Recent Quotes View Full List My Watchlist Create Watchlist Indicators DJI Nasdaq Composite SPX Gold Crude Oil EL&P Market Index Markets Stocks ETFs Tools Overview News Currencies International Treasuries Graham Corporation Reports Sales Growth of 18% for Second Quarter of Fiscal 2024 By: Graham Corporation via Business Wire November 06, 2023 at 06:30 AM EST 18% growth in second quarter sales driven by 69% increase in defense market revenue Gross profit of $7.2 million increased $1.9 million from the prior year quarter, or 36%, on better mix of higher margin projects, better pricing, and improving execution Achieved net income of $0.4 million; adjusted net income1 improved to $1.4 million Aftermarket sales to the refining and petrochemical markets were a record $10.8 million, up 74%. Solid backlog of $313.3 million including 80% defense business Shipped final first article units for Columbia submarine and Ford Class carrier programs Refinanced lending facilities following close of quarter, improving flexibility and reducing cost of debt Graham Corporation (NYSE: GHM) (“GHM” or the “Company”), a global leader in the design and manufacture of mission critical fluid, power, heat transfer and vacuum technologies for the defense, space, energy, and process industries, today reported financial results for its second quarter ended September 30, 2023 (“second quarter fiscal 2024”). Daniel J. Thoren, President and Chief Executive Officer, commented, “We continue to improve as an organization and are becoming a healthier, more robust business. We are executing better every day, identifying opportunities for further growth and margin expansion. We remain focused on our core capabilities of precision machining of critical turbomachinery components and specialty welding for fabrication of critical equipment for large heat transfer and vacuum applications. Importantly, with the shipment of the final first articles related to the Columbia submarine and Ford Class carrier programs, we now have a higher margin profile in our backlog and believe we are positioned to drive stronger earnings power.” He concluded, “We are making great progress and believe we are on track to achieve our fiscal 2027 goals of greater than $200 million in revenue with low to mid-teen adjusted EBITDA margins2.” While the Company expects to continue to have first article programs in its backlog as it wins new projects and applications, the amount as a percentage of total backlog should be reduced moving forward. In addition, Graham has expanded its leadership team, improved internal communications and program management to mature its capabilities with first article development and manufacturing. ____________________________ 1 Adjusted net income is a non-GAAP measure. See attached tables and other information on pages 10 and 11 for important disclosures regarding Graham’s use of adjusted net income. 2 See “Forward-looking Non-GAAP Measures" on page 5 and attached tables and other information on pages 10 and 11 for important disclosures regarding Graham’s outlook for adjusted EBITDA margin. Second Quarter Fiscal 2024 Performance Review (All comparisons are with the same prior-year period unless noted otherwise.) ($ in millions except per share data) Q2 FY24 Q2 FY23 $ Change Net sales $ 45.1 $ 38.1 $ 7.0 Gross profit $ 7.2 $ 5.3 $ 1.9 Gross margin 16.0% 13.8% Operating income (loss) $ 0.8 $ (0.1) $ 0.9 Operating margin 1.8% (0.1%) Net income (loss) $ 0.4 $ (0.2) $ 0.6 Net income (loss) per diluted share $ 0.04 $ (0.02) $ 0.06 Adjusted net income (loss)* $ 1.4 $ 0.3 $ 1.1 Adjusted net income (loss) per diluted share* $ 0.13 $ 0.03 $ 0.10 Adjusted EBITDA* $ 2.7 $ 1.5 $ 1.2 Adjusted EBITDA margin* 6.0% 4.0% *Graham believes that adjusted EBITDA (defined as consolidated net income before net interest expense, income taxes, depreciation, amortization, other acquisition related expenses (income), and other unusual/nonrecurring expenses), and adjusted EBITDA margin (adjusted EBITDA as a percentage of net 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 as defined in the lending agreement. Graham also believes that adjusted net income (loss) and adjusted net income (loss) per diluted share, which excludes intangible amortization, other costs related to the acquisition, and other unusual/nonrecurring (income) expenses, provides a better representation of the cash earnings of the Company. See the attached tables and other information on pages 10 and 11 for important disclosures regarding Graham’s use of adjusted EBITDA, adjusted EBITDA margin, adjusted net income (loss), and adjusted net income (loss) per diluted share, as well as the reconciliation of net income to adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per diluted share. Net sales of $45.1 million increased 18.2%, or $7.0 million. Sales to the defense market increased $10.3 million, or 69%, reflecting more direct labor, better execution, the timing of material receipts, and improved pricing. Record sales in the commercial aftermarket helped to offset slow-to-recover capital projects in the refining and petrochemical industries. Aftermarket sales to the refining and petrochemical markets were $10.8 million, up $4.6 million, or 74%. Declines in the space market reflect timing of projects and the loss of a customer in April 2023 to bankruptcy. See supplemental data for a further breakdown of sales by market and region. Compared with the prior year period, the 36% increase in gross profit and 220 basis point expansion of gross margin reflected higher volume and related improved absorption, a healthy mix of higher margin commercial aftermarket sales, better execution and better pricing on defense contracts. Selling, general and administrative expense (“SG&A”), excluding amortization, was $6.1 million, or 14% of sales, up $1.1 million. Approximately $0.8 million of the increase was attributable to the supplemental performance bonus for Barber-Nichols employees (the “BN performance bonus”) in connection with the 2021 acquisition of Barber-Nichols LLC. Other increases included inflation of personnel costs, as well as increased professional fees of approximately $0.2 million driven by increasing complexity in the business associated with growth and our international operations. Net income was $0.4 million, or $0.04 per diluted share. On a non-GAAP basis, adjusted net income3 and adjusted net income per diluted share3 were $1.4 million and $0.13, respectively, compared with adjusted net income3 and adjusted net income per diluted share3 of $0.3 million and $0.03 during the same period a year ago. ____________________________ 3 Adjusted net income and adjusted net income per diluted share are non-GAAP measures. See attached tables and other information on pages 10 and 11 for important disclosures regarding Graham’s use of adjusted net income and adjusted net income per diluted share. Cash Management and Balance Sheet Cash generated from operations for the three months ended September 30, 2023 was $3.3 million, up from $0.3 million for the same period last year. Capital expenditures for the second quarter of fiscal 2024 were $1.8 million. Cash and cash equivalents on September 30, 2023, were $25.8 million up from $18.3 million on March 31, 2023. Debt at quarter end was down $0.9 million to $10.9 million compared with March 31, 2023. Following the end of the quarter, the Company announced it had closed on a new, five-year $50 million senior secured revolving credit facility of which $35 million is currently available. Graham used the proceeds from the facility and cash on hand to pay down the remaining $11.5 million balance of its term loan and the $725 thousand exit fee from its previous lending agreement amendments. The new facility will reduce current borrowing rates by approximately 25 basis points to SOFR plus 1.25%. Christopher J. Thome, Chief Financial Officer, commented, “The refinancing of our debt with the new credit facility provides expanded financial flexibility to support our growth strategy with lower borrowing costs. Following the close of the new credit facility, we used the $35 million provided and cash on hand to pay down our outstanding debt so that at this time we have no debt outstanding. The new revolver provides the flexibility to support our working capital and capital expenditure requirements which can diverge from timing of cash receipts.” Orders and Backlog (See supplemental data filed with the Securities and Exchange Commission on Form 8-K and provided on the Company’s website for a further breakdown of orders and backlog by market) ($ in millions) Q1 23 Q2 23 Q3 23 Q4 23 FY23 Q1 24 Q2 24 YTD FY24 Orders $ 40.3 $ 91.5 $ 20.0 $ 50.9 $ 202.7 $ 67.9 $ 36.5 $ 104.4 Backlog $ 260.7 $ 313.3 $ 293.7 $ 301.7 $ 301.7 $ 322.0 $ 313.3 $ 313.3 Orders for the three-month period ended September 30, 2023, were $36.5 million compared with a record $91.5 million for the same period of fiscal 2023. Last year’s second quarter included a large multi-year order for supporting the U.S. Navy’s Naval Nuclear Propulsion Program. Aftermarket orders for the refining and petrochemical markets continued to be strong and were $11.4 million in the second quarter, up 2% over the same period last year and up 45% sequentially. Backlog for the quarter was $313.3 million, which was unchanged compared with the prior-year period. Approximately 50% of orders currently in backlog are expected to be converted to sales in the next twelve months and another 25% to 30% is expected to convert to sales over the following twelve months. The majority of orders expected to convert beyond twelve months are for the defense industry, specifically the U.S. Navy. Maintaining Fiscal 2024 Outlook The Company guidance for fiscal 2024 remains unchanged from previous guidance. (as of November 6, 2023) Fiscal 2024 Guidance Net Sales: $170 million to $180 million Gross Margin: 18% to 19% of sales SG&A expense(1) 15% to 16% of sales Adjusted EBITDA(2) $11.5 million to $13.5 million Effective Tax Rate 22% to 23% CapEx $12.0 million to $13.5 million (1) Includes approximately $2.5 million to $4 million of BN performance bonus and ERP conversion costs included in SG&A expense. (2) Excludes approximately $2.5 million to $4 million of BN performance bonus and ERP conversion costs included in SG&A expense and approximately $0.7 million of debt extinguishment charges. Webcast and Conference Call GHM’s management will host a conference call and live webcast today at 11:00 a.m. Eastern Time (“ET”) to review its financial condition and operating results, 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 GHM’s investor relations website. A question-and-answer session will follow the formal presentation. GHM’s conference call can be accessed by calling (201) 689-8560. Alternatively, the webcast can be monitored from the events section of GHM’s investor relations website. A telephonic replay will be available from 3:00 p.m. ET on the day of the teleconference through Monday, November 13, 2023, at 11:59 p.m. ET. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13741263 or access the webcast replay via the Company’s website at ir.grahamcorp.com, where a transcript will also be posted once available. About Graham Corporation GHM is a global leader in the design and manufacture of mission critical fluid, power, heat transfer and vacuum technologies for the defense, space, energy, and process industries. The Graham Manufacturing and Barber-Nichols’ global brands are built upon world-renowned engineering expertise in vacuum and heat transfer, cryogenic pumps, and turbomachinery technologies, as well as its responsive and flexible service and the unsurpassed quality customers have come to expect from the Company’s products and systems. Graham Corporation routinely posts news and other important information on its website, grahamcorp.com, where additional information on Graham Corporation and its businesses 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,” “outlook,” “anticipates,” “believes,” “could,” “guidance,” “should,” ”may”, “will,” “goals,” “plan” 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, profitability of future projects and the business, its ability to deliver to plan, its ability to meet customers’ shipment and delivery expectations, its ability to continue to strengthen relationships with customers in the defense industry, its ability to secure future projects and applications, expected expansion and growth opportunities, anticipated sales, revenues, adjusted EBITDA, adjusted EBITDA margins, capital expenditures and SG&A expenses, the timing of conversion of backlog to sales, orders, market presence, profit margins, tax rates, foreign sales operations, customer preferences, changes in market conditions in the industries in which it operates, changes in general economic conditions and customer behavior, forecasts regarding the timing and scope of the economic recovery in its markets, and its acquisition and growth strategy, 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 (the “SEC”), included under the heading entitled “Risk Factors”, and in other reports filed with the SEC. 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. Forward-Looking Non-GAAP Measures 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 largely because forecasting or predicting our future operating results is subject to many factors out of our control or not readily predictable. 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 2024 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 estimates set forth above may be material. Key Performance Indicators In addition to the foregoing non-GAAP measures, management uses the following key performance metrics to analyze and measure the Company’s financial performance and results of operations: orders, and backlog. Management uses orders and backlog as measures of current and future business and financial performance, and these may not be comparable with measures provided by other companies. Orders represent written communications received from customers requesting the Company to provide products and/or services. Backlog is defined as the total dollar value of net orders received for which revenue has not yet been recognized. Management believes tracking orders and backlog are useful as it often times is a leading indicator of future performance. In accordance with industry practice, contracts may include provisions for cancellation, termination, or suspension at the discretion of the customer. Given that each of orders and backlog are operational measures and that the Company's methodology for calculating orders and backlog does not meet the definition of a non-GAAP measure, as that term is defined by the U.S. Securities and Exchange Commission, a quantitative reconciliation for each is not required or provided. FINANCIAL TABLES FOLLOW. Graham Corporation Consolidated Statements of Operations - Unaudited (Amounts in thousands, except per share data) Three Months Ended Six Months Ended September 30, September 30, 2023 2022 % Change 2023 2022 % Change Net sales $ 45,076 $ 38,143 18% $ 92,645 $ 74,218 25% Cost of products sold 37,885 32,863 15% 74,477 62,194 20% Gross profit 7,191 5,280 36% 18,168 12,024 51% Gross margin 16.0 % 13.8 % 19.6 % 16.2 % Other expenses and income: Selling, general and administrative 6,115 5,059 21% 13,134 10,544 25% Selling, general and administrative – amortization 273 273 0% 547 547 0% Operating profit (loss) 803 (52 ) NA 4,487 933 381% Operating margin 1.8 % (0.1 %) 4.8 % 1.3 % Other (income) expense, net 94 (62 ) NA 187 (125 ) (250%) Interest expense, net 55 246 (78%) 240 403 (40%) Income (loss) before provision (benefit) for income taxes 654 (236 ) NA 4,060 655 520% Provision (benefit) for income taxes 243 (40 ) NA 1,009 175 477% Net income (loss) $ 411 $ (196 ) NA $ 3,051 $ 480 536% Per share data: Basic: Net income (loss) $ 0.04 $ (0.02 ) NA $ 0.29 $ 0.05 480% Diluted: Net income (loss) $ 0.04 $ (0.02 ) NA $ 0.28 $ 0.05 460% Weighted average common shares outstanding: Basic 10,699 10,617 10,675 10,614 Diluted 10,810 10,617 10,761 10,618 N/A: Not Applicable Graham Corporation Consolidated Balance Sheets – Unaudited (Amounts in thousands, except per share data) September 30, March 31, 2023 2023 Assets Current assets: Cash and cash equivalents $ 25,800 $ 18,257 Trade accounts receivable, net of allowances ($1,887 and $1,841 at September 30 and March 31, 2023, respectively) 28,710 24,000 Unbilled revenue 34,975 39,684 Inventories 27,009 26,293 Prepaid expenses and other current assets 2,850 1,534 Income taxes receivable 774 302 Total current assets 120,118 110,070 Property, plant and equipment, net 27,122 25,523 Prepaid pension asset 6,251 6,107 Operating lease assets 7,775 8,237 Goodwill 23,523 23,523 Customer relationships, net 10,423 10,718 Technology and technical know-how, net 8,922 9,174 Other intangible assets, net 7,266 7,610 Deferred income tax asset 1,489 2,798 Other assets 239 158 Total assets $ 213,128 $ 203,918 Liabilities and stockholders’ equity Current liabilities: Current portion of long-term debt $ 2,000 $ 2,000 Current portion of finance lease obligations 19 29 Accounts payable 13,554 20,222 Accrued compensation 11,357 10,401 Accrued expenses and other current liabilities 6,262 6,434 Customer deposits 59,526 46,042 Operating lease liabilities 1,125 1,022 Income taxes payable - 16 Total current liabilities 93,843 86,166 Long-term debt 8,863 9,744 Finance lease obligations 76 85 Operating lease liabilities 6,993 7,498 Deferred income tax liability 48 108 Accrued pension and postretirement benefit liabilities 1,341 1,342 Other long-term liabilities 1,169 2,042 Total liabilities 112,333 106,985 Stockholders’ equity: Preferred stock, $1.00 par value, 500 shares authorized - - Common stock, $0.10 par value, 25,500 shares authorized, 10,846 and 10,774 shares issued and 10,703 and 10,635 shares outstanding at September 30, 2023 and March 31, 2023, respectively 1,084 1,075 Capital in excess of par value 29,196 28,061 Retained earnings 80,494 77,443 Accumulated other comprehensive loss (7,445 ) (7,463 ) Treasury stock (143 and 138 shares at September 30 and March 31, 2023, respectively) (2,534 ) (2,183 ) Total stockholders’ equity 100,795 96,933 Total liabilities and stockholders’ equity $ 213,128 $ 203,918 Graham Corporation Consolidated Statements of Cash Flows – Unaudited (Amounts in thousands) Six Months Ended September 30, 2023 2022 Operating activities: Net income $ 3,051 $ 480 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation 1,549 1,724 Amortization 891 1,238 Amortization of actuarial losses 421 336 Amortization of debt issuance costs 119 93 Equity-based compensation expense 625 312 Deferred income taxes 1,162 174 (Increase) decrease in operating assets: Accounts receivable (4,947 ) 38 Unbilled revenue 4,620 (5,283 ) Inventories (734 ) (2,560 ) Prepaid expenses and other current and non-current assets (1,343 ) (782 ) Income taxes receivable (489 ) (136 ) Operating lease assets 589 901 Prepaid pension asset (144 ) (325 ) Increase (decrease) in operating liabilities: Accounts payable (6,451 ) 3,730 Accrued compensation, accrued expenses and other current and non-current liabilities 5 553 Customer deposits 13,503 544 Operating lease liabilities (529 ) (840 ) Long-term portion of accrued compensation, accrued pension liability and accrued postretirement benefits - (595 ) Net cash provided (used) by operating activities 11,898 (398 ) Investing activities: Purchase of property, plant and equipment (3,312 ) (1,176 ) Proceeds from disposal of property, plant and equipment 38 - Net cash used by investing activities (3,274 ) (1,176 ) Financing activities: Principal repayments on debt (1,020 ) (3,511 ) Proceeds from the issuance of debt - 5,000 Principal repayments on finance lease obligations (147 ) (136 ) Issuance of common stock 225 - Payment of debt issuance costs - (122 ) Purchase of treasury stock (57 ) (22 ) Net cash provided (used) by financing activities (999 ) 1,209 Effect of exchange rate changes on cash (82 ) (254 ) Net increase (decrease) in cash and cash equivalents 7,543 (619 ) Cash and cash equivalents at beginning of period 18,257 14,741 Cash and cash equivalents at end of period $ 25,800 $ 14,122 Graham Corporation Adjusted EBITDA Reconciliation (Unaudited, $ in thousands, except per share amounts) Three Months Ended Six Months Ended September 30, September 30, 2023 2022 2023 2022 Net income (loss) $ 411 $ (196 ) $ 3,051 $ 480 Acquisition & integration costs - - - 54 Barber-Nichols performance bonus 802 - 1,569 - Debt amendment costs - 41 - 194 Net interest expense 55 246 240 403 Income taxes 243 (40 ) 1,009 175 Depreciation & amortization 1,201 1,487 2,440 2,962 Adjusted EBITDA $ 2,712 $ 1,538 $ 8,309 $ 4,268 Adjusted EBITDA margin % 6.0 % 4.0 % 9.0 % 5.8 % Adjusted Net Income (Loss) and Adjusted Net Income Per Diluted Share Reconciliation (Unaudited, $ in thousands, except per share amounts) Three Months Ended Six Months Ended September 30, September 30, 2023 2022 2023 2022 Net income (loss) $ 411 $ (196 ) $ 3,051 $ 480 Acquisition & integration costs - - - 54 Amortization of intangible assets 445 619 891 1,238 Barber-Nichols performance bonus 802 - 1,569 - Debt amendment costs - 41 - 194 Normalize tax rate(1) (287 ) (139 ) (566 ) (312 ) Adjusted net income $ 1,371 $ 325 $ 4,945 $ 1,654 GAAP net income (loss) per diluted share $ 0.04 $ (0.02 ) $ 0.28 $ 0.05 Adjusted net income per diluted share $ 0.13 $ 0.03 $ 0.46 $ 0.16 Diluted weighted average common shares outstanding 10,810 10,617 10,761 10,618 (1) Applies a normalized tax rate to non-GAAP adjustments, which are pre-tax, based upon the statutory tax rate. Non-GAAP Financial Measures Adjusted EBITDA is defined as consolidated net income (loss) before net interest expense, income taxes, depreciation, amortization, other acquisition related expenses, and other unusual/nonrecurring expenses. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of sales. Adjusted EBITDA and Adjusted 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 Adjusted EBITDA and Adjusted EBITDA margin, 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 Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures and are thus susceptible to varying calculations, Adjusted EBITDA, and Adjusted EBITDA margin, as presented, may not be directly comparable to other similarly titled measures used by other companies. Adjusted net income (loss) and adjusted net income (loss) per diluted share are defined as net income (loss) and diluted earnings (loss) per share as reported, adjusted for certain items and at a normalized tax rate. Adjusted net income (loss) and adjusted net income (loss) per diluted share are not measures determined in accordance with GAAP and may not be comparable with the measures used by other companies. Nevertheless, Graham believes that providing non-GAAP information, such as adjusted net income (loss) and adjusted net income (loss) per diluted share, 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 fiscal year's net income (loss) and net income (loss) per diluted share to the historical periods' net income (loss) and net income (loss) per diluted share. Graham also believes that adjusted net income (loss) per diluted share, which adds back intangible amortization expense related to acquisitions, provides a better representation of the cash earnings of the Company. View source version on businesswire.com: https://www.businesswire.com/news/home/20231106821428/en/Contacts Christopher J. Thome Vice President - Finance and CFO Phone: (585) 343-2216 Deborah K. Pawlowski Kei Advisors LLC Phone: (716) 843-3908 dpawlowski@keiadvisors.com Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. By accessing this page, you agree to the following Privacy Policy and Terms and Conditions.
Graham Corporation Reports Sales Growth of 18% for Second Quarter of Fiscal 2024 By: Graham Corporation via Business Wire November 06, 2023 at 06:30 AM EST 18% growth in second quarter sales driven by 69% increase in defense market revenue Gross profit of $7.2 million increased $1.9 million from the prior year quarter, or 36%, on better mix of higher margin projects, better pricing, and improving execution Achieved net income of $0.4 million; adjusted net income1 improved to $1.4 million Aftermarket sales to the refining and petrochemical markets were a record $10.8 million, up 74%. Solid backlog of $313.3 million including 80% defense business Shipped final first article units for Columbia submarine and Ford Class carrier programs Refinanced lending facilities following close of quarter, improving flexibility and reducing cost of debt Graham Corporation (NYSE: GHM) (“GHM” or the “Company”), a global leader in the design and manufacture of mission critical fluid, power, heat transfer and vacuum technologies for the defense, space, energy, and process industries, today reported financial results for its second quarter ended September 30, 2023 (“second quarter fiscal 2024”). Daniel J. Thoren, President and Chief Executive Officer, commented, “We continue to improve as an organization and are becoming a healthier, more robust business. We are executing better every day, identifying opportunities for further growth and margin expansion. We remain focused on our core capabilities of precision machining of critical turbomachinery components and specialty welding for fabrication of critical equipment for large heat transfer and vacuum applications. Importantly, with the shipment of the final first articles related to the Columbia submarine and Ford Class carrier programs, we now have a higher margin profile in our backlog and believe we are positioned to drive stronger earnings power.” He concluded, “We are making great progress and believe we are on track to achieve our fiscal 2027 goals of greater than $200 million in revenue with low to mid-teen adjusted EBITDA margins2.” While the Company expects to continue to have first article programs in its backlog as it wins new projects and applications, the amount as a percentage of total backlog should be reduced moving forward. In addition, Graham has expanded its leadership team, improved internal communications and program management to mature its capabilities with first article development and manufacturing. ____________________________ 1 Adjusted net income is a non-GAAP measure. See attached tables and other information on pages 10 and 11 for important disclosures regarding Graham’s use of adjusted net income. 2 See “Forward-looking Non-GAAP Measures" on page 5 and attached tables and other information on pages 10 and 11 for important disclosures regarding Graham’s outlook for adjusted EBITDA margin. Second Quarter Fiscal 2024 Performance Review (All comparisons are with the same prior-year period unless noted otherwise.) ($ in millions except per share data) Q2 FY24 Q2 FY23 $ Change Net sales $ 45.1 $ 38.1 $ 7.0 Gross profit $ 7.2 $ 5.3 $ 1.9 Gross margin 16.0% 13.8% Operating income (loss) $ 0.8 $ (0.1) $ 0.9 Operating margin 1.8% (0.1%) Net income (loss) $ 0.4 $ (0.2) $ 0.6 Net income (loss) per diluted share $ 0.04 $ (0.02) $ 0.06 Adjusted net income (loss)* $ 1.4 $ 0.3 $ 1.1 Adjusted net income (loss) per diluted share* $ 0.13 $ 0.03 $ 0.10 Adjusted EBITDA* $ 2.7 $ 1.5 $ 1.2 Adjusted EBITDA margin* 6.0% 4.0% *Graham believes that adjusted EBITDA (defined as consolidated net income before net interest expense, income taxes, depreciation, amortization, other acquisition related expenses (income), and other unusual/nonrecurring expenses), and adjusted EBITDA margin (adjusted EBITDA as a percentage of net 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 as defined in the lending agreement. Graham also believes that adjusted net income (loss) and adjusted net income (loss) per diluted share, which excludes intangible amortization, other costs related to the acquisition, and other unusual/nonrecurring (income) expenses, provides a better representation of the cash earnings of the Company. See the attached tables and other information on pages 10 and 11 for important disclosures regarding Graham’s use of adjusted EBITDA, adjusted EBITDA margin, adjusted net income (loss), and adjusted net income (loss) per diluted share, as well as the reconciliation of net income to adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per diluted share. Net sales of $45.1 million increased 18.2%, or $7.0 million. Sales to the defense market increased $10.3 million, or 69%, reflecting more direct labor, better execution, the timing of material receipts, and improved pricing. Record sales in the commercial aftermarket helped to offset slow-to-recover capital projects in the refining and petrochemical industries. Aftermarket sales to the refining and petrochemical markets were $10.8 million, up $4.6 million, or 74%. Declines in the space market reflect timing of projects and the loss of a customer in April 2023 to bankruptcy. See supplemental data for a further breakdown of sales by market and region. Compared with the prior year period, the 36% increase in gross profit and 220 basis point expansion of gross margin reflected higher volume and related improved absorption, a healthy mix of higher margin commercial aftermarket sales, better execution and better pricing on defense contracts. Selling, general and administrative expense (“SG&A”), excluding amortization, was $6.1 million, or 14% of sales, up $1.1 million. Approximately $0.8 million of the increase was attributable to the supplemental performance bonus for Barber-Nichols employees (the “BN performance bonus”) in connection with the 2021 acquisition of Barber-Nichols LLC. Other increases included inflation of personnel costs, as well as increased professional fees of approximately $0.2 million driven by increasing complexity in the business associated with growth and our international operations. Net income was $0.4 million, or $0.04 per diluted share. On a non-GAAP basis, adjusted net income3 and adjusted net income per diluted share3 were $1.4 million and $0.13, respectively, compared with adjusted net income3 and adjusted net income per diluted share3 of $0.3 million and $0.03 during the same period a year ago. ____________________________ 3 Adjusted net income and adjusted net income per diluted share are non-GAAP measures. See attached tables and other information on pages 10 and 11 for important disclosures regarding Graham’s use of adjusted net income and adjusted net income per diluted share. Cash Management and Balance Sheet Cash generated from operations for the three months ended September 30, 2023 was $3.3 million, up from $0.3 million for the same period last year. Capital expenditures for the second quarter of fiscal 2024 were $1.8 million. Cash and cash equivalents on September 30, 2023, were $25.8 million up from $18.3 million on March 31, 2023. Debt at quarter end was down $0.9 million to $10.9 million compared with March 31, 2023. Following the end of the quarter, the Company announced it had closed on a new, five-year $50 million senior secured revolving credit facility of which $35 million is currently available. Graham used the proceeds from the facility and cash on hand to pay down the remaining $11.5 million balance of its term loan and the $725 thousand exit fee from its previous lending agreement amendments. The new facility will reduce current borrowing rates by approximately 25 basis points to SOFR plus 1.25%. Christopher J. Thome, Chief Financial Officer, commented, “The refinancing of our debt with the new credit facility provides expanded financial flexibility to support our growth strategy with lower borrowing costs. Following the close of the new credit facility, we used the $35 million provided and cash on hand to pay down our outstanding debt so that at this time we have no debt outstanding. The new revolver provides the flexibility to support our working capital and capital expenditure requirements which can diverge from timing of cash receipts.” Orders and Backlog (See supplemental data filed with the Securities and Exchange Commission on Form 8-K and provided on the Company’s website for a further breakdown of orders and backlog by market) ($ in millions) Q1 23 Q2 23 Q3 23 Q4 23 FY23 Q1 24 Q2 24 YTD FY24 Orders $ 40.3 $ 91.5 $ 20.0 $ 50.9 $ 202.7 $ 67.9 $ 36.5 $ 104.4 Backlog $ 260.7 $ 313.3 $ 293.7 $ 301.7 $ 301.7 $ 322.0 $ 313.3 $ 313.3 Orders for the three-month period ended September 30, 2023, were $36.5 million compared with a record $91.5 million for the same period of fiscal 2023. Last year’s second quarter included a large multi-year order for supporting the U.S. Navy’s Naval Nuclear Propulsion Program. Aftermarket orders for the refining and petrochemical markets continued to be strong and were $11.4 million in the second quarter, up 2% over the same period last year and up 45% sequentially. Backlog for the quarter was $313.3 million, which was unchanged compared with the prior-year period. Approximately 50% of orders currently in backlog are expected to be converted to sales in the next twelve months and another 25% to 30% is expected to convert to sales over the following twelve months. The majority of orders expected to convert beyond twelve months are for the defense industry, specifically the U.S. Navy. Maintaining Fiscal 2024 Outlook The Company guidance for fiscal 2024 remains unchanged from previous guidance. (as of November 6, 2023) Fiscal 2024 Guidance Net Sales: $170 million to $180 million Gross Margin: 18% to 19% of sales SG&A expense(1) 15% to 16% of sales Adjusted EBITDA(2) $11.5 million to $13.5 million Effective Tax Rate 22% to 23% CapEx $12.0 million to $13.5 million (1) Includes approximately $2.5 million to $4 million of BN performance bonus and ERP conversion costs included in SG&A expense. (2) Excludes approximately $2.5 million to $4 million of BN performance bonus and ERP conversion costs included in SG&A expense and approximately $0.7 million of debt extinguishment charges. Webcast and Conference Call GHM’s management will host a conference call and live webcast today at 11:00 a.m. Eastern Time (“ET”) to review its financial condition and operating results, 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 GHM’s investor relations website. A question-and-answer session will follow the formal presentation. GHM’s conference call can be accessed by calling (201) 689-8560. Alternatively, the webcast can be monitored from the events section of GHM’s investor relations website. A telephonic replay will be available from 3:00 p.m. ET on the day of the teleconference through Monday, November 13, 2023, at 11:59 p.m. ET. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13741263 or access the webcast replay via the Company’s website at ir.grahamcorp.com, where a transcript will also be posted once available. About Graham Corporation GHM is a global leader in the design and manufacture of mission critical fluid, power, heat transfer and vacuum technologies for the defense, space, energy, and process industries. The Graham Manufacturing and Barber-Nichols’ global brands are built upon world-renowned engineering expertise in vacuum and heat transfer, cryogenic pumps, and turbomachinery technologies, as well as its responsive and flexible service and the unsurpassed quality customers have come to expect from the Company’s products and systems. Graham Corporation routinely posts news and other important information on its website, grahamcorp.com, where additional information on Graham Corporation and its businesses 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,” “outlook,” “anticipates,” “believes,” “could,” “guidance,” “should,” ”may”, “will,” “goals,” “plan” 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, profitability of future projects and the business, its ability to deliver to plan, its ability to meet customers’ shipment and delivery expectations, its ability to continue to strengthen relationships with customers in the defense industry, its ability to secure future projects and applications, expected expansion and growth opportunities, anticipated sales, revenues, adjusted EBITDA, adjusted EBITDA margins, capital expenditures and SG&A expenses, the timing of conversion of backlog to sales, orders, market presence, profit margins, tax rates, foreign sales operations, customer preferences, changes in market conditions in the industries in which it operates, changes in general economic conditions and customer behavior, forecasts regarding the timing and scope of the economic recovery in its markets, and its acquisition and growth strategy, 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 (the “SEC”), included under the heading entitled “Risk Factors”, and in other reports filed with the SEC. 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. Forward-Looking Non-GAAP Measures 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 largely because forecasting or predicting our future operating results is subject to many factors out of our control or not readily predictable. 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 2024 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 estimates set forth above may be material. Key Performance Indicators In addition to the foregoing non-GAAP measures, management uses the following key performance metrics to analyze and measure the Company’s financial performance and results of operations: orders, and backlog. Management uses orders and backlog as measures of current and future business and financial performance, and these may not be comparable with measures provided by other companies. Orders represent written communications received from customers requesting the Company to provide products and/or services. Backlog is defined as the total dollar value of net orders received for which revenue has not yet been recognized. Management believes tracking orders and backlog are useful as it often times is a leading indicator of future performance. In accordance with industry practice, contracts may include provisions for cancellation, termination, or suspension at the discretion of the customer. Given that each of orders and backlog are operational measures and that the Company's methodology for calculating orders and backlog does not meet the definition of a non-GAAP measure, as that term is defined by the U.S. Securities and Exchange Commission, a quantitative reconciliation for each is not required or provided. FINANCIAL TABLES FOLLOW. Graham Corporation Consolidated Statements of Operations - Unaudited (Amounts in thousands, except per share data) Three Months Ended Six Months Ended September 30, September 30, 2023 2022 % Change 2023 2022 % Change Net sales $ 45,076 $ 38,143 18% $ 92,645 $ 74,218 25% Cost of products sold 37,885 32,863 15% 74,477 62,194 20% Gross profit 7,191 5,280 36% 18,168 12,024 51% Gross margin 16.0 % 13.8 % 19.6 % 16.2 % Other expenses and income: Selling, general and administrative 6,115 5,059 21% 13,134 10,544 25% Selling, general and administrative – amortization 273 273 0% 547 547 0% Operating profit (loss) 803 (52 ) NA 4,487 933 381% Operating margin 1.8 % (0.1 %) 4.8 % 1.3 % Other (income) expense, net 94 (62 ) NA 187 (125 ) (250%) Interest expense, net 55 246 (78%) 240 403 (40%) Income (loss) before provision (benefit) for income taxes 654 (236 ) NA 4,060 655 520% Provision (benefit) for income taxes 243 (40 ) NA 1,009 175 477% Net income (loss) $ 411 $ (196 ) NA $ 3,051 $ 480 536% Per share data: Basic: Net income (loss) $ 0.04 $ (0.02 ) NA $ 0.29 $ 0.05 480% Diluted: Net income (loss) $ 0.04 $ (0.02 ) NA $ 0.28 $ 0.05 460% Weighted average common shares outstanding: Basic 10,699 10,617 10,675 10,614 Diluted 10,810 10,617 10,761 10,618 N/A: Not Applicable Graham Corporation Consolidated Balance Sheets – Unaudited (Amounts in thousands, except per share data) September 30, March 31, 2023 2023 Assets Current assets: Cash and cash equivalents $ 25,800 $ 18,257 Trade accounts receivable, net of allowances ($1,887 and $1,841 at September 30 and March 31, 2023, respectively) 28,710 24,000 Unbilled revenue 34,975 39,684 Inventories 27,009 26,293 Prepaid expenses and other current assets 2,850 1,534 Income taxes receivable 774 302 Total current assets 120,118 110,070 Property, plant and equipment, net 27,122 25,523 Prepaid pension asset 6,251 6,107 Operating lease assets 7,775 8,237 Goodwill 23,523 23,523 Customer relationships, net 10,423 10,718 Technology and technical know-how, net 8,922 9,174 Other intangible assets, net 7,266 7,610 Deferred income tax asset 1,489 2,798 Other assets 239 158 Total assets $ 213,128 $ 203,918 Liabilities and stockholders’ equity Current liabilities: Current portion of long-term debt $ 2,000 $ 2,000 Current portion of finance lease obligations 19 29 Accounts payable 13,554 20,222 Accrued compensation 11,357 10,401 Accrued expenses and other current liabilities 6,262 6,434 Customer deposits 59,526 46,042 Operating lease liabilities 1,125 1,022 Income taxes payable - 16 Total current liabilities 93,843 86,166 Long-term debt 8,863 9,744 Finance lease obligations 76 85 Operating lease liabilities 6,993 7,498 Deferred income tax liability 48 108 Accrued pension and postretirement benefit liabilities 1,341 1,342 Other long-term liabilities 1,169 2,042 Total liabilities 112,333 106,985 Stockholders’ equity: Preferred stock, $1.00 par value, 500 shares authorized - - Common stock, $0.10 par value, 25,500 shares authorized, 10,846 and 10,774 shares issued and 10,703 and 10,635 shares outstanding at September 30, 2023 and March 31, 2023, respectively 1,084 1,075 Capital in excess of par value 29,196 28,061 Retained earnings 80,494 77,443 Accumulated other comprehensive loss (7,445 ) (7,463 ) Treasury stock (143 and 138 shares at September 30 and March 31, 2023, respectively) (2,534 ) (2,183 ) Total stockholders’ equity 100,795 96,933 Total liabilities and stockholders’ equity $ 213,128 $ 203,918 Graham Corporation Consolidated Statements of Cash Flows – Unaudited (Amounts in thousands) Six Months Ended September 30, 2023 2022 Operating activities: Net income $ 3,051 $ 480 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation 1,549 1,724 Amortization 891 1,238 Amortization of actuarial losses 421 336 Amortization of debt issuance costs 119 93 Equity-based compensation expense 625 312 Deferred income taxes 1,162 174 (Increase) decrease in operating assets: Accounts receivable (4,947 ) 38 Unbilled revenue 4,620 (5,283 ) Inventories (734 ) (2,560 ) Prepaid expenses and other current and non-current assets (1,343 ) (782 ) Income taxes receivable (489 ) (136 ) Operating lease assets 589 901 Prepaid pension asset (144 ) (325 ) Increase (decrease) in operating liabilities: Accounts payable (6,451 ) 3,730 Accrued compensation, accrued expenses and other current and non-current liabilities 5 553 Customer deposits 13,503 544 Operating lease liabilities (529 ) (840 ) Long-term portion of accrued compensation, accrued pension liability and accrued postretirement benefits - (595 ) Net cash provided (used) by operating activities 11,898 (398 ) Investing activities: Purchase of property, plant and equipment (3,312 ) (1,176 ) Proceeds from disposal of property, plant and equipment 38 - Net cash used by investing activities (3,274 ) (1,176 ) Financing activities: Principal repayments on debt (1,020 ) (3,511 ) Proceeds from the issuance of debt - 5,000 Principal repayments on finance lease obligations (147 ) (136 ) Issuance of common stock 225 - Payment of debt issuance costs - (122 ) Purchase of treasury stock (57 ) (22 ) Net cash provided (used) by financing activities (999 ) 1,209 Effect of exchange rate changes on cash (82 ) (254 ) Net increase (decrease) in cash and cash equivalents 7,543 (619 ) Cash and cash equivalents at beginning of period 18,257 14,741 Cash and cash equivalents at end of period $ 25,800 $ 14,122 Graham Corporation Adjusted EBITDA Reconciliation (Unaudited, $ in thousands, except per share amounts) Three Months Ended Six Months Ended September 30, September 30, 2023 2022 2023 2022 Net income (loss) $ 411 $ (196 ) $ 3,051 $ 480 Acquisition & integration costs - - - 54 Barber-Nichols performance bonus 802 - 1,569 - Debt amendment costs - 41 - 194 Net interest expense 55 246 240 403 Income taxes 243 (40 ) 1,009 175 Depreciation & amortization 1,201 1,487 2,440 2,962 Adjusted EBITDA $ 2,712 $ 1,538 $ 8,309 $ 4,268 Adjusted EBITDA margin % 6.0 % 4.0 % 9.0 % 5.8 % Adjusted Net Income (Loss) and Adjusted Net Income Per Diluted Share Reconciliation (Unaudited, $ in thousands, except per share amounts) Three Months Ended Six Months Ended September 30, September 30, 2023 2022 2023 2022 Net income (loss) $ 411 $ (196 ) $ 3,051 $ 480 Acquisition & integration costs - - - 54 Amortization of intangible assets 445 619 891 1,238 Barber-Nichols performance bonus 802 - 1,569 - Debt amendment costs - 41 - 194 Normalize tax rate(1) (287 ) (139 ) (566 ) (312 ) Adjusted net income $ 1,371 $ 325 $ 4,945 $ 1,654 GAAP net income (loss) per diluted share $ 0.04 $ (0.02 ) $ 0.28 $ 0.05 Adjusted net income per diluted share $ 0.13 $ 0.03 $ 0.46 $ 0.16 Diluted weighted average common shares outstanding 10,810 10,617 10,761 10,618 (1) Applies a normalized tax rate to non-GAAP adjustments, which are pre-tax, based upon the statutory tax rate. Non-GAAP Financial Measures Adjusted EBITDA is defined as consolidated net income (loss) before net interest expense, income taxes, depreciation, amortization, other acquisition related expenses, and other unusual/nonrecurring expenses. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of sales. Adjusted EBITDA and Adjusted 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 Adjusted EBITDA and Adjusted EBITDA margin, 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 Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures and are thus susceptible to varying calculations, Adjusted EBITDA, and Adjusted EBITDA margin, as presented, may not be directly comparable to other similarly titled measures used by other companies. Adjusted net income (loss) and adjusted net income (loss) per diluted share are defined as net income (loss) and diluted earnings (loss) per share as reported, adjusted for certain items and at a normalized tax rate. Adjusted net income (loss) and adjusted net income (loss) per diluted share are not measures determined in accordance with GAAP and may not be comparable with the measures used by other companies. Nevertheless, Graham believes that providing non-GAAP information, such as adjusted net income (loss) and adjusted net income (loss) per diluted share, 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 fiscal year's net income (loss) and net income (loss) per diluted share to the historical periods' net income (loss) and net income (loss) per diluted share. Graham also believes that adjusted net income (loss) per diluted share, which adds back intangible amortization expense related to acquisitions, provides a better representation of the cash earnings of the Company. View source version on businesswire.com: https://www.businesswire.com/news/home/20231106821428/en/Contacts Christopher J. Thome Vice President - Finance and CFO Phone: (585) 343-2216 Deborah K. Pawlowski Kei Advisors LLC Phone: (716) 843-3908 dpawlowski@keiadvisors.com
18% growth in second quarter sales driven by 69% increase in defense market revenue Gross profit of $7.2 million increased $1.9 million from the prior year quarter, or 36%, on better mix of higher margin projects, better pricing, and improving execution Achieved net income of $0.4 million; adjusted net income1 improved to $1.4 million Aftermarket sales to the refining and petrochemical markets were a record $10.8 million, up 74%. Solid backlog of $313.3 million including 80% defense business Shipped final first article units for Columbia submarine and Ford Class carrier programs Refinanced lending facilities following close of quarter, improving flexibility and reducing cost of debt
Graham Corporation (NYSE: GHM) (“GHM” or the “Company”), a global leader in the design and manufacture of mission critical fluid, power, heat transfer and vacuum technologies for the defense, space, energy, and process industries, today reported financial results for its second quarter ended September 30, 2023 (“second quarter fiscal 2024”). Daniel J. Thoren, President and Chief Executive Officer, commented, “We continue to improve as an organization and are becoming a healthier, more robust business. We are executing better every day, identifying opportunities for further growth and margin expansion. We remain focused on our core capabilities of precision machining of critical turbomachinery components and specialty welding for fabrication of critical equipment for large heat transfer and vacuum applications. Importantly, with the shipment of the final first articles related to the Columbia submarine and Ford Class carrier programs, we now have a higher margin profile in our backlog and believe we are positioned to drive stronger earnings power.” He concluded, “We are making great progress and believe we are on track to achieve our fiscal 2027 goals of greater than $200 million in revenue with low to mid-teen adjusted EBITDA margins2.” While the Company expects to continue to have first article programs in its backlog as it wins new projects and applications, the amount as a percentage of total backlog should be reduced moving forward. In addition, Graham has expanded its leadership team, improved internal communications and program management to mature its capabilities with first article development and manufacturing. ____________________________ 1 Adjusted net income is a non-GAAP measure. See attached tables and other information on pages 10 and 11 for important disclosures regarding Graham’s use of adjusted net income. 2 See “Forward-looking Non-GAAP Measures" on page 5 and attached tables and other information on pages 10 and 11 for important disclosures regarding Graham’s outlook for adjusted EBITDA margin. Second Quarter Fiscal 2024 Performance Review (All comparisons are with the same prior-year period unless noted otherwise.) ($ in millions except per share data) Q2 FY24 Q2 FY23 $ Change Net sales $ 45.1 $ 38.1 $ 7.0 Gross profit $ 7.2 $ 5.3 $ 1.9 Gross margin 16.0% 13.8% Operating income (loss) $ 0.8 $ (0.1) $ 0.9 Operating margin 1.8% (0.1%) Net income (loss) $ 0.4 $ (0.2) $ 0.6 Net income (loss) per diluted share $ 0.04 $ (0.02) $ 0.06 Adjusted net income (loss)* $ 1.4 $ 0.3 $ 1.1 Adjusted net income (loss) per diluted share* $ 0.13 $ 0.03 $ 0.10 Adjusted EBITDA* $ 2.7 $ 1.5 $ 1.2 Adjusted EBITDA margin* 6.0% 4.0% *Graham believes that adjusted EBITDA (defined as consolidated net income before net interest expense, income taxes, depreciation, amortization, other acquisition related expenses (income), and other unusual/nonrecurring expenses), and adjusted EBITDA margin (adjusted EBITDA as a percentage of net 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 as defined in the lending agreement. Graham also believes that adjusted net income (loss) and adjusted net income (loss) per diluted share, which excludes intangible amortization, other costs related to the acquisition, and other unusual/nonrecurring (income) expenses, provides a better representation of the cash earnings of the Company. See the attached tables and other information on pages 10 and 11 for important disclosures regarding Graham’s use of adjusted EBITDA, adjusted EBITDA margin, adjusted net income (loss), and adjusted net income (loss) per diluted share, as well as the reconciliation of net income to adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per diluted share. Net sales of $45.1 million increased 18.2%, or $7.0 million. Sales to the defense market increased $10.3 million, or 69%, reflecting more direct labor, better execution, the timing of material receipts, and improved pricing. Record sales in the commercial aftermarket helped to offset slow-to-recover capital projects in the refining and petrochemical industries. Aftermarket sales to the refining and petrochemical markets were $10.8 million, up $4.6 million, or 74%. Declines in the space market reflect timing of projects and the loss of a customer in April 2023 to bankruptcy. See supplemental data for a further breakdown of sales by market and region. Compared with the prior year period, the 36% increase in gross profit and 220 basis point expansion of gross margin reflected higher volume and related improved absorption, a healthy mix of higher margin commercial aftermarket sales, better execution and better pricing on defense contracts. Selling, general and administrative expense (“SG&A”), excluding amortization, was $6.1 million, or 14% of sales, up $1.1 million. Approximately $0.8 million of the increase was attributable to the supplemental performance bonus for Barber-Nichols employees (the “BN performance bonus”) in connection with the 2021 acquisition of Barber-Nichols LLC. Other increases included inflation of personnel costs, as well as increased professional fees of approximately $0.2 million driven by increasing complexity in the business associated with growth and our international operations. Net income was $0.4 million, or $0.04 per diluted share. On a non-GAAP basis, adjusted net income3 and adjusted net income per diluted share3 were $1.4 million and $0.13, respectively, compared with adjusted net income3 and adjusted net income per diluted share3 of $0.3 million and $0.03 during the same period a year ago. ____________________________ 3 Adjusted net income and adjusted net income per diluted share are non-GAAP measures. See attached tables and other information on pages 10 and 11 for important disclosures regarding Graham’s use of adjusted net income and adjusted net income per diluted share. Cash Management and Balance Sheet Cash generated from operations for the three months ended September 30, 2023 was $3.3 million, up from $0.3 million for the same period last year. Capital expenditures for the second quarter of fiscal 2024 were $1.8 million. Cash and cash equivalents on September 30, 2023, were $25.8 million up from $18.3 million on March 31, 2023. Debt at quarter end was down $0.9 million to $10.9 million compared with March 31, 2023. Following the end of the quarter, the Company announced it had closed on a new, five-year $50 million senior secured revolving credit facility of which $35 million is currently available. Graham used the proceeds from the facility and cash on hand to pay down the remaining $11.5 million balance of its term loan and the $725 thousand exit fee from its previous lending agreement amendments. The new facility will reduce current borrowing rates by approximately 25 basis points to SOFR plus 1.25%. Christopher J. Thome, Chief Financial Officer, commented, “The refinancing of our debt with the new credit facility provides expanded financial flexibility to support our growth strategy with lower borrowing costs. Following the close of the new credit facility, we used the $35 million provided and cash on hand to pay down our outstanding debt so that at this time we have no debt outstanding. The new revolver provides the flexibility to support our working capital and capital expenditure requirements which can diverge from timing of cash receipts.” Orders and Backlog (See supplemental data filed with the Securities and Exchange Commission on Form 8-K and provided on the Company’s website for a further breakdown of orders and backlog by market) ($ in millions) Q1 23 Q2 23 Q3 23 Q4 23 FY23 Q1 24 Q2 24 YTD FY24 Orders $ 40.3 $ 91.5 $ 20.0 $ 50.9 $ 202.7 $ 67.9 $ 36.5 $ 104.4 Backlog $ 260.7 $ 313.3 $ 293.7 $ 301.7 $ 301.7 $ 322.0 $ 313.3 $ 313.3 Orders for the three-month period ended September 30, 2023, were $36.5 million compared with a record $91.5 million for the same period of fiscal 2023. Last year’s second quarter included a large multi-year order for supporting the U.S. Navy’s Naval Nuclear Propulsion Program. Aftermarket orders for the refining and petrochemical markets continued to be strong and were $11.4 million in the second quarter, up 2% over the same period last year and up 45% sequentially. Backlog for the quarter was $313.3 million, which was unchanged compared with the prior-year period. Approximately 50% of orders currently in backlog are expected to be converted to sales in the next twelve months and another 25% to 30% is expected to convert to sales over the following twelve months. The majority of orders expected to convert beyond twelve months are for the defense industry, specifically the U.S. Navy. Maintaining Fiscal 2024 Outlook The Company guidance for fiscal 2024 remains unchanged from previous guidance. (as of November 6, 2023) Fiscal 2024 Guidance Net Sales: $170 million to $180 million Gross Margin: 18% to 19% of sales SG&A expense(1) 15% to 16% of sales Adjusted EBITDA(2) $11.5 million to $13.5 million Effective Tax Rate 22% to 23% CapEx $12.0 million to $13.5 million (1) Includes approximately $2.5 million to $4 million of BN performance bonus and ERP conversion costs included in SG&A expense. (2) Excludes approximately $2.5 million to $4 million of BN performance bonus and ERP conversion costs included in SG&A expense and approximately $0.7 million of debt extinguishment charges. Webcast and Conference Call GHM’s management will host a conference call and live webcast today at 11:00 a.m. Eastern Time (“ET”) to review its financial condition and operating results, 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 GHM’s investor relations website. A question-and-answer session will follow the formal presentation. GHM’s conference call can be accessed by calling (201) 689-8560. Alternatively, the webcast can be monitored from the events section of GHM’s investor relations website. A telephonic replay will be available from 3:00 p.m. ET on the day of the teleconference through Monday, November 13, 2023, at 11:59 p.m. ET. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13741263 or access the webcast replay via the Company’s website at ir.grahamcorp.com, where a transcript will also be posted once available. About Graham Corporation GHM is a global leader in the design and manufacture of mission critical fluid, power, heat transfer and vacuum technologies for the defense, space, energy, and process industries. The Graham Manufacturing and Barber-Nichols’ global brands are built upon world-renowned engineering expertise in vacuum and heat transfer, cryogenic pumps, and turbomachinery technologies, as well as its responsive and flexible service and the unsurpassed quality customers have come to expect from the Company’s products and systems. Graham Corporation routinely posts news and other important information on its website, grahamcorp.com, where additional information on Graham Corporation and its businesses 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,” “outlook,” “anticipates,” “believes,” “could,” “guidance,” “should,” ”may”, “will,” “goals,” “plan” 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, profitability of future projects and the business, its ability to deliver to plan, its ability to meet customers’ shipment and delivery expectations, its ability to continue to strengthen relationships with customers in the defense industry, its ability to secure future projects and applications, expected expansion and growth opportunities, anticipated sales, revenues, adjusted EBITDA, adjusted EBITDA margins, capital expenditures and SG&A expenses, the timing of conversion of backlog to sales, orders, market presence, profit margins, tax rates, foreign sales operations, customer preferences, changes in market conditions in the industries in which it operates, changes in general economic conditions and customer behavior, forecasts regarding the timing and scope of the economic recovery in its markets, and its acquisition and growth strategy, 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 (the “SEC”), included under the heading entitled “Risk Factors”, and in other reports filed with the SEC. 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. Forward-Looking Non-GAAP Measures 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 largely because forecasting or predicting our future operating results is subject to many factors out of our control or not readily predictable. 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 2024 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 estimates set forth above may be material. Key Performance Indicators In addition to the foregoing non-GAAP measures, management uses the following key performance metrics to analyze and measure the Company’s financial performance and results of operations: orders, and backlog. Management uses orders and backlog as measures of current and future business and financial performance, and these may not be comparable with measures provided by other companies. Orders represent written communications received from customers requesting the Company to provide products and/or services. Backlog is defined as the total dollar value of net orders received for which revenue has not yet been recognized. Management believes tracking orders and backlog are useful as it often times is a leading indicator of future performance. In accordance with industry practice, contracts may include provisions for cancellation, termination, or suspension at the discretion of the customer. Given that each of orders and backlog are operational measures and that the Company's methodology for calculating orders and backlog does not meet the definition of a non-GAAP measure, as that term is defined by the U.S. Securities and Exchange Commission, a quantitative reconciliation for each is not required or provided. FINANCIAL TABLES FOLLOW. Graham Corporation Consolidated Statements of Operations - Unaudited (Amounts in thousands, except per share data) Three Months Ended Six Months Ended September 30, September 30, 2023 2022 % Change 2023 2022 % Change Net sales $ 45,076 $ 38,143 18% $ 92,645 $ 74,218 25% Cost of products sold 37,885 32,863 15% 74,477 62,194 20% Gross profit 7,191 5,280 36% 18,168 12,024 51% Gross margin 16.0 % 13.8 % 19.6 % 16.2 % Other expenses and income: Selling, general and administrative 6,115 5,059 21% 13,134 10,544 25% Selling, general and administrative – amortization 273 273 0% 547 547 0% Operating profit (loss) 803 (52 ) NA 4,487 933 381% Operating margin 1.8 % (0.1 %) 4.8 % 1.3 % Other (income) expense, net 94 (62 ) NA 187 (125 ) (250%) Interest expense, net 55 246 (78%) 240 403 (40%) Income (loss) before provision (benefit) for income taxes 654 (236 ) NA 4,060 655 520% Provision (benefit) for income taxes 243 (40 ) NA 1,009 175 477% Net income (loss) $ 411 $ (196 ) NA $ 3,051 $ 480 536% Per share data: Basic: Net income (loss) $ 0.04 $ (0.02 ) NA $ 0.29 $ 0.05 480% Diluted: Net income (loss) $ 0.04 $ (0.02 ) NA $ 0.28 $ 0.05 460% Weighted average common shares outstanding: Basic 10,699 10,617 10,675 10,614 Diluted 10,810 10,617 10,761 10,618 N/A: Not Applicable Graham Corporation Consolidated Balance Sheets – Unaudited (Amounts in thousands, except per share data) September 30, March 31, 2023 2023 Assets Current assets: Cash and cash equivalents $ 25,800 $ 18,257 Trade accounts receivable, net of allowances ($1,887 and $1,841 at September 30 and March 31, 2023, respectively) 28,710 24,000 Unbilled revenue 34,975 39,684 Inventories 27,009 26,293 Prepaid expenses and other current assets 2,850 1,534 Income taxes receivable 774 302 Total current assets 120,118 110,070 Property, plant and equipment, net 27,122 25,523 Prepaid pension asset 6,251 6,107 Operating lease assets 7,775 8,237 Goodwill 23,523 23,523 Customer relationships, net 10,423 10,718 Technology and technical know-how, net 8,922 9,174 Other intangible assets, net 7,266 7,610 Deferred income tax asset 1,489 2,798 Other assets 239 158 Total assets $ 213,128 $ 203,918 Liabilities and stockholders’ equity Current liabilities: Current portion of long-term debt $ 2,000 $ 2,000 Current portion of finance lease obligations 19 29 Accounts payable 13,554 20,222 Accrued compensation 11,357 10,401 Accrued expenses and other current liabilities 6,262 6,434 Customer deposits 59,526 46,042 Operating lease liabilities 1,125 1,022 Income taxes payable - 16 Total current liabilities 93,843 86,166 Long-term debt 8,863 9,744 Finance lease obligations 76 85 Operating lease liabilities 6,993 7,498 Deferred income tax liability 48 108 Accrued pension and postretirement benefit liabilities 1,341 1,342 Other long-term liabilities 1,169 2,042 Total liabilities 112,333 106,985 Stockholders’ equity: Preferred stock, $1.00 par value, 500 shares authorized - - Common stock, $0.10 par value, 25,500 shares authorized, 10,846 and 10,774 shares issued and 10,703 and 10,635 shares outstanding at September 30, 2023 and March 31, 2023, respectively 1,084 1,075 Capital in excess of par value 29,196 28,061 Retained earnings 80,494 77,443 Accumulated other comprehensive loss (7,445 ) (7,463 ) Treasury stock (143 and 138 shares at September 30 and March 31, 2023, respectively) (2,534 ) (2,183 ) Total stockholders’ equity 100,795 96,933 Total liabilities and stockholders’ equity $ 213,128 $ 203,918 Graham Corporation Consolidated Statements of Cash Flows – Unaudited (Amounts in thousands) Six Months Ended September 30, 2023 2022 Operating activities: Net income $ 3,051 $ 480 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation 1,549 1,724 Amortization 891 1,238 Amortization of actuarial losses 421 336 Amortization of debt issuance costs 119 93 Equity-based compensation expense 625 312 Deferred income taxes 1,162 174 (Increase) decrease in operating assets: Accounts receivable (4,947 ) 38 Unbilled revenue 4,620 (5,283 ) Inventories (734 ) (2,560 ) Prepaid expenses and other current and non-current assets (1,343 ) (782 ) Income taxes receivable (489 ) (136 ) Operating lease assets 589 901 Prepaid pension asset (144 ) (325 ) Increase (decrease) in operating liabilities: Accounts payable (6,451 ) 3,730 Accrued compensation, accrued expenses and other current and non-current liabilities 5 553 Customer deposits 13,503 544 Operating lease liabilities (529 ) (840 ) Long-term portion of accrued compensation, accrued pension liability and accrued postretirement benefits - (595 ) Net cash provided (used) by operating activities 11,898 (398 ) Investing activities: Purchase of property, plant and equipment (3,312 ) (1,176 ) Proceeds from disposal of property, plant and equipment 38 - Net cash used by investing activities (3,274 ) (1,176 ) Financing activities: Principal repayments on debt (1,020 ) (3,511 ) Proceeds from the issuance of debt - 5,000 Principal repayments on finance lease obligations (147 ) (136 ) Issuance of common stock 225 - Payment of debt issuance costs - (122 ) Purchase of treasury stock (57 ) (22 ) Net cash provided (used) by financing activities (999 ) 1,209 Effect of exchange rate changes on cash (82 ) (254 ) Net increase (decrease) in cash and cash equivalents 7,543 (619 ) Cash and cash equivalents at beginning of period 18,257 14,741 Cash and cash equivalents at end of period $ 25,800 $ 14,122 Graham Corporation Adjusted EBITDA Reconciliation (Unaudited, $ in thousands, except per share amounts) Three Months Ended Six Months Ended September 30, September 30, 2023 2022 2023 2022 Net income (loss) $ 411 $ (196 ) $ 3,051 $ 480 Acquisition & integration costs - - - 54 Barber-Nichols performance bonus 802 - 1,569 - Debt amendment costs - 41 - 194 Net interest expense 55 246 240 403 Income taxes 243 (40 ) 1,009 175 Depreciation & amortization 1,201 1,487 2,440 2,962 Adjusted EBITDA $ 2,712 $ 1,538 $ 8,309 $ 4,268 Adjusted EBITDA margin % 6.0 % 4.0 % 9.0 % 5.8 % Adjusted Net Income (Loss) and Adjusted Net Income Per Diluted Share Reconciliation (Unaudited, $ in thousands, except per share amounts) Three Months Ended Six Months Ended September 30, September 30, 2023 2022 2023 2022 Net income (loss) $ 411 $ (196 ) $ 3,051 $ 480 Acquisition & integration costs - - - 54 Amortization of intangible assets 445 619 891 1,238 Barber-Nichols performance bonus 802 - 1,569 - Debt amendment costs - 41 - 194 Normalize tax rate(1) (287 ) (139 ) (566 ) (312 ) Adjusted net income $ 1,371 $ 325 $ 4,945 $ 1,654 GAAP net income (loss) per diluted share $ 0.04 $ (0.02 ) $ 0.28 $ 0.05 Adjusted net income per diluted share $ 0.13 $ 0.03 $ 0.46 $ 0.16 Diluted weighted average common shares outstanding 10,810 10,617 10,761 10,618 (1) Applies a normalized tax rate to non-GAAP adjustments, which are pre-tax, based upon the statutory tax rate. Non-GAAP Financial Measures Adjusted EBITDA is defined as consolidated net income (loss) before net interest expense, income taxes, depreciation, amortization, other acquisition related expenses, and other unusual/nonrecurring expenses. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of sales. Adjusted EBITDA and Adjusted 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 Adjusted EBITDA and Adjusted EBITDA margin, 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 Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures and are thus susceptible to varying calculations, Adjusted EBITDA, and Adjusted EBITDA margin, as presented, may not be directly comparable to other similarly titled measures used by other companies. Adjusted net income (loss) and adjusted net income (loss) per diluted share are defined as net income (loss) and diluted earnings (loss) per share as reported, adjusted for certain items and at a normalized tax rate. Adjusted net income (loss) and adjusted net income (loss) per diluted share are not measures determined in accordance with GAAP and may not be comparable with the measures used by other companies. Nevertheless, Graham believes that providing non-GAAP information, such as adjusted net income (loss) and adjusted net income (loss) per diluted share, 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 fiscal year's net income (loss) and net income (loss) per diluted share to the historical periods' net income (loss) and net income (loss) per diluted share. Graham also believes that adjusted net income (loss) per diluted share, which adds back intangible amortization expense related to acquisitions, provides a better representation of the cash earnings of the Company. View source version on businesswire.com: https://www.businesswire.com/news/home/20231106821428/en/
Christopher J. Thome Vice President - Finance and CFO Phone: (585) 343-2216 Deborah K. Pawlowski Kei Advisors LLC Phone: (716) 843-3908 dpawlowski@keiadvisors.com