What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-12 · 46 added, 52 removed, 110 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’.

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

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

5 unchanged sentences

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

Changes in our tax rates or exposure to additional tax liabilities could adversely affect our earnings and financial condition

Beginning in 2022, the TCJA eliminated the option of expensing all research and development expenditures in the current year, instead requiring amortization over five years pursuant to IRC Section 174.

5 unchanged sentences

Results of Operations

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.

Quarter Ended June 30, 2023 versus June 30, 2022

Net revenues for the quarter ended June 30, 2023 decreased $1,770,000 to $27,877,000, from $29,647,000 for the quarter ended June 30, 2022.

The decrease in revenues was due to lower equipment sales.

As a percent of sales, gross profit margins increased to 26.9% in the quarter ended June 30, 2023, compared to 19.2% in the quarter ended June 30, 2022, on increased efficiency, absorption and favorable price realization.

Product engineering and development expenses decreased by $106,000 to $845,000 for the quarter ended June 30, 2023, as compared to $951,000 for the quarter ended June 30, 2022 due primarily to reduced headcount.

Selling, general and administrative (“SG&A”) expenses increased by $637,000 to $3,214,000 for the quarter ended June 30, 2023, compared to $2,577,000 for the quarter ended June 30, 2022.

The increase in SG&A expenses was primarily due to trade show expenses.

Operating income increased from $2,151,000 for the quarter ended June 30, 2022 to $3,453,000 for the quarter ended June 30, 2023, due to improved gross profit margins partially offset by increased operating expenses.

For the quarter ended June 30, 2023, the Company had net other income of $719,000 compared to net other expense of $(3,390,000) for the quarter ended June 30, 2022.

Interest and dividend income, net of fees, was $673,000 for the quarter ended June 30, 2023 as compared to $304,000 in the quarter ended June 30, 2022.

Interest income for the quarter ended June 30, 2023 as compared to the prior year increased due to higher rates earned on fixed income investments coupled with the Company reallocating its holdings in equities to fixed income in January 2023.

The net realized and unrealized gains on marketable securities were $46,000 for the quarter ended June 30, 2023 versus net realized and unrealized losses of $(3,693,000) for the quarter ended June 30, 2022.

The fiscal 2022 investment losses were reflective of higher interest rates, inflation, market volatility and tightening of the Federal Reserve’s monetary policy.

The effective income tax rate for the quarter ended June 30, 2023 was an expense of 23.0% versus a benefit of 18.1% for the quarter ended June 30, 2022, based on the expected annual effective income tax rate.

Net income for the quarter ended June 30, 2023 was $3,212,000, or $0.22 per basic and diluted share, versus a net loss of $(1,015,000), or $(0.07) per basic and diluted share, for the quarter ended June 30, 2022.

Nine Months Ended June 30, 2023 versus June 30, 2022

Net revenues for the nine months ended June 30, 2023 and 2022 were $84,204,000 and $80,407,000, respectively, an increase of $3,797,000.

The improved revenues were primarily due to higher equipment and parts sales.

Gross profit margins increased to 26.6% for the nine months ended June 30, 2023 from 19.4% for the nine months ended June 30, 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.

Product engineering and development expenses decreased $603,000 to $2,616,000 for the nine months ended June 30, 2023, compared to $3,219,000 for the nine months ended June 30, 2022 due to reduced headcount and improved efficiency.

SG&A expenses decreased $265,000 to $9,075,000 for the nine months ended June 30, 2023, compared to $9,340,000 the nine months ended June 30, 2022.

The decrease in SG&A expenses was primarily due to lower headcount and reduced professional expenses partially offset by an increase in trade show expenses.

The Company had operating income of $10,733,000 for the nine months ended June 30, 2023 versus $3,017,000 for the nine months ended June 30, 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.

For the nine months ended June 30, 2023, the Company had net other income of $4,431,000 compared to net other expense of $(4,020,000) for the nine months ended June 30, 2022.

Interest and dividend income, net of fees, was $1,731,000 for the nine months ended June 30, 2023 as compared to $877,000 for the nine months ended June 30, 2022.

Interest income for the nine months ended June 30, 2023 as compared to the prior year increased due to higher rates earned on fixed income investments coupled with the Company reallocating its holdings in equities to fixed income in January 2023.

Net realized and unrealized gains on marketable securities were $2,700,000 for the nine months ended June 30, 2023 versus net realized and unrealized losses of $(4,758,000) for the nine months ended June 30, 2022.

The higher gains in fiscal 2023 were due to a stronger domestic stock market.

The effective income tax rate for the nine months ended June 30, 2023 was an expense of 23.8% versus a benefit of 15.3% for the nine months ended June 30, 2022, based on the expected annual effective income tax rate.

Net income for the nine months ended June 30, 2023 was $11,561,000, or $0.79 per basic and diluted share, versus a net loss of $(850,000), or $(0.06) per basic and diluted share for the nine months ended June 30, 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 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.

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

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 2024, 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.

1 unchanged sentence

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

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.

As of June 30, 2023, the Company had $6,206,000 in cash and cash equivalents, and $88,413,000 in marketable securities, including $34,635,000 in corporate bonds, $3,345,000 in exchange-traded funds, $50,331,000 in government securities, and $102,000 in cash and money funds.

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

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 Company’s backlog was $27.9 million at June 30, 2023 compared to $40.2 million at June 30, 2022.

The Company’s working capital (defined as current assets less current liabilities) was $163.2 million at June 30, 2023 and $150.1 million at September 30, 2022.

Cash flows used in operating activities during the nine months ended June 30, 2023 were $1,649,000.

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 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.

Costs and estimated earnings in excess of billings increased $4,795,000 with the timing of inventory build and percentage of completion recognition on sales where revenue is recognized over time.

Inventories increased by $10,976,000 due to progress on several large sales orders where revenue is recognized at a point in time and some stock build to compensate for the increasing lead times from suppliers.

Cash flows used in investing activities for the nine months ended June 30, 2023 of $1,726,000 were related to capital expenditures, primarily for manufacturing processing and finishing equipment.

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

These products typically experience a seasonal slowdown during the third and fourth quarters of the calendar year.

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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 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.

These contract assets were $6,913,000 at June 30, 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 June 30, 2023 and September 30, 2022.

The Company anticipates that all of the contract assets at June 30, 2023, will be billed and collected within one year.

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.

2 unchanged sentences

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

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.

Accounts receivable related to contracts with customers for equipment sales were $73,000 and $142,000 at June 30, 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 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.

There were no contract liabilities other than customer deposits at June 30, 2023 and September 30, 2022.

Customer deposits related to contracts with customers were $5,834,000 and $5,864,000 at June 30, 2023 and September 30, 2022, respectively, and are included in current liabilities on the Company’s condensed consolidated balance sheets.

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.

30 unchanged sentences

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