Press release:
Graham Corporation (NYSE: GHM) (“GHM” or the “Company”), a global leader in the design and manufacture of mission-critical fluid, power, heat transfer and vacuum technologies for the defense, space, energy and process industries, today reported financial results for its first quarter ended June 30, 2023 (“first quarter fiscal 2024”).
Daniel J. Thoren, President and Chief Executive Officer, commented, “We had a better-than-expected start to the year with strong first-quarter results. We had improved execution, utilized our expanded capacity and are timely delivering to customer requirements, even as schedules may shift. We also benefited in the quarter from an unusually better mix of business and the timing of projects flowing through production. Importantly, we continue to strengthen our relationships with our defense customers, advance opportunities in the space industry and are positioning the business to serve the new energy markets with cryogenic solutions. The investments we made to meet defense customers’ delivery requirements have proven to be effective and was validated by the $13.5 million strategic investment we received to expand our capabilities and be ready to support future opportunities, if selected. We have earned the position of being a key strategic supplier to support the Naval Nuclear Propulsion Program.”
Separately, the Company announced today that it had received a strategic investment by a customer to expand production capabilities at its Batavia, New York facility.
He added, “While we delivered in the quarter, there is still much work to do to get where we need to be as an organization. We are making investments in infrastructure, information systems and people. We are evolving the culture of the Company as well. I have been excited to see how our teams are questioning and challenging each other. Everyone is stepping up to own our future. While we have made measurable progress these last two years, we will continue to drive to advance our operations to deliver on our goals to exceed $200 million in revenue and achieve low to mid-teen adjusted EBITDA margins by fiscal 2027.”
First Quarter Fiscal 2024 Performance Review (All comparisons are with the same prior-year period unless noted otherwise.)
($ in millions except per share data)
*Graham believes that adjusted EBITDA (defined as consolidated net income before net interest expense, income taxes, depreciation, amortization, other acquisition related expenses (income), and other unusual/nonrecurring expenses), and adjusted EBITDA margin (adjusted EBITDA as a percentage of net sales), which are non-GAAP measures, help in the understanding of its operating performance. Moreover, Graham’s credit facility also contains ratios based on adjusted EBITDA as defined in the lending agreement. Graham also believes that adjusted net income and adjusted diluted net income per share, which excludes intangible amortization, other costs related to the acquisition, and other unusual/nonrecurring (income) expenses, provides a better representation of the cash earnings of the Company. See the attached tables and other information on pages 10 and 11 for important disclosures regarding Graham’s use of adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and adjusted diluted net income (loss) per share, as well as the reconciliation of net income to adjusted EBITDA, adjusted net income, and adjusted diluted net income per share.
Net sales of $47.6 million increased 32%, or $11.5 million. Growth in the defense market, as well as improvements in the commercial aftermarket, more than offset softness in the refining industry and declines in the space market. Aftermarket sales to the refining and petrochemical markets were $9.2 million, up 49%. See supplemental data for a further breakdown of sales by market and region.
Compared with the prior year period, the 63% increase in gross profit and 440 basis point expansion of gross margin reflected higher margin projects, improved pricing, timing of material receipts and improving execution.
Selling, general and administrative expense (“SG&A”), inclusive of amortization, in the first quarter of fiscal 2024 was $7.3 million, or 15% of sales, up $1.5 million over the prior-year period. Approximately $0.9 million of the increase was attributable to higher performance-based compensation expense, including $0.8 million related to the supplemental performance bonus payout to Barber Nichols employees in connection with the 2021 acquisition.
Net income nearly tripled to $2.6 million, or $0.25 per diluted share. On a non-GAAP basis, adjusted net income* and net income per diluted share* were $3.6 million and $0.33, respectively, compared with $1.3 million and $0.12 during the same period a year ago.
Cash Management and Balance Sheet
Cash generated from operations in the first quarter was $8.6 million. Cash and cash equivalents on June 30, 2023, were $24.7 million up from $18.3 million on March 31, 2023. Capital expenditures for the first quarter of fiscal 2024 were $1.5 million.
Debt at quarter end was down $0.4 million to $11.3 million compared with March 31, 2023. As of June 30, 2023, the Company was in compliance with its lending agreement with a leverage ratio as calculated in accordance with the terms of the credit facility of 1.6x. At June 30, 2023, the amount available under the revolving credit facility was approximately $26 million to support organic growth initiatives.
Orders and Backlog
Orders for the three-month period ended June 30, 2023, were up $27.6 million, or 69%, to $67.9 million compared with $40.3 million for the same period of fiscal 2023. Included in orders and backlog is the $13.5 million strategic investment from a major defense customer which the Company announced separately today. The purpose of the investment is to expand its Batavia production capabilities for complex defense components including delivering on $8.5 million follow on orders received from that customer.
Aftermarket orders for the refining and petrochemical markets were $7.9 million in the first quarter fiscal 2024, down from $10.1 million in the first quarter fiscal 2023 and lower than the $9.3 million in orders received in the fourth quarter of fiscal 2023.
Backlog for the quarter was $322.0 million, up 24% compared with the prior-year period and up 7% compared with the end of the trailing fourth quarter of fiscal 2023. Approximately 50% of orders currently in backlog are expected to be converted to sales in the next twelve months and another 25% to 30% is expected to convert to sales over the following year. The majority of orders expected to convert beyond twelve months are for the defense industry, specifically the U.S. Navy.
Christopher J. Thome, Vice President and Chief Financial Officer, noted, “The strategic investment we received from our defense customer is recorded in backlog and represents pre-payment on current and potential future orders. The cash investment will be used to expand our capabilities and positions us to meet our customer’s requirements and support the U.S. Navy’s shipbuilding schedule.”
