{ "docId": "019dd923-622c-750b-8b99-3dd81deb19cb", "docSlug": "0cee9cc55960", "documentTitle": "Generac Holdings, Inc. (GNRC)", "authorId": "54_Spruce_Point_Capital", "authorName": "Ben Axler", "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2022-06-22 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 9, "pageCount": 145, "prevPage": 8, "nextPage": 10, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 12, "notes": "The slide uses a two-part structure to contrast financial stress with strategic distraction.", "elementsJson": [ "headline_text", "callout_box", "paragraph" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-3dd81deb19cb/9", "deckHref": "/decks/019dd923-622c-750b-8b99-3dd81deb19cb", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-3dd81deb19cb.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-3dd81deb19cb#slide-9", "components": [ { "bbox": { "h": 0.38, "w": 0.15, "x": 0.01, "y": 0.57 }, "kind": "callout", "text": "Well-Timed Clean Energy Story We Believe Is Designed To Deflect From Its Core Business Challenges", "attrs": null, "subkind": "primary", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "407146ad-c87f-4b6c-9546-c900df01a668", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.38, "w": 0.15, "x": 0.01, "y": 0.18 }, "kind": "callout", "text": "Generac's Financial Statements Are Showing Extreme Financial Stress", "attrs": null, "subkind": "primary", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "aec8007b-aab6-4587-b0a9-7d3e3c6b5fcb", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "callout", "text": "There are many signs that Generac is under increasing financial strain.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd952-e6ed-775b-bcbb-e7fbc7142273", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.81, "x": 0.17, "y": 0.41 }, "kind": "paragraph", "text": "However, despite this action, cash from operations has been declining and turned negative in Q1 2022, producing the worst operating cash flow in its public history. Liquidity, as measured by its cash and ABL borrowing capacity is just 12.2% of sales, and has fallen markedly from the prior year at 37.1% of sales. Now 15% and 10% of its sales and EBITDA are international. Notably, it has unhedged exposures to the Euro, British Pound and Mexican Peso. A strengthening of the US Dollar hurts Generac. Unfortunately, the DXY Dollar Index is up ~9.0% YTD 2022 and will pressure results.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3f2d46d2-82c0-42f9-83f5-49398c2c5ef7", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.81, "x": 0.17, "y": 0.77 }, "kind": "paragraph", "text": "Generac claims PWRcell revenues have grown from $115m in 2020, to $230m in 2021, and are projected to grow by another 50% in 2022. However, none of these claims are backed with firm reporting in SEC filings. Generac also once claimed superior product attributes to Tesla's Powerwall, but has since retracted such claims. Spruce Point not only finds evidence of dealer growth slowing, but also evidence key dealers have stopped selling Generac. Our recent channel checks into twelve (12) Generac promoted large regional distributors indicates that only six (6) still carry its products and that dealers we spoke with believe Tesla is cheaper and easier to install the PWRcell.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "49d2640c-4367-40e1-abc3-035ab146e082", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.81, "x": 0.17, "y": 0.92 }, "kind": "paragraph", "text": "Even worse, some Generac clean energy distributors are alleged to be using deceptive marketing practices to fuel sales growth. Powerhome Solar (now dba as Pink Energy) one of Generac's largest partners in over 13 states, has had multiple investigations into its sales practices and has allegedly overcharged for Generac batteries. Its CEO settled charges with a State Attorney General earlier in his career, while the Chief Marketing Officer settled charges by the FTC for deceptive marketing practices. A recent source says that Pink Energy is under FTC investigation. How much in sales has Generac done with this organization, and why after numerous investigations showing the alleged fraudulent practices, does Generac continue to promote them as partners?", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "90f8aae9-5296-4156-9a75-3c825b594bd9", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.22, "w": 0.81, "x": 0.17, "y": 0.19 }, "kind": "paragraph", "text": "There are many signs that Generac is under increasing financial strain. Its working capital to sales ratio has increased for three quarters in a row, and its short-term borrowings at foreign subsidiaries hit a multi-year high. Gross margins are declining, inventory turns are decreasing and earnings quality, as measured by the difference between net income and cash flow, is deteriorating. It appears that Generac is significantly stretching out its payables, which would help improve cash flow, but may be agitating suppliers. Furthermore, as more of its products are offered online, and to remain competitive, we find evidence that Generac has been absorbing higher shipping costs.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b441d0cd-485d-436a-8e07-bf99233f2b75", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.2, "w": 0.81, "x": 0.17, "y": 0.57 }, "kind": "paragraph", "text": "In early 2019, Generac started making acquisitions oriented towards clean energy products and solutions, a strategy we believe is fraught with risk given our evidence that Generac has been challenged with prior acquisitions. Specifically, Spruce Point questions Generac's rapid growth from two speculative acquisitions in 2019 of Pika Energy and Neurio Technology that have formed the basis of PWRcell, its home residential storage solution. We find evidence of prior failures at Neurio, revenue reporting concerns, and that the acquisition value was revised lower in a non-transparent way. At Pika, we find evidence of a large sales increase to Puerto Rico ahead of Generac's acquisition. One of Pika's notable distributors in Puerto Rico was Dynamic Solar whose President and Partner was arrested in a kick-back scheme.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b5a99688-550d-41da-a1c8-5c36fa7e1d11", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.65, "x": 0.31, "y": 0.03 }, "kind": "title", "text": "Financials Showing Stress, While Generac Pivots To Clean Energy", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c58449b9-909b-48df-82ff-cf2f918854b8", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 12, "from": 8, "beatId": "d64ce99f-bd18-428c-850f-448fe75549b1", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "Problem Statement", "beatSlug": null, "evidence": "Core business challenges and shady partnerships", "position": 1, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }