Graham Corporation Reports Fiscal 2021 Fourth Quarter and Full Year Results

Graham Corporation (NYSE: GHM), a global business that designs, manufactures and sells critical equipment for the energy, defense and chemical/petrochemical industries, today reported financial results for its fourth quarter and full fiscal year ended March 31, 2021 ("fiscal 2021”). The Company separately announced that today it has completed the acquisition of Barber-Nichols Inc. ("BNI”), a specialty turbomachinery designer and manufacturer for total consideration of $70 million, subject to customary working capital adjustments.

James R. Lines, Graham’s President and Chief Executive Officer, commented, "Overall, we had a solid year, slightly exceeding our expectations as short cycle sales were stronger than expected in the quarter. As we look back at fiscal 2021, I believe that the results of our persistent efforts to diversify our business as we continue to focus on becoming a more significant defense industry supplier were apparent, with 25% of revenue generated by sales to the U.S. Navy. While orders still indicate a weak environment in our energy and petrochemical markets, our strong backlog reflects $69.2 million of U.S. Navy orders received in fiscal 2021. We now have $104 million of firm backlog related to the U.S. Navy. This strong backlog, combined with the acquisition of Barber-Nichols, significantly advances our diversification strategy into the defense industry. BNI will be immediately accretive to fiscal 2022 earnings and expand our top line by 50%. We are excited to welcome the BNI team to Graham and look forward to working together for continued growth.”

Fourth Quarter Fiscal 2021 Sales Summary (All comparisons are with the same prior-year period unless noted otherwise. See accompanying financial tables for a breakdown of sales by industry and region)

Net sales were $25.7 million compared with $23.1 million in the fourth quarter of fiscal 2020. Stronger than expected demand in the short cycle business drove the higher-than-expected sales in the quarter.

Sales to the refining markets increased $2.9 million from the prior-year period to $10.3 million and represented 40% of total sales. Sales to the defense markets were up 16% to $6.5 million this quarter and represented 25% of total revenue. Chemical/petrochemical market sales were $5.8 million compared with $7.1 million in the prior year.

From a geographic perspective, international sales were approximately 40% of which 18% were in Asia. Domestic sales in the fiscal 2021 fourth quarter were 60% of total sales and include the impact of sales to the defense industry.

Fluctuations in Graham’s sales among geographic locations and industries can vary measurably from quarter-to-quarter based on the timing and magnitude of projects. Graham does not believe that such quarter-to-quarter fluctuations are indicative of business trends, which it believes are more apparent on a trailing twelve-month basis.

Fourth Quarter Fiscal 2021 Performance Review All comparisons are with the same prior-year period unless noted otherwise.)

*Graham believes that EBITDA (defined as consolidated net income before net interest income, income taxes, depreciation, and amortization), and EBITDA margin (EBITDA as a percentage of sales), which are non-GAAP measures, help in the understanding of its operating performance. Moreover, Graham’s credit facility also contains ratios based on EBITDA. See the attached table on page 10 for additional important disclosures regarding Graham’s use of EBITDA and EBITDA margin as well as the reconciliation of net income to EBITDA.

Gross margin expanded 20 basis points in the quarter to 19.4%.

Selling, general and administrative ("SG&A”) expenses were $4.4 million, up $0.4 million, or 9%, primarily due to variable compensation costs. SG&A, as a percent of sales for the three-month periods ended March 31, 2021 and 2020 were 17.1% and 17.4%, respectively.

Operating profit was $0.6 million, up from $0.3 million from the prior year from operating leverage gained with volume. Net income was $0.4 million, or $0.04 per share, compared with $0.06 per share in the prior year due to lower interest income and higher provision for income taxes.

Full Year Fiscal 2021 Performance Review (All comparisons are with the same prior-year period unless noted otherwise.)

Sales to the U.S. were $52.7 million, or 54% of total sales, compared with $58.0 million, or 64% of total sales, in the prior fiscal year. International sales were $44.8 million and represented 46% of total sales, compared with $32.6 million, or 36% of total sales in fiscal 2020.

Gross profit and margin improved due to higher volume and a more favorable mix of projects.

SG&A was up 4%, or $0.6 million, to $17.5 million driven by higher sales commissions, variable compensation expense and acquisition costs related to BNI. As a percent of sales, SG&A improved to 17.9% compared with 18.6% in the prior year.

The effective tax rate was 27.3%, compared with 19.0% in the prior-year period. The higher effective tax rate in fiscal 2021 reflects the mix of earnings by geography, which were weighted toward higher rate tax jurisdictions.

Strong Balance Sheet with Ample Liquidity

Cash, cash equivalents and investments at March 31, 2021 decreased $8 million to $65.0 million from March 31, 2020. Net cash used by operating activities for fiscal 2021 was $1.7 million compared with $1.2 million of net cash provided by operating activities in the prior year. The decline in cash generation was the result of the utilization of customer deposits. At March 31, 2021, Graham had no debt.

Capital spending was $0.7 million in the fourth quarter of fiscal 2021 and was $2.2 million in fiscal 2021. The Company expects capital expenditures for fiscal 2022, including BNI, to be between $4.5 million and $5.5 million. The organic business is expected to have capital expenditures of $2.8 million to $3.0 million of which approximately 90% is expected to be for machinery and equipment and the remainder to be used for other items.

Subsequent to the end of the fiscal year, the Company utilized $41.1 million of cash, cash equivalents and investments, and incurred debt of $20 million pursuant to a 5-year term loan associated with the BNI acquisition.

Orders and Backlog

Orders for the quarter were $13.4 million, up $1.1 million from the prior-year period, and included defense orders of $5.4 million. The remaining $8.0 million in orders were primarily from the global refining and chemical/petrochemical markets, which have been heavily impacted by the global pandemic and weak oil prices. Chemical and petrochemical orders were $2.7 million, compared with $9.4 million in the prior-year period. Refining orders were $2.3 million in the current quarter, compared with $0.1 million in the fourth quarter of fiscal 2020 during which was the onset of the global pandemic.

Domestic orders were 88% of total net orders in the fourth quarter of fiscal 2021, reflecting the demand from the U.S. Navy. Domestic orders were 46% in the prior-year period.

Backlog at the end of the fiscal 2021 was $137.6 million, down $12.1 million from December 31, 2020, but up 22% from the end of fiscal 2020.

Backlog by industry at March 31, 2021 was approximately:

• 76% for U.S. Navy projects
• 16% for refinery projects
• 6% for chemical/petrochemical projects
• 2% for other industrial applications

The Company expects approximately 40% to 45% of backlog will convert to revenue in fiscal 2022. Approximately $25 million to $27 million of backlog related to the defense industry is expected to convert to sales in fiscal 2022.

Fiscal 2022 Guidance

Mr. Lines concluded, "We believe the strategic and financial benefits resulting from the acquisition of BNI are compelling. Our results will be driven by sales to the defense industry, amplifying our ongoing efforts to diversify our revenue base.”

Revenue in fiscal 2022 is expected to be $130 million to $140 million, inclusive of BNI’s revenue for the ten-month period, which is expected to be $45 million to $48 million. Adjusted EBITDA* for the combined businesses is expected to be approximately $7.0 million to $9.0 million.

Jeffrey F. Glajch, Vice President Finance and Chief Financial Officer, commented, "Our outlook for fiscal 2022 includes ten months of BNI. Upon completion of purchase accounting, we will be in a better position to provide more clarity and guidance on potential gross margin and SG&A expenses.”

*See the safe harbor statement regarding forward-looking non-GAAP measures.

Webcast and Conference Call

Graham’s management will host a conference call and live webcast today at 11:00 a.m. Eastern Time to review its financial condition and operating results for the fourth quarter and full year of fiscal 2021, 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 Graham’s website at www.graham-mfg.com under the heading "Investor Relations.” A question-and-answer session will follow the formal presentation.

Graham’s conference call can be accessed by calling (201) 689-8560. Alternatively, the webcast can be monitored on Graham’s website at www.graham-mfg.com under the heading "Investor Relations.”

A telephonic replay will be available from 2:00 p.m. ET today through Tuesday, June 8, 2021. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13718347. A transcript of the call will be placed on Graham’s website, once available.

ABOUT GRAHAM CORPORATION

Graha is a global business that designs, manufactures and sells critical equipment for the energy, defense and chemical/petrochemical industries. Energy markets include oil refining, cogeneration, and alternative power. For the defense industry, the Company’s equipment is used in nuclear propulsion power systems for the U.S. Navy. Graham’s global brand is built upon world-renowned engineering expertise in vacuum and heat transfer technology, responsive and flexible service and unsurpassed quality.

Graham designs and manufactures custom-engineered ejectors, vacuum pumping systems, surface condensers and vacuum systems. Graham’s equipment can also be found in other diverse applications such as metal refining, pulp and paper processing, water heating, refrigeration, desalination, food processing, pharmaceutical, heating, ventilating and air conditioning. Graham’s reach spans the globe and its equipment is installed in facilities from North and South America to Europe, Asia, Africa and the Middle East.

BNI, which was acquired following the end of fiscal 2021, designs and builds products and systems for a variety of U.S. Department of defense customers including the U.S. Navy and Air Force, NASA, and commercial customers in the aerospace, medical, computer and automotive industries. This broad range of industry and customer experience has delivered sustained business growth through varying economic cycles of industries served. BNI provides complicated turbomachinery solutions for critical applications in the aerospace, defense, cryogenics and energy industries. The company has had strong growth over the last 20-years from the expansion of its engineering capabilities for programs that involve complex production and system integration. Founded in 1966, BNI operates from a new, 43,000 square foot, state-of-the-art manufacturing facility in Arvada, Colorado where it is headquartered. More information on BNI can be found on their website www.barber-nichols.com.

Graham routinely posts news and other important information on its website, www.graham-mfg.com, where additional comprehensive information on Graham Corporation and its subsidiaries 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,” "estimates,” "confidence,” "projects,” "typically,” "outlook,” "anticipates,” "indicates”, "believes,” "appears,” "could,” "opportunities,” "seeking,” "plans,” "aim,” "pursuit,” "look towards” 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, effects of the COVID-19 global pandemic, expected expansion and growth opportunities within its domestic and international markets, anticipated revenue, 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, the extreme price volatility seen in the first six months of calendar year 2020, changes in general economic conditions and customer behavior, forecasts regarding the timing and scope of the economic recovery in its markets, its acquisition and growth strategy and its operations in China, India and other international locations, 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, included under the heading entitled "Risk Factors.”

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.

In addition, 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 or expense. 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 2021 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 data set forth above may be material.

Non-GAAP Financial Measure:

EBITDA is defined as consolidated net income before net interest income, income taxes, depreciation, and amortization and EBITDA margin is defined as EBITDA as a percentage of sales. EBITDA and EBITDA margin are not measures determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP. Nevertheless, Graham believes that providing non-GAAP information, such as EBITDA, is important for investors and other readers of Graham's financial statements, as it is used as an analytical indicator by Graham's management to better understand operating performance. Moreover, Graham’s credit facility also contains ratios based on EBITDA. Because EBITDA is a non-GAAP measure and is thus susceptible to varying calculations, EBITDA, as presented, may not be directly comparable to other similarly titled measures used by other companies.

*Quarters may not sum to year-to-date/total fiscal year due to rounding

*Quarters may not sum to year-to-date/total fiscal year due to rounding

View source version on businesswire.com: https://www.businesswire.com/news/home/20210601005311/en/