Graham Corporation

Greetings and welcome to the Graham Corporation second quarter fiscal year 2021 financial results conference call. 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, sir. You may begin.

Thank you, Christine, and good morning, everyone. We appreciate you joining us today to discuss Graham's fiscal 2021 second quarter results. You should have a copy of the news release that was distributed across the wire 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. 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 the financial overview of the period. Alan will then provide an 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 the risks and uncertainties, as well as other factors which could cause actual results to differ materially from what is stated in the calls. 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 our comparable GAAP to non-GAAP measures in the tables accompanying today's earnings release. If you will turn to slide four, I will hand the call over to Jeff Gleick.

Thank you, Chris. As Chris mentioned, if we're starting on slide four, It was very nice to operate in Q2 in normal capacity after running at approximately 50% capacity in Q1 due to COVID-19. Q2 sales were $28 million, up from $21.6 million in Q2 of last year. Sales in the defense, the Navy market, were $9.4 million in the quarter. In the quarter, we had a quick-turn material order, which made up approximately a little over half of the revenue. in the Navy, we expected this to occur in the quarter. While it is not a repeatable type sale, it was not a surprise. Year-to-date defense sales were 12.9 million or 29% of sales. This is slightly higher than we expect for the full year. We would expect around 25% of our sales to be for the Navy for the full fiscal year. The quarter also benefited from an acceleration of some work at one of our Asian subcontractors They had available capacity and pulled some work from Q3 into Q2. Q2 net income was $2.7 million or 27 cents per share, up from $1.2 million or 12 cents per share last year. Stronger revenue and margins drove the improvement. Cash is still good at nearly $68 million. Finally, orders in the quarter were $35 million, driven by strong international refining and awards in Asia and defense in the United States. Our backlog improved to $114.9 million. The conversion of a portion of our backlog provides the foundation for our improved guidance for the fiscal year. Moving on to slide five, I discussed the sales detail on the last slide with the quarter at $28 million. Sales in the second quarter was 62% domestic, 38% international. Last year's second quarter was 73% domestic, 27% international. Gross profit in the quarter was increased to $7.7 million, up from $4.9 million last year, primarily due to volume. Gross margins were at 27.5%, up from 22.9%. EBITDA margins were 14.2%, up from 7.8% in last year's second quarter. And finally, net income was $2.7 million, up from 1.2 million last year. On to slide six. For the first half of fiscal 2021, sales were 44.7 million compared with 42.2 million in the first half of last year. This increase was despite the challenging Q1 when our production capacity was at 50% due to COVID-19. Unit 8 sales are 60% domestic, 40% international, compared with 71% domestic and 29% international last year. Gross profit was $9.3 million, slightly off the $9.7 million last year, and gross margins were down at $20.7 versus $22.9 last year, again impacted by COVID-19 in the first quarter. Unit 8 EBITDA margins were 4.9% versus 4.5% in the first half of last year. and net income is $900,000, or $0.09 per share, down from $1.3 million, or $0.13 per share last year. Again, the first quarter loss due to COVID-19 was substantial, but we have more than recovered that in the second quarter. Finally, moving on to slide seven, cash is at $67.9 million, down from $73 million at the end of fiscal 2021. but this is simply timing of working capital, namely accounts receivable and accounts payable. We are expecting this to come back in the third quarter. Our quarterly dividend remains firm at $0.11 a share. Capital spending has been light in the first half of the year at $800,000 compared to $700,000 last year. As we have seen in the last few years, our capital spending will increase in the second half of the year, and we still expect The total spend for the year to be between $2 and $2.5 million. Finally, as we continue to work on our acquisition pipeline and activities, COVID has not had an adverse effect on our efforts as we have built some very good relationships over time, and these conversations continue, however many of them are remote as opposed to in person. But they are still occurring and still very active. Alan will provide a presentation by providing more depth on our operations in Q2, and then Jim will provide a market update as well as our updated guidance for the rest of the fiscal 2021.