Generac Holdings (GNRC) 10-K risk factor changes: FY2023 vs FY2022

| For the fiscal year ended December 31, [removed: 2022] [added: 2023] Or | |

The aggregate market value of the voting common equity held by non-affiliates of the registrant on June 30, [removed: 2022,] [added: 2023,] the last business day of the registrant’s most recently completed second fiscal quarter, was [removed: $13,014,830,988] [added: approximately $9.0 billion] based on the closing price reported for such date on the New York Stock Exchange.

As of February [removed: 17, 2023, 61,887,460] [added: 16, 2024, 60,269,310] 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: 2022] [added: 2023] 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: 2023] [added: 2024] Annual Meeting of Stockholders (the [removed: “2023] [added: “2024] 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: 2022,] [added: 2023,] are incorporated by reference into Part III of this Form 10-K.

[](# [removed: "toc")2022] [added: "toc")2023] FORM 10-K ANNUAL REPORT

| Item 6. | [\[Removed and Reserved\]](#item6) | [removed: [23](#item6)] [added: [24](#item6)] |

| | ● | fluctuations in [removed: cost] [added: cost, availability,] and quality of raw [removed: materials] [added: materials, key components and labor] required to manufacture our products; |

| | ● | the possibility that the expected synergies, efficiencies and cost savings of our [removed: acquisitions] [added: acquisitions, divestitures, restructurings, or realignments] will not be realized, or will not be realized within the expected time period; |

| | ● | our dependence on our [added: dealer and] distribution network; |

| | ● | increase in product and other liability [removed: claims] [added: claims, warranty costs, recalls,] or [removed: recalls;] [added: other claims;] |

| | ● | [removed: changes in] [added: compliance with] environmental, health and [removed: safety, or product compliance] [added: safety] laws and [removed: regulations affecting our products, operations, or customer demand; and] [added: regulations;] |

| | ● | significant legal proceedings, claims, [added: fines, penalties, tax assessments,] lawsuits or government [removed: investigations.] [added: investigations;] |

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

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

In recent years, the Company has been evolving its [removed: business model to focus on] [added: product portfolio by] building out [removed: an ecosystem] [added: ecosystems] of energy technology products, solutions, and services for [removed: home] [added: homes] and [removed: business purposes.][added: businesses.]

As part of this evolution, we have made significant investments into [removed: rapidly] growing markets such as residential [removed: clean] [added: and C&I] energy storage, solar module-level power electronics (MLPE), [removed: and] energy monitoring & management devices, [removed: all of which are distributed energy resources (DERs) that can be aggregated into virtual power plants (VPPs) within grid services programs.][added: and electric vehicle (EV) charging.]

In addition, we have been leveraging our leading position in the growing market for natural gas fueled generators, which we believe represents a cleaner transition fuel [removed: to 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 C&I customers.

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

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 [removed: well-positioned] [added: well positioned] for success over the long term.

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

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

In February 2010, we completed our initial public offering (IPO) of [removed: our] [added: the Company’s] common stock.

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

In 2018, we transitioned [removed: into] [added: to] 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 gensets, established our connectivity strategy, and provided the [removed: initial] foundation for the Company’s evolution into an energy technology solutions company, including [removed: key] [added: our] initial acquisitions within the residential clean energy space.

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

This was followed by the April 2019 acquisition of Pika Energy [removed: Inc.,] [added: Inc. (Pika Energy),] 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 [removed: LLC,] [added: LLC (Chilicon),] a designer and provider of grid-interactive rooftop power inversion devices and monitoring solutions for the solar market.

With these acquisitions, Generac has established [removed: an important] [added: a] presence in the rapidly [removed: growing] [added: developing] residential clean energy market, focused on [removed: solar,] [added: solar and] battery storage [removed: and] [added: solutions, as well as] grid services [removed: applications.][added: platforms that can leverage any of our product offerings that are capable of being grid-connected.]

In December 2021, Generac acquired ecobee [removed: Inc.,] [added: Inc. (ecobee),] 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 [removed: “Energy Services”] [added: 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 [removed: a broader] [added: an integrated] residential energy ecosystem that includes a sophisticated user interface platform to allow homeowners to take charge of their energy generation, storage, consumption, and [removed: management through a “single pane of glass” with the ultimate goal of creating a more sustainable energy infrastructure that is increasingly decarbonized, digitized and decentralized.][added: management.]

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

Additionally, the [added: favorable] policy backdrop for these [removed: growing] markets, underscored by the Inflation Reduction Act and other state regulations, provides the necessary [added: visibility to drive] potential [removed: 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 [removed: &] [added: and] solutions as we expect to play an important role in the transition to a cleaner, more sustainable, and more reliable electric grid.

Generac’s efforts in expanding its energy technology solutions [removed: 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 [removed: micro-grid] [added: other] applications used around the world.

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

[removed: Finally, in] [added: In] February 2023, Generac acquired REFU Storage Systems [removed: GmbH,] [added: GmbH (REFU),] a developer and supplier of battery storage [added: and inverter] hardware products, advanced [removed: software] [added: software,] and platform services for the commercial and industrial [removed: market.][added: markets.]

REFU’s energy storage systems will complement and enhance our current global product offerings and [removed: will] [added: is expected to] 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.

| Item 1C. | [Cybersecurity](#item1c) | [21](#item1c) |

| | ● | our dependence on a small number of contract manufacturers and component suppliers, including single-source suppliers; |

| | ● | our ability to protect our intellectual property rights or successfully defend against third party infringement claims; |

| | ● | our ability to consummate our share repurchase programs; |

| | ● | our failure or inability to adapt to, or comply with, current or future changes in applicable laws and regulations; |

| | ● | scrutiny regarding our ESG practices; |

| | ● | our ability to develop and enhance products and gain customer acceptance for our products; |

| | ● | changes in durable goods spending by consumers and businesses or other macroeconomic conditions, impacting demand for our products; |

| | ● | our ability to accurately forecast demand for our products and effectively manage inventory levels relative to such forecast; |

| | ● | our ability to remain competitive; |

| | ● | market reaction to changes in selling prices or mix of products; |

| | ● | disruptions from labor disputes or organized labor activities; |

| | ● | our ability to attract and retain employees; |

| | ● | disruptions in our manufacturing operations; |

| | ● | changes in U.S. trade policy; |

| | ● | risks related to sourcing components in foreign countries; |

| | ● | government regulation of our products; |

| | ● | our ability to make payments on our indebtedness; |

| | ● | terms of our credit facilities that may restrict our operations; |

| | ● | our potential need for additional capital to finance our growth or refinancing our existing credit facilities; |

| | ● | risks of impairment of the value of our goodwill and other indefinite-lived assets; |

| | ● | volatility of our stock price; and |

| | ● | potential tax liabilities. |

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

Central to these ecosystems are the Company’s next-generation connectivity devices, controls capabilities, and software platforms that facilitate the integration of our products and support the growing utilization of such distributed energy resources (DERs) in grid services programs.

We believe ecobee’s solutions, serving as the central hub of our residential energy ecosystem, together with its product and software development expertise will prove to be a differentiator for Generac when combined with our growing suite of energy technology solutions.

In December 2023, Generac made a minority investment in Wallbox N.V. (Wallbox) (NYSE: WBX), a global leader in smart EV charging and energy management solutions.

Along with the investment, Generac and Wallbox are expected to collaborate to provide Wallbox’s full suite of EV charging solutions to Generac’s customers and distribution partners.

Also in 2023, we opened a dedicated engineering center of excellence in Reno, Nevada that will house the development and testing of batteries, switches, power electronics, and other clean energy solutions.

Additionally, in 2023 Generac launched a series of stationary battery energy storage systems for commercial and industrial applications in the North American market that will help us advance our capabilities in microgrid projects.

As the product category leader, we believe we have the broadest line of home standby generators in the marketplace.

Every home standby generator that we offer is equipped with Mobile Link™.

In 2023, ecobee launched a line of smart doorbell cameras, which integrates with ecobee’s products and helps to drive increased consumer engagement with their platform.

In 2023, we took our first steps towards this goal by successfully integrating our home standby generators and propane tank monitors with the ecobee platform.

We believe the integration of our products and solutions in a single cohesive ecosystem will drive additional peace of mind and energy efficiency benefits for homeowners.

All of our residential energy technology products and home standby generators come with grid-connection capabilities, enabling consumers to connect and enroll their distributed energy resources in available grid services programs.

These solutions can provide material value to homeowners in the form of lower utility costs, while also helping grid operators retain capacity to address supply/demand imbalances on the grid.

For example, our recent investment in Wallbox is expected to allow us to participate in the rapidly developing home EV charging market by offering co-branded EV charging technologies through our expansive distribution network.

We have continued to expand our portfolio of energy technology solutions for C&I applications.

In 2021, we acquired Off Grid Energy, a European based manufacturer of mobile energy storage systems predominantly used in the rental markets.

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| | ● | availability of both labor and key components from our global supply chain, including single-sourced components, needed in producing our products; |

| | ● | the risk that our acquisitions will not be integrated successfully; |

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

| | ● | the duration and impact of the COVID-19 pandemic; |

| | ● | difficulties we may encounter as our business expands globally or into new markets; |

| | ● | our ability to invest in, develop or adapt to changing technologies and manufacturing techniques; |

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.

Expanding these capabilities will enable the increasing utilization of our equipment as DERs as the nascent market for grid services expands over the next several years.

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 grid operators by helping to balance, support and enhance the reliability of the electrical grid.

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.

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 available grid services applications.

The deployment of our residential generators in grid services applications where available can improve grid resiliency, while also offering a direct financial incentive for homeowners to participate in these grid services programs, which can help to partially offset the purchase cost of the generator over the product's lifespan.

This functionality leverages our remote monitoring system for home standby generators called Mobile Link™.

Our PWRcell energy storage systems also have Smart Grid Ready capabilities, empowering homeowners to contribute to grid stability and earn an incremental return on investment by connecting to grid services programs, which can help to partially offset the purchase cost of the system over the product's lifespan.

We also entered the smart water heater controller market in 2021 via the acquisition of Apricity Code, an advanced engineering and product design company that has developed certain products which help homeowners reduce energy consumption and utility bills by intelligently managing the timing of a water heater’s energy consumption.

Through ecobee, PWRmanager and Apricity, we are expanding our suite of 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.

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.

Additionally, we currently anticipate launching PWRgenerator 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 more fuel-efficient and quieter than our traditional home standby generators and can enable grid independence for homeowners.

Included in this “Other Products and Services” category are revenues from Generac Grid Services (GGS), which was formed in September 2021 and builds upon our 2020 Enbala acquisition.

The formation of GGS formalized our efforts in the market for grid services by creating a focused team that collaborates across the enterprise to sell turn-key hardware and software solutions used by utilities and grid operators that enable the connection of DERs to help support the operational stability of the world’s power grids.

The Concerto software platform also enables Generac to enter into performance contracts, in which the Company recruits, aggregates, and manages a fleet of DERs with the purpose of efficiently managing and monetizing power capacity to utilities and grid operators.

In addition to smart home energy management product sales, ecobee recognizes service revenue resulting from the value its platform provides in connecting its devices to grid services programs, enabling direct monitoring and control of a significant portion of the home’s electrical load.

The addition of this capability increases Generac’s share of the grid services market and meaningfully enhances Generac’s software development capabilities.

| | ● | _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. |

| | ● | _Legacy infrastructure needs a major investment cycle:_ to rebuild and upgrade aging networks and systems including transportation, water and power. |

| | ● | _Telecommunications infrastructure shifting to next generation:_ which involves the “5G” architecture that will enable new technologies requiring significant improvement in network uptime through backup power solutions. |

| | ● | _Home as a Sanctuary:_ in recent years, there has been a trend of more people working, shopping, entertaining, aging in place, and generally spending more time at home. As a result of this and the “electrification of everything” trend, homeowners are becoming increasingly sensitive to power outages due to lost productivity and functionality. These trends combined with ongoing elevated power outage activity has led to significantly increased awareness regarding the importance and need for backup power security. |

Further, in California, Public Safety Power Shutoff events have occurred whereby public utilities are turning off power supply to their customers under certain circumstances to prevent their transmission equipment from starting wildfires, which we anticipate may continue in the future.

Additionally, Smart Grid Ready capabilities have the potential to turn an asset previously utilized only in emergency power outage situations into a source of recurring revenue for the homeowner and a contributor to grid stability for utilities and grid operators, therefore driving incremental interest in the product category.

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.

As the grid services market matures, Generac will continue to explore opportunities beyond the traditional software-as-a-service subscription model, including but not limited to the aggregation and sale of power from a fleet of DERs in performance-based contracts, wholesale power market participation, turn-key solutions that combine hardware and software with services, and other monitoring and management services.

_Rollout of 5G will require improved network reliability_.

Increased adoption of high-speed wireless networks around the globe may lead to similar demand trends internationally as growing cell tower density and the need for onsite backup power expand the market opportunity for our international telecom products.

Our PWRgenerator, that is expected to start shipping in 2023, is a DC generator that is purpose built to charge our PWRcell energy storage system.

With this capability, an end user could conceivably be completely independent from the grid by using sustainable solar energy to power their home, with the PWRgenerator used to recharge the PWRcell should the battery be depleted at certain points of the day.

Importantly, many of these onsite solutions come standard as “Smart Grid Ready” and are capable of participating in available grid services programs, which provide additional return on investment opportunities for end users while at the same time helping to support grid reliability, resiliency and sustainability.