10-Q 1 gnrc20220930_10q.htm FORM 10-Q gnrc20220930_10q.htm
0001474735 GENERAC HOLDINGS INC. false --12-31 Q3 2022 0.01 0.01 500,000,000 500,000,000 72,640,001 72,386,017 5 3 5 5 0 20 3 82 82 5 10 June 29, 2027 0 0 0 Represents the non-cash write-off of original issue discount and deferred financing costs due primarily to a voluntary prepayment of Term Loan debt. To be paid in the form of common stock issued upon achievement of certain performance targets following the end of two earnout periods, one ended June 30, 2022, and one ending June 30, 2023. Includes a specific warranty provision recorded during the third quarter of 2022 in the amount of $37,338 to address certain clean energy product warranty-related matters. 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. Payable on the third business day after December 31, 2023. Represents unfavorable impact from the strengthening of the U.S. dollar against foreign currencies during the three months ended September 30, 2021, particularly the Euro and British Pound. The current year period predominantly represents severance and other non-recurring restructuring charges related to the suspension of operations at certain of our facilities. Represents unrealized gains of $18,404 on the interest rate swaps, net of tax effect of $(4,647) for the three months ended September 30, 2022. 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. Excludes approximately 85,000 and 44,000 stock options and restricted stock awards for the three and nine months ended September 30, 2022, respectively, as the impact of such awards was anti-dilutive. There were no awards with an anti-dilutive impact for the three and nine months ended September 30, 2021. Represents unfavorable impact from the strengthening of the U.S. dollar against foreign currencies during the nine months ended September 30, 2021, particularly the Euro and British Pound. Represents unfavorable impact from the strengthening of the U.S. dollar against foreign currencies during the nine months ended September 30, 2022, particularly the Euro and British Pound. Represents unrealized gains of $3,934 on the interest rate swaps, net of tax effect of $(993) for the three months ended September 30, 2021. Represents unrealized gains of $52,995 on the interest rate swaps, net of tax effect of $(13,381) for the nine months ended September 30, 2022. Represents transaction costs incurred directly in connection with any investment, as defined in our credit agreement, equity issuance, debt issuance, or refinancing, together with certain fees relating to our senior secured credit facilities. Represents unrealized gains of $20,312 on the interest rate swaps, net of tax effect of $(5,128) for the nine months ended September 30, 2021. 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. Represents share-based compensation expense to account for stock options, restricted stock, and other stock awards over their respective vesting periods. 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Table of Contents



 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

(Mark One)

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

  
 

For the quarterly period ended September 30, 2022

  

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

20-5654756

(State or other jurisdiction of

(IRS Employer

incorporation or organization)

Identification No.)

  

S45 W29290 Hwy 59, Waukesha, WI

53189

(Address of principal executive offices)

(Zip Code)

 

(262544-4811

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

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 filer

Accelerated 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☑

 

As of November 3, 2022, there were 63,356,402 shares of registrant’s common stock outstanding.

 



 

  

 

GENERAC HOLDINGS INC.

TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION

     

Item 1.

Financial Statements

 
     
 

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

1

     
 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021

2

     
 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021

3

     
 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021

4

     
 

Notes to Condensed Consolidated Financial Statements

5

     

Item 2.

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

17

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

     

Item 4.

Controls and Procedures

30

   

PART II. OTHER INFORMATION

     

Item 1.

Legal Proceedings

30

     

Item 1A.

Risk Factors

30

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

     
Item 3. Defaults Upon Senior Securities 31
     
Item 4. Mine Safety Disclosures 31
     
Item 5. Other Information 31
     

Item 6.

Exhibits

31

     
 

Signatures

32

 

 

 
 

PART I. FINANCIAL INFORMATION

 


Item 1.           Financial Statements

 

Generac Holdings Inc.

Condensed Consolidated Balance Sheets

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

(Unaudited)

 

  

September 30,

  

December 31,

 
  

2022

  

2021

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $229,911  $147,339 

Accounts receivable, less allowance for credit losses

  542,528   546,466 

Inventories

  1,424,691   1,089,705 

Prepaid expenses and other current assets

  116,139   64,954 

Total current assets

  2,313,269   1,848,464 
         

Property and equipment, net

  450,133   440,852 
         

Customer lists, net

  205,016   238,722 

Patents and technology, net

  455,845   492,473 

Other intangible assets, net

  44,207   66,436 

Tradenames, net

  228,170   243,531 

Goodwill

  1,359,588   1,409,674 

Deferred income taxes

  16,273   15,740 

Operating lease and other assets

  173,792   121,888 

Total assets

 $5,246,293  $4,877,780 
         

Liabilities and stockholders’ equity

        

Current liabilities:

        

Short-term borrowings

 $64,588  $72,035 

Accounts payable

  523,552   674,208 

Accrued wages and employee benefits

  54,430   72,060 
Accrued product warranty  100,451   59,052 

Other accrued liabilities

  354,053   272,622 

Current portion of long-term borrowings and finance lease obligations

  8,056   5,930 

Total current liabilities

  1,105,130   1,155,907 
         

Long-term borrowings and finance lease obligations

  1,282,856   902,091 

Deferred income taxes

  131,978   205,964 

Operating lease and other long-term liabilities

  319,788   341,681 

Total liabilities

  2,839,752   2,605,643 
         

Redeemable noncontrolling interests

  86,936   58,050 
         

Stockholders’ equity:

        

Common stock, par value $0.01, 500,000,000 shares authorized, 72,640,001 and 72,386,017 shares issued at September 30, 2022 and December 31, 2021, respectively

  728   725 

Additional paid-in capital

  976,001   952,939 

Treasury stock, at cost

  (599,304)  (448,976)

Excess purchase price over predecessor basis

  (202,116)  (202,116)

Retained earnings

  2,263,627   1,965,957 

Accumulated other comprehensive loss

  (120,406)  (54,755)

Stockholders’ equity attributable to Generac Holdings Inc.

  2,318,530   2,213,774 

Noncontrolling interests

  1,075   313 

Total stockholders' equity

  2,319,605   2,214,087 

Total liabilities and stockholders’ equity

 $5,246,293  $4,877,780 

 

See notes to condensed consolidated financial statements.

 

 

 

Generac Holdings Inc.

Condensed Consolidated Statements of Comprehensive Income

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

(Unaudited)

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Net sales

 $1,088,258  $942,698  $3,515,505  $2,670,113 

Costs of goods sold

  727,154   606,704   2,336,668   1,672,570 

Gross profit

  361,104   335,994   1,178,837   997,543 
                 

Operating expenses:

                

Selling and service

  170,381   82,242   388,690   229,443 

Research and development

  39,985   27,165   121,328   74,897 

General and administrative

  37,464   40,802   132,036   115,311 

Amortization of intangibles

  25,751   12,206   77,681   32,237 

Total operating expenses

  273,581   162,415   719,735   451,888 

Income from operations

  87,523   173,579   459,102   545,655 
                 

Other (expense) income:

                

Interest expense

  (15,514)  (7,980)  (35,303)  (23,424)

Investment income

  451   165   620   1,012 

Loss on extinguishment of debt

        (3,743)  (831)

Other, net

  (420)  (400)  331   2,536 

Total other expense, net

  (15,483)  (8,215)  (38,095)  (20,707)
                 

Income before provision for income taxes

  72,040   165,364   421,007   524,948 

Provision for income taxes

  11,594   32,611   86,028   114,341 

Net income

  60,446   132,753   334,979   410,607 

Net income attributable to noncontrolling interests

  2,176   1,183   6,492   3,008 

Net income attributable to Generac Holdings Inc.

 $58,270  $131,570  $328,487  $407,599 
                 

Net income attributable to Generac Holdings Inc. per common share - basic:

 $0.84  $1.98  $4.69  $6.42 

Weighted average common shares outstanding - basic:

  63,249,881   62,690,437   63,480,161   62,583,957 
                 

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

 $0.83  $1.93  $4.61  $6.27 

Weighted average common shares outstanding - diluted:

  64,267,638   64,208,116   64,630,346   64,146,281 
                 

Comprehensive income attributable to Generac Holdings Inc.

 $21,683  $113,727  $264,912  $386,789 

 

See notes to condensed consolidated financial statements.

 

 

 

Generac Holdings Inc.

Condensed Consolidated Statements of Stockholders' Equity

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

(Unaudited)

 

   

Generac Holdings Inc.

                 
                                           

Excess Purchase Price

   

Retained

   

Accumulated

                         
                   

Additional

                   

Over

   

Earnings

   

Other

   

Total

                 
   

Common Stock

   

Paid-In

   

Treasury Stock

   

Predecessor

   

(Accumulated

   

Comprehensive

   

Stockholders'

   

Noncontrolling

         
   

Shares

   

Amount

   

Capital

   

Shares

   

Amount

   

Basis

   

Deficit)

   

Income (Loss)

   

Equity

   

Interest

   

Total

 

Balance at July 1, 2022

    72,588,588     $ 727     $ 967,819       (8,755,451 )   $ (475,294 )   $ (202,116 )   $ 2,210,582     $ (82,839 )   $ 2,418,879     $ 883     $ 2,419,762  

Unrealized gain on interest rate swaps, net of tax of $4,647

                                              13,757       13,757             13,757  

Foreign currency translation adjustment

                                              (51,324 )     (51,324 )     (396 )     (51,720 )

Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price

    51,413       1       1,321                                     1,322             1,322  

Net share settlement of restricted stock awards

                      (455 )     (110 )                       (110 )           (110 )

Stock repurchases

                      (536,633 )     (123,900 )                       (123,900 )           (123,900 )

Share-based compensation

                6,861                                     6,861             6,861  

Redemption value adjustment

                                        (5,225 )           (5,225 )           (5,225 )

Net income

                                        58,270             58,270       588       58,858  
                                                                                         

Balance at September 30, 2022

    72,640,001     $ 728     $ 976,001       (9,292,539 )   $ (599,304 )   $ (202,116 )   $ 2,263,627     $ (120,406 )   $ 2,318,530     $ 1,075     $ 2,319,605  

 

   

Generac Holdings Inc.

                 
                                           

Excess Purchase Price

   

Retained

   

Accumulated

                         
                   

Additional

                   

Over

   

Earnings

   

Other

   

Total

                 
   

Common Stock

   

Paid-In

   

Treasury Stock

   

Predecessor

   

(Accumulated

   

Comprehensive

   

Stockholders'

   

Noncontrolling

         
   

Shares

   

Amount

   

Capital

   

Shares

   

Amount

   

Basis

   

Deficit)

   

Income (Loss)

   

Equity

   

Interest

   

Total

 

Balance at January 1, 2022

    72,386,017     $ 725     $ 952,939       (8,667,031 )   $ (448,976 )   $ (202,116 )   $ 1,965,957     $ (54,755 )   $ 2,213,774     $ 313     $ 2,214,087  

Unrealized gain on interest rate swaps, net of tax of $13,381

                                              39,614       39,614             39,614  

Foreign currency translation adjustment

                                              (105,265 )     (105,265 )     (470 )     (105,735 )

Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price

    253,984       3       (361 )                                   (358 )           (358 )

Net share settlement of restricted stock awards

                      (88,875 )     (26,428 )                       (26,428 )           (26,428 )

Stock repurchases

                      (536,633 )     (123,900 )                       (123,900 )           (123,900 )

Share-based compensation

                23,423                                     23,423             23,423  

Redemption value adjustment

                                        (30,817 )           (30,817 )           (30,817 )

Net income

                                        328,487             328,487       1,232       329,719  
                                                                                         

Balance at September 30, 2022

    72,640,001     $ 728     $ 976,001       (9,292,539 )   $ (599,304 )   $ (202,116 )   $ 2,263,627     $ (120,406 )   $ 2,318,530     $ 1,075     $ 2,319,605  

 

   

Generac Holdings Inc.

                 
                                           

Excess Purchase Price

   

Retained

   

Accumulated

                         
                   

Additional

                   

Over

   

Earnings

   

Other

   

Total

                 
   

Common Stock

   

Paid-In

   

Treasury Stock

   

Predecessor

   

(Accumulated

   

Comprehensive

   

Stockholders'

   

Noncontrolling

         
   

Shares

   

Amount

   

Capital

   

Shares

   

Amount

   

Basis

   

Deficit)

   

Income (Loss)

   

Equity

   

Interest

   

Total

 

Balance at July 1, 2021

    72,252,980     $ 723     $ 542,893       (9,252,097 )   $ (358,481 )   $ (202,116 )   $ 1,710,464     $ (37,583 )   $ 1,655,900     $ 38     $ 1,655,938  

Unrealized gain on interest rate swaps, net of tax of $993

                                              2,941       2,941             2,941  

Foreign currency translation adjustment

                                              (20,899 )     (20,899 )     (8 )     (20,907 )

Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price

    52,085       1       2,486                                     2,487             2,487  

Common stock issued for business combination

    30,640             12,000                                     12,000             12,000  

Net share settlement of restricted stock awards

                      (397 )     (153 )                       (153 )           (153 )

Share-based compensation

                5,783                                     5,783             5,783  

Redemption value adjustment

                                        (7,557 )           (7,557 )           (7,557 )

Net income

                                        131,570             131,570       175       131,745  
                                                                                         

Balance at September 30, 2021

    72,335,705     $ 724     $ 563,162       (9,252,494 )   $ (358,634 )   $ (202,116 )   $ 1,834,477     $ (55,541 )   $ 1,782,072     $ 205     $ 1,782,277  

 

   

Generac Holdings Inc.

                 
                                           

Excess Purchase Price

   

Retained

   

Accumulated

                         
                   

Additional

                   

Over

   

Earnings

   

Other

   

Total

                 
   

Common Stock

   

Paid-In

   

Treasury Stock

   

Predecessor

   

(Accumulated

   

Comprehensive

   

Stockholders'

   

Noncontrolling

         
   

Shares

   

Amount

   

Capital

   

Shares

   

Amount

   

Basis

   

Deficit)

   

Income (Loss)

   

Equity

   

Interest

   

Total

 

Balance at January 1, 2021

    72,024,329     $ 721     $ 525,541       (9,173,731 )   $ (332,164 )   $ (202,116 )   $ 1,432,565     $ (34,254 )   $ 1,390,293     $ (89 )   $ 1,390,204  

Unrealized gain on interest rate swaps, net of tax of $5,128

                                              15,184       15,184             15,184  

Foreign currency translation adjustment

                                              (36,471 )     (36,471 )     (13 )     (36,484 )

Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price

    280,736       3       7,417                                     7,420             7,420  

Common stock issued for business combination

    30,640             12,000                                     12,000             12,000  

Net share settlement of restricted stock awards

                      (78,763 )     (26,470 )                       (26,470 )           (26,470 )

Share-based compensation

                18,204                                     18,204             18,204  

Redemption value adjustment

                                        (5,687 )           (5,687 )           (5,687 )

Net income

                                        407,599             407,599       307       407,906  
                                                                                         

Balance at September 30, 2021

    72,335,705     $ 724     $ 563,162       (9,252,494 )   $ (358,634 )   $ (202,116 )   $ 1,834,477     $ (55,541 )   $ 1,782,072     $ 205     $ 1,782,277  

 

See notes to condensed consolidated financial statements.

 

 

 

Generac Holdings Inc.

Condensed Consolidated Statements of Cash Flows

(U.S. Dollars in Thousands)

(Unaudited)

 

  

Nine Months Ended September 30,

 
  

2022

  

2021

 

Operating activities

        

Net income

 $334,979  $410,607 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

        

Depreciation

  39,043   30,445 

Amortization of intangible assets

  77,681   32,237 

Amortization of original issue discount and deferred financing costs

  2,261   1,941 

Loss on extinguishment of debt

  3,743   831 

Deferred income taxes

  (83,272)  8,210 

Share-based compensation expense

  23,423   18,204 

Gain on disposal of assets

  (555)  (4,018)

Other noncash (gains) charges

  7,037   (12)

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

        

Accounts receivable

  (20,810)  (116,768)

Inventories

  (353,618)  (322,954)

Other assets

  (7,033)  (6,874)

Accounts payable

  (136,289)  269,951 

Accrued wages and employee benefits

  (17,418)  4,497 

Other accrued liabilities

  105,544   49,987 

Excess tax benefits from equity awards

  (17,068)  (26,880)

Net cash (used in) provided by operating activities

  (42,352)  349,404 
         

Investing activities

        

Proceeds from sale of property and equipment

  2,049   182 

Proceeds from sale of investment

  1,308   4,968 

Proceeds from beneficial interests in securitization transactions

  2,745   2,240 

Contribution to equity method investment

  (14,930)  (781)

Expenditures for property and equipment

  (64,833)  (87,456)

Acquisition of business, net of cash acquired

  (11,421)  (465,926)

Net cash used in investing activities

  (85,082)  (546,773)
         

Financing activities

        

Proceeds from short-term borrowings

  237,182   127,816 

Proceeds from long-term borrowings

  935,614   50,000 

Repayments of short-term borrowings

  (239,550)  (105,206)

Repayments of long-term borrowings and finance lease obligations

  (540,481)  (54,889)

Stock repurchases

  (123,900)   

Payment of contingent acquisition consideration

  (16,135)  (3,750)

Payment of debt issuance costs

  (10,330)  (1,185)

Purchase of additional ownership interest

  (375)  (27,164)

Cash dividends paid to noncontrolling interest of subsidiary

  (309)   

Taxes paid related to equity awards

  (40,472)  (49,569)

Proceeds from exercise of stock options

  13,627   30,502 

Net cash provided by (used in) financing activities

  214,871   (33,445)
         

Effect of exchange rate changes on cash and cash equivalents

  (4,865)  (588)
         

Net increase (decrease) in cash and cash equivalents

  82,572   (231,402)

Cash and cash equivalents at beginning of period

  147,339   655,128 

Cash and cash equivalents at end of period

 $229,911  $423,726 

 

 

See notes to condensed consolidated financial statements.

 

 

Generac Holdings Inc.
Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

 

 

 

1.   Description of Business and Basis of Presentation

 

Founded in 1959, Generac Holdings Inc. (the Company) is a leading global designer and manufacturer of a wide range of energy technology solutions. The Company provides power generation equipment, energy storage systems, energy management devices & solutions, and other power products serving the residential, light commercial, and industrial markets. Generac’s power products and solutions are available globally through a broad network of independent dealers, distributors, retailers, e-commerce partners, wholesalers, and equipment rental companies, as well as sold direct to certain end user customers.

 

Over the years, the Company has executed a number of acquisitions that support its strategic plan (as discussed in Item 1 of the Annual Report on Form 10-K for the year ended December 31, 2021). A summary of acquisitions affecting the reporting periods presented include:

 

 In June 2021, the Company acquired Deep Sea Electronics Limited (Deep Sea), founded in 1975 and headquartered in Hunmanby, United Kingdom. Deep Sea is an industry leading designer and manufacturer of a diverse suite of flexible control solutions focused on the global power generation and transfer switch markets.
 In July 2021, the Company acquired Chilicon Power, LLC (Chilicon), a designer and provider of grid-interactive microinverter and monitoring solutions for the solar market. Based in Los Angeles, California, Chilicon's power inversion and monitoring system technologies maximize photovoltaic (solar power) system production, lower installer operational cost, and promote end-user satisfaction.
 In September 2021, the Company acquired Apricity Code Corporation (Apricity Code), an advanced engineering and product design company located in Bend, Oregon.
 In September 2021, the Company acquired Off Grid Energy Ltd (Off Grid Energy), a designer and manufacturer of industrial-grade mobile energy storage systems. Headquartered in Rugby, United Kingdom, Off Grid Energy offers a diverse range of energy storage solutions that provide cleaner and more flexible energy for industrial and mobile applications. 
 In October 2021, the Company acquired Tank Utility, Inc. (Tank Utility). Headquartered in Boston, Massachusetts, Tank Utility is a provider of IoT propane tank monitoring that enables the optimization of propane fuel logistics.
 In December 2021, the Company acquired ecobee Inc. (ecobee), founded in 2007 and headquartered in Toronto, Canada. ecobee is a leader in sustainable home technology solutions including smart thermostats that deliver significant energy savings, security, and peace of mind. 
 In June 2022, the Company acquired Electronic Environments Co. LLC and related subsidiaries (collectively EEC). Headquartered in Marlborough, Massachusetts, EEC is an industrial generator distributor as well as a provider of data center and telecom facility design, build, maintenance, and repair services.

 

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries that are consolidated in conformity with U.S. generally accepted accounting principles (GAAP). All intercompany amounts and transactions have been eliminated in consolidation.

 

The condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2022 and 2021, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021 have been prepared by the Company and have not been audited. In the opinion of management, all adjustments (which include only normal recurring adjustments except where disclosed) necessary for the fair presentation of the financial position, results of operation, and cash flows have been made. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

 

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2021.

 

5

 

Summary of Accounting Policies

 

Goodwill and Other Indefinite-Lived Intangible Assets

 

The Company applies a fair value-based impairment test to the carrying value of goodwill and other indefinite-lived intangible assets on an annual basis (as of October 31) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis.  As disclosed in Note 2, "Significant Accounting Policies - Goodwill and Other Indefinite-Lived Intangible Assets," to the consolidated financial statements in Item 8 of its 2021 Annual Report on Form 10-K, the Company concluded there was no impairment in its goodwill and other indefinite-lived intangible assets as of October 31, 2021.

 

During the three months ended September 30, 2022, the Company identified a triggering event for its clean energy reporting unit requiring an interim impairment assessment to be performed due to the loss of a key customer as well as certain clean energy product warranty-related matters. Estimates and assumptions used when preparing the discounted cash flow analysis for purposes of the interim impairment test were based on updated projections that are subject to various risks and uncertainties, including forecasted revenues, expenses, and cash flows as well as the current discount rate based on the estimated weighted average cost of capital for the business. 

 

Based on the interim impairment assessment as of September 30, 2022, the Company determined that the goodwill and indefinite-lived intangible assets ascribed to the clean energy reporting unit are not impaired. If management's estimates of future operating results change or if there are changes to other assumptions due to the economic environment, 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 the Company's operating results and financial condition.

 

New Accounting Pronouncements

 

Changes to GAAP are established by the Financial Accounting Standards Board (FASB) in the form of accounting standard updates (ASUs) to the FASB Accounting Standards Codification (ASC). ASUs issued were assessed and have already been adopted in a prior period or determined to be either not applicable or are not expected to have a material impact on the Company’s consolidated financial statements.

 

 

2.   Acquisitions

 

Fiscal 2022 Acquisitions

 

On June 30, 2022, the Company acquired Electronic Environments Co. LLC and related subsidiaries (collectively EEC). Headquartered in Marlborough, Massachusetts, EEC is an industrial generator distributor as well as a provider of data center and telecom facility design, build, maintenance, and repair services.

 

The accompanying condensed consolidated financial statements include the results of EEC from the date of acquisition through September 30, 2022. Pro forma and other financial information is not presented as the effects of the EEC acquisition are not material to the Company's results of operations or financial position prior to the acquisition date. 

 

Fiscal 2021 Acquisitions

 

Acquisition of Deep Sea

 

On June 1, 2021, the Company acquired Deep Sea for a purchase price, net of cash acquired, of $420,700. Headquartered in Hunmanby, United Kingdom, Deep Sea is a designer and manufacturer of a diverse suite of flexible control solutions focused on the global power generation and transfer switch markets. The acquisition purchase price was funded solely through cash on hand.

 

The Company finalized the Deep Sea purchase price allocation during the second quarter of 2022 based on its estimates of the fair value of the acquired assets and assumed liabilities. The finalization did not result in material adjustments to the Company's preliminary estimates. As a result, the Company recorded $437,874 of intangible assets, including $263,604 of goodwill recorded in the International segment, as of the acquisition date. The goodwill ascribed to this acquisition is not deductible for tax purposes. The accompanying condensed consolidated financial statements include the results of Deep Sea from the date of acquisition through September 30, 2022. 

 

Acquisition of Chilicon

 

On July 2, 2021, the Company acquired Chilicon for a purchase price, net of cash acquired, of $61,129. Based in Los Angeles, California, Chilicon is a designer and provider of grid-interactive microinverter and monitoring solutions for the solar market. Chilicon's power inversion and monitoring system technologies maximize photovoltaic (solar power) system production, lower installer operational cost, and promote end-user satisfaction. Total consideration consisted of the following: 

 

Cash paid at closing

 $11,821 

Deferred cash payment (1)

  6,000 

Common stock issued at closing

  12,000 

Contingent consideration (2)

  31,308 

Total purchase price

 $61,129 

 

(1)

Payable on the third business day after December 31, 2023.
(2)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. 

 

The Company finalized the Chilicon purchase price allocation during the second quarter of 2022 based on its estimates of the fair value of the acquired assets and assumed liabilities. The finalization did not result in material adjustments to the Company's preliminary estimates. As a result, the Company recorded $70,174 of intangible assets, including $36,974 of goodwill recorded in the Domestic segment, as of the acquisition date. The goodwill ascribed to the Chilicon acquisition is not deductible for tax purposes. The accompanying condensed consolidated financial statements include the results of Chilicon from the date of acquisition through September 30, 2022. 

 

Acquisition of Off Grid Energy

 

On September 1, 2021, the Company acquired Off Grid Energy for a purchase price of $56,949, net of cash acquired and inclusive of the then estimated contingent consideration of $29,054 payable in cash based on earnout period performance. The contingent consideration was paid during the third quarter of 2022 in the amount of $16,135. Headquartered in Rugby, United Kingdom, Off Grid Energy is a designer and manufacturer of industrial-grade mobile energy storage systems. The acquisition purchase price was funded through cash on hand.

 

The Company finalized the Off Grid Energy purchase price allocation during the third quarter of 2022 based on its estimates of the fair value of the acquired assets and assumed liabilities. The finalization did not result in material adjustments to the Company's preliminary estimates. As a result, the Company recorded $56,076 of intangible assets, including $21,531 of goodwill recorded in the International segment, as of the acquisition date. The goodwill ascribed to this acquisition is not deductible for tax purposes. The accompanying condensed consolidated financial statements include the results of Off Grid Energy from the date of acquisition through September 30, 2022. 

 

6

 

Acquisition of ecobee

 

On December 1, 2021, the Company acquired ecobee for a purchase price, net of cash acquired, of $735,632. Headquartered in Toronto, Canada, ecobee is a leader in sustainable home technology solutions including smart thermostats that deliver significant energy savings, security and peace of mind. The purchase price consisted of the following:

 

Cash paid at closing

 $225,458 

Common stock issued at closing

  420,774 

Contingent consideration (1)

  89,400 

Total purchase price

 $735,632 

 

(1)

To be paid in the form of common stock issued upon achievement of certain performance targets following the end of two earnout periods, one ended June 30, 2022, and one ending June 30, 2023. 

 

The Company recorded its preliminary ecobee purchase price allocation during the fourth quarter of 2021, which has been updated subsequently based on its estimates of the fair value of the acquired assets and assumed liabilities at the time of each update. The updates did not result in material adjustments to the Company's preliminary estimates. As a result, the Company recorded $799,228 of intangible assets, including $241,328 of goodwill recorded in the Domestic segment, as of the acquisition date. A portion of the goodwill ascribed to this acquisition is deductible for tax purposes. The accompanying condensed consolidated financial statements include the results of ecobee from the date of acquisition through September 30, 2022. 

 

The allocation of the purchase price to identifiable assets and liabilities is based on the preliminary valuations performed to determine the fair value of the net assets as of the acquisition date. The measurement period for the valuation of net assets acquired ends as soon as information on the facts and circumstances that existed as of the acquisition date becomes available, but not to exceed 12 months following the acquisition date. As the Company finalizes valuations, adjustments in purchase price allocations may require a change in the amounts allocated to net assets acquired during the periods in which the adjustments are determined. 

 

Other Acquisitions

 

On September 1, 2021, the Company acquired Apricity Code, an advanced engineering and product design company located in Bend, Oregon.

 

On October 1, 2021, the Company acquired Tank Utility, a provider of IoT propane tank monitoring that enables the optimization of propane fuel logistics.

 

The combined purchase price for these two acquisitions was $29,945, net of cash acquired, and was funded solely through cash on hand. The Company finalized its purchase price allocation during the third quarter of 2022 based upon the Company's estimates of the fair value of the acquired assets and assumed liabilities. The finalization did not result in material adjustments to the Company's preliminary estimates. The accompanying condensed consolidated financial statements include the results of these two acquired businesses since the dates of acquisition through September 30, 2022. 

 

Pro forma financial information is not presented for the 2021 acquisitions as the effects of the acquisitions individually and in the aggregate are not material to the Company's results of operations or financial position prior to the acquisition dates.

 

Summary Purchase Price Allocations

 

The fair values assigned to certain assets acquired and liabilities assumed, as of the acquisition dates, are as follows for the 2021 acquisitions:

 

  

Deep Sea

  

ecobee