monitoring subscription revenue, and other service offerings provided by our owned industrial distributors.

 

Included in this “Other products and services” category are energy services revenues that are generated by ecobee, Blue Pillar, and our Concerto software platform. The Concerto energy-balancing software platform provides a highly flexible approach for controlling and dispatching distributed energy resources from flexible loads, backup generators, energy storage systems, and other renewable energy sources, and gives utilities and grid operators the flexibility to operate virtual power plants in real-time to better manage the escalating complexities of the future electrical grid. These capabilities are broadly referred to as grid services.

 

The acquisition of ecobee further enhanced our efforts in grid services. In addition to their product sales, ecobee also recognizes service revenue in certain circumstances when a homeowner enrolls their smart thermostat in a grid services program offered by their utility. ecobee can provide utilities direct connection to a homeowner’s smart thermostat, thereby allowing control of a significant portion of the home’s electrical load. In exchange for this capability, utilities pay ecobee for that connection.

 

The 2022 acquisition of Blue Pillar expanded our C&I connectivity capabilities and provided a standard protocol for all of our C&I products to be connected to our Concerto platform. In addition to connectivity device sales, Blue Pillar recognizes software subscription and support revenue resulting from the monitoring and management capabilities its platform provides customers. 

 

Finally, our Mobile Link platform provides remote monitoring services for our residential home standby customers and “Fleet” services for our residential home standby dealers, whereby we collect subscription revenue for these services on a recurring basis.

 

"Other products and services" comprised 11.5%, 8.6% and 7.5%, respectively, of total net sales in 2023, 2022 and 2021.

 

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 the combination of several key mega-trends that we believe will drive several significant strategic growth themes for our business.

 

Key Mega-Trends:

 

 

“Grid 2.0”: which is the evolution of the traditional electrical utility model as the increasing reliance on intermittent renewable generation sources and the electrification of everything are leading to supply/demand imbalances and rising electricity costs, driving the migration towards distributed energy resources and decarbonization, digitization, and decentralization of the grid.

 

Impact of climate change: which includes the expectation of more severe and volatile weather driving increased power outage activity, and more global regulation accelerating renewable investments. 
 

Home as a Sanctuary: which includes the trend of the increasing importance of the home – including more people working from home and aging in place – is leading to increasing sensitivity to power outages and need for peace of mind, combined with the more intelligent and connected home and desire for improved energy resiliency and efficiency.
 

Emergence of cleaner alternative fuels: natural gas, and other alternative fuels, are important elements in the transition to a lower-carbon global energy supply.
 

Growing investment in global infrastructure creating new opportunities: Upgrading of aging and underinvested legacy systems including transportation, power, healthcare and elderly care; along with expanding investment for increasingly critical technology infrastructure including data centers, telecom and EV charging.

 

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, increases 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 in recent years, and an aging and underinvested electrical grid infrastructure remains highly vulnerable to the expectation of more severe and volatile 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 high-profile examples of rolling blackouts and calls for utility customers to reduce consumption to maintain grid integrity. In fact, the North American Electric Reliability Corporation has labeled significant portions of the United States and Canada as being at high risk of resource adequacy shortfalls during normal seasonal peak conditions in the 2024-2028 period due in part to these supply/demand dynamics. We are seeing increasing evidence that warnings of potential resource inadequacies are driving incremental consumer awareness of the need for backup power solutions. We believe utility supply shortfalls and related warnings may continue in the future, further expanding awareness of deteriorating power quality in North America. Taken together, we expect these factors to continue driving increased awareness of the need for backup power and demand for Generac’s products within multiple categories.

 

6

 

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 6.25% 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.

 

Solar, storage, and energy management markets are 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 energy storage technologies. On-site power generation from renewable sources and cleaner-burning natural gas generators are projected to become more prevalent as will the need to monitor, manage, and store this power – potentially developing into a significant market opportunity. 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 businesses over the coming decade, as well as production tax credits for businesses that meet certain domestic manufacturing requirements in the production of renewable energy products. We believe this legislative support will provide necessary opportunity for long-term, value-creating investments for market participants in this space. We expect to further advance our capabilities in energy technology by increasing our product development, sourcing, distribution, and marketing efforts. In addition, we should be able to leverage our significant competencies in the residential standby generator market to build our market position in the emerging residential solar, storage, and energy management markets. 

 

Energy-as-a-Service models, beyond standby applications, and energy services open new market opportunities. 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 DERMS software platform. 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 resiliency solutions that are also able to contribute to grid stability with minimal upfront capital outlays. We also believe that we can gain share in the C&I “behind the meter” energy storage market, including microgrid applications that require advanced system-level controls. The significant advancements made in recent years in the connectivity of our products are core to these newer capabilities, which play a key role in the evolution of Generac into an energy technology solutions company.

 

Natural gas generators, a continuing growth opportunity. 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 the capability 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.

 

Increasingly critical nature and growing power consumption of digital infrastructure. As the number of “connected” devices continues to rapidly increase and wireless networks are 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. We have relationships with key Tier 1 carriers and tower companies globally, in addition to having the distribution partners to provide service support to the global market. 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.

 

Additionally, the rapid increase in data centers is driving increased demand for backup power solutions, given the critical nature of this infrastructure. AI requirements, hyperscalers, and the expansion of edge computing and “connected devices” are expected to double data center power consumption from 2022 to 2030. We believe this significant growth in power consumption, as well as the increasing dependency of society on this next-generation digital infrastructure, will drive demand for backup power and intelligent energy management solutions, both at the individual site level and for the broader electrical grid.

 

7

 

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, energy storage systems, and energy management devices. Trends in the new housing market, highlighted by residential housing starts, can also impact demand for these products. Demand for outdoor power equipment is also impacted by several of these factors, as well as weather patterns. The existence of renewable energy mandates, investment tax credits and other subsidies, which have become even more prevalent with the 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 C&I products is affected by different capital investment cycles, which can vary widely across the different regions and markets that we serve. 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 our products. The capital investment cycle may differ for the various C&I end markets that we serve, including light commercial, retail, office, telecommunications, rental, industrial, data centers, healthcare, construction, oil & gas and municipal infrastructure, among others. The market for these products is also affected by general economic conditions, fluctuations in interest rates, and geopolitical matters in the various countries where we serve, as well as credit availability in those regions.

 

Enterprise Strategy

 

The mega-trends and strategic growth themes that we have identified support our enterprise strategy, “Powering A Smarter World,” and our purpose statement, “To lead the evolution to more resilient, efficient, and sustainable energy solutions.” As we continue to execute our strategic plan into the future, we are focused on three key objectives: (i) improve energy resilience and independence, (ii) optimize energy efficiency and consumption, and (iii) protect and build critical infrastructure. These objectives are further explained as follows:

 

Improve energy resilience and independence. Increase power reliability through onsite generation and storage solutions that provide resiliency for homes, businesses and communities.

 

Homes, businesses, and communities are experiencing a deterioration in the reliable supply of electricity due to a number of factors including: climate change impacts driving more severe and volatile weather leading to increased power outages; a capacity constrained legacy power infrastructure that’s still predominantly a one-way system and remains heavily reliant on fossil fuels; the power infrastructure being impaired by underinvestment making it more susceptible to power outages; and regulatory and legislative actions implementing penalties for carbon intensity coupled with incentives for adoption of more intermittent renewable power sources. Our residential and C&I product offering begins with power generation and storage products including home standby generators, energy storage systems, and C&I generators. These onsite generation and storage solutions provide peace of mind and protection against rising power quality issues by delivering energy resilience and independence for end users and their communities. Many of these onsite solutions are capable of being connected to the grid and can help support overall grid reliability, resiliency and sustainability. 

 

8

 

Optimize energy efficiency and consumption. Enable sustainable and more efficient power generation and consumption through monitoring, management and lower-carbon solutions.

 

The “electrification of everything” is expected to drive increasing demand for electricity over the next several years; including the electrification of transportation, via both electric vehicle adoption and expanding charging infrastructure; the electrification of the home, including HVAC systems and other appliances; and the electrification of commercial and industrial systems. These global electrification trends will require utilities and energy retailers to meaningfully increase the supply and reliability of electricity, while at the same time working to achieve carbon-reduction goals, which is expected to further contribute to a supply/demand imbalance and additional power quality issues. As part of our expanding ecosystems of energy technology solutions, we continue to build out our residential monitoring and management capabilities, which improve energy efficiency and optimize consumption by end users. This includes ecobee’s smart home energy management devices, Tank Utility’s propane tank monitoring solutions, and PWRmanager, our second-generation load control device. We expect to further simplify and integrate our residential product offering into a single ecosystem, leveraging our software development capabilities brought by the ecobee acquisition. This singular system-level platform is intended to serve as the central hub and user interface for consumers to monitor and manage all their DERs, thereby empowering the user to optimize energy efficiency and consumption. Within our global C&I products, we are developing a similar ecosystem of controls that are building off Deep Sea’s system-level controls and Blue Pillar’s industrial IoT network solutions, helping businesses to better optimize their energy efficiency and consumption. These enhanced connectivity capabilities provide the foundation for the continued build out of a centralized system-level platform for our C&I customers to monitor and control all their DERs, including non-Generac assets.

 

Protect and build critical infrastructure. Offering innovative solutions that enable and protect next-generation power, communications, transportation, and other critical infrastructure.

 

The critical power infrastructure around the world is becoming more sensitive to the growing electricity supply/demand imbalance. Generac’s suite of products can be connected and synchronized within the Concerto distributed energy resource management system, providing utilities and grid operators the flexibility to access and control these DERs in real-time to better manage the escalating complexities of their electrical grids. When utilized in these applications, our residential and C&I products essentially provide power capacity to utilities and grid operators in the form of a virtual power plant. We believe the next generation of critical power infrastructure will be more decarbonized, digitized and decentralized, and we view the aggregation and management of distributed energy resources as an important aspect in creating the future “Grid 2.0”.

 

Additionally, the growing power demands and increasingly critical nature of data centers and 5G telecom networks globally makes backup power solutions essential elements for creating resilient next-generation infrastructure. Finally, our broad offering of C&I mobile products (including mobile light towers, mobile power generators, mobile energy storage systems and hybrid generators) play a key role in the completion of infrastructure construction projects, such as roads, highways, bridges, and airports.

 

See “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Drivers and Operational Factors” for additional drivers that influence demand for our products and other factors affecting the markets that we serve.

 

Distribution Channels and Customers

 

We distribute our products through a variety of different distribution channels to increase awareness of our product categories and brands, and to ensure our products reach a broad, global customer base. This omni-channel distribution network includes independent residential dealers, industrial distributors and dealers, national and regional retailers, e-commerce partners, electrical/HVAC/solar wholesalers, solar installers, catalogs, equipment rental companies, and other equipment distributors. We also sell direct to certain national and regional account customers, as well as to individual consumers or businesses who are the end users of our products.

 

We believe our global distribution network is a competitive advantage that has strengthened over the years as a result of adding, expanding and developing the various distribution channels through which we sell our products. We offer a broad set of tools, programs, factory support, and sales leads to help our distribution partners be successful. Our network is well balanced with no single customer providing more than 4% of our sales in 2023.

 

We have the industry's largest network of factory direct independent generator dealers in North America. Our residential dealer network is made up of electrical and HVAC contractors across the US and Canada. These dealers sell, install and service our residential and light commercial generators to end users. Over the years, we have made significant investments to grow this dealer network, and we will continue to make those investments in the future given the importance of this channel. We continue to focus on a variety of initiatives to more effectively market and sell our home standby products and better align our dealer network with Generac. These initiatives have helped to improve customer lead quality and develop our dealers, thereby increasing close rates and lowering our cost per lead over time. Over the years, we have made significant investments in our “Power Play” guided sales process for residential dealers, making enhancements in several areas targeted to improve the customer experience and overall close rates. Additionally, our remote monitoring platform allows our residential generator dealers to monitor their installed base of customers through a feature that we call “Fleet”, enabling them to offer a more proactive experience to service a customer’s generator.

 

9

 

In recent years, we have been establishing our base of solar contractors that sell, install and service our PWRcell energy storage systems. Leveraging our decades of expertise in partnering with our residential generator dealers, we believe we can expand our solar installer network and increase mindshare for Generac’s products, helping us to win in the clean energy market. In addition, we have been developing distribution relationships with national solar providers to offer our equipment in their portfolio of products and services. As we continue to roll-out new clean energy products in the future, we expect to accelerate our efforts to expand distribution for these products.

 

Our industrial distribution network consists of industrial power generation distributors that cover particular regions around the world. Over the past several years, we have been strengthening our dealer network globally through acquisitions and organic means, to increase our C&I product sales and related market share. Additionally, since 2020, we have acquired our industrial distributors in northern and southern California and New England to give us direct coverage of the west coast and northeast regions of the United States and accelerate our efforts in these markets. Industrial distributors and dealers provide C&I end users with ongoing sales, installation, service and product support. Our industrial distributors and dealers help maintain the local relationships with commercial electrical contractors, specifying engineers, and national account regional buying offices. We also sell to certain Engineering, Procurement and Construction (EPC) companies and other companies that specialize in managing more complex power generation projects, including microgrids and “beyond standby” applications.

 

Our retail distribution channel includes thousands of locations across the globe and includes a variety of regional and national home improvement chains, electronics retailers, clubs, buying groups, hardware stores and farm supply stores. These physical retail locations are supplemented by a large presence of e-commerce retailers, along with a number of catalog retailers. The retail channel primarily sells our residential standby, portable and light-commercial generators, as well as our outdoor power equipment and ecobee smart home energy management devices. The placement of our products at retail locations drives significant awareness for our brands and the automatic home standby generator product category.

 

Our wholesaler network distributes our residential and light-commercial generators, energy storage systems, and smart home energy management devices. The channel consists of selling branches of both national and local distribution houses for electrical, HVAC and solar products on a wholesale basis, which in turn typically sell to electricians and HVAC/solar installers who are not in our dealer network.

 

On a selective basis, we have established private label and licensing arrangements with third party partners to provide residential, light-commercial and industrial generators under different brand names. These partners include leading home equipment, electrical equipment and construction machinery companies, each of which provides access to incremental channels of distribution for our products.

 

The distribution for our C&I mobile products includes international, national, regional and specialty equipment rental companies, equipment distributors, and construction companies which primarily serve non-residential building construction, road construction, energy markets and special events.

 

We also sell direct to certain customers that are the end users of our products covering a number of end market verticals both domestically and around the world. This includes telecommunication, retail, banking, energy, utilities, healthcare, convenience stores, grocery stores, restaurants, governments, and other commercial applications. Additionally, certain of our residential products are sold direct to individual consumers, who are the end users of the product. In the grid services space, we sell software and equipment direct to utilities and grid operators.

 

Research and Development

 

Our focus on a broad range of energy technology products and solutions drives technological innovation, advanced engineering capabilities, and specialized manufacturing competencies. Research and development (R&D) has been a core competency for Generac since our inception, and today includes a staff of over 1,000 engineers working on numerous projects at various facilities around the world, including our technology centers located in Wisconsin, Nevada, Massachusetts, Suzhou, China, and Mexico City, Mexico. These activities are focused on developing new technologies and product enhancements, as well as maintaining product competitiveness by reducing manufacturing costs, improving safety characteristics, reliability and performance, while ensuring compliance with regulatory standards. We have significant experience using natural gas engines and have developed specific expertise with fuel systems and emissions technology. In the residential and light commercial markets, we have developed proprietary engines, cooling packages, controls, fuel systems and emissions systems.

 

We have made several acquisitions in recent years that significantly enhanced our R&D capabilities. This includes substantial technical resources in energy storage, monitoring, and power conversion for residential applications, as well as in the C&I energy storage and generator controls spaces. These resources add proficiency in power electronics and battery management software, and we have also added considerable expertise in designing and prototyping energy efficiency products. We have significantly increased our software development capabilities across a variety of applications, including system-level controls, remote monitoring, and distributed energy resource management systems. Combining advanced software development with the expansion of our electrical engineering resources is expected to accelerate our energy technology efforts.

 

We also have engineering and product management resources focused on evaluating and developing alternative technologies that are emerging and could become commercially viable over the long term such as fuel cells and hydrogen. As we continue to evaluate new technologies that are more decarbonized, digitized, and decentralized, we believe that our expertise in energy technology solutions provides us with the capability to develop new products and services that will allow continued diversification and differentiation in our end markets.

 

10

 

Intellectual Property

 

We are committed to research and development, and we rely on a combination of patents and trademarks to help establish and protect our proprietary rights. Our patents protect certain features and technologies we have developed for use in our products including fuel systems, air flow, electronics and controls, noise reduction, air-cooled engines, energy management, energy monitoring, energy storage, and load management. We believe the existence of these patents and trademarks, along with our ongoing processes to register additional patents and trademarks, help protect our intellectual property rights and enhance our brands and competitive position. We also use proprietary manufacturing processes that require customized equipment. With our continuous focus on research and development, we expect to develop new intellectual property on an ongoing basis.

 

See “Item 1A. Risk Factors” for additional factors related to intellectual property rights that can affect our business.

 

Manufacturing

 

We operate numerous manufacturing plants, distribution facilities and inventory warehouses located throughout the world. We store finished goods at third-party logistics providers in the United States that accommodate material storage and rapid response requirements of our customers. See “Item 2 – Properties” for additional details regarding the locations and activities of our principal operations.

 

In recent years, we have added and continue to add manufacturing capacity through investments in automation, improved utilization, and the expansion of our manufacturing footprint through organic means as well as through acquisitions. In 2023, we announced plans to build a new manufacturing facility in Beaver Dam, Wisconsin that will expand our production capacity and increase our vertical integration capabilities for certain C&I product lines. Our ability to increase capacity has been critical to executing our strategic growth priorities. We believe our vertical integration and scale in home standby generators provides a material benefit in our ability to maintain industry-leading output with state-of-the-art manufacturing processes, especially when demand for our products can increase rapidly with very short notice.

 

Suppliers of Raw Materials, Components and Equipment

 

Our primary raw material inputs are steel, copper and aluminum, all of which are purchased from third parties and, in many cases, as part of machined or manufactured components. In certain instances, we purchase complete equipment or systems from third-party suppliers, including from contract manufacturers. Given our increasing focus on energy technology solutions, advanced electronic components and micro-processors have become a larger consideration within our supply chain. Within the clean energy market, batteries are a significant supply chain input for our energy storage systems. Over multiple decades, we have developed an extensive network of reliable suppliers in the United States and around the world. We continuously evaluate the quality and cost structure of our purchased components and equipment and assess the capabilities of our supply chain. Components and equipment are sourced accordingly based on this evaluation. For certain products, we do not have internal manufacturing capabilities and rely upon a small number of contract manufacturers to build these products or supply these components, including but not limited to certain energy technology products or components.

 

See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information regarding the impact of other macroeconomic factors.

 

See “Item 1A. Risk Factors” for additional factors that can influence our supply of raw materials, components and equipment.

 

Competition

 

The market for power generation equipment, energy storage systems, energy management solutions, and other engine powered products is competitive. We face competition from a variety of large diversified industrial companies as well as smaller generator manufacturers, along with mobile equipment, engine powered tools, solar inverter, battery storage, smart thermostat, and grid services providers, both domestic and internationally.

 

Specifically in the generator market, most of the traditional participants compete on a more focused basis, targeting specific applications within their larger diversified product mix. We are the only significant market participant with a primary focus on power equipment with a key emphasis on standby, portable and mobile generators with broad capabilities across the residential, light-commercial and industrial markets. We believe that our engineering capabilities and core focus on generators provide us with manufacturing flexibility and enable us to maintain a competitive advantage for product innovation. We also believe our broad product offering, diverse omni-channel distribution model and strong factory support provide additional advantages as well.

 

The Company in recent years has been evolving its business model toward more of a focus on energy technology solutions and services, which has introduced a new set of competitors. 

 

11

Table of Contents

 

A summary of the primary competitors across our main product classes is as follows:

 

Residential products Kohler, Briggs & Stratton, Cummins, Honda, Champion, Techtronics International, Husqvarna, Ariens, LG Chem, Tesla, Enphase, Solar Edge, Google, Resideo, and Emerson along with a number of other domestic and foreign competitors; certain of which also have broad operations in other manufacturing businesses.

 

C&I products – Caterpillar, Cummins, Kohler, IGSA, AKSA, MultiQuip, Wacker, Doosan, Atlas Copco, Himoinsa, FG Wilson, Woodward, Planelec, and Co-map, as well as other domestic and foreign competitors; certain of which focus on the market for diesel generators as they are also diesel engine manufacturers. Also, we compete against other regional packagers that serve local markets throughout the world.

 

Other products – Relative to service parts and extended warranty revenue, all of the above-named companies are primary competitors. Relative to grid services optimization software, Autogrid and Energy Hub, along with other grid service solution providers, are primary competitors. 

 

In a continuously evolving market, we believe our scale and broad capabilities make us well positioned to remain competitive. We compete primarily based on brand reputation, quality, reliability, pricing, innovative features, breadth of product offering, product availability and factory support.

 

Government Incentives and Regulation, including Environmental Matters

 

Generac’s growing presence in energy technology solutions has increased our exposure to renewable energy mandates, investment tax credits and other demand-creation subsidies from certain existing and potential government incentives, such as incentives included in the Inflation Reduction Act that was passed in 2022. These incentives cover a wide range of products and solutions, including MLPE solutions, solar plus storage systems, grid services, and grid-edge devices, and the availability, size, and outlook for such incentives can impact the markets for these products and solutions. Additionally, in 2023 Generac was selected by the Department of Energy to participate in two federally backed projects in Puerto Rico and Massachusetts that are focused on improving grid resiliency and efficiency with our residential energy technology solutions.

 

As a manufacturing company, our operations are subject to a variety of federal, state, local and foreign laws and regulations covering environmental, health and safety matters. Applicable laws and regulations include those governing, among other things, emissions to air, discharges to water, noise and employee safety, as well as the generation, handling, storage, transportation, treatment, and disposal of waste and other materials. In addition, our products are subject to various laws and regulations relating to, among other things, emissions and fuel requirements, as well as labeling, storage, transport, and marketing. 

 

Our products sold in the United States are regulated by the U.S. Environmental Protection Agency (EPA), California Air Resources Board (CARB) and various other state and local air quality management districts. These governing bodies continue to pass regulations that require us to meet more stringent emission standards, and all of our engines and engine-driven products are regulated within the United States and its territories. In addition, certain products in the United States are subject to safety standards as established by various other standards and rulemaking bodies, or state and local agencies, including the U.S. Consumer Product Safety Commission (CPSC).

 

Similarly, other countries have varying degrees of regulation for our products, depending upon product application and fuel types.

 

See “Item 1A. Risk Factors” for additional legal and regulatory factors that can affect the products we sell and the results of our operations.

 

Environment, Social, and Governance Program

 

We continue to advance our Environmental, Social, and Governance (ESG) program and published an expanded ESG Report in April of 2023. This report details our progress in executing the ESG goals and initiatives that align with our “Powering a Smarter World” enterprise strategy and our purpose statement: 'To lead the evolution to more resilient, efficient, and sustainable energy solutions.' The ESG Report contains an expanded list of key performance indicators and data points, and aligns with a number of voluntary ESG frameworks such as the Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI) and the United Nations Sustainable Development Goals (UN SDG). The information provided within our ESG Report published in April of 2023, or any future ESG Report, is not part of this report and is therefore not incorporated herein by reference. A copy of the ESG Report is available from our Investor Relations webpage at Generac.com. We plan to publish an updated ESG Report in April of 2024 that coincides with the filing of our annual Proxy Statement.

 

See “Item 1A. Risk Factors” for additional factors related to our ESG Program.

 

12

 

Human Capital

 

"Our People" is one of the foundational elements to our “Powering a Smarter World” enterprise strategy and is a corporate value as well. We foster a culture of diversity and engagement to strengthen our company while supporting individual achievement, equity, inclusivity and good corporate citizenship globally. We believe our success is directly tied to our employees’ professional growth and personal well-being, combined with strong families and communities. 

 

Some examples of key human capital programs and initiatives that we are focused on include:

 

Health, wellness and safety – Employee health and safety is the Company’s top priority. Generac’s total rewards program is based on the four pillars of balance, security, well-being and community. These programs are designed to meet the varied and evolving needs of our diverse workforce. We maintain an employee wellness program, incentivize healthy-living activities, and we develop and administer company-wide policies to help ensure the safety of each employee and compliance with government agency and other standards.

 

Diversity, equity and inclusion (DEI) – At Generac, people with diverse backgrounds and points of view work together to support our customers around the globe. As an inclusive workplace, our employees embrace diversity in all forms, celebrate differences, and treat others with equality and respect. Generac is also focused on building understanding and awareness of DEI through education and open communication. We sponsor a variety of employee-led Business Employee Resource Groups (BERGs) to facilitate networking and strong connections with peers and leadership, and to increase the listening and learning opportunities across our workforce. We continue to expand our DEI Learning Library and we partner with community job agencies representing disabled clients and workforce release programs to provide job opportunities to those who face barriers to employment.

 

Talent development & employee engagement – Our success is directly tied to our employees and what we can accomplish together. We prioritize creating opportunities to help employees build careers and support their growth as part of a meaningful and valuable employee experience. We hold internal career development events as well as partner with local educational resources to offer on the job learning, collaborative work experiences and formal learning programs on lean methodology and project management skills to support progressions and advancement of our workforce. Further, we maintain an ongoing global employee engagement initiative with targeted action plans by region, function, and business group. Action plans and their progress are measured by global employee engagement surveys.

 

As of December 31, 2023, we had 8,600 employees (8,315 full time and 285 part-time and temporary employees). Of those, approximately 3,500 employees were directly or indirectly involved in manufacturing at our manufacturing facilities.

 

Domestically, we have had an “open shop” bargaining agreement for the past 50 years. The current agreement, which expires October 17, 2026, covers our Eagle, Wisconsin facility. Additionally, our plants in Mexico, Italy, Germany, and Spain are operated under various local or national union groups, or works councils. Our other facilities are not unionized.

 

Available Information

 

The Company’s principal executive offices are located at S45 W29290 Highway 59, Waukesha, Wisconsin, 53189 and the Company’s telephone number is (262) 544-4811. The Company’s website is www.generac.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available free of charge through the “Investor Relations” portion of the Company’s web site, as soon as reasonably practicable after they are filed with the Securities and Exchange Commission (SEC). The information provided on these websites is not part of this report and is therefore not incorporated herein by reference.

 

Information About Our Executive Officers

 

The following table sets forth information regarding our executive officers:

 

Name   Age   Position

Aaron P. Jagdfeld

 

52

 

President, Chief Executive Officer and Chairman

York A. Ragen

 

52

 

Chief Financial Officer

Erik Wilde

 

49

 

Executive Vice President, Industrial, Americas

Patrick Forsythe

 

56

 

Chief Technical Officer

Raj Kanuru   53   Executive Vice President, General Counsel and Secretary
Norman Taffe   57   President, Energy Technology
Kyle Raabe   49   President, Consumer Power

 

13

Table of Contents

 

Aaron P. Jagdfeld has served as our Chief Executive Officer since September 2008, as a director since November 2006 and was named Chairman in February 2016. Prior to becoming Chief Executive Officer, Mr. Jagdfeld worked for Generac for 15 years. He began his career in the finance department in 1994 and became our Chief Financial Officer in 2002. In 2007, he was appointed President and was responsible for sales, marketing, engineering and product development. Prior to joining Generac, Mr. Jagdfeld worked in the audit practice of the Milwaukee, Wisconsin office of Deloitte and Touche. Mr. Jagdfeld holds a Bachelor of Business Administration in Accounting from the University of Wisconsin-Whitewater.

 

York A. Ragen has served as our Chief Financial Officer since September 2008. Prior to becoming Chief Financial Officer, Mr. Ragen held Director of Finance and Vice President of Finance positions at Generac. Prior to joining Generac in 2005, Mr. Ragen was Vice President, Corporate Controller at APW Ltd., a spin-off from Applied Power Inc., now known as Enerpac Tool Group. Mr. Ragen began his career at Arthur Andersen in the Milwaukee, Wisconsin office audit practice. Mr. Ragen holds a Bachelor of Business Administration in Accounting from the University of Wisconsin-Whitewater.

 

Erik Wilde began serving as our Executive Vice President, Industrial, Americas in July 2016. Mr. Wilde was Vice President and General Manager of the Mining Division for Komatsu America Corp., a manufacturer of construction, mining, and compact construction equipment, from 2013 until he joined Generac. Prior to that role, he held leadership positions as Vice President of the ICT Business Division and Product Marketing at Komatsu America Corp. beginning in 2005. Mr. Wilde holds a Bachelor of Business Administration in Management from Boise State University and an M.B.A. from the Keller Graduate School of Management.

 

Patrick Forsythe has served as our Chief Technical Officer since January 2021. He previously served as our Executive Vice President of Global Engineering beginning in July 2015. Prior to re-joining Generac, Mr. Forsythe was Vice President, Global Engineering & Technology of Hayward Industries from 2008 to 2015, Vice President, Global Engineering at Ingersoll Rand Company (and the acquired Doosan Infracore International) from 2004 to 2008, and Director of Engineering at Ingersoll Rand Company from 2002 to 2004. Prior to 2002, Mr. Forsythe worked in various engineering management capacities with Generac from 1995 to 2002. Mr. Forsythe holds a Higher National Diploma (HND) in Mechanical Engineering from the University of Ulster (United Kingdom), a B.S. in Mechanical Engineering, and an M.S. in Manufacturing Management & Technology from The Open University (United Kingdom).

 

Raj Kanuru is our Executive Vice President, General Counsel & Secretary and is the Company’s principal legal and compliance officer, roles that he has held since joining Generac in 2013. Prior to joining Generac, Mr. Kanuru served as in-house counsel at Caterpillar Inc. for almost 14 years within various leadership roles, including in Caterpillar’s Securities, Regulatory and Tax group, in Caterpillar Financial, and in Caterpillar’s Energy & Transportation group. From 2009 to 2013, Mr. Kanuru served as Vice President, General Counsel and Secretary of Progress Rail Services Inc., and its subsidiaries (a Caterpillar company). He began his legal career as a senior associate in the tax consulting practice of Arthur Andersen LLP. Mr. Kanuru holds a Bachelor of Science in Finance degree from Birmingham-Southern College and received his Juris Doctor degree from the University of Alabama.

 

Norman Taffe began serving as President – Energy Technology in August 2022. Prior to joining Generac, Mr. Taffe was Executive Vice President North America Residential of SunPower Corporation from 2018 to 2021. Prior to this, Mr. Taffe was Executive Vice President - Products and Vice President of Power Plant Products and Solutions from 2013 to 2018. Mr. Taffe also worked in various engineering and marketing management capacities at Cypress Semiconductor from 1989 to 2012, including Executive Vice President – Consumer & Computation Devices from 2005 to 2012. Mr. Taffe holds a Bachelor of Science in Electrical Engineering from the University of Michigan and an Executive MBA from Harvard Business School.

 

Kyle Raabe has served as our President, Consumer Power since November 2019. Prior to rejoining Generac, Mr. Raabe was Senior Vice President of North American Sales, Demand Planning and Sales Operations from 2018 through 2019 and Vice President of Sales for the Commercial Security and Safety groups from 2015 through 2018 at The Master Lock Corporation, a manufacturer of locks, combination padlocks and other security products. Prior to working at The Master Lock Corporation, Mr. Raabe led multiple groups at Generac Power Systems from 2007 through 2015 as Director of Wholesale and Dealer Distribution, Vice President Wholesale Distribution Sales and Vice President, Industrial Distribution Sales. Before joining Generac, Mr. Raabe served at Veolia North America, Environmental Services leading Midwest Regional Service Operations. Mr. Raabe holds a BA, Biological Science from Lawrence University. 

 

Item 1A. Risk Factors

 

You should carefully consider the following risks. These risks could materially affect our business, results of operations or financial condition, cause the trading price of our common stock to decline materially or cause our actual results to differ materially from those expected or those expressed in any forward-looking statements made by us. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” and the risks of our businesses described elsewhere in this Annual Report.

 

14

Table of Contents

 

Risk factors related to our business and industry

 

Decreases in the availability and quality, or increases in the cost, of raw materials, key components and labor we use to make our products could materially reduce our earnings.

 

The principal raw materials that we use to produce our products include steel, copper and aluminum as well as batteries and advanced electronic components. We also source a significant number of component parts from third parties that we utilize to manufacture our products. The prices of those raw materials and components are susceptible to significant fluctuations due to trends in supply and demand, commodity prices, currencies, transportation costs, government regulations and tariffs, price controls, economic conditions and other unforeseen circumstances beyond our control. In fact, we have seen such trends significantly impact our business resulting in higher costs and shortages in materials, components and labor, and such impacts may continue or arise again in the foreseeable future. We typically do not have long-term supply contracts in place to ensure the raw materials and components we use are available in necessary amounts or at fixed prices. In the short term, we have been unable to fully mitigate raw material or component price increases through product design improvements, price increases to our customers, manufacturing productivity improvements, or hedging transactions, and if our mitigation efforts continue to not be fully effective in the short or long term, our profitability could be adversely affected. Also, our ability to continue to obtain quality materials and components is subject to the continued reliability and viability of our suppliers, including in some cases, suppliers who are the sole source of certain important components. It has been challenging to consistently obtain adequate, cost efficient or timely deliveries of certain required raw materials and components, or sufficient labor resources, and if this trend continues, we may be unable to manufacture sufficient quantities of products on a timely basis. This could cause us to lose additional sales, incur additional costs, delay new product introductions or suffer harm to our reputation.

 

We depend upon a small number of outside contract manufacturers and component suppliers, as well as single-source suppliers, for certain products and components, and our business and operations could be disrupted if we encounter problems with these parties.

 

For certain products we do not have internal manufacturing capabilities and rely upon a small number of contract manufacturers to build these products or supply these components, including but not limited to certain clean energy products or components. The timing of purchases in future periods could differ materially from our estimates due to fluctuations in demand requirements related to varying sales levels as well as changes in economic conditions. Further, the revenues that our contract manufacturers generate from our orders may represent a relatively small percentage of their overall revenues. As a result, fulfilling our orders may not be considered a priority in the event of constrained ability to fulfill all of their customer obligations in a timely manner. If any of these contract manufacturers or component suppliers were unable or unwilling to manufacture or produce our products in required volumes and at high quality levels or renew existing terms under supply agreements, we would have to identify, qualify and select acceptable alternative contract manufacturers, which may not be available to us on favorable terms, if at all. Our reliance on such contract manufacturers makes us vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, quality issues, manufacturing yields and costs. Moreover, we single-source certain types of parts in our product designs. Delays in our suppliers' deliveries have impaired, and may continue to impair, our ability to deliver products to our customers. A wide variety of factors could cause such delays including, but not limited to, lack of capacity, economic downturns, availability of credit, logistical challenges, labor or material shortages, trade restrictions, weather events, political instability, wars, terrorism, civil unrest, disease or natural disasters. If any of these suppliers reduce or eliminate the supply of the components to us in the future, our revenues, business, financial condition and results of operations would be adversely impacted. Although we have ongoing contractual disputes with certain such suppliers, such disputes have not to date had any significant adverse impact on our business, financial condition or results of operation.

 

Our business could be negatively impacted if we fail to adequately protect our intellectual property rights or if third parties claim that we are in violation of their intellectual property rights.

 

We consider our intellectual property rights to be important assets and seek to protect them through a combination of patent, trademark, copyright and trade secret laws, as well as licensing and confidentiality agreements. These protections may not be adequate to prevent third parties from using our intellectual property without our authorization, breaching any confidentiality agreements with us, copying or reverse engineering our products, or developing and marketing products that are substantially equivalent to or superior to our own. The unauthorized use of our intellectual property by others could reduce our competitive advantage and harm our business. Not only are intellectual property-related proceedings burdensome and costly, but they could take years to resolve, and we might not ultimately prevail. We cannot guarantee that any patents, issued or pending, will provide us with any competitive advantage or will not be challenged by third parties. Moreover, the expiration of our patents may lead to increased competition with respect to certain products. If we fail to protect our intellectual property and other proprietary rights, or if such intellectual property and proprietary rights are infringed, misappropriated or otherwise violated, our business, results of operations or financial condition could be materially harmed.

 

In addition, we cannot be certain that we do not or will not infringe third parties' intellectual property rights. We currently are, and have previously been, subject to such third-party infringement claims, and may continue to be in the future. Any such claim, even if it is believed to be without merit, may be expensive and time-consuming to defend, subject us to damages, cause us to cease making, using or selling certain products that incorporate the disputed intellectual property, require us to redesign our products, divert management time and attention, and/or require us to enter into costly royalty or licensing arrangements. Certain parts of our business experience significant intellectual property litigation and we have in the past and could in the future become involved in costly and lengthy litigation involving patents or other intellectual property rights which could adversely affect our business. We have recently been subject to adverse rulings or have settled claims for significant amounts related to the infringement of third-party intellectual property rights, and may continue to be subject to such claims, damage awards or settlement payments. In addition, we may not prevail in such future proceedings. An adverse outcome of any such proceeding may reduce our competitive advantage or otherwise harm our financial condition and our business or potentially impair our patents and technology intangible assets which could have a material adverse effect on our financial statements. 

 

For further information, see Note “18. Commitments and Contingencies”.

 

15

 

We may incur costs and liabilities as a result of product liability, warranty claims, recalls, or other claims.

 

We face a risk of exposure to current and future product liability claims alleging to arise from the use of our products and that may purportedly result in injury or other damage. Although we currently maintain product liability insurance coverage, such current insurance coverage may not be sufficient to cover claims or damage awards or we may not be able to obtain such insurance on acceptable terms in the future, if at all, or obtain insurance that will provide adequate coverage against potential claims. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome. A significant unsuccessful product liability defense could have a material adverse effect on our financial condition and results of operations. In addition, we believe our business depends on the strong brand reputation we have developed. If our reputation is damaged, we may face difficulty in maintaining our market share and pricing with respect to some of our products, which could reduce our sales and profitability. We have experienced, and may continue to experience, product liability claims or other product related claims, including higher warranty costs, which may impact our reputation and resulting sales and profitability. For example, we have and may continue to experience product liability, product quality or reliability claims, or warranty claims with respect to certain clean energy, generator, and/or chore products, including being subject to certain consumer product class action lawsuits or other governmental fines or penalties in relation to such products. In the event such product or warranty related claims continue or are significantly higher in the future, or we incur losses or other damages associated with current or future product liability lawsuits or product related claims, this may continue to adversely affect our reputation or brand quality in relation to such products, subject us to significantly increased costs or penalties, and otherwise materially harm our results of operations, financial condition and our business. Even in litigation where we believe the likelihood of liability is remote, there is a risk that a negative finding or decision in a matter involving multiple plaintiffs or a purported class action could have a material adverse effect on our competitive position, results of operations or financial condition.

 

While we do record reserves for future warranty claims, our estimated warranty accruals for previously sold products and our warranty costs for current product sales are based on assumptions using historical experience, and we do not have a long history with respect to certain products. As a result, these assumptions could prove to be materially different from the actual performance of such products, causing us to incur substantial unanticipated expenses to repair or replace defective products in the future or to compensate customers for defective products. Our failure to accurately predict future claims could have a material adverse effect on our business, results of operations, or financial condition.

 

Moreover, we have and may continue to be exposed to product recalls and adverse public relations if our products are alleged to have defects, to cause property damage, to cause injury or illness, or if we are alleged to have violated governmental regulations. A product recall could result in substantial and unexpected expenditures, which would reduce operating profit and cash flow. In addition, a product recall may require significant management attention. Product recalls may hurt the value of our brands and lead to decreased demand for our products. Product recalls have resulted in and may continue to lead to increased scrutiny, fines or other penalties by federal, state or international regulatory agencies on our operations or business and increased litigation and could have a material adverse effect on our consolidated results of operations, financial condition and cash flows.

 

For further information, see Note “18. Commitments and Contingencies”.

 

We cannot guarantee that our share repurchase programs will be fully consummated or that they will enhance long-term stockholder value. Share repurchases could also increase the volatility of the market price of our stock and diminish our cash reserves.

 

On February 12, 2024, the Company’s Board of Directors approved a new stock repurchase program that allows for the repurchase of up to $500 million of the Company’s common stock over the next twenty-four months. The new program replaces the prior share repurchase program, which had approximately $26 million remaining available for repurchase when the new program was approved. Although our Board of Directors has authorized such share repurchase program, the program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. Such program could also diminish our cash reserves. In addition, we may discontinue, modify or suspend our share repurchase program based on several factors, including our cash balances and potential future capital requirements for strategic transactions, including acquisitions, results of operations, financial condition and other factors that our Board of Directors may deem relevant. Any modification, suspension, or termination of our share repurchase program could cause our stock price to decline. We cannot guarantee that such program will be fully consummated or that it will enhance long-term stockholder value.

 

The risk of non-compliance with U.S. and foreign laws and regulations applicable to our global operations could have a significant impact on our results of operations, financial condition or strategic objectives.

 

Our global operations subject us to regulation by U.S. federal and state laws and multiple foreign laws, regulations and policies. These laws and regulations are complex, change frequently, have become more stringent over time and increase our cost of doing business. These laws and regulations include import and export control, environmental, health and safety regulations, data privacy requirements, international labor laws and work councils and anti- corruption and bribery laws such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, the U.N. Convention Against Bribery and local laws prohibiting corrupt payments to government officials.

 

We are subject to the risk that we, our employees, our affiliated entities, contractors, agents or their respective officers, directors, and employees may take actions determined to be in violation of any of these laws, for which we might be held responsible, particularly as we expand our operations geographically through organic growth and acquisitions. An actual or alleged violation could result in substantial fines, sanctions, civil or criminal penalties, debarment from government contracts, curtailment of operations in certain jurisdictions, competitive or reputational harm, litigation or regulatory action and other consequences that might adversely affect our results of operations, financial condition or strategic objectives.

 

Increased scrutiny regarding our ESG practices could impact our reputation.

 

Increasing governmental and societal attention to ESG matters, including expanding mandatory and voluntary reporting, and disclosure topics such as climate change, sustainability, natural resources, waste reduction, energy, human capital, and risk oversight could expand the nature, scope, and complexity of matters that we are required to control, assess, and report. We strive to deliver shared value through our business and our diverse stakeholders expect us to make progress in certain ESG priority issue areas. It is possible that we may be unsuccessful in the achievement of our ESG goals, on a timely basis or at all, or that the costs to achieve those goals become prohibitively expensive. Furthermore, our stakeholders may not be satisfied with our initiatives or efforts or the speed at which we are progressing towards any such aspirations and goals. Additionally, organizations that inform investors on ESG matters have developed rating systems for evaluating companies on their approach to ESG. Unfavorable ratings may lead to negative investor sentiment, which could negatively impact our stock price. Any failure, or perceived failure, to respond to ESG concerns could harm our business and reputation.

 

Our business may face increased scrutiny from the investment community, regulators, media and other stakeholders related to our sustainability activities, including our commitments, goals, targets and objectives, and our methodologies and timelines for pursuing them. We are subject to increasing regulatory requirements around sustainability-related disclosures, including significant anticipated rulemaking by the SEC or other international governmental authorities, which may continue to evolve. Complying with regulators’ disclosure requirements may impose substantial additional costs and require additional resources, including with respect to third-party attestation, to enable the capture, analysis and audit of appropriate data. Any actual or alleged failure to comply with regulatory requirements could result in fines, penalties and civil liabilities, and damage to our reputation. Furthermore, if our sustainability reporting and practices do not meet investor, regulator or other stakeholders’ expectations, standards and requirements, our reputation, ability to attract or retain employees, and attractiveness as an investment, business partner or acquiror could be negatively impacted. Similarly, our failure or perceived failure to pursue or fulfill our sustainability commitments, goals, targets, and objectives, to comply with ethical, environmental, or other standards, regulations, or expectations, or to comply with reporting requirements and standards with respect to these matters, within the timelines we announce, or at all, could have operational, reputational, financial and legal impacts.

 

If we fail to develop new products or enhance existing products, or our customers do not accept the new or enhanced products we develop, our revenue and profitability could be adversely impacted.

 

Difficulties or delays in research, development or production of new or enhanced products or failure to gain market acceptance of new or enhanced products and technologies may reduce future sales and adversely affect our competitive position. We continue to invest in the development and marketing of new or enhanced products. There can be no assurance that we will have sufficient resources to make such investments, that we will be able to make the technological advances necessary to maintain competitive advantages or that we can recover major research and development expenses. If we fail to make innovations, launch products with quality problems or the market does not accept our new products, our financial condition, results of operations, cash flows and liquidity could be adversely affected. In addition, as new or enhanced products are introduced, we must successfully manage the transition from older products to minimize disruption in customers’ ordering patterns, avoid excessive levels of older or obsolete product inventories and ensure that we can deliver sufficient supplies of new products to meet customers’ demands.

 

16

 

Demand for the majority of our products is significantly affected by unpredictable power outage activity that can lead to substantial variations in, and uncertainties regarding, our financial results from period to period.

 

Sales of our products are subject to consumer buying patterns, and demand for the majority of our products is affected by power outage events caused by thunderstorms, hurricanes, ice storms, blackouts, public safety power shutoffs, and other power grid reliability issues, all of which affects our ability to accurately manage our business and forecast future results. The impact of these outage events on our sales can vary depending on the location, frequency and severity of the outages. Sustained periods without major power disruptions can lead, and in the past have led, to reduced consumer awareness of the benefits of standby and portable generator products and can result and have previously resulted in reduced sales growth rates and excess inventory. There are smaller, more localized power outages that occur frequently that drive a baseline level of demand for back-up power solutions. The lack of major power outage events and fluctuations to the baseline levels of power outage activity are part of managing our business, and these fluctuations could have, and previously have had, an adverse effect on our net sales and profits. Despite their unpredictable nature, we believe power disruptions create awareness and accelerate adoption of our home standby products.

 

Demand for our products is significantly affected by durable goods spending by consumers and businesses, and other macroeconomic conditions.

 

Our business is affected by general economic conditions, and uncertainty or adverse changes, such as the prolonged downturn in U.S. residential investment and the impact of more stringent credit standards and rising interest rates or inflation. These have previously led and could lead again to a decline in demand for our products and pressure to reduce our prices. Our sales of light-commercial and industrial generators are affected by conditions in the non-residential construction sector and by the capital investment trends for small and large businesses and municipalities. If these businesses and municipalities cannot access credit markets or do not utilize discretionary funds to purchase our products as a result of the economy or other factors, our business could suffer and our ability to realize benefits from our strategy of increasing sales in the light-commercial and industrial sectors could be adversely affected. In addition, consumer confidence and home remodeling expenditures have a significant impact on sales of our residential products, and prolonged periods of weakness in consumer durable goods spending has previously had, and could again have a material impact on our business. We currently do not have any material contracts with our customers which call for committed volume, and we cannot guarantee that our current customers will continue to purchase our products at the same level, if at all. If general economic conditions or consumer confidence were to worsen, or if the non-residential construction sector or rate of capital investments were to decline, our net sales and profits would likely be adversely affected. Changes in government monetary or fiscal policies may negatively impact our results, including increases in interest rates or sustained inflationary pressure which could negatively affect overall growth and impact sales of our products. Additionally, timing of capital spending by our national account customers can vary from quarter-to-quarter based on capital availability and internal capital spending budgets. Also, the availability, renewal or potential loss of renewable energy mandates and investment tax credits and other subsidies can have an impact on the demand for energy storage systems. Our global operations are exposed to political and economic risks, commercial instability and events beyond our control in the countries in which we operate. Such risks or events may disrupt our supply chain and not enable us to produce products to meet customer demand.

 

If we do not forecast demand for our products accurately, we may experience product shortages, delays in product shipment, excess product inventory, difficulties in planning expenses or disputes with suppliers, any of which may adversely affect our business and financial condition.

 

We manufacture our products based on both actual customer orders and our estimates of customer demand. This process requires us to make multiple forecasts and assumptions relating to the demand of our distributors, their end customers, general market conditions, and other macroeconomic conditions. As a result, it may be difficult to forecast future customer demand to plan our operations, which may adversely affect our business and financial condition. If we overestimate demand for our products, we may have excess inventory that we cannot sell. We may have to make significant provisions for inventory write-downs based on events that are currently not known, and such provisions or any adjustments to such provisions could be material. We may also become involved in disputes with our suppliers who may claim that we failed to fulfill forecast or minimum purchase requirements. Conversely, if we underestimate demand, we may not have sufficient inventory to meet end-customer demand, and we may lose market share, damage relationships with our distributors and end customers and forgo potential revenue opportunities. Obtaining additional supply in the face of product shortages may be costly or impossible, which could prevent us from fulfilling orders in a timely and cost-efficient manner or at all. In addition, if we overestimate our production requirements, our contract manufacturers may purchase excess components and build excess inventory. If our contract manufacturers, at our request, purchase excess components that are unique to our products and are unable to recoup the costs of such excess inventory through resale or return or build excess products, we could be required to pay for these excess parts or products and recognize related inventory write-downs.

 

The industries in which we compete are highly competitive, and our failure to compete successfully could adversely affect our results of operations and financial condition.

 

We operate in markets that are highly competitive. Some of our competitors have established brands and are larger in size or are divisions of large, diversified companies which have substantially greater financial resources than we do. Some of our competitors have and may continue to be willing to reduce prices and accept lower margins in order to compete with us. In addition, we could face new competition from large international or domestic companies with established brands that enter our end markets. Demand for our products may also be affected by our ability to respond to changes in design and functionality, to respond to downward pricing pressure, and to provide shorter lead times for our products than our competitors. If we are unable to respond successfully to these competitive pressures, we could lose market share, which could have an adverse impact on our results. For further information, see “Item 1—Business—Competition”.

 

We rely on independent dealers and distribution partners, and the loss of these dealers and distribution partners, or of any of our sales arrangements with significant private label, national, retail or equipment rental customers, would adversely affect our business.

 

We depend on the services of independent distributors and dealers to sell and install our products and provide service and aftermarket support to our end customers. Their capacity constraints and/or inability to install and service our products, including their inability to hire, develop, or retain qualified technicians or other labor, could limit our ability to maintain and grow our sales. We also rely on our distribution channels to drive awareness for our product categories and our brands. In addition, we sell our products to end users through private label arrangements with leading home equipment, electrical equipment and construction machinery companies; arrangements with top retailers and equipment rental companies; and our direct national accounts with telecommunications and other industrial customers. Our distribution agreements and any contracts we have with large national, retail and other customers are typically not exclusive, and many of the distributors with whom we do business also offer competitors’ products and services.

 

Impairment of our relationships with our distributors, dealers or large customers, loss of a substantial number of these distributors or dealers or of one or more large customers, or an increase in our distributors' or dealers' sales of our competitors' products to our customers or of our large customers' purchases of our competitors' products could materially reduce our sales and profits. For example, we have had, and may continue to have, disputes with one or more customers, distributors or dealers to whom we sell our products, including clean energy products, and this may reduce or limit the sales growth for such products. Additionally, our ability to successfully realize our growth strategy is dependent in part on our ability to identify, attract and retain new distributors at all layers of our distribution platform, including increasing the number of energy storage distributors, and we cannot be certain that we will be successful in these efforts. For further information, see “Item 1—Business—Distribution Channels and Customers”.

 

We are unable to determine the specific impact of changes in selling prices or changes in volumes or mix of our products on our net sales.

 

Because of the wide range of products that we sell, the level of customization for many of our products, the frequent rollout of new products, the different accounting systems utilized, and the fact that we do not apply pricing changes uniformly across our entire portfolio of products, we are unable to determine with specificity the effect of volume or mix changes or changes in selling prices on our net sales.

 

Risk factors related to our operations

 

The loss of any key members of our senior management team or key employees could disrupt our operations and harm our business.

 

Our success depends, in part, on the efforts of certain key individuals, including the members of our senior management team, who have significant experience in the energy products and solutions industry. If, for any reason, our senior executives do not continue to be active in management, or if key employees leave our company, our business, financial condition or results of operations could be adversely affected. Failure to continue to attract or retain these individuals at reasonable compensation levels could have a material adverse effect on our business, liquidity and results of operations. If we need to replace any of these individuals in the near future, the loss of their services could disrupt our operations and have a material adverse effect on our business if we do not have effective succession plans in place.

 

Disruptions caused by labor disputes or organized labor activities could harm our business.

 

We may from time to time experience union organizing activities in our non-union facilities. Disputes with the current labor union or new union organizing activities could lead to work slowdowns or stoppages and make it difficult or impossible for us to meet scheduled delivery times for product shipments to our customers, which could result in loss of business. In addition, union activity could result in higher labor costs, which could harm our financial condition, results of operations and competitive position. A work stoppage or limitations on production at our facilities for any reason could have an adverse effect on our business, results of operations and financial condition. In addition, many of our suppliers have unionized work forces. Strikes or work stoppages experienced by our customers or suppliers could have an adverse effect on our business, results of operations and financial condition.

 

Our business and operations can be adversely affected by our ability to attract, motivate, develop, and retain our employees.

 

We are committed to attracting, motivating, developing, and retaining our employees to ensure we remain an employer of choice. Despite our efforts, we have experienced, and could continue to experience, depending upon external market conditions, higher employee turnover and absenteeism. Furthermore, the competition for skilled personnel is often very competitive in markets where our facilities are located. Increased turnover rates within our employee base, perceived or actual deficiencies in total compensation paid to our employees in relation to competing employers, or as a result of general macroeconomic factors or otherwise, could lead to increased costs, such as increased overtime to meet demand and potentially further increase salaries and wage rates to attract and retain employees, and could negatively affect our ability to efficiently operate our manufacturing facilities and overall business. If we are unable to hire and retain employees capable of performing at a high level, our business, financial condition and results of operations could be adversely affected.

 

17

 

We may experience material disruptions to our manufacturing operations.

 

While we seek to operate our facilities in compliance with applicable rules and regulations and take measures to minimize the risks of disruption at our facilities, a material disruption at one of our manufacturing facilities could prevent us from meeting customer demand, reduce our sales and/or negatively impact our financial results. Any of our manufacturing facilities, or any of our equipment within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including:

 

 

equipment or information technology infrastructure failure; 

 

disruptions in the transportation infrastructure including roads, bridges, railroad tracks and container ports;

 

fires, floods, tornadoes, earthquakes, disease, pandemics, acts of violence, or other catastrophes; and 

 

other operational problems.

 

In addition, a significant portion of our manufacturing and production facilities are in Wisconsin within a 100-mile radius of each other. We could experience prolonged periods of reduced production due to unforeseen events occurring in or around our manufacturing facilities in Wisconsin. In the event of a business interruption at our facilities, in particular our Wisconsin facilities, we may be unable to shift manufacturing capabilities to alternate locations, accept materials from suppliers or meet customer shipment needs, among other severe consequences. Such an event could have a material and adverse impact on our financial condition and results of our operations.

 

Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, could have an adverse effect on our results of operations.

 

Our business benefits from free trade agreements, and efforts to withdraw from, or substantially modify such agreements, in addition to the implementation of more restrictive trade policies, such as more detailed inspections, higher tariffs, import or export licensing requirements, exchange controls or new barriers to entry, could have a material adverse effect on our results of operations, financial condition or cash flows. The U.S. government has made changes in U.S. trade policy over the past several years. These changes include renegotiating and terminating certain existing bilateral or multi-lateral trade agreements, such as the U.S.-Mexico-Canada Agreement, and initiating tariffs on certain foreign goods from a variety of countries and regions, most notably China. These changes in U.S. trade policy have resulted in, and may continue to result in, one or more foreign governments adopting responsive trade policies that make it more difficult or costly for us to do business in or import our products or components from those countries. The sales, gross margins, and profitability for each of our segments could be directly impacted by changes in tariffs and trade agreements.

 

In addition, certain of our products or key components or raw materials have and may continue to be subject to the imposition of higher duties as a result of anti-dumping and countervailing duties applied against them. To the extent such governmental actions, duties or tariffs are applied to such products, it could adversely affect our results of operations, financial condition and business.

 

We cannot predict the extent to which the U.S. or other countries will impose new or additional quotas, duties, tariffs, duties, taxes or other similar restrictions upon the import or export of our products in the future, nor can we predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business. The continuing adoption or expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could have a material adverse effect on our business, operating results, and financial condition.

 

We may not realize all of the anticipated benefits of our acquisitions, divestitures, restructurings, or realignments, or those benefits may take longer to realize than expected. We may also encounter significant unexpected difficulties in integrating acquired businesses.

 

We regularly execute organizational changes such as acquisitions, divestitures, restructurings, and realignments to support our growth and management strategies. If we are unable to successfully manage these and other organizational changes, the ability to complete such activities and realize anticipated synergies or cost savings, as well as our results of operations and financial condition, could be materially adversely affected.

 

Our ability to realize the anticipated benefits of our acquisitions will depend, to a large extent, on our ability to integrate the acquired businesses with our business. The integration of independent businesses is a complex, costly and time-consuming process. Further, integrating and managing businesses with international operations may pose challenges not previously experienced by our management. As a result, we may be required to devote significant management attention and resources to integrating the business practices and operations of any acquired businesses with ours. The integration process may disrupt our business and, if implemented ineffectively, could preclude realization of the full benefits expected by us. Our failure to meet the challenges involved in integrating an acquired business into our existing operations or otherwise to realize the anticipated benefits of the transaction could cause an interruption of, or a loss of momentum in, our activities and could adversely affect our results of operations.

 

As part of undertaking an acquisition, we may also significantly revise our capital structure or operational budget, such as issuing common stock that would dilute the ownership percentage of our stockholders, assuming liabilities or debt, utilizing a substantial portion of our cash resources to pay for the acquisition or significantly increasing operating expenses. Our acquisitions have resulted and may in the future result in charges being taken in an individual quarter as well as future periods, which results in variability in our quarterly earnings. In addition, our effective tax rate in any particular quarter may also be impacted by acquisitions. Following the closing of an acquisition, we may also have disputes with the seller regarding contractual requirements and covenants, purchase price adjustments, contingent payments or for indemnifiable losses. Any such disputes may be time consuming and distract management from other aspects of our business. As part of the terms of an acquisition, we may commit to pay additional contingent consideration if certain revenue or other performance milestones are achieved. We are required to evaluate the fair value of such commitments at each reporting date and adjust the amount recorded if there are changes to the fair value.

 

In addition, the overall integration of our acquired businesses may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customer relationships, and diversion of management's attention, and may cause our stock price to decline. The difficulties of combining the operations of acquired businesses with ours include, among others:

 

 

managing a larger company;

 

maintaining employee morale and retaining key management and other employees;

 

complying with newly applicable domestic and foreign regulations as we enter new product and geographic markets;

 

integrating two business cultures, which may prove to be incompatible;

 

the possibility of faulty assumptions underlying expectations regarding the integration process;

 

retaining existing customers and attracting new customers;

 

consolidating corporate and administrative infrastructures and eliminating duplicative operations;

 

the diversion of management's attention from ongoing business concerns and performance shortfalls as a result of management's attention to the acquisition;

 

unanticipated issues in integrating information technology, communications and other systems;

 

complying with, or the failure to comply with, changes in applicable, new, or existing laws and regulations;

 

managing tax costs or inefficiencies associated with integrating the operations or supply chain of the combined company;

 

unforeseen liabilities, expenses or delays associated with the acquisition;

 

difficulty comparing financial reports due to differing financial and/or internal reporting systems; and

 

making any necessary modifications to internal financial control standards to comply with the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder.

 

Many of these factors may be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management's time and energy, which could materially impact our business, financial condition and results of operations. In addition, even if the operations of our acquired businesses are integrated successfully with our operations, we may not realize the full benefits of the transaction, including the synergies, cost savings or sales or growth opportunities that we expect. These benefits may not be achieved within the anticipated time frame, or at all, and additional unanticipated costs may be incurred in the integration or management of our businesses. All these factors could cause dilution to our earnings per share, decrease or delay the expected accretive effect of the acquisition, and cause a decrease in the price of our common stock. As a result, we cannot be assured that the combination of our acquisitions with our business will result in the realization of the full benefits anticipated from the transaction.

 

18

 

A significant portion of our purchased components are sourced in foreign countries, exposing us to additional risks that may not exist in the United States.

 

We source a significant portion of our purchased components overseas, primarily in Asia and Europe. Our international sourcing subjects us to a number of potential risks in addition to the risks associated with third-party sourcing generally. Such risks include:

 

 

inflation or changes in political and economic conditions; 

 

logistical challenges, including extended container port congestion, and higher logistics costs;

 

unstable regulatory environments; 

 

changes in import and export duties; 

 

domestic and foreign customs and tariffs; 

 

currency rate fluctuations;

 

trade restrictions; 

 

labor or civil unrest; 

  disputes in our relationships with certain contract manufacturers or suppliers;
 

communications challenges; and 

 

other restraints and burdensome taxes.

 

These factors have had in the past and are currently having an adverse effect on our ability to efficiently and cost effectively source our purchased components overseas. Additionally, if the U.S. dollar were to depreciate significantly against the currencies in which we purchase raw materials from foreign suppliers, our cost of goods sold could increase materially, which would adversely affect our results of operations. 

 

Risk factors related to legal and regulatory matters

 

We are subject to a variety of litigation and other legal and regulatory proceedings in the course of our business that could adversely affect our business, financial statements or on our results of operations.

 

We are subject to a variety of litigation and other legal and regulatory proceedings incidental to our business (or the business operations of previously owned entities), including claims for damages arising out of the use of products or services and claims relating to product design, safety, manufacture and performance liability, contracts, commercial disputes, competition, sales and trading practices, employment issues, environmental matters, intellectual property rights, tax, securities, regulatory compliance, personal injury, insurance coverage, and acquisition-related matters, as well as other legal proceedings that arise in and outside of the ordinary course of our business. These matters may include claims for compensatory damages, punitive and consequential damages and/or injunctive relief. The defense of these matters may divert our management’s attention, we may incur significant expenses in defending such matters, and we may be required to pay fines, penalties, damage awards or settlements or become subject to equitable remedies that could adversely affect our operations and financial statements.

 

The industries in which we operate are also periodically reviewed or investigated by regulators, and we are subject to and may continue to be subject to such investigations and claims, including by the U.S. Department of Justice (DOJ), CPSC and EPA, which could lead to enforcement actions, fines and penalties or the assertion of private litigation claims. The Company is cooperating with such governmental inquiries, it is not possible to predict with certainty the outcome of such claims, or any other current or future claims, investigations and lawsuits, and we could in the future incur judgments, fines or penalties or enter into settlements of lawsuits and claims that could have an adverse effect on our reputation, business, results of operations or financial condition in any particular period.

 

Additionally, the nature of our operations means that legal and compliance risks will continue to exist and additional legal proceedings and other contingencies, the outcome of which cannot be predicted with certainty, may arise from time to time. In addition, subsequent developments in legal proceedings or investigations may affect our assessment and estimates of loss contingencies recorded as a reserve and require us to make payments in excess of our reserves, which could have an adverse effect on our reputation, business and results of operations or financial condition.

 

Moreover, any insurance or indemnification rights that we may have may be insufficient or unavailable to protect us against such losses. In addition, developments in proceedings in any given period may require us to adjust the loss contingency estimates that we have recorded in our financial statements, record estimates for liabilities or assets previously not susceptible of reasonable estimates or pay cash settlements or judgments. Any of these developments could adversely affect our financial statements in any particular period. We cannot assure our liabilities in connection with litigation and other legal and regulatory proceedings will not exceed our estimates or adversely affect our financial statements and reputation.

 

While we maintain insurance coverage in amounts that we believe are reasonable, we cannot assure we will be able to maintain this insurance on acceptable terms or that this insurance will provide sufficient coverage against potential liabilities that may arise. Any product liability claim may also include the imposition of punitive damages, the award of which may not be covered by insurance. Any claims brought against us, with or without merit, may have an adverse effect on our business and results of operations as a result of potential adverse outcomes, the expenses associated with defending such claims, the diversion of our management’s resources and time and the potential adverse effect to our business reputation.

 

For further information, see Note “18. Commitments and Contingencies”.

 

Our operations are subject to various environmental, health and safety laws and regulations, and non-compliance with or liabilities under such laws and regulations could result in substantial costs, fines, sanctions and claims.

 

Our operations are subject to a variety of foreign, federal, state and local environmental, health and safety laws and regulations including those governing, among other things, emissions to air; discharges to water; noise; and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. In addition, under federal and state environmental laws, we could be required to investigate, remediate and/or monitor the effects of the release or disposal of materials both at sites associated with past and present operations and at third-party sites where wastes generated by our operations were disposed. This liability may be imposed retroactively and whether or not we caused, or had any knowledge of, the existence of these materials and may result in our paying more than our fair share of the related costs. Violations of or liabilities under such laws and regulations could result in substantial costs, fines and civil or criminal proceedings or personal injury and workers' compensation claims.

 

Our products are subject to substantial government regulation.

 

Our products are subject to extensive statutory and regulatory requirements governing, among other things, emissions, noise, labeling, transport, product content, product safety, and data privacy, including standards imposed by the EPA, CARB, CPSC and other regulatory agencies around the world. Also, as we increase our connectivity with our products and customers, we may be required to comply with additional data privacy and cybersecurity regulations. For example, personal privacy and data security have become significant issues in the United States, Europe, and in many other jurisdictions in which we operate. The regulatory framework for privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. In the United States, these include rules and regulations promulgated or pending under the authority of federal agencies, state attorneys general, legislatures, and consumer protection agencies. Internationally, many jurisdictions in which we operate have established their own data security and privacy legal framework with which we, relevant suppliers, and customers must comply. Although we have implemented certain policies, procedures, and, in other cases, contractual arrangements designed to facilitate compliance with applicable privacy and data security laws and standards, any challenges or perceived inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and data security laws, regulations, and policies, could result in additional fines, costs, and liabilities to us, damage our reputation, inhibit sales, and adversely affect our business.

 

These laws are constantly evolving and many are becoming increasingly stringent. As a further example, recent CARB regulations that will prohibit future sales in California of certain small off-road engines may negatively affect the long-term sales of certain products we sell today in that state. In addition, some cities or municipalities have imposed, or are considering, limiting natural gas connections to new buildings or imposing additional permitting restrictions which could adversely affect the sales of certain products we sell in such jurisdictions. Changes in applicable laws or regulations, or in the enforcement thereof, could require us to redesign or recall our products and could adversely affect our business or financial condition in the future. Developing and marketing products to meet such new requirements could result in substantial additional costs that may be difficult to recover in some markets. In some cases, we may be required to modify our products or develop new products to comply with new regulations, particularly those relating to air emissions and carbon monoxide. Typically, additional costs associated with significant compliance modifications are passed on to the market.

 

The failure to comply with existing and future regulatory standards or requirements could adversely affect our position in the markets we serve, our reputation, business, results of operations or financial condition in any particular period.

 

19

 

Risk factors related to cybersecurity

 

Failures or security breaches of our networks or information technology systems could have an adverse effect on our business.

 

We rely heavily on information technology (IT) both in our products and services for customers and in our IT systems used to run our business. Further, we collect and store sensitive information in cloud-based data centers and on our networks. Government agencies and security experts have warned about growing risks of hackers, cyber-criminals, malicious insiders and other actors targeting confidential information and all types of IT systems. These actors may engage in fraudulent activities, theft of confidential or proprietary information and sabotage or ransomware.

 

Our IT systems, our connected products, and our confidential information may be vulnerable to damage or intrusion from a variety of attacks including computer viruses, worms or other malicious software programs. The risk of such attacks may increase as we integrate newly acquired companies or develop new connected products and related software. These attacks pose a risk to the security of our products, private data, systems and networks and those of our customers, suppliers and third-party service providers, as well as to the confidentiality of our information and the integrity and availability of our data. While we attempt to mitigate these risks through board oversight, hiring additional internal cyber-security professionals to manage these risks, enhancing controls, due diligence, employee training and communication, third party intrusion testing, system hardening, email and web filters, regular patching, multi-factor authentication, surveillance, encryption, and other measures, we remain vulnerable to information security threats.

 

We monitor certain cyber security threats and vulnerabilities in our systems, and we have experienced viruses and attacks targeting our IT systems and networks. Such prior events, to date, have not had a material impact on our financial condition, results of operations or liquidity. Despite the precautions we take, we have had, and could have again, an intrusion or infection of our systems or connected products. While such intrusions or infections to date have not resulted in the significant disruption of our business, or a loss of proprietary or confidential information, we cannot guarantee the same for future intrusions or infections. Similarly, an attack on our IT systems or connected products could result in theft or disclosure of trade secrets or other intellectual property, a breach of confidential customer or employee information, or product failure or misuse. Any such events could have an adverse impact on sales, harm our reputation and cause us to incur legal liability and increased costs to address such events and related security concerns. As the threats evolve and become more potent, we may incur additional costs to secure the products that we sell, as well as our data and infrastructure of networks and devices.

 

See "Item 1C. Cybersecurity" for additional information related to cybersecurity risks. 

 

Risk factors related to our capital structure

 

We have indebtedness which could adversely affect our cash flow and our ability to make payments on our indebtedness.

 

As of December 31, 2023 we had total indebtedness of $1,575.2 million. Our level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness. While we maintain interest rate swaps covering a portion of our outstanding debt, our interest expense could increase if interest rates increase because debt under our credit facilities bears interest at a variable rate based on Secured Overnight Financing Rate (SOFR) or other base rate. 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 applicable to the existing Tranche B Term Loan Facility were replaced with SOFR provisions. If we do not have sufficient earnings to service our debt, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or sell securities, none of which we can guarantee we will be able to do. Our Term Loan B matures on December 13, 2026, and our Term Loan A as well as our Revolving Facility mature on June 29, 2027.

 

The terms of our credit facilities restrict our current and future operations, particularly our ability to respond to changes in our business or to take certain actions.

 

Our credit facilities contain, and any future indebtedness of ours or our subsidiaries would likely contain, a number of restrictive covenants that impose operating and financial restrictions on us and our subsidiaries, including limitations on our ability to engage in acts that may be in our best long-term interests. These restrictions set limitations on, among other things, our ability to:

 

 

incur liens;

 

incur or assume additional debt or guarantees or issue preferred stock;

 

pay dividends, or make redemptions and repurchases, with respect to capital stock;

 

prepay, or make redemptions and repurchases of, subordinated debt;

 

make loans and investments;

 

make capital expenditures;

 

engage in mergers, acquisitions, asset sales, sale/leaseback transactions and transactions with affiliates;

 

change the business conducted by us or our subsidiaries; and

 

amend the terms of subordinated debt.

 

The operating and financial restrictions in our credit facilities and any future financing agreements may adversely affect our ability to finance future operations or capital needs or to engage in other business activities. A breach of any of the restrictive covenants in our credit facilities would result in a default. If any such default occurs, the lenders under our credit facilities may elect to declare all outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable, or enforce their security interest, any of which would result in an event of default. The lenders will also have the right in these circumstances to terminate any commitments they have to provide further borrowings. 

 

20

 

We may need additional capital to finance our growth strategy or to refinance our existing credit facilities, and we may not be able to obtain it on acceptable terms, or at all, which may limit our ability to grow.

 

We may require additional financing to expand our business. Financing may not be available to us or may be available to us only on terms that are not favorable. The terms of our senior secured credit facilities limit our ability to incur additional debt. In addition, economic conditions, including a downturn in the credit markets, could impact our ability to finance our growth on acceptable terms or at all. If we are unable to raise additional funds or obtain capital on acceptable terms, we may have to delay, modify or abandon some or all of our growth strategies. In the future, if we are unable to refinance our credit facilities on acceptable terms, our liquidity could be adversely affected.

 

Our total assets include a substantial amount of goodwill and other indefinite-lived intangibles. If we determine these have become impaired, our net income could be materially adversely affected.

 

Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. Indefinite-lived intangibles are comprised of certain tradenames. At December 31, 2023, goodwill and other indefinite-lived intangibles totaled $1,560.7 million. We review goodwill and other intangibles at least annually for impairment and any excess in carrying value over the estimated fair value is charged to the statement of comprehensive income. Future impairment may result from, among other things, deterioration in the performance of an acquired business or product line, adverse market conditions, a significant increase in interest rate, changes in the competitive landscape, adverse changes in applicable laws or regulations, including changes that restrict the activities of an acquired business or product line, and a variety of other circumstances including any of the risk factors noted above. A reduction in net income resulting from the write-down or impairment of goodwill or indefinite-lived intangibles could have a material adverse effect on our financial statements. Refer to the Critical Accounting Policies and Estimates in Item 7 of this Annual Report on Form 10-K for further information regarding our process for evaluating goodwill for impairment.

 

General risk factors

 

The market price of our common stock may be volatile or may decline regardless of our operating performance.

 

The market price of our common stock has been and could be subject to wide fluctuations in response to, among other things, the other risk factors described herein, and other factors beyond our control, such as quarterly variations in operating results, announcements of technology innovations or new products by us or our competitors, changes in financial estimates and recommendations by securities analysts, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions, such as recessions, interest rate changes or international currency fluctuations, may negatively affect the market price of our common stock, regardless of our operating performance.

 

We have experienced and may continue to see volatility in the market price of our stock price. As a result, we have been subject to securities class action litigation and may continue to be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business. 

 

For further information, see Note “18. Commitments and Contingencies”.

 

Our business is subject to potential tax liabilities.

 

We are subject to income tax, indirect tax or other tax claims by tax agencies in jurisdictions in which we conduct business. In the ordinary course of our business, there are many transactions and calculations where the ultimate income tax, indirect tax, or other tax determination is uncertain. Although we believe our tax estimates are reasonable, we cannot be certain that the final determination of our tax audits and litigation will not be materially different from that which is reflected in historical tax provisions and accruals. Should additional taxes be assessed as a result of an audit, assessment or litigation, there could be a material adverse effect on our cash, tax provisions and net income in the period or periods for which that determination is made.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 1C. Cybersecurity

 

The Company’s management and Board recognize the importance of strong oversight of cybersecurity risk, information security and technology in maintaining the trust and confidence of our customers, partners, employees and stockholders. The Company maintains cybersecurity measures aligned with the National Institute of Standards and Technology Cybersecurity Framework (Framework) which organizes cybersecurity risks into five categories: identify, protect, detect, respond and recover. Our processes for assessing, identifying and managing material risks from cybersecurity threats is incorporated into our Enterprise Risk Management (ERM) program and evaluated against such Framework. Our information security and ERM teams coordinate to regularly review and assess these risks using a wide range of tools and services.

 

Our cybersecurity risk is actively managed through our Cybersecurity Steering Committee, which has established Company-wide policies and standards concerning cybersecurity matters. These policies directly or indirectly relate to cybersecurity and include antivirus protection, remote access, multifactor authentication, containment of confidential information and the use of the internet, email and wireless devices. The Company’s Chief Information Security Officer (CISO) is responsible for developing and implementing our information security program and regularly reports on cybersecurity matters to executive management and the Board of Directors. The CISO has over 25 years of experience supporting cybersecurity and information technology and is a board member of a local Cyber Threat Response Alliance organization.  Led by our CISO, team members who support our information security program have relevant educational and industry experience.

 

The CISO and information technology security team conduct regular risk assessments to identify areas requiring additional investment and resources. These risk assessments extend to our supply chain, where cybersecurity health assessments are employed for our critical suppliers. The results are used to calculate a Cybersecurity Risk Score, a key component of our Supply Chain Scorecard used to proactively identify and manage potential risks. Additionally, we generally require those third parties that could introduce significant cybersecurity risk to us to agree by contract to manage their cybersecurity risks in specified ways, as appropriate. Risk assessments are also performed on new products and software and we periodically engage third-party services for penetration testing and security evaluations. We also periodically assess our technology infrastructure and business processes to identify and address potential security gaps and vulnerabilities. An ISO 27001 certification is maintained within our Energy Services business. 

 

As chair of the Cybersecurity Steering Committee, the CISO holds regular meetings to provide strategic updates on the Company’s cybersecurity infrastructure and preparedness. These meetings, supplemented by regular updates to the Board of Directors, are instrumental in aligning with the Company’s strategic goals. Our Board of Directors is also provided with ongoing education including updates on relevant legislation and regularly receives reports on cybersecurity risks, threats, incidents and other trends. Several members of our Board's Audit Committee have expertise and experience in cybersecurity, and one director is the President of a major cybersecurity services provider. 

 

In order to promote a culture of security awareness across our organization, all employees are required to complete an annual cybersecurity awareness training and are provided with periodic information updates on cybersecurity threats. We also maintain cyber insurance policies to help partially mitigate the financial impact of a significant cybersecurity incident.

 

Despite our best efforts, we cannot guarantee that our security measures will prevent all potential cybersecurity incidents or breaches. Our systems are continually subject to sophisticated and evolving cyber threats, such as phishing, ransomware, social engineering, and advanced persistent threats. However, to date, we have not been subject to any incidents or successful cyber-attacks that materially impacted our operations or financial condition. The Company has invested in developing and acquiring cybersecurity capabilities allowing us to monitor threats and manage incident response. We have also developed internal policies to mitigate cybersecurity incidents, including providing clear guidelines for incident classification and response. We recognize the importance of continued monitoring and improvement of our cybersecurity program, and will continue to invest in our security controls, incident response capabilities, and third-party vendor management protocols.

 

For additional information on the cybersecurity risks that we face, also see Item 1A. “Risk Factors”.

 

Item 2. Properties

 

We own or lease manufacturing, distribution, R&D, and office facilities globally totaling over five million square feet. We also utilize third party inventory warehouses that accommodate material storage and rapid response requirements of our customers. The following table provides information about our principal owned or leased facilities exceeding 20,000 square feet:

 

Location

 

Owned/

Leased

 

Activities

 

Segment

Waukesha, WI

 

Owned

 

Corporate headquarters, R&D

 

Domestic

Pewaukee, WI   Owned   Sales, office   Domestic

Eagle, WI

 

Owned

 

Manufacturing, office, training

 

Domestic

Whitewater, WI

 

Owned

 

Manufacturing, office, distribution

 

Domestic

Oshkosh, WI

 

Owned

 

Manufacturing, office, warehouse, R&D

 

Domestic

Berlin, WI    Owned   Manufacturing, office, warehouse, R&D   Domestic
Fond du Lac, WI   Leased   Warehouse   Domestic

Jefferson, WI

 

Owned

 

Manufacturing, office, distribution, R&D

 

Domestic

Janesville, WI   Leased   Distribution   Domestic
Richfield, WI   Leased   Warehouse   Domestic
Trenton, SC   Owned   Manufacturing, office, warehouse, distribution   Domestic
Stockton, CA   Leased   Sales, office, warehouse, training   Domestic
Corona, CA   Leased   Sales, office, storage   Domestic
Hamilton, OH   Leased   Storage   Domestic

Maquoketa, IA

 

Owned

 

Storage, rental property

 

Domestic

South Burlington, VT

 

Leased

 

Office, sales, R&D

 

Domestic

South Portland, ME   Leased   Sales, office, R&D   Domestic
Marlborough, MA   Leased   Sales, office, warehouse   Domestic
Reno, NV   Leased   Warehouse, R&D   Domestic
Toronto, Canada   Leased   Office, sales, R&D   Domestic

Mexico City, Mexico

 

Owned

 

Warehouse

 

International

Hidalgo, Mexico

 

Owned

 

Manufacturing, sales, distribution, warehouse, office, R&D

 

International

Casole d’Elsa, Italy

 

Leased

 

Manufacturing, office, warehouse, R&D

 

International

Balsicas, Spain

 

Leased

 

Manufacturing, office, warehouse, R&D

 

International

Foshan, China

 

Owned

 

Manufacturing, office, warehouse, R&D

 

International

Saint-Nizier-sous-Charlieu, France

 

Leased

 

Sales, office, warehouse

 

International

Cravinhos, Brazil

 

Leased

 

Manufacturing, office, warehouse

 

International

Sydney, Australia

 

Leased

 

Sales, office, warehouse

 

International

Fellbach, Germany

 

Leased

  Sales, office, warehouse  

International

Pfullingen, Germany   Leased   Manufacturing, sales, distribution, warehouse, office, R&D   International
Suzhou, China   Leased   Office, R&D   International
Rugby, United Kingdom   Leased   Manufacturing, office, warehouse, R&D   International
Celle, Germany   Leased   Manufacturing, office, warehouse, R&D   International
Charzyno, Poland   Owned   Warehouse, storage   International 
West Bengal, India   Leased   Manufacturing, warehouse   International 
Villanova d'Ardenghi, Italy   Owned   Manufacturing, warehouse   International
Hunmanby, United Kingdom   Owned   Manufacturing, warehouse, sales, distribution, office, R&D   International

 

In addition to the countries represented above, the Company operates small facilities in the United Arab Emirates, Romania, Bahrain, and Colombia.

 

As of December 31, 2023, substantially all of our domestically-owned and a portion of our internationally-owned properties are subject to collateral provisions under our senior secured credit facilities.

 

21

Table of Contents

 

Item 3. Legal Proceedings

 

See Note 18, "Commitments and Contingencies," to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the Company's legal proceedings. 

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Shares of our common stock are traded on the New York Stock Exchange (NYSE) under the symbol “GNRC.”

 

Purchases of Equity Securities By the Issuer and Affiliated Purchasers

 

The following table summarizes the stock repurchase activity for the three months ended December 31, 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

 

10/01/23 - 10/31/23

    1,261     $ 101.89       -     $ 177,793,103  

11/01/23 - 11/30/23

    780,232     $ 109.96       779,895     $ 92,033,334  

12/01/23 - 12/31/23

    536,368     $ 123.31       533,000     $ 26,297,232  

Total

   

1,317,861

    $ 115.39       1,312,895          

 

For equity compensation plan information, refer to Note 17, “Share Plans,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K. For information on the Company’s stock repurchase plans, refer to Note 13, “Stock Repurchase Programs,” to the consolidated financial statements. Additionally, on February 12, 2024, our Board of Directors approved a new stock repurchase program that allows for the repurchase of up to $500.0 million of our common stock over the next twenty-four months. The new program replaces the prior share repurchase program, which had approximately $26.3 million remaining available for repurchase when the new program was approved.

 

22

Table of Contents

 

Stock Performance Graph

 

The line graph below compares the cumulative total stockholder return on our common stock with the cumulative total return of the Standard & Poor’s (S&P 500) Index, the S&P MidCap 400 Index, and the S&P 500 Industrial Index, for the five-year period ended December 31, 2023. The graph and table assume that $100 was invested on December 31, 2018, in each of our common stock, the S&P 500 Index, the S&P MidCap 400 Index, and the S&P 500 Industrial Index, and that all dividends were reinvested. Cumulative total stockholder returns for our common stock, the S&P 500 Index, the S&P MidCap 400 Index, and the S&P 500 Industrial Index, are based on our fiscal year. 

 

a01.jpg

 

Company / Market / Peer Group

 

12/31/2018

   

12/31/2019

   

12/31/2020

   

12/31/2021

   

12/31/2022

   

12/31/2023

 

Generac Holdings Inc.

  $100.00     $202.37     $457.44     $707.81     $202.43     $259.87  

S&P 500 Index - Total Returns

  100.00     131.49     155.68     200.37     164.08     207.21  

S&P MidCap 400 Index

  100.00     126.20     143.44     178.95     155.58     181.15  

S&P 500 Industrials Index

  100.00     129.37     143.68     174.02     164.49     194.31  

 

Holders

 

As of February 16, 2024, there were 1,138 registered holders of record of Generac’s common stock. A substantially greater number of holders of Generac common stock are “street name” or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.

 

Dividends

 

We do not have plans to pay dividends on our common stock in the foreseeable future. However, in the future, subject to factors such as general economic and business conditions, our financial condition and results of operations, our capital requirements, our future liquidity and capitalization, and other such factors that our Board of Directors may deem relevant, we may change this policy and choose to pay dividends. Our ability to pay dividends on our common stock is currently limited by the terms of our senior secured credit facilities and may be further restricted by any future indebtedness we incur. Dividends from, and cash generated by our subsidiaries will be our principal sources of cash to repay indebtedness, fund operations, repurchase shares of common stock and pay dividends. Accordingly, our ability to pay dividends to our stockholders is dependent on the earnings and distributions of funds from our subsidiaries.

 

23

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

For information on securities authorized for issuance under our equity compensation plans, refer to “Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” which is incorporated herein by reference.

 

Recent Sales of Unregistered Securities

 

None.

 

Use of Proceeds from Registered Securities

 

Not applicable.

 

Item 6. [Reserved]

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operations should be read together with “Item 1 – Business,” the consolidated financial statements, and the related notes thereto in Item 8 of this Annual Report on Form 10-K. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Item 1A. - Risk Factors.”

 

Overview

 

Generac is a leading energy technology solutions company that provides backup and prime power generation systems for residential and C&I applications, solar + battery storage solutions, smart home energy management devices and energy services, advanced power grid software platforms, and engine- & 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.

 

Further information regarding our business is provided in “Part I, Item 1. Business” of this Annual Report.

 

Business Drivers and Operational Factors

 

“Part I, Item 1. Business” of this Annual Report contains information regarding business drivers, including key mega-trends and strategic growth themes under the subheading “Mega-Trends, Strategic Growth Themes, and Additional Business Drivers.”

 

 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 continued 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.

 

24

 

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. 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. Interest expense increased during 2023 compared to 2022, primarily due to increased borrowings and higher interest rates. Refer to Note 12, “Credit Agreements,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information.

 

Factors influencing provision for income taxes and cash income taxes paid.    As of December 31, 2021, the tax-deductible goodwill and intangible assets from our acquisition by CCMP Capital Advisors, LLC in 2006 were fully amortized. The expiration of this significant tax shield resulted in a higher cash income tax obligation in 2022 and will continue to result in a higher income tax obligation on a go-forward basis.

 

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 have a material impact on our 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. 

 

In 2021, the Organization for Economic Cooperation and Development (OECD) released Pillar Two Global Anti-Base Erosion model rules, designed to ensure large corporations are taxed at a minimum rate of 15% in all countries of operation. The OECD continues to release guidance and countries are implementing legislation to adopt the rules, some of which are effective on January 1, 2024. The United States has not yet enacted legislation implementing Pillar Two. We are continuing to evaluate the Pillar Two rules and their potential impact on future periods, but we do not expect the rules to have a material impact on our effective tax rate.

 

Components of Net Sales and Expenses

 

Net Sales

 

Our net sales primarily consist of product sales to our customers. This includes sales of our power generation equipment, energy storage systems, and other power products to the residential, commercial and industrial markets, as well as service parts to our dealer network. Net sales also include shipping and handling charges billed to customers, with the related freight costs included in cost of goods sold. Additionally, we offer other services, including extended warranties, installation, maintenance, data center and telecom design and build, remote monitoring, and grid services to utilities in certain circumstances. These services accounted for less than 4% of our net sales for the year ended December 31, 2023. Refer to Note 2, “Summary of Accounting Policies - Revenue Recognition,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on our revenue streams and related revenue recognition accounting policies.

 

We are not dependent on any one channel or customer for our net sales, with no single customer representing more than 4% of our sales, and our top ten customers representing less than 21% of our net sales in aggregate for the year ended December 31, 2023.

 

Costs of Goods Sold

 

The principal elements of costs of goods sold are component parts, raw materials, inbound and outbound freight, factory overhead and labor. Component parts and raw materials comprised approximately 69% of costs of goods sold for the year ended December 31, 2023. The principal component parts are engines, alternators, batteries, electronic controls, and steel enclosures. We design and manufacture air-cooled engines for certain of our generators up to 26kW, along with certain liquid-cooled, natural gas engines. We source engines for certain of our smaller products and all of our diesel products. For certain natural gas engines, we source the base engine block, and then add a significant amount of value engineering, sub-systems and other content to the point that we are recognized as the original equipment manufacturer (OEM) of those engines. We design and manufacture many of the alternators for our generators. We also manufacture other generator components where we believe we have a design and cost advantage. We source component parts from an extensive global network of reliable, high-quality suppliers. In some cases, these relationships are proprietary. For certain energy technology products, we source these products complete from certain contract manufacturers using our designs.

 

The principal sourced raw materials used in the manufacturing process are steel, copper and aluminum. We are susceptible to fluctuations in the cost of these commodities, impacting our costs of goods sold. We seek to mitigate the impact of commodity prices on our business through a continued focus on global sourcing, product design improvements, manufacturing efficiencies, price increases and select hedging transactions. We are also impacted by foreign currency fluctuations given our global supply chain. There is typically a lag between raw material price fluctuations and their effect on our costs of goods sold.

 

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 continued 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.

 

The balance of cost of goods sold include our manufacturing and warehousing facilities, factory overhead, labor and shipping costs. Factory overhead includes utilities, insurance, support personnel, depreciation, general supplies, and maintenance. Although we attempt to maintain a flexible manufacturing cost structure, our margins can be impacted if we cannot timely adjust labor and manufacturing costs to match fluctuations in net sales.

 

Operating Expenses

 

Our operating expenses consist of costs incurred to support our sales, marketing, distribution, service parts, warranty, engineering, information systems, human resources, accounting, finance, risk management, legal and tax functions, among others. These expenses include, among others, personnel costs such as salaries, bonuses, employee benefit costs, payroll taxes, and share-based compensation cost, and are classified into three categories: selling and service, research and development, and general and administrative. Additionally, the amortization expense related to our finite-lived intangible assets is included within operating expenses.

 

25

Table of Contents

 

Selling and service.    Our selling and service expenses consist primarily of personnel expense, marketing expense, standard assurance warranty expense, bad debt provisions, and other sales expenses. Our personnel expense recorded in selling and services expenses includes the expense of our sales force and other personnel involved in the marketing, sales and service of our products. Standard warranty expense is estimated based on historical trends or based on specific warranty matters as they become known and reasonably estimable. Our marketing expenses include media advertising, promotional expenses, co-op advertising costs, direct mail costs, printed material costs, product display costs, market research expenses, and trade show expenses. Marketing expenses are generally related to the launch of new product offerings, opportunities to create market awareness for our products, and general brand awareness marketing efforts. Our marketing campaigns are an important source for lead generation.

 

Research and development.    Our research and development expenses include mechanical engineering, electronics engineering, and software development costs and they support numerous projects covering all of our product lines. They also support our connectivity, grid services, remote monitoring, and energy management initiatives. We operate engineering facilities with extensive capabilities at many locations globally and employ approximately 1,100 personnel with focus on new product development, existing product improvement and cost containment. We are committed to research and development and rely on a combination of patents and trademarks to establish and protect our proprietary rights. Our research and development costs are expensed as incurred.

 

General and administrative.    Our general and administrative expenses include personnel costs for general and administrative employees; accounting, legal and professional services fees; information technology costs; insurance; travel and entertainment expense; adjustments to contingent acquisition consideration; share-based compensation costs; and other corporate expenses.

 

Acquisition related costs.    Acquisition related costs are external costs incurred in connection with a business combination including legal fees, professional and advisory services, stamp tax, and indemnity and warranty insurance premiums.

 

Amortization of intangibles.    Our amortization of intangibles expense includes the straight-line amortization of finite-lived tradenames, customer lists, patents and technology, and other intangibles assets.

 

Other (Expense) Income

 

Other (expense) income includes the interest expense on our outstanding borrowings, amortization of debt financing costs and original issue discount, credit facility commitment fees, and interest accretion on contingent acquisition consideration. Other (expense) income also includes other financial items such as losses on extinguishment of debt, investment income earned on our cash and cash equivalents, and gains/losses on the sale of certain investments.

 

Results of Operations

 

A detailed discussion of the year-over-year changes from the Company's fiscal 2021 to fiscal 2022 can be found in the Management's Discussion and Analysis section of the Company's fiscal 2022 Annual Report on Form 10-K filed February 22, 2023. 

 

Year ended December 31, 2023 compared to year ended December 31, 2022

 

The following table sets forth our consolidated statement of operations data for the periods indicated:

 

   

Year Ended December 31,

                 

(U.S. Dollars in thousands)

 

2023

   

2022

   

$ Change

   

% Change

 

Net sales

  $ 4,022,667     $ 4,564,737     $ (542,070 )     -11.9 %

Cost of goods sold

    2,657,236       3,042,733       (385,497 )     -12.7 %

Gross profit

    1,365,431       1,522,004       (156,573 )     -10.3 %

Operating expenses:

                               

Selling and service

    448,199       496,260       (48,061 )     -9.7 %

Research and development

    173,443       159,774       13,669       8.6 %

General and administrative

    252,936       194,861       58,075       29.8 %

Acquisition related costs

    460       1,459       (999 )     -68.5 %

Amortization of intangible assets

    104,194       103,320       874       0.8 %

Total operating expenses

    979,232       955,674       23,558       2.5 %

Income from operations

    386,199       566,330       (180,131 )     -31.8 %

Total other expense, net

    (95,899 )     (57,864 )     (38,035 )     -65.7 %

Income before provision for income taxes

    290,300       508,466       (218,166 )     -42.9 %

Provision for income taxes

    73,180       99,596       (26,416 )     -26.5 %

Net income

    217,120       408,870       (191,750 )     -46.9 %

Net income attributable to noncontrolling interests

    2,514       9,368       (6,854 )     -73.2 %

Net income attributable to Generac Holdings Inc.

  $ 214,606     $ 399,502     $ (184,896 )     -46.3 %

 

26

Table of Contents

 

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

 

   

Net Sales by Reportable Segment

                 
   

Year Ended December 31,

                 

(U.S. Dollars in thousands)

 

2023

   

2022

   

$ Change

   

% Change

 

Domestic

  $ 3,276,324     $ 3,867,866     $ (591,542 )     -15.3 %

International

    746,343       696,871       49,472       7.1 %

Total net sales

  $ 4,022,667     $ 4,564,737     $ (542,070 )     -11.9 %

 

   

Total Sales by Reportable Segment

 
   

Year Ended December 31, 2023

   

Year Ended December 31, 2022

 
   

External Net Sales

   

Intersegment Sales

   

Total Sales

   

External Net Sales

   

Intersegment Sales

   

Total Sales

 

Domestic

  $ 3,276,324     $ 43,937     $ 3,320,261     $ 3,867,866     $ 60,731     $ 3,928,597  

International

    746,343       91,552       837,895       696,871       93,699       790,570  

Intercompany elimination

    -       (135,489 )     (135,489 )     -       (154,430 )     (154,430 )

Total net sales

  $ 4,022,667     $ -     $ 4,022,667     $ 4,564,737     $ -     $ 4,564,737  

 

   

Adjusted EBITDA by Reportable Segment

                 
   

Year Ended December 31,

                 
   

2023

   

2022

   

$ Change

   

% Change

 

Domestic

  $ 523,337     $ 716,302     $ (192,965 )     -26.9 %

International

    114,522       109,065       5,457       5.0 %

Total Adjusted EBITDA

  $ 637,859     $ 825,367     $ (187,508 )     -22.7 %

 

The following table sets forth our net sales by product class for the periods indicated:

 

    Net Sales by Product Class                  
   

Year Ended December 31,

                 

(U.S. Dollars in thousands)

 

2023

   

2022

   

$ Change

   

% Change

 

Residential products

  $ 2,062,929     $ 2,911,871     $ (848,942 )     -29.2 %

Commercial & industrial products

    1,494,799       1,260,737       234,062       18.6 %

Other

    464,939       392,129       72,810       18.6 %

Total net sales

  $ 4,022,667     $ 4,564,737     $ (542,070 )     -11.9 %

 

Net sales.    The decrease in domestic segment sales for the year ended December 31, 2023 was primarily driven by a decline in residential product sales, most notably in home standby generator, portable generator, and clean energy product shipments. Home standby generator sales for the year were impacted by elevated levels of field inventory together with strong prior year comparisons. The decline in residential product sales was partially offset by robust growth of C&I product sales for the full year, primarily driven by shipments to industrial distributors and to certain direct customers for “beyond standby” applications.

  

The increase in international segment sales for the year ended December 31, 2023 was primarily driven by C&I growth in nearly all regions around the world, partially offset by weaker portable generator sales in Europe. 

 

In addition, total net sales from non-annualized acquisitions for the year ended  December 31, 2023  were $65.4 million, including $56.8 million for the domestic segment and $8.6 million for the international segment.
 

Gross profit.    Gross profit margin for the year ended December 31, 2023 was 33.9% compared to 33.3% for the year ended December 31, 2022. The gross profit margin increase was primarily driven by favorable pricing actions and cost benefits resulting from lower raw material and logistics costs, as well as improved production efficiencies. These benefits were partially offset by the impact of unfavorable sales mix primarily due to lower shipments of home standby generators.

 

Operating expenses.    Operating expenses increased $23.6 million, or 2.5%, as compared to the prior year. The 2023 operating expenses included a $5.8 million provision for a regulatory matter with the CPSC, $28.3 million of legal charges related to patent and other litigation (see Note 18, “Commitments and Contingencies” for additional information), $4.4 million of additional customer support costs related to a clean energy product customer that filed for bankruptcy, and an increase in employee and marketing costs. The operating expenses in 2022 included a $37.3 million provision for clean energy product warranty-related matters, a $17.9 million provision for bad debt related to a clean energy product customer that filed for bankruptcy referenced above, as well as a $10.0 million provision for a regulatory matter with the CPSC.

 

Other expense.    The increase in other expense, net in 2023 was driven primarily by higher interest costs due to higher borrowing levels and interest rates compared to the prior year.

 

Provision for income taxes.    The effective income tax rates for the years ended December 31, 2023 and 2022 were 25.2% and 19.6%, respectively. The increase in the effective tax rate was primarily due to significantly lower benefit from equity compensation in the current year, coupled with discrete tax benefits in the prior year.

 

Net income attributable to Generac Holdings Inc.    Net income attributable to Generac Holdings Inc. was $214.6 million as compared to $399.5 million in the prior year period. The decrease was primarily driven by lower net sales and other items noted above.

 

Adjusted EBITDA.    Adjusted EBITDA is defined and reconciled to net income in, “Non-GAAP Measures - Adjusted EBITDA” included below in Item 7 of this Annual Report on Form 10-K. Adjusted EBITDA margins for the domestic segment for the year ended December 31, 2023 were 15.8% of domestic segment total sales compared to 18.2% for the year ended December 31, 2022. Adjusted EBITDA margin was lower in the year-ended December 31, 2023 primarily due to the significant impact of unfavorable sales mix and reduced operating leverage on lower sales volumes, as well as continued operating expense investments for future growth. These headwinds were partially offset by favorable price and cost benefits.

 

Adjusted EBITDA margins for the international segment, before deducting for non-controlling interests, for the year ended December 31, 2023 were 13.7% of international segment total sales compared to 13.8% in the prior year, primarily due to unfavorable sales mix, which was mostly offset by favorable price and cost benefits and improved operating leverage on higher sales volumes.

 

Adjusted net income.    Adjusted Net Income is defined and reconciled to net income in, “Non-GAAP Measures - Adjusted Net Income” included below in Item 7 of this Annual Report on Form 10-K. Adjusted Net Income of $335.3 million for the year ended December 31, 2023 decreased 37.8% from $538.8 million for the year ended December 31, 2022 primarily due to the factors outlined above, together with the impact of various add-backs in the current and prior years.

 

27

 

Liquidity and Financial Position

 

Our primary cash requirements include payment for raw materials and components, salaries and benefits, facility and lease costs, operating expenses, interest and principal payments on debt, and capital expenditures. We finance our operations primarily from 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 previously 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) that resulted in a new term loan facility in an aggregate principal amount of $750 million (Tranche A Term Loan Facility), a new $1.25 billion revolving facility (Revolving Facility), the termination of the former ABL Facility, and replacement of all LIBOR provisions 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 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. The Revolving Facility was unfunded at closing.

 

As of December 31, 2023, there was $530 million outstanding under the Tranche B Term Loan Facility, $745.3 million outstanding under the Tranche A Term Loan Facility, and $150 million of funded Revolving Facility borrowings, leaving $1,099.2 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 December 31, 2023, the interest rates for the Tranche A Term Loan Facility, Revolving Facility, and Tranche B Term Loan Facility were 6.99%, 6.94%, and 7.19%, respectively. See Note 5, "Derivative Instruments and Hedging Activities" and Item 7A for further information on interest rate swaps, which help to reduce our borrowing costs.

 

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 is repayable in installments due at the end of each quarter commencing September 2023. Payments on the Revolving Facility are not due until 2027. The maturity schedule on these facilities is as follows:

 

2024   $ 32,813  
2025     46,875  
2026     595,625  
2027     750,000  
Total   $ 1,425,313  

 

As of December 31, 2023, we had total liquidity of $1,193.8 million under our most restrictive debt covenants, which consists of $201.0 million of cash and cash equivalents and $992.8 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 $250.0 million stock repurchase program, which 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 allowed for the repurchase of up to $500.0 million of our common stock over a 24-month period. Additionally, on February 12, 2024, the Company’s Board of Directors approved a new stock repurchase program that allows for the repurchase of up to $500.0 million of the Company’s common stock over the next twenty-four months. The new program replaces the prior share repurchase program, which had approximately $26.3 million remaining available for repurchase when the new program was approved. 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 its discretion and in 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, and may be suspended or discontinued at any time without prior notice.

 

During the years ended December 31, 2023 and 2022, we repurchased 2,188,475 shares of our common stock for $251.5 million, and 2,722,007 shares for $345,840, respectively. Since the inception of all stock repurchase programs (starting in August 2015), we have repurchased 13,937,188 shares of common stock for $1,028.9 million (at an average cost per share of $73.82). We have periodically reissued shares out of Treasury stock, including for earnout payments. 

 

See Note 12, “Credit Agreements,” and Note 13, “Stock Repurchase Program,” to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information on our credit agreements and stock repurchase programs.

 

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 Generac 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 12% and 15% of net sales for the years ended December 31, 2023 and 2022, respectively. The amount financed by dealers which remained outstanding was $158.0 million and $212.2 million as of December 31, 2023 and 2022, respectively.

 

Long-term Liquidity

 

We believe 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 run our operations. We may use a portion of our cash flow for debt repayments and common stock buybacks, 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 other shareholder value enhancing activities.

 

Cash Flow

 

Year ended December 31, 2023 compared to year ended December 31, 2022

 

The following table summarizes our cash flows by source (use) for the periods presented:

 

   

Year Ended December 31,

                 

(U.S. Dollars in thousands)

 

2023

   

2022

   

$ Change

   

% Change

 

Net cash provided by operating activities

  $ 521,670     $ 58,516     $ 463,154       791.5 %

Net cash used in investing activities

    (178,063 )     (134,232 )     (43,831 )     -32.7 %

Net cash (used in) provided by financing activities

    (277,137 )     64,043       (341,180 )     -532.7 %

 

The increase in net cash provided by operating activities 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 year ended December 31, 2023 primarily consisted of cash payments of $129.1 million for the purchase of property and equipment (net of $10.9 million of capital expenditures in accounts payable at December 31, 2023), $30.0 million for a minority investment in Wallbox, $16.0 million for the acquisition of REFU, $6.6 million for a tax equity investment, and a $2.6 million minority investment in Rolling Energy Resources and Earth Foundry. 

 

Net cash used in investing activities for the year ended December 31, 2022 primarily consisted of cash payments of $86.2 million for the purchase of property and equipment (net of $7.7 million of capital expenditures in accounts payable at December 31, 2022), $25.1 million for business acquisitions, $15.0 million investment in WATT Fuel Cell Corporation, and $14.9 million for contributions to a tax equity investment, which were partially offset by cash proceeds from the sale of an investment for $1.3 million. 

 

Net cash provided by financing activities for the year ended December 31, 2023 primarily represents proceeds of $348.8 million from long-term borrowings, $64.3 million from short-term borrowings, and $7.8 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, $251.5 million used for stock repurchases, $325.8 million of debt repayments ($37.1 million of short-term borrowings and $288.7 million of long-term borrowings and finance lease obligations), $10.9 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 year ended December 31, 2022 primarily includes proceeds of $1,026.3 million from long-term borrowings, $248.2 million from short-term borrowings, and $13.8 million from the exercise of stock options. These cash proceeds were partially offset by $810.3 million of debt repayments ($268.1 million of short-term borrowings and $542.2 million of long-term borrowings and finance lease obligations), $345.8 million of stock repurchases, $40.9 million of taxes paid related to equity awards, $16.1 million of contingent acquisition consideration, and $10.3 million for debt issuance costs. 

 

28

Table of Contents

 

Senior Secured Credit Facilities

 

Refer to Note 12, “Credit Agreements,” to the consolidated financial statements in Item 8 and the “Liquidity and Financial Position” section included in Item 7 of this Annual Report on Form 10-K for information on our senior secured credit facilities.

 

Covenant Compliance

 

The Term Loans restrict the aggregate amount of dividends and distributions that can be paid and, in certain circumstances, requires pro forma compliance with certain fixed charge coverage ratios or gross leverage ratios, as applicable, in order to pay certain dividends and distributions. The Term Loans also contain other affirmative and negative covenants that, among other things, limit the incurrence of additional indebtedness, liens on property, sale and leaseback transactions, investments, loans and advances, mergers or consolidations, asset sales, acquisitions, transactions with affiliates, prepayments of certain other indebtedness and modifications of our organizational documents. The Tranche A Term Loan Facility and the Revolving Facility include 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 December 31, 2023, the Company’s total leverage ratio was 2.18 to 1.00, and the Company's interest coverage ratio was 6.44 to 1.00. The Company was also in compliance with these and all other covenants of the Amended Credit Agreement as of December 31, 2023. The Tranche B Term Loan Facility does not contain any financial maintenance covenants.

 

The Term Loans contain customary events of default, including, among others, nonpayment of principal, interest or other amounts, failure to perform covenants, inaccuracy of representations or warranties in any material respect, cross-defaults with other material indebtedness, certain undischarged judgments, the occurrence of certain ERISA, bankruptcy or insolvency events, or the occurrence of a change in control (as defined in the Term Loan). A bankruptcy or insolvency event of default will cause the obligations under the Term Loans to automatically become immediately due and payable.

 

The Revolving Facility also contains covenants and events of default substantially similar to those in the Term Loans, as described above. 

 

Contractual Obligations

 

The following table summarizes our expected payments for significant contractual obligations as of December 31, 2023, using the interest rates in effect as of that date:

 

(U.S. Dollars in thousands)

 

Total

   

2024

   

2025

   

2026

   

2027

   

2028

   

After 2028

 

Long-term debt, including current portion (1)

  $ 1,434,825     $ 42,162     $ 46,958     $ 595,651     $ 750,026     $ 28     $ -  

Finance lease obligations, including current portion (2)

    71,308       3,614       44,069       2,517       2,337       2,064       16,707  

Interest on long-term debt and finance lease obligations

    329,157       104,116       101,204       92,837       23,684       1,408       5,908  

Operating leases

    85,148       32,145       18,887       8,278       7,667       6,157       12,014  

Short-term borrowings (3)

    81,769       81,769       -       -       -       -       -  

Total contractual cash obligations

  $ 2,002,207     $ 263,806     $ 211,118     $ 699,283     $ 783,714     $ 9,657     $ 34,629  

 

(1) The Tranche B Term Loan matures on December 13, 2026. The Tranche A Term Loan and the Revolving Facility mature on June 29, 2027. As of December 31, 2023, there was $150 million outstanding under the Revolving Facility classified as long-term debt. 

 

(2) Finance lease obligations, including current portion includes a payment for a purchase option reasonably certain to be exercised in 2025. 

 

(3) Short-term borrowings consist of borrowings by our foreign subsidiaries on local lines of credit. 

 

Capital Expenditures

 

Our operations require capital expenditures for facilities and related improvements, technology, research & development, tooling, equipment, capacity expansion, internal use software, IT systems & infrastructure and upgrades. Capital expenditures were $129.1 million, $86.2 million, and $110.0 million in the years ended December 31, 2023, 2022, and 2021, respectively, and were funded primarily through cash from operations. 

 

29

 

Critical Accounting Policies and Estimates

 

In preparing the financial statements, 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 our supplemental information disclosures, including information about contingencies, risk and financial condition. We believe, given current facts and circumstances, that our 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. We make 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 our most critical accounting estimates and assumptions are in the following areas: business combinations and purchase accounting; goodwill and other indefinite-lived intangible asset impairment assessment; and income taxes. The following is a discussion of critical accounting estimates in each of these areas. 

 

Business Combinations and Purchase Accounting

 

We account for business combinations using the acquisition method of accounting, and accordingly, the assets and liabilities of an acquired business are recorded at their respective fair values. The excess of the purchase price over the estimated fair value of assets and liabilities is recorded as goodwill. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires knowledge of current market values, the values of assets in use, and often requires the application of judgment regarding estimates and assumptions. While the ultimate responsibility resides with management, for material acquisitions we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets, tangible long-lived assets, and contingent consideration. Acquired intangible assets, excluding goodwill, are valued using certain discounted cash flow methodologies based on future cash flows specific to the type of intangible asset purchased. This methodology incorporates various estimates and assumptions, the most significant being projected revenue growth rates, profit margins, forecasted cash flows, discount rates and terminal growth rates. If the contingent consideration is deemed significant or absent an agreed upon payout amount, the initial measurement of contingent consideration and the corresponding liability is evaluated using the Monte Carlo Method. For this valuation method, management develops projections covering the contingent consideration period utilizing various potential pay-out scenarios. Probabilities are applied to each potential scenario and the resulting values are discounted using a rate that considers weighted average cost of capital as well as a specific risk premium associated with the riskiness of the contingent consideration itself, the related projections, and the overall business. Refer to Note 1, “Description of Business,” and Note 3, “Acquisitions,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the Company’s business acquisitions.

 

Goodwill and Other Indefinite-Lived Intangible Assets

 

We performed the required annual impairment tests for goodwill and other indefinite-lived intangible assets for the fiscal years 2023, 2022 and 2021, and found no impairment.

 

When preparing a discounted cash flow analysis for purposes of our annual impairment test, we make a number of key estimates and assumptions. We estimate the future cash flows of the business based on historical and forecasted revenues and operating costs. In addition, we apply a discount rate to the estimated future cash flows for the purpose of the valuation. This discount rate is based on the estimated weighted average cost of capital for the business and may change from year to year. Weighted average cost of capital includes certain assumptions such as market capital structures, market betas, risk-free rate of return and estimated costs of borrowing.

 

In the fourth quarter of 2023, we revised the operating structure within our international reportable segment. As a result, Latin America no longer met the definition of a reporting unit. We performed a final impairment test of the Latin America reporting unit prior to the change in operating structure. We calculated the estimated fair value exceeded its carrying value by approximately 12% and thus found no impairment. The carrying value of Goodwill for our Latin America reporting unit as of the final impairment test was $52.4 million. 

 

For all reporting units, a considerable amount of management judgment and assumptions are required in performing the goodwill and indefinite-lived intangible asset impairment tests. While we believe our judgments and assumptions are reasonable, different assumptions could change the estimated fair values. A number of factors, many of which we have no ability to control, could cause actual results to differ from the estimates and assumptions we employed. These factors include:

 

  a rising interest rate environment;
 

a prolonged global or regional economic downturn;

 

a significant decrease in the demand for our products;

 

the inability to develop new and enhanced products and services in a timely manner;

 

a significant adverse change in legal factors or in the business climate;

 

an adverse action or assessment by a regulator;

 

successful efforts by our competitors to gain market share in our markets;

 

disruptions to the Company’s business;

 

inability to effectively integrate acquired businesses;

  loss of key management and employees
 

unexpected or unplanned changes in the use of assets or entity structure; and

 

business divestitures.

 

If management's estimates of future operating results change or if there are changes to other assumptions due to these factors, the estimate of the fair values may change significantly. Such change could result in impairment charges in future periods, which could have a significant impact on our operating results and financial condition.

 

Refer to Note 2, “Summary of Accounting Policies – Goodwill and Other Indefinite-Lived Intangible Assets,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the Company’s policy regarding the accounting for goodwill and other indefinite-lived intangible assets.

 

30

 

Income Taxes

 

We account for income taxes in accordance with Accounting Standards Codification (ASC) 740, Income Taxes. Our estimates of income taxes payable, deferred income taxes and the effective tax rate are based on an analysis of many factors including interpretations of federal, state and international income tax laws; the difference between tax and financial reporting bases of assets and liabilities; estimates of amounts currently due or owed in various jurisdictions; and current accounting standards. We review and update our estimates on a quarterly basis as facts and circumstances change and actual results are known.

 

In assessing the net realizable value of the deferred tax assets on our balance sheet, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the years in which those temporary differences become deductible. We consider the taxable income in prior carryback years, scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

 

Refer to Note 15, “Income Taxes,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the Company’s income taxes and income tax positions.

 

New Accounting Standards

 

For information on new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, refer to Note 2, “Summary of Accounting Policies - New Accounting Pronouncements,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

 

Non-GAAP Measures

 

Adjusted EBITDA

 

To supplement our 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 interests 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 adjustments 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. The computation of Adjusted EBITDA is based primarily on the definition included in our Credit Agreement.

 

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 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.

 

31

 

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. generally accepted accounting principles (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 our 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 expense.

 

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.

 

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 cash 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 the significant 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.

 

32

Table of Contents

 

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 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 calculations are subject to review by our Board of Directors in the context of the Board's review of our financial statements, and certification by our Chief Financial Officer in a compliance certificate provided to the lenders under our Term Loan and Revolving Facility, 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.:

 

   

Year Ended December 31,

 

(U.S. Dollars in thousands)

 

2023

   

2022

   

2021

 

Net income attributable to Generac Holdings Inc.

  $ 214,606     $ 399,502     $ 550,494  

Net income attributable to noncontrolling interests

    2,514       9,368       6,075  

Net income

    217,120       408,870       556,569  

Interest expense

    97,627       54,826       32,953  

Depreciation and amortization

    166,602       156,141       92,041  

Provision for income taxes

    73,180       99,596       134,957  

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

    (5,953 )     (2,091 )     (3,070 )

Non-cash share-based compensation expense (b)

    35,492       29,481       23,954  

Loss on extinguishment of debt (c)

    -       3,743       831  

Transaction costs and credit facility fees (d)

    4,054       5,026       22,357  

Business optimization and other charges (e)

    10,551       4,371       33  

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

    38,490       65,265       -  

Other

    696       139       800  

Adjusted EBITDA

    637,859       825,367       861,425  

Adjusted EBITDA attributable to noncontrolling interests

    4,687       15,087       9,351  

Adjusted EBITDA attributable to Generac Holdings Inc.

  $ 633,172     $ 810,280     $ 852,074  

 

(a) Represents the following non-cash charges, gains, and other adjustments: gains/losses on the disposition of assets other than in the ordinary course of business, gains/losses on sales of certain investments, unrealized mark-to-market adjustments on commodity contracts, certain foreign currency related adjustments, and certain purchase accounting and contingent consideration adjustments. We believe that adjusting net income for these items is useful for the following reasons:

 

 

The gains/losses on disposition of assets other than in the ordinary course of business 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;

 

The purchase accounting adjustments represent non-cash items to reflect fair value at the date of acquisition, and therefore do not reflect our ongoing operations. Fair value adjustments to contingent consideration obligations related to business acquisitions are added back as they are akin to purchase price. 

 

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

 

(c) Represents the non-cash write-off of original issue discount and deferred financing costs due to voluntary prepayments of debt. Refer to Note 12, “Credit Agreements,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the losses on extinguishment of debt.

 

(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, such as administrative agent fees and credit facility commitment fees under our Amended Credit Agreement, which we believe to be akin to, or associated with, interest expense and whose inclusion in Adjusted EBITDA is therefore similar to the inclusion of interest expense in that calculation.

 

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

 

(f) Represents the following significant and unusual charges not indicative of our ongoing operations:
•  a provision for judgments and legal expenses related to certain patent and other litigation - $28.3 million in 2023.
•  a provision 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 - $5.8 million in 2023; $10.0 million in 2022.
•  a bad debt provision and additional customer support costs related to a clean energy product customer that filed for bankruptcy in 2022 – $4.4 million additional customer support costs in 2023; $17.9 million bad debt provision in 2022.
•  a warranty provision to address certain clean energy product warranty-related matters - $37.3 million in 2022.

 

33

 

Adjusted Net Income

 

To further supplement our 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 expenses, certain specific provisions, other non-cash gains and losses or charges, and adjusted net income attributable to noncontrolling interests, as set forth in the reconciliation table below. In addition, for periods prior to 2022, adjusted net income reflects cash income tax expense due to the existence of the tax shield from the amortization of tax-deductible goodwill and intangible assets from our acquisition by CCMP Capital Advisors, LLC in 2006. Due to the expiration of this tax shield in the fourth quarter of 2021, there is no similar reconciling item starting in 2022.

 

We believe Adjusted Net Income is used by securities analysts, investors and other interested parties in the evaluation of our 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. Prior to the expiration of our tax shield in the fourth quarter of 2021, we also made adjustments to present cash taxes paid as a result of our favorable tax attributes.

 

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.:

 

   

Year Ended December 31,

 

(U.S. Dollars in thousands)

 

2023

   

2022

   

2021

 

Net income attributable to Generac Holdings Inc.

  $ 214,606     $ 399,502     $ 550,494  

Net income attributable to noncontrolling interests

    2,514       9,368       6,075  

Net income

    217,120       408,870       556,569  

Provision for income taxes (a)

          -       134,957  

Amortization of intangible assets

    104,194       103,320       49,886  

Amortization of deferred finance costs and original issue discount

    3,885       3,234       2,589  

Loss on extinguishment of debt

    -       3,743       831  

Transaction costs and other purchase accounting adjustments (b)

    2,089       3,588       19,655  

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

    (119 )     (229 )     (4,383 )

Business optimization and other charges (see above)

    10,551       4,371       33  

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

    38,490       65,265       -  

Tax effect of add backs

    (38,384 )     (43,638 )     -  

Cash income tax expense (a)

    -       -       (136,231 )

Adjusted net income

    337,826       548,524       623,906  

Adjusted net income attributable to noncontrolling interests

    2,514       9,675       4,971  

Adjusted net income attributable to Generac Holdings Inc.

  $ 335,312     $ 538,849     $ 618,935  

 

(a) For the years ended December 31, 2021, the amount is based on a cash income tax rate of 19.7% due to the existence of the tax shield from the amortization of tax-deductible goodwill and intangible assets from our acquisition by CCMP Capital Advisors, LLC in 2006. Due to the expiration of this tax shield in the fourth quarter of 2021, there is no similar reconciling item for the 2022 or 2023 periods. 

 

(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.

 

34

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

We are exposed to market risk from changes in foreign currency exchange rates, commodity prices and interest rates. To reduce the risk from these changes, we use financial instruments from time to time. We do not hold or issue financial instruments for trading purposes.

 

Foreign Currency

 

We are exposed to foreign currency exchange risk as a result of transactions denominated in currencies other than the U.S. Dollar, as well as operating businesses and supply chains in foreign countries. Periodically, we utilize foreign currency forward purchase and sales contracts to manage the volatility associated with certain foreign currency purchases and sales in the normal course of business. Contracts typically have maturities of twelve months or less. Realized gains and losses on transactions denominated in foreign currency are recorded as a component of cost of goods sold in the statements of comprehensive income.

 

The following is a summary of the 53 foreign currency contracts outstanding as of December 31, 2023 (notional amount in thousands):

 

Currency

Denomination

 

Trade Dates

 

Effective Dates

 

Notional Amount

 

Expiration Date

GBP

 

11/21/23 - 12/18/23

 

11/21/23 - 12/18/23

 

 $                     5,800

 

1/10/24 - 2/07/24

AUD

 

11/21/23 - 12/27/23

 

11/21/23 - 12/27/23

 

 $                   15,850

 

1/10/24 - 2/14/24

 

Commodity Prices

 

We are a purchaser of commodities and components manufactured from commodities including steel, aluminum, copper and others. As a result, we are exposed to fluctuating market prices for those commodities. While such materials are typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. We generally buy these commodities and components based on market prices that are established with the supplier as part of the purchase process. Depending on the supplier, these market prices may reset on a periodic basis based on negotiated lags and calculations. To the extent that commodity prices increase and we do not have firm pricing from our suppliers, or our suppliers are not able to honor such prices, we may experience a decline in our gross margins to the extent we are not able to increase selling prices of our products or obtain manufacturing efficiencies or supply chain savings to offset increases in commodity costs.

 

In 2021 and 2022, we experienced an increase in commodity and component costs resulting from supply chain challenges and the overall inflationary environment. We implemented multiple price increases to help mitigate the impact of these rising commodity costs, and the realization of these price increases in 2022 and 2023 helped to partially offset the higher commodity costs.

 

Periodically, we engage in certain commodity risk management activities to mitigate the impact of potential price fluctuations on our financial results. These derivatives typically have maturities of less than eighteen months. As of December 31, 2023, we had no commodity contracts outstanding.

 

Interest Rates

 

As of December 31, 2023, all of the outstanding debt under our Term Loans and Revolving Facility was subject to floating interest rate risk. As of December 31, 2023, we had the following interest rate swap contracts outstanding (notional amount in thousands of US dollars), to help minimize our borrowing costs:

 

Hedged Item

 

Contract Date

 

Effective Date

 

Notional Amount

 

Fixed SOFR Rate

 

Expiration Date

Interest Rate   March 4, 2020   May 31, 2023   $200,000   1.1360%   December 14, 2026
Interest Rate   March 5, 2020   May 31, 2023   $100,000   1.0700%   December 14, 2026
Interest Rate   March 6, 2020   May 31, 2023   $200,000   0.9560%   December 14, 2026

 

In June 2022, in conjunction with the amendments to the Company's credit agreements discussed further in Note 12, “Credit Agreements,” to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K, 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 consolidated balance sheets. At December 31, 2023, the fair value of these interest rate swaps was an asset of $39.8 million, excluding the impact of credit risk. Even after giving effect to these swaps, we are exposed to risks due to changes in interest rates with respect to the portion of our Term Loans and Revolving Facility that is not covered by the swaps. A hypothetical change in the SOFR interest rate of 100 basis points would have changed annual interest expense by approximately $9.5 million (or, without the swaps in place, $14.5 million) in 2023.

 

For additional information on the Company’s foreign currency and commodity forward contracts and interest rate swaps, including amounts charged to the statements of comprehensive income during 2023, 2022, and 2021, refer to Note 5, “Derivative Instruments and Hedging Activities,” and Note 6, “Accumulated Other Comprehensive Loss,” to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

 

35

Table of Contents

 

Item 8. Financial Statements and Supplementary Data

 

Report of Independent Registered Public Accounting Firm

 

To the stockholders and the Board of Directors of Generac Holdings Inc.

Waukesha, WI

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Generac Holdings Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Goodwill - Refer to Notes 2 and 9 to the consolidated financial statements

 

Critical Audit Matter Description

 

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company’s estimate for each reporting unit is based on the present value of estimated future cash flows attributable to the respective reporting unit. This requires management to make significant estimates and assumptions including estimates of future revenue, forecasted operating costs, and discount rates. Changes in the assumptions could have a significant impact on the fair value, which could result in an impairment charge. The Company evaluates goodwill for impairment annually as of October 31 or more frequently when an event occurs or circumstances change. In the Latin America impairment analysis, the reporting unit had an estimated fair value that exceeded the carrying value by approximately 12%. Because the estimated fair value exceeded the carrying value, no impairment was recorded. The carrying value of goodwill for the Company’s Latin America reporting unit as of the impairment assessment was $52.4 million.

 

Key financial assumptions utilized to determine the fair value of the Latin America reporting unit include forecasted revenue, forecasted operating costs, and the discount rate.

 

The principal consideration for our determination that the evaluation of the Latin America reporting unit's goodwill is a critical audit matter is that there is a high degree of auditor effort, judgment and subjectivity involved in designing and performing procedures to evaluate the reasonableness of management’s key assumptions utilized to determine the fair value of the Latin America reporting unit.

 

36

Table of Contents

 

How the Critical Audit Matter Was Addressed in the Audit

 

Our audit procedures related to the forecasts of revenue, forecasted operating costs, and the selection of the discount rate for the Latin America reporting unit included the following, among others:

 

 

Evaluated the design and effectiveness of the controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the reporting unit, such as controls related to management’s forecast and the selection of the discount rate.
 

Obtained the Company’s discounted cash flow model and evaluated the valuation analysis for mathematical accuracy.
 

Utilized fair value specialists to evaluate whether the valuation techniques applied by management were appropriate.
 

Assessed management’s historical ability to accurately forecast the reporting unit’s results of operations.
 

Assessed management’s intent and/or ability to take specific actions included in the discounted cash flow model.
  Evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to the Board of Directors, and (3) forecasted information included in industry reports.
  Utilized fair value specialists to evaluate the reasonableness of the discount rate selected, including developing a range of independent estimates and comparing it to the discount rate utilized by the Company.

 

Revenue Refer to Note 2 to the Consolidated Financial Statements

 

Critical Audit Matter Description

 

The Company has a wide range of products and services that are offered in various markets throughout the world. The Company’s business activities are carried out by numerous individual business units, which offer a unique set of products and services within specific geographic areas.

 

We identified revenue as a critical audit matter given the disaggregated nature of the Company’s operations and business units generating revenue. This required extensive audit effort due to the volume of the underlying transactions and distinctiveness of each individual business unit. High levels of auditor judgment were necessary to determine the nature, timing, and extent of audit procedures.

 

How the Critical Audit Matter Was Addressed in the Audit

 

Our audit procedures related to the Company’s revenue transactions included the following, among others:

 

 

Evaluated the design and effectiveness of the controls within the relevant revenue business processes, including controls over revenue recognition and operating results.
 

For a sample of revenue transactions, we performed detail transaction testing by agreeing the amounts recorded to source documents and determined that revenue was recognized appropriately.
 

For the revenue populations subject to detail transaction testing, we tested the completeness of revenue by making selections from reciprocal populations and determined whether the transaction was recorded as a sale in the general ledger.
  For revenue transactions not subject to detail transaction testing we evaluated recorded activity based on analytical procedures using regression analyses to develop an expectation of the revenue balance at the product class level.

 

/s/ Deloitte & Touche LLP

 

Milwaukee, Wisconsin

February 21, 2024

 

We have served as the Company’s auditor since 2016.

 

37

Table of Contents

  

Report of Independent Registered Public Accounting Firm

 

To the stockholders and the Board of Directors of Generac Holdings Inc.

Waukesha, Wisconsin

 

Opinion on Internal Control over Financial Reporting

 

We have audited the internal control over financial reporting of Generac Holdings Inc. and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control Integrated Framework (2013) issued by COSO.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 21, 2024, expressed an unqualified opinion on those financial statements.

 

Basis for Opinion

 

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control over Financial Reporting

 

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ Deloitte & Touche LLP

 

Milwaukee, Wisconsin

February 21, 2024

 

38

Table of Contents

 

 

Generac Holdings Inc.

Consolidated Balance Sheets

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

 

  

December 31,

 
  

2023

  

2022

 

Assets