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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Graham Corp | NYSE:GHM | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
-0.47 | -1.55% | 29.77 | 29.87 | 29.37 | 29.80 | 2,915 | 14:55:12 |
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 third quarter and nine-month period ended December 31, 2022 (“third quarter fiscal 2023”).
Daniel J. Thoren, President and CEO, commented, “Our third quarter results reflect solid execution and demonstrate continual steady progress as we increase our sales and improve profitability. We have built a strong backlog of defense business, as we strengthen our position in commercial aftermarket and increase our presence in the growing space industry. We believe we are also now better prepared to take advantage of a rebound in demand from our commercial refining and petrochemical markets. Importantly, our operations are finding a rhythm to deliver to plan while we expand in areas where we expect more growth.”
He added, “While orders in the quarter of $20 million were soft, we believe it is primarily due to timing and a reflection of the general ebb and flow of large projects being released. The trailing twelve-month orders of $175.5 million and 114% book-to-bill ratio are a better representation of our growth and future potential. This is especially true given the large value of repeat orders we have received for critical U.S. Navy projects which we believe validates our position as a key supplier for the defense industry.”
Third Quarter Fiscal 2023 Financial Results Review
(All comparisons are with the same prior-year period unless noted otherwise.)
($ in millions except per share data) Q3 FY23 Q3 FY22 $ Change Net sales$
39.9
$
28.8
$
11.1
Gross profit$
6.2
$
0.6
$
5.6
Gross margin
15.6%
1.9%
Operating income$
0.7
$
(4.6)
$
5.3
Operating margin
1.7%
(15.9%)
Net income (loss)$
0.4
$
(3.7)
$
4.1
Diluted earnings (loss) per share$
0.03
$
(0.35)
$
0.38
Adjusted net income (loss)*$
0.9
$
(2.9)
$
3.8
Adjusted diluted earnings (loss) per share*$
0.08
$
(0.27)
$
0.35
Adjusted EBITDA*$
2.2
$
(2.6)
$
4.8
Adjusted EBITDA margin*
5.6%
(9.0%)
*Graham Corporation believes that adjusted EBITDA (defined as consolidated net income (loss) 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, GHM’s credit facility also contains ratios based on adjusted EBITDA as defined in the lending agreement. GHM also believes that adjusted diluted earnings (loss) 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 GHM’s use of adjusted EBITDA, adjusted EBITDA margin and adjusted diluted earnings (loss) per share, as well as the reconciliation of net income (loss) to adjusted EBITDA and diluted earnings (loss) per share.
Sales (see supplemental financial information for detail of sales by industry and region)
Profits and Margins
Net Income and Adjusted EBITDA
Cash Management and Balance Sheet
Christopher J. Thome, Vice President-Finance and CFO, noted, “We are focused on generating cash to reduce debt and invest in organic growth opportunities. In fact, we further strengthened our balance sheet and enhanced our financial flexibility in the quarter with a $5 million reduction in debt.”
Orders and Backlog (See supplemental information filed with the Securities and Exchange Commission on Form 8-K and provided on the Company’s website for a further breakdown of orders and backlog by industry.)
($ in millions)
Q1 22 Q2 22 Q3 22 Q4 22 FY22 Q1 23 Q2 23 Q3 23 Orders$ 20.9
$ 31.4
$ 68.0
$ 23.7
$ 143.9
$ 40.3
$ 91.5
$ 20.0
Backlog$ 235.9
$ 233.2
$ 272.6
$ 256.5
$ 256.5
$ 260.7
$ 313.3
$ 293.7
Orders for the fiscal 2023 third quarter were down $48.0 million, or 71%, to $20.0 million primarily as a result of timing related to large value contracts. For the nine-month period, orders were $151.9 million and the book-to-bill ratio was 133%.
Backlog of $293.7 million increased 8% compared with the prior-year period. Approximately 40% to 50% of this backlog is expected to convert to sales over the next twelve months and another 20% to 30% is expected to convert in the following twelve months. The remaining backlog is expected to convert beyond the next two years and is for the defense industry, specifically the U.S. Navy.
Backlog by industry on December 31, 2022, was as follows:
Fiscal 2023 Outlook
GHM updated its guidance for fiscal 2023 as follows:
(as of February 6, 2023)
Updated Guidance
Previous Guidance
Revenue
$145 million to $155 million
$135 million to $150 million
Gross margin
~16%
16% to 17%
SG&A expense(1)
~15% of sales
15% to 16% of sales
Adjusted EBITDA(2)
$7.5 million to $8.5 million
$6.5 million to $9.5 million
Effective tax rate
~23%
21% to 22%
Capital expenditures
$3 million - $4 million
$3 million - $4 million
(1) SG&A expense as a % of sales includes amortization expense (2) See “Forward-Looking Non-GAAP Measures” below for additional information about this non-GAAP measure.
Webcast and Conference Call
GHM’s management will host a conference call and live webcast today at 11:00 a.m. Eastern Time (“ET”) to review its financial condition and operating results for the third quarter fiscal 2023, 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 GHM’s investor relations website.
A question-and-answer session will follow the formal presentation. GHM’s conference call can be accessed by calling (201) 689-8560. Alternatively, the webcast can be monitored from the events section of GHM’s investor relations website.
A telephonic replay will be available from 2:00 p.m. ET on the day of the teleconference through Monday, February 13, 2023 at 11:59 p.m. ET. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13735007 or access the webcast replay via the Company’s website at https://ir.grahamcorp.com, where a transcript will also be posted once available.
About Graham Corporation
GHM is 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. The Graham Manufacturing and Barber-Nichols’ global brands are built upon world-renowned engineering expertise in vacuum and heat transfer, cryogenic pumps and turbomachinery technologies, as well as its responsive and flexible service and the unsurpassed quality customers have come to expect from the Company’s products and systems.
Graham Corporation routinely posts news and other important information on its website, www.grahamcorp.com, where additional information on Graham Corporation and its businesses 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,” “outlook,” “anticipates,” “believes,” “could,” “guidance,” “should,” ”may”, “will,” “plan” 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, profitability of future projects and the business, its ability to deliver to plan, its ability to meet customers’ shipment and delivery expectations, the future impact of low margin defense projects and related cost overruns, expected expansion and growth opportunities within its domestic and international markets, anticipated sales, revenues, adjusted EBITDA, adjusted EBITDA margins, capital expenditures and SG&A expenses, the timing of conversion of backlog to sales, market presence, profit margins, tax rates, foreign sales operations, its ability to improve cost competitiveness and productivity, customer preferences, changes in market conditions in the industries in which it operates, the effect on its business of volatility in commodities prices, including, but not limited to, changes in general economic conditions and customer behavior, forecasts regarding the timing and scope of the economic recovery in its markets, and its acquisition and growth strategy, 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 (the “SEC”), included under the heading entitled “Risk Factors”, and in other reports filed with the SEC.
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.
Forward-Looking Non-GAAP Measures
Forward looking adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures. The Company is unable to present a quantitative reconciliation of these forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures because such information is not available, and management cannot reliably predict the necessary components of such GAAP measures without unreasonable effort largely because forecasting or predicting our future operating results is subject to many factors out of our control or not readily predictable. In addition, the Company believes that such reconciliations would imply a degree of precision that would be confusing or misleading to investors. The unavailable information could have a significant impact on the Company’s fiscal 2023 financial results. These non-GAAP financial measures are preliminary estimates and are subject to risks and uncertainties, including, among others, changes in connection with purchase accounting, quarter-end, and year-end adjustments. Any variation between the Company’s actual results and preliminary financial estimates set forth above may be material.
FINANCIAL TABLES FOLLOW.
Graham Corporation
Consolidated Statements of Operations - Unaudited
(Amounts in thousands, except per share data)
Three Months Ended Nine Months Ended December 31, December 31,2022
2021
% Change
2022
2021
% Change
Net sales$
39,873
$
28,774
39%
$
114,091
$
83,077
37%
Cost of products sold
33,646
28,213
19%
95,840
78,159
23%
Gross profit
6,227
561
NA
18,251
4,918
NA
Gross margin
15.6
%
1.9
%
16.0
%
5.9
%
Other expenses and income:
Selling, general and administrative
5,284
4,729
12%
15,828
14,534
9%
Selling, general and administrative – amortization
274
274
0%
821
639
28%
Other operating expense (income), net
-
140
(100%)
-
(962
)
(100%)
Operating profit (loss)
669
(4,582
)
NA
1,602
(9,293
)
NA
Operating margin
1.7
%
(15.9
%)
1.4
%
-11.2
%
Other income, net
(63
)
(111
)
(43%)
(188
)
(416
)
(55%)
Interest income
(39
)
(12
)
225%
(71
)
(43
)
65%
Interest expense
333
132
152%
768
300
156%
Income (loss) before provision (benefit) for income taxes
438
(4,591
)
NA
1,093
(9,134
)
NA
Provision (benefit) for income taxes
70
(861
)
NA
245
(1,786
)
NA
Net income (loss)$
368
$
(3,730
)
NA
$
848
$
(7,348
)
NA
Per share data:
Basic:
Net income (loss)
$
0.03
$
(0.35
)
NA
$
0.08
$
(0.70
)
NA
Diluted:
Net income (loss)
$
0.03
$
(0.35
)
NA
$
0.08
$
(0.70
)
NA
Weighted average common shares outstanding: Basic
10,611
10,638
10,613
10,507
Diluted
10,660
10,638
10,632
10,507
Dividends declared per share
$
-
$
0.11
$
-
$
0.33
N/A: Not Applicable
Graham Corporation
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(unaudited)
December 31,
March 31,
2022
2022
Assets Current assets: Cash and cash equivalents$
17,215
$
14,741
Trade accounts receivable, net of allowances ($71 and $87 at December 31 and March 31, 2022, respectively)
35,019
27,645
Unbilled revenue
33,509
25,570
Inventories
24,077
17,414
Prepaid expenses and other current assets
1,899
1,391
Income taxes receivable
590
459
Total current assets
112,309
87,220
Property, plant and equipment, net
25,248
24,884
Prepaid pension asset
7,547
7,058
Operating lease assets
8,530
8,394
Goodwill
23,523
23,523
Customer relationships, net
10,866
11,308
Technology and technical know-how, net
9,300
9,679
Other intangible assets, net
7,955
8,990
Deferred income tax asset
2,212
2,441
Other assets
167
194
Total assets
$
207,657
$
183,691
Liabilities and stockholders’ equity Current liabilities: Current portion of long-term debt
$
2,000
$
2,000
Current portion of finance lease obligations
17
23
Accounts payable
22,532
16,662
Accrued compensation
10,823
7,991
Accrued expenses and other current liabilities
5,204
6,047
Customer deposits
44,300
25,644
Operating lease liabilities
1,008
1,057
Income taxes payable
27
-
Total current liabilities
85,911
59,424
Long-term debt
12,184
16,378
Finance lease obligations
-
11
Operating lease liabilities
7,759
7,460
Deferred income tax liability
127
62
Accrued pension and postretirement benefit liabilities
1,665
1,666
Other long-term liabilities
2,115
2,196
Total liabilities
109,761
87,197
Stockholders’ equity: Preferred stock, $1.00 par value, 500 shares authorized
-
-
Common stock, $0.10 par value, 25,500 shares authorized, 10,758 and 10,801 shares issued and 10,611 and 10,636 shares outstanding at December 31 and March 31, 2022, respectively
1,076
1,080
Capital in excess of par value
28,119
27,770
Retained earnings
77,924
77,076
Accumulated other comprehensive loss
(6,597
)
(6,471
)
Treasury stock (147 and 164 shares at December 31 and March 31, 2022, respectively)
(2,626
)
(2,961
)
Total stockholders’ equity
97,896
96,494
Total liabilities and stockholders’ equity
$
207,657
$
183,691
Graham Corporation
Consolidated Statements of Cash Flows – Unaudited
(Amounts in thousands)
Nine Months Ended
December 31,
2022
2021
Operating activities: Net income (loss)$
848
$
(7,348
)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation
2,611
2,232
Amortization
1,857
1,765
Amortization of actuarial losses
504
725
Amortization of debt issuance costs
153
-
Equity-based compensation expense
582
599
Gain on disposal or sale of property, plant and equipment
-
22
Change in fair value of contingent consideration
-
(1,900
)
Deferred income taxes
232
152
(Increase) decrease in operating assets: Accounts receivable
(7,755
)
(10,964
)
Unbilled revenue
(8,082
)
2,186
Inventories
(6,801
)
579
Prepaid expenses and other current and non-current assets
(500
)
(933
)
Income taxes receivable
(137
)
(3,423
)
Operating lease assets
913
744
Prepaid pension asset
(488
)
(905
)
Increase (decrease) in operating liabilities: Accounts payable
5,511
(6,058
)
Accrued compensation, accrued expenses and other current and non-current liabilities
2,116
465
Customer deposits
18,776
7,553
Operating lease liabilities
(802
)
(663
)
Long-term portion of accrued compensation, accrued pension liability and accrued postretirement benefits
(592
)
620
Net cash provided (used) by operating activities
8,946
(14,552
)
Investing activities: Purchase of property, plant and equipment
(2,394
)
(1,909
)
Redemption of investments at maturity
-
5,500
Acquisition of Barber-Nichols, LLC
-
(59,563
)
Net cash used by investing activities
(2,394
)
(55,972
)
Financing activities: Borrowings of short-term debt obligations
5,000
9,750
Principal repayments on debt
(8,517
)
(1,015
)
Proceeds from the issuance of debt
-
20,000
Repayments on lease financing obligations
(205
)
(157
)
Payment of debt issuance costs
(122
)
(150
)
Dividends paid
-
(3,524
)
Purchase of treasury stock
(22
)
(41
)
Net cash (used) provided by financing activities
(3,866
)
24,863
Effect of exchange rate changes on cash
(212
)
120
Net increase (decrease) in cash and cash equivalents
2,474
(45,541
)
Cash and cash equivalents at beginning of period
14,741
59,532
Cash and cash equivalents at end of period
$
17,215
$
13,991
Graham Corporation
Adjusted EBITDA Reconciliation - Unaudited
($ in thousands)
Three Months Ended
Nine Months Ended
December 31,
December 31,
2022
2021
2022
2021
Net income (loss)$
368
$
(3,730)
$
848
$
(7,348)
Acquisition related inventory step-up expense
-
27
-
68
Acquisition & integration costs
-
111
54
373
Change in fair value of contingent consideration
-
-
-
(1,900)
CEO and CFO transition costs
-
140
-
938
Debt amendment costs
-
-
194
-
Net interest expense
294
120
697
257
Income taxes
70
(861)
245
(1,786)
Depreciation & amortization
1,506
1,589
4,468
3,997
Adjusted EBITDA$
2,238
$
(2,604)
$
6,506
$
(5,401)
Adjusted EBITDA margin %
5.6%
(9.0%)
5.7%
(6.5%)
Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) per Share
Reconciliation - Unaudited
($ in thousands, except per share amounts)
Three Months Ended
Nine Months Ended
December 31,
December 31,
2022
2021
2022
2021
Net income (loss)$
368
$
(3,730)
$
848
$
(7,348)
Acquisition related inventory step-up expense
-
27
-
68
Acquisition & integration costs
-
111
54
373
Amortization of intangible assets
619
756
1,857
1,765
Change in fair value of contingent consideration
-
-
-
(1,900)
CEO and CFO transition costs
-
140
-
938
Debt amendment costs
-
-
194
-
Normalize tax rate(1)
(130)
(207)
(442)
(249)
Adjusted net income (loss)$
857
$
(2,903)
$
2,511
$
(6,353)
GAAP diluted earnings (loss) per share$
0.03
$
(0.35)
$
0.08
$
(0.70)
Adjusted diluted earnings (loss) per share$
0.08
$
(0.27)
$
0.24
$
(0.60)
Diluted weighted average common shares outstanding
10,660
10,638
10,632
10,507
(1) Applies a normalized tax rate to non-GAAP adjustments, which are pre-tax, based upon the full year expected effective tax rate.Non-GAAP Financial Measures
Adjusted EBITDA is defined as consolidated net income (loss) before net interest expense, income taxes, depreciation, amortization, other acquisition related expenses, and other unusual/nonrecurring expenses. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of 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 Corporation believes that providing non-GAAP information, such as Adjusted EBITDA and Adjusted EBITDA margin, is important for investors and other readers of GHM's financial statements, as it is used as an analytical indicator by Graham's management to better understand operating performance. Moreover, GHM’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.
Adjusted net income (loss) and adjusted diluted earnings (loss) per share are defined as net income (loss) and diluted earnings (loss) per share as reported, adjusted for certain items and at a normalized tax rate. Adjusted net income (loss) and adjusted diluted earnings (loss) per share are not measures determined in accordance with GAAP and may not be comparable with the measures used by other companies. Nevertheless, GHM believes that providing non-GAAP information, such as adjusted net income and adjusted diluted earnings (loss) per share, is important for investors and other readers of the Company’s financial statements and assists in understanding the comparison of the current quarter’s and current fiscal year's net income (loss) and diluted earnings (loss) per share to the historical periods' net income (loss) and diluted earnings (loss) per share. GHM also believes that adjusted earnings (loss) per share, which adds back intangible amortization expense related to acquisitions, provides a better representation of the cash earnings of the Company.
View source version on businesswire.com: https://www.businesswire.com/news/home/20230206005159/en/
Christopher J. Thome Vice President - Finance and CFO Phone: (585) 343-2216 Deborah K. Pawlowski Kei Advisors LLC Phone: (716) 843-3908 dpawlowski@keiadvisors.com
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