Graham Corporation (NYSE:GHM) Q1 2024 Earnings Conference Call August 7, 2023 11:00 AM ET Company Participants Debbie Pawlowski - Investor Relations Dan Thoren - President and Chief Executive Officer Chris Thome - Chief Financial Officer Conference Call Participants Theodore O'Neill - Litchfield Hills Research Gary Schwab - Valley Forge Capital Management Brett Kearney - GAMCO Investors Richard Ryan - Oak Ridge Financial Bill Baldwin - Baldwin Anthony Securities Operator Greetings, and welcome to the Graham ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ___________ Commission File Number 001-08462 GRAHAM CORPORATION (Exact name of registrant as specified in its charter) (State or other jurisdi ...

Graham Corporation (NYSE:GHM) Q4 2023 Earnings Conference Call June 8, 2023 11:00 AM ET Company Participants Deborah Pawlowski - Investor Relations Dan Thoren - President and Chief Executive Officer Chris Thome - Chief Financial Officer Conference Call Participants Theodore O'Neill - Litchfield Hills Research Richard Ryan - Oak Ridge Financial Brett Kearney - Gabelli Funds Bill Baldwin - Baldwin Anthony Securities Gary Schwab - Valley Forge Capital Management Operator Greetings, and welcome to the Graham Co ...

Part I [Business Overview](index=4&type=section&id=Item%201.%20Business) Graham Corporation designs and manufactures mission-critical equipment for defense, space, energy, and process industries, aiming for 8-10% revenue growth and mid-teen adjusted EBITDA margins by fiscal 2027 - The company designs and manufactures mission-critical fluid, power, heat transfer, and vacuum technologies for the defense, space, energy, and process industries[14](index=14&type=chunk) - On June 1, 2021, the company acquired Barber-Nichols (BN), a turbomachinery manufacturer, for **$72.014 million** to diversify into defense and energy markets[17](index=17&type=chunk) - In fiscal 2023, domestic sales comprised **81% of total sales**, with the defense industry accounting for **42%**, and two customers each contributing over **10% of revenue**[20](index=20&type=chunk) Backlog Growth | Date | Backlog (in thousands) | | :--- | :--- | | March 31, 2023 | $301,734 | | March 31, 2022 | $256,536 | - The company targets **8% to 10% average annualized revenue growth** and **low to mid-teen adjusted EBITDA margins** by fiscal year 2027[24](index=24&type=chunk) Research and Development Expenses (in thousands) | Fiscal Year | R&D Spending | | :--- | :--- | | 2023 | $4,144 | | 2022 | $3,845 | | 2021 | $3,367 | [Risk Factors](index=9&type=section&id=Item%201A.%20Risk%20Factors) The company faces macroeconomic, supply chain, and customer concentration risks, particularly from U.S. Navy projects, alongside challenges in fixed-price contracts, international operations, and cybersecurity - Macroeconomic risks, including supply chain disruptions, rising inflation, and economic slowdowns, could increase operating costs and negatively impact financial results[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) - Significant customer concentration risk exists, with defense industry sales reaching **42% of business** in fiscal 2023, creating reliance on U.S. Navy funding[51](index=51&type=chunk) - Fixed-price contracts expose the company to cost overruns and supplier failures, with material cost overruns experienced on defense contracts in fiscal 2022[93](index=93&type=chunk) - International operations, comprising **19% of fiscal 2023 revenue**, face economic, political, and regulatory risks, including intellectual property enforcement challenges in China and India[75](index=75&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk) - Cybersecurity threats to information systems could lead to financial loss, reputational damage, and theft of proprietary information[105](index=105&type=chunk) - The aging ERP system at the Batavia, N.Y. facility and its fiscal 2024 replacement pose risks of disruption and uncertain benefits[106](index=106&type=chunk) [Unresolved Staff Comments](index=21&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) Not applicable, as the company reports no unresolved staff comments - Not applicable[113](index=113&type=chunk) [Properties](index=22&type=section&id=Item%202.%20Properties) The company owns its Batavia, NY headquarters and manufacturing facilities, leases a Colorado campus for Barber-Nichols, and anticipates needing more manufacturing space for future growth - The company owns its corporate headquarters and manufacturing facilities in Batavia, New York, encompassing **270,000 square feet** for manufacturing, warehousing, and R&D[114](index=114&type=chunk) - The Barber-Nichols (BN) operation in Arvada, Colorado, leases a campus of approximately **101,000 square feet**[114](index=114&type=chunk) - Additional manufacturing space is anticipated to support future growth at both BN and Graham Mfg locations[115](index=115&type=chunk) [Legal Proceedings](index=22&type=section&id=Item%203.%20Legal%20Proceedings) Information on legal proceedings is incorporated by reference from Note 16 to the consolidated financial statements in Item 8 - The required information is contained in Note 16 to the consolidated financial statements[116](index=116&type=chunk) [Mine Safety Disclosures](index=22&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable, as the company has no mine safety disclosures to report - Not applicable[117](index=117&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=23&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE under "GHM", with dividends suspended in fiscal 2022 due to credit agreement terms - The company's common stock trades on the NYSE under the symbol **"GHM"**[119](index=119&type=chunk) - The dividend was suspended in fiscal 2022 per the Bank of America credit agreement, with future payments not guaranteed[120](index=120&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal 2023 saw a significant turnaround with **28% net sales growth** to **$157.1 million**, a return to profitability, and strong order and backlog growth driven by defense demand and improved project execution [Key Results](index=25&type=section&id=Key%20Results) Fiscal 2023 vs. Fiscal 2022 Performance | Metric | Fiscal 2023 | Fiscal 2022 | | :--- | :--- | :--- | | Net Sales | $157,118 thousand | $122,814 thousand | | Net Income (Loss) | $367 thousand | ($8,773) thousand | | Diluted EPS | $0.03 | ($0.83) | | Orders Booked | $202,686 thousand | $143,875 thousand | | Backlog | $301,734 thousand | $256,537 thousand | - The company recorded approximately **$2.5 million in reserves** for Virgin Orbit Holdings, Inc. bankruptcy and reversed approximately **$4 million** of associated purchase orders[129](index=129&type=chunk) - Fiscal 2022 results were negatively impacted by over **$10 million in cost overruns** on U.S. Navy projects, with execution significantly improving in fiscal 2023[129](index=129&type=chunk) - Cash from operating activities was **$13.914 million**, a significant improvement driven by higher income and approximately **$13 million** in customer deposits from a long-term U.S. Navy contract[129](index=129&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Net Sales by Market (in thousands) | Market | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | Refining | $27,270 | $24,406 | 12% | | Chemical/Petrochemical | $21,950 | $15,955 | 38% | | Space | $21,180 | $5,744 | 269% | | Defense | $65,327 | $62,189 | 5% | | Other | $21,391 | $14,520 | 47% | | **Total Net Sales** | **$157,118** | **$122,814** | **28%** | - Gross margin improved to **16.2% in fiscal 2023** from **7.4% in fiscal 2022**, driven by better sales mix, improved pricing, defense contract execution, and the absence of over **$10 million in prior-year cost overruns**[143](index=143&type=chunk) - SG&A expense increased to **$24.447 million** from **$21.299 million**, primarily due to the full-year BN acquisition impact, Virgin Orbit reserves, and higher incentive compensation, though decreasing to **15.4% of sales** from **17.3%**[144](index=144&type=chunk)[145](index=145&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) - Net cash provided by operating activities was **$13.914 million** in fiscal 2023, a significant improvement from **$2.219 million used** in fiscal 2022, driven by higher net income and customer deposits[155](index=155&type=chunk) - The company ended fiscal 2023 with **$18.257 million** in cash and cash equivalents, an increase from **$14.741 million** at the end of fiscal 2022[158](index=158&type=chunk) - As of March 31, 2023, the company complied with all financial covenants of its Bank of America loan agreement, maintaining a calculated bank leverage ratio of **2.1x**[130](index=130&type=chunk)[162](index=162&type=chunk) - Capital expenditures for fiscal 2024 are projected between **$5.5 million and $7 million**, primarily for machinery, equipment, and facility improvements to support growth[157](index=157&type=chunk) [Orders and Backlog](index=32&type=section&id=Orders%20and%20Backlog) Orders by Market (in thousands) | Market | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | Refining | $29,276 | $28,411 | 3% | | Chemical/Petrochemical | $15,306 | $22,241 | -31% | | Space | $15,160 | $10,733 | 41% | | Defense | $116,714 | $63,215 | 85% | | Other | $26,230 | $19,275 | 36% | | **Total Orders** | **$202,686** | **$143,875** | **41%** | - The book-to-bill ratio for fiscal 2023 was **1.3x**, indicating strong future revenue potential[170](index=170&type=chunk) Backlog by Market (in thousands) | Market | March 31, 2023 | March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Refining | $26,142 | $25,402 | 3% | | Chemical/Petrochemical | $7,842 | $13,647 | -43% | | Space | $8,242 | $11,283 | -27% | | Defense | $243,628 | $194,758 | 25% | | Other | $15,880 | $11,447 | 39% | | **Total Backlog** | **$301,734** | **$256,537** | **18%** | - Approximately **50% to 55% of the current backlog** is expected to convert to sales within one year, with most longer-term orders for the U.S. Navy[172](index=172&type=chunk) [Outlook](index=33&type=section&id=Outlook) Fiscal 2024 Outlook | Metric | Guidance | | :--- | :--- | | Net Sales | $165 million to $175 million | | Gross Profit Margin | 17% to 18% | | SG&A Expenses | 15% to 16% of sales | | Adjusted EBITDA | $10.5 million to $12.5 million | - The company has raised its fiscal 2027 targets, now expecting to achieve greater than **$200 million in revenue** with adjusted EBITDA margins in the **low to mid-teens**[174](index=174&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include foreign currency exchange rates, price risk from competition and inflation, and interest rate risk on variable-rate debt - The company is exposed to foreign currency risk, with international sales comprising **19% of total sales** in fiscal 2023, where a strengthening U.S. dollar can negatively impact competitiveness[199](index=199&type=chunk) - Price risk is driven by competition from global manufacturers with lower production costs and significant cost inflation in labor and raw materials[201](index=201&type=chunk) - The company faces interest rate risk from its variable-rate term loan, with a **$12.5 million balance** as of March 31, 2023, where a **1% BSBY rate change** would impact annual interest expense by approximately **$0.125 million**[202](index=202&type=chunk)[203](index=203&type=chunk) [Financial Statements and Supplementary Data](index=38&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements for fiscal years 2021-2023, including the auditor's unqualified opinion and detailed notes on accounting policies, acquisitions, and debt [Consolidated Statements of Operations](index=41&type=section&id=Consolidated%20Statements%20of%20Operations) Key Financial Results (in thousands) | Metric | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Net Sales | $157,118 | $122,814 | $97,489 | | Gross Profit | $25,408 | $9,129 | $20,469 | | Operating Income (Loss) | $1,250 | ($11,343) | $2,998 | | Net Income (Loss) | $367 | ($8,773) | $2,374 | | Diluted EPS | $0.03 | ($0.83) | $0.24 | [Consolidated Balance Sheets](index=43&type=section&id=Consolidated%20Balance%20Sheets) Key Balance Sheet Items (in thousands) | Account | March 31, 2023 | March 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $18,257 | $14,741 | | Total Current Assets | $110,070 | $87,220 | | Total Assets | $203,918 | $183,691 | | Total Current Liabilities | $86,166 | $59,424 | | Total Liabilities | $106,985 | $87,197 | | Total Stockholders' Equity | $96,933 | $96,494 | [Consolidated Statements of Cash Flows](index=44&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary (in thousands) | Cash Flow Category | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Net cash provided (used) by operating activities | $13,914 | ($2,219) | ($1,722) | | Net cash (used) provided by investing activities | ($3,749) | ($57,106) | $32,397 | | Net cash (used) provided by financing activities | ($6,441) | $14,419 | ($4,454) | [Notes to Consolidated Financial Statements](index=46&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed financial statement support, covering the Barber-Nichols acquisition, revenue recognition, debt structure, pension plans, and contingencies like asbestos litigation and Virgin Orbit bankruptcy reserves - The Barber-Nichols (BN) acquisition on June 1, 2021, for **$72.014 million**, resulted in **$23.523 million in goodwill** and **$32.5 million in identifiable intangible assets**[263](index=263&type=chunk)[264](index=264&type=chunk)[189](index=189&type=chunk) - In fiscal 2023, **74% of revenue** was recognized over time, primarily via an input method, while **26%** was recognized at shipment[270](index=270&type=chunk) - The company's remaining unsatisfied performance obligations (backlog) totaled **$301.734 million** as of March 31, 2023[276](index=276&type=chunk) - As of March 31, 2023, the company complied with the amended financial covenants of its Bank of America loan agreement[287](index=287&type=chunk) - The company recorded **$3.05 million in reserves** for accounts receivable and inventory related to Virgin Orbit's Chapter 11 bankruptcy during fiscal 2023[330](index=330&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=70&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) Not applicable, as the company reports no changes in or disagreements with its accountants - Not applicable[335](index=335&type=chunk) [Controls and Procedures](index=70&type=section&id=Item%209A.%20Controls%20and%20Procedures) As of March 31, 2023, management and Deloitte & Touche LLP affirmed the effectiveness of the company's disclosure controls and internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[336](index=336&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of March 31, 2023, based on the COSO framework[338](index=338&type=chunk) - Deloitte & Touche LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of March 31, 2023[339](index=339&type=chunk)[341](index=341&type=chunk) [Other Information](index=71&type=section&id=Item%209B.%20Other%20Information) Not applicable - Not applicable[347](index=347&type=chunk) [Disclosure Regarding Foreign Jurisdictions That Prevent Inspections](index=71&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20That%20Prevent%20Inspections) Not applicable - Not applicable[348](index=348&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=72&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 proxy statement, and the company has a Code of Business Conduct and Ethics - Required information is incorporated by reference from the proxy statement for the 2023 Annual Meeting of Stockholders[350](index=350&type=chunk) - The company has adopted a Code of Business Conduct and Ethics applicable to all directors and employees, available on its website[351](index=351&type=chunk) [Executive Compensation](index=72&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive and director compensation is incorporated by reference from the 2023 proxy statement - Required information is incorporated by reference from the proxy statement for the 2023 Annual Meeting of Stockholders[352](index=352&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=72&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership by beneficial owners and management is incorporated by reference from the 2023 proxy statement - Required information is incorporated by reference from the proxy statement for the 2023 Annual Meeting of Stockholders[353](index=353&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=72&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the 2023 proxy statement - Required information is incorporated by reference from the proxy statement for the 2023 Annual Meeting of Stockholders[354](index=354&type=chunk) [Principal Accounting Fees and Services](index=72&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information on principal accounting fees and services is incorporated by reference from the 2023 proxy statement - Required information is incorporated by reference from the proxy statement for the 2023 Annual Meeting of Stockholders[355](index=355&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=73&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and exhibits filed with the Form 10-K, including Consolidated Financial Statements from Item 8 and an index of all exhibits - The Consolidated Financial Statements are filed in Part II, Item 8[357](index=357&type=chunk) - The financial statement schedule "Schedule II - Valuation and Qualifying Accounts" is filed as part of this item[357](index=357&type=chunk) - An index to all exhibits filed with the report is provided[358](index=358&type=chunk) [Form 10-K Summary](index=76&type=section&id=Item%2016.%20Form%2010-K%20Summary) No Form 10-K summary is provided - None[366](index=366&type=chunk)

Space 4% Chem/ Petrochem 4% Other 3% Refining 9% Defense… TOTAL BACKLOG (1) Totals shown in graph may not equal the sum of the segments due to rounding Revenue: $145 million to $155 million www.GrahamCorp.com G r a h a m C o r p o r a t i o n www.GrahamCorp.com This presentation 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. Should one or more of these risks or uncertainties ...

Graham Corporation (NYSE:GHM) Q3 2023 Earnings Conference Call February 6, 2023 11:00 AM ET Company Participants Deborah Pawlowski - Investor Relations Dan Thoren - President and Chief Executive Officer Chris Thome - Chief Financial Officer Conference Call Participants Theodore O'Neill - Litchfield Research Graham Mattison - Water Tower Research Gary Schwab - Valley Forge Capital Management Bill Baldwin - Baldwin Anthony Securities John Bair - Ascend Wealth Operator Greetings. Welcome to Graham Corporation' ...

FINANCIAL INFORMATION [Unaudited Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Graham Corporation for the three and nine months ended December 31, 2022, including Statements of Operations, Comprehensive Income (Loss), Balance Sheets, Cash Flows, and Changes in Stockholders' Equity, with notes detailing basis of presentation, the Barber-Nichols acquisition, revenue recognition, and debt structure [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a net income of $0.37 million for Q3 FY2023, a significant turnaround from a net loss of $3.73 million in Q3 FY2022, driven by a 38.6% increase in net sales to $39.87 million and a substantial rise in gross profit from $0.56 million to $6.23 million | | Three Months Ended Dec 31, | | Nine Months Ended Dec 31, | | | :--- | :--- | :--- | :--- | :--- | | **(In thousands, except per share data)** | **2022** | **2021** | **2022** | **2021** | | Net sales | $39,873 | $28,774 | $114,091 | $83,077 | | Gross profit | $6,227 | $561 | $18,251 | $4,918 | | Operating income (loss) | $669 | $(4,582) | $1,602 | $(9,293) | | Net income (loss) | $368 | $(3,730) | $848 | $(7,348) | | Diluted net income (loss) per share | $0.03 | $(0.35) | $0.08 | $(0.70) | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $207.7 million as of December 31, 2022, from $183.7 million at March 31, 2022, primarily fueled by increases in unbilled revenue, inventories, and customer deposits, reflecting higher business activity, while total liabilities also rose to $109.8 million from $87.2 million | | Dec 31, 2022 | Mar 31, 2022 | | :--- | :--- | :--- | | **(In thousands)** | | | | **Assets** | | | | Total current assets | $112,309 | $87,220 | | Total assets | $207,657 | $183,691 | | **Liabilities and Stockholders' Equity** | | | | Total current liabilities | $85,911 | $59,424 | | Total liabilities | $109,761 | $87,197 | | Total stockholders' equity | $97,896 | $96,494 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended December 31, 2022, net cash provided by operating activities was $8.9 million, a major reversal from the $14.6 million used in the prior-year period, mainly due to higher net income and favorable changes in working capital, particularly a large increase in customer deposits | | Nine Months Ended Dec 31, | | | :--- | :--- | :--- | | **(In thousands)** | **2022** | **2021** | | Net cash provided (used) by operating activities | $8,946 | $(14,552) | | Net cash used by investing activities | $(2,394) | $(55,972) | | Net cash (used) provided by financing activities | $(3,866) | $24,863 | | Net increase (decrease) in cash and cash equivalents | $2,474 | $(45,541) | [Note 2 – Acquisition](index=10&type=section&id=Note%202%20%E2%80%93%20ACQUISITION) This note details the June 1, 2021 acquisition of Barber-Nichols, LLC (BN) for a purchase price of $72.0 million, a strategic move to diversify into the defense, aerospace, and cryogenic markets, resulting in $23.5 million of goodwill and $32.5 million of intangible assets - On June 1, 2021, the company acquired Barber-Nichols, LLC (BN) to further its growth strategy through market diversification, particularly strengthening its presence in the defense, aerospace, energy, and cryogenic markets[24](index=24&type=chunk) | Purchase Price Allocation | Amount (in thousands) | | :--- | :--- | | Total assets acquired | $93,121 | | Total liabilities assumed | $21,107 | | **Purchase price** | **$72,014** | | Goodwill | $23,523 | | Customer relationships | $11,800 | | Technology and technical know-how | $10,100 | [Note 3 – Revenue Recognition](index=12&type=section&id=Note%203%20%E2%80%93%20REVENUE%20RECOGNITION) Revenue is primarily recognized over time for large, long-term contracts, accounting for 73% of revenue for the nine months ended Dec 31, 2022, with the remaining recognized upon shipment; the company's backlog stood at $293.7 million as of December 31, 2022, with 40-50% expected to be recognized within one year | Revenue Recognition Method | Nine Months Ended Dec 31, 2022 | | :--- | :--- | | Revenue recognized over time | 73% | | Revenue recognized at shipment | 27% | - As of December 31, 2022, the company's backlog (remaining unsatisfied performance obligations) was $293,671. It expects to recognize 40% to 50% of this within one year, 20% to 30% in one to two years, and the remainder beyond two years[39](index=39&type=chunk) [Note 13 – Debt](index=20&type=section&id=Note%2013%20%E2%80%93%20DEBT) As of December 31, 2022, the company had a $15.0 million term loan and a $30.0 million revolving credit facility with Bank of America, with no amount outstanding on the revolver, and was in compliance with all amended financial covenants after receiving a waiver for prior non-compliance - The company has a $20.0 million five-year term loan and a $30.0 million five-year revolving credit facility with Bank of America, entered into on June 1, 2021. As of December 31, 2022, **$15.0 million** was outstanding on the term loan and **$0** was outstanding on the line of credit[67](index=67&type=chunk)[69](index=69&type=chunk) - The company was out of compliance with its original bank covenants at December 31, 2021, but was granted a waiver. Under amended agreements, the company was in compliance with all financial covenants as of December 31, 2022[70](index=70&type=chunk)[71](index=71&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and operational results, highlighting a 39% year-over-year revenue increase in Q3 FY2023 to $39.9 million, driven by growth in defense, space, and refining markets, and a return to profitability with a net income of $0.4 million, covering strategic impact, market conditions, operational results, liquidity, capital resources, and future outlook [Summary](index=23&type=section&id=Summary) In Q3 FY2023, net sales grew 39% year-over-year to $39.9 million, driven by improved execution in defense, ramp-up of new programs in commercial space, and strength in refining aftermarket, leading to a net income of $0.4 million, a significant turnaround from a $3.7 million loss in the prior-year quarter, with backlog at $293.7 million, 80% from defense | Q3 FY2023 Highlights | Value | Change (YoY) | | :--- | :--- | :--- | | Net Sales | $39.9M | +39% | | Net Income | $0.4M | from -$3.7M loss | | Diluted EPS | $0.03 | from -$0.35 | | Orders | $20.0M | -71% | | Backlog | $293.7M | -6% (QoQ) | [Current Market Conditions](index=25&type=section&id=Current%20Market%20Conditions) Management expects continued strong demand from the defense industry, supported by a significant backlog, while traditional energy markets face low near-term capital project opportunities despite increasing aftermarket orders, and the commercial space market offers long-term growth potential but carries uncertainty due to customer financial status - Demand from the defense industry is expected to remain strong and expand, based on significant backlog and long-standing relationships with the U.S. Navy[89](index=89&type=chunk) - Traditional energy markets (refining, chemical/petrochemical) are expected to have low near-term project availability and challenging pricing, although an increase in aftermarket orders may signal a future cyclical upturn[90](index=90&type=chunk)[91](index=91&type=chunk) - The commercial space market provides significant growth potential, representing **12.5% of sales** in the first nine months of FY2023, but is considered variable and uncertain due to the financial dependency of its key players[94](index=94&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Q3 FY2023 net sales rose 39% to $39.9 million, with defense sales up 31% and space sales up 142%, while gross margin dramatically improved to 16% from 2% year-over-year due to a better sales mix and improved execution on defense contracts, and SG&A as a percentage of sales decreased to 14% from 17% | Net Sales by Product Line (Q3 FY2023) | Amount (in thousands) | % of Total | Change (YoY) | | :--- | :--- | :--- | :--- | | Defense | $21,687 | 54% | +31% | | Refining | $6,497 | 16% | +64% | | Chemical/Petrochemical | $3,927 | 10% | +29% | | Space | $3,510 | 9% | +142% | | Other Commercial | $4,252 | 11% | +14% | | **Total Net Sales** | **$39,873** | **100%** | **+39%** | - Gross profit margin for Q3 FY2023 increased to **16%** from **2%** in the prior-year quarter. This was due to an improved sales mix of higher-margin projects (commercial space and aftermarket) and better execution, contrasting with the prior year's results which were impacted by cost overruns on first-article U.S. Navy projects[101](index=101&type=chunk) [Non-GAAP Measures](index=28&type=section&id=Non-GAAP%20Measures) The company utilizes non-GAAP measures like Adjusted EBITDA and Adjusted Net Income to provide supplemental insight into operating performance, with Q3 FY2023 Adjusted EBITDA at $2.2 million, a significant improvement from a $2.6 million loss, and Adjusted net income at $0.9 million ($0.08 per share), reversing a $2.9 million loss (-$0.27 per share) in Q3 FY2022 | Non-GAAP Reconciliation (in thousands) | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $368 | $(3,730) | $848 | $(7,348) | | **Adjusted EBITDA** | **$2,238** | **$(2,604)** | **$6,506** | **$(5,401)** | | **Adjusted net income (loss)** | **$857** | **$(2,903)** | **$2,511** | **$(6,353)** | [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2022, the company held $17.2 million in cash and cash equivalents, with net cash from operations for the first nine months of FY2023 at a positive $8.9 million, a stark contrast to the $14.6 million used in the prior-year period, largely due to higher net income and a $7.75 million customer deposit, while maintaining compliance with all debt covenants and suspending dividends per the credit agreement - Net cash provided by operating activities for the first nine months of fiscal 2023 was **$8,946**, a significant improvement from **$14,552** of cash used in the prior year period, primarily due to higher cash net income and lower net working capital levels[115](index=115&type=chunk) - The company suspended its dividend in Q4 fiscal 2022 in accordance with its credit agreement with Bank of America[116](index=116&type=chunk) - As of December 31, 2022, the company was in compliance with its amended credit facility covenants, with a calculated bank leverage ratio of **2.5**. The available amount under the revolving credit facility was **$9,926**[122](index=122&type=chunk) [Orders and Backlog](index=31&type=section&id=Orders%20and%20Backlog) Q3 FY2023 orders were $20.0 million, a significant decrease from $68.0 million in the prior-year quarter due to variable timing of large projects, though for the first nine months of FY2023, orders were up 26% to $151.9 million, with total backlog at $293.7 million as of December 31, 2022, an increase of 14% from March 31, 2022, with 80% from the defense market | Orders by Product Line (Nine Months) | FY2023 (in thousands) | FY2022 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Defense | $88,703 | $60,369 | +47% | | Space | $12,647 | $5,250 | +141% | | Refining | $23,978 | $24,794 | -3% | | Chemical/Petrochemical | $12,464 | $15,583 | -20% | | **Total Orders** | **$151,863** | **$120,215** | **+26%** | | Backlog Trend | Dec 31, 2021 | Mar 31, 2022 | Dec 31, 2022 | | :--- | :--- | :--- | :--- | | Total Backlog (in thousands) | $272,600 | $256,537 | $293,671 | | Defense % of Backlog | 77% | 76% | 80% | [Outlook](index=32&type=section&id=Outlook) The company reaffirmed its full-year fiscal 2023 guidance, expecting revenue between $145 million and $155 million, a gross margin of approximately 16%, and Adjusted EBITDA of $7.5 million to $8.5 million, while noting that lower-margin, first-article U.S. Navy projects will continue to negatively impact results through the second quarter of fiscal 2024 | Fiscal 2023 Guidance | Expected Range | | :--- | :--- | | Revenue | $145 million to $155 million | | Gross Profit | ~16% of sales | | SG&A Expenses | ~15% of sales | | Tax Rate | ~23% | | Adjusted EBITDA | $7.5 million to $8.5 million | [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company identifies its principal market risks as foreign currency exchange rates, price risk, and interest rate risk, with international sales constituting 20% of total sales for the first nine months of fiscal 2023, and a hypothetical 1% rate change on its $15 million term loan estimated to impact annual interest expense by approximately $150,000 - The company's principal market risks are identified as foreign currency exchange rates, price risk, and interest rate risk[135](index=135&type=chunk) - International sales accounted for **20% of total sales** in the first nine months of fiscal 2023. The company has limited exposure to foreign currency purchases, representing about **9% of cost of products sold**[137](index=137&type=chunk)[138](index=138&type=chunk) - A hypothetical one percentage point (100 basis points) change in the BSBY interest rate on the **$15,000** of variable rate debt outstanding would impact annual interest expense by approximately **$150**[141](index=141&type=chunk) [Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO evaluated and concluded that the company's disclosure controls and procedures were effective as of December 31, 2022, with the assessment of internal control over financial reporting excluding the recently acquired Barber-Nichols, LLC, as permitted by SEC guidance, which will be included in the annual assessment for the fiscal year ending March 31, 2023 - The President and Chief Executive Officer and the Vice President - Finance & Administration and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[142](index=142&type=chunk) - The scope of the assessment of internal control over financial reporting does not include the recently acquired Barber-Nichols, LLC, which will be included in the assessment for the fiscal year ending March 31, 2023[144](index=144&type=chunk) OTHER INFORMATION [Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes from the risk factors that were previously disclosed in Part I, Item 1A of its Annual Report on Form 10-K for the fiscal year ended March 31, 2022 - There have been no material changes from the risk factors previously disclosed in the Company's Form 10-K for the fiscal year ended March 31, 2022[145](index=145&type=chunk) [Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section provides an index of the exhibits filed with the Form 10-Q, including the certifications of the Principal Executive Officer and Principal Financial Officer as required by Rule 13a-14(a)/15d-14(a) and Section 1350, as well as the Interactive Data Files (Inline XBRL) - The exhibits filed with the report include CEO and CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350) and Interactive Data Files (Inline XBRL)[148](index=148&type=chunk)

Graham Corporation (NYSE:GHM) Q2 2023 Earnings Conference Call November 7, 2022 11:00 AM ET Company Participants Deborah Pawlowski - Investor Relations Dan Thoren - President & Chief Executive Officer Chris Thome - Chief Financial Officer Conference Call Participants Theodore O'Neill - Litchfield Hills Research Andrew Shapiro - Lawndale Capital Brett Kearney - Gabelli Funds John Bair - Ascend Wealth Advisors Gary Schwab - Valley Forge Capital Management John Deysher - Pinnacle Operator Greetings. Welcome to ...

G r a h a m C o r p o r a t i o n Q2 FY2023 Teleconference November 7, 2022 Daniel J. Thoren, President and Chief Executive Officer Christopher J. Thome, Vice President - Finance and Chief Financial Officer www.GrahamCorp.com Safe Harbor Statement This presentation 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 an ...

Graham Corporation (NYSE:GHM) Q1 2023 Earnings Conference Call July 29, 2022 10:00 AM ET Company Participants Deborah Pawlowski - IR Dan Thoren - President and CEO Chris Thome - CFO Conference Call Participants Theodore O'Neill - Litchfield Hills Research John Deysher - Pinnacle Gary Schwab - Valley Forge Capital Andrew Shapiro - Lawndale Capital Brett Kearney - Gabelli Operator Greetings, and welcome to the Graham Corporation First Quarter Fiscal Year 2023 Financial Results. [Operator Instructions] As a re ...