Graham Corporation

Greetings and welcome to the Graham Corporation Third Quarter Fiscal Year 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the presentation. If anyone should require operator assistance during this conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Chris Gordon, Investor Relations for Graham Corporation. Thank you, sir. You may begin.

Thank you, Diego, and good morning, everyone. We appreciate you joining us today to discuss Graham's fiscal 2021 third 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.gram-mfg.com. On the call with me today 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. Jeff will start with a 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 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 Jeff Blake.

Thank you, Chris, and good morning, everyone. If you could turn to slide four. Q3 sales were $27.2 million. up from $25.3 million in Q3 last year. Our COVID-19 impact in the quarter was small compared to Q1, but we still lost approximately $900,000 of revenue due to employee absences related to COVID. Strong sales in Asia supported our refining business. Sales in the defense, the Navy market, were $4.5 million in the quarter and now stand at $17.4 million year-to-date, approximately one-quarter of our total sales through December. Q3 net income was $1.1 million, or 11 cents per share, up from break-even in Q3 last year. Cash is still strong at $69.3 million. Orders in Q3 were in excess of $61 million, our strongest order quarter ever, driven by $52 million in defense orders. Almost all of the defense orders will not start to convert to revenue until fiscal 2023 and beyond. Our backlog is now nearly $150 million, 70% of which is in the defense market. Moving on to slide five, I discussed the sales detail in the last slide with the quarter at $27.2 million. The sales split in the quarter was 39% domestic and 61% international. Last year's third quarter was 53% domestic, 47% international. The stronger international sales in the quarter were primarily driven by projects in Asia, particularly China, where we had one large project which was accounted for on a completed contract rather than a percent complete basis, and a second project which is currently in process and is being accounted for on a percent complete basis. Gross profit increased to $6.2 million, up from $4 million last year, excuse me, primarily due to improved project mix as well as volume. Gross margin was 22.9%, up from 16% last year, which was a particularly poor quarter last year. Even the margins were 6.7%, up from 0.7 in last year's third quarter, And as I mentioned earlier, net income was $1.1 million up from breakeven last year. On to slide six, looking at our unit date results, sales in the first nine months of fiscal 2021 were $71.8 million, up from $67.5 million last year. This is despite our challenging Q1 when production was at 50% of capacity due to COVID impacts. Unit date sales are 52%. percent domestic, 48 percent international, compared with 65 percent and 35 percent respectively last year. Gross profit year-to-date is $15.5 million, up from 13.7 last year, and gross margin is up 130 basis points to 21.6 percent. Year-to-date EBITDA margins were 5.6 percent versus 3.1 percent in the first nine months of last year. Finally, net income was $2 million or $0.20 a share, up from $1.3 million or $0.13 a share last year. Again, the first quarter of this year had a loss due to COVID, but we have more than recovered in the second and third quarter. On to slide seven, cash is at $69.3 million, up $1.4 million this year. from the end of Q2, but still down from $73 million at the end of fiscal 2020. This is primarily due to timing of working capital. Cash per share is $6.94. Our quarterly dividend remains firm at $0.11 a share, and we have paid out $3.3 million year-to-date. Capital spending to date is $1.5 million, similar to last year, and we expect the total for the year to be between $2 and $2.5 million in capital for the full year. Finally, as we are continuing to work on our acquisition pipeline and activities, COVID has not had an adverse impact on our efforts as we have built some very good relationships over time, and these continue. However, many are now remote rather than in-person communications. Alan will continue our presentation by providing more depth on our operations in Q3, and then Jim will provide a market update and our