gnrc20240212_8k.htm
false 0001474735 0001474735 2024-02-14 2024-02-14
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 
 
Date of Report (Date of earliest event reported): February 14, 2024
 
Generac Holdings Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
001-34627
 
20-5654756
(State or other jurisdiction
 
(Commission
 
(IRS Employer
of incorporation)
 
File Number)
 
Identification No.)
 
S45 W29290 Hwy 59
 
Waukesha, Wisconsin
53189
(Address of principal executive offices)
(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
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
 
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. ☐
 
 

 
 
Item 2.02
Results of Operations and Financial Condition
 
On February 14, 2024, Generac Holdings Inc. (the “Company,” “we,” “us” or “our”) issued a press release (the “Press Release”) announcing its financial results for the fourth quarter and full year ended December 31, 2023. A copy of the Press Release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
 
The information contained in this Current Report on Form 8-K (including the exhibits) is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section. The information contained in this Current Report on Form 8-K shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in any such filing.
 
Discussion of Non-GAAP Financial Measures
 
In the Press Release, we present certain financial information, specifically Adjusted EBITDA, Adjusted Net Income, Free Cash Flow, and Core Sales, which are not in accordance with generally accepted accounting principles (“U.S. GAAP”). We present Adjusted EBITDA, Adjusted Net Income, Free Cash Flow, and Core Sales in the Press Release because these metrics assist us in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Our management uses Adjusted EBITDA, Adjusted Net Income, Free Cash Flow, and Core Sales:
 
 
for planning purposes, including the preparation of our annual operating budget and developing and refining our internal projections for future periods;
 
 
to evaluate the effectiveness of our business strategies and as a supplemental tool in evaluating our performance against our budget for each period;
 
 
in communications with our board of directors and investors concerning our financial performance;
 
 
to evaluate prior acquisitions in relation to the existing business; and
 
 
to evaluate comparative net sales performance in prior and future periods.
 
We also use Adjusted EBITDA as a benchmark for the determination of the bonus component of compensation for our senior executives under our management incentive plans.
 
We believe that the disclosure of Adjusted EBITDA, Adjusted Net Income, Free Cash Flow, and Core Sales offers additional financial metrics which, when coupled with U.S. GAAP results and the reconciliation to U.S. GAAP results, provide a more complete understanding of our results of operations and the factors and trends affecting our business for securities analysts, investors and other interested parties in the evaluation of our company. We believe Adjusted EBITDA, Adjusted Net Income, Free Cash Flow, and Core Sales are useful to investors for the following reasons:
 
 
Adjusted EBITDA, Adjusted Net Income, Free Cash Flow, Core Sales, 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; and
 
 
by comparing our Adjusted EBITDA, Adjusted Net Income, Free Cash Flow, and Core Sales in different historical periods, our investors can evaluate our operating performance excluding the impact of certain items.
 
2
 
 
Item 9.01
Financial Statements and Exhibits
 
(d) Exhibits
 
Exhibit No.
 
Description
     
99.1
 
     
104
 
Cover Page Interactive Data File (embedded within the inline XBRL document)
 
3
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
GENERAC HOLDINGS INC.
   
   
 
https://cdn.kscope.io/fa4d33a94f529fa8463b4fa64f318070-gnrc20240212_8kimg001.jpg
 
Name: 
Raj Kanuru
Date: February 14, 2024
Title:
EVP, General Counsel & Secretary
 
4
ex_625113.htm
 

Exhibit 99.1

 

Generac Reports Fourth Quarter and Full-Year 2023 Results

 

Continued strong margin expansion and all-time record free cash flow generation in the fourth quarter; 2024 outlook anticipates a return to net sales growth led by Residential products

 

WAUKESHA, WISCONSIN (February 14, 2024) – Generac Holdings Inc. (NYSE: GNRC) (“Generac” or the “Company”), a leading global designer and manufacturer of energy technology solutions and other power products, today reported financial results for its fourth quarter and full-year ended December 31, 2023 and initiated its outlook for the full-year 2024.

 

Fourth Quarter 2023 Highlights

 

Net sales increased 1% to $1.06 billion during the fourth quarter of 2023 as compared to $1.05 billion in the prior-year fourth quarter. Core sales, which excludes both the impact of acquisitions and foreign currency, were approximately flat from the prior year period.

 

 

-

Residential product sales increased 1% to $580 million as compared to $575 million last year.

 

 

-

Commercial & Industrial (“C&I”) product sales increased slightly to $363 million as compared to $361 million in the prior year.

 

Net income attributable to the Company during the fourth quarter was $97 million, or $1.57 per share, as compared to $71 million, or $0.83 per share, for the same period of 2022.

 

Adjusted net income attributable to the Company, as defined in the accompanying reconciliation schedules, was $126 million, or $2.07 per share, as compared to $113 million, or $1.78 per share, in the fourth quarter of 2022.

 

Adjusted EBITDA before deducting for noncontrolling interests, as defined in the accompanying reconciliation schedules, was $213 million, or 20.0% of net sales, as compared to $174 million, or 16.6% of net sales, in the prior year.

 

Cash flow from operations was a record $317 million as compared to $101 million in the prior year. Free cash flow, as defined in the accompanying reconciliation schedules, was a record $266 million as compared to $80 million for 2022.

 

The Company repurchased approximately 1.3 million shares of its common stock during the fourth quarter for approximately $151 million. 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 million of the Company’s common stock over the next 24 months, replacing the remaining balance on the previous program.

 

On December 13th, the Company completed a $30 million minority investment in Wallbox (NYSE: WBX), a global leader in smart electric vehicle (EV) charging and energy management solutions.

 

The Company is initiating its full-year 2024 net sales growth guidance to be approximately 3 to 7% as compared to the prior year on an as-reported basis, which includes a slight favorable impact from foreign currency. Adjusted EBITDA margin, before deducting for non-controlling interests, is expected to be approximately 16.5 to 17.5%.

 

Full-Year 2023 Highlights

 

Net sales declined 12% to $4.02 billion during 2023 as compared to $4.56 billion in 2022. Core sales, which excludes both the impact of acquisitions and foreign currency, decreased approximately 14%.

 

 

-

Residential product sales declined 29% to $2.06 billion as compared to $2.91 billion last year.

 

 

-

C&I product sales grew 19% to $1.49 billion as compared to $1.26 billion in the prior year.

 

Net income attributable to the Company during 2023 was $215 million, or $3.27 per share, as compared to $400 million, or $5.42 per share for 2022.

 

Adjusted net income attributable to the Company, as defined in the accompanying reconciliation schedules, was $335 million, or $5.40 per share, as compared to $539 million, or $8.33 per share, in 2022.

 

Adjusted EBITDA before deducting for noncontrolling interests, as defined in the accompanying reconciliation schedules, for 2023 was $638 million, or 15.9% of net sales, as compared to $825 million, or 18.1% of net sales, last year.

 

Cash flow from operations was a record $522 million as compared to $59 million in the prior year. Free cash flow, as defined in the accompanying reconciliation schedules, was $396 million as compared to $(24) million for 2022.

 

The Company repurchased approximately 2.2 million shares of its common stock during 2023 for approximately $252 million.

 

“Our fourth quarter results demonstrate continued improvement in operating performance resulting in strong margin expansion and cash flow generation as we exited the year,” said Aaron Jagdfeld, President and Chief Executive Officer. “Despite fewer power outages in the fourth quarter, home standby generator shipments returned to year-over-year growth, and activations reached a quarterly record. Global C&I product sales were approximately flat as compared to the prior year with telecom and rental markets experiencing cyclical declines. Additionally, we generated record cash flow in the quarter which allowed us to enhance shareholder value through continued share repurchases and investments to accelerate our Powering A Smarter World enterprise strategy.”  

 

1

 

Additional Fourth Quarter 2023 Consolidated Highlights

 

Gross profit margin was 36.5% as compared to 32.7% in the prior-year fourth quarter. The increase in gross margin was primarily driven by favorable product mix, production efficiencies, and lower raw material and logistics costs.

 

Operating expenses increased $1.8 million, or 0.8%, as compared to the fourth quarter of 2022. The increase in operating expenses was primarily driven by increased employee and marketing costs.

 

Provision for income taxes for the current year quarter was $30.0 million, or an effective tax rate of 23.7%, as compared to $13.6 million, or a 15.5% effective tax rate, for the prior year. The increase in effective tax rate was primarily driven by discrete tax benefits in the prior year quarter that did not repeat in the current year.

 

Cash flow from operations was $316.9 million during the fourth quarter, as compared to $100.9 million in the prior year. Free cash flow, as defined in the accompanying reconciliation schedules, was $266.4 million as compared to $80.3 million in the fourth quarter of 2022. The significant improvement in free cash flow was primarily due to a $144 million reduction in inventory during the quarter, together with higher operating earnings. This increase was partially offset by higher capital expenditures during the quarter.

 

Business Segment Results

 

Domestic Segment

 

Domestic segment total sales (including inter-segment sales) increased 1% to $891.0 million as compared to $880.6 million in the prior year. The slight increase in domestic sales was driven primarily by higher home standby generator shipments, as well as an increase in C&I product shipments to industrial distributors and direct customers for “beyond standby” applications. This growth was partially offset by lower portable generator sales and a decline in C&I product shipments to telecom and national rental equipment customers.

 

Adjusted EBITDA for the segment was $192.2 million, or 21.6% of domestic segment total sales, as compared to $144.1 million in the prior year, or 16.4% of total sales. This margin improvement was primarily driven by favorable sales mix and lower input costs.

 

International Segment

 

International segment total sales (including inter-segment sales) decreased 13% to $190.1 million as compared to $219.2 million in the prior year quarter, including an approximate 7% sales growth contribution from foreign currency and acquisitions. The approximately 20% core total sales decline for the segment was primarily driven by lower inter-segment sales related to softness in the telecom market and lower portable generator shipments in Europe.

 

Adjusted EBITDA for the segment, before deducting for noncontrolling interests, was $20.4 million, or 10.7% of international segment total sales, as compared to $29.5 million, or 13.5% of total sales, in the prior year. This margin decline was primarily driven by unfavorable sales mix and reduced operating leverage on lower shipments.

 

2

 

2024 Outlook

 

The Company is initiating guidance for full-year 2024 that anticipates a return to net sales growth as compared to the prior year. This growth is expected to be driven primarily by residential product sales growth in the mid-teens range, led by shipments of home standby generators and residential energy technology products. Partially offsetting this projected strength, C&I product sales are expected to decline at a rate of approximately 10%, primarily due to weakness with certain direct telecom, rental, and “beyond standby” customers. As a result of these factors, full-year net sales are expected to increase between 3 to 7% as compared to the prior year, which includes a slight favorable impact from foreign currency.

 

Additionally, the Company expects net income margin, before deducting for non-controlling interests, to be approximately 6.5 to 7.5% for the full-year 2024. The corresponding adjusted EBITDA margin is expected to be approximately 16.5 to 17.5%.

 

The Company expects to maintain strong levels of operating and free cash flow generation for the full year, with free cash flow conversion from adjusted net income expected to be approximately 100%.

 

Mr. Jagdfeld concluded, “In 2024, we expect to return to consolidated sales growth and year-over-year margin expansion for the full year period while also continuing to invest for future growth. Importantly, the mega-trends that support these expectations as well as our robust long-term growth outlook remain firmly intact. As reliance on electricity continues to increase and supply-demand imbalances remain a challenge for grid operators, we will continue to execute our strategic plan to lead the evolution to more resilient, efficient, and sustainable energy solutions.”

 

Conference Call and Webcast

 

Generac management will hold a conference call at 10:00 a.m. EST on Wednesday, February 14, 2024 to discuss fourth quarter and full-year 2023 operating results. The conference call can be accessed at the following link: https://register.vevent.com/register/BIedddb843f9564021bf0d57eb7e31888f. Individuals that wish to listen via telephone will be given dial-in information.

 

The conference call will also be webcast simultaneously on Generac's website (http://www.generac.com), accessed under the Investor Relations link. The webcast link will be made available on the Company’s website prior to the start of the call within the Events section of the Investor Relations website.

Following the live webcast, a replay will be available on the Company’s website for 12 months.

 

About Generac

 

Generac is a leading energy technology company that provides backup and prime power products and energy storage systems for home and commercial & industrial applications, energy monitoring & management devices and services, and other engine & battery powered tools and equipment. Founded in 1959, Generac introduced the first affordable backup generator and later created the category of automatic home standby generator. The Company has continued to expand its energy technology offerings in its mission to lead the evolution to more resilient, efficient, and sustainable energy solutions.

 

3

 

Forward-looking Information

 

Certain statements contained in this news release, as well as other information provided from time to time by Generac Holdings Inc. or its employees, may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements give Generac's current expectations and projections relating to the Company's 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.

 

Any such forward-looking statements are not guarantees of performance or results, and involve risks, uncertainties (some of which are beyond the Company's control) and assumptions. Although Generac believes any forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect Generac's actual financial results and cause them to differ materially from those anticipated in any forward-looking statements, including:

 

 

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

 

fluctuations in cost and quality of raw materials required to manufacture our products;

 

availability of both labor and key components from our manufacturing operations and global supply chain, including single-sourced components and contract manufacturers, needed in producing our products;

 

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

 

the risk that our acquisitions will not be integrated successfully;

 

the impact on our results of possible fluctuations in interest rates, foreign currency exchange rates, commodities, product mix, logistics costs and regulatory tariffs;

 

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

 

our dependence on our distribution network;

 

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

 

loss of our key management and employees;

 

increase in product and other liability claims or recalls;

 

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

 

changes in laws and regulations regarding environmental, health and safety, product compliance, or international trade that affect our products, operations, or customer demand;

 

significant legal proceedings, claims, lawsuits or government investigations; and

 

changes in durable goods spending by consumers and businesses or other macroeconomic conditions, impacting demand for our products.

 

Should one or more of these risks or uncertainties materialize, Generac's actual results may vary in material respects from those projected in any forward-looking statements. In the current environment, some of the above factors have materialized and may cause actual results to vary from these forward-looking statements. A detailed discussion of these and other factors that may affect future results is contained in Generac's filings with the U.S. Securities and Exchange Commission (“SEC”), particularly in the Risk Factors section of the 2022 Annual Report on Form 10-K and in its periodic reports on Form 10-Q. Stockholders, potential investors and other readers should consider these factors carefully in evaluating the forward-looking statements.

 

Any forward-looking statement made by Generac in this press release speaks only as of the date on which it is made.  Generac undertakes 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.

 

4

 

Non-GAAP Financial Metrics

 

Core Sales

 

The Company references core sales to further supplement Generac's condensed consolidated financial statements presented in accordance with U.S. GAAP. Core sales excludes the impact of acquisitions and fluctuations in foreign currency translation. Management believes that core sales facilitates easier and more meaningful comparison of net sales performance with prior and future periods.

 

Adjusted EBITDA

 

To supplement our condensed consolidated financial statements presented in accordance with U.S. GAAP, the Company provides the computation of Adjusted EBITDA attributable to the Company, which is defined as net income before noncontrolling interest adjusted for the following items: interest expense, depreciation expense, amortization of intangible assets, income tax expense, certain non-cash gains and losses including purchase accounting and contingent consideration adjustments, share-based compensation expense, losses on extinguishment of debt, certain transaction costs and credit facility fees, business optimization expenses, certain specific provisions, and adjusted EBITDA attributable to noncontrolling interests, as set forth in the reconciliation table below.

 

Adjusted Net Income

 

To further supplement Generac's condensed consolidated financial statements presented in accordance with U.S. GAAP, the Company provides a summary to show the computation of adjusted net income attributable to the Company. Adjusted net income attributable to the Company is defined as net income before noncontrolling interests adjusted for the following items: amortization of intangible assets, amortization of deferred financing costs and original issue discount related to the Company's debt, intangible impairment charges, certain transaction costs and other purchase accounting adjustments, losses on extinguishment of debt, business optimization and other charges, certain specific provisions, certain other non-cash gains and losses, and adjusted net income attributable to non-controlling interests.

 

Free Cash Flow

 

In addition, we reference free cash flow to further supplement Generac's condensed consolidated financial statements presented in accordance with U.S. GAAP. Free cash flow is defined as net cash provided by operating activities, plus proceeds from beneficial interests in securitization transactions, less expenditures for property and equipment, and is intended to be a measure of operational cash flow taking into account additional capital expenditure investment into the business.

 

The presentation of this additional information is not meant to be considered in isolation of, or as a substitute for, results prepared in accordance with U.S. GAAP.  Please see the accompanying Reconciliation Schedules and our SEC filings for additional discussion of the basis for Generac's reporting of Non-GAAP financial measures, which includes why the Company believes these measures provide useful information to investors and the additional purposes for which management uses the non-GAAP financial information.

 

SOURCE: Generac Holdings Inc.

 

CONTACT:

Kris Rosemann

Senior Manager – Corporate Development & Investor Relations
(262) 506-6064
InvestorRelations@generac.com

 

5

 

Generac Holdings Inc.

Consolidated Balance Sheets

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

(Unaudited)

 

   

December 31,

   

December 31,

 
   

2023

   

2022

 

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 200,994     $ 132,723  

Accounts receivable, less allowance for credit losses of $33,925 and $27,664 at December 31, 2023 and 2022, respectively

    537,316       522,458  

Inventories

    1,167,484       1,405,384  

Prepaid expenses and other assets

    91,898       121,783  

Total current assets

    1,997,692       2,182,348  
                 

Property and equipment, net

    598,577       467,604  
                 

Customer lists, net

    184,513       206,987  

Patents and technology, net

    417,441       454,757  

Other intangible assets, net

    27,127       41,719  

Tradenames, net

    216,995       227,251  

Goodwill

    1,432,384       1,400,880  

Deferred income taxes

    15,532       12,746  

Operating lease and other assets

    203,051       175,170  

Total assets

  $ 5,093,312     $ 5,169,462  
                 

Liabilities and stockholders equity

               

Current liabilities:

               

Short-term borrowings

  $ 81,769     $ 48,990  

Accounts payable

    340,719       446,050  

Accrued wages and employee benefits

    54,970       45,741  

Accrued product warranty

    65,298       89,141  

Other accrued liabilities

    292,120       349,389  

Current portion of long-term borrowings and finance lease obligations

    45,895       12,733  

Total current liabilities

    880,771       992,044  
                 

Long-term borrowings and finance lease obligations

    1,447,553       1,369,085  

Deferred income taxes

    90,012       125,691  

Deferred revenue

    167,008       143,726  

Operating lease and other long-term liabilities

    158,349       169,190  

Total liabilities

    2,743,693       2,799,736  
                 

Redeemable noncontrolling interest

    6,549       110,471  
                 

Stockholders’ equity:

               

Common stock, par value $0.01, 500,000,000 shares authorized, 73,195,055 and 72,701,257 shares issued at December 31, 2023 and 2022, respectively

    733       728  

Additional paid-in capital

    1,070,386       1,016,138  

Treasury stock, at cost, 13,057,298 and 11,284,350 shares at December 31, 2023 and 2022, respectively

    (1,032,921 )     (808,491 )

Excess purchase price over predecessor basis

    (202,116 )     (202,116 )

Retained earnings

    2,519,313       2,316,224  

Accumulated other comprehensive loss

    (15,143 )     (65,102 )

Stockholders’ equity attributable to Generac Holdings Inc.

    2,340,252       2,257,381  

Noncontrolling interests

    2,818       1,874  

Total stockholders’ equity

    2,343,070       2,259,255  

Total liabilities and stockholders’ equity

  $ 5,093,312     $ 5,169,462  

 

6

 

Generac Holdings Inc.

Consolidated Statements of Comprehensive Income

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

(Unaudited)

 

   

Three Months Ended December 31,

   

Year Ended December 31,

 
   

2023

   

2022

   

2023

   

2022

 
                                 

Net sales

  $ 1,063,670     $ 1,049,232     $ 4,022,667     $ 4,564,737  

Costs of goods sold

    674,946       706,065       2,657,236       3,042,733  

Gross profit

    388,724       343,167       1,365,431       1,522,004  
                                 

Operating expenses:

                               

Selling and service

    113,839       107,570       448,199       496,260  

Research and development

    44,369       38,446       173,443       159,774  

General and administrative

    54,288       64,284       253,396       196,320  

Amortization of intangibles

    25,260       25,639       104,194       103,320  

Total operating expenses

    237,756       235,939       979,232       955,674  

Income from operations

    150,968       107,228       386,199       566,330  
                                 

Other (expense) income:

                               

Interest expense

    (24,765 )     (19,523 )     (97,627 )     (54,826 )

Investment income

    1,483       509       4,272       1,129  

Loss on extinguishment of debt

                      (3,743 )

Other, net

    (880 )     (755 )     (2,544 )     (424 )

Total other expense, net

    (24,162 )     (19,769 )     (95,899 )     (57,864 )
                                 

Income before provision for income taxes

    126,806       87,459       290,300       508,466  

Provision for income taxes

    29,996       13,568       73,180       99,596  

Net income

    96,810       73,891       217,120       408,870  

Net income attributable to noncontrolling interests

    209       2,876       2,514       9,368  

Net income attributable to Generac Holdings Inc.

  $ 96,601     $ 71,015     $ 214,606     $ 399,502  
                                 

Other comprehensive income (loss):

                               

Foreign currency translation adjustment

    36,784       56,424       57,963       (48,841 )

Net unrealized (loss) gain on derivatives

    (10,313 )     (1,120 )     (8,004 )     38,494  

Other comprehensive income (loss)

    26,471       55,304       49,959       (10,347 )

Total comprehensive income

    123,281       129,195       267,079       398,523  

Comprehensive income attributable to noncontrolling interests

    246       6,764       2,581       11,179  

Comprehensive income attributable to Generac Holdings Inc.

  $ 123,035     $ 122,431     $ 264,498     $ 387,344  
                                 

Net income attributable to common shareholders per common share - basic:

  $ 1.59     $ 0.84     $ 3.31     $ 5.55  

Weighted average common shares outstanding - basic:

    60,391,678       62,370,769       61,265,060       63,117,007  
                                 

Net income attributable to common shareholders per common share - diluted:

  $ 1.57     $ 0.83     $ 3.27     $ 5.42  

Weighted average common shares outstanding - diluted:

    61,038,694       63,583,384       62,058,387       64,681,357  

 

7

 

Generac Holdings Inc.

Consolidated Statements of Cash Flows

(U.S. Dollars in Thousands)

(Unaudited)

 

   

Year Ended December 31,

 
   

2023

   

2022

 

Operating activities

               

Net income

  $ 217,120     $ 408,870  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation

    62,408       52,821  

Amortization of intangible assets

    104,194       103,320  

Amortization of original issue discount and deferred financing costs

    3,885       3,234  

Loss on extinguishment of debt

    -       3,743  

Deferred income taxes

    (34,478 )     (95,465 )

Share-based compensation expense

    35,492       29,481  

Gain on disposal of assets

    (285 )     (592 )

Other noncash charges

    5,922       18,339  

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

               

Accounts receivable

    (18,272 )     6,547  

Inventories

    262,670       (319,274 )

Other assets

    24,266       4,766  

Accounts payable

    (120,900 )     (223,031 )

Accrued wages and employee benefits

    7,962       (27,369 )

Other accrued liabilities

    (27,337 )     110,036  

Excess tax benefits from equity awards

    (977 )     (16,910 )

Net cash provided by operating activities

    521,670       58,516  
                 

Investing activities

               

Proceeds from sale of property and equipment

    2,896       2,077  

Proceeds from sale of investment

    -       1,308  

Proceeds from beneficial interest in securitization transactions

    3,294       3,566  

Contribution to equity method investment

    (6,627 )     (14,930 )

Expenditures for property and equipment

    (129,060 )     (86,188 )

Purchase of long-term investment

    (32,592 )     (15,000 )

Acquisition of businesses, net of cash acquired

    (15,974 )     (25,065 )

Net cash used in investing activities

    (178,063 )     (134,232 )
                 

Financing activities

               

Proceeds from short-term borrowings

    64,257       248,209  

Proceeds from long-term borrowings

    348,827       1,026,284  

Repayments of short-term borrowings

    (37,104 )     (268,133 )

Repayments of long-term borrowings and finance lease obligations

    (288,699 )     (542,191 )

Stock repurchases

    (251,513 )     (345,840 )

Payment of contingent acquisition consideration

    (4,979 )     (16,135 )

Payment of debt issuance costs

    -       (10,330 )

Purchase of additional ownership interest

    (104,844 )     (375 )

Cash dividends paid to noncontrolling interest of subsidiary

    -       (309 )

Taxes paid related to equity awards

    (10,897 )     (40,923 )

Proceeds from the exercise of stock options

    7,815       13,786  

Net cash (used in) provided by financing activities

    (277,137 )     64,043  
                 

Effect of exchange rate changes on cash and cash equivalents

    1,801       (2,943 )
                 

Net increase (decrease) in cash and cash equivalents

    68,271       (14,616 )

Cash and cash equivalents at beginning of period

    132,723       147,339  

Cash and cash equivalents at end of period

  $ 200,994     $ 132,723  
                 

Supplemental disclosure of cash flow information

               

Cash paid during the period

               

Interest

  $ 77,989     $ 48,912  

Income taxes

    100,082       150,893  

 

8

 

Generac Holdings Inc.

Segment Reporting and Product Class Information

(U.S. Dollars in Thousands)

(Unaudited)

 

   

Total Sales by Reportable Segment

 
   

Three Months Ended December 31, 2023

   

Three Months Ended December 31, 2022

 
   

External Net Sales

   

Intersegment

Sales

   

Total Sales

   

External Net Sales

   

Intersegment

Sales

   

Total Sales

 

Domestic

  $ 881,033     $ 9,977     $ 891,010     $ 864,629     $ 15,989     $ 880,618  

International

    182,637       7,474       190,111       184,603       34,624       219,227  

Intercompany elimination

    -       (17,451 )     (17,451 )     -       (50,613 )     (50,613 )

Total net sales

  $ 1,063,670     $ -     $ 1,063,670     $ 1,049,232     $ -     $ 1,049,232  

 

   

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  

 

   

External Net Sales by Product Class

 
   

Three Months Ended December 31,

   

Year Ended December 31,

 
   

2023

   

2022

   

2023

   

2022

 

Residential products

  $ 580,391     $ 574,799     $ 2,062,929     $ 2,911,871  

Commercial & industrial products

    362,923       361,473       1,494,799       1,260,737  

Other

    120,356       112,960       464,939       392,129  

Total net sales

  $ 1,063,670     $ 1,049,232     $ 4,022,667     $ 4,564,737  

 

   

Adjusted EBITDA by Reportable Segment

 
   

Three Months Ended December 31,

   

Year Ended December 31,

 
   

2023

   

2022

   

2023

   

2022

 

Domestic

  $ 192,203     $ 144,143     $ 523,337     $ 716,302  

International

    20,434       29,533       114,522       109,065  

Total adjusted EBITDA (1)

  $ 212,637     $ 173,676     $ 637,859     $ 825,367  

 

(1) See reconciliation of Adjusted EBITDA to Net income attributable to Generac Holdings Inc. on the following reconciliation schedule. 

 

9

 

Generac Holdings Inc.

Reconciliation Schedules

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

(Unaudited)

 

Net income to Adjusted EBITDA reconciliation

                               
   

Three Months Ended December 31,

   

Year Ended December 31,

 
   

2023

   

2022

   

2023

   

2022

 
                                 

Net income attributable to Generac Holdings Inc.

  $ 96,601     $ 71,015     $ 214,606     $ 399,502  

Net income attributable to noncontrolling interests

    209       2,876       2,514       9,368  

Net income

    96,810       73,891       217,120       408,870  

Interest expense

    24,765       19,523       97,627       54,826  

Depreciation and amortization

    42,453       39,417       166,602       156,141  

Provision for income taxes

    29,996       13,568       73,180       99,596  

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

    (696 )     7,934       (5,953 )     (2,091 )

Non-cash share-based compensation expense (2)

    5,186       6,058       35,492       29,481  

Loss on extinguishment of debt (3)

    -       -       -       3,743  

Transaction costs and credit facility fees (4)

    893       1,195       4,054       5,026  

Business optimization and other charges (5)

    2,400       1,000       10,551       4,371  

Provision for legal, regulatory, and clean energy product charges (6)

    10,577       10,000       38,490       65,265  

Other

    253       1,090       696       139  

Adjusted EBITDA

    212,637       173,676       637,859       825,367  

Adjusted EBITDA attributable to noncontrolling interests

    541       4,288       4,687       15,087  

Adjusted EBITDA attributable to Generac Holdings Inc.

  $ 212,096     $ 169,388     $ 633,172     $ 810,280  

 

(1) Includes 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. A full description of these and the other reconciliation adjustments contained in these schedules is included in Generac's SEC filings. 

 

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

 

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

 

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

 

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

 

(6) Represents the following significant and unusual charges not indicative of our ongoing operations:

 

a provision for judgements and legal expenses related to certain patent and securities lawsuits - $6.2 million in the fourth quarter of 2023; $28.3 million in the full year 2023.

 

a provision for a matter with the Consumer Product Safety Commission ("CPSC") concerning the imposition of civil fines for allegedly failing to timely submit a report under the Consumer Product Safety Act ("CPSA") in relation to certain portable generators that were subject to a voluntary recall previously announced on July 29, 2021 - $5.8 million in the first quarter of 2023; $10.0 million in the fourth quarter of 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 the fourth quarter of 2023; $17.9 million bad debt provision in the third quarter of 2022.

 

a warranty provision to address certain clean energy product warranty-related matters - $37.3 million in the third quarter of 2022.

 

10

 

Net income to Adjusted net income reconciliation

                               
   

Three Months Ended December 31,

   

Year Ended December 31,

 
   

2023

   

2022

   

2023

   

2022

 
                                 

Net income attributable to Generac Holdings Inc.

  $ 96,601     $ 71,015     $ 214,606     $ 399,502  

Net income attributable to noncontrolling interests

    209       2,876       2,514       9,368  

Net income

    96,810       73,891       217,120       408,870  

Amortization of intangible assets

    25,260       25,639       104,194       103,320  

Amortization of deferred finance costs and original issue discount

    983       973       3,885       3,234  

Loss on extinguishment of debt (3)

    -             -       3,743  

Transaction costs and other purchase accounting adjustments (7)

    346       11,239       2,089       3,588  

(Gain)/loss attributable to business or asset dispositions (8)

    -             (119 )     (229 )

Business optimization and other charges (5)

    2,400       1,000       10,551       4,371  

Provision for legal, regulatory, and clean energy product charges (6)

    10,577       10,000       38,490       65,265  

Tax effect of add backs

    (9,908 )     (7,038 )     (38,384 )     (43,638 )

Adjusted net income

    126,468       115,704       337,826       548,524  

Adjusted net income (loss) attributable to noncontrolling interests

    209       2,476       2,514       9,675  

Adjusted net income attributable to Generac Holdings Inc.

  $ 126,259     $ 113,228     $ 335,312     $ 538,849  
                                 

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

  $ 2.07     $ 1.78     $ 5.40     $ 8.33  

Weighted average common shares outstanding - diluted:

    61,038,694       63,583,384       62,058,387       64,681,357  

 

(7) 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.

                     

(8) 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.  

 

Free Cash Flow Reconciliation

                               
   

Three Months Ended December 31,

   

Year Ended December 31,

 
   

2023

   

2022

   

2023

   

2022

 
                                 

Net cash provided by operating activities

  $ 316,946     $ 100,868     $ 521,670     $ 58,516  

Proceeds from beneficial interests in securitization transactions

    761       821       3,294       3,566  

Expenditures for property and equipment

    (51,342 )     (21,355 )     (129,060 )     (86,188 )

Free cash flow

  $ 266,365     $ 80,334     $ 395,904     $ (24,106 )

 

11