Graham (GHM) 6 Nov 232024 Q2 Earnings call transcript

Greetings. Welcome to the Graham Corporation Second Quarter 2024 Financial Results. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Debbie Pawlowski, Investor Relations for Graham Corporation.

You may begin.

good and Shamali, you, morning, everyone. Thank appreciate Graham Corporation. certainly your time in interest your and today We

Here on Chief and CEO; with our and Thoren, me Chris the call Thome, our Financial Dan Officer. are President

results find our a orders copy and supplemental morning. second XXXX earlier You should website along that you with of released can have were not, sales on at release, quarter ir.grahamcorp.com. backlog the fiscal information financial that If and this slides

Dan line and slides their the will today. to which our We are during provide Chris presentation formal we reference going will for after remarks, open the questions.

you X, I if will statement. turn harbor safe So to will review Slide the

session. aware formal other to to what future These statements that be to differ make may events during that should are from here discussion some and as as today. the well actual well subject uncertainties as forward-looking cause results materially Q&A stated statements You as risks factors apply we the could that is during

other the These with release documents company risks the and uncertainties Commission. filed by with factors are well as as in and other Exchange earnings Securities the provided and

You find those at our documents or can website sec.gov. on

measures. we in call, today's non-GAAP these We financial also useful discuss will be During evaluating believe some performance. our will

not However, substitute isolation or for this the as consider you additional should a with accordance results of presentation information GAAP. in prepared in

slides. with measures the in accompany measures release GAAP of comparable have non-GAAP and reconciliation We provided tables that today's

orders, company. and to performance key use book-to-bill. also the and are of indicators key gauge backlog These We progress performance performance metrics help the

the non-GAAP is meet company's does measure the a methodology of They for SEC. are by calculating not the term operational as defined that numbers measures definition and these

or the is you reconciliation of of these provided, find at our disclaimer metrics in use of a of result, a slides. back quantitative supplemental not a our as regarding but deck the So performance can each required

please begin. advance X, you if I'll to Dan to Dan? it over So to with Slide that, would turn

and morning, good Debbie, Thanks, everyone.

business, more better. progress, solid make to improving winning executing processes continue We and

During propulsion we We the lot on units next of and shipped programs. we these learnings Ford class the as units naval units learned last for nuclear first the program the quarter, Columbia work to article those the forward the carry carrier. building and the both class for a related these to expect submarine

you magnitude on the our more do the remind step I'll that want learning not article content first painful will our not That we as were new efforts wins Any more first getting margins. so be of work. curve to though the content ships. be is in first will

us to provides through with later. growth. financial greater borrowing will agreement credit more greater new capacity this Chris flexibility Our talk fund about our

exchangers growth, heat record large speaking A of more had October follow-on part at monthly orders strategic for $XXX Navy program. included to And a level a supply approximately of of million. total in the orders we

As also new towards we for XXXX expansion. to happening opportunities steadily exciting continue our at identifying growth progress fiscal goals, There's Graham. things we margin of lots are and

XXX X Revenue $XX results basis while gross points. effectiveness XX% grew highlights strengthening that the expanded our year-over-year reflect to strategy. margin of Slide million, financial our

income and sales. of Our and the improvements Adjusted diluted $XXX,XXX had earnings to We are translating million X% was EBITDA net line. bottom $X.X per of $X.XX. share of

book-to-bill quarter misleading. the Our somewhat for is

business. the Given defense of a timing our flow the lumpy and our for size the causes orders of release

for orders what second during noted we quarter. earlier, received more the in than October I As orders up made

Chris? to it let over With me details. the Chris that, financial turn for

everyone. Thank you, Dan, and good morning,

the prior We our but was with fiscal strategy better-than-expected growth $XX.X As is you over strong first consistent normalized of XXXX compared of strong with could results second plan. were This quarter, to sales our year see for the second had million. expected, our for the period. X, quarter sales On working. still and our up Slide quarter XX% that

the defense and improved increased timing the or more labor, of execution XX%, reflecting quarter, pricing. material better receipts $XX.X During revenue million direct

refining continued XX% sales strong quarter markets aftermarket the $XX.X commercial last the Additionally, to over and to million, petrochemical second $X.X up year. be and million or were

business. the environment a the for soft aftermarket in the sales projects revenue, and to quarter commercial due the size customer projects our of petrochemical of to U.S. helped and year-over-year loss the offset Declines XX% market and sales reflect total refining in growth bankruptcy. space Strong reflect XX% the April their the XXXX in up for of and timing industries. of were in defense capital

the that Compared quarter applications XX% should I profit were the the in have meaningful. and XXX mix also and increase related basis healthy better improved commercial execution year defense aftermarket in aerospace better of more prior gross the our in certain with volume note defense become included pricing of higher that margin absorption, period, defense on a gross higher-margin and reflected contracts. point sales, expansion

Touching SG&A. on

Approximately Other million. was Excluding the with performance for was sales, increase employees of million supplemental XX% the to $XXX,XXX amortization, Barber-Nichols in it connection $X.X attributable the up our bonus fees XXXX growth of $X.X approximately or increased associated well driven as business acquisition. of increases $XXX,XXX, costs with by our international and inflation personnel as increasing professional operations. of included complexity in

Slide Turning to X.

share. income in income $X.XX year of the diluted adjusted You net per adjusted income Compared per greater share, and during $X.XX of quarter metrics. a than or $X.XX income net XXX% share that were respectively. see net and This net $X.X $XXX,XXX basis, represents a had the for per share share period and adjusted of result with the increase could same ago. we diluted net adjusted diluted both was On non-GAAP million and $XXX,XXX per income per net

in million or also quarter This second of sales. Adjusted our business. last grew with $X.X of X% year's sales, million compares reflecting $X.X EBITDA to X% the adjusted of XX% EBITDA improvements or

to Turning X. Slide

generated fourth and cash the we our million X with operations XX% of quarter and XX, Cash of strengthening as second compared You fiscal are can quarter. increased for sheet. months from balance how September end first the of $XX.X $XX.X XXXX, $X.X in XXXX. see Cash million to million was the equivalents the

months Capital fiscal XXXX. second of quarter and the $X.X first for the million $X.X X expenditures million totaled for

to expect the million capital and $XX that $XX.X expand to connection continue enhance capabilities year, the growth million from investment improvement expenditures August. Batavia in production larger $XX.X our we we and as For with to be initiatives. we of facility in million between customers announced productivity defense This to expenditures invest strategic continue includes one our and in at

to $XXX,XXX the million. quarter down during Debt was $XX.X

the quarter, the million of be $XX available remaining once XXXX. us outstanding $XX in However, of is of facility as that following to consecutive the close new defined for million trailing credit of agreement with XX-month revolving we million have in quarters. The a refinanced facility our we $XX debt will $XX available lower matures cost, all the million X EBITDA immediately. credit

no outstanding working We down of flexibility capital borrowing have use this new And today, lowers and to hand costs. and expenditure we our debt. requirements outstanding. new facility as our the revolver pay cash and provides The capital our debt on growth support to

quarter. will you our to review If the turn now Slide I'll orders X, for

for naval reflected During resulted U.S. prior of XX% million, Last were second ratio orders the down the quarter million $XX a and in Graham. repeat which orders we quarter, critical X.Xx. in of book-to-bill year over year's the $XX.X had

to in order $XXX backlog defense primarily level industry. repeat similar As Dan over to record $XXX million. to This orders discussed, orders a million, our raised were October the which related were

Turning to Slide X.

we of that the several a You'll us times business. provides see that given have years of our long strong defense backlog visibility lead some

XX% be XX% to our converted to the X As million. the I backlog expected is is in to $XXX mentioned, next expected XX% months convert years. Approximately backlog to is sales of to now X next to XX up another over sales over and

convert months beyond excuse the The XX Navy. majority of sorry, expected of to U.S. the industry, me, majority months specifically beyond orders orders expected our are convert for are the -- defense XX to

guidance the our Turning to XX% to growth million raised that with we top -- to is million, quarter. for revenue of from we over XXXX, expect XXXX, suggests which fiscal consistent at XX, between continue guidance the Slide to line $XXX XXXX of midpoint be XXXX for fiscal $XXX can range. which Fiscal last fiscal review

a our margin perspective, XX% guidance From margin XX%. to gross is

XX% SG&A, associated to connection costs which XX% in Barber-Nichols' as the performance began our as facility, ERP for this bonus acquisition including month. our expectation employees includes to with and sales XXXX supplemental is for the well Additionally, amortization, Batavia implementation at of with between be costs

EBITDA excludes debt bonus $XXX,XXX with performance and our to million extinguishment million approximately conversion should expectation be at that EBITDA is between an million, about that of well adjusted Our related guidance range. out of $X.X as suggests of which connection the our refinance. point to that as will adjusted $XX.X margin ERP to Barber-Nichols' adjusted costs in $X I charges approximately the midpoint $XX.X million X% EBITDA

as in While the suggests low the softer overperformance projects. half, mix our our XXXX. on reflection is in timing a guidance margins much Nevertheless, and to adjusted better for we we of the softer each holidays QX, our the achieve improve employing start expect mid-teen price second margin improved to to a due QX year work processes, of and in seasonally it to EBITDA contracts, year goal order our the significant steadily

Dan. will back call that, the to With pass I

Thanks, Chris.

organization, I noted to progress As lots making we but of are still we as an do. earlier, solid have work

their our growth. Our strategy improvement appreciate greatly team to hard for and committed is work. continual and I fully And enthusiasm dedication,

now our us and backlog power. advance of a have growth has with visibility good earnings in we profile we have our many opportunities to that that front margin much expect better help to in We

call With that, Shamali, we can open questions. for the

with comes [Operator Litchfield Instructions] the question O'Neil of first Our line Theodore Research. Hills from

Congratulations good on the quarter.

Theo. Thanks,

Yes.

paid for new if to? on having want this So acquisition off flexibility you similar or new with you revolver Chris, to like debt the do the and take debt, an have

credit nice facility need. we strategy as this that Yes, thing repay can is about absolutely. all-revolver borrow That's so and an new we it the is

automatically As as comments a million million we in the facility $XX mentioned EBITDA rate increases run hit do the $XX I to today, my defined agreement. in once we

that were the it structure here. typically we of for we've CapEx talking yes, at allows is seen quarters very we place where much nature, And also companies and several put it that past the for in about we'll been increase spend So acquisitive what my flexibility. for in I've use

Okay.

have are and a you is somebody the to right And else? so of you taking looking -- products at vast from offer a marketplace? share is your where order array into just book how now, reflection of Or it this

Dan. ahead, Go Yes.

Theo, I work. us, that and that more great you've from would for our it's say, been basically doing gosh, job a here's say customers confidence

orders U.S. execute up in can the Navy to the start get we've the trying As heard ramp to media, the can sooner we in supply is it. faster And the they that really hands, chain's shipbuilding.

as folks that all work us good to in confidence our supplier definitely it's a of the doing. a tribute So and are

the have is been saying, class is companies I about they everybody follow-up cadence first that hiccups in class on that now. on as Navy, right class said it's a I fine, see saying there cadence the Are did looking the And search a you orders Ford Ford at saying all ] Ford other seeing of anything, the quick technology And BMX in a what the the except business? [ of any lull program.

seeing They No, any of we're orders. hiccups. between kind long not are

X X kind go of they So between years to orders.

between a but And not hearing time long so it does anything. feel like we're orders,

Our line Ryan of Ridge next from comes question Financial. Oak the with Dick

Congratulations guys. on the performance, strong continued

Dick. Thanks,

gotten the learning years of that some quite couple Obviously, back. the You've a through articles. is first of curve

-- handicap you'd could are? think of in first other Are I to projects you there interested the there such that if article in there business. timing And pipeline? you the kind be is alluded

has to that defense they accelerate can Yes. Navy go and we has out capacity There and budget. faster. passed opportunities invest the increase submarines. Navy building Again, said more in The their Supplier the of there. ships these within are to money suppliers want

So primes yes, to we are for continue who our additional customers to and looking talk work. the

and to very challenge be all to if though fully up capacity. don't a want XXX% because in interested us they're They keeping and we can also that engaged overload us way And behind. the get

work. more yes, now, can't in our say customers but conversation taking handicap timing there's I really right we're more continual so would opportunities. about I And on with

Okay. million, using And are play? where coming When start investment it the customer, $XX.X into will that from is And the going to for? that? you what be

Yes.

So we've that. already started

CNC process the we've means facility We're So well we order automated as expansion, planning . at equipment facility welders. have long placed and as that lead equipment expansion around started on also. looking machining

that shipbuilding our still X.X Certainly, up that from the years X in a current having can think product continue to production facility we're through for we investment faster support already at to away facilities push years accelerate that's schedule. getting rate So But we us accelerated to through and enables to. are the to the this production. that really and committed acceleration allows additional

not Barber-Nichols think the yes, of defense is too getting of of defense a any hydrogen long ledger? Okay. Or any what's business. orders the about XXX. release on And Is came that some the orders BN? you on side that going ago -- Is that their that had in the or Batavia? defense for all I

it pretty going now. of orders. Batavia, lot interesting. to BN of their is big was majority The share right continues defense economy on The hydrogen a get There's but

I probably trying from think the enable hydrogen for in mobility. to funded to of hubs infrastructure they the country. use That's you the mostly announcements the X that federal place saw hydrogen government put basically had the around X,

So transportation-related things. for

in them exciting. pretty different put So pieces together helping to with several the that's continue We customers the of infrastructure. obviously hydrogen work

say, would in are that. kind than economy. exciting of anybody at hydrogen all pretty new things say, Too efforts happening. but to I want most time, but steady in early companies are, we both Slower progress see And so as the probably in of point this involved

Our from Gary comes next Valley Capital Forge the question Management. line Schwab with of

press making. about Could wasn't a actually Going hydrogen October back product. explain pump a more release Universal were XX hydrogen. to an I was you -- about antifreeze little have you that that That bit that? on

in that to Yes. different In a we're in hydrogen able but It glycol used future, pump yet. on for about here water aircraft. was see be cooling you're demonstrator, -- in exactly addition that in talk right, pumps that I particular quite the can't those that Gary. technology But involved to that case, other transferring applications that you'll was

going be that that go Barber-Nichols base filled they because to again, their hydrogen And Is that's to -- modules at doing look company. produce part the modules. has at then, liquid a And Universal I their and with took cryogenic have whether systems source back with at Okay. the them. an that They're that make the their where Hydrogen. interesting into hydrogen at hydrogen to they anything work?

Right.

industrial And guess hydrogen I the another very terms So involvement They're the from. looking very of I gas one in can market where their companies looking of that hydrogen sell say to area product. that from could companies at broad their then hydrogen those distributed at these as the in are be is liquid in and economy. each produced a lot interested hubs

is in its But And so Barber-Nichols and with area. too can't under talk working NDA folks in cryogenic about again, capability pump several much that different we're that.

Okay.

small Just one last one.

on kind about machinery On happened some the talk -- the Malone developing would LD of to tractor guys nuclear about all? critical rotating trailer. size you up the that small for modular a Micro conference, that Can talk fill of Matt small you units at

companies fluid be working pretty turbo of are working because actually, . machinery. working and Very pumps compressors. different fluid. NDA. the Barber-Nichols nuclear we're through again, the some But types from are little, and turbines These they makes very specialty can and those And fluids plant to under power transfer used unique

the specialty be of the be of involved could And pumps involved turbines in could so in They and fluids. those also circulation the require production. power they kind

the the type So comes that using turbines small produce modular heat and devices. nuclear to power those from

that to So we're again, that using yes, right that mature, on those be this progress this as to technology and quantity types to various still the continue it we're horse go. ways of But a specialty supply of future. those is it's And as demonstration in quite point. think hopeful for to -- at equipment in in the race we're able

question next Ascend John Bair comes from of Advisors. line with Our the Wealth

quick about facility. a the reinstating pleased thinking, in off that credit new you're Very dividend the further that Wondering is see progress. better, getting it. anything, you're Great on progress. if now question what distance? One to Good

John. Thanks, Yes.

front As have the we have out the lot few been on us a we laid talking of for organic call in a now, quarters opportunities guidance as growth was of today.

million year. this significant a have million spend $XX to amount $XX.X We of CapEx

similar level a I would year. expect next

of well us the of M&A opportunities So line. as a we as lot potential down inorganic have front in growth

a then form So we or to once it are those shareholders a the of initiatives to exhausted, returning dividend in look would buyback.

green I And discussed lot there of had questions Okay. have hydrogen. the about been a

what other Is holding kind you regards steady? My covers business? speak that space-related of outlook with your question it to So that. you're can general, to seeing there? in What's

the Yes. circulating used are for pumps I steady astronauts. would backpacks We've say, for us growth. about John, that water side, the with these space on able on to and of potential oxygen the of blowers talk and been publicly that talked some

And so to what that essentially to test. we we've is built development continue our done going we've for strong. see units customers far, Thus

for see production thermal good eventually We're management systems coming of seeing also we some in some for versions satellites. strength orders But those.

communication through. these and they're that satellites volume put So more are more trying to

so is doing. need And the electronics that's cooled and our equipment what be to

the again, opportunities pretty for some though. interesting that activities seeing are not LUNAR We're some volume, initiatives the also on, of going types there, high of

I kind won't us, so would at that point growth we're of to for but And this slower be area is what time. steady a growth huge say it seeing in

Okay. you about spread release strength predominantly that in short press is Great. markets. refining question, And Is Or order domestic? noted last the out? how in my a that

it domestically. seeing We're Yes. mostly

strong aftermarket we're orders this been So hard refineries as country. if very, pretty in running the very have

of big in pipeline, but running. spare And build-out an these on to of situations. them went capital keep seeing uptick we of . a to we're types parts where past within see We're nothing side lots little the the so starting like bit our through

replace a just market while. happy start bigger revamp margins we equipment we're as neglected companies say, need That's And capital are. is or of to side. this where our for domestic that's expand some these quite where or been oil to with pretty the aftermarket So on the

some that of We we'll increasing. orders expect the see capital

of spend companies? that to need might drive in by regulations that some new any capital there area that Are Great. these

Not basically saying. The the as seen, be these running fast that as energy have I thing refineries is companies for is mean, I've to we've look, to got of coming these to out seen transition going everybody that have isn't John. I saying, and more. some decades clean

wholesale got place. we've make alternative the low so us And the running, frankly, to isn't keep And some enough these infrastructure to. and of in plants energy a isn't to for and of the cost transition

when back So are we're you're I think also just that starting projections their we're for hear, to to walking hear carbon and -- that neutral. starting probably people they're

So both and gas to and business. figuring well we're sense energy as oil business following the transitioning support the along to in just out it transition. existing And of how makes kind as new as

Our comes the line from with next Bill Securities. Baldwin question of Baldwin Anthony

you update us and the implementation can be? ERP frame cost what on on the implementation project of to that time Chris, will

Sure.

the consultant on about number said diligent make sure design So frankly, the it. that a fact optimize from been about very being are at that time that we're XX- process. going ERP sure make through kind to bringing XX-month we're through thought we really of stay taking companies, project the and being on we the and of track we and We're get way our in through and benefit help we've to it's and a manage implementation. several very to an going implementations and extra us most system be Quite to to I've

then year. cost total, fiscal $X about So project, be over expense, We just million $X it's CapEx fiscal we next which in kind of will here. to of $X million, about million we're which getting XX-month current a year it's about to think started in think and going this and be which XX- will

one company Remind That's good, Chris, okay? -- bonuses if based folks liability, the you It BN total arm you deal the on good. made of sounds pretty your will, that performance the X and right, the on if drone good. to me, that years, that's with? you what's got like

year it's to So X-year million $X program, a fiscal $X per and a million potential year, starts of with that 'XX.

to 'XX, each could it we're and this to So million . year 'XX. 'XX And payout. $X be -- fiscal to we're from year going be for have $X anywhere million going

of that and earn-out of progressively So $X EBITDA. and million than deal this $XX year, hit from to signed million it $X EBITDA $X $XX.X million higher, the the to has million EBITDA to to original it's have is million get targets per million year, certain year, which when the lower was higher $XX $X $X.X the anywhere in then achieve following million of that was million, order it right? year, million $X.XX and on gets So for EBITDA for to next made and

those with So payments. significant growth to go along

Is that or there using just regular? just adjusted EBITDA you're -- that

But -- So straight certainly, most would adjust or intents things that. certain EBITDA. purposes, and for it's things onetime all that's part, the we for straight like out

Okay.

Okay.

So next in pretty we'll be correct X.X seeing Is that these the X years? bonus throughout quarterly. payments to much

Correct.

petrochemicals? you visibility is the Okay. do What aftermarket Do short Or your some pretty visibility there? fairly of on companies, with that kind you decent term? have have business refining refining

Bill. actually It's term, very short

So that's to pretty fill. quick

typically those orders. So we're looking filling X months to for X

And we X so instance. of don't for visibility for what have months, a in be will it lot

held into orders then so the QX? we pretty Had as Right. up good far, get

and nice They're absolutely. Yes. holding up Yes, strong.

we is bit because over to our Which happen we now, our business of backlog have lull some orders, can you thing, the a as Bill, shift nice million to know, just in $XXX now defense a these quite defense. we should of resources of runway. the right, And with see if about

That's a good Absolutely. option to Absolutely. have there.

I'll guess you as question factory -- lastly, issues, your much I or how do in is. Labor training behind proverbial that there, your ask labor plan going or shop the And plan? planned How just labor availability and pretty progressing Okay. is on of labor? ahead

want you do to that one? take Chris,

Sure.

our workforce team Batavia of respectively. say, and up said HR the year last that's labor to it's in XX% does and direct up our calls, the I'd is second X% -- couple of again, job a great XX%, So I've as last Barber-Nichols, from now, quarter on at

a doing labor force. growing great the they're So job

as say I of would slight seen a market. that to softening venture we've in late labor even the

that. applications gotten machinists very has creative. more things and had But like we've also and welders a for other team lot the So and

flame the we As program. you have welding know, Arkin

that programs started. apprenticeship have we've We

really to revenue done that X% has see said job a talent team growth. direct our business. as a need we know, great year, to finding the that support per but labor we we're We've kind growth you the of want So to XX%

So not without growth. that going to we're labor, the have direct

going Again, to grow job to to that great just venture seen essentially, date. slight they've soft a to workforce I'd lightening So need softening -- we're -- say much. a as we've of our But a as late. done soft

when mean, of in capacity X.X Well, you company? additions next your can is in I much capacity the production a factory here years, completed XX%? doubling quantify I get how you the year, mean you increase that capacity that your gives or at

guided doubling, It's . with that growth say not a but XX% it's revenue per -- we've to I X% year would we're that consistent our to.

So I'll 'XX out through your fiscal of strategic through -- end 'XX? the take

getting low mid-teen adjusted margin to to Right. as And that us then EBITDA well.

Right, right.

to guess I so have capacity there'll on. you keep comes expanding when them got labor the new here, be your force So you'll ready --

typically... We're

Timing is Isn't? there.

and tools, this we're future forward need need basically okay, into enable this. people, the different mean out to we're from several saying, we the is, I keeping systems, to Bill. steady and growth. facilities to we projecting and to really It -- test initiatives we all pushing It's

So fun. of ton it's a actually

mostly in Batavia? of by stuff. kind know keep that your you'd that's mean and of I is it capacity things. Batavia I BN? Or in one That's Dan both at flow I it, is that addition intrigued Well, why be Chris. the and blood

recent this one is Batavia. in more So

in this pretty just the really And in we're significant Navy a But investment year. customer, finished to look facilities that expansion to is growth. support this we the what do Batavia. to continuing Barber-Nichols we at additional So early need from continue with in

going both forward. So you'll in in facilities growth see locations

further As don't there, you to you expand recall, the square I have got any undercovered footage color? your land

In BN, got bit a of we've land, tougher. In little Batavia, yes. it's quite a

now we the back the have over end Dan Thoren for and call reached I'll session, of to remarks. closing turn the question-and-answer And

delivering improvement Until forward Shamali. I Graham quarter for you all third future. with about continuous towards progress at can Thank excitement here our joining and updating enjoy you, you we We expect you us to then, XXXX day. look We're our results. sense our the have Thank further fiscal hope today. goals. to steadily your

may lines conference, you for Thank concludes you and participation. this disconnect your your this And today's at time.