GRAHAM CORPORATION (Dollar amounts in thousands, except per share data) Overview
We are a global business that designs, manufactures and sells critical equipment
for the energy, defense and chemical/petrochemical industries. For the energy
industry, our equipment is used by customers in markets including petroleum
refining, power generation, and alternative and renewable energy. For the
defense industry, our equipment is used in nuclear propulsion power systems for
the
Our global brand is built upon our world-renowned engineering expertise in vacuum and heat transfer technology, responsive and flexible service and high quality standards. We design and manufacture custom-engineered ejectors, vacuum pumping systems, surface condensers and vacuum systems. Our equipment can also be found in other diverse applications such as metal refining, pulp and paper processing, water heating, refrigeration, desalination, food processing, pharmaceutical, and heating, ventilating and air conditioning.
Our corporate headquarters are located in
In the first quarter of fiscal 2020, we completed the sale of
Our current fiscal year (which we refer to as "fiscal 2020") ends
Highlights
Highlights for the three and nine months ended
• Net sales for the third quarter of fiscal 2020 were $25,286 , up 47%
compared with $17,198 for the third quarter of fiscal 2019. Net sales
for the first nine months of fiscal 2020 were $67,522 , down 1%
compared with net sales of $68,190 for the first nine months of fiscal
2019.
• Net income and income per diluted share for the third quarter of
fiscal 2020 were $9 and $0 , respectively, compared with $95 and $0.01 ,
respectively, in the third quarter of fiscal 2019. Net income and
income per diluted share for the first nine months of fiscal 2020 were
$1,296 and $0.13 , respectively, compared with net income of $4,245 and
income per diluted share of $0.43 for the first nine months of fiscal
2019.
• Orders booked in the third quarter of fiscal 2020 were $20,057 ,
compared with the third quarter of fiscal 2019 when orders booked were
$23,169 . Included in last year's third quarter orders were orders of
$1,352 from our commercial nuclear business. Orders booked in the
first nine months of fiscal 2020 were $67,698 , compared with the first
nine months of fiscal 2019, when orders were $79,562 .
• Backlog was $122,899 at December 31, 2019 , compared with $127,765 at
September 30, 2019 and $132,127 at March 31, 2019 . Backlog at March
31, 2019 included $8,039 related to the commercial nuclear business we
sold in the first quarter of fiscal 2020.
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• Gross profit margin and operating margin for the third quarter of
fiscal 2020 were 16% and (2)%, respectively, compared with 22% and
(3)%, respectively, for the third quarter of fiscal 2019. Gross profit
margin and operating margin for the first nine months of fiscal 2020
were 20% and 0%, respectively, compared with and 25% and 5%,
respectively, for the first nine months of fiscal 2019.
• Cash and short-term investments at December 31, 2019 were $69,851 ,
compared with $77,753 on March 31, 2019 .
Forward-Looking Statements
This report and other documents we file with the
These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results implied by the forward-looking statements. Such factors include, but are not limited to, the risks and uncertainties identified by us under the heading "Risk Factors" in Item 1A of our Annual Report on Form 10-K for fiscal 2019.
Forward-looking statements may also include, but are not limited to, statements about:
• the current and future economic environments affecting us and the markets
we serve;
• expectations regarding investments in new projects by our customers;
• sources of revenue and anticipated revenue, including the contribution
from anticipated growth;
• expectations regarding achievement of revenue and profitability;
• plans for future products and services and for enhancements to existing
products and services;
• our operations in foreign countries;
• political instability in regions in which our customers or facilities are
located;
• tariffs and trade relations between the United States and its trading
partners;
• our ability to affect our growth and acquisition strategy;
• our ability to maintain or expand work for the U.S. Navy ;
• our ability to successfully execute our existing contracts;
• estimates regarding our liquidity and capital requirements;
• timing of conversion of backlog to sales;
• our ability to attract or retain customers;
• the outcome of any existing or future litigation; and
• our ability to increase our productivity and capacity.
Forward-looking statements are usually accompanied by words such as "anticipate," "believe," "estimate," "may," "might," "intend," "interest," "appear," "expect," "suggest," "plan," "predict," "project," "should," "will," "encourage," "potential," "contemplate," "continue," "could" and similar expressions. Actual results could differ materially from historical results or those implied by the forward-looking statements contained in this report.
Undue reliance should not be placed on our forward-looking statements. Except as required by law, we undertake no obligation to update or announce any revisions to forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.
Current Market Conditions
Our global energy and petrochemical markets continue to exhibit active project and bid activity. Although general global economic conditions appear to be weakening for many sectors, we continue to see strong activity by our customers in the downstream energy sector. Customers are investing in upgrading and turnaround maintenance for existing facilities and, in certain geographies, are looking at new capacity. While this additional activity continues to be encouraging, we cannot predict the pace and longevity of the market improvement.
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Our long-term view for the global energy and petrochemical markets is that
general economic fundamentals will drive increasing demand and result in
continued capital investment to satisfy increasing global energy demand. These
fundamentals include rising populations, emerging market economic growth, and
long-term global economic expansion. However, the energy markets we serve will
also be impacted by increased use of renewable energy sources and
conservation. We have multiple initiatives to actively extend our market
reach. We are focused on expanding our participation to serve our existing
customers' needs for replacement components and facility upgrades, including
increasing our technical service resources near customer locations. We are also
expanding our reach into developing markets through partnerships with local
suppliers to assist our efforts to penetrate markets which we have not served in
the past (e.g.
Our naval nuclear propulsion market has demand tied to aircraft carrier and
submarine vessel construction schedules of the primary shipyards that service
the
We believe the long-term outlook in our key markets supports our growth plans. In the near term, new order levels are expected to remain variable, resulting in both relatively strong and weak periods. We believe, however, order activity will continue to improve for the next several fiscal quarters.
The chart below shows the historical impact of our diversification
strategy. Over half of our current backlog is from markets not served by us in
the fiscal 2007-2009 time frame. Included in the graph for prior periods, but
not the third quarter of fiscal 2020 (referred to as "Q3 FY20" on the chart
below) is the backlog for our commercial nuclear business which was divested in
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Note: FYE refers to fiscal year ended March 31 Results of Operations
To better understand the significant factors that influenced our performance during the periods presented, the following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the notes to our Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.
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The following table summarizes our results of operations for the periods
indicated:
Three Months Ended Nine Months Ended
December 31, December 31,
2019 2018 2019 2018
Net sales $ 25,286 $ 17,198 $ 67,522 $ 68,190
Gross profit $ 4,044 $ 3,742 $ 13,706 $ 17,111
Gross profit margin 16 % 22 % 20 % 25 %
SG&A expense (1) $ 4,441 $ 4,308 $ 12,855 $ 13,696
SG&A as a percent of sales 18 % 25 % 19 % 20 %
Net income $ 9 $ 95 $ 1,296 $ 4,245
Diluted income per share $ - $ 0.01 $ 0.13 $ 0.43
Total assets $ 146,801 $ 156,761 $ 146,801 $ 156,761
Total assets excluding cash, cash
equivalents and investments $ 76,950 $ 76,354 $ 76,950 $ 76,354
(1) Selling, general and administrative expense is referred to as "SG&A".
The Third Quarter and First Nine Months of Fiscal 2020 Compared With the Third Quarter and First Nine Months of Fiscal 2019
Sales for the third quarter of fiscal 2020 were
Sales for the first nine months of fiscal 2020 were
Gross profit margin for the third quarter of fiscal 2020 was 16% compared with
22% for the third quarter of fiscal 2019. Gross profit for the third quarter of
fiscal 2020 increased 8% compared with fiscal 2019, to
Gross profit margin for the first nine months of fiscal 2020 was 20% compared
with 25% for the first nine months of fiscal 2019. Gross profit for the first
nine months of fiscal 2020 decreased 20% compared with the same period of fiscal
2019, to
SG&A expenses as a percent of sales for the three and nine-month periods ended
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commercial nuclear business. The increase in SG&A was primarily due to
investments to expand our sales and support organizations. SG&A expenses in the
first nine months of fiscal 2020 were
Interest income for the three and nine-month periods ended
Our effective tax rates for the three-month periods ended
Net income and income per diluted share for the third quarter of fiscal 2020
were
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