What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-12-16 compared with 2021-12-17 · 50 added, 61 removed, 126 unchanged (47% of the section changed)

17 unchanged sentences

The IIJ Act provides $110 billion for the nation’s highways, bridges and roads.

California’s Senate Bill 1 (“SB1”), the Road Repair and Accountability Act of 2017, was signed into law on April 28, 2017.

The legislative package invests $54 billion over the next decade to fix roads, freeways and bridges in communities across California and puts more dollars towards transit and safety.

These funds will be allocated to state and local projects.

Additionally, numerous other states have taken steps to increase their gas tax revenues in recent years.

Fluctuations in the price of carbon steel, which is a significant cost and material used in the manufacturing of the Company’s equipment, may affect the Company’s financial performance.

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The Company will continue to scrutinize its relationships with suppliers to ensure it is achieving the highest quality materials and services at the most competitive cost.

The Company continues to monitor and evaluate the risks to public health and the slowdown in overall business activity related to the novel coronavirus (“COVID-19”)

pandemic, including impacts on its employees, customers, suppliers and financial results.

On July 19, 2022, the Company announced that it was transferring the listing of its common stock, $0.10 per share par value (“Common Stock”), to the NYSE American LLC (“NYSE American”) from the NASDAQ Global Market (“NASDAQ”).

Listing and trading of the Company’s Common Stock on NASDAQ ended at market close on July 29, 2022 and listing and trading of its Common Stock on the NYSE American commenced at market open on August 1, 2022 under its current ticker symbol ‘GENC’.

COVID-19 Pandemic

The Company continues to monitor and evaluate the risks to public health and the overall business activity related to the COVID-19 pandemic, including impacts on its employees, customers, suppliers and financial results.

As of the date of issuance of this Annual Report, the Company’s operations have not been significantly impacted.

However, the full impact of the COVID-19

pandemic continues to evolve subsequent to the quarter and year ended September 30, 2021 and as of the date this Annual Report is issued.

As such, the full magnitude that the COVID-19

pandemic will have on the Company’s financial condition and future results of operations is uncertain.

However, the full impact of the COVID-19 pandemic continues to evolve subsequent to the year ended September 30, 2022 and as of the date this Annual Report is issued.

As such, the full magnitude that the COVID-19 pandemic will have on the Company’s financial condition and future results of operations is uncertain.

Management continues to monitor the Company’s financial condition, operations, suppliers, industry, customers, and workforce.

If the spread of COVID-19

and its variants continues, the Company’s ability to meet customer demands for products may be impacted or its customers may experience adverse business consequences due to COVID-19

and its variants.

As the spread of COVID-19 and its variants continues, the Company’s ability to meet customer demands for products may be impacted or its customers may experience adverse business consequences due to COVID-19 and its variants.

Reduced demand for products or ability to meet customer demand (including as a result of disruptions at the Company’s suppliers) could have a material adverse effect on its business operations and financial performance.

1 unchanged sentence

Year ended September 30, 2022 compared with the year ended September 30, 2021

Net revenue for the year ended September 30, 2021 increased 10.1% to $85.3 million from $77.4 million for the year ended September 30, 2020.

The increase in net revenue was due primarily to paver equipment and parts sales of approximately $6.1 million for the year ended September 30, 2021, compared with no paver related revenues in fiscal 2020.

Net revenue for the fourth quarter of fiscal 2021 increased 91.7% to $20.0 million compared to $10.5 million for the quarter ended September 30, 2020.

The increase in net revenues reflected improved orders from prior year in anticipation of the signing of a new highway bill to replace the FAST Act, which after two temporary extensions, would have expired on December 3, 2021.

In addition, net revenue for the fourth quarter of fiscal 2021 includes $2.2 million of paver equipment and parts sales compared with no paver related revenues in the fourth quarter of fiscal 2020.

Net revenue for the year ended September 30, 2022 increased 21.3% to $103,479,000 from $85,278,000 for the year ended September 30, 2021.

Net revenue for the fourth quarter of fiscal 2022 increased 15.5% to $23,072,000 compared to $20,043,000 for the quarter ended September 30, 2021.

The higher revenues in fiscal 2022 reflect increased shipments and progress on large contract orders where revenue is recognized over time.

Gross profit margins decreased to 19.9% in fiscal 2022 from 21.3% in fiscal 2021.

The gross profit margins for the year ended September 30, 2021 were negatively impacted by approximately $4.6 million of unabsorbed manufacturing labor and overhead expenses related to the paver line.

In addition, increases in labor rates and steel and OEM parts prices contributed to the lower overall gross margins during the year ended September 30, 2021.

Product engineering and development (“PED”) expenses in fiscal 2021 increased by $1,217,000 to $4,278,000 from $3,061,000 in fiscal 2020 primarily due to engineering wages related to the paver line.

Selling, general and administrative (“SG&A”) expenses in fiscal 2021 increased $2,843,000 to $13,199,000 from $10,356,000 in fiscal 2020.

The higher SG&A expenses were primarily due to expenses related to the paver line and professional fees to support business development efforts.

Higher manufacturing costs associated with wages, steel, and OEM (Original Equipment Manufacturer) purchased parts had a negative impact on the Company’s operating results in fiscal 2022.

Product engineering and development (“PED”) expense in fiscal 2022 increased by $47,000 to $4,325,000 from $4,278,000 in fiscal 2021.

Higher payroll costs in PED expenses in fiscal 2022 were mostly offset by reduced headcount.

Selling, general and administrative (“SG&A”) expenses in fiscal 2022 decreased $1,147,000 to $12,052,000 from $13,199,000 in fiscal 2021.

The higher SG&A expenses in fiscal 2021 were primarily related to the acquisition of the paver line and professional fees to support business development efforts.

Higher payroll costs in SG&A expenses in fiscal 2022 were also mostly offset by reduced headcount.

Fiscal 2022 had operating income of $4,167,000 versus $701,000 in fiscal 2021.

The decrease in operating income was due primarily to the operational and start-up

costs related to the Blaw-Knox asset acquisition and professional fees to support business development efforts.

The increase in operating income was due to the higher sales and reduced SG&A expenses.

On October 1, 2020, the Company acquired the Blaw-Knox assets, including inventory, fixed assets and related intellectual property, from Volvo Construction Equipment North America, LLC (“Volvo CE”).

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There were no liabilities assumed.

The accompanying consolidated financial statements as of and for the year ended September 30, 2021, include the assets, liabilities and operating results of the paver line.

There were no paver equipment revenues during the quarter ended December 31, 2020, as the facility was being readied for production which began in the quarter ended March 31, 2021.

As of September 30, 2021 and 2020, the cost basis of the investment portfolio was $93.7 million and $89.5 million, respectively.

The accompanying consolidated financial statements as of and for the years ended September 30, 2022 and September 30, 2021, include the assets, liabilities and operating results of the paver line.

There was no paver equipment revenue during the quarter ended December 31, 2020, as the facility was being readied for production which began in the quarter ended March 31, 2021.

As of September 30, 2022 and 2021, the cost basis of the investment portfolio was $94,879,000 and $93,690,000, respectively.

For the year ended September 30, 2022, interest and dividend income, net of fees, from the investment portfolio was $1,305,000, as compared to $1,306,000 for year ended September 30, 2021.

Interest income for the year ended September 30, 2021, also included $456,000 of interest collected from a customer.

The higher interest income from the investment portfolio in fiscal 2020 reflects the impact from a larger investment in corporate bonds and a higher average yield to maturity.

The fiscal 2021 corporate bonds were reduced as the related investments were partially liquidated to fund the Blaw-Knox acquisition.

Net realized and unrealized gains on marketable securities were $4,171,000 for the year ended September 30, 2021 versus net realized and unrealized losses of $(1,160,000) for the year ended September 30, 2020.

The fiscal 2020 investment losses reflect the decline in the domestic equity markets from the impact of the COVID-19

The total cash, cash equivalents and investments balance at September 30, 2021 was $118.2 million, compared to the September 30, 2020 cash, cash equivalents and investments balance of $125.1 million, a decrease of $6.9 million.

The effective income tax rate for fiscal 2021 was 12.5% versus 17.2% in fiscal 2020.

Net realized and unrealized losses on marketable securities were $(7,009,000) for the year ended September 30, 2022 versus net realized and unrealized gains of $4,171,000 for the year ended September 30, 2021.

The fiscal 2022 investment losses reflect the general decline in global equity and bond markets.

The total cash, cash equivalents and investments balance at September 30, 2022 was $98,881,000, compared to $118,208,000 at September 30, 2021, a decrease of $19,327,000, reflecting the investment losses and increased inventory.

The effective income tax rate for fiscal 2022 was a benefit of (78.0%) versus expense of 12.5% in fiscal 2021.

The income tax benefit for fiscal 2022 reflects the impact of book to tax timing differences in the deductibility of certain items, the benefit from research and development tax refunds and credits, and other adjustments.

In fiscal 2022, the Company generated $475,000 of federal research and development tax credits (“R&D Credits”), all of which were used in fiscal 2022.

1 unchanged sentence

There were no R&D Credits carryforwards as of September 30, 2022 or September 30, 2021.

Net income for the year ended September 30, 2021 was $5,805,000 or $0.39 per diluted share versus net income of $5,531,000 or $0.38 per diluted share for the year ended September 30, 2020.

Net loss for the year ended September 30, 2022 was $(372,000) or $(0.03) per diluted share versus net income of $5,805,000 or $0.39 per diluted share for the year ended September 30, 2021.

Liquidity and Capital Resources

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To date, no amounts have been drawn under the letter of credit.

As of September 30, 2021, the Company had $23.2 million in cash and cash equivalents, and $95.0 million in marketable securities.

As of September 30, 2022, the Company had $9,581,000 in cash and cash equivalents, and $89,300,000 in marketable securities.

The marketable securities are invested through a professional investment management firm.

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In the fourth quarter of fiscal 2020, the Company liquidated approximately $17.0 million of its investments.

The cash was primarily used to fund the acquisition of the Blaw-Knox assets.

The cash was primarily used to fund the October 2020 acquisition of the Blaw-Knox assets.

Year ended September 30, 2022 compared with the year ended September 30, 2021

Cash flows used in operations in fiscal 2022 was $9,135,000 primarily resulting from increased inventory.

The significant purchases, sales and maturities of marketable securities shown on the consolidated statements of cash flows reflect the recurring purchases and sales of United States treasury bills.

Inventories increased by $13,927,000 primarily due to progress on several large contract orders where revenue is recognized at a point in time, the impact of the inflationary environment on raw material and wage price increases, and some stock build to adjust for the increasing lead times from suppliers.

Accounts payable increased by $1,146,000 due primarily to the additional payables related to the increase in inventory.

Cash provided by operations in fiscal 2021 was $3,820,000, primarily resulting from net income.

The significant purchases, sales and maturities of marketable securities shown on the consolidated statements of cash flows reflect the recurring purchases and sales of United States treasury bills.

The decrease in costs and estimated earnings in excess of billings of $4.5 million reflects the completion and shipment of several large contracts with revenues recognized over time during the year ended September 30, 2021.

Excluding the impact of the Blaw-Knox acquisition, inventories increased by $4.4 million primarily due to progress on several large contract orders where revenue is recognized at a point in time and some stock build to compensate for the longer lead times from suppliers.

Accounts payable increased by $1.4 million due to the additional payables related to the Blaw-Knox business along with the increase in inventory.

Customer deposits increased $1.4 million, reflecting the down payments on contract jobs, including several recent orders where revenues are recognized over time but work is yet to begin.

Cash provided by operations in fiscal 2020 was $26,774,000, primarily resulting from the sale of investment securities and net income.

The decrease in costs and estimated earnings in excess of billings of $7.4 million reflects the completion of customer contracts with revenues recognized over time that were open at the end of fiscal 2019 and the reduced number of such contracts open at the end of fiscal 2020.

The increase in inventories of $1.7 million reflects the progress on several contract jobs where revenues are recognized at a point in time.

Customer deposits increased $1.9 million, reflecting the down payments on these jobs.

Cash flows used in investing activities for the year ended September 30, 2021 of $16,436,000 were related to the acquisition of the Blaw-Knox paver line and subsequent capital expenditures, primarily for systems software and leasehold improvements for the paver line’s manufacturing facility.

The decrease in costs and estimated earnings in excess of billings of $4,502,000 reflects the completion and shipment of several large contracts with revenues recognized over time during the year ended September 30, 2021.

Excluding the impact of the Blaw-Knox acquisition, inventories increased by $4,413,000 primarily due to progress on several large contract orders where revenue is recognized at a point in time and some stock build to compensate for the longer lead times from suppliers.

Accounts payable increased by $1,377,000 due to the additional payables related to the Blaw-Knox business along with the increase in inventory.

Customer deposits increased $1,391,000, reflecting the down payments on contract jobs, including several recent orders where revenues are recognized over time but work is yet to begin.

Cash flows used in investing activities for the year ended September 30, 2022 of $4,516,000 were related to the capital expenditures primarily for manufacturing processing and finishing equipment.

Cash flows used in investing activities for the year ended September 30, 2021 of $16,436,000 were primarily related to the acquisition of the Blaw-Knox paver line and subsequent capital expenditures, primarily for systems software and leasehold improvements for the paver line’s manufacturing facility.

Cash provided by financing activities of $264,000 for the year ended September 30, 2021, related to proceeds from the exercise of stock options.

Cash used in investing activities during the year ended September 30, 2020 of $1,595,000 for the year ended September 30, 2020, related primarily to capital expenditures for manufacturing equipment.

Cash provided by financing activities of $103,000 in fiscal 2020 related to proceeds from the exercise of stock options.

Critical Accounting Policies, Estimates and Assumptions

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The Company accounts for revenues and related expenses under the provisions of ASU No.

Revenue from Contracts with Customers

(Topic 606), as amended (“ASU No.

2014-09, Revenue from Contracts with Customers (Topic 606), as amended (“ASU No.

Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over time when the performance obligation is satisfied by transferring control of the equipment.

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Provision is made for any anticipated contract losses in the period that the loss becomes evident.

The allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability and also adjusting for any known customer payment issues with account balances in the less-than-90-day

past due aging buckets.

Account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable.

Any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts.

Inventories are valued at the lower of cost or net realizable value, with cost being determined under the first-in,

(“FIFO”) method and net realizable value defined as the estimated selling price of goods less reasonable costs of completion and delivery (see Note 2 to Consolidated Financial Statements).

Inventories are valued at the lower of cost or net realizable value, with cost being determined under the first-in, first-out (“FIFO”) method and net realizable value defined as the estimated selling price of goods less reasonable costs of completion and delivery (see Note 2 to Consolidated Financial Statements).

Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value.

1 unchanged sentence

The Company evaluates the need to record inventory adjustments on all inventories, including raw materials, work in process, finished goods, spare parts and used equipment.

Used equipment acquired by the Company on trade-in

from customers is carried at estimated net realizable value.

Used equipment acquired by the Company on trade-in from

customers is carried at estimated net realizable value.

Unless specific circumstances warrant different treatment regarding inventory obsolescence, an allowance is established to reduce the cost basis of inventories three to four years old by 50%, the cost basis of inventories four to five years old by 75%, and the cost basis of inventories greater than five years old to zero.

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Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments.

Realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the consolidated income statements.

Net unrealized gains and losses are reported in the consolidated income statements and represent the change in the fair value of investment holdings during the period.

Realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the consolidated statements of operations.

Net unrealized gains and losses are reported in the consolidated statements of operations and represent the change in the fair value of investment holdings during the period.

Long Lived Asset Impairment

3 unchanged sentences

Fair value is generally determined using a discounted cash flow analysis.

The overall effects of inflation on the Company’s business during fiscal 2021 have been significant relative to prior years.

The overall effects of inflation on the Company’s business during fiscal 2022 and 2021 have been significant relative to prior years.

The Company monitors the prices it charges for its products and services on an ongoing basis and has been able to adjust its prices to take into account future changes in the rate of inflation.

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On October 9, 2020, the Company entered into an operating lease for additional warehousing space for paver inventory.

The lease term is for one year beginning November 2020 with automatic one-year

Sheet Arrangements

The lease term is for one year beginning November 2020 with automatic one-year renewals.

Off-Balance Sheet Arrangements

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis