Graham (GHM) 5 Feb 242024 Q3 Earnings call transcript

Greetings. Welcome to the Graham Corporation Third Quarter Fiscal Year 2024 Financial Results Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Deborah Pawlowski, Investor Relations for Graham Corporation. Thank you.

begin. may You

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

me Chris questions. which are we are call to provide CEO; our on open remarks, our going Financial with after formal Chief and and Thome, and the Dan Dan Officer. will their President Chris Here Thoren, the line for

access that if of have third quarter can results a not, financial And morning. copy the release website were should our this You XXXX released on at the you fiscal ir.grahamcorp.com.

that You'll there the also find will slides accompany today's discussion.

to X the turn will you will I that review If Harbor statement. Slide on deck, Safe

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

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

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

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

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

are definition measures does calculating company's and ratio. non-GAAP SEC. numbers to by term not for the performance the is as help that These progress a backlog, gauge defined and these the meet We book-to-bill metrics of also company. operational methodology use the measure in performance performance key of They are the indicators key orders,

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

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

along team Debbie, position that Thanks, we few improved the solidifying to our morning, our aimed firmly of in due quarter strategic growth, enhance execution significantly Reflecting past the accretive on we margin taken. business margin bookings further and to consistent great EBITDA years, high-quality is This a I to thank potential. highlights flexible Notable has third line led and effort, actions believe good we've approach and our our our now lower credit been that in record our everyone. turnaround. facility, $XXX our framework. their debt initiatives nearly robust strategic to to service and a and backlog customers, financial providers future refinanced a increase that our include a quarter, million, like more top would demonstrated of with substantial underscoring our contribution a earnings cost the the and strength expansion, In the at cultivating with our adjusted performance gross employees, from for

deepen markets on We discipline. medical space the This a stronger investments, reach addition made initiatives, our given greater with great working during both was quarter given engineering, the basis, however, generated bolt paydown and of Chris to, Technologies. an will Their along and quarter was strategic on markets. but development expenses during expands our operations energy net recent existing new significant some highlight on business, muted, This the organic line was Our acquisition We highly strong which adjusted XXX% Slide diversification the and turbomachinery team. atypical X complementary from solutions, over technology create technologies was and and with into cash bottom million. patented of enhances brings which $X.X significant a capital financial up PX that the during investment quarter, that enabled to inorganic. debt income talk and

From EBITDA They brings of turbomachinery have is a of and financial perspective, million pipeline to PX adjusted margins highly our high-growth gross about feel backlog. also that of $X what approximately we accretive $X a complementary are annual million revenue, lot business. opportunities Barber-Nichols and

with to In amplified fact, proven the fortifying and earnings that with that to quarter. our It a repay bright believe create associated the is third cash short being the across in has important period we financial offerings note all been of that the future markets. acquisition they more provide nearly solutions profile, already to third of effective solution this has we and robust business Together, technology some opportunities the aim product integration in us, as for our were during including have instrumental debt quarter. we to accretive generation, given quarter's able have in multiple we to

across we fabrication on best our brands, applications. specialty machining, our to building vacuum leveraging a critical equipment capabilities culture and look development are of employee advancing practices, critical As core large of by precision we and for forward, welding transfer and of collaborative for reinforce components, advancing focused turbomachinery Graham heat

me Our ability of Chris for to details. the financial turn Chris? it in execute leverage consistently our high our multitude and opportunities before remains With that, the over us. confidence strategy let to

everyone. morning, Thank you, Dan, and good

was $X months our X, on commercial of our cautious fiscal acquired growth sales industries. approximately XXXX the for was the third incremental This million. PX. X quarter of of PX, see XXXX. in to the refining the with from $X.X petrochemical a strong X, or can operation had and As $XX.X you we sales Strong continued projects help Dan in included November approximately capital that which on On from offset of results highlighted, quarter include aftermarket million for over spending and sales the XX% up prior million year Slide

labor an XX%, increased price also as as of quarter, Aftermarket order of strong sales higher or decline million direct talk increase with well see few $X.X did quarter million a growth revenue lot quarter in with year. market, up during space hours. as the the which solid or had will in in XX% million a We Defense were had contracts third we $X.X to over the $X.X in the last was that project reflecting slides. a I to do capacity timing

the are the We acquisition mix as this seeing but reflect of growth the decline, industry expect bankruptcy PX we impact Virgin from we of of our XX% finish XXXX. and the lift helped fiscal other continue and Orbit robust through opportunities of energy, still that once within further markets. of cycle quarter this that sales revenue last and finally offset business. some year the out size defense to U.S. were new pipeline for well in medical defense and a as should total

and sales improved played are execution as PX. the basis from gross on was an of volume higher sales a point from margin profit And story and well commercial $X.X the Looking of right, gross third also lastly, increase related absorption. to the we quarter. another or expansion XX% higher-margin defense million The accretive on Mix the with in the positive as margin role million XXX to with chart contracts. $X.X reflected aftermarket benefiting pricing improved

and adjusted Turning you our bottom results. EBITDA X, to Slide see line can

from and also international past to fees, a you Also operations the the million. SG&A, of line As extinguishment increased The related items will year's in million Dan XX% item in including costs, associated SG&A amortization, to professional for or sales the the increase a mentioned, compensation, acquisition. a bonus this largely reflects amounted to supplemental was $X.X income period. excluding last see during contributing by connection number increase was costs. conversion of for quarter. net was sales, performance-based initial performance Barber-Nichols statement, costs our which higher million with XX% quarter, with $X.X Separately, our on impacted employees during $X.X up acquisition-related PX ERP debt the income XXXX of

non-GAAP excluding income of many could adjusted on net of EBITDA, per XXX% $X.XX costs up these When million Similarly, the from which ago. up a year sales, million see in points. you or improvements basis $X.X to diluted X.X% adjusted XX% atypical $X.X a XXX grew or share, was basis,

Turning to quarter, our At the reduced debt refinanced revolving sheet we $X.X year-to-date the operations from new how credit facility making outstanding costs $XX further strategic and This long-term fiscal still with flexibility facility our of $XX.X period a quarter can enabled borrowing for greater while us generated a cash was to of that the see strategic with Slide to beginning million million of fund strong our X-year matures third XXXX. investments. generation X, us all provides in quarter million and you Cash XXXX. improve goals. of in growth balance the

a with earn-out million the utilized was at combination our We and debt of reduce stock quarter end. cash, to performance balance of $X.X based some million PX. PX acquired cash this by of upon future $X contingent to

off the quarter. associated As Dan the of during most paid with highlighted, acquisition debt the was

we the in now in and move due decreased the Capital $X paid However, the ERP $X million from to anticipated start us about be the currently fiscal continue and at to of were total, year-to-date, focused the after to of to expenditures expect XXXX leaving projected million January debt-free. capital of our of facility. with pace. million, We million product All and capacity the million steady ended, primarily range million the debt expense cash expected Batavia on and off productivity the $X.X quarter, date of remaining an projects to ERP approximately XXXX, $X.X In now. forward expenditures $X year quarter our a a we in expansion, in improvements, flows. thoughtful $XX cost $X million go-live implementation of in timing at capital

X. turn you Slide to If

and record refining These up the of the Xx strong aftermarket petrochemical orders largely orders remained critical the were During for at a follow-on programs, resulted $X.X were had orders ratio over which $XXX in quarter, X.X. for over a U.S. prior markets million. of million, Navy year although we and book-to-bill

of growth also and from driver in million, million $X.X saw year-over-year a was quarter order sequential key our nice a the flow double $X.X our diversified up which customers remains and space We portfolio.

to Turning X. Slide

$XXX which a level, record years our that backlog our some see visibility several contracts. given the defense of nearly of long You'll provides is lead of also times million,

sales XX% months is million the our of The to in orders to sales XX our of expected convert next for X PX industry, over X expected to XX next the to are defense the XX% to another acquisition the Approximately that convert to years. Navy. added our and months, $X specifically convert majority The beyond backlog. XX% U.S. backlog is to

XX, can to Turning fiscal XXXX. we guidance Slide for review our

of our the and bottom Given we our top perspective, fiscal implies year-to-date raised margin the midpoint between and XX% gross revenue expectations margin XXXX, of million the $XXX million This from $XXX at that to end. million top have line we up quarter. performance XX% at be for PX, approximately and From addition growth over XX% range. $X strong the fiscal our to guided XXXX guidance is last of a XX%, up

be bonus Additionally, for Barber-Nichols for includes of at as acquisition X over expectations Batavia XX% percentage SG&A, the including supplemental costs amortization, ERP the associated performance our to between sales, facility. well our with implementation to up our previous This PX as costs, expenses guidance. point our employees, XX%

range charges. We to $XX our guidance our $XX.X of that XXXX I just million. $XX.X extinguishment million also point excludes raised $X.X approximately margin up previous from SG&A million, mentioned, to should and out range adjusted adjusted X% items midpoint. new of of EBITDA fiscal at the million The implies million $XX an for adjusted to EBITDA about I guidance debt the between guidance EBITDA our

delivering on track are to continuous achieve our improvement XXXX fiscal and goals. are We

call expect Dan. We achieve improving steadily, goal. EBITDA and to low $XXX we X% With million XXXX, to $XXX in to continue growth adjusted annualized with mid-teen which to target margin pass are I year, the will on organic per to million to revenue margins XX% that, for fiscal implies our back

Thanks, strides a organization, within are yet being there Chris. to our lot be made done. of work remains Significant

the Our enthusiasm am for efforts. and sustained pursuit dedication, grateful team ongoing and is devoted diligent of to unwavering growth, I their our for strategy

Graham. open and for the propelling opportunities can we PX our Numerous pivotal record add and anticipate questions. up future With bright earnings. play and role that bolstering call will Our you a backlog lie a growth acquisition these to future for the ahead, our that, of in Darryl,

with first Research. from Theodore Hills [Operator O'Neill Instructions] of the Our questions come line Litchfield

as your quarter. good Congratulations pipeline part part there you us that? opportunities that on the got in that acquisition. could that give on a some was prepared the -- in PX high-growth wondering more was was I detail of you you if remarks, mentioned of Dan,

there to been give propulsion lot And pumps of working fluid for be able mostly just PX applications. Yes. They're I space has detail you the on because of probably a space management But pumps, in whole won't side. NDAs.

So, deepens Barber-Nichols that our -- space perspective an the engagement from they're really awesome and with to actually complement community. probably

PX in which got believe far scratched then apply cool surface The how something do get And the like then involved they've that medical as would applications as IP other the they're and new about that And we're of very we also some yet applications. the -- is to thing get of I excited pretty really that haven't we excited some that's when cryogenic to market. But that energy-waste-heat-power-gen-types about. definitely into they on of to take pumps, they're to. those trying some we

liquids. pumping an they enhancement those of basically one And which is that is what efficiency be applied to pump, a multichannel can any diffuser, call

really and mostly displacement pump brings Barber-Nichols excited And that that. about pumps complements, capability complements types so, positive we're centrifugal again, and of pump then PX their is cryogenic that a pretty that

of we're top-notch his to them. really cool And excited really team and lots have engineers So, and Phil things. really, are

in Okay. detail say press customer. give Chris, improved more what Can any means? capital that, working payment large on And due that the to in to was you changes release, related defense that terms largely the us you

Sure.

been know, So, of management, and bill these capital with tackling, our Well, years, working terms had some payment past you payment basically, discipline receivables terms, last blocking projects you on really project XX% anymore for to possible; several of basic got collecting the production, putting out and several until can completion. where stronger once large defense unfavorable actively as in for couple go contracts the of has team pushing couldn't sooner, regards on where years. you

our So, business. that on was really putting restraint a cash

more would the the X a some able X say, billing terms past on more were percentage-complete milestones we're of I now where payment and And quarters, basis. to over to -- we renegotiate

the uplift significant the cash a provided to generation really couple that quarters. So, of over last

quarter, Additionally, orders for over pay the and we orders large that of upfront. as of this had you a lot a know, million defense those year, last with the amount $XXX materials then the of

So, we've that pay have to front, that in. inventory collect as it been but able to -- for up comes cash we'll cash

terms be expect past, fully our discussed So, really flow from lumpy. pretty helping and the an the some we've cash payment along. team as But generation the in we that done excellent to job cash has improving quarter-to-quarter of

to expenditures there that that are given and make, to Okay, to skilled investments in growth it there, up the make you're experiencing you'll need any potential employees have with or CapEx keep all?

Yes, definitely.

this guided As in support over for just to our the growth of in X% $XX we And is $X that several think for you know, that CapEx spend about expansion we've to million to X% the which be is midpoint next guidance. that the CapEx year, facility years the you to going at the million just range mentioned. X% of

remain elevated expenditures So, yes, a we expect years to capital for few here. certainly

Oak Dick Financial. Ridge Our of next with the line come from questions Ryan

leverage in looking Chris, quarter. guys. takes quarter, great this with obscured at and the gets on all little the the also, puts a Congratulations, OpEx, your

XX% You not in few SG&A sales any - kind changes year. with kick this seeing next aspirational quarters? Or we level the the the still for I providing to that you're of into at this start think range of 'XX? leverage is that your guide for yet, goals XX%-ish percent of over 'XX reason kind to materially will going there guidance but know

question, for thanks the Well, Sure. Dick.

last with today, for As We've several unusual I to bonus some outlined we in Barber-Nichols the my earnout recording in been the quarters. items comments had regards SG&A. quarter the

some as related know, foreign you little the elevated bit elevated were the we've off subsidiaries. costs fees to acquisition. ERP implementation. then of acquisition our as had also And kicked PX We a result a Professional

with performance talking items, So, bonus Barber-Nichols is several going to those to the be for us years.

and discussed a other X-year 'XX calls, for we've on it's program As 'XX, fiscal 'XX.

that's for around here. really going be just off in current a ERP kicked the earnest. So quarter implement in to The while

we today, next million about prepared expense in my the mentioned as I over year. that So, to be remarks of expect $X

But expect to a we XXXX, certainly EBITDA little the So, The by you're these allow yes, as bit we should us should kick then, next things. percentages. time work for mid-teen to to those get leverage be in. the And here through get to SG&A margin low I would elevated right. to year it

quarters, you've of the the the what's seen that -- markets? potential you those view few still a might So, and Dan, end refining strength last in is petrochemical over in see capital or kind aftermarket on of of what precursor budgets your

Yes.

guess, aftermarket I of first all, So, is strong. the remaining

So, elevated order on. level we're still continuing seeing that

nice projects year and seeing to capital this bid about and are are starting for We we're our planning that customers some hearing on.

again, encouraged. I boom, think, big seen the be we're past. the not in like But So, Graham it has will

So, aftermarket on a our if working getting supply there. as as the at and that training hard we're -- chain out less starting we've strong, pretty significant encouraged. employees and We're are of issue and is to to businesses continues happy there work challenges ready been uptick, an the we're far new

So, decent going I when we're in a and think that that off. pretty take does if be to position

else? fees mentioned these Chris reflect your is operations. said think of some you I something early project in maybe professional Or that international Does some discussions? increased capital -- that

take I one, Dick. Yes, could that

forensic did with in was reimbursements. complaint professionals. a result outside legal committee improper audit investigation broader confirm counsel mostly India the received where expense year, whistleblower -- earlier hiring As to identified our XX-Q investigation complaint, other a led from whistleblower today, misconduct which the that, some That included and which a to subsidiary. regards we launched of disclosed in they our And an our as investigation,

$XXX,XXX but professional did services about about was we've total relatively in in an impact that investigation. probably in in years, As that we year-to-date fees, result incurred It X in disclosed $XXX,XXX that the the XX-Q, increase was minor. over

Okay.

arguments of bring really expand to PX one companies. potential of the Graham was Dan, the So, this can both for scope

about talk when When a new you the end to markets? business, scale entering talked guys bringing combining the say, You space into deeper -- to some story, lot opportunities Or PX. is potential let's there with broadening a efforts? get the is market you that are

Yes. We see it as both, Dick.

connections PX a they've And doesn't markets group. to they're really have. engineering that So Barber-Nichols strong -- necessarily has

actually they're And so on the strength Barber-Nichols side engineering also. bringing to some

some have Nichols see PX PX. doesn't -- Barbara breadth has. probably that necessarily we capabilities comes So, the production with that

to production able satisfy going the So, to forward. we're be PX's also on customers going actually side

see a is deepening that real brings of a PX some it's with I technology table. it broadening it the win-win, So, and to in as the that

[Operator Instructions] Schwab Our of Capital Forge with Management. next Gary line questions come from the Valley

I'd just been question been Dick's like have by surprised how been year? great past following to quarter. in you on you on the -- say aftermarket. aftermarket Have the congratulations, up sales Have surprised strong

some To level.

But history comes have we majority the where so been do XX that what hard. years XX running company, have I the was Now, lot don't a I tell our of U.S., know of refineries from these especially the that in ago. - - couldn't with like you it and aftermarket

And keep to to serviced, got so, them high that be them able invest keep output continue properly in to they've to and level going. of

so, new assets here keep at got a just and existing too to we're because performance. running demand bunch I capacity of side, in this And a adding the would country, surprising say, top not from not you

So. . .

Okay. last it's year a picked really in up -- Because lot the

Oh, yes.

the the started. aftermarket there? you're an -- know I What's Or it closing orders? you have successful way orders they it? force have so sales that and doing just is Are you the in become how --

it's both. I think Well,

so a So of output the is just certainly, refinery for long the because time. has up high been demand

aftermarket. The team, our we of associated yet. that's done some the not And investing have been more of We're engineers, readjusted leadership positive. been I part think it, in aftermarket with other adding

trying our of As after installed base to too. figure that we're think out we go kind internationally, how to about

that. to and of so, offices And relative and to components both we've life intervals with our out figure got initiatives sales things communication the service of like strategies

that approach grow to -- of room continue bit we it have a And improve. think still a been has is to honestly, proactive I that So, to quite business.

we can in encouraged business going. aftermarket keep the we're that it So,

So, we'll see.

all of it of installed most it Is is base? base? installed Or

of base, Yes, is installed pretty it much all yes.

visibility? really all So, that are or a parts fact Is failure product a predicted delivered having last yours wear that you much dates? way on of the for these you rates visibility. based that can quarter talked customers up before, you've Almost predicted replacement like not increase to about subscription setting and business there

how installed our when components exactly a life got associated uses base -- Yes, is an and installed using to meeting we've that's approach We've bit our to -- base typical things to a but that got customers. out -- of database, actually outreach starting these the installed starting week. got initiative to we've automate a with automate kickoff aftermarket would got this this to and say, I installed stretch, understanding the little automate figure those base market AI

said So, more I again, think there's can bit do. we that I a quite

And how we're trying so, get out laurels not figure here. We're out resting to on and aggressive being more. to there our go

putting a Okay, one Chris. this sales chemical worth defense last sales just a on? line? You have for as adding sales, refinery space - sales, and aftermarket item Is line sales, question

internally the So, to certainly we refining can related definitely markets. think here. petrochemical something and It's about

to, the higher our and that's which out if growth So, of anything probably by in of important encompassing, energy business. and part else, related all a is new the aftermarket really future, is disclosure more it's becoming to market, break we'd kind our because look

is because carry? Okay, you product the it biggest gross margin that

Sure.

Okay, lot and a again. congratulations thanks

line come with the from John of questions Our Advisors. Wealth Bair Ascend next

Dan -- pleased good there. real debt of out to and the Congratulations, Chris, very see see to

with regards biodiesel, so, traditional year, upgrades you've has marketing dividend? refining roughly And the perhaps in is question the what between would or the what's questions, sales, breakout the here? said within got questions. contemplation to or aftermarket percentage been X the reinstituting One mix which beyond next -- I've XX And versus second and months, be, a quick the

with the regards Yes, to John, so a me one let first take dividend.

that opportunities over we of we of excess organic in CapEx been needs And have a next spent in As ROI. here get several talking growth the well on we've quite to lot that a of that have XX% the us are front years. bit are call, already of

main So, the regards M&A to focus, types then we'd the well, of a to PX that as great out take like advantage really as try to to we've those our really of. well -- is pipeline and opportunities and of with started are as example build

So really, of we're and several focused for come the that next years, be growth and M&A down organic kind on with going paying any M&A. debt to might

Board right decision So, the reinstate has made to not any now, that dividend point. at this

question biodiesel. are your converted traditional the in about seen at aftermarket relatively then this compared where to detail that biodiesel The is installed an these base And small aftermarket, point of using versus don't looks refineries. -- applications Certainly, over. guess far uptick as we've would as some what like. getting I refineries have I

is would that the relatively in the aftermarket. couldn't relationship refinery also. small I So, suspect other to But aftermarket than that quantify I for you, small

past far look as have international what market -- aftermarket an business? base where you of that established as like the established And does

. . various. Very

they running Are I at? that similar cycle, our -- here has been same Is the on getting a what I'm hard. internationally? Is industry situation [indiscernible] guess, is

-- It's brought we're new seeing being on. internationally, capacity

new instance, and for been China there's quite seems to and on be of also planning capacity in East capacity. new a India, So, Middle bit

after as in in much we build new has piece aggressive we grow big business the The And plans so installed continues aftermarket the to going installed a more not that. base, past. in that to been internationally on And be of have the base side. that our

our So, here. effort have to it as in a and Batavia what concerted sales earlier, initiatives the base we installed after that I figure said got it offices is, out where in with how is, effort internationally we've go

very Well, up it's encouraging. Keep good great. the you. Thank work,

Thank you.

of the the remarks. question-and-answer session. Dan back reached Thoren turn floor for over now have our end would closing any to I like We to

future. you all we I Graham our at for us hope the joining that excitement you can here sense have today. about Thank

XX. participating We the Gabelli will upcoming on Sidoti then and in on and conference virtually conferences, Valve February be March Water Symposium XX the Pump, X

quarter free reach at to feel and always, day. please As out we our Enjoy to after time, you fiscal results. look us to talking any your XXXX fourth again with forward

participation. Thank teleconference. We you. This appreciate today's does your conclude

your You may the disconnect of your lines rest time. day. Enjoy at this