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. Our energy
markets include oil refining, cogeneration, and alternative power. 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 the fiscal year ended
Our current fiscal year (which we refer to as "fiscal 2021") ends
Highlights
Highlights for the three and six months ended
• Net sales for the second quarter of fiscal 2021 were $27,954 up 29%
compared with $21,643 for the second quarter of fiscal 2020. Net sales
for the first six months of fiscal 2021 were $44,664 , up 6% compared
with net sales of $42,236 for the first six months of fiscal 2020.
Included in the first six months of fiscal 2020 were sales of $1,276
for our commercial nuclear utility business, which was sold in the
first quarter of fiscal 2020.
• Net income and income per diluted share for the second quarter of
fiscal 2021 were $2,744 and $0.27 , respectively, compared with $1,205
and $0.12 , respectively, in the second quarter of fiscal 2020. Net
income and income per diluted share for the first six months of fiscal
2021 were $926 and $0.09 , respectively, compared with net income of
$1,287 and income per diluted share of $0.13 for the first six months
of fiscal 2020. Included in net income and income per diluted share
for the first six months of fiscal 2020 was a loss of $893 and $0.09 ,
respectively, for our commercial nuclear utility business, which was
sold in the first quarter of fiscal 2020.
• Results in the first half of fiscal 2021 were impacted by the COVID-19
pandemic. During the first quarter, we purposely reduced production at
our facility in Batavia, New York to proactively address the risk to
our employees from the COVID-19 pandemic. We began the first quarter
at 10% of normal staffing capacity and gradually increased production,
reaching to normal capacity by early June 2020 . On average, we were at
approximately 50% of normal staffing capacity across the first
quarter. This reduction in staffing significantly affected our sales
and earnings in such quarter, which negatively impacted the first six
months of fiscal 2021. Our staffing in the second quarter was back to
normal levels.
• Orders booked in the second quarter of fiscal 2021 were $34,974 ,
compared with the second quarter of fiscal 2020 when orders booked
were $32,552 . Orders booked in the first six months of fiscal 2021
were $46,442 , compared with the first six months of fiscal 2020 when
orders booked were $47,641 .
• Backlog was $114,851 at September 30, 2020 , compared with $107,220 at
June 30, 2020 and $112,389 at March 31, 2020 .
16
--------------------------------------------------------------------------------
• Gross profit margin and operating margin for the second quarter of
fiscal 2021 were 28% and 12%, respectively, compared with 23% and 5%,
respectively, for the second quarter of fiscal 2020. Gross profit
margin and operating margin for the first six months of fiscal 2021
were 21% and 2%, respectively, compared with 23% and 2%, respectively,
for the first six months of fiscal 2020.
• Cash and short-term investments at September 30, 2020 were $67,856 ,
compared with $73,003 at March 31, 2020 .
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 2020.
Forward-looking statements may also include, but are not limited to, statements about:
• the impacts of, and risks caused by, the COVID-19 pandemic on our
business operations, our customers and our markets;
• the current and future economic environments, including the downturn
associated with the COVID-19 pandemic, 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 are located;
• tariffs and trade relations between the United States and its trading
partners;
• our ability to execute 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," "contemplate," "continue," "could," "estimate," "may," "might," "intend," "interest," "appear," "expect," "suggest," "plan," "predict," "project," "encourage," "potential," "should," "view," "will," 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
We continue to operate within disrupted energy and petrochemical markets (which we refer to as our "commercial markets"). A slowdown in our commercial markets began during the latter part of fiscal 2020. This slowdown was primarily caused
17
--------------------------------------------------------------------------------
by an excess supply of crude oil, which had a negative impact on commodity pricing. The economic slowdown and corresponding reductions in demand for transportation fuel and petrochemical products caused by the ongoing COVID-19 global pandemic further adversely affected our commercial markets. As a result of this combination of adverse supply-side and demand-side disruptions, our commercial customers have significantly reduced their operating budgets for products and services like those that we offer. The timing and catalyst for a recovery in our commercial markets remains uncertain and we believe that in the near term the quantity of projects available for us to compete for will be fewer and that the pricing environment will continue to be challenging.
Over the long-term, however, we expect that population growth, an expanding global middle class and an increasing desire for more industrial products will drive increased demand for chemical and petrochemical products. Moreover, once global economies return to stable growth, we expect investment in new global chemical and petrochemical capacity will resume and that such investments will drive growth in demand for our products and services.
Energy markets, in particular crude oil refining, are undergoing a more fundamental evolution. We believe that systemic changes in the energy markets are being driven, in part, by the increasing use by consumers of alternative fuels in lieu of fossil fuel. As a result, we anticipate demand growth for fossil-based fuels will be less than the global GDP growth rate and that crude oil refiners will focus new investments toward the installed base, and that inefficient refineries will close and new refining capacity will be co-located where fuels and petrochemicals are produced. We also anticipate that future investment by refiners in renewable fuels (e.g., renewable diesel), in existing refineries (e.g., to expand feedstock processing flexibility, improve conversion of oil to refined products) to gain greater throughput, or to build new capacity (e.g., integrated refineries with petrochemical products capabilities) will continue to drive demand for our products and services.
Demand for our products in the defense industry is related to the naval nuclear
propulsion market which is tied to aircraft carrier and submarine vessel
construction schedules of the primary shipyards contracted by the
The chart below shows the impact of our successful diversification strategy into
multiple
[[Image Removed]]
*Note: FYE refers to fiscal year ended
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.
18
--------------------------------------------------------------------------------
The following table summarizes our results of operations for the periods
indicated:
Three Months Ended Six Months Ended
September 30, September 30,
2020 2019 2020 2019
Net sales $ 27,954 $ 21,643 $ 44,664 $ 42,236
Gross profit $ 7,693 $ 4,948 $ 9,261 $ 9,662
Gross profit margin 28 % 23 % 21 % 23 %
SG&A expense (1) $ 4,253 $ 3,847 $ 8,155 $ 8,414
SG&A as a percent of sales 15 % 18 % 18 % 20 %
Net income $ 2,744 $ 1,205 $ 926 $ 1,287
Diluted income per share $ 0.27 $ 0.12 $ 0.09 $ 0.13
Total assets $ 144,622 $ 146,464 $ 144,622 $ 146,464
Total assets excluding cash, cash
equivalents and investments $ 76,766 $ 72,668 $ 76,766 $ 72,668
(1) Selling, general and administrative expense is referred to as "SG&A".
The Second Quarter and First Six Months of Fiscal 2021 Compared With the Second Quarter and First Six Months of Fiscal 2020
Sales for the second quarter of fiscal 2021 were
Sales for the first six months of fiscal 2021 were
Gross profit margin for the second quarter of fiscal 2021 was 28% compared with
23% for the second quarter of fiscal 2020. Gross profit for the second quarter
of fiscal 2021 increased 55% compared with fiscal 2020, to
Gross profit margin for the first six months of fiscal 2021 was 21% compared
with 23% for the first six months of fiscal 2020. Gross profit for the first six
months of fiscal 2021 decreased 4% compared with the first six months of fiscal
2020, to
SG&A expenses as a percent of sales for the three and six-month periods ended
19
--------------------------------------------------------------------------------
Interest income for the three and six-month periods ended
Our effective tax rate for each of the three and six-month periods ended
Net income and income per diluted share for the second quarter of fiscal 2021
were
© Edgar Online, source
