Generac Holdings (GNRC) 10-K risk factor changes: FY2021 vs FY2020

| For the fiscal year ended December 31, [removed: 2020] [added: 2021] Or | |

The aggregate market value of the voting common equity held by non-affiliates of the registrant on June 30, [removed: 2020,] [added: 2021,] the last business day of the registrant’s most recently completed second fiscal quarter, was [removed: $7,391,323,686] [added: $25,196,620,072] based upon the closing price reported for such date on the New York Stock Exchange.

As of February [removed: 19, 2021, 62,861,442] [added: 18, 2022, 63,783,651] shares of [added: the] registrant's common stock were outstanding.

Portions of the registrant’s Annual Report to Stockholders for the year ended December 31, [removed: 2020] [added: 2021] furnished to the Securities and Exchange Commission are incorporated by reference into Part II of this Form 10-K.

Portions of the registrant’s Proxy Statement for the [removed: 2021] [added: 2022] Annual Meeting of Stockholders (the [removed: “2021] [added: “2022] Proxy Statement”), which will be filed by the registrant on or prior to 120 days following the end of the registrant’s fiscal year ended December 31, [removed: 2020,] [added: 2021,] are incorporated by reference into Part III of this Form 10-K.

[](# [removed: "toc")2020] [added: "toc")2021] FORM 10-K ANNUAL REPORT

| Item 1A. | [Risk Factors](#item1a) | [removed: [8](#item1a)] [added: [14](#item1a)] |

| Item 1B. | [Unresolved Staff Comments](#item1b) | [removed: [15](#item1b)] [added: [21](#item1b)] |

| Item 2. | [Properties](#item2) | [removed: [15](#item2)] [added: [21](#item2)] |

| Item 3. | [Legal Proceedings](#item3) | [removed: [16](#item3)] [added: [22](#item3)] |

| Item 4. | [Mine Safety Disclosures](#item4) | [removed: [16](#item4)] [added: [22](#item4)] |

| Item 5. | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](#item5) | [removed: [16](#item5)] [added: [22](#item5)] |

| Item 6. | [removed: [\[Reserved\]](#item6)] [added: [\[Removed and Reserved\]](#item6)] | [removed: [17](#item6)] [added: [23](#item6)] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#item7) | [removed: [18](#item7)] [added: [24](#item7)] |

| Item 7A. | [Quantitative and Qualitative Disclosures About Market Risk](#item7a) | [removed: [32](#item7a)] [added: [35](#item7a)] |

| Item 8. | [Financial Statements and Supplementary Data](#item8) | [removed: [33](#item8)] [added: [36](#item8)] |

| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#item9) | [removed: [67](#item9)] [added: [71](#item9)] |

| Item 9A. | [Controls and Procedures](#item9a) | [removed: [67](#item9a)] [added: [71](#item9a)] |

| Item 9B. | [Other Information](#item9b) | [removed: [68](#item9b)] [added: [72](#item9b)] |

| Item 10. | [Directors, Executive Officers and Corporate Governance](#item10) | [removed: [68](#item10)] [added: [72](#item10)] |

| Item 11. | [Executive Compensation](#item11) | [removed: [68](#item11)] [added: [72](#item11)] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#item12) | [removed: [68](#item12)] [added: [72](#item12)] |

| Item 13. | [Certain Relationships and Related Transactions, and Director Independence](#item13) | [removed: [68](#item13)] [added: [72](#item13)] |

| Item 14. | [Principal Accountant Fees and Services](#item14) | [removed: [68](#item14)] [added: [72](#item14)] |

| Item 15. | [Exhibits and Financial Statement Schedules](#item15) | [removed: [68](#item15)] [added: [72](#item15)] |

| Item 16. | [Form 10-K Summary](#item16) | [removed: [72](#item16)] [added: [76](#item16)] |

| | ● | availability, cost and quality of raw [removed: materials and] [added: materials,] key components from our global supply chain and labor needed in producing our products; |

| | ● | the impact on our results of possible fluctuations in interest rates, foreign currency exchange rates, commodities, product [removed: mix] [added: mix, logistics costs] and regulatory tariffs; |

[removed: The Company provides] [added: This includes sales of our] power generation equipment, energy storage systems, [removed: grid service solutions,] and other power products [removed: serving] [added: to] the residential, [removed: light] commercial and industrial [removed: markets.][added: markets, as well as service parts to our dealer network.]

[removed: As the only significant market participant with] [added: We have] a [removed: primary focus on these products,] [added: long history of providing power generation products across a variety of applications, and] we maintain one of the leading market positions in the power equipment [removed: market] [added: markets] in North America and an expanding presence internationally.

We believe we have one of the widest ranges of products in the [added: power generation] marketplace, including residential, commercial and industrial standby generators; as well as portable and mobile generators used in a variety of applications.

[removed: A] [added: In addition, a] key strategic focus [removed: for the Company in recent years] has been leveraging our leading position in the growing market for cleaner [removed: burning, more cost-effective] [added: burning] natural gas fueled generators to expand into applications beyond standby power, allowing us to participate in [removed: distributed generation projects.][added: Energy-as-a-Service and microgrid projects for commercial and industrial applications.]

[removed: The Company in] [added: In] recent [removed: years] [added: years, the Company] has been evolving its business model to [removed: also] focus on [removed: clean] [added: building out a residential and C&I ecosystem of] energy [added: technology] products, solutions, and services.

[removed: In 2019, we began providing energy storage systems as a clean energy solution for residential use that capture] [added: This system captures] and [removed: store] [added: stores] electricity from solar panels or other power sources and [removed: help] [added: helps] reduce home energy costs while also protecting homes from [removed: shorter-duration] [added: shorter duration] power outages.

[removed: During] [added: In October] 2020, [removed: we entered] the [removed: market for grid services involving] [added: Company acquired Enbala Power Networks Inc., one of the leading providers of] distributed energy optimization and control software that helps support the operational stability of the world's power grids.

[removed: The strategic focus on expanding the connectivity of our products will broaden our monitoring] [added: Expanding these] capabilities [removed: and also] [added: will] enable the increasing utilization of [removed: this] [added: our] equipment as [removed: distributed energy resources] [added: DERs] as the nascent market for [removed: grid-services] [added: grid services] expands over the next several years.

[removed: Overall, as] [added: As] the traditional centralized utility model evolves over time, we believe that a [removed: cleaner,] more [added: decarbonized, digitized, and] decentralized grid infrastructure will build-out, and Generac's energy technology solutions are [added: uniquely and] strategically positioned to participate in this [removed: future] [added: next-generation grid referred to as] "Grid 2.0".

We also sell direct to certain national and regional account customers, [added: which include utilities, telecommunications providers and original equipment manufacturers,] as well as to individual [removed: consumers, that] [added: consumers or businesses who] are the end users of our [removed: products and solutions.][added: products.]

We expect to [removed: continue to gain market share] [added: further advance our growing capabilities] in clean energy by [removed: further advancing] [added: increasing] our [removed: growing capabilities for these systems including] product development, sourcing, distribution, and [removed: marketing, as well] [added: marketing efforts,] as [removed: leveraging] [added: we leverage] our significant competencies [removed: developed over the past two decades to grow] [added: in] the residential standby generator [removed: market.][added: market to accelerate our market position in the emerging residential solar, storage, monitoring and management markets.]

[removed: A] [added: For a complete] summary of recent [removed: acquisitions can be found in] [added: acquisitions, please see] Note 1, “Description of Business,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

| Item 9C. | [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](#item9c) | [72](#item9c) |

| | ● | significant legal proceedings, claims, lawsuits or government investigations. |

Generac is a leading energy technology solutions company that provides backup and prime power generation systems for residential and commercial & industrial (C&I) applications, solar + battery storage solutions, energy management devices and controls, advanced power grid software platforms & services, and engine- & battery-powered tools and equipment.

The Company is committed to sustainable, cleaner energy products poised to revolutionize the 21st century electrical grid.

As an energy technology solutions company that is “Powering a Smarter World”, our corporate purpose is to lead the evolution to more resilient, efficient, and sustainable energy solutions around the world.

As part of this evolution, we have made significant investments into rapidly growing new markets such as residential clean energy storage, solar microinverters, and energy monitoring & management devices, all of which are distributed energy resources (DERs) that can be aggregated into virtual power plants (VPPs) within grid services programs.

We have also made investments in next-generation platforms and controls for both residential and C&I applications that facilitate the connection of our products to the grid.

Our growing presence in grid services programs will enhance the value of our power generation and storage products that might otherwise sit idle, as they are now able to be dispatched and orchestrated as part of a distributed energy solution, thereby generating additional return-on-investment for the home or business owner while also delivering value to utilities and energy retailers by helping to balance, support and enhance the reliability of the electrical grid.

As our traditional power generation markets continue to grow due to multiple mega-trends that are driving increased penetration of our products, we believe we are in an excellent position to execute on this opportunity given our competitive strengths.

In addition, our focus on more resilient, efficient and sustainable energy solutions has dramatically increased our served addressable market, and as a result, we believe that Generac is well-positioned for success over the long term.

Company History

Generac was founded in 1959 to commercialize a line of affordable portable generators that offered superior performance and features.

The Company’s success through the years has been built upon engineering expertise, manufacturing excellence and our innovative approaches to the market.

This has driven our growth into becoming a leading provider of power equipment for a variety of applications within residential, commercial, and industrial markets.

In 1980, we expanded beyond portable generators into the industrial power generation market with the introduction of our first stationary generators that provided up to 200kW of power output.

We introduced our first residential standby generator in 1989 and expanded our industrial product offering and global distribution system in the 1990s, forming a series of alliances that rapidly increased our sales.

Our growth accelerated in the 2000’s as we expanded our purpose-built line of residential & commercial automatic standby generators and implemented our multilayered, omni-channel distribution philosophy.

Throughout the 2000’s, a number of high-profile power outage events also helped to increase the awareness and need for back-up power and home standby generators.

In 2006, the founder of Generac sold the company to affiliates of CCMP Capital Advisors, LLC, together with certain other investors and members of our management.

In February 2010, we completed our initial public offering (IPO) of our common stock.

Soon after going public, we implemented our “Powering Ahead” enterprise strategy.

This strategic plan accelerated the Company’s transition from primarily a North America focused, emergency backup generator company into a more diversified industrial technology company with the addition of new and adjacent product categories and an expanded global presence, primarily through a series of acquisitions.

In 2018, we transitioned into a new enterprise strategy called “Powering Our Future”, which drove further share gains in new and existing markets, capitalized on Generac’s leadership in natural gas, established our connectivity strategy, and provided the initial foundation for the Company’s evolution into an energy technology solutions company, including some key initial acquisitions within the residential clean energy space.

This ultimately led to the introduction of our new “Powering A Smarter World” enterprise strategy in 2021.

This current strategic plan continues the evolution of Generac’s business model that pairs traditional and emerging power generation and storage technologies with new monitoring, management and grid services capabilities to provide solutions for the dynamic challenges presented by today’s energy landscape.

_Significant Investments in Energy Technology Solutions_

We’ve been providing power generation and resiliency solutions for homes and businesses for decades.

Leveraging that expertise in power generation, Generac has made significant investments in recent years to expand its capabilities into energy technology solutions, beginning with the March 2019 acquisition of Neurio Technology Inc., a leading energy data company focused on metering technology and sophisticated analytics to optimize energy use within a home or business.

This was followed by the April 2019 acquisition of Pika Energy Inc., a designer and manufacturer of battery storage technologies that capture and store solar or other power sources for homeowners and businesses.

In July 2021, Generac added to its residential clean energy portfolio with the acquisition of Chilicon Power LLC, a designer and provider of grid-interactive microinverter and monitoring solutions for the solar market.

With these acquisitions, Generac has established itself as a credible leader in the rapidly growing residential clean energy market, focused on solar, battery storage and grid services applications.

Generac’s efforts in expanding its energy technology solutions also cover C&I and international markets as well.

In June 2021, the Company acquired Deep Sea Electronics Limited, a UK-based designer and manufacturer of advanced controls for a range of power generation and micro-grid applications used around the world.

In September 2021, Generac acquired Off Grid Energy Ltd., a UK-based designer and manufacturer of industrial-grade mobile energy storage systems serving predominantly European markets.

These acquisitions will help lay the ground work to further advance our energy technology strategies across C&I markets around the world.

In December 2021, Generac closed on the purchase of ecobee Inc., a leader in sustainable home technology solutions.

In addition to smart home thermostatic controls and other smart home devices, ecobee offers its customers the ability to participate in “Energy Services” programs, which allow homeowners to reduce energy consumption and utility bills via intelligent HVAC controls.

The acquisition represents a major step forward in the Company’s efforts to provide a broader residential energy ecosystem that includes intelligent monitoring and management solutions, as well as an increasingly sophisticated user interface platform to allow homeowners to take charge of their energy generation, storage, consumption, and management with the ultimate goal of creating a more sustainable energy infrastructure that is more decarbonized, digitized and decentralized.

We design, manufacture, and distribute a broad range of energy technology products and solutions.

We have developed a line of turn-key energy storage systems for use in residential solar-plus-storage applications, and in 2021, acquired microinverter capabilities for use in residential solar-only applications.

| --- |

Founded in 1959, Generac Holdings Inc. (the Company or Generac) is a leading global designer and manufacturer of a wide range of energy technology solutions.

Power generation and storage is a key focus of the Company, which differentiates us from our competitors who also have broad operations outside of the power equipment market.

We have also been focused on connecting the equipment we manufacture to the users of that equipment, helping to drive additional value to our customers and our distribution partners over the product lifecycle.

In addition to power generation and storage solutions, other products that we design and manufacture include light towers which provide temporary lighting for various end markets, and a broad and growing product line of outdoor power equipment for residential and commercial use.

We design, manufacture, source and modify engines, alternators, transfer switches and other components necessary for our power generation products, which are increasingly being fueled by cleaner sources of energy such as natural gas, liquid propane, and Bi-Fuel™.

We also design, source, modify and integrate batteries, inverters, power electronics, controls, energy monitoring and management devices and other components into our energy storage systems.

We also design software that allows utilities and power aggregators to optimize and control distributed energy resources.

Our products and solutions are available globally through a broad network of independent dealers, distributors, retailers, ecommerce partners, wholesalers and equipment rental companies under a variety of brand names.

We have a significant market share in the residential and light commercial markets for automatic standby generators, which we believe remain under-penetrated in the marketplace.

We also have a leading market position for portable generators used in residential, light construction and recreational applications.

We believe that our leading market positions are largely attributable to our strategy of providing a broad product line of high-quality, innovative and affordable products through our extensive and multi-layered distribution network to whom we offer comprehensive support programs, and leads from the factory.

In addition, we are a leading provider of light towers, mobile generators, outdoor power equipment and industrial generators ranging in sizes up to 3,250kW.

As we have entered the rapidly developing market for clean energy in recent years, we have significantly increased our market presence for energy storage systems currently ranging in configurations up to 36kWh of storage capacity.

Over the past 10 years, we have executed a number of acquisitions that support our strategic plan.

We have the ability to expand the power range for certain stationary generator solutions to much larger multi-megawatt systems through an integrated paralleling configuration called Modular Power Systems (MPS).

We have developed a line of turn-key energy storage systems along with a growing selection of energy monitoring and management solutions as we further expand into the clean energy markets.

This capability will also give our customers the ability to connect and enroll their generator as a distributed energy resource used in future grid services applications.

During 2020, we introduced the industry's largest air-cooled generator - a 24kW machine that adds to our broad product offering and increases our competitive advantage in the marketplace.

The new generator is the first to be bundled with the Company's new PWRview™ Automatic Transfer Switch, equipped with the PWRview™ Home Energy Management System (HEMS).

PWRview™ gives the homeowner insights into their daily home energy consumption, enabling power-saving decisions that can reduce electricity bills and help to offset the purchase cost of the generator over the product's lifespan.

These systems capture and store electricity from solar panels or other power sources and help reduce home energy costs while also protecting homes from shorter duration power outages, and range in size from 9kWh up to 36kWh of storage capacity.

We introduced several new products during 2020 and we continue to develop an innovative pipeline of additional clean energy products and solutions that we expect will be coming to market over the next year.

These new products further enhance our competitive position and differentiation in the energy storage, monitoring and management markets, and focus on whole-house storage solutions with load management capabilities that eventually could contribute to energy independence.

During 2020, we further expanded our broad lineup of chore products by entering the commercial battery-powered turf care market through the acquisition of Mean Green Products, LLC.

This acquisition also supports our goals to integrate and develop new battery-powered solutions by accelerating the electrification of our higher-powered lineup of chore products.

We offer a variety of fuel options for our industrial generators, including natural gas, liquid propane or Bi-Fuel™.

Bi-Fuel™ generators provide our customers the flexibility to operate these generators on multiple fuel sources and extended run times.

During 2020, we introduced the first of our new TX Series transfer switches, which are an ideal solution for an array of applications with its extensive capabilities and ease of installation.

This new generation of transfer switches should help us increase our spec rate, which should ultimately help us win more projects.

We manufacture commercial mobile pumps and dust-suppression equipment for a wide variety of applications.

Also included in this “Other” category are revenues from Enbala Power Networks Inc., which was acquired during the fourth quarter of 2020.

These DER assets, which can include residential and C&I natural gas generators, PWRcell™ energy storage systems, and load management devices, can be connected to Enbala’s software platform and aggregated into a decentralized and virtual power network to provide flexible capacity to address peaks in electricity demand, variability in supply due to increasing use of renewables, and where resiliency is needed as a result of power outages.

We also sell direct to certain national and regional account customers, which include utilities and energy retailers, as well as to individual consumers, who are the end users of our products.

Our residential/light commercial dealer network sells, installs and services our residential and light commercial products to end users.

This network primarily sells our residential standby, portable and light-commercial generators, as well as our other engine powered tools.

In addition, international acquisitions have provided access to numerous independent distributors in over 150 countries.

Business Strategy

"Grid 2.0," climate change, the abundance of natural gas globally, an aging infrastructure, and 5G telecommunications are all major themes that we believe will drive future long-term growth.

The onset of the COVID-19 pandemic in early 2020 has led to a new and emerging trend that we refer to as "Home as a Sanctuary," where millions of people are working, learning, shopping, entertaining, and in general, spending more time at home, which has resulted in a significant increased awareness for backup power security and willingness to invest more in home improvement projects.