- Revenue and earnings grow as core
markets recover
- Net income of $2.3 million, $0.24
per share, vs. $0.9 million, or $0.10 per share, in prior
year
- Orders were $22 million, backlog
remains strong at $115 million
- Increasing fiscal 2019 revenue
expectations to $95 million to $105 million
Graham Corporation (NYSE: GHM), a global business that designs,
manufactures and sells critical equipment for the oil refining,
petrochemical, power and defense industries, today reported
financial results for its first quarter ended June 30, 2018
(“fiscal 2019”).
Net sales in the first quarter of fiscal 2019 grew 42% to $29.6
million from $20.9 million in the first quarter of the fiscal year
ended March 31, 2018 (“fiscal 2018”). Net income in the fiscal 2019
first quarter was $2.3 million, or $0.24 per diluted share compared
with $0.9 million, or $0.10 per diluted share, in the prior-year
first quarter. Fiscal 2019 first quarter revenue and earnings per
share benefited by $3.0 million and $0.01, respectively, upon the
required adoption of a new revenue recognition accounting
standard.
James R. Lines, Graham’s President and Chief Executive Officer,
commented, “Global energy and petrochemical markets showed signs of
improvement during the second half of our fiscal 2018, resulting in
robust backlog entering fiscal 2019. We believe that we are off to
a solid start. Excluding the favorable impact of our adoption of a
new revenue recognition standard, our revenue grew 27% over the
prior-year first quarter. Our team executed well, resulting in
strong bottom line growth.”
He continued, “While we are projecting strong organic growth, we
remain active in our search for and evaluation of appropriate
opportunities to utilize our excess cash for an acquisition to
complement it. We continue to be disciplined in applying our
criteria for the right opportunity.”
First Quarter Fiscal 2019 Sales SummarySee accompanying
financial tables for a breakdown of sales by industry and
region)
Sales grew $8.7 million, of which $3.0 million related to the
impact from the adoption of a required new revenue recognition
accounting standard. Sales to the refining market were $19.8
million, compared with $3.6 million in the fiscal 2018 first
quarter. The significant increase was driven by a large refining
project in Canada, offset by lower sales to all of the Company’s
other markets.
From a geographic perspective, U.S. sales represented 46% of
consolidated sales in the fiscal 2019 first quarter compared with
71% in the first quarter of fiscal 2018. International sales
represented 54% of consolidated sales in the fiscal 2019 quarter,
compared with 29% in the prior-year comparable period. The change
was primarily due to the large refining project in Canada discussed
above.
Jeffrey Glajch, Graham’s Chief Financial Officer, noted, “We
adopted a new accounting standard, ‘Revenue from Contracts with
Customers,’ applying the modified retrospective approach on April
1, 2018. The standard established new guidelines that impacted some
of our larger projects that were in progress as of April 1, 2018.
As a result, we recognized approximately $3 million of additional
revenue. The net income impact of implementation during the first
quarter of fiscal 2019 was small, at $140,000, or about $0.01 per
share.”
Fluctuations in Graham’s sales among geographic locations and
industries can vary measurably from quarter-to-quarter based on the
timing and magnitude of projects. Graham does not believe that such
quarter-to-quarter fluctuations are indicative of business trends,
which it believes are more apparent on a trailing twelve month
basis.
First Quarter Fiscal 2019 Operating Performance
Review
($ in millions
except per share data)
Q1 FY19 Q1 FY18 Change
Net sales $ 29.6 $ 20.9 $ 8.7 Gross profit $ 7.1 $ 4.8 $ 2.3 Gross
margin 24.2 % 22.9 % Operating profit $ 2.5 $ 1.1 $ 1.4 Operating
margin 8.6 % 5.1 % Net income $ 2.3 $ 0.9 $ 1.4 Diluted EPS $ 0.24
$ 0.10 $ 0.14
The increase in net income and diluted EPS during the first
quarter compared with the prior-year quarter was primarily driven
by the increase in sales to the refining market, the resulting
higher gross profit, and a more favorable income tax rate,
partially offset by an increase in SG&A expenses.
First quarter fiscal 2019 gross profit and margin benefited from
higher sales as well as absorption of overhead costs.
Selling, general and administrative (“SG&A”) expenses of
$4.6 million increased $0.9 million compared with the prior-year
period. The increase was primarily due to higher compensation costs
for new personnel to support ongoing anticipated market expansion,
higher sales-related costs, and higher performance-based
compensation. SG&A as a percent of sales improved to 16% in the
first quarter of fiscal 2019 compared with 18% in the same
prior-year period.
During the first quarter of fiscal 2019, Graham had an effective
tax rate of 23% compared with 30% in the first quarter of fiscal
2018. The lower rate resulted from the change in U.S. federal tax
rates under the Tax Cuts and Jobs Act.
EBITDA
($ in millions)
Q1 FY19 Q1 FY18 Change
EBITDA $ 3.3 $ 1.7 $ 1.6 EBITDA margin 11.1 % 8.3 %
EBITDA (defined as consolidated net income before interest
expense and income, income taxes, and depreciation and
amortization) during the fiscal 2019 first quarter benefited from
the higher gross profit, partially offset by the increased SG&A
expense, both as discussed above.
Graham believes that, when used in conjunction with measures
prepared in accordance with GAAP, EBITDA and EBITDA margin (EBITDA
as a percentage of sales), which are non-GAAP measures, help in the
understanding of its operating performance. Graham’s credit
facility also contains ratios based on EBITDA. See the attached
tables for additional important disclosures regarding Graham’s use
of EBITDA and EBITDA margin as well as a reconciliation of net
income to EBITDA.
Available Capital Provides Financial Flexibility
Cash, cash equivalents and investments at June 30, 2018 were
$75.3 million, down $1.2 million from March 31, 2018. The decrease
resulted primarily from timing of changes in working capital.
Cash provided by operations in the first quarter of fiscal 2019
was nominal, compared with $2.9 million in the prior-year quarter.
The decrease was primarily attributable to timing of changes in
working capital, net of higher net income.
Capital expenditures were $0.2 million in the first quarter of
fiscal 2019 compared with $0.1 million in the first quarter of
fiscal 2018. The Company continues to expect capital expenditures
for fiscal 2019 to be between $2 million and $2.5 million, the
majority of which are expected to be used for productivity
enhancements.
Dividend payments were $0.9 million in the first quarters of
both fiscal 2019 and 2018.
Graham had neither borrowings under its credit facility, nor any
long-term debt outstanding, at June 30, 2018.
Orders and Backlog Support Growth
Total orders were $22.0 million in the first quarter of fiscal
2019, a strong improvement from the market trough level of $11.1
million in the prior-year first quarter. The increase was driven
primarily by the chemical/petrochemical and refining industries in
North America. In the fiscal 2019 first quarter, orders from U.S.
customers were $19.5 million, or 89% of total orders, and orders
from international markets were $2.5 million, or 11%. This compares
with 77% from the U.S. and 23% from international markets in the
first quarter of fiscal 2018.
Graham expects that the balance between domestic and
international orders, as well as orders by industry, will continue
to be variable between quarters.
Backlog at the end of the first quarter of fiscal 2019 was
$114.9 million, down slightly from the record level $117.9 at the
end of the trailing quarter, and up from $72.9 million at the end
of the prior-year quarter.
The Company continues to believe that its backlog mix by
industry highlights the success of its diversification strategy to
increase sales to the U.S. Navy. Backlog by industry at June 30,
2018 was approximately:
- 56% for U.S. Navy projects
- 21% for refinery projects
- 11% for chemical/petrochemical
projects
- 7% for power projects, including
nuclear
- 5% for other industrial
applications
The expected timing for the Company’s backlog to convert to
sales is as follows:
- Within next 12 months: 55% to 60%
- Within 12 to 24 months: 20% to 25%
- Beyond 24 months: 15% to 25%
Increasing FY 2019 Revenue Guidance
Graham is updating its fiscal 2019 guidance, as follows:
- Revenue anticipated to be between $95
million and $105 million (previously estimated between $90 million
to $95 million)
- Gross margin expected to be between 24%
and 26%
- SG&A expense expected to be between
$18 and $18.75 million
- Effective tax rate anticipated to be
between 20% and 22%
Mr. Lines concluded, “Our order activity during the quarter,
particularly in the chemical/petrochemical market, gave us reason
to increase our revenue outlook for fiscal 2019. We now expect
revenue growth between 23% and 35% over our cycle trough in fiscal
2018. Additionally, we continue to build a strong pipeline of bids.
Even though order timing remains unpredictable, we are encouraged
as fiscal 2019 progresses and as we begin to look towards fiscal
2020.”
Webcast and Conference Call
Graham’s management will host a conference call and live webcast
today at 11:00 a.m. Eastern Time to review its financial condition
and operating results for the first quarter of fiscal 2019, as well
as its strategy and outlook. The review will be accompanied by a
slide presentation which will be made available immediately prior
to the conference call on Graham’s website at www.graham-mfg.com
under the heading “Investor Relations.” A question-and-answer
session will follow the formal presentation.
Graham’s conference call can be accessed by calling (201)
689-8560. Alternatively, the webcast can be monitored on Graham’s
website at www.graham-mfg.com under the heading “Investor
Relations.”
A telephonic replay will be available from 2:00 p.m. ET today
through Friday, August 10, 2018. To listen to the archived call,
dial (412) 317-6671 and enter conference ID number 13680957. A
transcript of the call will be placed on Graham’s website, once
available.
ABOUT GRAHAM CORPORATION
Graham is a global business that designs, manufactures and sells
critical equipment for the energy, defense and
chemical/petrochemical industries. Energy markets include oil
refining, cogeneration, nuclear and alternative power. For the
defense industry, the Company’s equipment is used in nuclear
propulsion power systems for the U.S. Navy. Graham’s global brand
is built upon world-renowned engineering expertise in vacuum and
heat transfer technology, responsive and flexible service and
unsurpassed quality. Graham designs and manufactures
custom-engineered ejectors, vacuum pumping systems, surface
condensers and vacuum systems. Graham is also a leading nuclear
code accredited fabrication and specialty machining company. Graham
supplies components used inside reactor vessels and outside
containment vessels of nuclear power facilities. Graham’s equipment
can also be found in other diverse applications such as metal
refining, pulp and paper processing, water heating, refrigeration,
desalination, food processing, pharmaceutical, heating, ventilating
and air conditioning. Graham’s reach spans the globe and its
equipment is installed in facilities from North and South America
to Europe, Asia, Africa and the Middle East.
Graham routinely posts news and other important information on
its website, www.graham-mfg.com, where additional comprehensive
information on Graham Corporation and its subsidiaries can be
found.
Safe Harbor Regarding Forward Looking Statements
This news release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as
amended.
Forward-looking statements are subject to risks, uncertainties
and assumptions and are identified by words such as “expects,”
“estimates,” “confidence,” “projects,” “typically,” “outlook,”
“anticipates,” “believes,” “appears,” “could,” “opportunities,”
“seeking,” “plans,” “aim,” “pursuit,” “look towards” and other
similar words. All statements addressing operating performance,
events, or developments that Graham Corporation expects or
anticipates will occur in the future, including but not limited to,
expected expansion and growth opportunities within its domestic and
international markets, anticipated revenue, the timing of
conversion of backlog to sales, market presence, profit margins,
tax rates, foreign sales operations, its ability to improve cost
competitiveness, customer preferences, changes in market conditions
in the industries in which it operates, changes in commodities
prices, the effect on its business of volatility in commodities
prices, changes in general economic conditions and customer
behavior, forecasts regarding the timing and scope of the economic
recovery in its markets, its acquisition and growth strategy and
the expected performance of Energy Steel & Supply Co. and its
operations in China and other international locations, are
forward-looking statements. Because they are forward-looking, they
should be evaluated in light of important risk factors and
uncertainties. These risk factors and uncertainties are more fully
described in Graham Corporation’s most recent Annual Report filed
with the Securities and Exchange Commission, included under the
heading entitled “Risk Factors.”
Should one or more of these risks or uncertainties materialize,
or should any of Graham Corporation’s underlying assumptions prove
incorrect, actual results may vary materially from those currently
anticipated. In addition, undue reliance should not be placed on
Graham Corporation’s forward-looking statements. Except as required
by law, Graham Corporation disclaims any obligation to update or
publicly announce any revisions to any of the forward-looking
statements contained in this news release.
Graham Corporation
First Quarter Fiscal 2019
Consolidated Statements of Income –
Unaudited
(Amounts in thousands, except per share
data)
Three Months Ended June 30,
2018 2017
% Change Net sales $ 29,551 $
20,851 42 % Cost of products sold 22,409
16,073 39 % Gross profit 7,142 4,778 49 % Gross
margin 24.2 % 22.9 % Other expenses and income: Selling,
general and administrative 4,551 3,654 25 % Selling, general and
administrative – amortization 59 58 2 %
Operating profit 2,532
1,066 138 % Operating margin 8.6 % 5.1 % Other
income (206 ) (119 ) 73 % Interest income (289 ) (151 ) 91 %
Interest expense 2 3 (33 %) Income
before provision for income taxes 3,025 1,333 127 % Provision for
income taxes 702 398 76 %
Net
income $ 2,323 $ 935
148 % Per share data: Basic: Net income $ 0.24 $ 0.10
140 % Diluted: Net income $ 0.24 $ 0.10 140 %
Weighted average common shares outstanding: Basic 9,790
9,748 Diluted 9,804 9,758 Dividends declared per share $
0.09 $ 0.09
Graham Corporation
First Quarter Fiscal 2019
Consolidated Balance Sheets
(Amounts in thousands, except per share
data)
June 30, March 31, 2018 2018
(Unaudited) Assets Current assets: Cash and
cash equivalents $ 16,677 $ 40,456 Investments 58,611 36,023 Trade
accounts receivable, net of allowances ($307 and $339 at June 30
and March 31, 2018, respectively) 12,698 17,026 Unbilled revenue
11,844 8,079 Inventories 19,323 11,566 Prepaid expenses and other
current assets 1,342 772 Income taxes receivable 993
1,478 Total current assets 121,488 115,400 Property,
plant and equipment, net 16,722 17,052 Prepaid pension asset 4,657
4,369 Goodwill 1,222 1,222 Permits 1,700 1,700 Other intangible
assets, net 3,343 3,388 Other assets 221 202
Total assets $ 149,353 $
143,333 Liabilities and stockholders’
equity Current liabilities: Current portion of capital lease
obligations $ 69 $ 88 Accounts payable 8,296 16,151 Accrued
compensation 5,001 4,958 Accrued expenses and other current
liabilities 3,469 2,885 Customer deposits 25,867
13,213 Total current liabilities 42,702 37,295
Capital lease obligations 47 55 Deferred income tax liability 1,417
1,427 Accrued pension liability 589 565 Accrued postretirement
benefits 646 642
Total
liabilities 45,401 39,984
Stockholders’ equity: Preferred stock,
$1.00 par value, 500 shares authorized - - Common stock, $.10 par
value, 25,500 shares authorized
10,638 and 10,579 shares issued and 9,825
and 9,772
shares outstanding at June 30 and March
31, 2018,
respectively 1,064 1,058 Capital in excess of par value 24,182
23,826 Retained earnings 99,427 99,011 Accumulated other
comprehensive loss (8,279 ) (8,250 ) Treasury stock (813 and 807
shares at June 30 and March 31, 2018, respectively) (12,442
) (12,296 )
Total stockholders’ equity
103,952
103,349 Total liabilities and stockholders’
equity $ 149,353 $ 143,333
Graham Corporation
First Quarter Fiscal 2019
Consolidated Statements of Cash Flows –
Unaudited
(Amounts in thousands)
Three Months Ended
June 30,
2018 2017 Operating activities:
Net income $ 2,323 $ 935 Adjustments to reconcile net income to net
cash provided by operating activities: Depreciation 490 497
Amortization 59 58 Amortization of unrecognized prior service cost
and actuarial losses 219 263 Stock-based compensation expense 260
(67 ) Loss on disposal or sale of property, plant and equipment 31
- Deferred income taxes 201 185 (Increase) decrease in operating
assets: Accounts receivable 5,543 276 Unbilled revenue (6,539 )
4,394 Inventories 5,150 1,338 Prepaid expenses and other current
and non-current assets (451 ) (334 ) Income taxes receivable 485 72
Prepaid pension asset (288 ) (239 ) Increase (decrease) in
operating liabilities: Accounts payable (7,122 ) (3,170 ) Accrued
compensation, accrued expenses and other current and non-current
liabilities 322 (1,462 ) Customer deposits (643 ) 101 Long-term
portion of accrued compensation, accrued pension liability and
accrued postretirement benefits 28 29
Net cash provided by operating activities 68
2,876 Investing
activities: Purchase of property, plant and equipment (163 )
(117 ) Purchase of investments (55,611 ) (25,000 ) Redemption of
investments at maturity 33,023 9,000
Net cash used by investing activities (22,751
) (16,117 ) Financing
activities: Principal repayments on capital lease obligations
(26 ) (24 ) Issuance of common stock 102 - Dividends paid (885 )
(879 ) Purchase of treasury stock (146 ) (119 )
Net cash used by financing activities (955
) (1,022 ) Effect of exchange rate
changes on cash (141 ) 49 Net decrease in cash
and cash equivalents (23,779 ) (14,214 ) Cash and cash equivalents
at beginning of year 40,456 39,474 Cash
and cash equivalents at end of period $ 16,677 $ 25,260
Graham Corporation
First Quarter Fiscal 2019
EBITDA Reconciliation –
Unaudited
(Amounts in thousands)
Three Months Ended June 30, 2018
2017 Net income $ 2,323 $
935 + Net interest income (287 ) (148 ) + Income taxes 702
398 + Depreciation & amortization 549 555
EBITDA $ 3,287 $
1,740
EBITDA margin %
11.1 % 8.3 %
Non-GAAP Financial Measure:
EBITDA is defined as consolidated net income before interest
expense and income, income taxes, depreciation and amortization.
EBITDA margin is EBITDA divided by sales. EBITDA and EBITDA margin
are not measures determined in accordance with generally accepted
accounting principles in the United States, commonly known as GAAP.
Nevertheless, Graham believes that providing non-GAAP information
such as EBITDA and EBITDA margin are important for investors and
other readers of Graham's financial statements, as they are used as
analytical indicators by Graham's management to better understand
operating performance. Graham’s credit facility also contains
ratios based on EBITDA. Because EBITDA and EBITDA margin are
non-GAAP measures and are thus susceptible to varying calculations,
EBITDA and EBITDA margin, as presented, may not be directly
comparable to other similarly titled measures used by other
companies.
Graham Corporation
Fourth Quarter Fiscal 2019
Additional Information –
Unaudited
ORDER & BACKLOG TREND ($ in millions)
Q118 Q218
Q318 Q418 FY2018 Q119
Total Total
Total Total
Total Total Orders
$ 11.1 $ 17.1 $
40.5 $ 43.5 $ 112.2
$ 22.0 Backlog $
72.9 $ 73.0 $ 96.2
$ 117.9 $ 117.9
$ 114.9
SALES BY INDUSTRY FY
2019 ($ in millions)
FY 2019 Q1 %
of 6/30/18
Total Refining $ 19.8
67 %
Chemical/Petrochemical
$ 3.0 10 % Power
$ 3.1 10 %
Other Commercial,Industrial and
Defense
$ 3.7 13 % Total
$ 29.6
SALES BY INDUSTRY FY 2018 ($ in millions)
FY 2018 Q16/30/17
% ofTotal
Q29/30/17 %
ofTotal Q312/31/17
% ofTotal
Q43/31/18 %
ofTotal FY2018
% ofTotal Refining $ 3.6
18 % $ 4.7
28 % $ 5.4 31 %
$ 7.9 35 % $ 21.6
28 %
Chemical/Petrochemical
$ 7.2 34 %
$ 5.7 33 % $ 4.2
24 % $ 3.6
16 % $ 20.7 27 % Power
$ 4.0 19 %
$ 1.9 11 % $ 1.7
10 % $ 3.2
14 % $ 10.8 14 %
Other Commercial,Industrial and
Defense
$ 6.1 29 %
$ 4.9 28 % $ 6.0
35 % $ 7.4
35 % $ 24.4 32 % Total
$ 20.9
$ 17.2 $ 17.3
$ 22.1
$ 77.5
SALES BY REGION FY 2019 ($ in millions)
FY 2019 Q1 % of
6/30/18 Total United States
$ 13.5 46 % Middle
East $ 0.4 1 %
Asia $ 2.7 9 %
Other $ 13.0 44 %
Total $ 29.6
SALES BY REGION FY 2018 ($ in millions)
FY 2018 Q16/30/17
% ofTotal
Q29/30/17 %
ofTotal Q312/31/17
% ofTotal
Q43/31/18 %
ofTotal FY2018
% ofTotal United States $ 14.8
71 % $ 11.1
65 % $ 11.3
65 % $ 14.7 66 % $
51.9 67 % Middle East $
0.9 4 % $ 1.0
6 % $ 1.0
6 % $ 0.9 4 %
$ 3.8 5 % Asia $
3.4 16 % $ 2.6
15 % $ 2.3
13 % $ 1.9 9 %
$ 10.2 13 % Other
$ 1.8 9 % $ 2.5
14 % $ 2.7
16 % $ 4.6 21 %
$ 11.6 15 % Total
$ 20.9 $ 17.2
$ 17.3
$ 22.1
$ 77.5
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180803005044/en/
Graham CorporationJeffrey F. Glajch, 585-343-2216Vice
President – Finance and CFOjglajch@graham-mfg.comorKei Advisors
LLCDeborah K. Pawlowski,
716-843-3908dpawlowski@keiadvisors.comorKaren L. Howard,
716-843-3942khoward@keiadvisors.com
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