Graham Corporation

Greetings and welcome to the Graham Corporation fourth quarter fiscal year 2020 financial results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Chris Gordon, Investor Relations for Graham Corporation. Thank you. You may begin.

Thank you, Melissa, and good morning, everyone. We appreciate you joining us today to discuss Graham's fiscal 2020 fourth quarter and full year results. You should have a copy of the news release that was distributed across the wires this morning. We also have slides associated with the commentary that we are providing here today. If you do not have the release or the slides, you can find them on the company's website at www.gram.com. On the call today with me are Jim Lyons, our President and Chief Executive Officer, Jeff Gleick, our Chief Financial Officer, and Alan Smith, Vice President and General Manager of our Batavia New York facility. Jim will start with a strategic overview of our business and provide our outlook for fiscal year 2021. Jeff will review the financial results for the period and Alan will provide an operations overview. We will then open the lines for Q&A. As you are aware, we may make some forward-looking statements during this discussion as well as during the Q&A. These statements apply to future events and are subject to risks and uncertainties as well as other factors which could cause actual results to differ materially from what is stated on the call. These risks and uncertainties and other factors are provided in the earnings release and in the slide deck, as well as with other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at www.sec.gov. I also want to point out that during today's call we will discuss some non-financial gap measures which we believe are useful in evaluating our performance. You should not consider the presentation of this additional information in isolation. or as a substitute for the results prepared in accordance with GAAP. We have provided reconciliations of comparable GAAP to non-GAAP measures in the tables accompanying today's earnings release. With that, it's my pleasure to turn the call over to Jim.

Thank you, Chris. Good morning, everyone. Thank you for joining us to review fourth quarter and year-end results. I begin my prepared remarks on page four. We took quick measures in the latter part of March to respond to COVID-19 related risks. Graham is classified as essential workers because we are a critical infrastructure and defense industry supplier. To protect our employees and to mitigate the spread of the virus in our communities, operations were geared down to approximately 10% production capacity. We kept such scaled back production capacity for several weeks and ramped back to near full production capacity at the end of May as OSHA and CDC-based work procedures and recommended practices were put in place. Production capacity will average 50% for the first quarter and will be at 100% for the second quarter of fiscal 2021. While operations scaled back, we maintained wage and benefits continuity for all Graham employees. I am proud of the response of the management and COVID return to work teams that admirably prepared our facilities to have employees safely back on the job full time. Please refer to slide five. Disruptions such as COVID, along with the collapse of crude oil prices, had a dramatic impact on our end markets, with an exception being our US Navy work. We believe that new opportunities arise during downturns for companies that are equipped to capitalize on them, and Graham is one of those companies. We entered this disruption with a strong balance sheet and excellent high-quality backlog. We will continue to invest in long-term growth initiatives, in particular, investments to drive our installed base, staffing and structuring our U.S. Navy segment to convert current backlog and expected new orders, acquiring opportunistically assets to strengthen U.S. Navy revenue or broaden participation in energy and petrochemical end markets, accessing the global fabrication supply chain to expand capacity, improve costs, and change market share in previously underserved end markets provides a new runway for growth. Building out that organization to ensure broad participation, nurture the opportunities, secure new orders, and to control subcontracted fabrication in order to meet quality and margin requirements is critical to the success of this initiative. We will invest in personnel in support of this initiative. We will also continue investing in process improvement and productivity gains, and also in our employees. We don't intend to take our foot off the accelerator. We will focus on the long term and act during this downturn to strengthen revenue growth and profitability. This disruption was indeed a black swan surprise. Nonetheless, we want to capitalize on the opportunities that such an event creates. I now refer to slide six. The refining end market is expected to be weaker this year than last with regard to new orders. There is, however, large project work in Asia, in particular for China and India. We are actively in the fight for those projects. National and integrated refining customers have pulled in CapEx and MRO spending due to cash flow strain that stems from oil prices falling and the abrupt drop in end market demand for fuels. Oil prices must recover, and more importantly, demand for transportation fuels needs to return to more normal levels before we anticipate that significant investment by our customer returns. We understand, due to the global pandemic, that demand for crude oil has fallen approximately 30%. What is a bit different this time is independent refiners also are changing CapEx and MRO plans. This is due to demand abruptly declining and the lowering of crack spreads. Just as a reminder, crack spread is the difference between selling of refined products and the purchase cost of crude oil. As the global economy recovers, we anticipate investment by independent refiners will recover more quickly to take advantage of spreads with improved demand. Given all of this, our backlog for refining and market was negatively impacted. To date, approximately $4 million of backlog on 12-31 has been canceled. Chemical and petrochemical markets also were impacted negatively. This was particularly evident in North America, U.S. rig count has fallen by roughly two-thirds, and co-produced natural gas supply was adversely impacted. As a reminder, natural gas is a primary feedstock to the petrochemical industry in the U.S. We observed several final investment decisions for petrochemical projects in our bid pipeline get suspended or delayed by a year or more. On the other hand, The next wave of global petrochemical capacity is starting to enter the early bidding phases. This is principally for international markets, but does continue to show the decoupling of petrochemicals from the energy market. We do have a solid pipeline of bids for the U.S. Navy that we expect will close in fiscal 2021. The total amount of that pipeline is between $40 and $50 million. Our short cycle orders are off 15 to 20% due to the same reasons cited previously. We expect this recovers as the global economy gets back on its feet. Graham is very fortunate to have a high quality, large backlog that on March 31st was $112 million. This will enable fiscal 2021 to have a sharp recovery from the first quarter results in fiscal 2021. With our great balance sheet and terrific backlog, we are positioned well for capitalizing during this downturn. I will now turn the call over to Jeff to review the financial results. Jeff?