Gencor Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2020; filed August 6, 2020. Gencor manufactures asphalt plants, combustion systems, heat-transfer systems and related products for the highway construction industry. Results are seasonal.
Financial results
| Metric | Quarter ended June 30, 2020 | Quarter ended June 30, 2019 | Nine months ended June 30, 2020 | Nine months ended June 30, 2019 |
|---|---|---|---|---|
| Revenue | $22.94 million | $18.85 million | $66.96 million | $66.85 million |
| Gross margin | 23.5% | 25.2% | 25.5% | 29.3% |
| Operating income | $2.01 million | $1.40 million | $7.27 million | $10.02 million |
| Operating margin | 8.8% | 7.4% | 10.9% | 15.0% |
| Net income | $4.32 million | $2.44 million | $6.16 million | $10.22 million |
| Diluted earnings per share | $0.29 | $0.17 | $0.42 | $0.69 |
| Operating cash flow | Nine-month period: $9.41 million | Prior-year nine-month period: $0.02 million |
- Quarterly revenue rose 21.7%, principally from the timing and shipment of equipment orders. Gross margin fell as equipment represented a larger share of revenue than higher-margin parts. Higher revenue and production volume lifted operating income and operating margin.
- Nine-month revenue was nearly unchanged, but lower gross margins and higher SG&A reduced operating income and net income. Management attributed the prior-year gross margin comparison to unusually strong equipment pricing.
- Quarterly net income benefited from $2.89 million of realized and unrealized marketable-security gains, compared with $1.09 million a year earlier. For the nine months, securities recorded a net loss of $1.47 million versus a $1.15 million gain in the prior-year period. These investment results materially affected the comparison in reported earnings.
- Quarterly SG&A increased $51,000; nine-month SG&A increased $330,000, reflecting increased headcount and, for the nine-month period, travel and trade-show expenses. Product engineering and development expense declined modestly.
Balance sheet, liquidity and cash flow
- At June 30, 2020, cash and cash equivalents were $18.56 million and marketable securities were $105.68 million. Combined, these totaled approximately $124.24 million. Working capital was $154.7 million, versus $150.4 million at September 30, 2019.
- The company had no short- or long-term debt. Total liabilities were $8.74 million and shareholders’ equity was $161.83 million.
- Nine-month operating cash flow was $9.41 million, versus $23,000 in the prior-year period. Capital expenditures were $1.25 million; financing cash flow included $103,000 from stock-option exercises. Cash increased to $18.56 million from $10.30 million at fiscal year-end.
- Backlog was $11.7 million at June 30, 2020, compared with $11.9 million one year earlier. Contract assets (costs and estimated earnings in excess of billings) were $10.06 million, expected to be billed and collected within one year. Customer deposits were $2.65 million.
Outlook, risks and other material items
- Management provided no quantified earnings or revenue guidance. It said the company’s operations had not been significantly affected by COVID-19 as of the financial statement issuance date, but warned that the pandemic’s evolving effects on customers, suppliers, demand and the economy could materially harm operations and financial performance.
- Key operating exposures include highway-construction spending and demand, steel and other raw-material costs, liquid asphalt and fuel prices, freight costs, and the ability to pass cost increases to customers. The FAST Act was scheduled to expire in September 2020.
- Three customers accounted for 16.5%, 13.3% and 12.6% of quarterly revenue. No customer accounted for 10% or more of nine-month revenue.
- One plant’s final payment and shipment were delayed because the customer was awaiting a permit; management anticipated payment and shipment once the permit was issued.
- On July 31, 2020, Gencor announced an agreement to acquire Volvo CE’s Blaw-Knox paver business and related assets, including a manufacturing line. The deal was expected to be finalized in fiscal 2021’s first quarter; financial terms were not stated in the filing.
- The company reported no material legal proceedings, no material changes to previously disclosed risk factors, and no material changes in internal control over financial reporting. Disclosure controls were judged effective.
Important facts for investors to verify
- How much reported earnings in each period reflect marketable-security gains or losses rather than operating performance.
- Whether gross margins recover and whether equipment order timing or product mix affects future quarterly results.
- Any COVID-19-related changes in customer demand, supplier availability, operations or expected cash flows.
- Completion, purchase price, funding and expected financial impact of the Blaw-Knox acquisition; the filing gives no transaction price.
- Collection timing for the delayed plant payment and conversion of contract assets and backlog into billed revenue and cash.