- Revenue of $20.2 million up 21%, driven by defense and
refining industry sales
- Orders increased to $20.9 million including $11.4 million
from the refining industry
- Backlog at quarter-end was $235.9 million; 80% of backlog
was for the defense industry; Added space industry to backlog with
acquisition of Barber Nichols
- Profits and margins heavily impacted by product mix
Graham Corporation (NYSE: GHM), a global business that designs,
manufactures and sells critical equipment for the defense, energy,
and chemical/petrochemical industries, today reported financial
results for its first quarter ended June 30, 2021 (“first quarter
of fiscal 2022”). Results include one month of financials related
to Barber-Nichols (“BN”) which was acquired on June 1, 2021.
Separately today the Company announced that Daniel J. Thoren will
be promoted to President and Chief Executive Officer effective
September 1, 2021, immediately following the retirement of James R.
Lines who served with the Company for 37 years.
Mr. Lines commented, “While sales improved as a result of the
acquisition, we had a number of projects with lower margins which
heavily impacted profitability in the quarter. This partially
reflects our initial strategy to aggressively enter the Naval
Nuclear Propulsion Program (“NNNP”). Given our strong performance
on the NNNP projects, we were successful with our strategy and have
since earned a sole source position. We expect that the vast
majority of the impact of first order projects will be behind us by
the end of fiscal 2022.”
Mr. Lines added, “While the quarter’s results were
disappointing, we view this fiscal year as a transition and believe
we are better positioned to drive growth and stronger margins for
the future.”
First Quarter Fiscal 2022 Sales Summary (All comparisons
are with the same prior-year period unless noted otherwise. See
accompanying financial tables for a breakdown of sales by industry
and region.)
Net sales of $20.2 million increased $3.4 million, or 21%,
driven by $3.5 million in sales associated with the acquisition of
BN and higher sales to the refining industry which helped to offset
lower petrochemical sales. Last fiscal year’s first quarter
benefitted from the shipment of a large petrochemical project that
had been extended from fiscal 2020 into fiscal 2021 due to the
COVID-19 pandemic. BN had one month of sales included in the fiscal
2022 first quarter’s results.
Sales to the defense markets were up 104% to $7.1 million and
represented 35% of total revenue. Sales to the refining markets
increased $1.9 million from the prior-year period to $4.6 million
and represented 23% of total sales. Chemical/petrochemical market
sales were $4.6 million compared with $8.0 million in the prior
fiscal year.
From a geographic perspective, domestic sales were 69% of total
sales and reflect the impact of BN, along with higher sales to the
defense industry. The majority of international sales were to Asia,
which accounted for 17% of total sales.
Fluctuations in Graham’s sales among geographic locations and
industries can vary measurably from quarter-to-quarter based on the
timing and magnitude of projects. Graham does not believe that such
quarter-to-quarter fluctuations are indicative of business
trends.
First Quarter Fiscal 2022 Performance Review
(All comparisons are with the same prior-year period unless
noted otherwise.)
($ in millions except per share data)
Q1 FY22
Q1 FY21
Change
Net sales
$
20.2
$
16.7
$
3.4
Gross profit
$
0.9
$
1.6
$
(0.7)
Gross margin
4.5%
9.4%
Operating profit
$
(3.8)
$
(2.3)
$
(1.6)
Operating margin
(19.1%)
(13.6%)
Net loss
$
(3.1)
$
(1.8)
$
(1.3)
Diluted EPS
$
(0.31)
$
(0.18)
Adjusted diluted EPS
$
(0.28)
$
(0.18)
Adjusted EBITDA
$
(2.9)
$
(1.8)
$
(1.1)
Adjusted EBITDA margin
-14.2%
-10.7%
*Graham believes that Adjusted EBITDA (defined as consolidated
net income (loss) before net interest expense, income taxes,
depreciation, amortization and other acquisition related expenses),
and Adjusted EBITDA margin (Adjusted 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 Adjusted EBITDA. Graham also believes that
adjusted EPS, which adds back intangible amortization expense
related to acquisitions, provides a better representation of the
cash earnings of the Company. See the attached table on page 9 for
additional important disclosures regarding Graham’s use of Adjusted
EBITDA, Adjusted EBITDA margin and Adjusted diluted EPS as well as
the reconciliation of net income/(loss) to Adjusted EBITDA and
Adjusted diluted EPS.
Lower gross profit and margin despite higher sales volume, was
due to a poor mix of projects in the Company’s Batavia production
facility combined with a lower level of outsourced fabrication.
Selling, general and administrative (“SG&A”) expenses were
$4.9 million, up $1.0 million, or 26%. BN accounted for $0.6
million of the increase, including the impact of intangible asset
amortization. The remaining increase was due to acquisition-related
and organizational development costs. SG&A, as a percent of
sales for the three-month periods ended June 30, 2021, and 2020
were 24.4% and 23.4%, respectively.
Net loss per diluted share was $0.31. On a non-GAAP basis, which
excludes intangible amortization and other costs related to the
acquisition, adjusted earnings per share were $(0.28).
Strong Balance Sheet with Ample Liquidity
Cash, cash equivalents and investments at June 30, 2021 were
$19.1 million compared with $65.0 million at March 31, 2021. During
the quarter, in connection with the acquisition of BN, the Company
utilized $41.1 million of cash, cash equivalents and investments,
and incurred debt of $20 million pursuant to a 5-year term
loan.
Net cash used by operating activities was $7.1 million compared
with cash usage of $4.4 million in the prior-year period. The
change in cash usage reflects the higher net loss and changes in
working capital, which included the utilization of customer
deposits.
Year-to-date capital spending was $0.4 million. The Company has
adjusted anticipated capital expenditures for fiscal 2022 to be
between $3.5 million and $4.0 million (including BN).
Orders and Backlog
($ in millions)
Q121
Q221
Q321
Q421
FY2021
Q122
Total
Total
Total
Total
Total
Total
Orders
$
11.5
$
35.0
$
61.8
$
13.4
$
121.6
$
20.9
Backlog
$
107.2
$
114.9
$
149.7
$
137.6
$
137.6
$
235.9
Orders of $20.9 million increased 82% over the prior-year period
and 55% sequentially. The year-over-year growth was across each of
Graham’s major industries, with the bulk from defense and refining.
The growth in orders sequentially was largely from the refining
industry. The one month of orders from BN during the quarter were
$0.2 million. Domestic orders were 74% of total net orders in the
first quarter of fiscal 2022 compared with 28% in the prior-year
period, reflecting the demand from the U.S. Navy.
Backlog at the end of the quarter was $235.9 million, inclusive
of BN backlog of $94.4 million.
Backlog by industry at June 30, 2021 was approximately:
- 80% for defense projects
- 12% for refinery projects
- 3% for chemical/petrochemical projects
- 2% for space projects
- 3% for other industrial applications
The Company expects approximately 35% to 40% of backlog will
convert to revenue in the last nine months of fiscal 2022.
Approximately $25 million to $27 million of backlog related to the
defense industry is expected to convert to sales in fiscal
2022.
Fiscal 2022 Guidance Remains Unchanged
Daniel J. Thoren, currently the Company’s President and COO,
concluded, “I am encouraged by the improvement in orders in the
quarter, specifically from the refining market. Our quoting
activity is picking up and, while still early, we believe our
customers are more optimistic. We anticipate this optimism will
translate into greater capital investments and improving demand for
our products. In the meantime, our second quarter will benefit from
having BN for a full three months. However, based on the timing of
customers’ projects, we expect that revenue and profits will ramp
through the second half of the fiscal year. We see fiscal 2022 as a
transition year as it relates to earnings, given the timing of
conversion of first order projects for the U.S. Navy.”
He added, “We are very optimistic about our future. We believe
that we have the right strategy, the best talent and the ideal
technologies to capitalize on the growing requirements of our
customers in the defense industry. We also are encouraged with the
improvements we are seeing in our core energy markets. Together,
our combined Graham and BN teams are looking to improve our growth
profile while driving profitability.”
Revenue in fiscal 2022 is expected to be $130 million to $140
million with 45% to 50% associated with the defense industry.
Revenue expectations are inclusive of BN’s 10-month revenue
contribution for the fiscal year which is expected to be between
$45 million to $48 million. Adjusted EBITDA* is expected to be
approximately $7.0 million to $9.0 million in fiscal 2022.
*Please refer and read the safe harbor statement regarding
forward-looking non-GAAP measures.
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 2022, 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 Tuesday, August 17, 2021. To listen to the archived call,
dial (412) 317-6671 and enter conference ID number 13721239. 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 defense, energy, aerospace, medical,
technology, automotive and chemical/petrochemical industries. The
Graham and Barber-Nichols’ global brands are built upon
world-renowned engineering expertise in vacuum and heat transfer,
cryogenics, and turbomachinery technologies, as well as the
Company’s responsive and flexible service and unsurpassed
quality.
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,” “indicates”, “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, the integration of the BNI acquisition, the future
expected contributions of BN, 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,
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.
In addition, forward looking adjusted EBITDA and adjusted EBITDA
margin are non-GAAP measures. The Company is unable to present a
quantitative reconciliation of these forward-looking non-GAAP
financial measures to their most directly comparable
forward-looking GAAP financial measures because such information is
not available, and management cannot reliably predict the necessary
components of such GAAP measures without unreasonable effort or
expense. In addition, the Company believes that such
reconciliations would imply a degree of precision that would be
confusing or misleading to investors. The unavailable information
could have a significant impact on the Company’s fiscal 2022
financial results. These non-GAAP financial measures are
preliminary estimates and are subject to risks and uncertainties,
including, among others, changes in connection with purchase
accounting, quarter-end and year-end adjustments. Any variation
between the Company’s actual results and preliminary financial data
set forth above may be material.
Graham Corporation
Consolidated Statements of
Income - Unaudited
(Amounts in thousands, except per
share data)
Three Months Ended
June 30,
2021
2020
(Amounts in thousands, except per
share data)
Net sales
$
20,157
$
16,710
Cost of products sold
19,243
15,142
Gross profit
914
1,568
Other expenses and income:
Selling, general and administrative
4,832
3,902
Selling, general and administrative –
amortization
91
—
Other income
(160
)
(55
)
Interest income
(17
)
(94
)
Interest expense
39
5
Total other expenses and income
4,785
3,758
Loss before benefit for income
taxes
(3,871
)
(2,190
)
Benefit for income taxes
(745
)
(372
)
Net loss
$
(3,126
)
$
(1,818
)
Per share data
Basic:
Net loss
$
(0.31
)
$
(0.18
)
Diluted:
Net loss
$
(0.31
)
$
(0.18
)
Weighted average common shares
outstanding:
Basic
10,199
9,895
Diluted
10,199
9,895
Dividends declared per share
$
0.11
$
0.11
Graham Corporation
Consolidated Balance Sheets –
Unaudited
(Amounts in thousands, except per
share data)
June 30,
2021
March 31,
2021
Assets
Current assets:
Cash and cash equivalents
$
19,143
$
59,532
Investments
—
5,500
Trade accounts receivable, net of
allowances ($67 and $29 at June 30 and March 31, 2021,
respectively)
18,273
17,378
Unbilled revenue
28,533
19,994
Inventories
19,144
17,332
Prepaid expenses and other current
assets
1,557
512
Income taxes receivable
1,416
—
Total current assets
88,066
120,248
Property, plant and equipment, net
25,618
17,618
Prepaid pension asset
6,518
6,216
Operating lease assets
9,146
95
Goodwill
22,923
—
Customer relationships
11,751
—
Technology and technical know how
10,058
—
Other intangible assets, net
11,067
—
Other assets
219
103
Total assets
$
185,366
$
144,280
Liabilities and stockholders’
equity
Current liabilities:
Short-term debt obligations
$
2,500
$
—
Current portion of long-term debt
2,000
—
Current portion of finance lease
obligations
22
21
Accounts payable
15,124
17,972
Accrued compensation
6,049
6,106
Accrued expenses and other current
liabilities
7,421
4,628
Customer deposits
17,034
14,059
Operating lease liabilities
1,081
46
Income taxes payable
—
741
Total current liabilities
51,231
43,573
Long-term debt
18,000
—
Finance lease obligations
28
34
Operating lease liabilities
8,103
37
Deferred income tax liability
906
635
Accrued pension and postretirement
liabilities
2,087
2,072
Other long-term liabilities
1,811
—
Total liabilities
82,166
46,351
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $1.00 par value, 500
shares authorized
—
—
Common stock, $0.10 par value, 25,500
shares authorized, 10,874 and 10,748 shares issued and 10,691 and
9,959 shares outstanding at June 30 and March 31, 2021,
respectively
1,087
1,075
Capital in excess of par value
27,419
27,272
Retained earnings
85,069
89,372
Accumulated other comprehensive loss
(7,099
)
(7,397
)
Treasury stock (183 and 790 shares at June
30 and March 31, 2021, respectively)
(3,276
)
(12,393
)
Total stockholders’ equity
103,200
97,929
Total liabilities and stockholders’
equity
$
185,366
$
144,280
Graham Corporation
Consolidated Statements of
Cash Flows – Unaudited
(Amounts in thousands)
Three Months Ended
June 30,
2021
2020
Operating activities:
Net loss
$
(3,126
)
$
(1,818
)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation
595
486
Amortization
225
—
Amortization of actuarial losses
219
266
Equity-based compensation expense
353
164
Gain on disposal or sale of property,
plant and equipment
—
(4
)
Deferred income taxes
215
282
(Increase) decrease in operating
assets:
Accounts receivable
7,319
(1,646
)
Unbilled revenue
(1,426
)
(1,091
)
Inventories
1,857
(361
)
Prepaid expenses and other current and
non-current assets
(603
)
(356
)
Income taxes receivable
(2,161
)
(490
)
Operating lease assets
(25
)
37
Prepaid pension asset
(302
)
(210
)
Increase (decrease) in operating
liabilities:
Accounts payable
(5,745
)
(4,430
)
Accrued compensation, accrued expenses and
other current and non-current liabilities
(1,448
)
709
Customer deposits
(3,074
)
4,094
Operating lease liabilities
35
(37
)
Long-term portion of accrued compensation,
accrued pension liability and accrued postretirement benefits
16
32
Net cash used by operating activities
(7,076
)
(4,373
)
Investing activities:
Purchase of property, plant and
equipment
(446
)
(338
)
Proceeds from disposal of property, plant
and equipment
—
6
Purchase of investments
—
(26,103
)
Redemption of investments at maturity
5,500
40,048
Acquisition of Barber-Nichols, LLC
(59,563
)
—
Net cash (used) provided by investing
activities
(54,509
)
13,613
Financing activities:
Increase in short-term debt
obligations
2,500
—
Principal repayments on long-term debt
—
(4,599
)
Proceeds from the issuance of long-term
debt
20,000
4,599
Principal repayments on finance lease
obligations
(5
)
(12
)
Repayments on lease financing
obligations
(26
)
—
Payment of debt issuance costs
(150
)
—
Dividends paid
(1,177
)
(1,097
)
Purchase of treasury stock
(41
)
(23
)
Net cash provided (used) by financing
activities
21,101
(1,132
)
Effect of exchange rate changes on
cash
95
6
Net (decrease) increase in cash and cash
equivalents
(40,389
)
8,114
Cash and cash equivalents at beginning of
period
59,532
32,955
Cash and cash equivalents at end of
period
$
19,143
$
41,069
Graham Corporation
Adjusted EBITDA Reconciliation
- Unaudited
(Amounts in thousands)
Three Months Ended
June 30,
2021
2020
Net (loss)
$
(3,126)
$
(1,818)
Acquisition related inventory step-up
expense
-
-
Acquisition related costs
169
-
Net interest expense (income)
22
(89)
Income taxes
(745)
(372)
Depreciation & amortization
820
486
Adjusted EBITDA
$
(2,860)
$
(1,793)
Adjusted EBITDA margin %
-14.2%
-10.7%
Adjusted Net Income
Reconciliation - Unaudited
(Amounts in thousands)
Three Months Ended
June 30,
2021
2020
Net (loss)
$
(3,126)
$
(1,818)
Acquisition related inventory step-up
expense
-
-
Acquisition related costs
169
-
Amortization of intangible assets
225
-
Normalize tax rate to 19%(1)
(75)
-
Adjusted Net income (loss)
$
(2,807)
$
(1,818)
Adjusted diluted earnings per share
$
(0.28)
$
(0.18)
1) Applies a normalized tax rate of 19% to non-GAAP adjustments
above, which are each pre-tax.
Non-GAAP Financial Measure:
Adjusted EBITDA is defined as consolidated net income (loss)
before net interest expense, income taxes, depreciation,
amortization and other acquisition related expenses and Adjusted
EBITDA margin is defined as Adjusted 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.
Adjusted net income and diluted EPS are defined as net income
and diluted EPS as reported, adjusted for certain items and at a
normalized tax rate. Adjusted net income and diluted EPS are not
measures determined in accordance with generally accepted
accounting principles in the United States, commonly known as GAAP,
and may not be comparable to the measures as used by other
companies. Nevertheless, Graham believes that providing non-GAAP
information, such as adjusted net income and diluted EPS, is
important for investors and other readers of the Company’s
financial statements and assists in understanding the comparison of
the current quarter’s and current year's net income and diluted EPS
to the historical periods' net income and diluted EPS. Graham also
believes that adjusted EPS, which adds back intangible amortization
expense related to acquisitions, provides a better representation
of the cash earnings of the Company.
Graham Corporation
Additional Information –
Unaudited
SALES BY INDUSTRY FY 2022*
($ in millions)
FY 2022
Q1
% of
6/30/21
Total
Defense
$
7.1
35%
Refining
$
4.6
23%
Chemical/ Petrochemical
$
4.6
23%
Space
$
0.7
4%
Other Commercial
$
3.2
15%
Total
$
20.2
SALES BY INDUSTRY FY 2021*
($ in millions)
FY 2021
Q1
% of
Q2
% of
Q3
% of
Q4
% of
FY2021
% of
6/30/20
Total
9/30/20
Total
12/31/20
Total
3/31/21
Total
Total
Defense
$
3.5
21%
$
9.4
34%
$
4.5
17%
$
6.5
25%
$
24.0
25%
Refining
$
2.7
16%
$
10.3
37%
$
16.5
60%
$
10.3
40%
$
39.7
41%
Chemical/ Petrochemical
$
8.0
48%
$
5.5
20%
$
4.8
18%
$
5.8
23%
$
24.0
24%
Other Commercial
$
2.5
15%
$
2.8
10%
$
1.4
5%
$
3.1
12%
$
9.8
10%
Total
$
16.7
$
28.0
$
27.2
$
25.7
$
97.5
*Quarters may not sum to year-to-date/total fiscal year due to
rounding
Graham Corporation
Additional Information -
Unaudited
(Continued)
SALES BY REGION FY 2022*
($ in millions)
FY 2022
Q1
% of
6/30/21
Total
United States
$
13.9
69%
Middle East
$
0.6
3%
Asia
$
3.5
17%
Other
$
2.2
11%
Total
$
20.2
SALES BY REGION FY 2021*
($ in millions)
FY 2021
Q1
% of
Q2
% of
Q3
% of
Q4
% of
FY2021
% of
6/30/20
Total
9/30/20
Total
12/31/20
Total
3/31/21
Total
Total
United States
$
9.4
56%
$
17.3
62%
$
10.7
39%
$
15.3
60%
$
52.7
54%
Middle East
$
0.4
3%
$
1.0
4%
$
0.8
3%
$
2.6
10%
$
4.8
5%
Asia
$
5.2
31%
$
4.5
16%
$
11.2
41%
$
4.7
18%
$
25.6
26%
Other
$
1.7
10%
$
5.2
18%
$
4.5
17%
$
3.1
12%
$
14.4
15%
Total
$
16.7
$
28.0
$
27.2
$
25.7
$
97.5
*Quarters may not sum to year-to-date/total fiscal year due to
rounding
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Jeffrey F. Glajch Vice President - Finance and CFO Phone: (585)
343-2216 jglajch@graham-mfg.com
Deborah K. Pawlowski Kei Advisors LLC Phone: (716) 843-3908
dpawlowski@keiadvisors.com
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