Gencor Industries(GENC) - 2024 Q4 - Annual Report

Explanatory Note This section explains the delayed filing of the Annual Report on Form 10-K and Quarterly Reports due to multiple changes in the independent registered public accounting firm - The company changed its independent registered public accounting firm twice in a short period: dismissing MSL, P.A. for Forvis Mazars, LLP on November 1, 2024, and then dismissing Forvis Mazars for Berkowitz Pollack Brant Advisors + CPAs (BPB) on February 13, 2025[9][11] - Due to the audit delays, the company was not in compliance with NYSE American continued listing standards[12] - The NYSE accepted the company's extension request, granting it until August 19, 2025, to file its delinquent reports and regain compliance[13] PART I Business Gencor Industries, Inc. manufactures heavy machinery for highway construction and environmental control, with seasonal demand driven by government funding and sales through direct and dealer channels - The company's principal products are asphalt pavers, hot mix asphalt plants, combustion systems, and fluid heat transfer systems[18] - The business is seasonal, with most orders received between October and February, driven by highway construction cycles[19] Sales Backlog Comparison | Date | Backlog (in millions) | | :--- | :--- | | December 1, 2024 | $56.2 | | December 1, 2023 | $57.8 | - As of September 30, 2024, the company had 323 full-time employees[38] Risk Factors The company faces significant risks including potential delisting, material weaknesses in internal controls, cyclical business dependence on government funding, customer concentration, and management's effective voting control - The company is at risk of its common stock being delisted from the NYSE American if it fails to file all delinquent SEC reports by the extended deadline of August 19, 2025[43][44][45] - Material weaknesses in internal control over financial reporting were identified as of September 30, 2024, which could affect the timely and accurate reporting of financial results[46] - The business is highly dependent on government funding for highway construction, such as the Infrastructure Investment and Jobs Act (IIJ Act), which is scheduled to expire on September 30, 2026[51] - Significant customer concentration exists, with one customer accounting for 11.3% of net revenue in fiscal 2024 and a different customer accounting for 14.8% in fiscal 2023[52] - Company officers beneficially own 100% of the Class B stock, granting them effective voting control to elect 75% of the Board of Directors and influence major corporate transactions[70] Unresolved Staff Comments The company reports no unresolved comments from the SEC staff - None[88] Cybersecurity The company's cybersecurity risk management program is integrated into enterprise risk management, overseen by the Audit Committee, with no material impact from threats to date - The cybersecurity risk management program includes policies for encryption, vulnerability management, multifactor authentication, and employee training[93] - The Board's Audit Committee oversees cybersecurity risk, with the CFO and IT Manager handling implementation and monitoring[92] - While no material impact from cybersecurity threats has occurred to date, the company acknowledges that preventative actions may be insufficient against future, more sophisticated threats[91] Properties The company owns and leases several properties for its corporate offices and manufacturing operations across the United States Operating Properties as of September 30, 2024 | Location | Acreage | Building Square Footage | Principal Function | Ownership | | :--- | :--- | :--- | :--- | :--- | | Marquette, Iowa | 72.0 | 137,000 | Offices and manufacturing | Owned | | Orlando, Florida | 27.0 | 215,000 | Corporate offices and manufacturing | Owned | | Chambersburg, Pennsylvania | 7.4 | 103,000 | Offices and manufacturing | Leased | Legal Proceedings The company is involved in various litigation and claims arising in the ordinary course of business, not expected to have a material financial impact - The company has various pending litigation and claims from the ordinary course of business, which are not expected to be material[96] Mine Safety Disclosures The company has no mine safety disclosures to report - None[97] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE American, has not paid cash dividends recently, and has no equity compensation plans - The company's common stock trades on the NYSE American under the symbol 'GENC'[98] - No cash dividends have been paid in the last two fiscal years, and none are planned for the foreseeable future[99] - There were no equity compensation plans or arrangements approved by security holders as of September 30, 2024[100] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and operations, highlighting a 7.7% revenue increase to $113.2 million in fiscal 2024, stable gross margin, and strong liquidity despite a slight net income decrease due to higher expenses and tax rate Results of Operations Fiscal 2024 net revenue increased 7.7% to $113.2 million, with stable gross margin, but net income slightly decreased to $14.6 million due to higher SG&A expenses and an increased effective tax rate Fiscal Year 2024 vs. 2023 Performance | Metric | FY 2024 | FY 2023 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | $113,166,000 | $105,075,000 | +7.7% | | Gross Profit | $31,327,000 | $29,037,000 | +7.9% | | Gross Margin | 27.7% | 27.6% | +0.1 p.p. | | Operating Income | $13,687,000 | $13,425,000 | +1.9% | | Net Income | $14,558,000 | $14,666,000 | -0.7% | | Diluted EPS | $0.99 | $1.00 | -1.0% | - The increase in SG&A expenses to $14.3 million from $12.2 million was primarily due to higher trade show expenses, professional fees, and sales commissions[114] - The effective income tax rate rose to 29.8% in fiscal 2024 from 21.9% in fiscal 2023, driven by a $1.2 million increase in reserves for unrecognized tax benefits[117] Liquidity and Capital Resources The company maintains strong liquidity with $25.5 million in cash and $89.9 million in marketable securities as of September 30, 2024, no long-term debt, and increased working capital, despite a slight decrease in sales backlog Liquidity and Backlog (as of Sept 30) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $25,482,000 | $17,031,000 | | Marketable securities | $89,927,000 | $84,252,000 | | Working capital | $182,200,000 | $164,800,000 | | Sales Backlog | $72,200,000 | $75,800,000 | - The company has no long-term debt outstanding[119] - Cash flow from operations was $9.3 million in fiscal 2024, primarily from net income and reduced inventories, partially offset by an increase in contract assets[123] Critical Accounting Policies, Estimates and Assumptions Key accounting policies requiring significant judgment include revenue recognition for custom equipment contracts over time, inventory valuation with obsolescence allowances, and marketable securities marked to market - Revenue from custom equipment contracts is recognized over time, proportional to actual labor costs incurred compared to total estimated labor costs[129] - Contract assets, representing revenue recognized in excess of billings, increased significantly to $9.3 million at Sept 30, 2024, from $1.5 million at Sept 30, 2023[130] - Inventory is valued at the lower of cost or net realizable value, with a specific aging policy for obsolescence reserves (e.g., 50% reserve for 3-4 year old inventory, 100% for over 5 years)[139] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company - Not applicable[145] Financial Statements and Supplementary Data This section includes the company's audited consolidated financial statements for fiscal years 2024 and 2023, featuring an adverse opinion on internal control over financial reporting for 2024 Reports of Independent Registered Public Accounting Firms The auditor issued an unqualified opinion on fiscal 2024 financial statements but an adverse opinion on internal control over financial reporting due to identified material weaknesses and critical audit matters - The independent auditor issued an adverse opinion on the effectiveness of the Company's internal control over financial reporting as of September 30, 2024, due to identified material weaknesses[151][173] - Critical Audit Matters identified were: Allowance for Slow-Moving and Obsolete Inventories, Revenue from Contracts with Customers Where Revenue is Recognized Over Time, and Uncertain Tax Positions[154] - The material weaknesses related to ineffective IT general controls, controls over third-party reports, period-end close processes, control documentation, and inadequate risk assessment and monitoring[180] Consolidated Financial Statements The consolidated financial statements show total assets of $208.1 million and total shareholders' equity of $196.1 million as of September 30, 2024, with net revenue of $113.2 million and net income of $14.6 million for the fiscal year Consolidated Balance Sheet Highlights (in thousands) | Account | Sept 30, 2024 | Sept 30, 2023 | | :--- | :--- | :--- | | Total Current Assets | $192,842 | $178,954 | | Cash and cash equivalents | $25,482 | $17,031 | | Marketable securities | $89,927 | $84,252 | | Inventories, net | $63,762 | $71,527 | | Total Assets | $208,121 | $195,924 | | Total Current Liabilities | $10,604 | $14,165 | | Total Liabilities | $11,980 | $14,341 | | Total Shareholders' Equity | $196,141 | $181,583 | Consolidated Income Statement Highlights (in thousands) | Account | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net revenue | $113,166 | $105,075 | | Gross profit | $31,327 | $29,037 | | Operating income | $13,687 | $13,425 | | Net income | $14,558 | $14,666 | | Net income per share | $0.99 | $1.00 | Notes to Consolidated Financial Statements The notes detail accounting policies, disaggregated revenue, inventory composition, property and equipment, income taxes including increased unrecognized tax benefits, and the capital structure including Class B stockholder rights Disaggregation of Net Revenue (in thousands) | Revenue Source | 2024 | 2023 | | :--- | :--- | :--- | | Equipment sales recognized over time | $45,786 | $34,150 | | Equipment sales recognized at a point in time | $34,798 | $40,138 | | Parts and component sales | $26,456 | $25,298 | | Total Net Revenue | $113,166 | $105,075 | - The allowance for slow-moving and obsolete inventories increased to $13.3 million as of Sept 30, 2024, from $9.8 million in the prior year[209][234] - Unrecognized tax benefits (UTBs) increased substantially to $1,376,000 at Sept 30, 2024, from $176,000 at Sept 30, 2023, with $1.2 million accrued during fiscal 2024[241] - Holders of Class B stock are entitled to elect approximately 75% of the Company's Board of Directors[253] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on accounting and financial disclosure - None[256] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of September 30, 2024, due to identified material weaknesses in internal control over financial reporting, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of September 30, 2024, due to material weaknesses in internal control over financial reporting[257] - Identified material weaknesses include: ineffective IT general controls, ineffective controls over third-party service provider reports, ineffective period-end close process controls, inadequate control documentation, and an inadequate overall internal control framework[261] - Management has a remediation plan which includes engaging external resources, conducting a risk assessment, and documenting and executing corrective actions[262] Other Information No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the fourth quarter of fiscal 2024 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the three months ended September 30, 2024[266] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section is not applicable to the company - Not applicable[267] PART III Directors, Executive Officers and Corporate Governance This section provides information on the company's leadership, including executive officers and directors, and its governance structure with Board oversight and independent Audit Committee - The executive team includes E.J. Elliott (Executive Chairman), Marc G. Elliott (President), Dennis B. Hunt (SVP Sales), and Eric E. Mellen (CFO)[269] - The Audit Committee consists of three independent directors: General John G. Coburn, Walter A. Ketcham, Jr., and Thomas A. Vecchiolla, who serves as the chairman and financial expert[280][303] - The company has adopted a code of ethics and an insider trading policy[286][287] Executive Compensation This section details compensation for named executive officers and non-employee directors for fiscal years 2023 and 2024, noting no employment agreements with severance and a clawback policy for restatements Summary Compensation for Named Executive Officers (FY 2024) | Name and Principal Position | Salary ($) | Bonus ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Marc G. Elliott, President | $950,000 | $0 | $9,319 | $959,319 | | E.J. Elliott, Executive Chairman | $600,000 | $0 | $7,000 | $607,000 | | Dennis B. Hunt, SVP Sales | $500,000 | $0 | $8,220 | $508,220 | - Named executive officers do not have employment agreements and their employment can be terminated at any time without severance[291] - Non-employee directors receive fees of $1,500 per month, plus $1,000 per Board meeting and $500 per committee meeting attended[296] - The company has a clawback policy to recover performance-based compensation from executives if financial statements are restated[292] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section discloses beneficial ownership, showing executive officers and directors collectively own 17.4% of Common Stock and 100% of Class B Stock, granting them significant control Beneficial Ownership of Management (as of June 27, 2025) | Name of Beneficial Owner | Common Stock (%) | Class B Stock (%) | | :--- | :--- | :--- | | E.J. Elliott | 13.3% | 87.9% | | Marc G. Elliott | 2.3% | 8.3% | | All Current Directors and Executive Officers as a group (7 persons) | 17.4% | 100.0% | - Systematic Financial Management LP (9.6%), Royce & Associates (9.5%), and Dimensional Fund Advisors, LP (6.4%) are the largest institutional holders of Common Stock[300][301] Certain Relationships and Related Transactions, and Director Independence The company had no related party transactions in fiscal 2024, and the Board has determined three directors are independent under SEC and NYSE American rules - There were no related party transactions in fiscal 2024[302] - The Board has determined that directors General John G. Coburn, Walter A. Ketcham, Jr., and Thomas A. Vecchiolla are independent[303] Principal Accounting Fees and Services This section breaks down fees paid to the company's independent registered public accounting firms for fiscal years 2024 and 2023, reflecting changes in auditors Auditor Fees | Auditor | Fiscal Year | Audit Fees ($) | | :--- | :--- | :--- | | Berkowitz | 2024 | 310,000 | | Forvis Mazars | 2024 | 113,510 | | MSL | 2024 | 162,600 | | MSL | 2023 | 253,500 | - All fees paid to the auditors were pre-approved by the Audit Committee[306] PART IV Exhibits and Financial Statement Schedules This section lists all exhibits filed as part of the Annual Report on Form 10-K, including corporate governance documents, certifications, and interactive data files - Key exhibits filed include the Code of Ethics (14.1), Insider Trading Policy (19.1), CEO/CFO certifications (31.1, 31.2, 32.1), and the Clawback Policy (97.1)[308] Form 10-K Summary This section is not applicable - None[310]