Graham Corporation

Greetings and welcome to the Graham Corporation first quarter fiscal year 2021 financial results. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Chris Gordon, Investor Relations for Graham Corporation. Thank you, Mr. Gordon. You may begin.

Thank you, Devin, and good morning, everyone. We appreciate you joining us today to discuss Graham's fiscal 2021 first quarter 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-mfg.com. On the call with me today are Jim Lines, 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. Jeff will start with a financial overview of the period. Alan will then provide the overview of our operations. And Jim will wrap up the prepared remarks with a strategic overview of our business and provide our outlook for the rest of fiscal year 2021. 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 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-GAAP financial 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.

Chris, thank you, Chris, and good morning, everyone. This is Jeff, actually. That's all right. No problem. As Jim and I have noted on our update calls in March and June, due to the COVID-19 pandemic, we reduced our facility staffing to approximately 10%. in late March, and after implementing new work practices, enhanced cleaning and safety procedures, and educating all of our employees on these changes, we gradually began to increase our staffing. By the end of May, we were back at near normal onsite staffing and have continued at that level over the past two months. I want to compliment Alan Smith and his team for ensuring a safer production environment in this difficult time, as well as our human resources team for their continued focus on improving safety in our workplace. As a result of these proactive measures, our average production staffing and capacity for the first quarter was only 50%, and hence our first quarter results suffered accordingly. Sales in the first quarter were $16.7 million, which included a project in China which had been delayed by COVID from the fourth quarter of last year into the first quarter of this year. That project made up approximately 30% of the quarter's revenue. On a positive note, our defense or Navy sales were 21% of this total or $3.5 million. We will be reporting the level of our Navy sales on a quarterly basis going forward, which for this year, we expect to be approximately 25 to 30% of total sales. In the first quarter, we had a loss of $1.8 million or 18 cents per share. As I noted, we ran at half capacity in Batavia, yet as discussed on prior calls, we continued to pay all of our employees their full benefits and wages. We did not accept any PPP funding, so we consciously realized this type of loss would occur. As Jim will discuss later, we view Q1 as a discrete event, and assuming There are no significant impacts to our business or operations. The rest of fiscal 2021, we will be operating as normal in Q2 and beyond and would expect far better results going forward. Cash at the end of June was $67.2 million, and our backlog was $107.2 million, split evenly between defense and commercial. This strong backlog level supports our guidance for the rest of fiscal 2021. On to slide five. Sales in the first quarter were down $3.9 million. Please note in Q1 of last year included $1.3 million from our energy steel business, which was sold in that quarter. Gross profit, EBITDA, and diluted earnings per share were all down significantly due to our low capacity level, yet more normal level of operating expenses, which occurred in the quarter. Moving on to slide six. Our cash position decreased $5.8 million in Q1 to $67.2 million, or $6.74 per share. We expected this to occur. As I noted during our update call in late March, if we were shut down for a month, we would expect to utilize approximately $3 million of cash per month. At 50% capacity in the quarter, this is equivalent to one and a half months average shutdown, hence the reduction in cash. As with sales and profitability, we expect cash generation to be positive for the rest of fiscal 2021. We paid $1.1 million of dividends in the quarter, and it continues to be secure and an important part of our capital allocation provided directly back to shareholders. Capital spending in the quarter was light at $300,000. We expect capital for the full year to be in the $2.0 to $2.5 million range. Finally, our business development management team and board continue to be focused on utilizing our strong balance sheet to opportunistically identify and close on acquisitions which have near and long-term benefits to our shareholders. Alan will now discuss our operations, and then Jim will complete our presentation with a strategic update and our fiscal 2021 guidance.