- Second quarter sales of $28 million yielded $0.27 earnings
per share
- Orders were $35.0 million in the quarter; Backlog improved
sequentially to $114.9 million
- Revenue guidance increased to $93 million to $97 million and
gross margin expectation improved to 21% to 23%
Graham Corporation (NYSE: GHM), a global business that designs,
manufactures and sells critical equipment for the oil refining,
petrochemical and defense industries, today reported financial
results for its second quarter ended September 30, 2020. Graham’s
current fiscal year ends March 31, 2021 (“fiscal 2021”).
James R. Lines, Graham’s President and Chief Executive Officer,
commented, “Results in the second quarter benefited from strong
defense industry sales, including a materials only order. We also
had the benefit of improved efficiencies in both our supply chain
and our production facilities which enabled us to accelerate
conversion of both large and short cycle orders in the quarter. As
a result, higher volume drove operating leverage which is inherent
in our business model.”
Mr. Lines continued, “We had strong orders in the quarter of $35
million. This order level was driven by our strategy to further our
geographic market reach and diversify our end markets, which
includes increasing our participation in the defense industry. We
remain confident in our ability to achieve the long-term goal of
significantly growing our business organically, as well as
continuing to consider acquisition opportunities.”
Second Quarter Fiscal 2021 Sales Summary (Compared with
the prior-year period unless noted otherwise. See accompanying
financial tables for a breakdown of sales by industry and
region)
Net sales were $28.0 million compared with $21.6 million in the
second quarter of fiscal 2020. The strong increase in sales
reflects Graham’s strategy to increase its defense business sales
with the U.S. Navy and sales to previously underserved markets.
Sales to the defense markets were up $6.8 million to $9.4
million compared with the prior year period and represented 34% of
total sales. Sales to the chemical/petrochemical market were $5.5
million compared with $10.5 million in the prior year. Sales to the
refining market increased $4.0 million to $10.3 million and sales
to other commercial markets increased $0.6 million to $2.8
million.
From a geographic perspective, domestic sales were 62% of total
sales compared with 73% in the second quarter of fiscal 2020.
International sales were 38% of total sales, compared with 27% in
the prior-year period.
Fluctuations in Graham’s sales among geographic locations and
industries can vary measurably from quarter-to-quarter based on the
timing and magnitude of projects. Graham does not believe that such
quarter-to-quarter fluctuations are indicative of business trends,
which it believes are more apparent on a trailing twelve-month
basis.
Second Quarter Fiscal 2021 Performance Review*(Compared
with the prior-year period unless noted otherwise)
($ in millions except per share data)
Q2 FY21
Q2 FY20
Change
Net sales
$
28.0
$
21.6
$
6.4
Gross profit
$
7.7
$
4.9
$
2.8
Gross margin
27.5
%
22.9
%
Operating profit
$
3.4
$
1.1
$
2.3
Operating margin
12.3
%
5.1
%
Net income
$
2.7
$
1.2
$
1.5
Diluted EPS
$
0.27
$
0.12
EBITDA
$
4.0
$
1.7
$
2.3
EBITDA margin
14.2
%
7.8
%
*Graham believes that EBITDA (defined as consolidated net income
before net interest income, income taxes, depreciation, and
amortization), and EBITDA margin (EBITDA as a percentage of sales),
which are non-GAAP measures, help in the understanding of its
operating performance. Moreover, Graham’s credit facility also
contains ratios based on EBITDA. See the attached table on page 10
for additional important disclosures regarding Graham’s use of
EBITDA and EBITDA margin as well as the reconciliation of net
income to EBITDA.
Gross margin expanded 460 basis points to 27.5% driven by higher
volume level as well as favorable mix of projects.
Selling, general and administrative (“SG&A”) expenses, were
$4.3 million, up $0.4 million, or 11%, compared with the prior-year
period. SG&A, as a percent of sales for the three-month periods
ended September 30, 2020 and 2019 were 15.2% and 17.8%,
respectively.
Operating profit was $3.4 million, up from $1.1 million last
year. Net income was $2.7 million, or $0.27 per share compared with
$1.2 million or $0.12 per share last year.
EBITDA margin expanded 640 basis points on higher volume and
lower relative operating expenses.
First Half Fiscal 2021 Performance Review (Compared with
the prior-year period unless noted otherwise)
($ in millions except per share data)
YTD FY21 YTD
FY20 Change Net sales
$
44.7
$
42.2
$
2.5
Gross profit
$
9.3
$
9.7
$
(0.4
)
Gross margin
20.7
%
22.9
%
Operating profit
$
1.1
$
0.7
$
0.4
Operating margin
2.5
%
1.7
%
Net income
$
0.9
$
1.3
$
(0.4
)
Diluted EPS
$
0.09
$
0.13
EBITDA
$
2.2
$
1.9
$
0.3
EBITDA margin
4.9
%
4.5
%
International sales were $18.0 million and represented 40% of
total sales, compared with $12.1 million, or 29%, of sales in the
same prior-year period. Sales to the U.S. were $26.7 million, or
60%, of first half net sales in fiscal 2021, compared with $30.1
million, or 71%, of fiscal 2020 first half net sales.
Gross profit and margin were down compared with the prior-year
period primarily as a result of production capability being
significantly reduced in the first quarter fiscal 2021 due to the
COVID-19 pandemic. Production during that period was at
approximately 50% of normal production.
SG&A was $8.2 million, down 3%, or $0.2 million. As a
percent of sales, SG&A was 18% in the quarter down from 20% in
the same prior-year period. Included in the first half of 2020 was
$0.6 million of SG&A for our divested commercial nuclear
utility business
The effective tax rate was 30% compared with 22% in the
prior-year period. The higher six-month tax rate in fiscal 2021 was
due to the loss incurred in the first quarter.
Strong Balance Sheet with Ample Liquidity
Cash, cash equivalents and investments at September 30, 2020
decreased $5.1 million to $67.9 million from March 31, 2020.
Net cash used by operating activities for the first half of
fiscal 2021 was $2.3 million, compared with $1.9 million of cash
used for the first half of fiscal 2020. In the most recent quarter,
cash used by operating activities was principally due to timing of
accounts receivable and accounts payable.
Capital spending was $0.5 million in the second quarter of
fiscal 2021 and was $0.8 million year-to-date. The Company expects
capital expenditures for fiscal 2021 to be between $2.0 million and
$2.5 million, of which 80% to 85% is expected to be for machinery
and equipment and the remainder to be used for other items.
As of September 30, 2020, Graham had no debt.
Orders and Backlog
Orders for the quarter increased $2.4 million to $35.0 million.
Defense orders increased $11.1 million to $12.6 million in the
second quarter of fiscal 2021 more than offsetting the estimated
impact the COVID-19 pandemic had on capital spending decisions by
Graham’s historic refining and petrochemical customers, primarily
in North America, during the quarter. Chemical and petrochemical
orders were $3.3 million, compared with $6.2 million in the
prior-year period. Refining orders were $16.8 million in the
current quarter, compared with $22.6 million in the second quarter
of fiscal 2020. The company believes that the pipeline of available
opportunities in the defense industry remains strong, and that the
timing of orders in this industry can be variable.
Domestic orders were 46% of total net orders in the second
quarter of fiscal 2021 and were 33% in the same prior-year
period.
Backlog at the end of the second quarter of fiscal 2021 was
$114.9, an increase of $7.7 million from June 30, 2020. The
increase reflects previously announced orders placed in the second
quarter valued at $28.5 million.
Backlog by industry at September 30, 2020 was approximately:
- 50% for U.S. Navy projects
- 37% for refinery projects
- 9% for chemical/petrochemical projects
- 4% for other industrial applications
The Company expects 60% to 65% of backlog to convert to revenue
within the next 12 months.
Increasing Fiscal 2021 Guidance
Mr. Lines concluded, “Nearly all of our expected second half
revenue this year is already in backlog, giving us solid confidence
to increase guidance for fiscal 2021. Orders in the second quarter
add to fiscal 2022 revenue potential. The strength of revenue next
fiscal year will depend upon orders during the next three
quarters.”
Graham is increasing revenue guidance for fiscal 2021 while
raising expectations for gross margin and tightening the range for
SG&A expense. This guidance is based on the assumption that
Graham is able to operate its production facility at full capacity,
has access to its global supply chain including its subcontractors,
and experiences minimal or no additional COVID-19 related
disruptions or any other unforeseen events.
- Revenue between $93 million and $97 million
- Gross margin between 21% and 23%
- SG&A expense between $17.0 million and $17.5 million
- Effective tax rate of approximately 22%
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 second quarter of fiscal 2021, 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 Wednesday, November 4, 2020. To listen to the archived
call, dial (412) 317-6671 and enter conference ID number 13710948.
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, 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’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,
effects of the COVID-19 global pandemic, 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 and
productivity, customer preferences, changes in market conditions in
the industries in which it operates, the effect on its business of
volatility in commodities prices, including, but not limited to,
the extreme price volatility seen in the first six months of
calendar year 2020, 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 its operations in China, India 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
Second Quarter Fiscal
2021
Consolidated Statements of
Operations - Unaudited
(Amounts in thousands, except per
share data)
Three Months Ended
Six Months Ended
September 30,
September 30,
2020
2019
% Change
2020
2019
% Change
Net sales
$
27,954
$
21,643
29
%
$
44,664
$
42,236
6
%
Cost of products sold
20,261
16,695
21
%
35,403
32,574
9
%
Gross profit
7,693
4,948
55
%
9,261
9,662
(4
%)
Gross margin
27.5
%
22.9
%
20.7
%
22.9
%
Other expenses and income:
Selling, general and
administrative
4,253
3,847
11
%
8,155
8,403
(3
%)
Selling, general and
administrative – amortization
-
-
NA
-
11
NA
Other expense
-
-
NA
-
523
NA
Operating profit
3,440
1,101
212
%
1,106
725
53
%
Operating margin
12.3
%
5.1
%
2.5
%
1.7
%
Other income
(54
)
(87
)
(38
%)
(109
)
(174
)
(37
%)
Interest income
(26
)
(363
)
(93
%)
(120
)
(762
)
(84
%)
Interest expense
3
4
(25
%)
8
7
14
%
Income before provision for
income taxes
3,517
1,547
127
%
1,327
1,654
(20
%)
Provision for income taxes
773
342
126
%
401
367
9
%
Net income
$
2,744
$
1,205
128
%
$
926
$
1,287
(28
%)
Per share data:
Basic:
Net income
$
0.27
$
0.12
125
%
$
0.09
$
0.13
(31
%)
Diluted:
Net income
$
0.27
$
0.12
125
%
$
0.09
$
0.13
(31
%)
Weighted average common shares
outstanding:
Basic
9,977
9,883
9,936
9,869
Diluted
9,977
9,885
9,936
9,872
Dividends declared per share
$
0.11
$
0.11
$
0.22
$
0.21
N/A: Not Applicable
Graham Corporation
Second Quarter Fiscal
2021
Consolidated Balance Sheets -
Unaudited
(Amounts in thousands, except per
share data)
September 30,
March 31,
2020
2020
Assets Current assets: Cash and cash equivalents
$
62,356
$
32,955
Investments
5,500
40,048
Trade accounts receivable, net of allowances ($41 and $33 at
September 30 and March 31, 2020, respectively)
19,276
15,400
Unbilled revenue
13,691
14,592
Inventories
20,615
22,291
Prepaid expenses and other current assets
1,378
906
Income taxes receivable
322
485
Total current assets
123,138
126,677
Property, plant and equipment, net
17,327
17,587
Prepaid pension asset
3,881
3,460
Operating lease assets
171
243
Other assets
105
153
Total assets
$
144,622
$
148,120
Liabilities and stockholders’ equity Current
liabilities: Current portion of finance lease obligations
$
26
$
40
Accounts payable
11,669
14,253
Accrued compensation
5,082
4,453
Accrued expenses and other current liabilities
3,867
3,352
Customer deposits
24,838
26,983
Operating lease liabilities
110
153
Total current liabilities
45,592
49,234
Finance lease obligations
45
55
Operating lease liabilities
53
82
Deferred income tax liability
988
721
Accrued pension liability
800
747
Accrued postretirement benefits
567
557
Total liabilities
48,045
51,396
Stockholders’ equity: Preferred stock, $1.00 par
value, 500 shares authorized
-
-
Common stock, $0.10 par value, 25,500 shares authorized, 10,780 and
10,689 shares issued and 9,977 and 9,881 shares outstanding at
September 30 and March 31, 2020, respectively
1,078
1,069
Capital in excess of par value
26,866
26,361
Retained earnings
90,120
91,389
Accumulated other comprehensive loss
(8,992
)
(9,556
)
Treasury stock (803 and 808 shares at September 30 and March 31,
2020, respectively)
(12,495
)
(12,539
)
Total stockholders’ equity
96,577
96,724
Total liabilities and stockholders’ equity
$
144,622
$
148,120
Graham Corporation
Second Quarter Fiscal
2021
Consolidated Statements of
Cash Flows – Unaudited
(Amounts in thousands)
Six Months Ended
September 30,
2020
2019
Operating activities: Net income
$
926
$
1,287
Adjustments to reconcile net income to net cash used by operating
activities: Depreciation
972
980
Amortization
-
11
Amortization of actuarial losses
533
498
Equity-based compensation expense
494
412
Gain on disposal or sale of property, plant and equipment
3
-
Loss on sale of Energy Steel & Supply Co.
-
87
Deferred income taxes
191
119
(Increase) decrease in operating assets: Accounts receivable
(3,820
)
5,287
Unbilled revenue
901
(5,514
)
Inventories
1,808
990
Prepaid expenses and other current and non-current assets
(456
)
109
Income taxes receivable
163
233
Operating lease assets
75
138
Prepaid pension asset
(421
)
(435
)
Increase (decrease) in operating liabilities: Accounts payable
(2,544
)
(4,721
)
Accrued compensation, accrued expenses and other current and
non-current liabilities
1,214
(268
)
Customer deposits
(2,285
)
(1,116
)
Operating lease liabilities
(75
)
(64
)
Long-term portion of accrued compensation, accrued pension
liability and accrued postretirement benefits
63
52
Net cash used by operating activities
(2,258
)
(1,915
)
Investing activities: Purchase of property, plant and
equipment
(797
)
(679
)
Proceeds from disposal of property, plant and equipment
6
-
Proceeds from the sale of Energy Steel & Supply Co.
-
602
Purchase of investments
(31,603
)
(82,414
)
Redemption of investments at maturity
66,151
83,232
Net cash provided by investing activities
33,757
741
Financing activities: Principal repayments on finance
lease obligations
(24
)
(25
)
Principal repayments on long-term debt
(4,599
)
-
Proceeds from the issuance of long-term debt
4,599
-
Dividends paid
(2,195
)
(2,075
)
Purchase of treasury stock
(23
)
(230
)
Net cash used by financing activities
(2,242
)
(2,330
)
Effect of exchange rate changes on cash
144
(187
)
Net increase (decrease) in cash and cash equivalents, including
cash classified within current assets held for sale
29,401
(3,691
)
Net decrease in cash classified within current assets held for sale
-
552
Net increase (decrease) in cash and cash equivalents
29,401
(3,139
)
Cash and cash equivalents at beginning of period
32,955
15,021
Cash and cash equivalents at end of period
$
62,356
$
11,882
Graham Corporation
Second Quarter Fiscal
2021
EBITDA Reconciliation -
Unaudited
(Amounts in thousands)
Three Months Ended
Six Months Ended
September 30,
September 30,
2020
2019
2020
2019
Net income
$
2,744
$
1,205
$
926
$
1,287
Net interest income
(23
)
(359
)
(112
)
(755
)
Income taxes
773
342
401
367
Depreciation & amortization
486
490
972
991
EBITDA
$
3,980
$
1,678
$
2,187
$
1,890
EBITDA margin %
14.2
%
7.8
%
4.9
%
4.5
%
Non-GAAP Financial Measure:
EBITDA is defined as consolidated net income before net interest
income, income taxes, depreciation, and amortization and EBITDA
margin is defined as EBITDA as a percentage of 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, is important for
investors and other readers of Graham's financial statements, as it
is used as an analytical indicator by Graham's management to better
understand operating performance. Moreover, Graham’s credit
facility also contains ratios based on EBITDA. Because EBITDA is a
non-GAAP measure and is thus susceptible to varying calculations,
EBITDA, as presented, may not be directly comparable to other
similarly titled measures used by other companies.
Graham Corporation Second Quarter Fiscal
2021 Additional Information – Unaudited
ORDER & BACKLOG TREND ($ in millions)
Q120
Q220
Q320
Q420
FY2020
Q121
Q221
Total
Total
Total
Total
Total
Total
Total
Orders
$
15.1
$
32.6
$
20.0
$
12.3
$
80.0
$
11.5
$
35.0
Backlog
$
117.2
$
127.8
$
122.9
$
112.4
$
112.4
$
107.2
$
114.9
SALES BY INDUSTRY FY 2021 ($ in millions)
FY 2021 Q1 % of Q2 % of
6/30/20 Total 9/30/20 Total Refining
$
2.7
16
%
$
10.3
37
%
Chemical/ Petrochemical
$
8.0
48
%
$
5.5
20
%
Defense
$
3.5
21
%
$
9.4
34
%
Other Commercial
$
2.5
15
%
$
2.8
10
%
Total
$
16.7
$
28.0
SALES BY INDUSTRY FY 2020 ($ in millions)
FY 2020
Q1
% of
Q2
% of
Q3
% of
Q4
% of
FY2020
% of
6/30/19
Total
9/30/19
Total
12/31/19
Total
3/31/20
Total
Total
Refining
$
7.5
36
%
$
6.3
29
%
$
12.2
49
%
$
7.4
32
%
$
33.4
37
%
Chemical/ Petrochemical
$
7.1
35
%
$
10.5
48
%
$
6.2
24
%
$
7.1
31
%
$
30.9
34
%
Defense
$
2.1
10
%
$
2.6
12
%
$
4.3
17
%
$
5.6
24
%
$
14.6
16
%
Other Commercial
$
3.9
19
%
$
2.2
11
%
$
2.6
10
%
$
3.0
13
%
$
11.7
13
%
Total
$
20.6
$
21.6
$
25.3
$
23.1
$
90.6
Graham Corporation Second Quarter Fiscal
2021 Additional Information - Unaudited (Continued)
SALES BY REGION FY 2021
($ in millions)
FY 2021 Q1 % of
Q2 % of 6/30/20 Total 9/30/20
Total United States
$
9.4
56
%
$
17.3
62
%
Middle East
$
0.4
3
%
$
1.0
4
%
Asia
$
5.2
31
%
$
4.5
16
%
Other
$
1.7
10
%
$
5.2
18
%
Total
$
16.7
$
28.0
SALES BY REGION FY 2020 ($ in millions)
FY
2020 Q1 % of Q2 % of Q3 %
of Q4 % of FY2020 % of
6/30/19 Total 9/30/19 Total
12/31/19 Total 3/31/20 Total
Total United States
$
14.4
70
%
$
15.7
73
%
$
13.4
53
%
$
14.5
63
%
$
58.0
64
%
Middle East
$
0.8
4
%
$
0.5
2
%
$
7.5
30
%
$
4.3
19
%
$
13.1
14
%
Asia
$
3.2
16
%
$
1.0
5
%
$
0.7
3
%
$
0.6
2
%
$
5.5
6
%
Other
$
2.2
10
%
$
4.4
20
%
$
3.7
14
%
$
3.7
16
%
$
14.0
16
%
Total
$
20.6
$
21.6
$
25.3
$
23.1
$
90.6
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201028005337/en/
Jeffrey F. Glajch Vice President – Finance and CFO
Phone: (585) 343-2216 jglajch@graham-mfg.com
Deborah K. Pawlowski / Christopher M. Gordon Kei Advisors
LLC Phone: (716) 843-3908 / (716) 843-3748
dpawlowski@keiadvisors.com / cgordon@keiadvisors.com
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