Generac Holdings (GNRC) 10-K risk factor changes: FY2022 vs FY2021

| For the fiscal year ended December 31, [removed: 2021] [added: 2022] Or | |

The aggregate market value of the voting common equity held by non-affiliates of the registrant on June 30, [removed: 2021,] [added: 2022,] the last business day of the registrant’s most recently completed second fiscal quarter, was [removed: $25,196,620,072] [added: $13,014,830,988] based [removed: upon] [added: on] the closing price reported for such date on the New York Stock Exchange.

As of February [removed: 18, 2022, 63,783,651] [added: 17, 2023, 61,887,460] shares of the registrant's common stock were outstanding.

Portions of the registrant’s Annual Report to Stockholders for the year ended December 31, [removed: 2021] [added: 2022] 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: 2022] [added: 2023] Annual Meeting of Stockholders (the [removed: “2022] [added: “2023] 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: 2021,] [added: 2022,] are incorporated by reference into Part III of this Form 10-K.

[](# [removed: "toc")2021] [added: "toc")2022] FORM 10-K ANNUAL REPORT

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

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, [added: smart home] energy management devices and [removed: controls,] [added: energy services,] advanced power grid software [removed: platforms & services,] [added: platforms,] and engine- & battery-powered tools and equipment.

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

As part of this evolution, we have made significant investments into rapidly growing [removed: new] markets such as residential clean energy storage, solar [removed: microinverters,] [added: module-level power electronics (MLPE),] 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.

In addition, [removed: a key strategic focus has] [added: we have] been leveraging our leading position in the growing market for [removed: cleaner burning] natural gas fueled [removed: generators] [added: generators, which we believe represents a cleaner transition fuel] to [added: more renewable and energy storage sources compared to diesel, to] expand into applications beyond standby power, allowing us to participate in Energy-as-a-Service and microgrid projects for [removed: commercial and industrial applications.][added: C&I customers.]

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 [removed: energy retailers] [added: grid operators] by helping to balance, support and enhance the reliability of the electrical grid.

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

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 [removed: gas,] [added: gas gensets,] established our connectivity strategy, and provided the initial foundation for the Company’s evolution into an energy technology solutions company, including [removed: some] key initial acquisitions within the residential clean energy space.

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

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 [removed: metering] [added: monitoring] technology and sophisticated analytics to optimize energy use within a home or business.

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 [removed: microinverter] [added: rooftop power inversion devices] and monitoring solutions for the solar market.

With these acquisitions, Generac has established [removed: itself as a credible leader] [added: an important presence] in the rapidly growing residential clean energy market, focused on solar, battery storage and grid services applications.

These acquisitions will [added: collectively] help lay the [removed: ground work] [added: groundwork] to further advance our energy technology strategies across C&I markets around the world.

In December 2021, Generac [removed: closed on the purchase of] [added: acquired] ecobee Inc., a leader in sustainable home technology solutions.

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

[removed: Products] [added: Products] and Solutions

We design and manufacture stationary, portable and mobile [added: power] generators with single-engine outputs ranging between 800W and 3,250kW.

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

We also have a line of industrial-grade mobile energy storage systems that serve the global rental [added: equipment] markets.

We participate in the market for grid services [removed: involving] [added: by providing] distributed energy optimization and control [removed: software.][added: software to utilities and other grid operators.]

Other power products [removed: and solutions] that we [removed: provide] [added: design and manufacture] include light towers and a broad line of outdoor power equipment that we refer to as [removed: chore products,] [added: “chore products”,] which includes a variety of property maintenance equipment powered by both engines and batteries.

[removed: We] [added: As the product category leader, we] believe we have the broadest line of home standby generators in the marketplace and all of them are offered as Smart Grid Ready, which enables customers to connect and enroll their generator as a distributed energy resource in [added: available] grid services applications.

This [removed: clean energy] [added: residential] storage solution consists of a system of batteries, an inverter, [removed: Photovoltaic] [added: photovoltaic] (PV) optimizers, power electronic controls, and other components.

We [removed: introduced multiple] [added: are developing additional] new Generac-branded clean energy products [removed: in 2021] that we expect [removed: will come] to [added: bring to] market [removed: during 2022] as we continue to build out [removed: an increasingly broad] [added: a broader] range of residential clean energy solutions, giving our [removed: distribution partners] [added: distributors] access to a more diverse line up of products that can serve a variety of applications.

[removed: PWRmanager is] [added: In 2022, we launched PWRmanager,] the second generation of our load management controls, allowing customers to [added: program and] remotely control certain loads in a house and thereby manage battery run times from their smart phones or tablets.

[added: Additionally, we currently anticipate launching] PWRgenerator [removed: is] [added: during 2023,] a one-of-a-kind natural gas generator with DC output that is purpose-built to re-charge PWRcell energy storage systems.

This innovative new product is [removed: fuel-efficient, quieter,] [added: more fuel-efficient] and [added: quieter than our traditional home standby generators and] can enable [removed: indefinite] grid independence for homeowners.

[removed: During 2021] [added: In 2021,] we acquired ecobee, a leader in sustainable smart home solutions such as smart thermostats and a suite of home monitoring products, all designed with a focus on conservation, convenience, peace of mind and comfort.

[removed: In addition, the ability to combine ecobee’s cutting-edge technologies and software development expertise with Generac’s power generation, energy storage and energy management devices] [added: These capabilities] will [added: help] allow [removed: us to create] [added: the creation of] a clean, efficient, and reliable [added: smart] home energy ecosystem [removed: and user interface platform] capable of connecting to our grid services distributed energy resource management software (DERMS) called Concerto.

[removed: These ecobee] [added: Through ecobee, PWRmanager] and [removed: Apricity grid edge devices expand] [added: Apricity, we are expanding] our suite of [removed: products] [added: grid edge devices] that can be deployed in grid services applications, offering increased energy savings and economic benefits to a larger segment of the population.

This addition expands Generac’s connectivity functionality and provides incremental value to our dealers and peace of mind to our [removed: liquid propane powered] home standby generator [removed: owners.][added: owners that use propane as a fuel source.]

We also provide a broad product line of portable and inverter generators that range in size from 800W to [removed: 17.5kW.][added: 17.5kW, and in 2022, we introduced multiple portable battery solutions that provide clean, emission-free power at the push of a button.]

In addition to Generac’s efforts to expand Mean Green’s production [added: capacity] and distribution capabilities, this acquisition will help to accelerate the electrification of our higher-powered lineup of chore products.

Residential products comprised [removed: 65.8%, 62.6%] [added: 63.8%, 65.8%] and [removed: 51.9%,] [added: 62.6%,] respectively, of total net sales in [removed: 2021, 2020] [added: 2022, 2021] and [removed: 2019.][added: 2020.]

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).

| | ● | fluctuations in cost and quality of raw materials required to manufacture our products; |

Since then, we have scaled our sales & marketing capabilities and systems, while also building the Generac brand into one of the leading names in back-up power around the nation.

As we look to the future, we expect to make continued investment in the people, processes and capabilities involved in the development of these residential clean energy technologies, as we work to further broaden our product offering and distribution network.

In 2022, we built out our energy technology management team that brings decades of industry leadership experience as well as robust technical expertise.

Under this new leadership team, we expect to fully integrate our energy technology investments under a common strategy that we believe will help accelerate growth in the future.

Additionally, the policy backdrop for these growing markets, underscored by the Inflation Reduction Act and other state regulations, provides the necessary potential for long-term, value-creating investments.

With this opportunity in front of us, we plan to build out our residential energy technology capabilities and our suite of products & solutions as we expect to play an important role in the transition to a cleaner, more sustainable, and more reliable electric grid.

The Company advanced its C&I connectivity strategy with the October 2022 acquisition of Blue Pillar, an industrial internet of things (IoT) platform developer that designs, deploys, and manages industrial IoT solutions.

Blue Pillar provides a foundation to build out a connectivity solution for our C&I products to further enable their use in grid services programs.

Finally, in February 2023, Generac acquired REFU Storage Systems GmbH, a developer and supplier of battery storage hardware products, advanced software and platform services for the commercial and industrial market.

REFU’s energy storage systems will complement and enhance our current global product offerings and will further accelerate our development of new technologies as we continue to provide our commercial and industrial consumers with leading solutions for their adoption of renewable energy.

_Residential Products_

The data that is provided by this remote monitoring functionality allows us to better understand our installed base of products, while optimizing both product quality and customer satisfaction.

In addition, we are leveraging ecobee’s cutting-edge technologies and software development expertise to create a user interface platform, or “single pane of glass” to allow homeowners to monitor and control Generac’s entire suite of products using one common interface.

The capabilities acquired via ecobee, Apricity Code, and Tank Utility, paired with our existing remote monitoring system, provide the foundation for Generac’s residential connectivity strategy, which will be integral in the continued development of our smart home energy ecosystem.

We are developing a rooftop MLPE solution to be used in residential solar solutions that will allow Generac to participate in residential solar installations that do not include an energy storage system.

We offer a full line of C&I generators that are sold around the world.

We are a leader in cleaner-burning natural gas fueled generators, and also have a full offering of C&I generators that are fueled by diesel and Bi-FuelTM.

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

The 2022 acquisition of Blue Pillar expanded our C&I connectivity capabilities and enhanced our grid services offerings for C&I customers by providing a standard protocol for all of our C&I products to be connected to our Concerto platform.

In addition to connectivity device sales, Blue Pillar recognizes software and support revenue resulting from the monitoring and management capabilities its platform provides customers.

Our Mobile Link subscription service provides this same service for our residential home standby customers, whereby we collect subscription revenue for this remote monitoring service.

| | ● | _Natural gas as an important transition fuel to the future:_ as natural gas will remain in demand as a source of cleaner, reliable power generation for backup power and beyond standby applications, compared to diesel fuel. |

Attitudes around climate change have shifted and undergone increased global focus, and an aging and underinvested electrical grid infrastructure remains highly vulnerable to the expectation of more volatile and severe weather.

These developments are causing a growing supply/demand imbalance for grid operators across North America, which has led to recent high-profile examples of rolling blackouts necessary to maintain grid integrity.

In fact, the North American Electric Reliability Corporation has labeled significant portions of the continent as being at high risk of resource adequacy shortfalls during normal seasonal peak conditions in the 2023-2027 period due in part to these supply/demand dynamics.

Additionally, these markets are receiving an increasing level of regulatory and legislative support, most notably from the Inflation Reduction Act that was passed in 2022.

This legislation includes significant subsidies and investment tax credits for consumers and business over the coming decade and provides necessary opportunity for long-term, value-creating investments for market participants.

In addition, Blue Pillar’s Industrial IoT network software solutions enable distributed energy generation monitoring and control, helping businesses to better optimize their energy efficiency and consumption.

These enhanced connectivity capabilities provide the foundation for the future build out of a centralized system-level platform for our C&I customers to monitor and manage all of their DERs.

For certain products we do not have internal manufacturing capabilities and rely upon a small number of contract manufacturers to build these products or supply these components, including but not limited to certain clean energy products or components.

While inbound and outbound logistics delays and employee absences eased during 2022, there continues to be a heightened level of uncertainty surrounding the global supply chain.

See “Item 1A.

Risk Factors” for additional legal and regulatory factors that can affect the products we sell and the results of our operations.

Building on our inaugural Environmental, Social, and Governance (ESG) report in 2021, we published our second ESG report in April of 2022 to update our progress in executing the various ESG goals and initiatives that align with our “Powering a Smarter World” enterprise strategy and our purpose statement: Lead the evolution to more resilient, efficient, and sustainable energy solutions.

Importantly, we’ve also continued our commitment to building out an effective ESG Program to help us identify material ESG topics that deserve attention and resources, define metrics to measure our performance with respect to those topics, and work towards setting goals to improve that performance.

We plan to publish an updated ESG Report in April of 2023 that coincides with the filing of our annual Proxy Statement.

Generac is also focused on building understanding and awareness of DEI through education and open communication.

| --- | --- | --- |

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

_Residential_ _P__roducts_

PWRmicro, a grid-interactive microinverter equipped with 2-to-1 panel-to-inverter capability used in residential solar solutions, leverages the technology acquired via the 2021 purchase of Chilicon Power and allows Generac to participate in residential solar installations that do not include an energy storage system.

We offer a full line of C&I generators that are increasingly being fueled by cleaner sources of energy such as natural gas, liquid propane, and Bi-Fuel™, as well as other more traditional fuels such as diesel.

We believe as more grid services programs roll-out over time, we will be able to sell more equipment given the improved economics and value of our generators as DER’s.

DERs include Generac’s Smart Grid Ready residential and C&I natural gas generators, PWRcell™ energy storage systems, and other grid edge devices such as smart thermostats and smart water heater controls.

The platform gives utilities and energy retailers the flexibility to operate virtual power plants in real-time and to better manage the escalating complexities of increasingly variable energy assets.

ecobee also offers other on-demand Home Services on a subscription basis.

| | ● | _Natural gas is expected to be an important fuel of the future:_ with the abundance of supply globally leading to increasing demand for natural gas generators and applications beyond standby power. |

Baseline outage activity in each of the past five years has been above the long-term average as climate change has driven an increase in severe weather activity, while an aging and underinvested electrical grid infrastructure remains highly vulnerable to such activity.

During 2019, we entered the rapidly developing energy storage, monitoring and management markets with the introduction of PWRcell™ and PWRview™.

In 2021, we expanded our capabilities in the residential solar market with the introduction of the PWRmicro, a grid-interactive microinverter which is expected to be available in 2022.

In addition, we believe ecobee’s technologies combined with Generac’s product offering will allow us to create a clean, efficient, and reliable home energy ecosystem and platform that will save homeowners money and help grid operators meet the challenges of an electrical grid under increasing stress by providing solutions to better balance supply and demand.

Coinciding with electricity supply reliability issues are a number of factors expected to drive increasing demand for electricity over the next several years.

We continue to train and certify solar installers to offer our products, and we have built out our Power Play selling system to also offer energy storage solutions.

We believe our Strategic Global Sourcing function is a competitive strength with deep supplier relationships.

Our supplier quality engineers conduct on-site audits of major supply chain partners and help to maintain the reliability of critical sourced components and equipment.

This includes inbound and outbound logistics delays and increased employee absences at several of our production facilities.

In 2021, we published our inaugural Environmental, Social, and Governance (ESG) Report that aligned with leading global sustainability disclosure standards.

We have hosted a series of culture-changing listening and learning sessions and, we have expanded our DEI training library for managers.

| --- | --- | --- | --- | --- |

| Russell S. Minick | | 61 | | Chief Marketing Officer |

| Tom Pettit | | 53 | | Chief Operations Officer |

Russell S.

Minick began serving as our Chief Marketing Officer in August 2016.

In addition to his CMO responsibilities, Mr. Minick was appointed President of our Energy Technology business in January 2021.

Prior to these appointments, he served as our Executive Vice President, Residential Products since October 2011, with this responsibility being expanded in January 2014 to Executive Vice President, North America.

Prior to joining Generac, Mr. Minick was President & CEO of Home Care Products for Electrolux from 2006 to 2011, President of The Gunlocke Company at HNI Corporation from 2003 to 2006, Senior Vice President of Sales, Marketing and Product Development at True Temper Sports from 2002 to 2003, and General Manager of Extended Warranty Operations for Ford Motor Company from 1998 to 2002.

Mr. Minick is a graduate of the University of Northern Iowa, and holds a degree in marketing.

On February 11, 2022, Mr. Minick gave notice of his intention to retire from the Company following an appropriate transition of his responsibilities, and in any event by no later than May 1, 2022.

Tom Pettit began serving as our Chief Operations Officer in February 2020.

From 2017 until February 2020, Mr. Pettit was Executive Vice President and Chief Integrated Supply Chain Officer of nVent Electric plc, a leading global provider of electrical connection and protection solutions and a former subsidiary of Pentair plc (“Pentair”), a global industrial company.

Mr. Pettit previously served as the Operations Vice President of Pentair from 2015 until 2017, and as the Chief Operating Officer for BioScrip, Inc., a provider of infusion and home care management solutions, from 2014 until 2015.

Mr. Pettit holds a B.S. in General Engineering from West Point Military Academy and an MBA from the University of Hawaii.

However, these price increases will be fully realized throughout 2022 as the higher pricing works through backlog.

In connection with our term loan amendment in December 2019, language was added to the agreement to include a benchmark replacement rate, selected by the administrative agent and the borrower, as a replacement to LIBOR.

The Company has worked with its lenders to amend other LIBOR based debt agreements to add a replacement rate.

| Scarborough, United Kingdom | | Owned | | Rental property | | International |

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