GENERAC HOLDINGS INC. [GNRC] Filings

10-Q 1 gnrc20230930_10q.htm FORM 10-Q gnrc20230930_10q.htm

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, 2023

OR

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

	For the transition period from to

Commission File Number 001-34627

GENERAC HOLDINGS INC.

(Exact name of registrant as specified in its charter)

Delaware	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)

(262) 544-4811

(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 1, 2023, there were 61,431,577 shares of registrant's common stock outstanding.

Table of Contents

GENERAC HOLDINGS INC.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	1

	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022	2

	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2023 and 2022	3

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	27

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	28

	Signatures	29

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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,*
	*2023*			*2022*
Assets
Current assets:
Cash and cash equivalents	$	161,525		$	132,723
Accounts receivable, less allowance for credit losses of $29,580 and $27,664 at September 30, 2023 and December 31, 2022, respectively		589,226			522,458
Inventories		1,311,129			1,405,384
Prepaid expenses and other current assets		105,169			121,783
Total current assets		2,167,049			2,182,348

Property and equipment, net		511,893			467,604

Customer lists, net		188,513			206,987
Patents and technology, net		426,552			454,757
Other intangible assets, net		30,317			41,719
Tradenames, net		219,012			227,251
Goodwill		1,417,564			1,400,880
Deferred income taxes		17,140			12,746
Operating lease and other non-current assets		188,301			175,170
Total assets	$	5,166,341		$	5,169,462

Liabilities and stockholders’ equity
Current liabilities:
Short-term borrowings	$	74,346		$	48,990
Accounts payable		394,168			446,050
Accrued wages and employee benefits		56,454			45,741
Accrued product warranty		70,572			89,141
Other accrued liabilities		267,217			349,389
Current portion of long-term borrowings and finance lease obligations		37,337			12,733
Total current liabilities		900,094			992,044

Long-term borrowings and finance lease obligations		1,465,141			1,369,085
Deferred income taxes		113,390			125,691
Deferred revenue		160,264			143,726
Operating lease and other long-term liabilities		155,326			169,190
Total liabilities		2,794,215			2,799,736

Redeemable noncontrolling interests		5,639			110,471

Stockholders’ equity:
Common stock, par value $0.01, 500,000,000 shares authorized, 73,108,913 and 72,701,257 shares issued at September 30, 2023 and December 31, 2022, respectively		732			728
Additional paid-in capital		1,064,418			1,016,138
Treasury stock, at cost, 11,739,423 and 11,284,350 shares at September 30, 2023 and December 31, 2022, respectively		(880,858	)		(808,491	)
Excess purchase price over predecessor basis		(202,116	)		(202,116	)
Retained earnings		2,423,346			2,316,224
Accumulated other comprehensive loss		(41,614	)		(65,102	)
Stockholders’ equity attributable to Generac Holdings Inc.		2,363,908			2,257,381
Noncontrolling interests		2,579			1,874
Total stockholders' equity		2,366,487			2,259,255
Total liabilities and stockholders’ equity	$	5,166,341		$	5,169,462

See notes to condensed consolidated financial statements.

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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,*
	*2023*			*2022*			*2023*			*2022*

Net sales	$	1,070,667		$	1,088,258		$	2,958,997		$	3,515,505
Costs of goods sold		694,880			727,154			1,982,290			2,336,668
Gross profit		375,787			361,104			976,707			1,178,837

Operating expenses:
Selling and service		117,929			170,381			334,360			388,690
Research and development		43,312			39,985			129,074			121,328
General and administrative		83,052			37,464			199,108			132,036
Amortization of intangibles		26,718			25,751			78,934			77,681
Total operating expenses		271,011			273,581			741,476			719,735
Income from operations		104,776			87,523			235,231			459,102

Other (expense) income:
Interest expense		(24,707	)		(15,514	)		(72,862	)		(35,303	)
Investment income		1,160			451			2,789			620
Loss on extinguishment of debt		-			-			-			(3,743	)
Other, net		(1,167	)		(420	)		(1,664	)		331
Total other expense, net		(24,714	)		(15,483	)		(71,737	)		(38,095	)

Income before provision for income taxes		80,062			72,040			163,494			421,007
Provision for income taxes		19,428			11,594			43,184			86,028
Net income		60,634			60,446			120,310			334,979
Net income attributable to noncontrolling interests		257			2,176			2,305			6,492
Net income attributable to Generac Holdings Inc.	$	60,377		$	58,270		$	118,005		$	328,487

Net income attributable to Generac Holdings Inc. per common share - basic:	$	0.98		$	0.84		$	1.74		$	4.69
Weighted average common shares outstanding - basic:		61,368,440			63,249,881			61,552,949			63,480,161

Net income attributable to Generac Holdings Inc. per common share - diluted:	$	0.97		$	0.83		$	1.72		$	4.61
Weighted average common shares outstanding - diluted:		62,091,163			64,267,638			62,362,743			64,630,346

Comprehensive income attributable to Generac Holdings Inc.	$	37,041		$	21,683		$	141,463		$	264,912

See notes to condensed consolidated financial statements.

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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, 2023		73,097,016	$	732	$	1,053,759		(10,858,348	)	$	(779,892	)	$	(202,116	)	$	2,363,015		$	(16,216	)	$	2,419,282		$	2,474		$	2,421,756
Unrealized gain on interest rate swaps, net of tax of $349																				1,045			1,045						1,045
Foreign currency translation adjustment																				(26,443	)		(26,443	)		(93	)		(26,536	)
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price		11,897		–		732																	732						732
Net share settlement of restricted stock awards								(5,495	)		(699	)											(699	)					(699	)
Stock repurchases								(875,580	)		(100,267	)											(100,267	)					(100,267	)
Share-based compensation						9,927																	9,927						9,927
Redemption value adjustment																	(46	)					(46	)					(46	)
Net income																	60,377						60,377			198			60,575

Balance at September 30, 2023		73,108,913	$	732	$	1,064,418		(11,739,423	)	$	(880,858	)	$	(202,116	)	$	2,423,346		$	(41,614	)	$	2,363,908		$	2,579		$	2,366,487

	*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, 2023		72,701,257	$	728	$	1,016,138		(11,284,350	)	$	(808,491	)	$	(202,116	)	$	2,316,224		$	(65,102	)	$	2,257,381		$	1,874		$	2,259,255
Unrealized gain on interest rate swaps, net of tax of $772																				2,309			2,309						2,309
Foreign currency translation adjustment																				21,179			21,179			(38	)		21,141
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price		396,713		4		2,563																	2,567						2,567
Net share settlement of restricted stock awards								(45,611	)		(5,496	)											(5,496	)					(5,496	)
Stock repurchases								(875,580	)		(100,267	)											(100,267	)					(100,267	)
Share-based compensation						30,306																	30,306						30,306
Payment of contingent consideration		10,943		–		15,411		466,118			33,396												48,807						48,807
Redemption value adjustment																	(10,883	)					(10,883	)					(10,883	)
Net income																	118,005						118,005			743			118,748

Balance at September 30, 2023		73,108,913	$	732	$	1,064,418		(11,739,423	)	$	(880,858	)	$	(202,116	)	$	2,423,346		$	(41,614	)	$	2,363,908		$	2,579		$	2,366,487

	*Generac Holdings Inc.*
													*Excess Purchase Price*						*Accumulated*
					*Additional*								*Over*						*Other*			*Total*
	*Common Stock*				*Paid-In*		*Treasury Stock*						*Predecessor*			*Retained*			*Comprehensive*			*Stockholders'*			*Noncontrolling*
	*Shares*		*Amount*		*Capital*		*Shares*			*Amount*			*Basis*			*Earnings*			*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*						*Accumulated*
					*Additional*									*Over*						*Other*			*Total*
	*Common Stock*				*Paid-In*			*Treasury Stock*						*Predecessor*			*Retained*			*Comprehensive*			*Stockholders'*			*Noncontrolling*
	*Shares*		*Amount*		*Capital*			*Shares*			*Amount*			*Basis*			*Earnings*			*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

See notes to condensed consolidated financial statements.

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Generac Holdings Inc.

Condensed Consolidated Statements of Cash Flows

(U.S. Dollars in Thousands)

(Unaudited)

	*Nine Months Ended September 30,*
	*2023*			*2022*
Operating activities
Net income	$	120,310		$	334,979
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		45,215			39,043
Amortization of intangible assets		78,934			77,681
Amortization of original issue discount and deferred financing costs		2,902			2,261
Loss on extinguishment of debt		–			3,743
Deferred income taxes		(18,715	)		(83,272	)
Share-based compensation expense		30,306			23,423
Gain on disposal of assets		(538	)		(555	)
Other noncash charges		380			7,037
Net changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(68,975	)		(20,810	)
Inventories		101,894			(353,618	)
Other assets		32,175			(7,033	)
Accounts payable		(57,866	)		(136,289	)
Accrued wages and employee benefits		10,244			(17,418	)
Other accrued liabilities		(70,622	)		105,544
Excess tax benefits from equity awards		(920	)		(17,068	)
Net cash provided by (used in) operating activities		204,724			(42,352	)

Investing activities
Proceeds from sale of property and equipment		1,933			2,049
Proceeds from sale of investment		–			1,308
Proceeds from beneficial interests in securitization transactions		2,533			2,745
Contribution to equity method investment		(6,627	)		(14,930	)
Purchase of long-term investment		(2,592	)		–
Expenditures for property and equipment		(77,718	)		(64,833	)
Acquisition of business, net of cash acquired		(15,974	)		(11,421	)
Net cash used in investing activities		(98,445	)		(85,082	)

Financing activities
Proceeds from short-term borrowings		49,078			237,182
Proceeds from long-term borrowings		345,384			935,614
Repayments of short-term borrowings		(25,910	)		(239,550	)
Repayments of long-term borrowings and finance lease obligations		(233,101	)		(540,481	)
Stock repurchases		(100,267	)		(123,900	)
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		(10,068	)		(40,472	)
Proceeds from exercise of stock options		7,139			13,627
Net cash (used in) provided by financing activities		(77,568	)		214,871

Effect of exchange rate changes on cash and cash equivalents		91			(4,865	)

Net increase in cash and cash equivalents		28,802			82,572
Cash and cash equivalents at beginning of period		132,723			147,339
Cash and cash equivalents at end of period	$	161,525		$	229,911

See notes to condensed consolidated financial statements.

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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 and services 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, 2022). A summary of acquisitions affecting the reporting periods presented include:

	●	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.
	●	In October 2022, the Company acquired BPAC, Inc. ("Blue Pillar"), an industrial IoT platform developer that designs, deploys, and manages industrial IoT network software solutions to enable distributed energy generation monitoring and control.
	●	In February 2023, the Company acquired REFU Storage Systems ("REFUstor"), headquartered in Pfullingen, Germany. REFUstor is a developer and supplier of battery storage hardware products, advanced software, and platform services for the commercial and industrial energy storage market.

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, 2023, the condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2023 and 2022, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022, 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, 2022.

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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 2023 Acquisitions

On February 1, 2023, the Company acquired REFUstor, headquartered in Pfullingen, Germany. REFUstor is a developer and supplier of battery storage hardware products, advanced software, and platform services for the commercial and industrial energy storage market.

The Company recorded its preliminary purchase price allocation for REFUstor during the first quarter of 2023, based on its estimates of the fair value of the acquired assets and assumed liabilities. Purchase accounting will be finalized prior to March 31, 2024, and there have not been any material changes to the balances acquired as of September 30, 2023. The accompanying condensed consolidated financial statements include the results of REFUstor from the date of acquisition through September 30, 2023. Pro forma and other financial information are not presented as the effects of the REFUstor acquisition are not material to the Company's results of operations or financial position prior to the acquisition date.

Fiscal 2022 Acquisitions

On June 30, 2022, the Company acquired 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.

On October 3, 2022, the Company acquired Blue Pillar, an industrial IoT platform developer that designs, deploys, and manages industrial IoT network software solutions to enable distributed energy generation monitoring and control.

The combined purchase price for these two acquisitions was $25,654, net of cash acquired. The Company recorded its preliminary purchase price allocation for EEC and Blue Pillar during the second quarter and fourth quarter of 2022, respectively, based on its estimates of the fair value of the acquired assets and assumed liabilities. Purchase accounting for EEC was finalized in the second quarter of 2023 and did not result in material adjustments to the Company's preliminary estimates. The Company will finalize the purchase accounting for Blue Pillar in the fourth quarter of 2023. Through the third quarter of 2023, the combined purchase price for EEC and Blue Pillar has increased to $27,456 due to working capital adjustments. The accompanying condensed consolidated financial statements include the results of the acquired businesses since the dates of acquisition through September 30, 2023. Pro forma and other financial information are not presented as the effects of the 2022 acquisitions are not material to the Company's results of operations or financial position prior to the acquisition dates.

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3. Redeemable Noncontrolling Interest

On March 1, 2016, the Company acquired a 65% ownership interest in PR Industrial S.r.l. and its subsidiaries ("Pramac"). The 35% noncontrolling interest in Pramac had an acquisition date fair value of $34,253 and was recorded as a redeemable noncontrolling interest in the condensed consolidated balance sheets, as the noncontrolling interest holder had within its control the right to require the Company to redeem its interest in Pramac. In May 2021, the Company exercised its call option rights and paid a purchase price of $27,164 to purchase an additional 15% ownership interest in Pramac, bringing the Company's total ownership interest in Pramac to 80%. On March 8, 2023, the Company and the noncontrolling interest holder entered into an agreement whereby the Company acquired the remaining 20% ownership interest in Pramac for a purchase price of $116,754, which brought the Company's total ownership interest in Pramac to 100%. The purchase price included $105,264 of initial consideration (which included a cash payment of $104,844 and a $420 gain on a foreign currency settlement in the first quarter of 2023) and $11,490 of contingent deferred consideration to be paid in up to 135,205 restricted shares that were issued based on the twenty day volume weighted average price of the Company’s stock ending on December 31, 2022, and which shall vest upon achievement of certain earnings targets at the end of the earn-out period, December 31, 2025.

On February 1, 2019, the Company acquired a 51% ownership interest in Captiva Energy Solutions Private Limited ("Captiva"). The 49% noncontrolling interest in Captiva had an acquisition date fair value of $3,165 and was recorded as a redeemable noncontrolling interest in the condensed consolidated balance sheets, as the noncontrolling interest holder had within its control the right to require the Company to redeem its interest in Captiva. The noncontrolling interest holder has a put option to sell his interest to the Company any time after five years from the date of acquisition, or earlier upon the occurrence of certain circumstances. Further, the Company has a call option that it may redeem any time after five years from the date of acquisition, or earlier upon the occurrence of certain circumstances. The put and call option price is based on a multiple of earnings, subject to the terms of the acquisition agreement. In March 2022, the Company signed an agreement to purchase an additional 15% ownership interest in Captiva for a purchase price of $461, bringing the Company's total ownership interest in Captiva to 66%. In May 2022, the Company signed an amendment to the purchase agreement resulting in a revised purchase price of $375, which was paid with cash on hand.

The redeemable noncontrolling interests are recorded at the greater of the initial fair value, increased or decreased for the noncontrolling interests’ share of comprehensive income (loss), or the estimated redemption value, with any adjustments to the redemption value impacting retained earnings, but not net income. However, the redemption value adjustments are reflected in the earnings per share calculation, as detailed in Note 13, “Earnings Per Share,” to the condensed consolidated financial statements. The following table presents the changes in the redeemable noncontrolling interest for both Captiva and Pramac:

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2023*			*2022*			*2023*			*2022*
Balance at beginning of period	$	5,688		$	82,830		$	110,471		$	58,050
Net income		58			1,589			1,728			5,261
Foreign currency translation		(153	)		(2,708	)		(689	)		(6,817	)
Purchase of additional ownership interest		-			-			(116,754	)		(375	)
Redemption value adjustment		46			5,225			10,883			30,817
Balance at end of period	$	5,639		$	86,936		$	5,639		$	86,936

4. Derivative Instruments and Hedging Activities

The Company records all derivatives in accordance with ASC 815, Derivatives and Hedging, which requires derivative instruments to be reported on the condensed consolidated balance sheets at fair value and establishes criteria for designation and effectiveness of hedging relationships. The Company is exposed to market risk such as changes in commodity prices, foreign currencies and interest rates. The Company does not hold or issue derivative financial instruments for trading purposes.

The Company periodically utilizes commodity derivatives and foreign currency forward purchase and sales contracts in the normal course of business. Because these contracts do not qualify for hedge accounting, the related gains and losses are recorded in the Company’s condensed consolidated statements of comprehensive income. These gains and losses are not material to the Company’s condensed consolidated financial statements for the periods presented.

Interest Rate Swaps

In 2017, the Company entered into twenty interest rate swap agreements, the final four of which expired in May 2023. In March 2020, the Company entered into three additional interest rate swap agreements which were still outstanding as of September 30, 2023.

In June 2022, in conjunction with the amendments to the Company's credit agreements discussed further in Note 11, “Credit Agreements,” the Company amended its interest rate swaps to match that of the underlying debt and reconfirmed hedge effectiveness. The Company formally documented all relationships between interest rate hedging instruments and the related hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions. These interest rate swap agreements qualify as cash flow hedges and therefore, the effective portions of their gains or losses are reported as a component of accumulated other comprehensive loss ("AOCL") in the condensed consolidated balance sheets.

The amount of gains, net of tax recognized, for the three and nine months ended September 30, 2023, were $1,045 and $2,309, respectively. The amount of gains, net of tax recognized, for the three and nine months ended September 30, 2022, were $13,757 and $39,614, respectively. The cash flows of the swaps are recognized as adjustments to interest expense each period. The ineffective portions of the derivatives’ changes in fair value, if any, are immediately recognized in earnings.

Fair Value

The following table presents the fair value of all of the Company’s derivatives:

	September 30, 2023			December 31, 2022
Commodity contracts	$	9		$	-
Foreign currency contracts		(181	)		94
Interest rate swaps		52,360			49,279

In the condensed consolidated balance sheets, the fair value of the commodity contracts is included in prepaid expenses and other current assets. The fair value of the foreign currency contracts is included in other accrued liabilities at September 30, 2023, and included in prepaid expenses and other current assets at December 31, 2022. The fair value of the interest rate swaps is included in operating lease and other non-current assets. Excluding the impact of credit risk, the fair value of the derivative contracts as of September 30, 2023, and December 31, 2022, is an asset of $54,388 and $51,184, respectively, which represents the amount the Company would receive to exit all of the agreements on those dates.

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5. Fair Value Measurements

ASC 820-10, Fair Value Measurement, defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring basis or nonrecurring basis. ASC 820-10 clarifies fair value is an exit price, representing the amount that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the pronouncement establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company believes the carrying amount of its financial instruments (cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, short-term borrowings, and revolving facility borrowings), excluding Term Loan borrowings, approximates the fair value of these instruments based on their short-term nature. The fair value of the Term Loan B borrowing, which has a net carrying value of $524,529, was $530,000 (Level 2) at September 30, 2023, as calculated based on independent valuations which contain inputs and significant value drivers that are observable. The fair value of Term Loan A approximates the carrying value.

For the fair value of the derivatives measured on a recurring basis, refer to the fair value table in Note 4, “Derivative Instruments and Hedging Activities,” to the condensed consolidated financial statements. The fair value of all derivative contracts is classified as Level 2. The valuation techniques used to measure the fair value of derivative contracts, all of which have counterparties with high credit ratings, were based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data. The fair value of the derivative contracts above considers the Company’s credit risk in accordance with ASC 820-10.

Contingent Consideration

Certain of the Company's business combinations involve potential payment of future consideration contingent upon the achievement of certain milestones. As part of purchase accounting, a liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized within general and administrative expenses in the Company's condensed consolidated statements of comprehensive income. The fair value measurement of contingent consideration is typically categorized as a Level 3 liability, as the measurement amount is based primarily on significant inputs that are not observable in the market.

At September 30, 2023, the fair value of contingent consideration for Chilicon Power LLC ("Chilicon") and Pramac is $38,746 and is included in other long-term liabilities in the condensed consolidated balance sheets. At December 31, 2022, the Company had contingent consideration of $49,500 in other accrued liabilities and $32,033 in other long-term liabilities in the condensed consolidated balance sheets. The earn-out period for the contingent consideration for Chilicon extends through December 31, 2028. The earn-out period for the contingent consideration for Pramac extends through December 31, 2025.

The following table provides a reconciliation of the activity for contingent consideration:

Beginning balance, January 1, 2023	$	81,533
Changes in fair value		-
Additional contingent consideration (1)		11,490
Payment of contingent consideration (2)		(53,786	)
Present value interest accretion		(491	)
Ending balance, September 30, 2023	$	38,746

(1) Represents $11,490 of contingent deferred consideration for the Pramac buyout. See Note 3, "Redeemable Noncontrolling Interest".

(2) Includes payments of $479 in cash and $44,521 in shares for the ecobee acquisition, $4,286 in shares for the Chilicon acquisition, and $4,500 in cash for the Mean Green Products ("Mean Green") acquisition. The payment of common stock is accounted for as a non-cash item in the condensed consolidated statement of cash flows.

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6. Accumulated Other Comprehensive Loss

The following table presents a disclosure of changes in AOCL during the three and nine months ended September 30, 2023 and 2022, net of tax:

	*Foreign Currency Translation Adjustments*				*Unrealized Gain (Loss) on Cash Flow Hedges*			*Total*
Beginning Balance – July 1, 2023	$	(53,923	)		$	37,707		$	(16,216	)
Other comprehensive income (loss)		(26,443	)	(1)		1,045	(2)		(25,398	)
Ending Balance – September 30, 2023	$	(80,366	)		$	38,752