Generac Holdings Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 22, 2022. The filing also reports Q4 2021 results. Generac provides residential and commercial/industrial power generation, energy storage, energy management, and grid-services solutions.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $3,737.2 million | $2,485.2 million | +50.4% |
| Gross profit / margin | $1,360.1 million / 36.4% | $957.7 million / 38.5% | Margin down 2.1 percentage points |
| Operating income | $721.1 million | $479.1 million | +50.5% |
| Net income attributable to Generac | $550.5 million | $350.6 million | +57.0% |
| Diluted EPS | $8.30 | $5.48 | +51.5% |
| Adjusted EBITDA | $861.4 million | $583.8 million | +47.6% |
| Cash from operating activities | $411.2 million | $486.5 million | Down 15.5% |
FY2021 residential sales grew 57.8% to $2,456.8 million; C&I sales rose 42.4% to $999.0 million; and other sales increased 24.0% to $281.4 million. Domestic sales grew 51.5% and international sales 44.6%.
Q4 2021 net sales were $1,067.1 million versus $761.1 million in Q4 2020. Operating income was $175.5 million versus $171.1 million, and net income attributable to Generac was $142.9 million versus $125.0 million. Diluted EPS was $2.04 versus $1.96.
Liquidity, debt, and cash flow
- Year-end cash and cash equivalents were $147.3 million, down from $655.1 million. Available liquidity was $546.8 million, including $399.5 million of ABL availability.
- Management reported total indebtedness of $980.1 million. Term Loan borrowings were $780 million and ABL borrowings were $100 million; the Term Loan and ABL Facility mature in 2026. The secured leverage ratio was 0.88x, and the company reported covenant compliance.
- Operating cash flow was $411.2 million; investing cash outflow was $817.3 million, including $713.5 million for acquisitions and $110.0 million in capital expenditures. Financing cash outflow was $103.0 million.
- Inventory increased to $1,089.7 million from $603.3 million. Management attributed weaker operating cash flow to working-capital investment and higher income-tax payments, with elevated inventory reflecting extended transit times, supply constraints, production ramp-up, and the Trenton facility.
Material changes, outlook, and risks
- Growth and margins: Strong residential standby-generator and PWRcell demand, improved C&I activity, acquisitions, and international market recovery drove sales growth. Gross margin contracted as commodity, labor, logistics, and plant-startup costs outpaced the early benefit of pricing actions. Management said 2021 price increases would flow through backlog during 2022.
- Strategic expansion: 2021 acquisitions included Deep Sea, Chilicon, Off Grid Energy, Apricity Code, Tank Utility, and ecobee. ecobee’s reported purchase price was $734.6 million, including cash, stock, and contingent consideration. The acquisitions expand controls, microinverters, mobile storage, connected-home energy management, and grid-services capabilities.
- Outlook: The filing does not provide a clear numerical 2022 revenue or earnings forecast. Management expected sales to trend upward by quarter during 2022 as home-standby production capacity increased, citing extended lead times at year-end. PWRmicro and other announced products were expected to reach the market in 2022.
- Key risks: Supply-chain and labor constraints, rising input and freight costs, unpredictable outage-driven demand, COVID-19 impacts, acquisition integration and execution, competition, regulatory changes, and cybersecurity or product-liability exposures. The company also faces variable-rate debt exposure; swaps reduced, but did not eliminate, this risk.
- Other notable items: The company repurchased 350,000 shares for approximately $126.0 million in 2021 and does not plan to pay common dividends in the foreseeable future. A federal securities class action was voluntarily dismissed without prejudice on February 14, 2022; the company said it would defend any renewed claims. No impairment was recorded in the 2021 annual goodwill and indefinite-lived intangible tests.
Most important facts for investors to verify
- Whether capacity expansion and pricing pass-through offset input-cost and logistics inflation without further margin deterioration.
- Whether elevated inventory converts to shipments and operating cash flow; operating cash flow declined despite substantial earnings growth.
- Whether 2021 acquisitions deliver expected growth and returns; key purchase-price allocations remained preliminary, and acquisition-related contingent consideration rose materially.
- How 2022 demand, backlog, and quarterly sales develop, given the filing’s qualitative outlook and dependence on outage activity.
- Debt and liquidity exposure, including floating-rate sensitivity and the 2026 facility maturities. Also note the auditor’s internal-control audit excluded recently acquired entities representing 31.0% of total assets at year-end.