- First quarter fiscal 2021 sales of $16.7 million, reflects
average operating capacity of 50% due to Company’s response to the
COVID-19 pandemic
- Net loss of $0.18 per share result of dramatic decline in
throughput
- Backlog of $107.2 million comprised of 51% from defense
industry
- Fiscal 2021 revenue guidance of $90 million to $95 million
from expected improved performance for remainder of fiscal
2021
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 first quarter ended June 30, 2020. Graham’s current
fiscal year ends March 31, 2021 (“fiscal 2021”). Financial results
for its fiscal year ended March 31, 2020 (“fiscal 2020”) include
the commercial nuclear utility business, which was divested on June
24, 2019 (the “divested business”).
James R. Lines, Graham’s President and Chief Executive Officer,
commented, “Our first quarter was heavily impacted by the COVID-19
pandemic, the economic downturn it generated and the effect of the
actions we implemented to provide for the safety of our employees
and our community. Our team has been resilient and, although we
began the quarter at just 10% of normal staffing capacity, we
successfully increased gradually back to normal capacity by early
June. We averaged about 50% of normal staffing capacity during the
quarter because of our proactive response to the COVID-19 pandemic.
As a result, our margins and bottom line were heavily
impacted.”
Mr. Lines continued, “As we think about fiscal 2021, our
expectation is that our second quarter will improve sequentially.
Due to the timing of backlog conversion, we expect the back half of
fiscal 2021 to be significantly better than the first half
generating a larger contribution of total expected revenue.
Approximately 60% of our backlog will convert to revenue this
fiscal year, which reinforces our guidance. In addition, we are
encouraged by the pipeline activity that we are addressing in both
the defense industry and emerging markets, specifically India.
Despite challenging energy and petrochemical markets, we believe
that our opportunities in the defense industry will enable our
backlog to grow in fiscal 2021 which will position us well for a
stronger fiscal 2022.”
First 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 $16.7 million compared with $20.6 million in the
first quarter of fiscal 2020. Revenue declined due to the impact of
the COVID-19 pandemic. The effect on sales from limited
manufacturing capacity was somewhat offset by the completion of a
project based in China that had been delayed from the fourth
quarter of fiscal 2020 into the first quarter of fiscal 2021 due to
the COVID-19 pandemic in China. This project represented nearly 30%
of sales in the quarter.
Sales to the defense markets were up $1.4 million to $3.5
million and represented 21% of total sales. Sales to the
chemical/petrochemical market increased $0.9 million to $8.0
million. Sales to the refining market declined $4.8 million to $2.7
million and sales to other commercial markets were down $1.4
million to $2.5 million.
From a geographic perspective, domestic sales were 56% of total
sales compared with 70% in the first quarter of fiscal 2020.
International sales were 44% of total sales, compared with 30% in
the prior-year period.
Fluctuations in Graham’s sales among geographic locations and
industries can vary measurably from quarter-to-quarter based on the
timing and magnitude of projects. Graham does not believe that such
quarter-to-quarter fluctuations are indicative of business trends,
which it believes are more apparent on a trailing twelve-month
basis.
First Quarter Fiscal 2021 Performance Review*(Compared
with the prior-year period unless noted otherwise)
($ in millions except per share data)
Q1 FY21
Q1 FY20
Change
Net sales
$
16.7
$
20.6
$
(3.9
)
Gross profit
$
1.6
$
4.7
$
(3.1
)
Gross margin
9.4
%
22.9
%
Operating loss
$
(2.3
)
$
(0.4
)
$
(1.9
)
Operating margin
(14.0
%)
(1.8
%)
Net (loss) income
$
(1.8
)
$
0.1
$
(1.9
)
Diluted EPS
$
(0.18
)
$
0.01
EBITDA
$
(1.8
)
$
0.2
$
(2.0
)
EBITDA margin
-10.7
%
1.0
%
*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 8
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 was 9.4% due to low volume and the continuation of
wages and benefits throughout the COVID-19-related capacity
reductions.
Selling, general and administrative (“SG&A”) expenses,
excluding amortization, were down $0.7 million, or 14%, to $3.9
million in the first quarter of fiscal 2021. The prior-year’s
quarter included $0.6 million for the divested business. SG&A,
excluding amortization, as a percent of sales for the three-month
periods ended June 30, 2020 and 2019 were 23% and 22%,
respectively.
Strong Balance Sheet with Ample Liquidity
Cash, cash equivalents and investments at June 30, 2020 were
$67.2 million, compared with $73.0 million on March 31, 2020.
Net cash used by operating activities for the first quarter of
fiscal 2021 was $4.4 million, comparable with $4.8 million of cash
used for the first quarter of fiscal 2020.
Capital spending was $0.3 million, similar to the prior-year
period. 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.
Dividend payments were $1.1 million and $1.0 million in the
first quarter of fiscal 2021 and fiscal 2020, respectively.
As of June 30, 2020, Graham had no debt, $14.9 million of
outstanding letters of credit and approximately $24.1 million of
availability on its lines of credit.
Orders and Backlog
Orders for the quarter were $11.5 million, down $3.6 million
compared with the prior year’s quarter. Orders in the first quarter
of fiscal 2020 included $3.0 million related to the divested
business.
The COVID-19 pandemic impacted capital spending decisions by
Graham’s customers, primarily in North America, during the quarter.
As a result, chemical and petrochemical orders were down $5.5
million. However, refining orders increased $5.8 million,
reflecting demand in China. Defense orders were down $1.2 million
because of timing related to the release of projects. We believe
that the pipeline of available opportunities in the defense
industry is strong, although the timing of orders in this industry
can be variable.
Domestic orders were 28% of total net orders in the first
quarter of fiscal 2021 and were 74% in the same prior-year
period.
Backlog at the end of the first quarter of fiscal 2021 was
$107.2 million, compared with $112.4 million at March 31, 2020. The
decline reflects first quarter order levels and one project valued
at $0.7 million that was cancelled in the quarter. At quarter end,
two projects totaling $0.6 million were on hold.
Backlog by industry at March 31, 2020 was approximately:
- 51% for U.S. Navy projects
- 34% for refinery projects
- 12% for chemical/petrochemical projects
- 3% for other industrial applications
The Company expects 60% to 65% of backlog to convert to revenue
in the remaining three quarters of fiscal 2021 and that 70% to 75%
of its backlog will convert to sales within the next 12 months.
Fiscal 2021 Outlook
Graham is initiating guidance for fiscal 2021. This guidance is
based on the assumption that Graham is able to operate its
production facility at full capacity, have access to its global
supply chain including its subcontractors and with minimal or no
additional COVID-19 related disruptions or any other unforeseen
events.
- Revenue between $90 million and $95 million
- Gross margin between 20% and 22%
- SG&A expense between $17 million and $18 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 first 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 Thursday, August 6, 2020. To listen to the archived call,
dial (412) 317-6671 and enter conference ID number 13705872. 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.
FINANCIAL TABLES FOLLOW.
Graham Corporation
First Quarter Fiscal
2021
Consolidated Statements of
Operations - Unaudited
(Amounts in thousands, except per
share data)
Three Months Ended
June 30,
2020
2019
% Change
Net sales
$
16,710
$
20,593
(19%)
Cost of products sold
15,142
15,879
(5%)
Gross profit
1,568
4,714
(67%)
Gross margin
9.4
%
22.9
%
Other expenses and income: Selling, general and
administrative
3,902
4,556
(14%)
Selling, general and administrative – amortization
-
11
NA
Other expense
-
523
NA
Operating loss
(2,334
)
(376
)
NA
Operating margin
(14.0
%)
(1.8
%)
Other income
(55
)
(87
)
(37%)
Interest income
(94
)
(399
)
(76%)
Interest expense
5
3
67%
(Loss) Income before provision (benefit) for income taxes
(2,190
)
107
NA
(Benefit) Provision for income taxes
(372
)
25
NA
Net (loss) income
$
(1,818
)
$
82
NA
Per share data: Basic: Net (loss) income
$
(0.18
)
$
0.01
NA
Diluted: Net (loss) income
$
(0.18
)
$
0.01
NA
Weighted average common shares outstanding: Basic
9,895
9,855
Diluted
9,895
9,858
Dividends declared per share
$
0.11
$
0.10
N/A: Not Applicable
Graham Corporation
First Quarter Fiscal
2021
Consolidated Balance Sheets -
Unaudited
(Amounts in thousands, except per
share data)
June 30,
March 31,
2020
2020
Assets Current assets: Cash and cash equivalents
$
41,069
$
32,955
Investments
26,103
40,048
Trade accounts receivable, net of allowances ($47 and $33 at June
30 and March 31, 2020, respectively)
17,054
15,400
Unbilled revenue
15,683
14,592
Inventories
22,656
22,291
Prepaid expenses and other current assets
1,262
906
Income taxes receivable
975
485
Total current assets
124,802
126,677
Property, plant and equipment, net
17,323
17,587
Prepaid pension asset
3,670
3,460
Operating lease assets
206
243
Other assets
105
153
Total assets
$
146,106
$
148,120
Liabilities and stockholders’ equity Current
liabilities: Current portion of finance lease obligations
$
33
$
40
Accounts payable
9,713
14,253
Accrued compensation
4,551
4,453
Accrued expenses and other current liabilities
3,963
3,352
Customer deposits
31,082
26,983
Operating lease liabilities
137
153
Total current liabilities
49,479
49,234
Finance lease obligations
50
55
Operating lease liabilities
60
82
Deferred income tax liability
1,017
721
Accrued pension liability
774
747
Accrued postretirement benefits
562
557
Total liabilities
51,942
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 9,969 and 9,881 shares outstanding at June
30 and March 31, 2020, respectively
1,078
1,069
Capital in excess of par value
26,516
26,361
Retained earnings
88,474
91,389
Accumulated other comprehensive loss
(9,342
)
(9,556
)
Treasury stock (811 and 808 shares at June 30 and March 31, 2020,
respectively)
(12,562
)
(12,539
)
Total stockholders’ equity
94,164
96,724
Total liabilities and stockholders’ equity
$
146,106
$
148,120
Graham Corporation
First Quarter Fiscal
2021
Consolidated Statements of
Cash Flows – Unaudited
(Amounts in thousands)
Three Months Ended, June
30,
2020
2019
Operating activities: Net (loss) income
$
(1,818
)
$
82
Adjustments to reconcile net (loss) income to net cash used by
operating activities: Depreciation
486
490
Amortization
-
11
Amortization of unrecognized prior service cost and actuarial
losses
266
249
Equity-based compensation expense
164
88
Gain on disposal or sale of property, plant and equipment
(4
)
-
Loss on sale of Energy Steel & Supply Co.
-
87
Deferred income taxes
282
202
(Increase) decrease in operating assets: Accounts receivable
(1,646
)
3,088
Unbilled revenue
(1,091
)
(2,323
)
Inventories
(361
)
552
Prepaid expenses and other current and non-current assets
(356
)
(166
)
Income taxes receivable
(490
)
(187
)
Operating lease assets
37
105
Prepaid pension asset
(210
)
(218
)
Increase (decrease) in operating liabilities: Accounts payable
(4,430
)
(5,565
)
Accrued compensation, accrued expenses and other current and
non-current liabilities
709
(1,005
)
Customer deposits
4,094
(242
)
Operating lease liabilities
(37
)
(27
)
Long-term portion of accrued compensation, accrued pension
liability and accrued postretirement benefits
32
26
Net cash used by operating activities
(4,373
)
(4,753
)
Investing activities: Purchase of property, plant and
equipment
(338
)
(294
)
Proceeds from disposal of property, plant and equipment
6
-
Proceeds from the sale of Energy Steel & Supply Co.
-
602
Purchase of investments
(26,103
)
(28,651
)
Redemption of investments at maturity
40,048
32,595
Net cash provided by investing activities
13,613
4,252
Financing activities: Principal repayments on finance
lease obligations
(12
)
(10
)
Principal repayments on long-term debt
(4,599
)
-
Proceeds from the issuance of long-term debt
4,599
-
Dividends paid
(1,097
)
(988
)
Purchase of treasury stock
(23
)
(230
)
Net cash used by financing activities
(1,132
)
(1,228
)
Effect of exchange rate changes on cash
6
(76
)
Net increase (decrease) in cash and cash equivalents, including
cash classified within current assets held for sale
8,114
(1,805
)
Net decrease in cash classified within current assets held for sale
-
552
Net increase (decrease) in cash and cash equivalents
8,114
(1,253
)
Cash and cash equivalents at beginning of year
32,955
15,021
Cash and cash equivalents at end of year
$
41,069
$
13,768
Graham Corporation
First Quarter Fiscal
2021
EBITDA Reconciliation -
Unaudited
(Amounts in thousands)
Three Months Ended
June 30,
2020
2019
Net (loss) income
$
(1,818
)
$
82
Net interest income
(89
)
(396
)
Income taxes
(372
)
25
Depreciation & amortization
486
501
EBITDA
$
(1,793
)
$
212
EBITDA margin %
-10.7
%
1.0
%
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
First Quarter Fiscal
2021
Additional Information –
Unaudited
ORDER & BACKLOG TREND ($ in millions)
Q120
Q220
Q320
Q420
FY2020
Q121
Total
Total
Total
Total
Total
Total
Orders
$
15.1
$
32.6
$
20.0
$
12.3
$
80.0
$
11.5
Backlog
$
117.2
$
127.8
$
122.9
$
112.4
$
112.4
$
107.2
SALES BY INDUSTRY FY 2021 ($ in millions)
FY 2021
Q1
% of
6/30/20
Total
Refining
$
2.7
16%
Chemical/ Petrochemical
$
8.0
48%
Defense
$
3.5
21%
Other Commercial
$
2.5
15%
Total
$
16.7
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
First Quarter Fiscal
2021
Additional Information -
Unaudited
(Continued)
SALES BY REGION FY 2021 ($ in millions)
FY
2021
Q1
% of
6/30/20
Total
United States
$
9.4
56%
Middle East
$
0.4
3%
Asia
$
5.2
31%
Other
$
1.7
10%
Total
$
16.7
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/20200730005278/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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