What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-12 compared with 2023-02-10 · 54 added, 43 removed, 108 unchanged (47% of the section changed)

26 unchanged sentences

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 Quarterly 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 ended December 31, 2022 and as of the date this Quarterly Report is issued.

As such, the full magnitude of the effect 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.

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.

Global, market and economic conditions may negatively impact our business, financial condition and share price

Concerns over inflation, geopolitical issues, global financial markets and the COVID-19 pandemic have led to increased economic instability and expectations of slower global economic growth.

Concerns over inflation, geopolitical issues, and global financial markets have led to increased economic instability and expectations of slower global economic growth.

Our business may be adversely affected by any such economic instability or unpredictability.

Russia’s invasion of Ukraine and related sanctions has led to increased oil and natural gas prices.

Russia’s invasion of Ukraine and related sanctions has led to increased energy prices.

Such sanctions and disruptions to the global economy may lead to additional inflation and may disrupt the global supply chain and could have a material adverse effect on our ability to secure supplies.

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Results of Operations

Quarter Ended December 31, 2022 versus December 31, 2021

Net revenues for the quarters ended December 31, 2022 and December 31, 2021 were $25,825,000 and $20,106,000, respectively, an increase of $5,719,000 or 28.4%.

The improved revenues were in contract equipment sales, paver and parts sales.

As a percent of sales, gross profit margins improved to 22.5% in the quarter ended December 31, 2022, compared to 18.4% in the quarter ended December 31, 2021 on increased production and favorable price realization.

Product engineering and development expenses decreased $452,000 to $897,000 for the quarter ended December 31, 2022, as compared to $1,349,000 for the quarter ended December 31, 2021, due primarily to reduced wages and benefits on lower headcount.

Selling, general and administrative (“SG&A”) expenses decreased by $600,000 to $2,799,000 for the quarter ended December 31, 2022, compared to $3,399,000 for the quarter ended December 31, 2021.

The decrease in SG&A expenses was primarily due to reduced wages and benefits on lower headcount and reduced professional expenses.

The Company had operating income of $2,119,000 for the quarter ended December 31, 2022 as compared to an operating loss of $(1,043,000) for the quarter ended December 31, 2021.

The improved operating results were due to higher net revenues and lower operating expenses for the quarter ended December 31, 2022.

For the quarter ended December 31, 2022, the Company had net non-operating income of $2,455,000 compared to $700,000 for the quarter ended December 31, 2021.

Included in net non-operating income for the quarter ended December 31, 2022 were net realized and unrealized gains on marketable securities of $1,962,000 compared to $423,000 for the quarter ended December 31, 2021.

The higher gains in fiscal 2023 were due to a stronger domestic stock market during the quarter ended December 31, 2022.

The effective income tax rates for the quarters ended December 31, 2022 and December 31, 2021 were 24.0% and 20.0%, respectively.

The higher tax rate in fiscal 2023 is due to an anticipated reduction in research and development tax credits, effective for the Company’s fiscal 2023.

Net income for the quarter ended December 31, 2022 was $3,476,000, or $0.24 per basic and diluted share, compared to a net loss of $(274,000), or $(0.02) per basic and diluted share for the quarter ended December 31, 2021.

Quarter Ended March 31, 2023 versus March 31, 2022

Net revenues for the quarter ended March 31, 2023 decreased slightly to $30,501,000, from $30,654,000 for the quarter ended March 31, 2022.

As a percent of sales, gross profit margins increased to 29.8% in the quarter ended March 31, 2023, compared to 20.2% in the quarter ended March 31, 2022, on increased efficiency, absorption and favorable price realization.

Product engineering and development expenses decreased $46,000 to $874,000 for the quarter ended March 31, 2023, as compared to $920,000 for the quarter ended March 31, 2022 due primarily to reduced headcount.

Selling, general and administrative (“SG&A”) expenses decreased by $302,000 to $3,062,000 for the quarter ended March 31, 2023, compared to $3,364,000 for the quarter ended March 31, 2022.

The decrease in SG&A expenses was primarily due to lower headcount and reduced professional expenses.

Operating income increased from $1,908,000 for the quarter ended March 31, 2022 to $5,161,000 for the quarter ended March 31, 2023, due to improved gross profit margins and reduced operating expenses.

For the quarter ended March 31, 2023, the Company had net non-operating income of $1,257,000 compared to net non-operating expense of $(1,329,000) for the quarter ended March 31, 2022.

Interest and dividend income, net of fees, was $565,000 for the quarter ended March 31, 2023 as compared to $296,000 in the quarter ended March 31, 2022.

In January 2023, the Company reallocated its investments in equities and mutual funds to fixed income, government securities which resulted in the increased interest income for the quarter ended March 31, 2023.

The net realized and unrealized gains on marketable securities were $692,000 for the quarter ended March 31, 2023 versus net realized and unrealized losses of $(1,488,000) for the quarter ended March 31, 2022.

The higher gains in fiscal 2023 were due to a stronger domestic stock market during the quarter ended March 31, 2023.

The effective income tax rates for the quarters ended March 31, 2023 and March 31, 2022, were 24.1% and 24.2%, respectively, based on the expected annual effective income tax rate.

Net income for the quarter ended March 31, 2023 was $4,873,000, or $0.33 basic and diluted earnings per share, versus $439,000, or $0.03 basic and diluted earnings per share, for the quarter ended March 31, 2022.

Six Months Ended March 31, 2023 versus March 31, 2022

Net sales for the six months ended March 31, 2023 and 2022 were $56,327,000 and $50,760,000, respectively, an increase of $5,567,000.

The improved revenues were primarily in contract equipment and paver sales.

Gross profit margins increased to 26.5% for the six months ended March 31, 2023 from 19.5% for the six months ended March 31, 2022.

The improved gross profit margins were due to increased efficiency, absorption and favorable price realization.

Product engineering and development expenses decreased $498,000 to $1,771,000 for the six months ended March 31, 2023, compared to $2,269,000 for the six months ended March 31, 2022 due primarily to reduced headcount.

SG&A expenses decreased $902,000 to $5,861,000 for the six months ended March 31, 2023, compared to $6,763,000 the six months ended March 31, 2022.

The decrease in SG&A expenses was primarily due to lower headcount and reduced professional expenses.

The Company had operating income of $7,280,000 for the six months ended March 31, 2023 versus $865,000 for the six months ended March 31, 2022.

The increase in operating income was due primarily to the improved gross profit margins and reduced operating expenses.

For the six months ended March 31, 2023, the Company had net non-operating income of $3,712,000 compared to net non-operating expense of $(629,000) for the six months ended March 31, 2022.

Interest and dividend income, net of fees, was $1,058,000, as compared to $573,000 for the six months ended March 31, 2022.

The increase in interest income for the six months ended March 31, 2023, was due to the reallocation of the Company’s investments in equities and mutual funds to fixed income, government securities in January 2023.

Net realized and unrealized gains on marketable securities were $2,654,000 for the six months ended March 31, 2023 versus net realized and unrealized losses of $(1,065,000) for the six months ended March 31, 2022.

The higher gains in fiscal 2023 were due to a stronger domestic stock market during the six months ended March 31, 2023.

The effective income tax rates for the six months ended March 31, 2023 and March 31, 2022, were 24.0% and 30.0%, respectively, based on the expected annual effective income tax rate.

Net income for the six months ended March 31, 2023 was $8,349,000, or $0.57 basic and diluted earnings per share, versus $165,000, or $0.01 basic and diluted earnings per share for the six months ended March 31, 2022.

Liquidity and Capital Resources

The Company generates capital resources through operations and returns on its investments.

The Company had no long-term or short-term debt outstanding at December 31, 2022 or September 30, 2022.

As of December 31, 2022, the Company has funded $85,000 in cash deposits at insurance companies to cover related collateral needs.

The Company had no long-term or short-term debt outstanding at March 31, 2023 or September 30, 2022.

As of March 31, 2023, the Company has funded $85,000 in cash deposits at insurance companies to cover related collateral needs.

In April 2020, a financial institution issued an irrevocable standby letter of credit (“letter of credit”) on behalf of the Company for the benefit of one of the Company’s insurance carriers.

The maximum amount that can be drawn by the beneficiary under the letter of credit is $150,000.

The letter of credit expires in April 2023, unless terminated earlier, and can be extended, as provided by the agreement.

The letter of credit expires in

April 2024, unless terminated earlier, and can be extended, as provided by the agreement.

The Company intends to renew the letter of credit for as long as the Company does business with the beneficiary insurance carrier.

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

As of December 31, 2022, the Company had $5,978,000 in cash and cash equivalents, and $91,718,000 in marketable securities, including $36,697,000 in corporate bonds, $5,524,000 in equities, $5,423,000 in mutual funds, $4,825,000 in exchange-traded funds, $33,925,000 in government securities, and $5,324,000 in cash and money funds.

As of March 31, 2023, the Company had $18,462,000 in cash and cash equivalents, and $87,851,000 in marketable securities, including $36,775,000 in corporate bonds, $3,343,000 in exchange-traded funds, $47,487,000 in government securities, and $246,000 in cash and money funds.

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

These securities may be liquidated at any time into cash and cash equivalents.

The Company’s backlog was $42.5 million at December 31, 2022 compared to $58.0 million at December 31, 2021.

The Company’s working capital (defined as current assets less current liabilities) was $154.3 million at December 31, 2022 and $150.1 million at September 30, 2022.

Cash flows used in operations during the quarter ended December 31, 2022, were $2,898,000.

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

Accounts receivable increased $1,738,000 compared to September 30, 2022, primarily from increased paver and parts sales.

Costs and estimated earnings in excess of billings increased $2,832,000 with the timing of inventory build and percentage of completion recognition on plant sales where revenue is recognized over time.

These securities may be liquidated into cash at any time.

The Company’s backlog was $37.4 million at March 31, 2023 compared to $44.9 million at March 31, 2022.

The Company’s working capital (defined as current assets less current liabilities) was $159.8 million at March 31, 2023 and $150.1 million at September 30, 2022.

Cash flows provided by operating activities during the six months ended March 31, 2023 were $10,055,000.

The significant purchases, sales and maturities of marketable securities shown on the condensed consolidated statements of cash flows reflect the recurring purchases and sales of United States treasury bills, including the reallocation of investments in equities and mutual funds to United States treasury bills in January 2023.

Accounts receivable increased $4,297,000, due primarily to increased paver sales and the timing and collection on parts sales.

Costs and estimated earnings in excess of billings decreased $2,821,000 with the timing of inventory build and percentage of completion recognition on plant sales where revenue is recognized over time.

Inventories increased by $7,988,000 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 increasing lead times from suppliers.

Customer deposits increased $2,523,000 reflecting down payments and final payments on contract jobs not yet shipped.

Cash flows used in investing activities for the quarter ended December 31, 2022 of $705,000 were related to capital expenditures, primarily for manufacturing processing and finishing equipment.

Customer deposits increased by $6,459,000 reflecting down payments and final payments on contract jobs not yet shipped.

Cash flows used in investing activities for the six months ended March 31, 2023 of $1,174,000 were related to capital expenditures, primarily for manufacturing processing and finishing equipment.

The Company’s primary business is the manufacture of asphalt plants and related components and asphalt pavers.

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Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed on equipment sales recognized over time.

These contract assets were $4,950,000 and $2,118,000 at December 31, 2022 and September 30, 2022, respectively, and are included in current assets as costs and estimated earnings in excess of billings on the Company’s condensed consolidated balance sheets.

The Company anticipates that all of the contract assets at December 31, 2022, will be billed and collected within one year.

These contract assets were zero at March 31, 2023 and $2,118,000 at September 30, 2022.

Contract assets are included in current assets as costs and estimated earnings in excess of billings on the Company’s condensed consolidated balance sheet at September 30, 2022.

Revenues from all other contracts for the design and manufacture of equipment, for service and for parts sales, net of any discounts and return allowances, are recorded at a point in time when control of the goods or services has been transferred.

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Payment for services under contract with customers is due as services are completed.

Accounts receivable related to contracts with customers for equipment sales were $133,000 and $142,000 at December 31, 2022 and September 30, 2022, respectively.

Accounts receivable related to contracts with customers for equipment sales were $144,000 and $142,000 at March 31, 2023 and September 30, 2022, respectively.

Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized.

Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance.

There were no contract liabilities other than customer deposits at December 31, 2022 and September 30, 2022.

Customer deposits related to contracts with customers were $8,387,000 and $5,864,000 at December 31, 2022 and September 30, 2022, respectively, and are included in current liabilities on the Company’s condensed consolidated balance sheets.

There were no contract liabilities other than customer deposits and billings in excess of costs and estimated earnings at March 31, 2023 and customer deposits at September 30, 2022.

Customer deposits related to contracts with customers were $12,323,000 and $5,864,000 at March 31, 2023 and September 30, 2022, respectively, and are included in current liabilities on the Company’s condensed consolidated balance sheets.

Billings in excess of costs and estimated earnings were $703,000 at March 31, 2023 and zero at September 30, 2022.

These contract liabilities represent billings in excess of revenue recognized on equipment sales recognized over time, and are included current liabilities on the Company’s condensed consolidated balance sheet at March 31, 2023.

The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation.

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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-Q

Item 2. Management’s Discussion and Analysis