Quarterly Report for Quarter Ending MARCH 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

This Quarterly Report contains certain "forward-looking statements" within the meaning of the Exchange Act, which represent the Company's expectations and beliefs, including, but not limited to, statements concerning gross margins, sales of the Company's products and litigation. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company's control. Actual results may differ materially depending on a variety of important factors, including the financial condition of the Company's customers, changes in the economic and competitive environments, the performance of the investment portfolio and the demand for the Company's products.

For information concerning these factors and related matters, see the following sections of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2025: (a) Part I, Item 1A, "Risk Factors" and (b) Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations"; however, other factors besides those referenced could adversely affect the Company's results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by the Company herein speak as of the date of this Quarterly Report. The Company does not undertake to update any forward-looking statement, except as required by law.

Overview

Gencor is a leading manufacturer of heavy machinery used in the production of highway construction equipment and materials and environmental control equipment. The Company's core products include asphalt pavers, hot mix asphalt plants, combustion systems, fluid heat transfer systems, and asphalt pavers. The Company's products are manufactured at three facilities in the United States.

Because the Company's products are sold primarily to the highway construction industry, the business is seasonal in nature. Traditionally, the Company's customers reduce their purchases of new equipment for shipment during the summer and fall months to avoid disrupting their peak season for highway construction and related repair work. The majority of orders for the Company's products are thus received between October and February, with a significant volume of shipments occurring in the late winter and spring. The principal factors driving demand for the Company's products are the overall economic conditions, the level of government funding for domestic highway construction and repair, Canadian infrastructure spending, the need for spare parts, fluctuations in the price of liquid asphalt, and a trend towards larger more efficient asphalt plants.

On November 15, 2021, President Biden signed into law a five-year, $1.2 trillion infrastructure bill, the Infrastructure Investment and Jobs Act (the "IIJA"), including $550 billion in new spending and reauthorization of $650 billion in previously allocated funds. The IIJA provides $110 billion for the nation's highways, bridges and roads. The IIJA is scheduled to expire on September 30, 2026. If Congress does not reauthorize or fully fund the IIJA when it expires at the end of fiscal year 2026, demand for our products could decline.

Fluctuations in the price of carbon steel, which is a significant cost and material used in the manufacturing of the Company's equipment, may affect the Company's financial performance. The Company is subject to fluctuations in market prices for raw materials, such as copper and steel. If the Company is unable to purchase materials it requires or is unable to pass on price increases to its customers or otherwise reduce its cost of goods sold, its results of operations and financial condition may be adversely affected.

The Company monitors the prices it charges for its products and services on an ongoing basis and has historically been able to adjust its prices to take into account changes in the rate of inflation.

Also, a significant increase in the price of liquid asphalt could decrease demand for hot mix asphalt paving materials and certain of the Company's products. Increases in oil prices also drive up the cost of gasoline and diesel, which results in increased freight costs. Where possible, the Company will pass increased freight costs on to its customers, however, the Company may not be able to recapture all of the higher costs, which could have a negative impact on the Company's financial performance.

We manufacture our equipment domestically with a fraction of our sales exported to neighboring countries. The current U.S. administration has implemented tariffs on countries to which the Company has sales and has threatened tariffs on a variety of other counties. Also, some of the parts we procure are sourced from countries subject to the recent tariffs. It is not known whether any additional costs will be passed onto customers. If we cannot pass additional costs onto customers, then this could negatively affect our revenues, cash flows, and financial position.

In February 2026, the U.S. Supreme Court issued a ruling invalidating tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). As a result of this ruling, the U.S. Court of International Trade issued an order directing the U.S. Customs and Border Protection ("CBP") agency to begin formalizing a process for refunds. The CBP launched an online portal that can be used to submit IEEPA tariff refund requests. The ultimate recoverability, timing and amount of any potential refunds of IEEPA tariffs remains uncertain and subject to further legal, regulatory and administrative developments. As of March 31, 2026, the Company has not recorded any potential impact associated with such refunds, but will continue to monitor these developments and their potential impact.

The Company believes its strategy of continuing to invest in product engineering and development and its focus on delivering the highest quality products and superior service will strengthen the Company's market position. The Company continues to review its internal processes to identify inefficiencies and cost-reduction opportunities. The Company will continue to scrutinize its relationships with suppliers to ensure it is achieving the highest quality materials and services at the most competitive cost.

Concerns over inflation, geopolitical issues and global financial markets have led to increased economic instability and expectations of slower economic growth. Our business may be adversely affected by any such economic instability or unpredictability. 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. Prolonged periods of inflation would likely increase our costs in the form of higher wages, and increased cost of supplies and equipment necessary to operate our business. Additionally, conflicts and/or tensions involving Russia, Ukraine, Israel, Iran, the U.S., and various countries, may cause increased inflation in energy and logistics costs and could further cause general economic conditions in the U.S. or abroad to deteriorate. There is a risk that one or more of our suppliers could be negatively affected by global economic instability, which could adversely affect our ability to operate efficiently and timely complete our operational goals. As of the date of this Quarterly Report, the Company's operations have not been significantly impacted.

Results of Operations

Quarter Ended March 31, 2026 versus March 31, 2025

Net revenue for the quarter ended March 31, 2026 was $33,799,000 compared with $38,204,000 net revenue for the quarter ended March 31, 2025. The decrease in net revenue was primarily due to lower contract equipment revenues recognized over time and associated freight revenue, which resulted from the timing of orders and shipments. As a percentage of net revenue, gross profit margins increased 200 basis points to 31.7% in the quarter ended March 31, 2026, compared to 29.7% in the quarter ended March 31, 2025.

Product engineering and development expenses decreased $52,000 to $629,000 for the quarter ended March 31, 2026, as compared to $681,000 for the quarter ended March 31, 2025 primarily due to lower headcount. Selling, general and administrative ("SG&A") expenses increased $1,651,000 to $5,843,000 for the quarter ended March 31, 2026, compared to $4,192,000 for the quarter ended March 31, 2025 due to higher trade show expenses. In the quarter ended March 31, 2026 Gencor incurred trade show expenses of $3,525,000 compared with $345,000 in the quarter ended March 31, 2025.

Operating income decreased 34.6%, or $2,244,000, from $6,480,000 for the quarter ended March 31, 2025 compared with $4,236,000 for the quarter ended March 31, 2026, due to higher trade show expenses. Operating margin was 12.5% for the quarter ended March 31, 2026 compared with 17.0% for the quarter ended March 31, 2025.

For the quarter ended March 31, 2026, the Company had net other income of $937,000, compared to $1,756,000 for the quarter ended March 31, 2025. Interest and dividend income, net of fees, was $1,111,000 in the quarter ended March 31, 2026, compared to $1,158,000 in the quarter ended March 31, 2025. The net realized and unrealized losses on marketable securities were $174,000 for the quarter ended March 31, 2026, compared to net realized and unrealized gains of $598,000 for the quarter ended March 31, 2025. The decline in net realized and unrealized gains was due to slightly higher interest rates on longer duration bonds that caused a decline in value.

The effective income tax rate for both the quarters ended March 31, 2026 and March 31, 2025 was 26% based on the expected annual effective income tax rate.

Net income for the quarter ended March 31, 2026 decreased $2,252,000 or 37.0% to $3,843,000, or $0.26 basic and diluted net income per common share, from $6,095,000, or $0.42 basic and diluted net income per common share, for the quarter ended March 31, 2025. The lower net income resulted primarily from the higher trade show expenses, lower net revenues and net non-operating income, partially offset by improved gross margins.

Six Months Ended March 31, 2026 versus March 31, 2025

Net revenue for the six months ended March 31, 2026 and 2025 was $57,376,000 and $69,620,000, respectively, a decrease of $12,244,000 or 17.6%. The decrease was primarily in contract equipment sales and was due primarily to uncertainty around replacement of the current Federal infrastructure spending bill which is scheduled to expire on September 30, 2026.

Gross profit margins increased to 30.4% for the six months ended March 31, 2026 from 28.8% for the six months ended March 31, 2025.

Product engineering and development expenses increased $30,000 to $1,387,000 for the six months ended March 31, 2026, compared to $1,357,000 for the six months ended March 31, 2025. SG&A expenses increased $1,179,000 to $8,739,000 for the six months ended March 31, 2026, compared to $7,560,000 the six months ended March 31, 2025, increased trade show expenses.

The Company had operating income of $7,337,000 for the six months ended March 31, 2026, compared to $11,104,000 for the six months ended March 31, 2025. The decrease in operating income was primarily due to higher trade show expenses, lower net revenue, partially offset by increased gross margins.

For the six months ended March 31, 2026, the Company had net other income of $2,487,000, compared to $2,290,000 for the six months ended March 31, 2025. Interest and dividend income, net of fees, was $2,288,000 for the six months ended March 31, 2026, as compared to $2,147,000 for the six months ended March 31, 2025. The increase in interest and dividend income, net of fees, for the six months ended March 31, 2026, was primarily due to higher rates earned on fixed income investments and higher cash balances. Net realized and unrealized gains on marketable securities were $199,000 for the six months ended March 31, 2026, compared to $143,000 for the six months ended March 31, 2025.

The effective income tax rate for both the six month periods ended March 31, 2026 and March 31, 2025 was 26% based on the expected annual effective income tax rate. Net income for the six months ended March 31, 2026 was $7,285,000, or $0.50 basic and diluted net income per common share, compared to $9,912,000, or $0.68 basic and diluted net income per common share for the six months ended March 31, 2025. The lower net income and earnings per share resulted primarily from higher trade show expenses and lower net revenue.

Liquidity and Capital Resources

The Company generates capital resources through operations and returns on its investments. We believe these sources of capital will satisfy our liquidity needs in both the short and long term.

The Company had no long-term or short-term debt outstanding at March 31, 2026 or September 30, 2025. 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 March 2027, 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. The letter is collateralized by restricted cash of the same amount on any outstanding drawings. To date, no amounts have been drawn under the letter of credit.

As of March 31, 2026, the Company had $43,464,000 in cash and cash equivalents, and $111,670,000 in marketable securities, including $5,849,000 in equities, $28,960,000 in corporate bonds, $12,137,000 in exchange-traded funds, $4,150,000 in mutual funds, $54,636,000 in government securities, and $5,938,000 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 $60.5 million at March 31, 2026 compared to $27.8 million at March 31, 2025. The Company's net working capital (defined as current assets less current liabilities) was $205.2 million at March 31, 2026 and $197.7 million at September 30, 2025. Cash flows provided by operating activities during the six months ended March 31, 2026 was $18,029,000. Contract assets decreased $4,656,000 and contract liabilities increased $1,233,000 with the timing of inventory build, customer payments and percentage of completion recognition on plant sales where revenue is recognized over time. Marketable securities increased $1,956,000 due to net unrealized losses of $340,000, and net realized gains and interest earned on corporate bonds and U.S. treasuries of $2,296,000. Inventories decreased $2,432,000 due to paver sales and the completion and shipment on contract orders. Prepaid expenses increased $1,768,000 reflecting prepayments of insurance premiums to be amortized over fiscal 2026 and prepaid income taxes. Accounts payable increased $2,992,000 reflecting primarily open payables related to the March 2026 ConExpo Con/Agg trade show and the timing of purchase order receipts. Customer deposits increased $3,216,000 reflecting progress payments on contract equipment sales where revenues are recognized at a point in time that have not yet shipped as well as initial deposits on contract equipment sales where revenues are recognized overtime but manufacturing is yet to begin.

Cash flows used in investing activities for the six months ended March 31, 2026 of $1,152,000 were related to capital expenditures, primarily for building additions and improvements, and capital equipment.

Seasonality

The Company's primary business is the manufacture of asphalt plants and related components and asphalt pavers. These products typically experience a seasonal slowdown during the third and fourth quarters of the calendar year. This slowdown often results in lower reported sales and operating results during the first and fourth quarters of the fiscal year ended September 30.

Critical Accounting Policies, Estimates and Assumptions

The Company believes the following discussion addresses its most critical accounting policies, which are those that are most important to the portrayal of the financial condition and results of operations and require management's most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Accounting policies, in addition to the critical accounting policies referenced below, are presented in Note 1 to the Company's consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2025, "Nature of Operations and Summary of Significant Accounting Policies." There were no material changes to the accounting policies during the six months ended March 31, 2026.

Estimates and Assumptions

In preparing the condensed consolidated financial statements, the Company uses certain estimates and assumptions that may affect reported amounts and disclosures. Estimates and assumptions are used, among other places, when accounting for certain revenue (e.g., contract accounting), expense, and asset and liability valuations. The Company believes that the estimates and assumptions made in preparing the condensed consolidated financial statements are reasonable, but are inherently uncertain. Assumptions may be incomplete or inaccurate and unanticipated events may occur. The Company is subject to risks and uncertainties that may cause actual results to differ from estimated results.

Revenues & Expenses

The Company recognizes revenue under ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over time when the performance obligation is satisfied by transferring control of the equipment. Control of the equipment transfers over time, as the equipment is unique to the specific contract and thus does not create an asset with an alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs

incurred, as compared with total estimated labor costs expected to be incurred, during the entire contract. All incremental costs related to obtaining a contract are expensed as incurred, as the amortization period is less than one year. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined.

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 $7,552,000 and $12,208,000 at March 31, 2026 and September 30, 2025, respectively, and are included in current assets on the Company's condensed consolidated balance sheets. Contract liabilities (excluding customer deposits) under contracts with customers represent amounts billed in excess of revenue recognized on equipment sales recognized over time. These contract liabilities were $1,233,000 and zero at March 31, 2026 and September 30, 2025, respectively, and are included in current liabilities on the Company's condensed consolidated balance sheets. The Company anticipates that all of the contract assets at March 31, 2026, 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. Control of the goods or service typically transfers at time of shipment or upon completion of the service.

Payment for equipment under contract with customers is typically due prior to shipment. Payment for services under contract with customers is due as services are completed. Accounts receivable related to contracts with customers for equipment sales were $126,000 and $80,000 at March 31, 2026 and September 30, 2025, 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 such contract liabilities at March 31, 2026 and September 30, 2025. Customer deposits related to contracts with customers were $7,105,000 and $3,889,000 at March 31, 2026 and September 30, 2025, 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. The cost of shipping and handling is recorded as cost of goods sold concurrently with the revenue recognition.

All product engineering and development costs, and selling, general and administrative expenses are charged to operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes evident.

The allowance for credit losses is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability, and also adjusting for any known customer payment issues with account balances in the less-than-90-day past due aging category. Account balances are charged off against the allowance for credit losses when they are determined to be uncollectible. Any recoveries of account balances previously considered in the allowance for credit losses reduce future additions to the allowance for credit losses. The allowance for credit losses also includes an estimate for returns and allowances. Provisions for estimated returns and allowances and other adjustments, are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using known issues and historical experience.

Inventories

Inventories are valued at the lower of cost or net realizable value, with cost being determined under the first in, first out method and net realizable value defined as the estimated selling price of goods less reasonable costs of completion and delivery. Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and

finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw materials, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on trade-in from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence, an allowance is established to reduce the cost basis of inventories three to four years old by 50%, the cost basis of inventories four to five years old by 75%, and the cost basis of inventories greater than five years old to zero. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company's fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.

Marketable Securities and Fair Value Measurements

Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and (losses) on investment transactions are determined by specific identification and are recognized as incurred in the condensed consolidated income statements. Net unrealized gains and (losses) are reported in the condensed consolidated income statements in the current period and represent the change in the fair value of investment holdings during the period.

Long-Lived Asset Impairment

Property and equipment and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess over its fair value of the asset's carrying value. Fair value is generally determined using a discounted cash flow analysis. There were no impairment losses in the six months ended March 31, 2026 and March 31, 2025.

Off-Balance Sheet Arrangements

None.