- Strong financial results further validates solid execution of
strategic initiatives to grow and drive stronger earnings
power
- Revenue up 5% to a record $50.0 million reflecting strength in
defense and refining; gross margin expanded 170 basis points to
24.8%
- Net income increased 12% to $3.0 million for net margin of
5.9%, adjusted net income1 was up 20% to $3.6 million and adjusted
EBITDA1 was $5.1 million, or 10.3% of sales
- Orders of $55.8 million driven by defense market and
international demand, resulted in a book-to-bill ratio of 1.1x and
nearly $400 million in backlog2
- Strong balance sheet with no debt and $21.6 million of cash at
June 30, 2024, provides financial flexibility to support future
growth
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 first quarter for the fiscal year ended
June 30, 2024 (“fiscal 2025”). Results for the quarter include the
P3 Technologies, LLC (“P3”) acquisition, which closed on November
9, 2023.
“We are delivering consistent improvement, solid growth and
strengthening profitability,” commented Daniel J. Thoren, President
and Chief Executive Officer. “We believe our solid results reflect
the commitment and discipline of the GHM team, the confidence our
customers have bestowed on us and the effectiveness of our strategy
to build better companies. In addition to the visibility our nearly
$400 million in backlog provides, it is worth noting that the
growth of our defense business has also reduced our economic
sensitivity as we receive a steady flow of program renewals and new
opportunities with the U.S. Navy. In fact, we will be breaking
ground this month on a new 29,000 square foot facility in Batavia,
NY to provide production efficiencies, and increased capabilities
and capacity to support our defense customer’s needs.”
He concluded, “These are exciting times at Graham Corp. We are
steadily advancing our plan, delivering on our targets and are
strategically positioning for continued growth.”
First Quarter Fiscal 2025 Performance Review (All
comparisons are with the same prior-year period unless noted
otherwise.)
($ in thousands except per share data)
Q1 FY25 Q1
FY24 $ Change % Change Net sales
$
49,951
$
47,569
$
2,382
5%
Gross profit
$
12,368
$
10,977
$
1,391
13%
Gross margin
24.8%
23.1%
+170 bps
Operating profit
$
3,224
$
3,684
$
(460)
-12%
Operating margin
6.5%
7.7%
-120 bps
Net income
$
2,966
$
2,640
$
326
12%
Net income margin
5.9%
5.5%
+40 bps
Net income per diluted share
$
0.27
$
0.25
$
0.02
8%
Adjusted net income*
$
3,584
$
2,983
$
601
20%
Adjusted net income per diluted share*
$
0.33
$
0.28
$
0.05
18%
Adjusted EBITDA*
$
5,137
$
5,123
$
14
0%
Adjusted EBITDA margin*
10.3%
10.8%
-50 bps
*Graham believes that, when used in conjunction with measures
prepared in accordance with U.S. generally accepted accounting
principles, adjusted net income, adjusted diluted net income per
share, Adjusted EBITDA and adjusted EBITDA margin, which are
non-GAAP measures, help in the understanding of its operating
performance. See attached tables and other information on pages 10
and 11 for important disclosures regarding Graham’s use of these
non-GAAP measures.
Record quarterly net sales of $50.0 million increased 5%, or
$2.4 million, and included $1.6 million of incremental sales from
P3. Sales to the defense market increased $6.3 million, or 28%, and
were driven by better execution, improved pricing, and increased
direct labor. These increases more than offset lower “Other”
revenue that reflected variability in project timing across
multiple markets and customers. Aftermarket sales to the refining,
chemical/petrochemical, and defense markets of $7.8 million
remained strong but were $3.0 million lower than the prior year
record levels. See supplemental data for a further breakdown of
sales by market and region.
Gross margin expanded 170 basis points to 24.8%, which reflected
higher margin defense sales, higher margin P3 sales, and improved
execution. Additionally, gross profit for the quarter benefited
$480 thousand due to a $2.1 million grant received from BlueForge
Alliance to reimburse the Company for the cost of its defense
welder training programs in Batavia and related equipment.
BlueForge Alliance is a nonprofit, neutral integrator that supports
the U.S. Navy’s submarine industrial base initiatives.
Selling, general and administrative expense (“SG&A”),
inclusive of amortization, was $9.3 million, or 18.6% of sales, up
$2.0 million over the prior year. This increase reflects the
continued investments the Company is making in its operations,
employees, and technology. This included $0.3 million of
incremental costs related to P3, $0.3 million for enterprise
resource planning (“ERP”) conversion costs at the Batavia facility,
$0.4 million of incremental research and development costs, and a
$0.3 million increase in the supplemental performance bonus for
Barber-Nichols employees3. When compared with the fourth quarter of
fiscal 2024, SG&A expenses decreased $1.8 million, or 16%,
primarily due to lower professional services fees and
performance-based compensation.
Cash Management and Balance Sheet Cash provided by
operating activities was $8.7 million for the first quarter of
fiscal 2025. Cash and cash equivalents on June 30, 2024, were $21.6
million up from $16.9 million on March 31, 2024. Capital
expenditures for the first quarter of fiscal 2025 were $3.0
million.
The Company had no debt outstanding at June 30, 2024 with $29
million available on its senior secured revolving credit
facility.
Orders, Backlog, and Book-to-Bill Ratio 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. See “Key Performance Indicators”
below for important disclosures regarding Graham’s use of these
metrics.
(in millions)
Q1 24 Q2 24 Q3 24 Q4 24 FY24
Q1 25 Orders
$
67.9
$
36.5
$
123.3
$
40.8
$
268.4
$
55.8
Backlog
$
322.0
$
313.3
$
399.2
$
390.9
$
390.9
$
396.8
Orders for the three-month period ended June 30, 2024, were
$55.8 million, which equated to a book-to-bill ratio of 1.1x.
Defense orders represented 51% of total orders and included the
second option year award to support the MK48 Mod 7 Heavyweight
Torpedo program with mission critical alternators and regulators.
Additionally, orders for the quarter included three surface
condenser systems for the world's first net-zero carbon emissions
integrated ethylene cracker and derivatives site located in North
America. Aftermarket orders for the refining and petrochemical
markets for the first quarter of fiscal 2025 increased 4% to $8.2
million compared with the prior-year period.
Backlog at quarter end was $396.8 million, up 23% compared with
the prior-year period and up 2% compared with the end of the
trailing fourth quarter of fiscal 2024. Approximately 35% to 45% 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 year. The majority of orders
expected to convert beyond twelve months are for the defense
industry, specifically the U.S. Navy.
Fiscal 2025 Outlook The Company’s outlook for 2025 is
reaffirmed as follows:
(as of August 7, 2024)
Fiscal 2025 Guidance
Net Sales:
$200 million to $210 million
Gross Margin:
22% to 23% of sales
SG&A expense(1)
16.5% to 17.5% of sales
Adjusted EBITDA(2)
$16.5 million to $19.5
million
Effective Tax Rate
20% to 22%
Capital Expenditures
$10.0 million to $15.0
million
(1) Includes approximately $6.5 million to
$7.5 million of BN supplemental performance bonus, equity-based
compensation, and ERP conversion costs included in SG&A
expense. (2) Excludes net interest expense, income taxes,
depreciation and amortization from net income, as well as
approximately $2.0 million to $3.0 million of equity-based
compensation and ERP conversion costs included in SG&A
expense.
Webcast and Conference Call GHM’s management will host a
conference call and live webcast on August 7, 2024 at 11:00 a.m.
Eastern Time (“ET”) to review its financial 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 today
through Wednesday, August 14, 2024. To listen to the archived call,
dial (412) 317-6671 and enter conference ID number 13746993 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 Graham 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. Graham Corporation and its family of 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,”
“future,” “outlook,” “anticipates,” “believes,” “could,”
“guidance,” “should,” ”may”, “will,” “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 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.
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 Adjusted 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 and adjusted net income per diluted share
are defined as net income and net income per diluted share as
reported, adjusted for certain items and at a normalized tax rate.
Adjusted net income and adjusted net income per diluted share are
not measures determined in accordance with GAAP, and may not be
comparable to the measures as used by other companies.
Nevertheless, Graham believes that providing non-GAAP information,
such as adjusted net income and adjusted net income 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 and net income per diluted share to the historical periods'
net income and net income per diluted share. Graham also believes
that adjusted net income per share, which adds back intangible
amortization expense related to acquisitions, provides a better
representation of the cash earnings of the Company.
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, backlog, and book-to-bill ratio.
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 they often times are leading indicators
of future performance. In accordance with industry practice,
contracts may include provisions for cancellation, termination, or
suspension at the discretion of the customer.
The book-to-bill ratio is an operational measure that management
uses to track the growth prospects of the Company. The Company
calculates the book-to-bill ratio for a given period as net orders
divided by net sales.
Given that each of orders, backlog, and book-to-bill ratio are
operational measures and that the Company's methodology for
calculating orders, backlog and book-to-bill ratio 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
June 30,
2024
2023
% Change
Net sales
$
49,951
$
47,569
5%
Cost of products sold
37,583
36,592
3%
Gross profit
12,368
10,977
13%
Gross margin
24.8%
23.1%
Operating expenses and income:
Selling, general and administrative
8,838
7,019
26%
Selling, general and administrative – amortization …
436
274
59%
Other operating income
(130)
-
NA
Operating profit
3,224
3,684
(12%)
Operating margin
6.5%
7.7%
Other expense, net
91
93
(2%)
Interest (income) expense, net
(161)
185
NA
Income before provision for income taxes
3,294
3,406
(3%)
Provision for income taxes
328
766
(57%)
Net income
$
2,966
$
2,640
12%
Per share data:
Basic:
Net income
$
0.27
$
0.25
8%
Diluted:
Net income
$
0.27
$
0.25
8%
Weighted average common shares outstanding: Basic
10,862
10,653
Diluted
10,958
10,719
NA: Not Applicable
Graham Corporation
Consolidated Balance Sheets –
Unaudited
(Amounts in thousands, except per
share data)
June 30,
March 31,
2024
2024
Assets Current assets: Cash and cash equivalents
$
21,611
$
16,939
Trade accounts receivable, net of allowances ($78 and $79 at June
30, and March 31, 2024, respectively)
36,767
44,400
Unbilled revenue
40,039
28,015
Inventories
32,762
33,410
Prepaid expenses and other current assets
4,011
3,561
Total current assets
135,190
126,325
Property, plant and equipment, net
34,004
32,080
Prepaid pension asset
6,454
6,396
Operating lease assets
6,985
7,306
Goodwill
25,520
25,520
Customer relationships, net
14,014
14,299
Technology and technical know-how, net
10,876
11,065
Other intangible assets, net
7,101
7,181
Deferred income tax asset
2,829
2,983
Other assets
1,192
724
Total assets
$
244,165
$
233,879
Liabilities and stockholders’ equity Current
liabilities: Current portion of finance lease obligations
$
20
$
20
Accounts payable
19,509
20,788
Accrued compensation
10,630
16,800
Accrued expenses and other current liabilities
6,265
6,666
Customer deposits
87,658
71,987
Operating lease liabilities
1,211
1,237
Income taxes payable
894
715
Total current liabilities
126,187
118,213
Finance lease obligations
60
65
Operating lease liabilities
6,164
6,449
Accrued pension and postretirement benefit liabilities
1,258
1,254
Other long-term liabilities
2,308
2,332
Total liabilities
135,977
128,313
Stockholders’ equity: Preferred stock, $1.00 par
value, 500 shares authorized
-
-
Common stock, $0.10 par value, 25,500 shares authorized, 11,043 and
10,993 shares issued and 10,871 and 10,850 shares outstanding at
June 30 and March 31, 2024, respectively
1,104
1,099
Capital in excess of par value
32,354
32,015
Retained earnings
84,965
81,999
Accumulated other comprehensive loss
(6,891
)
(7,013
)
Treasury stock (172 and 143 shares at June 30, and March 31, 2024,
respectively) respectively)
(3,344
)
(2,534
)
Total stockholders’ equity
108,188
105,566
Total liabilities and stockholders’ equity
$
244,165
$
233,879
Graham Corporation
Consolidated Statements of
Cash Flows – Unaudited
(Amounts in thousands)
Three Months Ended
June 30,
2024
2023
Operating activities: Net income
$
2,966
$
2,640
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation
857
793
Amortization
554
446
Amortization of unrecognized prior service cost and actuarial
losses
195
211
Amortization of debt issuance costs
-
59
Equity-based compensation expense
344
293
Change in fair value of contingent consideration
(130
)
-
Deferred income taxes
99
855
(Increase) decrease in operating assets, net of acquisitions:
Accounts receivable
7,611
(5,769
)
Unbilled revenue
(12,023
)
5,171
Inventories
647
780
Prepaid expenses and other current and non-current assets
(926
)
(1,065
)
Income taxes receivable
-
(159
)
Operating lease assets
321
293
Prepaid pension asset
(58
)
(72
)
Increase (decrease) in operating liabilities, net of acquisitions:
Accounts payable
(909
)
(4,745
)
Accrued compensation, accrued expenses and other current and
non-current liabilities
(6,380
)
(868
)
Customer deposits
15,672
10,002
Operating lease liabilities
(310
)
(256
)
Income taxes payable
182
-
Long-term portion of accrued compensation, accrued pension
liability and accrued postretirement benefits
4
(6
)
Net cash provided by operating activities
8,716
8,603
Investing activities: Purchase of property, plant and
equipment
(2,978
)
(1,499
)
Acquisition of P3 Technologies, LLC
(170
)
-
Net cash used by investing activities
(3,148
)
(1,499
)
Financing activities: Principal repayments on debt
-
(500
)
Principal repayments on finance lease obligations
(79
)
(85
)
Purchase of treasury stock
(810
)
(57
)
Net cash used by financing activities
(889
)
(642
)
Effect of exchange rate changes on cash
(7
)
(57
)
Net increase in cash and cash equivalents
4,672
6,405
Cash and cash equivalents at beginning of period
16,939
18,257
Cash and cash equivalents at end of period
$
21,611
$
24,662
Graham Corporation Adjusted EBITDA
Reconciliation* (Unaudited, $ in thousands)
See supplemental data filed with the Securities and Exchange
Commission on Form 8-K and provided on the Company’s website for
additional history of Adjusted EBITDA and Adjusted EBITDA
margin.
(1) Beginning in the fourth quarter of fiscal 2024, Adjusted
EBITDA no longer excludes the Barber-Nichols supplemental
performance bonus, but now excludes the impact of non-cash
equity-based compensation expense in order to be more consistent
with market practice. Prior period results have been adjusted to
reflect these changes on a comparable basis. The Barber-Nichols
supplemental performance bonus expense was $1.1 million and $0.8
million for the first quarter of fiscal 2025 and 2024,
respectively.
Three Months Ended
June 30,
2024
2023
Net income
$
2,966
$
2,640
Acquisition & integration income
(93
)
-
ERP Implementation costs
342
-
Net interest (income) expense
(161
)
185
Income tax expense
328
766
Equity-based compensation expense
344
293
Depreciation & amortization
1,411
1,239
Adjusted EBITDA(1)
$
5,137
$
5,123
Net sales
$
49,951
$
47,569
Net income margin
5.9%
5.5%
Adjusted EBITDA margin
10.3%
10.8%
Graham Corporation Adjusted Net
Income and Adjusted Net Income per Diluted Share
Reconciliation* (Unaudited, $ in thousands, except per share
amounts)
See supplemental data filed with the Securities and Exchange
Commission on Form 8-K and provided on the Company’s website for
additional history of Adjusted Net Income and Adjusted Net Income
per Diluted Share.
(1) Applies a normalized tax rate to non-GAAP adjustments, which
are pre-tax, based upon the statutory tax rate.
(2) Beginning in the fourth quarter of fiscal 2024, Adjusted Net
Income no longer excludes the Barber-Nichols supplemental
performance bonus. Prior period results have been adjusted to
reflect this change on a comparable basis. The Barber-Nichols
performance bonus expense, net-of-tax, was $0.8 million and $0.6
million for the first quarter of fiscal 2025 and 2024,
respectively, and will continue through fiscal year 2026.
Three Months Ended
June 30,
2024
2023
Net income
$
2,966
$
2,640
Acquisition & integration income
(93
)
-
Amortization of intangible assets
554
446
ERP Implementation costs
342
-
Normalized tax rate(1)
(185
)
(103
)
Adjusted net income(2)
$
3,584
$
2,983
GAAP net income per diluted share
$
0.27
$
0.25
Adjusted net income per diluted share(2)
$
0.33
$
0.28
Diluted weighted average common shares outstanding
10,958
10,719
* Acquisition and Integration Costs are incremental costs
that are directly related to the P3 acquisition. These costs may
include, among other things, professional, consulting and other
fees, system integration costs, and fair value adjustments relating
to contingent consideration. ERP Implementation Costs relate to
consulting costs incurred in connection with the new ERP system
being implemented throughout our Batavia, N.Y. facility and are not
expected to recur once the project is completed.
____________________ 1 Adjusted Net Income and Adjusted EBITDA
are non-GAAP measures. See attached tables and other information on
pages 10 and 11 for important disclosures regarding Graham’s use of
these non-GAAP measures. 2 Orders, backlog and book-to-bill ratio
are key performance metrics. See “Key Performance Indicators” below
for important disclosures regarding Graham’s use of these metrics.
3 Supplemental performance bonus is related to the 2021 acquisition
of Barber Nichols LLC.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240807773528/en/
For more information, contact: 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
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