Gencor Industries(GENC) - 2025 Q3 - Quarterly Report

Part I. Financial Information Financial Statements The unaudited statements show increased assets and revenues but a year-over-year decrease in net income Condensed Consolidated Balance Sheets Total assets grew to $218.15 million, driven by a significant increase in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2024 | Sep 30, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $39,972 | $25,482 | | Marketable securities | $90,133 | $89,927 | | Inventories, net | $59,668 | $63,762 | | Total current assets | $203,115 | $192,842 | | Total Assets | $218,150 | $208,121 | | Liabilities & Equity | | | | Total current liabilities | $16,661 | $10,604 | | Total liabilities | $18,192 | $11,980 | | Total shareholders' equity | $199,958 | $196,141 | | Total Liabilities and Shareholders' Equity | $218,150 | $208,121 | Condensed Consolidated Income Statements Quarterly net revenue grew 20.7% year-over-year, though net income declined due to investment losses Condensed Consolidated Income Statement (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net revenue | $31,416 | $26,018 | | Gross profit | $8,668 | $7,534 | | Operating income | $4,624 | $3,383 | | Income before income tax | $5,158 | $5,618 | | Net income | $3,817 | $4,326 | | Net income per share (basic and diluted) | $0.26 | $0.30 | Condensed Consolidated Statements of Cash Flows Operating cash flow improved significantly to $14.81 million, boosting the company's cash position Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net income | $3,817 | $4,326 | | Cash flows provided by operating activities | $14,809 | $1,894 | | Cash flows used in investing activities | ($319) | ($366) | | Net increase in cash and cash equivalents | $14,490 | $1,528 | | Cash and cash equivalents at end of period | $39,972 | $18,559 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue sources, and significant customer concentration - The company is evaluating the impact of new accounting standards updates (ASU 2023-07, ASU 2023-09, ASU 2024-03) related to segment reporting, income tax disclosures, and expense disaggregation[33][34][35] Revenue by Source (in thousands) | Revenue Source | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Equipment sales recognized over time | $16,831 | $9,833 | | Equipment sales recognized at a point in time | $7,588 | $7,181 | | Parts and component sales | $6,151 | $7,796 | | Freight revenue | $745 | $1,135 | | Other | $101 | $73 | | Total Net Revenue | $31,416 | $26,018 | - For the quarter ended December 31, 2024, two customers represented significant portions of net revenue, accounting for 26.8% and 10.8% respectively[53] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue increased 20.7% driven by equipment sales, though gross margin declined due to product mix Results of Operations Net revenue grew 20.7% year-over-year, but net income fell due to losses on marketable securities - Net revenues increased 20.7% to $31,416,000 in Q1 2025 from $26,018,000 in Q1 2024, driven by contract equipment sales recognized over time[87] - Gross profit margins decreased to 27.6% from 29.0% year-over-year, attributed to reduced sales of higher-margin parts and components[88] - Net income decreased primarily due to a net loss on marketable securities of $(455,000) in Q1 2025, compared to a gain of $1,519,000 in Q1 2024[91] Liquidity and Capital Resources The company maintains a strong, debt-free liquidity position with robust operating cash flow - The company had no long-term or short-term debt outstanding as of December 31, 2024[94] Key Liquidity Metrics (as of Dec 31, 2024) | Metric | Value | | :--- | :--- | | Cash and cash equivalents | $39.97 million | | Marketable securities | $90.13 million | | Working capital | $186.5 million | | Backlog | $54.4 million | - Cash flows provided by operations were $14,809,000 for the quarter ended December 31, 2024[96] Critical Accounting Policies, Estimates and Assumptions Key policies include revenue recognition over time, inventory valuation, and fair value of securities - Revenue from custom equipment contracts is recognized over time, proportional to actual labor costs incurred versus total estimated labor costs[102] - Inventories are valued at the lower of cost or net realizable value, with specific allowances for obsolescence based on the age of the inventory[111] - Marketable securities are categorized as trading securities and marked to market at fair value, with changes in value reported in the income statement[112] Quantitative and Qualitative Disclosures about Market Risk The company, as a smaller reporting company, is not required to provide this information - The company has indicated that this item is not applicable[115] Controls and Procedures Disclosure controls were deemed ineffective due to unremediated material weaknesses in internal control - The President and CFO concluded that disclosure controls and procedures were not effective as of December 31, 2024, due to existing material weaknesses[116] - The material weaknesses, which were not remediated as of the quarter-end, include ineffective IT general controls, controls over third-party reports, period-end close processes, inadequate control design, and an inadequate risk assessment framework[118][119] - Management is implementing remediation plans, including a risk assessment and expansion of mitigating controls, with oversight from the Audit Committee[120][122] Part II. Other Information Legal Proceedings The company is not involved in any legal proceedings expected to have a material impact - The company does not believe any current legal proceedings are material to its business[123] Risk Factors No material changes to risk factors were reported since the last Annual Report on Form 10-K - No material changes to risk factors were reported during the quarter ended December 31, 2024. The company refers to its most recent Form 10-K for a full description of risk factors[124] Other Information No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement - No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading plan during the quarter[125] Exhibits This section lists filed exhibits, including officer certifications and Interactive Data Files - The report includes certifications from the Principal Executive Officer and Chief Financial Officer as required by the Securities Exchange Act of 1934[127]