- Revenue of $21 million; net income
of $0.9 million, $0.10 per share
- Continue to expect fiscal 2018
revenue to be between $80 million and $90 million
Graham Corporation (NYSE:GHM), a global business that designs,
manufactures and sells critical equipment for the oil refining,
petrochemical, power and defense industries, today reported
financial results for its first quarter ended June 30, 2017
(“fiscal 2018”).
Net sales in the first quarter of fiscal 2018 were $20.9
million, compared with net sales of $22.4 million in the first
quarter of the fiscal year ended March 31, 2017 (“fiscal 2017”).
Net income in the fiscal 2018 first quarter was $0.9 million, or
$0.10 per diluted share, compared with $0.1 million, or $0.01 per
diluted share, in the prior-year first quarter which was
unfavorably impacted by a $0.4 million net-of-tax restructuring
charge.
James R. Lines, Graham’s President and Chief Executive Officer,
commented, “Our operations team executed well during the quarter,
realizing solid productivity at low production levels and
accelerating certain projects. Our guidance for fiscal 2018 is
unchanged, however, due to backlog acceleration into the first
quarter there are volume related challenges in our second quarter.
Investment in downstream energy markets continues to be uncertain,
and this is clearly reflected in both our order and backlog levels.
We are focusing our efforts on plant level energy opportunities, as
well as the nuclear power and U.S. Navy markets. We believe that
our diversification strategy is significantly benefiting us during
these tough times in the energy markets.”
He continued, “Our acquisition strategy is crucial to fuel
long-term growth and we will remain disciplined about deploying
capital for strategic growth. Our organic diversification efforts,
coupled with future external growth investment, underpin revenue
and earnings expansion both during the current energy sector
downturn and in an eventual energy market expansion.”
First Quarter Fiscal 2018 Sales Summary
(See accompanying financial tables for a breakdown of sales by
industry and region)
Sales to the chemical/petrochemical market were $7.2 million,
compared with $5.2 million in the fiscal 2017 first quarter. Sales
to the Company’s other commercial, industrial and defense markets
were also up, by $0.8 million to $6.1 million. Growth was offset by
significantly lower sales to the refining market which, at $3.6
million, were half of the level of the prior-year first quarter.
Additionally, sales to the power market were down $0.7 million to
$4.0 million.
From a geographic perspective, sales to almost all markets,
including the U.S., were lower than the prior-year first quarter.
The international sales decrease was driven by South America,
offset by increases in Asia and Canada.
Fluctuations in Graham’s sales among geographic locations and
industries can vary measurably from quarter-to-quarter based on the
timing and magnitude of projects. Graham does not believe that such
quarter-to-quarter fluctuations are indicative of business trends,
which it believes are more apparent on a trailing twelve month
basis.
First Quarter Fiscal 2018 Operating Performance
Review
($ in millions)
Q1 FY18 Q1 FY17
Change Net sales $ 20.9 $ 22.4 $ (1.5 ) Gross profit $ 4.9 $
4.1 $ 0.8 Gross margin 23.3 % 18.4 % Operating profit $ 1.2 $ (0.1
) $ 1.3 Operating margin 5.7 % -0.4 % Net income $ 0.9 $ 0.1 $ 0.8
Diluted EPS $ 0.10 $ 0.01 $ 0.09
First quarter fiscal 2018 gross profit and margin benefited from
a more favorable mix of projects and timing of overhead costs.
Selling, general and administrative (“SG&A”) expenses were
generally flat at $3.7 million. SG&A as a percent of sales was
18% in the first quarter of fiscal 2018 compared with 16% in the
same prior-year period.
In the first quarter of fiscal 2017, the Company reduced its
headcount by approximately 10% and incurred a $0.6 million
restructuring charge.
During the first quarter of fiscal 2018, Graham had an effective
tax rate of 30%. In the first quarter of fiscal 2017, the Company
realized a favorable tax credit, resulting in a $0.1 million tax
benefit for that quarter.
To summarize, the increase in net income during the first
quarter compared with the prior-year quarter was primarily driven
by improved gross margin and the impact of last year’s
restructuring charge.
Adjusted EBITDA
($ in millions)
Q1 FY18 Q1 FY17
Change Adjusted EBITDA $ 1.7 $ 1.0 $ 0.7 Adjusted EBITDA
margin 8.3 % 4.6 %
The first quarter fiscal 2018 to first quarter fiscal 2017
comparison of Adjusted EBITDA (defined as consolidated net income
before interest expense and income, income taxes, depreciation and
amortization and a nonrecurring restructuring charge where
applicable) was impacted by the factors discussed above.
Graham believes that, when used in conjunction with measures
prepared in accordance with GAAP, Adjusted EBITDA and Adjusted
EBITDA margin (Adjusted EBITDA as a percentage of sales), which are
non-GAAP measures, help in the understanding of its operating
performance. Graham’s credit facility also contains ratios based on
EBITDA. See the attached tables for additional important
disclosures regarding Graham’s use of Adjusted EBITDA and Adjusted
EBITDA margin as well as a reconciliation of net income to Adjusted
EBITDA.
Capital Supports Growth Opportunities
Cash, cash equivalents and investments at June 30, 2017 were
$75.3 million, up $1.8 million from March 31, 2017. The increase
resulted from positive operating cash flows and low capital
spending.
Cash provided by operations in the first quarter of fiscal 2018
was $2.9 million, compared with $3.8 million in the first quarter
of fiscal 2017. The decrease was primarily the result of timing of
working capital utilization, partially offset by higher net
income.
Capital expenditures in the first quarter of fiscal 2018 were at
approximately the same level as in the first quarter of fiscal
2017, at $0.1 million. The Company expects capital expenditures for
fiscal 2018 to be between $2.5 million and $3.0 million. The
majority of the capital investments are expected to be used for
equipment upgrades and productivity enhancements.
Dividend payments were $0.9 million in the first quarters of
both fiscal 2018 and 2017.
Graham had neither borrowings under its credit facility, nor any
long-term debt outstanding, at June 30, 2017.
Continued Weakness in Orders and Backlog
Total orders were $11.1 million in the first quarter of fiscal
2018, down from $14.6 million in the prior-year first quarter. In
the fiscal 2018 first quarter, orders from U.S. customers were $8.5
million, or 77% of total orders, and orders from international
markets were $2.6 million, or 23%. This compares with 72% from the
U.S. and 28% from international markets in the first quarter of
fiscal 2017.
Graham expects that the balance between domestic and
international orders will continue to be variable between
quarters.
Backlog at the end of the first quarter of fiscal 2018 was $72.9
million, down $9.7 million sequentially from the end of fiscal
2017. The decrease is due to the weak order level during the
quarter.
The Company’s backlog mix by industry continues to highlight the
success of its diversification strategy to increase sales to the
U.S. Navy and the power industry. Backlog by industry at June 30,
2017 was approximately:
- 64% for U.S. Navy projects
- 18% for refinery projects
- 9% for chemical/petrochemical
projects
- 6% for power projects, including
nuclear
- 3% for other industrial
applications
The expected timing for that backlog to convert to sales is as
follows:
- Within next 12 months: 45% to 55%
- Within 12 to 24 months: 5% to 10%
- Beyond 24 months: 35% to 40%
FY 2018 Guidance Remains Unchanged
Graham’s fiscal 2018 guidance is as follows:
- Revenue is anticipated to be between
$80 and $90 million
- Gross margin is expected to be between
22% and 24%
- SG&A expense is expected to be
between $16 and $17 million
- Effective tax rate is anticipated to be
between 30% and 32%
Mr. Lines concluded. “Our first quarter results were better than
we anticipated, but we believe that our second quarter earnings
will reflect a sequential decline. While our full year guidance
remains unchanged, projects in our backlog lead us to expect
quarterly volatility for the remainder of the fiscal year.”
Webcast and Conference Call
Graham’s management will host a conference call and live webcast
today at 11:00 a.m. Eastern Time to review its financial condition
and operating results for the first quarter fiscal 2018, 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 Graham’s website at www.graham-mfg.com under the
heading “Investor Relations.” A question-and-answer session will
follow the formal presentation.
Graham’s conference call can be accessed by calling (201)
689-8560. Alternatively, the webcast can be monitored on Graham’s
website at www.graham-mfg.com under the heading “Investor
Relations.”
A telephonic replay will be available from 2:00 p.m. ET on the
day of the teleconference through Friday, August 11, 2017. To
listen to the archived call, dial (412) 317-6671 and enter
conference ID number 13665351. A transcript of the call will be
placed on Graham’s website, once available.
ABOUT GRAHAM CORPORATION
Graham is a global business that designs, manufactures and sells
critical equipment for the energy, defense and
chemical/petrochemical industries. Energy markets include oil
refining, cogeneration, nuclear and alternative power. For the
defense industry, the Company’s equipment is used in nuclear
propulsion power systems for the U.S. Navy. Graham’s global brand
is built upon world-renowned engineering expertise in vacuum and
heat transfer technology, responsive and flexible service and
unsurpassed quality. Graham designs and manufactures
custom-engineered ejectors, vacuum pumping systems, surface
condensers and vacuum systems. Graham is also a leading nuclear
code accredited fabrication and specialty machining company. Graham
supplies components used inside reactor vessels and outside
containment vessels of nuclear power facilities. Graham’s equipment
can also be found in other diverse applications such as metal
refining, pulp and paper processing, water heating, refrigeration,
desalination, food processing, pharmaceutical, heating, ventilating
and air conditioning. Graham’s reach spans the globe and its
equipment is installed in facilities from North and South America
to Europe, Asia, Africa and the Middle East. Graham routinely posts
news and other important information on its website,
www.graham-mfg.com, where additional comprehensive information on
Graham Corporation and its subsidiaries 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,”
“estimates,” “confidence,” “projects,” “typically,” “outlook,”
“anticipates,” “believes,” “appears,” “could,” “opportunities,”
“seeking,” “plans,” “aim,” “pursuit,” 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, expected
expansion and growth opportunities within its domestic and
international markets, anticipated revenue, the timing of
conversion of backlog to sales, market presence, profit margins,
tax rates, foreign sales operations, its ability to improve cost
competitiveness, customer preferences, changes in market conditions
in the industries in which it operates, changes in commodities
prices, the effect on its business of volatility in commodities
prices, changes in general economic conditions and customer
behavior, forecasts regarding the timing and scope of the economic
recovery in its markets, its acquisition and growth strategy and
the expected performance of Energy Steel & Supply Co. and its
operations in China, 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, included under the heading entitled “Risk Factors.”
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.
FINANCIAL TABLES FOLLOW.
Graham Corporation First Quarter Fiscal 2018
Consolidated Statements of Income – Unaudited
(Amounts in thousands, except per share
data)
Three Months Ended June 30,
2017 2016 % Change Net sales $
20,851 $ 22,365 (7%) Cost of products sold
15,985 18,254 (12%) Gross profit 4,866
4,111 18% Gross profit margin 23.3 % 18.4 % Other expenses
and income: Selling, general and administrative 3,623 3,598 1%
Selling, general and administrative – amortization 58 58 -
Restructuring charge - 555 NA
Operating profit 1,185 (100 ) NM
Operating profit margin 5.7 % (0.4 %) Interest income (151 )
(87 ) 74% Interest expense 3 2 50%
Income before provision for income taxes 1,333 (15 ) NM Provision
for income taxes 398 (100 ) NM
Net
income $ 935 $ 85
1000% Per share data: Basic: Net income $ 0.10 $ 0.01
900% Diluted: Net income $ 0.10 $ 0.01 900%
Weighted average common shares outstanding: Basic 9,748
9,675 Diluted 9,758 9,680 Dividends declared per share $
0.09 $ 0.09
Note: NA – Not Applicable; NM – Not
Meaningful
Graham Corporation First Quarter Fiscal
2018 Consolidated Balance Sheets
(Amounts in thousands, except per share
data)
June 30, March 31, 2017
2017
(Unaudited)
Assets Current assets: Cash and cash equivalents $ 25,260 $
39,474 Investments 50,000 34,000 Trade accounts receivable, net of
allowances ($167 and $168 at June 30 and March 31, 2017,
respectively) 11,213 11,483 Unbilled revenue 11,459 15,842
Inventories 7,909 9,246 Prepaid expenses and other current assets
910 681 Total current assets 106,751
110,726 Property, plant and equipment, net 16,646 17,021 Prepaid
pension asset 2,579 2,340 Goodwill 6,938 6,938 Permits 10,300
10,300 Other intangible assets, net 4,023 4,068 Other assets
294 177
Total assets $
147,531 $ 151,570
Liabilities and stockholders’ equity Current liabilities:
Current portion of capital lease obligations $ 107 $ 107 Accounts
payable 7,142 10,295 Accrued compensation 4,327 5,189 Accrued
expenses and other current liabilities 3,126 3,723 Customer
deposits 12,510 12,407 Income taxes payable 389
317 Total current liabilities 27,601 32,038 Capital
lease obligations 118 143 Deferred income tax liability 4,353 4,051
Accrued pension liability 489 467 Accrued postretirement benefits
767 761
Total liabilities
33,328 37,460
Stockholders’ equity: Preferred stock, $1.00 par value, 500
shares authorized - - Common stock, $.10 par value, 25,500 shares
authorized 10,580 and 10,548 shares issued and 9,766 and 9,740
shares outstanding at June 30 and March 31, 2017, respectively
1,058 1,055 Capital in excess of par value 23,105 23,176 Retained
earnings 110,600 110,544 Accumulated other comprehensive loss
(8,210 ) (8,434 ) Treasury stock (814 and 808 shares at June 30 and
March 31, 2017, respectively (12,350 ) (12,231 )
Total stockholders’ equity 114,203
114,110 Total liabilities and stockholders’
equity $ 147,531 $ 151,570
Graham Corporation First Quarter
Fiscal 2018 Consolidated Statements of Cash Flows -
Unaudited
(Amounts in thousands)
Three Months Ended June 30, 2017
2016 Operating activities: Net income $ 935 $ 85
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 497 524 Amortization 58 58 Amortization of
unrecognized prior service cost and actuarial losses 263 348
Stock-based compensation (income) expense (67 ) 42 Loss (gain) on
disposal or sale of property, plant and equipment - 1 Deferred
income taxes 185 106 (Increase) decrease in operating assets:
Accounts receivable 276 (3,511 ) Unbilled revenue 4,394 (1,868 )
Inventories 1,338 3,560 Prepaid expenses and other current and
non-current assets (334 ) (792 ) Income taxes payable 72 (214 )
Prepaid pension asset (239 ) - Increase (decrease) in operating
liabilities: Accounts payable (3,170 ) (1,011 )
Accrued compensation, accrued expenses and
other current and non-current liabilities
(1,462 ) (115 ) Customer deposits 101 6,694
Long-term portion of accrued compensation,
accrued pension liability and accrued postretirement benefits
29 (93 )
Net cash provided by operating
activities 2,876 3,814
Investing activities: Purchase of property,
plant and equipment (117 ) (129 ) Purchase of investments (25,000 )
(9,000 ) Redemption of investments at maturity 9,000
9,000
Net cash used by investing activities
(16,117 ) (129 )
Financing activities: Principal repayments on capital lease
obligations (24 ) (11 ) Issuance of common stock - 4 Dividends paid
(879 ) (866 ) Purchase of treasury stock (119 ) (30 ) Excess tax
deficiency on stock awards - (35 )
Net cash
used by financing activities (1,022 )
(938 ) Effect of exchange rate changes on cash
49 (114 ) Net (decrease) increase in cash and
cash equivalents (14,214 ) 2,633 Cash and cash equivalents at
beginning of year 39,474 24,072 Cash
and cash equivalents at end of year $ 25,260 $ 26,705
Graham Corporation First Quarter Fiscal
2018 Adjusted Net Income Reconciliation—Unaudited
(Amounts in thousands, except per share
data)
Three Months Ended June 30,
2017 2016
Per Diluted Share
Per Diluted Share
Net income $ 935 $ 0.10 $ 85 $ 0.01 +
Restructuring charge - - 555 0.06 - Tax effect
- - (172 ) (0.02 )
Adjusted net income $ 935 $ 0.10 $
468 $ 0.05
Non-GAAP Financial Measure:
Adjusted net income is defined as GAAP net income excluding a
nonrecurring restructuring charge. Adjusted net income is not a
measure 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 net income 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. Because Adjusted net income is a non-GAAP
measure and is thus susceptible to varying calculations, Adjusted
net income, as presented, may not be directly comparable to other
similarly titled measures used by other companies.
Graham Corporation First Quarter Fiscal 2018
Adjusted EBITDA Reconciliation—Unaudited
(Amounts in thousands)
Three Months Ended June 30, 2017
2016 Net income $ 935 $
85 +Net interest income (148 ) (85 ) +Income taxes 398 (100
) +Depreciation & amortization 555 582 +Restructuring charge
- 555
Adjusted EBITDA $
1,740 $ 1,037 Adjusted EBITDA
margin % 8.3 % 4.6 %
Non-GAAP Financial Measure:
Adjusted EBITDA is defined as consolidated net income before
interest expense and income, income taxes, depreciation and
amortization and a nonrecurring restructuring charge. Adjusted
EBITDA margin is Adjusted EBITDA divided by 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 are important for investors and
other readers of Graham's financial statements, as they are used as
analytical indicators by Graham's management to better understand
operating performance. Graham’s credit facility also contains
ratios based on 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.
Graham Corporation
First Quarter Fiscal 2018
Additional
Information—Unaudited
ORDER & BACKLOG TREND ($ in millions)
Q117 Q217
Q317 Q417 FY2017 Q118
Total Total Total
Total Total Total Orders
$ 14.6 $ 24.8 $ 17.7 $ 9.0 $ 66.1
$ 11.1 Backlog $ 99.9 $ 104.0 $ 99.1
$ 82.6 $ 82.6 $ 72.9
SALES BY
INDUSTRY FY 2018 ($ in millions)
FY 2018 Q1 % of 6/30/17
Total Refining $ 3.6 18%
Chemical/ Petrochemical $ 7.2 34% Power
$ 4.0 19% Other Commercial, Industrial and Defense
$ 6.1 29% Total $ 20.9
SALES BY INDUSTRY FY 2017 ($ in
millions)
FY 2017 Q1 % of Q2
% of Q3 % of Q4 % of
FY2017 % of 6/30/16
Total 9/30/16 Total
12/31/16 Total 3/31/17
Total Total Refining $
7.2 32% $ 6.7 32% $ 6.3 28%
$ 4.0 15% $ 24.2 26% Chemical/
Petrochemical $ 5.2 23% $ 5.1 24%
$ 4.3 19% $ 6.9 27% $ 21.5
23% Power $ 4.7 21% $ 6.1 29%
$ 4.4 19% $ 4.8 19% $ 20.0
22% Other Commercial, Industrial and Defense $ 5.3
24% $ 3.2 15% $ 7.7 34% $
9.9 39% $ 26.1 29% Total $ 22.4
$ 21.1 $ 22.7
$ 25.6 $ 91.8
Graham Corporation
First Quarter Fiscal 2018
Additional
Information—Unaudited
(Continued)
SALES BY REGION FY 2018 ($ in millions)
FY
2018 Q1 % of 6/30/17
Total United States $ 14.8 71% Middle East
$ 0.9 4% Asia $ 3.4 16% Other $
1.8 9% Total $ 20.9
SALES BY REGION FY 2017 ($ in millions)
FY
2017 Q1 % of Q2 % of Q3 %
of Q4 % of FY2017 % of
6/30/16 Total 9/30/16
Total 12/31/16 Total
3/31/17 Total
Total United States $ 16.3 73% $ 15.4
73% $ 17.5 77% $ 20.0 78%
$ 69.2 75% Middle East $ 1.0 4% $ 0.5
2% $ 0.8 3% $ 0.9 4% $
3.2 4% Asia $ 3.1 14% $ 1.2 6%
$ 1.6 7% $ 1.8 7% $ 7.7
8% Other $ 2.0 9% $ 4.0 19% $
2.8 13% $ 2.9 11% $ 11.7 13%
Total $ 22.4 $ 21.1
$ 22.7 $ 25.6 $
91.8
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170804005126/en/
Graham CorporationJeffrey F. Glajch, 585-343-2216Vice President
– Finance and CFOjglajch@graham-mfg.comorKei Advisors LLCDeborah K.
Pawlowski / Karen L. Howard716-843-3908 /
716-843-3942dpawlowski@keiadvisors.com /
khoward@keiadvisors.com
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