Graham(US:GHM)2022-02-08 04:35Financial Data and Key Metrics Changes - Revenue for Q3 2022 increased to $28.8 million, up $1.6 million from the previous year, but the company reported a loss of $0.35 per share due to Navy project cost overruns [6][26] - Adjusted EBITDA for the quarter was negative $2.6 million, with an adjusted net loss of $0.27 per share [29] - Year-to-date adjusted EBITDA was negative $5.4 million, with a year-to-date net loss of $0.70 per share [34] Business Line Data and Key Metrics Changes - Defense revenue now constitutes over 58% of total sales, with Barber Nichols contributing $12 million in sales during the quarter [26][29] - The Batavia operations faced challenges due to the need to focus on Navy projects, leading to increased labor and material costs [27][28] - Barber Nichols has exceeded expectations with strong margins and a growing backlog [8][35] Market Data and Key Metrics Changes - The backlog at the end of Q3 reached a record $272.6 million, with defense representing 77% of the total backlog [41] - Commercial backlog grew from $33 million at the end of March to $63 million, indicating a recovery in commercial orders [42][43] Company Strategy and Development Direction - The company is committed to diversifying beyond refining and petrochemical sectors, focusing on defense work, which has shown success in bookings and revenue [8][46] - The acquisition of Barber Nichols has strengthened the company's strategy and provided additional market experience [46][49] - Future opportunities will arise from proper execution of plans and investments in automated welding technology [24][52] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging year but expressed confidence in turning the corner on operational issues by mid-fiscal 2023 [32][44] - The company is focused on improving project management skills and processes to better handle Navy contracts [102][106] - Management believes that the current challenges are primarily related to profitability rather than liquidity, with sufficient cash flow to navigate difficulties [39][113] Other Important Information - The company suspended its dividend due to non-compliance with financial covenants but has obtained a waiver from its lender [7][38] - The company is actively negotiating amendments to its credit facility to address covenant issues [39][110] Q&A Session Summary Question: Can you provide more background on Barber Nichols and the acquisition strategy? - Management indicated that Barber Nichols has historically grown organically and emphasized the need to stabilize performance before pursuing further acquisitions [58] Question: How satisfied is the U.S. Navy with delivery timelines? - The Navy is reportedly understanding of the challenges faced and has worked with the company to accommodate any delays [60][61] Question: What caused the cost overruns and delays in Batavia? - Management explained that a combination of labor shortages, COVID-19 impacts, and the need for additional training contributed to the issues [64][66] Question: What changes are being made to the welding school program? - The company has initiated a formal welding school in partnership with a trade school to train new welders from scratch, which has shown promising results [81][84] Question: How is the company managing labor constraints in the defense business? - Management noted that Barber Nichols has been successful in attracting talent due to its positive work culture and growth prospects [117]