GENERAC HOLDINGS INC. [GNRC] Filings

10-Q 1 gnrc20240630_10q.htm FORM 10-Q gnrc20240630_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 June 30, 2024

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 August 2, 2024, there were 60,152,735 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 June 30, 2024, and December 31, 2023	1

	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30 , 2024 and 2023	2

	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30 , 2024 and 2023	3

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30 , 2024 and 2023	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	28

Item 4.	Controls and Procedures	28

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3.	Defaults Upon Senior Securities	29

Item 4.	Mine Safety Disclosures	29

Item 5.	Other Information	29

Item 6.	Exhibits	29

	Signatures	30

Table of Contents

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)

	*June 30,*			*December 31,*
	*2024*			*2023*
Assets
Current assets:
Cash and cash equivalents	$	218,317		$	200,994
Accounts receivable, less allowance for credit losses of $34,546 and $33,925 at June 30, 2024 and December 31, 2023, respectively		610,322			537,316
Inventories		1,152,133			1,167,484
Prepaid expenses and other current assets		74,886			91,898
Total current assets		2,055,658			1,997,692

Property and equipment, net		622,947			598,577

Customer lists, net		167,240			184,513
Patents and technology, net		398,452			417,441
Other intangible assets, net		21,963			27,127
Tradenames, net		211,406			216,995
Goodwill		1,432,933			1,432,384
Deferred income taxes		17,401			15,532
Operating lease and other assets		190,566			203,051
Total assets	$	5,118,566		$	5,093,312

Liabilities and stockholders’ equity
Current liabilities:
Short-term borrowings	$	66,407		$	81,769
Accounts payable		406,296			340,719
Accrued wages and employee benefits		61,433			54,970
Accrued product warranty		58,743			65,298
Other accrued liabilities		269,250			292,120
Current portion of long-term borrowings and finance lease obligations		50,428			45,895
Total current liabilities		912,557			880,771

Long-term borrowings and finance lease obligations		1,444,696			1,447,553
Deferred income taxes		70,889			90,012
Deferred revenue		176,020			167,008
Operating lease and other long-term liabilities		141,885			158,349
Total liabilities		2,746,047			2,743,693

Redeemable noncontrolling interests		–			6,549

Stockholders’ equity:
Common stock, par value $0.01, 500,000,000 shares authorized, 73,608,578 and 73,195,055 shares issued at June 30, 2024 and December 31, 2023, respectively		736			733
Additional paid-in capital		1,101,074			1,070,386
Treasury stock, at cost, 13,446,797 and 13,057,298 shares at June 30, 2024 and December 31, 2023, respectively		(1,088,426	)		(1,032,921	)
Excess purchase price over predecessor basis		(202,116	)		(202,116	)
Retained earnings		2,601,974			2,519,313
Accumulated other comprehensive loss		(43,529	)		(15,143	)
Stockholders’ equity attributable to Generac Holdings Inc.		2,369,713			2,340,252
Noncontrolling interests		2,806			2,818
Total stockholders' equity		2,372,519			2,343,070
Total liabilities and stockholders’ equity	$	5,118,566		$	5,093,312

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 June 30,*						*Six Months Ended June 30,*
	*2024*			*2023*			*2024*			*2023*

Net sales	$	998,197		$	1,000,420		$	1,887,470		$	1,888,330
Costs of goods sold		622,636			671,999			1,195,530			1,287,410
Gross profit		375,561			328,421			691,940			600,920

Operating expenses:
Selling and service		128,153			115,743			236,739			216,431
Research and development		53,996			43,942			103,406			85,762
General and administrative		65,386			56,371			132,150			116,056
Amortization of intangibles		24,791			26,393			49,541			52,216
Total operating expenses		272,326			242,449			521,836			470,465
Income from operations		103,235			85,972			170,104			130,455

Other (expense) income:
Interest expense		(23,318	)		(25,160	)		(46,923	)		(48,155	)
Investment income		1,841			941			3,529			1,629
Change in fair value of investment		(2,117	)		-			(8,136	)		-
Other, net		(950	)		(331	)		(1,372	)		(497	)
Total other expense, net		(24,544	)		(24,550	)		(52,902	)		(47,023	)

Income before provision for income taxes		78,691			61,422			117,202			83,432
Provision for income taxes		19,638			15,907			31,671			23,756
Net income		59,053			45,515			85,531			59,676
Net income (loss) attributable to noncontrolling interests		(62	)		317			184			2,048
Net income attributable to Generac Holdings Inc.	$	59,115		$	45,198		$	85,347		$	57,628

Net income attributable to Generac Holdings Inc. per common share - basic:	$	0.99		$	0.70		$	1.38		$	0.76
Weighted average common shares outstanding - basic:		59,880,336			61,721,614			59,854,131			61,645,341

Net income attributable to Generac Holdings Inc. per common share - diluted:	$	0.97		$	0.70		$	1.36		$	0.75
Weighted average common shares outstanding - diluted:		60,641,740			62,348,184			60,559,904			62,429,911

Comprehensive income attributable to Generac Holdings Inc.	$	34,397		$	69,060		$	56,961		$	104,422

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 April 1, 2024		73,492,146	$	735	$	1,081,985		(13,087,185	)	$	(1,037,227	)	$	(202,116	)	$	2,542,859	$	(18,832	)	$	2,367,404		$	2,908		$	2,370,312
Unrealized loss on interest rate swaps, net of tax benefit of $578																			(1,730	)		(1,730	)					(1,730	)
Foreign currency translation adjustment																			(22,967	)		(22,967	)		(40	)		(23,007	)
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price		116,432		1		6,374																6,375						6,375
Net share settlement of restricted stock awards								(3,972	)		(590	)										(590	)					(590	)
Stock repurchases								(355,640	)		(50,609	)										(50,609	)					(50,609	)
Share-based compensation						12,715																12,715						12,715
Net income (loss)																	59,115					59,115			(62	)		59,053

Balance at June 30, 2024		73,608,578	$	736	$	1,101,074		(13,446,797	)	$	(1,088,426	)	$	(202,116	)	$	2,601,974	$	(43,529	)	$	2,369,713		$	2,806		$	2,372,519

	*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, 2024		73,195,055	$	733	$	1,070,386		(13,057,298	)	$	(1,032,921	)	$	(202,116	)	$	2,519,313		$	(15,143	)	$	2,340,252		$	2,818		$	2,343,070
Unrealized gain on interest rate swaps, net of tax of ($84)																				252			252						252
Foreign currency translation adjustment																				(28,638	)		(28,638	)		(127	)		(28,765	)
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price		413,523		3		5,533		8,417			–												5,536						5,536
Net share settlement of restricted stock awards								(42,276	)		(4,896	)											(4,896	)					(4,896	)
Stock repurchases								(355,640	)		(50,609	)											(50,609	)					(50,609	)
Share-based compensation						25,155																	25,155						25,155
Redemption value adjustment																	(2,686	)					(2,686	)					(2,686	)
Net income																	85,347						85,347			115			85,462

Balance at June 30, 2024		73,608,578	$	736	$	1,101,074		(13,446,797	)	$	(1,088,426	)	$	(202,116	)	$	2,601,974		$	(43,529	)	$	2,369,713		$	2,806		$	2,372,519

	*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 April 1, 2023		73,052,760	$	731	$	1,042,786		(10,855,203	)	$	(779,533	)	$	(202,116	)	$	2,319,638		$	(42,343	)	$	2,339,163		$	2,216		$	2,341,379
Unrealized gain on interest rate swaps, net of tax of ($1,922)																				5,752			5,752						5,752
Foreign currency translation adjustment																				20,375			20,375			(5	)		20,370
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price		44,256		1		928																	929						929
Net share settlement of restricted stock awards								(3,145	)		(359	)											(359	)					(359	)
Share-based compensation						10,045																	10,045						10,045
Redemption value adjustment																	(1,821	)					(1,821	)					(1,821	)
Net income																	45,198						45,198			263			45,461

Balance at June 30, 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

	*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, 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 ($423)																				1,264			1,264					1,264
Foreign currency translation adjustment																				47,622			47,622			55		47,677
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price		384,816		4		1,832																	1,836					1,836
Net share settlement of restricted stock awards								(40,116	)		(4,797	)											(4,797	)				(4,797	)
Share-based compensation						20,379																	20,379					20,379
Payment of contingent consideration		10,943		–		15,410		466,118			33,396												48,806					48,806
Redemption value adjustment																	(10,837	)					(10,837	)				(10,837	)
Net income																	57,628						57,628			545		58,173

Balance at June 30, 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

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)

	*Six Months Ended June 30,*
	*2024*			*2023*
Operating activities
Net income	$	85,531		$	59,676
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		35,241			28,982
Amortization of intangible assets		49,541			52,216
Amortization of original issue discount and deferred financing costs		1,948			1,921
Change in fair value of investment		8,136			-
Deferred income taxes		(18,140	)		(14,152	)
Share-based compensation expense		25,155			20,379
Gain on disposal of assets		(28	)		(532	)
Other noncash charges		1,680			735
Excess tax benefits from equity awards		(602	)		(1,040	)
Net changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(74,467	)		(15,535	)
Inventories		12,245			(15,897	)
Other assets		12,881			16,333
Accounts payable		73,994			(2,449	)
Accrued wages and employee benefits		5,679			6,694
Other accrued liabilities		(29,232	)		(72,743	)
Net cash provided by operating activities		189,562			64,588

Investing activities
Proceeds from sale of property and equipment		85			1,801
Proceeds from beneficial interests in securitization transactions		–			1,472
Contribution to tax equity investment		(1,629	)		(6,627	)
Net proceeds from (purchase of) long-term investments		104			(2,000	)
Expenditures for property and equipment		(54,772	)		(53,900	)
Acquisition of business, net of cash acquired		(17,812	)		(16,188	)
Net cash used in investing activities		(74,024	)		(75,442	)

Financing activities
Proceeds from short-term borrowings		20,728			45,989
Proceeds from long-term borrowings		2,881			317,975
Repayments of short-term borrowings		(39,011	)		(21,125	)
Repayments of long-term borrowings and finance lease obligations		(14,657	)		(160,557	)
Stock repurchases		(50,609	)		–
Payment of contingent acquisition consideration		–			(4,979	)
Payment of deferred acquisition consideration		(7,361	)		-
Purchase of additional ownership interest		(9,117	)		(104,844	)
Taxes paid related to equity awards		(9,983	)		(9,186	)
Proceeds from the exercise of stock options		10,620			6,223
Net cash (used in) provided by financing activities		(96,509	)		69,496

Effect of exchange rate changes on cash and cash equivalents		(1,706	)		1,403

Net increase in cash and cash equivalents		17,323			60,045
Cash and cash equivalents at beginning of period		200,994			132,723
Cash and cash equivalents at end of period	$	218,317		$	192,768

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. A summary of acquisitions affecting the reporting periods presented include:

	●	In June 2024, the Company closed on the acquisition of the Commercial & Industrial Battery Energy Storage System ("C&I BESS") product offering from SunGrid Solutions Inc. located in Cambridge, Canada.
	●	In April 2024, the Company acquired Huntington Power Equipment, Inc. ("Huntington"), headquartered in Shelton, Connecticut. Huntington is an industrial and residential generator distributor as well as a provider of maintenance and repair services.
	●	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 C&I 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 June 30, 2024, the condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2024 and 2023, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2024 and 2023, and the condensed consolidated statements of cash flows for the six months ended June 30, 2024 and 2023 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, 2023.

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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").

In March 2024, the Securities and Exchange Commission ("SEC") adopted a final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors, to enhance and standardize climate-related disclosures. The rule will require companies to disclose material Scope 1 and Scope 2 greenhouse gas emissions; climate-related risks, governance, and oversight; and the financial effects of severe weather events and other natural conditions. These disclosures will begin to be phased in beginning with the Company's annual report for the year ending December 31, 2025. While this rule has been stayed pending the outcome of legal challenges, the Company is currently assessing the impact of adoption on the Company's consolidated financial statements and related disclosures in the event the stay is lifted.

In December 2023, the FASB issued ASU 2023-09 Improvements to Income Tax Disclosures. The ASU establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. Under the new guidance, the Company must consistently categorize and provide greater disaggregation of information in the rate reconciliation. It must also further disaggregate income taxes paid. The update is effective for fiscal years beginning after December 15, 2024, and interim periods for fiscal years beginning after December 15, 2025. Entities may apply the amendments prospectively or may elect retrospective application. The Company is evaluating the impact of the new required disclosures but do not expect the adoption of ASU 2023-09 to have a material impact on the Company's consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07 Segment Reporting - Improving Reportable Segment Disclosures (Topic 280). The update is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The ASU requires disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. The ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods. The update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted and requires retrospective application to all prior periods presented in the financial statements. The Company is evaluating the impact of the new required disclosures but do not expect the adoption of ASU 2023-07 to have a material impact on the Company's consolidated financial statements.

There have been no other recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance during the six months ended June 30, 2024, that are of significance or potential significance to the Company's consolidated financial statements or disclosures.

2. Acquisitions

Fiscal 2024 Acquisitions

On June 26, 2024, the Company closed on the acquisition of the C&I BESS product offering from SunGrid Solutions Inc. located in Cambridge, Canada.

On April 1, 2024, the Company acquired Huntington, headquartered in Shelton, Connecticut. Huntington is an industrial and residential generator distributor as well as a provider of maintenance and repair services.

The combined preliminary purchase price for both acquisitions is $17,812, net of cash acquired. The Company recorded its preliminary purchase price allocation for C&I BESS and Huntington during the second quarter of 2024, based on its estimates of the fair value of the acquired assets and assumed liabilities. Purchase accounting will be finalized prior to June 30, 2025, and there have not been any material changes to the balances acquired as of June 30, 2024. The accompanying condensed consolidated financial statements include the results of C&I BESS and Huntington from their dates of acquisition through June 30, 2024. Pro forma and other financial information are not presented as the effects of the C&I BESS and Huntington acquisitions are not material to the Company's results of operations or financial position.

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 C&I 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 for REFUstor was finalized in the first quarter of 2024 and did not result in material adjustments to the Company's preliminary estimates. The accompanying condensed consolidated financial statements include the results of REFUstor from the date of acquisition through June 30, 2024. 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.

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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 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 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. On April 5, 2024, the Company acquired the remaining 34% ownership interest in Captiva for $9,117.

The redeemable noncontrolling interests were 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 June 30,*						*Six Months Ended June 30,*
	*2024*			*2023*			*2024*			*2023*
Balance at beginning of period	$	9,117		$	3,814		$	6,549		$	110,471
Net income		-			222			58			1,670
Foreign currency translation		-			(169	)		(176	)		(536	)
Purchase of additional ownership interest		(9,117	)		-			(9,117	)		(116,754	)
Redemption value adjustment		-			1,821			2,686			10,837
Balance at end of period	$	-		$	5,688		$	-		$	5,688

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 in 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. The commodity and foreign currency forward contract gains and losses are not material to the Company’s condensed consolidated financial statements for the periods presented.

Additionally, during the fourth quarter of 2023, the Company acquired stock warrants described in more detail below.

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 June 30, 2024.

In June 2022, in conjunction with the amendments to the Company's credit agreements discussed further in Note 11, “Credit Agreements,” to the condensed consolidated financial statements, the Company amended its interest rate swaps to match 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/(losses), net of tax recognized, for the three and six months ended June 30, 2024, was $(1,730) and $252, respectively. The amount of gains, net of tax recognized, for the three and six months ended June 30, 2023, was $5,752 and $1,264, 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.

Stock Warrants

During the fourth quarter of 2023, the Company entered into a $30,000 agreement with Wallbox N.V. to purchase 5% of its Class A common stock ("Wallbox Shares") and acquire stock warrants, which provide the rights to an incremental approximate 5% ownership in the Class A common stock outstanding of Wallbox N.V. upon exercise at a fixed price with anti-dilution protections for a period of time. In accordance with GAAP, the Company is required to adjust the carrying value of these investments to market value on a quarterly basis. The Company recognized a loss of $2,117 and $8,136 for the three and six months ended June 30, 2024, respectively, primarily due to a decrease in the stock price of Wallbox N.V. during the period, of which $1,035 and $6,268 related to the stock warrants, respectively.

Fair Value

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

	June 30, 2024		December 31, 2023
Foreign currency contracts	$	(143)	$	(147	)
Interest rate swaps		38,938		38,601
Stock warrants		8,978		14,862

In the condensed consolidated balance sheets, the fair value of the foreign currency contracts is included in other accrued liabilities at June 30, 2024, and prepaid expenses and other current assets as well as other accrued liabilities at December 31, 2023. The fair value of the interest rate swaps and stock warrants is included in operating lease and other assets at both June 30, 2024, and December 31, 2023. Excluding the impact of credit risk, the fair value of the derivative contracts as of June 30, 2024 and December 31, 2023 is an asset of $49,052 and $55,042, 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 that 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 the 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 ("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 $525,777, was $530,000 (Level 2) on June 30, 2024. The fair value of the Term Loan A borrowing, which has a net carrying value of $733,626, was $728,579 (Level 2) on June 30, 2024. These fair values were calculated based on independent valuations which contain inputs and significant value drivers that are observable. The fair value of the Revolving Facility 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 the Company's interest rate swaps and commodity and foreign currency derivative contracts are classified as Level 2. The valuation techniques used to measure the fair value of these 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. The fair value of the Wallbox N.V. stock warrants is classified as Level 3. The fair value of these contracts is measured using a Black Scholes option pricing model, with significant inputs derived from or corroborated by observable market data as well as internal estimates, specifically the time period until exercise. The warrants expire at the earlier of when the price per share equals or exceeds $6.00 or in 2029. The time period until exercise assumption has a significant impact on the fair value of the warrants.

Equity Securities

Equity securities consist of shares of Wallbox N.V. Class A common stock. The Company owned 9,836,066 Wallbox Shares as of June 30, 2024. The Wallbox Shares are classified as Level 1 in the fair value hierarchy and are recognized at fair value using the closing price of Wallbox N.V. common stock quoted on the New York Stock Exchange ("NYSE") on the last trading day of the quarter. The Wallbox Shares are included in operating lease and other assets in the condensed consolidated balance sheets. The fair value of the Wallbox Shares was $12,885 and $17,213 as of June 30, 2024, and December 31, 2023, respectively.

Contingent Consideration

Certain of the Company's business combinations involve potential payment of future consideration that is 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 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.

The fair value of contingent consideration for Chilicon Power LLC ("Chilicon") and Pramac as of June 30, 2024, and December 31, 2023, was $39,228 and $38,937, respectively, and was reported in other long-term liabilities in the condensed consolidated balance sheets. The contingent consideration for Chilicon extends through December 31, 2028, while 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, 2024	$	38,937
Changes in fair value		-
Present value interest accretion		291
Ending balance, June 30, 2024	$	39,228

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6. Accumulated Other Comprehensive Loss

The following table presents a disclosure of changes in AOCL during the three and six months ended June 30, 2024 and 2023, net of tax:

	*Foreign Currency Translation Adjustments*			*Unrealized Gain (Loss) on Cash Flow Hedges*		*Total*
Beginning Balance – April 1, 2024	$	(49,253	)	$	30,421	$	(18,832	)
Other comprehensive income (loss)