Market Position and Growth Opportunities - Generac maintains a strong market position in North America and is expanding internationally, focusing on backup and prime power generation systems, solar + battery storage solutions, and energy management devices [94]. - The company has a home standby penetration rate of approximately 5.75% in the U.S., indicating significant growth opportunities in the residential standby generator market [102]. - The demand for natural gas generators is increasing, with the company exploring new market opportunities in continuous-duty and distributed generation applications [106]. - The rollout of 5G technology is expected to drive demand for backup power solutions at cell tower sites, where approximately 50% of existing sites lack adequate backup power [107]. - Increased frequency and duration of power outages are driving consumer awareness and demand for backup power solutions, which may last for six to twelve months following major outage events [101]. - The company is leveraging its competitive strengths to address the growing supply/demand imbalance in the electrical grid, which is expected to lead to more frequent power outages [97]. - Generac's strategic plan, "Powering A Smarter World," aims to capitalize on long-term growth prospects driven by key mega-trends in energy technology [99]. - The Inflation Reduction Act is expected to boost demand for solar and energy storage systems through significant subsidies and investment tax credits [103]. - The company anticipates that the evolving electrical utility model will create new revenue streams through grid services and Energy-as-a-Service offerings [105]. Financial Performance - Net sales for the first quarter of 2023 were $887.9 million, a decrease of $247.9 million or 21.8% compared to $1,135.9 million in the same period of 2022 [118]. - Domestic segment sales declined by $260.3 million or 27.0% to $704.4 million, while international segment sales increased by $12.3 million or 7.2% to $183.5 million [118][119]. - Gross profit margin for Q1 2023 was 30.7%, down from 31.8% in Q1 2022, primarily due to an unfavorable sales mix [121]. - Operating expenses increased by $22.0 million or 10.7% year-over-year, driven by higher marketing, promotion, and employee costs [122]. - Net income attributable to Generac Holdings Inc. was $12.4 million, a decrease of $101.4 million or 89.1% from $113.9 million in Q1 2022 [125]. - Adjusted EBITDA for the Domestic segment was $67.7 million, representing 9.4% of total domestic sales, down from $170.4 million or 17.5% in the prior year [126]. - Adjusted EBITDA for the international segment was $32.4 million, or 15.0% of international sales, compared to $26.0 million or 14.0% in the prior year [127]. - Adjusted Net Income for Q1 2023 was $39.4 million, a decrease of 69.2% from $128.2 million in Q1 2022 [128]. - Interest expense increased significantly to $22,995,000 in Q1 2023 from $9,554,000 in Q1 2022 [156]. - Non-cash share-based compensation expense rose to $10,334,000 in Q1 2023, compared to $8,827,000 in Q1 2022 [156]. - Adjusted EBITDA attributable to Generac Holdings Inc. was $96,942,000 in Q1 2023, compared to $192,988,000 in Q1 2022 [156]. - The company noted that Adjusted EBITDA does not reflect capital expenditures or changes in working capital needs, limiting its usefulness as an analytical tool [159]. Cash Flow and Liquidity - As of March 31, 2023, the Company had $1,136 million in available liquidity, consisting of $137.4 million in cash and $998.6 million available under the Revolving Facility [135]. - Net cash used in operating activities for Q1 2023 was $(18,559) thousand, an increase of 83.0% compared to $(10,142) thousand in Q1 2022 [141]. - Net cash used in investing activities for Q1 2023 was $(41,286) thousand, a 50.8% increase from $(27,375) thousand in Q1 2022 [141]. - Net cash provided by financing activities for Q1 2023 was $63,673 thousand, a decrease of 33.4% from $95,601 thousand in Q1 2022 [141]. Debt and Leverage - As of March 31, 2023, the Tranche A Term Loan Facility and Revolving Facility bore interest rates of 6.27% and 6.52% for the Tranche B Term Loan Facility [132]. - The Company’s total leverage ratio as of March 31, 2023, was 2.22 to 1.00, well below the covenant limit of 3.75 to 1.00 [134]. - The Tranche A Term Loan Facility principal is repayable in quarterly installments starting September 2023, with total principal payments due of $1,530,000 thousand by 2027 [133]. Shareholder Actions - The Company has repurchased 11,748,713 shares of common stock for $777,379 thousand at an average cost of $66.17 per share since the inception of its stock repurchase programs [136]. - The company reported a total of 62,294,447 diluted weighted average common shares outstanding in Q1 2023, down from 64,828,819 in Q1 2022 [164]. - Adjusted net income per common share attributable to Generac Holdings Inc. - diluted was $0.63 in Q1 2023, down from $1.98 in Q1 2022 [164]. Regulatory and Compliance - The provision for regulatory charges in Q1 2023 included a $5.8 million penalty related to the Consumer Product Safety Commission [166].

Financial Data and Key Metrics Changes - Overall net sales decreased 22% year-over-year to $888 million, with core sales declining 24% during the quarter [6][97] - Residential product sales fell 46% compared to the prior year, influenced by excess backlog and elevated field inventory [6][97] - Adjusted EBITDA for the segment was $68 million, representing a 9.4% margin, down from $170 million and 17.5% in the prior year [100] Business Line Data and Key Metrics Changes - Global commercial and industrial (C&I) product sales increased approximately 30% to a record $363 million, with strength across most regions and channels [14][83] - Home consultations were more than four times higher than the comparable period in 2019, indicating a new baseline level of demand for home standby generators [15] - Shipments of power cell energy storage systems remained under pressure as the company worked to rebuild distribution following the loss of a large customer [87] Market Data and Key Metrics Changes - Baseline power outage activity in the U.S. was well above the long-term average, marking the highest level of activity for the first quarter since 2010 [7] - The number of home standby generators in field inventory declined towards more normalized levels, with expectations for further declines in the second quarter [16] - International segment EBITDA margins increased due to favorable price cost dynamics and improved operating leverage on higher sales volumes [94] Company Strategy and Development Direction - The company is focused on increasing home standby generator installation capacity and has launched a dealer talent network to support dealer growth [9] - Strategic investments in energy technology and partnerships with electrical contractor groups are aimed at enhancing brand presence and training resources [9] - The company anticipates a return to year-over-year sales growth in the residential product category in the second half of the year, supported by strong demand indicators [81][106] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the second half of the year, citing strong sales leads and a robust demand environment despite economic uncertainties [48][70] - The company expects to see improvements in adjusted EBITDA margins, with a projected increase of approximately 800 basis points from the first half to the second half of the year [109] - Management highlighted the importance of backup power solutions in response to increasing power outages and evolving market demands [24][86] Other Important Information - Total debt outstanding at the end of the quarter was $1.61 billion, with a gross debt leverage ratio of 2.25 times [104] - The company expects gross sales from residential energy technology products to be between $300 million and $350 million for the full year 2023 [89] - Operating expenses as a percentage of sales are expected to be elevated in 2023 due to ongoing investments in growth [108] Q&A Session Summary Question: Update on close rates for home standby products - Management noted that sales lead volume was robust, with Q1 consultations being a record if not for the previous year's extreme weather events [115] Question: Confidence in maintaining demand for home standby products - Management expressed confidence based on historical performance during power outages, indicating that demand is driven more by outages than economic conditions [117] Question: Impact of uncertain financing environment on dealer operations - Management indicated that dealers are largely unaffected, utilizing credit card payments and a floor plan financing program to manage inventory [40]

Distribution Network and Sales - The company has the industry's largest network of factory direct independent generator dealers in North America, with significant investments made to grow this dealer network [76]. - In 2022, no single customer accounted for more than 4% of the company's sales, indicating a well-balanced distribution network [75]. - The company has expanded its dealer network globally through acquisitions and organic growth, enhancing international sales opportunities [78]. - The company focuses on a diverse omni-channel distribution model, which includes e-commerce and retail channels, to enhance product awareness and reach [79]. - The Domestic segment accounted for $3,867,866 in external net sales in 2022, compared to $3,164,050 in 2021, marking an increase of about 21.9% [399]. - The International segment's external net sales were $696,871 in 2022, up from $573,134 in 2021, representing a growth of approximately 21.7% [399]. - Total sales for the Domestic segment in 2022, including intersegment sales, amounted to $3,928,597, while the International segment totaled $790,570 [399]. Research and Development - The company has approximately 1,000 engineers focused on R&D, driving technological innovation and product enhancements [84]. - Recent acquisitions have significantly enhanced the company's R&D capabilities, particularly in energy storage and power conversion [85]. - The company’s research and development expenses for 2022 were $159.8 million, an increase of 53.1% from $104.3 million in 2021 [302]. - Research and development expenditures were $159,774 million, $104,303 million, and $80,251 million for the years ended December 31, 2022, 2021, and 2020, respectively [339]. Financial Performance - Generac Holdings Inc. reported net sales of $4,564.7 million for the year ended December 31, 2022, an increase of 22.2% compared to $3,737.2 million in 2021 [302]. - The company's gross profit for 2022 was $1,522.0 million, up from $1,360.1 million in 2021, reflecting a gross margin of approximately 33.3% [302]. - Operating expenses increased to $955.7 million in 2022 from $638.9 million in 2021, primarily due to higher selling and service costs and increased research and development expenses [302]. - Generac's net income attributable to the company for 2022 was $399.5 million, a decrease of 27.4% from $550.5 million in 2021 [302]. - Total assets increased to $5,169.5 million as of December 31, 2022, compared to $4,877.8 million in 2021 [299]. - Total liabilities rose to $2,799.7 million in 2022, up from $2,605.6 million in 2021 [299]. - Cash and cash equivalents decreased to $132.7 million in 2022 from $147.3 million in 2021 [299]. - Net income for the year ended December 31, 2022, was $408.87 million, a decrease from $556.57 million in 2021 [308]. - Operating cash flow for 2022 was $58.52 million, significantly lower than $411.16 million in 2021 [308]. - Total revenue for 2022 was $1.02 billion, reflecting a decrease compared to previous years [308]. Acquisitions and Investments - Generac has executed multiple acquisitions, including Enbala Power Networks in October 2020 and ecobee Inc. in December 2021, to enhance its energy technology solutions [315]. - The Company acquired EEC and Blue Pillar for a combined purchase price of $25,654 million, funded solely through cash on hand [355]. - The acquisition of ecobee was for a total purchase price of $735,577 million, including $225,403 million in cash and $420,774 million in common stock [363]. - The Company recorded $806,131 million of intangible assets from the ecobee acquisition, including $248,231 million of goodwill [365]. - The Company incurred total acquisition-related costs of $1,459 million, $21,465 million, and $1,411 million for the years ended December 31, 2022, 2021, and 2020, respectively [350]. Employee and Workforce - As of December 31, 2022, Generac had 9,500 employees, including 9,160 full-time and 340 part-time and temporary employees [112]. - Approximately 4,500 employees were directly or indirectly involved in manufacturing at Generac's facilities [112]. - The company maintains an ongoing global employee engagement initiative, measuring progress through global employee engagement surveys [111]. - Generac's Healthy & Thriving Total Rewards programs are designed to meet the diverse needs of its workforce, focusing on health, wellness, and safety [109]. - Generac is committed to diversity, equity, and inclusion (DEI), sponsoring employee-led Business Employee Resource Groups (BERGs) to enhance networking and learning opportunities [110]. Supply Chain and Manufacturing - The company has made significant investments in manufacturing capacity, including new facilities in Trenton, South Carolina, Hidalgo, Mexico, and Hamilton, Ohio [90]. - The company experienced supply chain challenges since 2020 due to the COVID-19 pandemic, although logistics delays eased in 2022 [92]. - The company experienced an increase in commodity and component costs in 2021 and 2022 due to supply chain challenges and inflation, implementing multiple price increases to mitigate these costs [275]. Government Incentives and ESG - The company is positioned to benefit from government incentives related to renewable energy, including those from the Inflation Reduction Act passed in 2022 [102]. - The company is committed to building an effective ESG program, with a second ESG report published in April 2022 to track progress on sustainability goals [107].

Market Opportunities - Generac's residential standby generator market penetration is only approximately 5.5%, indicating significant growth opportunities domestically and internationally[119] - The company has made significant investments in rapidly growing markets such as residential clean energy storage, solar microinverters, and energy monitoring devices[112] - Generac's natural gas generators are expected to grow at a faster rate than traditional diesel generators, driven by demand for cleaner power generation[124] - The introduction of the PWRmicro microinverter in 2021 is expected to enhance Generac's capabilities in the residential solar market, with availability anticipated in 2023[120] - The evolution towards "Grid 2.0" is expected to drive demand for distributed energy resources and solutions, positioning Generac favorably in the market[121] - The telecommunications market presents a significant opportunity, with approximately half of existing cell tower sites in the U.S. lacking backup power solutions[125] Financial Performance - Net sales for the three months ended September 30, 2022, were $1,088,258, a 15.4% increase from $942,698 in the same period of 2021[139] - Gross profit for the third quarter of 2022 was $361,104, with a gross profit margin of 33.2%, down from 35.6% in the prior year[144] - Domestic segment total sales increased 18.0% to $946.6 million, with non-annualized acquisitions contributing $64.2 million to revenue growth[140] - International segment total sales rose 14.3% to $182.5 million, with a net headwind of $(12.1) million from acquisitions and foreign currency[141] - Income from operations decreased by 49.6% to $87,523, down from $173,579 in the same quarter of 2021[139] - Net income attributable to Generac Holdings Inc. was $58,270, a decline of 55.7% from $131,570 in the prior year[139] - Adjusted EBITDA for the Domestic segment was $572.2 million, or 18.8% of total domestic sales, down from $598.7 million, or 26.1% in the prior year[163] - Adjusted EBITDA for the International segment increased to $79.5 million, or 13.9% of total international sales, compared to $42.3 million, or 10.1% in the prior year, reflecting improved operating leverage[164] - Net sales for the nine months ended September 30, 2022, were $3.515 billion, a 31.7% increase from $2.670 billion in the prior year[153] - Gross profit margin for the nine months ended September 30, 2022, was 33.5%, down from 37.4% in the prior year, impacted by higher input costs and less favorable sales mix[158] - Adjusted Net Income for the nine months ended September 30, 2022, was $425.3 million, a decrease of 6.9% from $457.1 million in the prior year[165] Operating Expenses and Costs - Operating expenses for the third quarter of 2022 totaled $273,581, a 68.4% increase compared to $162,415 in the prior year[139] - The company continues to face significant raw material and cost pressures, impacting margins and resulting in higher input costs[128] - Operating expenses increased by $267.8 million, or 59.3%, compared to the prior year, driven by acquisition-related amortization, warranty provisions, and increased employee costs[159] - Research and development expenses increased by 47.2% to $39,985 compared to $27,165 in the prior year[139] Cash Flow and Liquidity - As of September 30, 2022, the company had $530 million outstanding under the Tranche B Term Loan Facility and $750 million under the Tranche A Term Loan Facility, with $1,248.6 million available under the Revolving Facility[172] - The secured leverage ratio was 1.25 to 1.00 times as of September 30, 2022, well below the covenant limit of 3.75 to 1.00 times, and the interest coverage ratio was 20.81 to 1.00[173] - The company reported a net cash used in operating activities of $(42,352) thousand for the nine months ended September 30, 2022, a decrease of 112.1% compared to the same period in 2021[180] - Net cash used in investing activities for the nine months ended September 30, 2022 was $(85,082) thousand, a decrease of 84.4% compared to $(546,773) thousand in 2021[180] - Net cash provided by financing activities for the nine months ended September 30, 2022 was $214,871 thousand, an increase of 742.5% compared to $(33,445) thousand in 2021[180] - As of September 30, 2022, the company had $1,478.5 million in liquidity, consisting of $229.9 million in cash and equivalents and $1,248.6 million available under the Revolving Facility[174] Impairment and Goodwill - The company identified a triggering event for its clean energy reporting unit requiring an interim impairment assessment due to the loss of a key customer[189] - The company determined that the goodwill and indefinite-lived intangible assets ascribed to the clean energy reporting unit were not impaired as of September 30, 2022[190] Shareholder Returns - The company repurchased 536,633 shares of common stock for $123.9 million during the third quarter of 2022, with a total of 9,563,339 shares repurchased for $555.4 million since the inception of all stock repurchase programs[175][176] Adjusted Metrics - Adjusted EBITDA for the nine months ended September 30, 2022, was $651.69 million, representing an increase of 1.0% from $641.07 million in the same period of 2021[196] - Adjusted net income attributable to Generac Holdings Inc. for the three months ended September 30, 2022, was $112.19 million, down from $151.14 million in the same period of 2021[207] - Adjusted net income per diluted share attributable to Generac Holdings Inc. for the three months ended September 30, 2022, was $1.75, compared to $2.35 in the same period of 2021[207]

Financial Data and Key Metrics Changes - Overall net sales increased 15% year-over-year to $1.09 billion, driven by core sales growth of 10% excluding acquisitions and foreign currency impact [9][61] - Gross profit margin decreased to 33.2% from 35.6% in the prior year due to price cost headwinds and a less favorable sales mix [66] - GAAP net income was $58 million compared to $132 million in the prior year, with adjusted net income at $112 million or $1.75 per share, down from $151 million or $2.35 per share [74][76] Business Line Data and Key Metrics Changes - Residential product sales grew 9% to $664 million, primarily from home standby generators, while PWRcell energy storage systems saw lower shipments [62][63] - Commercial and industrial (C&I) product sales increased 20% to $311 million, with strong growth across various channels and regions [64][44] - Other products and services category saw a 49% increase to $113 million, driven by aftermarket service parts and extended warranty revenue [65] Market Data and Key Metrics Changes - International segment sales increased 14% year-over-year, with core sales growth of 22% excluding acquisitions and currency impact, particularly strong in Europe and Latin America [53][72] - The European region experienced heightened demand for backup generators due to energy security concerns amid geopolitical tensions [54][55] Company Strategy and Development Direction - The company is focused on expanding its distribution network and addressing installation capacity constraints through various initiatives [16][18] - There is a commitment to enhancing clean energy technology and expanding product offerings, with expectations for robust growth in this segment in 2023 [30][41] - The acquisition of Blue Pillar aims to enhance C&I generator connectivity and support the long-term vision of a connected energy ecosystem [51] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the home standby generator market due to installation capacity constraints and elevated field inventory levels [14][19] - The outlook for 2023 anticipates a modest decline in overall sales, with expectations for strong growth in the second half of the year as installation capacity normalizes [83][85] - The company remains confident in the long-term growth trajectory of the home standby category, supported by increasing power outage activity and market awareness [27][25] Other Important Information - The company recorded a $55 million charge in the quarter related to bad debt and warranty issues in the clean energy segment [30][67] - Cash flow from operations was negative $56 million, with free cash flow also negative at $73 million, primarily due to lower operating earnings and increased working capital [77] Q&A Session Summary Question: What happened between the second quarter and now regarding installation challenges? - Management noted that they had increased production significantly but installation rates did not keep pace, leading to elevated field inventory and order cancellations [97][100] Question: How long will it take to sync the channel with underlying demand? - Management indicated that field inventory levels are currently about double what they should be, and they expect installation capacity to improve in the coming year, but seasonal challenges may delay this [107][112] Question: How are production levels being adjusted in response to inventory levels? - The company is slowing down production to manage elevated inventory levels, particularly in the home standby category, while facing component shortages in the industrial business [135] Question: Can you clarify the outlook for clean energy and its growth? - Management acknowledged that 2022 would be a reset year for clean energy due to the loss of a major customer but expects growth to return in 2023 as they expand their channel partnerships [141][142] Question: What are the expectations for margins in the first half of next year? - Management expects a slight decline in gross margins in the first half of 2023 due to a lower mix of home standby products, but anticipates some price-cost benefits as inflationary pressures ease [147]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents Generac's unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Generac's unaudited condensed consolidated financial statements, including balance sheets, income, equity, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and liabilities increased from December 2021 to June 2022, with cash and equivalents significantly rising Condensed Consolidated Balance Sheets | Metric | June 30, 2022 ($ Thousands) | December 31, 2021 ($ Thousands) | | :------------------------------------------ | :---------------------------- | :------------------------------ | | Total Assets | 5,472,951 | 4,877,780 | | Total Liabilities | 2,970,359 | 2,605,643 | | Cash and cash equivalents | 467,140 | 147,339 | | Inventories | 1,240,524 | 1,089,705 | | Long-term borrowings and finance lease obligations | 1,286,499 | 902,091 | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Net sales and gross profit increased significantly, but net income slightly decreased for the six-month period Net Sales and Gross Profit (Three Months Ended June 30) | Metric | Three Months Ended June 30, 2022 ($ Thousands) | Three Months Ended June 30, 2021 ($ Thousands) | % Change | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :------- | | Net sales | 1,291,391 | 919,981 | 40.4% | | Gross profit | 456,985 | 339,735 | 34.5% | | Income from operations | 216,844 | 182,952 | 18.5% | | Net income attributable to Generac Holdings Inc. | 156,359 | 127,036 | 23.1% | | Diluted EPS | $2.21 | $2.01 | - | Net Sales and Gross Profit (Six Months Ended June 30) | Metric | Six Months Ended June 30, 2022 ($ Thousands) | Six Months Ended June 30, 2021 ($ Thousands) | % Change | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------- | | Net sales | 2,427,247 | 1,727,415 | 40.5% | | Gross profit | 817,733 | 661,549 | 23.6% | | Income from operations | 371,579 | 372,076 | -0.1% | | Net income attributable to Generac Holdings Inc. | 270,217 | 276,029 | -2.1% | | Diluted EPS | $3.78 | $4.34 | - | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity increased from January to June 2022, driven by net income, partially offset by comprehensive loss Total Stockholders' Equity (Generac Holdings Inc.) | Item | June 30, 2022 ($ Thousands) | January 1, 2022 ($ Thousands) | | :------------------------------------------ | :---------------------------- | :---------------------------- | | Total Stockholders' Equity (Generac Holdings Inc.) | 2,418,879 | 2,213,774 | | Retained Earnings | 2,210,582 | 1,965,957 | | Accumulated Other Comprehensive Loss | (82,839) | (54,755) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly decreased, investing cash outflow decreased, and financing cash inflow increased due to new debt Cash Flow Summary (Six Months Ended June 30) | Category | Six Months Ended June 30, 2022 ($ Thousands) | Six Months Ended June 30, 2021 ($ Thousands) | % Change | | :-------------------------------------- | :------------------------------------------- | :------------------------------------------- | :------- | | Net cash provided by operating activities | 13,693 | 274,993 | -95.0% | | Net cash used in investing activities | (63,119) | (467,116) | 86.5% | | Net cash provided by (used in) financing activities | 366,367 | (72,680) | 604.1% | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes to Generac's condensed consolidated financial statements, covering business, accounting, acquisitions, and financial instruments [1. Description of Business and Basis of Presentation](index=10&type=section&id=1.%20Description%20of%20Business%20and%20Basis%20of%20Presentation) This section outlines Generac's business as a global energy technology solutions provider and the basis of financial statement presentation - Generac is a leading global designer and manufacturer of energy technology solutions, including power generation equipment, energy storage systems, and grid service devices, serving residential, light commercial, and industrial markets[21](index=21&type=chunk) - The condensed consolidated financial statements are unaudited and prepared in conformity with U.S. GAAP, with management making estimates and assumptions[23](index=23&type=chunk)[24](index=24&type=chunk) - Generac has executed several strategic acquisitions, including Electronic Environments Co. LLC (EEC) in June 2022, and Deep Sea, Chilicon, Apricity Code, Off Grid Energy, Tank Utility, and ecobee in 2021[22](index=22&type=chunk)[25](index=25&type=chunk) [New Accounting Pronouncements](index=11&type=section&id=New%20Accounting%20Pronouncements) This section discusses the assessment and adoption of new accounting standard updates by the FASB - New Accounting Standard Updates (ASUs) issued by the FASB have been assessed and either adopted in a prior period or are not expected to have a material impact on Generac's consolidated financial statements[26](index=26&type=chunk) [2. Acquisitions](index=11&type=section&id=2.%20Acquisitions) This section details Generac's recent acquisitions, including Electronic Environments Co. LLC in 2022 and several others in 2021 - In June 2022, Generac acquired Electronic Environments Co. LLC (EEC), an industrial generator distributor and provider of data center and telecom facility services[25](index=25&type=chunk)[27](index=27&type=chunk) - Fiscal 2021 acquisitions included Deep Sea Electronics (control solutions), Chilicon Power (solar microinverters), Off Grid Energy (mobile energy storage), ecobee (smart home technology), Apricity Code (engineering/design), and Tank Utility (IoT propane monitoring)[25](index=25&type=chunk)[28](index=28&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk)[35](index=35&type=chunk)[38](index=38&type=chunk) Summary Purchase Price Allocations for 2021 Acquisitions (Assets Acquired) | Asset Category | Deep Sea ($ Thousands) | ecobee ($ Thousands) | All Other ($ Thousands) | Total ($ Thousands) | | :-------------------------- | :--------------------- | :------------------- | :---------------------- | :------------------ | | Accounts receivable | 9,574 | 23,337 | 13,852 | 46,763 | | Inventories | 9,970 | 7,258 | 7,034 | 24,262 | | Intangible assets | 174,270 | 555,400 | 81,171 | 810,841 | | Goodwill | 263,604 | 243,346 | 80,871 | 587,821 | | Net assets acquired | 420,700 | 735,632 | 148,023 | 1,304,355 | [3. Redeemable Noncontrolling Interest](index=15&type=section&id=3.%20Redeemable%20Noncontrolling%20Interest) This section details changes in Generac's ownership interests in subsidiaries, including Pramac and Captiva - Generac increased its ownership in PR Industrial S.r.l. (Pramac) to **80%** in May 2021 by exercising a call option for **$27,164 thousand**[44](index=44&type=chunk) - In May 2022, Generac increased its ownership in Captiva Energy Solutions Private Limited (Captiva) to **66%** for **$375 thousand**[45](index=45&type=chunk) Changes in Redeemable Noncontrolling Interest (Six Months Ended June 30) | Item | 2022 ($ Thousands) | 2021 ($ Thousands) | | :-------------------------- | :------------------- | :------------------- | | Balance at beginning of period | 58,050 | 66,207 | | Net income | 3,672 | 1,693 | | Purchase of additional ownership interest | (375) | (27,164) | | Redemption value adjustment | 25,592 | (1,870) | | Balance at end of

Financial Data and Key Metrics Changes - Net sales increased by 40% year-over-year to $1.29 billion, setting an all-time record, with strong core sales growth of 33% excluding acquisitions and foreign currency impacts [8][44] - Adjusted EBITDA reached a record $271 million, representing 21% of net sales, although the EBITDA margin declined from 23.7% in the prior year due to higher operating expenses [52][56] - Gross profit margin was 35.4%, down from 36.9% in the prior year, but improved sequentially from 32.1% in Q1 2022 [49][50] Business Line Data and Key Metrics Changes - Residential product sales grew by 49% to $896 million, driven primarily by home standby generator sales, which increased by over 50% [45] - Commercial and industrial (C&I) product net sales increased by 22% to $309 million, with strong growth across all regions and channels [46][30] - Net sales from clean energy products grew over 50% year-over-year, despite macroeconomic challenges [19][29] Market Data and Key Metrics Changes - International segment sales increased by 43% year-over-year, with core sales growth of 34% when excluding acquisitions and currency impacts [36][54] - The European market showed strong demand for products due to heightened energy independence concerns following geopolitical events [36] - The Latin American region also experienced solid growth, with intersegment sales increasing as Generac Mexico ramped up production [37] Company Strategy and Development Direction - The company is focused on executing its "Powering a Smarter World" strategy, which aims to address structural supply-demand imbalances in the energy market [42][43] - Generac is expanding its clean energy product portfolio and integrating recent acquisitions to enhance its market position [18][29] - The company is also working on increasing installation capacity through dealer network expansion and contractor training initiatives [17][16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued demand for home standby generators, citing strong lead generation and backlog strength [10][12] - The company anticipates sequentially improving margins in the second half of the year due to price realization and easing input costs [10][62] - Management remains optimistic about the long-term growth potential of clean energy solutions, expecting net sales in this segment to double in 2022 [29][19] Other Important Information - The company has enhanced its liquidity profile through refinancing, establishing a new term loan facility of $750 million and a revolving credit facility of $1.25 billion [58][60] - Share repurchase programs have been initiated, with a new authorization allowing for the repurchase of up to $500 million of common stock [61] Q&A Session Summary Question: Can you provide context on backlog and inventory lead times? - Management indicated that lead times for home standby generators have decreased to 8 to 10 weeks, with a significant backlog still in place [74][80] Question: What is the outlook for gross margins and input costs? - Management expects gross margins to improve to around 40% by year-end, driven by pricing actions and moderation of input costs [85][86] Question: How is the C&I business performing? - The C&I business is experiencing strong growth, particularly in telecom and rental markets, benefiting from increased capital expenditures in these sectors [90][94]

Market Opportunities - Generac's residential standby generator market penetration is only approximately 5.5%, indicating significant growth opportunities domestically and internationally[101] - The telecommunications market presents a significant opportunity, with approximately half of existing cell tower sites in the U.S. lacking backup power solutions[107] - Increased frequency and duration of power outages due to climate change are expected to drive consumer awareness and demand for backup power solutions[100] Product Development and Innovation - The introduction of the PWRmicro grid-interactive microinverter is expected to enhance Generac's capabilities in the residential solar market, with availability anticipated in 2022[102] - Generac's natural gas generators are expected to grow at a faster rate than traditional diesel generators, driven by the demand for cleaner energy solutions[106] - The company has made significant investments in rapidly growing markets such as residential clean energy storage, solar microinverters, and energy monitoring devices[94] - Generac's strategic focus on cleaner energy solutions is expected to enhance its market position in the emerging residential solar, storage, monitoring, and management markets[104] - Generac is exploring new revenue streams through grid services and Energy-as-a-Service models, leveraging its Concerto software platform[105] Financial Performance - Net sales for the three months ended March 31, 2022, increased by 40.7% to $1,135.9 million compared to $807.4 million in the prior year quarter[123] - Domestic segment sales rose by 39.3% to $964.7 million, with non-annualized acquisitions contributing $33.7 million to revenue growth[123] - International segment sales increased by 49.2% to $171.2 million, with non-annualized acquisitions and foreign currency contributing $25.7 million to revenue growth[124] - The net income attributable to Generac Holdings Inc. for Q1 2022 was $113.9 million, a decrease of 23.6% from $149.0 million in the prior year[123] - Adjusted Net Income decreased by 11.4% to $135.3 million from $152.7 million in the prior year[133] Cost and Expenses - Gross profit margin for Q1 2022 was 31.8%, down from 39.9% in the prior year, primarily due to higher input costs and inflationary pressures[126] - Operating expenses increased by 55.3% to $206.0 million, driven by acquisition-related costs and increased employee expenses[127] - The company has implemented multiple price increases to mitigate rising costs, with full realization expected in the second half of 2022[116] Cash Flow and Liquidity - As of March 31, 2022, liquidity was $495.5 million, consisting of $206.0 million in cash and equivalents and $289.5 million available under the ABL Facility[137] - Net cash provided by operating activities was $(10,142) thousand, a decline of 106.6% from $152,543 thousand in the prior year[143] - Net cash used in investing activities was $(27,375) thousand, an increase of 25.3% from $(21,850) thousand in the prior year[143] - Net cash provided by financing activities was $95,601 thousand, a significant increase of 339.0% from $(40,008) thousand in the prior year[143] Shareholder Returns - The company has repurchased 9,026,706 shares for $431.5 million since the inception of its stock repurchase programs[138] Tax and Interest Expenses - The effective income tax rate for Q1 2022 was 19.7%, up from 19.1% in the prior year, mainly due to a lower discrete benefit from equity compensation[129] - Interest expense increased to $9,554,000 in Q1 2022 from $7,723,000 in Q1 2021, representing a rise of 23.8%[155] Depreciation and Amortization - Depreciation and amortization expenses rose significantly to $38,461,000 in Q1 2022 from $18,237,000 in Q1 2021, an increase of 111.5%[155]

Financial Data and Key Metrics Changes - Overall net sales increased by 41% year-over-year to $1.14 billion, surpassing previous expectations and setting a new record [10][47] - Adjusted EBITDA was $196 million, representing 17.3% of net sales, down from 26.5% in the prior year due to elevated input costs [55][59] - Gross profit margin decreased to 31.8% from 39.9% in the prior year, impacted by supply chain challenges and inflationary pressures [53][59] Business Line Data and Key Metrics Changes - Residential product sales grew to $777 million, a 43% increase, driven by home standby generators and PWRcell energy storage systems [48][49] - C&I product net sales increased by 38% to $279 million, with strong growth in telecom and rental equipment sectors [50][31] - Clean energy products, particularly PWRcell energy storage systems, saw significant growth, contributing to overall revenue growth [20][23] Market Data and Key Metrics Changes - Domestic segment sales rose by 39% to $965 million, with acquisitions contributing approximately 5% to revenue growth [56] - International segment sales increased by 49% to $171 million, with core sales growth of 27% when excluding acquisitions and currency impacts [57][38] - The European market showed strong demand for portable generators and C&I generators, influenced by geopolitical factors [39] Company Strategy and Development Direction - The company is focused on expanding its ecosystem of connected energy technology solutions to address challenges in the aging electrical grid [46] - Generac is optimistic about new product offerings in 2022, including the PWRmicro and PowerManager, which are expected to strengthen its market position [22][30] - The company is actively pursuing cross-selling opportunities with ecobee and leveraging its existing dealer base to drive growth [24][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to navigate supply chain challenges and maintain strong demand for products, with expectations for sequential revenue growth throughout 2022 [44][70] - The company raised its full-year 2022 net sales guidance to a growth range of 36% to 40%, reflecting strong execution and backlog visibility [66] - Management noted that the first quarter of 2022 marked the low point for adjusted EBITDA margins, with expectations for improvement as price realization and cost reduction initiatives take effect [74][70] Other Important Information - Cash flow from operations was negative $10 million, a decline from positive $153 million in the prior year, primarily due to higher working capital investment [62] - The company had approximately $500 million in liquidity at the end of the quarter, with a gross debt leverage ratio of 1.3x [63][64] - Adjusted net income for the quarter was $135 million, or $2.09 per share, compared to $153 million, or $2.38 per share, in the prior year [61] Q&A Session Summary Question: Insights on home standby demand and backlog changes - Management indicated that the home standby backlog decreased as expected, with demand in line with projections and significant backlog remaining [87][89] Question: Cumulative pricing actions and backlog repricing - Cumulative pricing actions over the last 15 to 18 months were noted to be in the high teens percentage range, with backlog set to be repriced effective June 1 [90][91] Question: Elasticity of demand for home standby products - Management stated that demand remains strong despite price increases, with project costs not dampening enthusiasm for the category [108][110] Question: Strategies to drive awareness and demand for home standby products - The company is testing outbound calling to unclosed leads and considering promotional levers to drive demand, indicating a proactive approach to market engagement [116][117]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (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, 2021 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 i ...