GHM - Earnings call transcript Q3 2019

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Operator

Greetings, and welcome to Graham Corporation Third Quarter Fiscal Year 2019 Financial Results. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Karen Howard, Investor Relations for Graham Corporation.

Karen Howard

good and Dana, you, morning, everyone. Thank you XXXX third appreciate joining us fiscal Graham's discuss to quarter today We and results. year-to-date

across have should that a of the distributed the morning. wires You this news copy was release

have today. here also we're slides commentary the We that with providing associated

the have on website you find don't slides, can release the If at the www.graham-mfg.com. or you them company's

and the Glajch, Jim Chief Executive and for the On our Financial as our our Chief Lines, well call review with outlook. me President Jeff Officer. periods, the Jim and results today Jeff will are as Officer;

Q&A. We will then open the lines for

you in some in is future we well as documents can useful and the company website performance. and non-GAAP in stated during to These Commission. actual release point factors filed also factors, well Exchange risks are which discussion Q&A. this As what I risks measures, with and we results aware, found during believe and These some call, uncertainties the out slide on the we www.sec.gov. statements as documents other and today's other or be our by earnings to These are to will may want as events forward-looking statements with discuss the uncertainties, cause as Securities from as well make provided on could the at financial that are deck, during which our evaluating materially to other call. differ apply the subject as and are

with You in in substitute additional results isolation information should or of accordance a consider for this not as prepared presentation the GAAP.

release. to with tables GAAP begin. call to to turn that, Jeff accompanying reconciliations it's of today's measures non-GAAP have pleasure comparable in provided Jeff? over to the my the And, earnings We

Jeff Glajch

comparable Slide the impact a We you, to the Sales quarter, period the the in quarter new and million million, morning, to standard. attention unfavorable X. revenue in good $X.X year. did everyone. third Karen; have were which to recognition your $XX.X same was Turn Thank last due

been entering was call Unfortunately, had the impact which it the quarter, expected prior noted it what net a I end ended. QX. been revenue QX shipped we would quarter we in expected we have after in adjustments, last we asset in $XX,XXX quarter. Act. With However, the the -- QX to significant days an by project XXXX around China, or as on larger the the America year, related per had would share. petrochem X, of of impacts to of compared and with as ship to quarter year to was $XX $XX.X income the Without North that shipped January our Tax refining on five the have have million. those loss third that impairment In the being orders intangible key contributors. Asia breakeven. $X.XX were and due Orders QX in last charge a well million

level. the the in Our though the quarter obviously lower the quarter end million, the $XXX.X gain was due a revenue record to $X million backlog at of backlog improved of part in to third

between split navy evenly and is projects. backlog Our commercial

commercial nearly the in saw this point, backlog. million at the September to Importantly, in commercial low $XX.X On XXXX. with increase quite backlog triple Slide at is pleased We're which of X. we

On margin capacity. partially first gross increased in the improved to to per XX% year. adjusted of year. quarter, similar X% last quarter was X. nine the gross pricing XX% the adjusted XXXX and last XX% X.X%, $XX.X Gross X. profit down the XX% $XX.X increase year. nine share added have last international. was were year's months offset number sales in higher-margin $X.XX quarters. improved increased in respectively, an from is with X.X%, nine in last in Gross $XX domestic, The in compared last international. next last of XX% due last to were XX%, million million margins XX% year. up pricing, split which to domestic, to months of third QX breakeven are by Year-to-date Slide and margin by first to cost offset was an share year. $X.XX increase partially the volume profit In level Sales up from last from million million to cost, X.X% the On to level the million XX%, fiscal noted, nine sales months last last of Net first I were level sales quarter income was year. margin Slide year months, XX% with year, per or to domestic, $X.X gross under-absorbed As and and of profit of up margins usable per again XX% projects million, EBITDA XX% over an increase $XX.X $X.X $X.XX third million support were Year-to-date EBITDA gross Sales additional share, compared the to last was were been primarily our was year's compared from from from $X.X XX% capacity with QX. or net production adjusted income up last in due year. greater international and up higher million from $X.X year's Year-to-date

flow at We the continue to first months have positive $X.X of year million. nine operating the in cash

up million million $X.XX is cash end balance $XX.X fiscal the $XX.X from or at Our is This per of share. XXXX. at

cash continue increased significantly compared with arena higher prices utilize We inorganically. continue year-to-date. that pipeline, some and of quarter with half Capital and spending is the first at be pleased to $X.X in the able of to acquisition to our grow our to third expanding we now the million year be to hope despite in

QX, our guidance. more current spend between $X.X full year by million on our will We outlook in presentation million for depth the and Jim fiscal to and our capital expect $X year. market complete providing full

Jim Lines

of to for morning, call. Good conference you million slightly quarter was Revenue initial quarter in Jeff also year. had the two everyone, $XX.X as X. said, thank last joining quarter was due Thank and Revenue we quarter quarter second the expectations, third to the will our at you, from compared in I below on factors. down Slide begin down sequentially the and third Jeff.

treatment. be such First, now shipped. of shipment executed. particular orders quarter-to-quarter of revenue said, This percentage future the was orders which particular into unusual, January. volatile was as completed Jeff a cause has however This revenue to recognition it will pushed order, trends when revenue rather recognition are completed standard similar large contract contract followed international new order the than due revenue in might accounting order, That completion standards,

believe oil $X.X revenue including market million, year-over-year. quarter. $X end are Secondly, markets, $X.X backlog petrochemical also fiscal XXXX. to we crude revenue or And in enabled Power pace certain revenue refining down at down conversions to impacting market was the the market, million $X industry can up $X.X market the the due advance is projections at This production. Chemical other at revenue second half was XXXX $X.X for million million, while million which looking million. to was we end market, revenue naval the of and slowing fiscal revenue up and was

revenue. a with of of domestic markets have continue for We to revenue domestic end concentration total accounting XX%

markets. future XXXX that quarters result XX% our current backlog revenue is an will to compared end recently in to guidance, top-line projected fiscal to to improvement revenue our With XXXX. international provide in XX% is for However, updated fiscal growth

fiscal basis trailing with quarter orders, Moving pleased XX-month of a on which watermark on low second the of to level slide is during XXXX. the XX. appreciably from I'm up the

Importantly, of orders oil fiscal trailing third from for and XXXX. refining crude XX-month measurably chemical/petrochemical period totals ending the trailing compared to quarter on markets are our up a the basis XX-month

of trend. engineering the Our successful been there has the for is order key on quarter-to-quarter. sales resources to continue personnel end variation continue be and and the grant position slope, trailing XX-month order levels to and large bids by market focus There as will evident to be value

a This backlog while healthy as convert the million is for up December fiscal Backlog $XXX was XXst year the market. markets for power up refining is of the our overall XX% compared to XX% end sequentially backlog for XX this naval two end time the $XX XX-month at second chemical the detail. markets $X.X of and improvement from million was the measure was million of trailing from convert roughly or well is $XX Backlog to quarter. XX refining end of in $XXX.X provides end conversion million year naval is There XX% is next million on for chemical/petrochemical great oil markets. approximately XX% from it how at is backlog markets. In for refining year. and is backlog year-over-year, or $XXX $XX million that key and to base versus trend million. years diversified past for However, the markets months XXXX. longer during and and months XX% order approximately nearly a end Backlog year XX across our traditional million. last last is now. Slide up orders a best million $XX.X the up backlog earlier, to much XX% over provides of to to have markets XXst, were projected backlogs earlier chemical/petrochemical is and December to $XX Backlog and end comparing

guidance. XXXX. million be between XX% expect expense XX% with be weeks Moving we million, on margin million excuse consistent update million. from our up back, will Gross Consistent XXXX with will a $XX.XX revenue our fiscal between fiscal $XX revenue XX%. be to couple me, between $XX and guidance, and $XX.XX and XX% of SG&A to guidance to

be effective roughly rate XX%. expect tax We our to

that expecting during we're open Dana, growth now. we I we next fiscal questions our revenue will Thank lines for our you. expecting line top-line please and would provide you range Our, top ask for growth, conference the XXXX, are call.

Operator

question At your proceed be question-and-answer session. first Joe conducting this [Operator Please we'll a Company. & Instructions] comes Mondillo Our the from line Sidoti with of question. from time,

Joe Mondillo

naval just -- that production. to the or on pace was delivery delays on of end? the on clarify due to you your So said that this end in Is production quarter, on in the on side, customer

Jim Lines

tied flow back us. capability. by It's to It's shipyard approvals fabrication execution from the how our by paced for being design the than customer the to the and more releases

Joe Mondillo

Okay.

navy to bit considering going backlog little of considering push then sort so that, from just just a this is everything the out And

Jim Lines

our we've but naval with our labor it Indeed. we projections. tend deploy is internally also conversion update It's revenue provide fiscal other -- XX naval revenue those fiscal and of to of fiscal It's of our half adjustment our it conversion available pace guidance that particular reflect first contracts, range, the the when to months that for our with guidance. necessarily made revenue that backlog not adjustments 'XX backlog. to next financial how will we slowing contracts, based over upon naval we 'XX XXXX fiscal when We the second conversion XX affecting our into XXXX segment and and affecting we've slowing revision made modeled

Joe Mondillo

backlog talking about few mid-teens, each fiscal in or? back help navy going any in cadence of beyond there a Is I us Is pulled of million work XX to by low 'XX flows way are a Okay. of the XXXX. your quarters in mid-teens how next $XX you million months? backlog terms rethink that just area and ago dollars know couple year you could throughout of the of

Jim Lines

That's question. excellent

for to about we relevant push to our As revenue expecting is feel the comparable will revenue we XXXX, the from recent XXXX's question, which mid-teens. think naval million backlog, it now been past be the in more of we level where beyond $XX now had

Joe Mondillo

goal to continuing beyond navy up to actually you're Okay. the I picked the and that and Are maximize work work that now, your The can because customer? work right find delays know try work beyond been the business has work a you you little the a do more the more at backlog that for doing find core bit. in to

Jim Lines

Sure.

I'm our participation components the orders We under so in have we previously continued that to realized for because to that to backlog, we diversification efforts is in [indiscernible] ones the has strategy. additional had tied those That's under the comment backlog effort. repeat work of overutilization way. additional necessarily or done components it's are diversification of been Not components, on. had of with that categorizing being working still naval our are yet similar still is work. that or not expand way backlog backlog win previously It as not growth our or growth new naval diversification

Joe Mondillo

Okay. legacy just And gear then, refining shifting petrochem. oil business your and to in chem,

of that business oil recently? your economic in of general leading your First going off, what's be short indicator what a and in you're cycle seeing metrics the volatility tends on, part to given in just prices just

Jim Lines

our question. commentary if cycle cycle good for the this year-to-date really patterns. that, point or order a seeing always between new which today our I to way our XX% backlog last perceptible we in But are or up and we That's in in at or orders That's not provide sure. Sure, year, short are work, the short XX%. compare look year-to-date

a that's they're Now of about a off bottom, compared that's nice, to comparison XX%. but down XX% or just so XX% by

So and we trough, year-to-date year quite a whole. compared aftermarket it's and short The compared positively. are of or 'XX where timeframe, spare is the 'XX are is to levels. they more up bouncing parts, we're off were 'XX work 'XX to year-on-year That's about 'XX, where flattish cycle sub-segment we moving short in actually the our cycle work our back as which they last XX% not but and to and is that more directionally were our exciting,

all very that's So encouraging.

Joe Mondillo

seeing say or maybe you was months nine see and what last, it up months acceleration the just you seeing six, is months six that would until economy? within any stronger wondering any is ago, started the say, three last nine in so, or from months a given the And ago you global sequential six slowdown an that months we're sense to or on of over or currently basis slowdown, are

Jim Lines

three based in make aggregate to why quarter-to-quarter year-to-date, to so because to basis, it's it remark a I'm the comments be chose hate can year ago. misleading, quarter-to-quarter at in three quarters basis, of look to on compared flattish a not quarters basis that's a on make sort way XX% I aggregate I to up XX%. it's it's on year-on-year and a suggesting But a great up it, on sequential sequential

Joe Mondillo

about big them general? times chemical the Okay. could talk of within I business, know markets in your sort in regarding a I that? maybe sort other have as own so the business, seeing of fundamentals well on address market you're those then market what XX% sort you're What perspective, some different of where is geographic share. maybe international seeing the And of you that of of you're as could hearing you China market both or know sort at and refining what you And markets?

Jim Lines

$X activity, basket the projects a international Starting this in markets, for large we nice the Asia value have range there's opportunities those. fairly million with Jo. million very in is these bidding are to Sure, refining, of and $XX and in few of

So in starting Asia we are China up basket of in be a handful, also of nice that to ahead. see refining a a Southeast couple to toward back in a and coming projects year moving India, China. opportunities seems go

fruition EPC Southeast they're it work now, we're those on and and We projects chasing to those FEED We're a working bid ideas, for in early. like. up India have years we've the of involved the early the been and some coming of projects on couple and Asia seems

refining in more this new the the capacity outlook international principally feeling about for is we're international markets in commentary and enthusiastic markets. So

going sizable to say there's the five steady and have Latin we project sorry, about ago we're projects throughout of we two very debottleneck go North projects. some be are anything America, of Latin so. for there four there America, in likely In we've a identification America's period we're identified, but That's saw a not next right Middle participate for participation to that's sales and level for we doing Southeast, projects North I'm East, to Again, East the the for teams on success that believe it's are the of level pockets slow there us. years scope There's like that those elements us refineries new that's or that amount couple base. nothing much are the ahead, certain In right and capacity. revamp, will pretty and and a or do but for front but except will refining I participating a engineering feel that that work to of replacement So new revamp around coming good keep the in percolating capital organization the on. And in would the of not generally things and over get will aftermarket in up quarters, right position it's and running right three more America, feel that in readily have seeing us. then the capacity purchase Middle the of

as I So we the of next oil more no with on feel America coming midterm years. of the wave. not coming over the as is, wave. measure that saw is view sputtering the measured or the the next feel, we other to North domestically be going some it We're both is first By up. the and strong stout internationally, wave generally work wave longer outlook, good refining bidding Petchem, that's of view a the and some about generally taking first term It's won of the work. couple We the, along.

I type years say environment of and more last of think couple I'd petchem a order a steady that's steady be the for and going the periodic to international versus yes. markets, [indiscernible] chem that's of comparatively than flow

Joe Mondillo

great. Yes. was think I that No,

commodity months clarify, has, So a sound three a has lot, changed just that things what three of to five to seen given your ago, activity, global like to picture seem whole like it whole compared prices economic five, to it, in it doesn't lot fair? call is and we've doesn't

Jim Lines

measure but no it's or do not like we've overly XXXX XXXX or look. but more but bad. outlook XXXX yet, definitely the anything about not feel balanced We've it's we a kept positive think enthusiastic, by I we that's, and, been near-term think

Joe Mondillo

the quoting Anything there, and same-type of bidding consistent you're again of When looking the anything highlight the there Has your over And just at activity, been regarding interest? couple to recently? Okay. quarters? has that question. follow up to changed pipeline last

Jim Lines

No.

to Our again with be I time in go I group, of application view periods the at quite and -- it but and trying at engineering not not years of activity, compare moving at history and we're that's back would level three an those is and is like steady the catalyst up but activity I'd fairly 'XX, feels steady. our quite XXXX, we're find that rather frequently do two that from ago of fairly different dialogue level to wrong, to or contrast 'XX, it is and sales level have the not -- like okay that

Joe Mondillo

then I been ask just your The backlog, And few seeing of Okay. in regarding how margins that in to the gross relative to gross you've the wanted last the do they compare backlog quarters. gross of margin over sort margins. terms

If XX% terms second you where to compares quarter second out how XX%, was that but out outlier, you between take and you've if the been backlog take you've of saw the margins? say you would gross that been XX%, quarter, you an in

Jim Lines

I want pretty a where the wins with I a compared to directionally there recent fabricators. we wins is relieved. would what's that to sizable international upward work some to of large do being -- percentage it's had we're say, with qualify going where

base fine, Batavia, down the to an profile drops just it averages our we incremental manufacturer, an but So different margin of as load up. down, for effect operating that profit that asset volume has as to drop changing example with a at work up

but the So up. it line, at the might though averaging off-profit margin gross booked averages it's down, as look

Joe Mondillo

SG&A at wanted you The SG&A Okay. two understand. I the levels. No, on ramp your also a especially little last ask have line. years rates the bit. -- to issue, some navy growth There I on up outpaced starting mix is to revenue with

idea this over years, you at elsewhere. you good fiscal at in if 'XX, I investments specifically sure and some force I'm have time, did two the last sales a but make Looking know not your

you how growth of at to SG&A, do 'XX, plays able the that you're out? Looking do sort in idea of to think if alluding you about revenue you of fiscal have sort XXXX? any SG&A you're get fiscal How sort thinking

Jeff Glajch

Joe, Hey, this Jeff. is

to was SG&A in resources, we some around meaningful support seen is, up of our our noted as a of pretty significant fiscal growth have the One We you and in step number things. level organizations, in 'XX and particularly support added have importantly to years, that 'XX. seeing like a commissions sales that level last the we've that that growth comp And up which of in some expect see on but over we're going now then of variable couple fiscal things we and low has and more had stepped forward. points organization

anything probably 'XX we As helpful. 'XX I we, step not a 'XX for 'XX out to fiscal or out from be 'XX position to saw to so put of higher be 'XX, relative hope in but fiscal 'XX, the would shouldn't we're fiscal that would from 'XX it say that's to specific and up level

Joe Mondillo

last then last And that question what know definitely. income, other to wanted run been for related is just yes, quarters, I exactly? $XXX,XXX a it's rate for on few Okay, just to the me. that

Jeff Glajch

all, Sure. in accounting if that of a is was in in put accumulated and that in number, expense, and the in was handled of together and piece that goods and portion be pension other of income. from now would past, about how is down income would number be side There pension the now a one SG&A. it income cumulative was the you cost so that and portion put number that number as of change think pension the excluded There's sold

the exact $XXX,XXX in SG&A that The income and line to should of the cost guess, I it's close pretty basis, what's goods quarter. lack and of income, every in expense, better number, and number would darn it. of a So down a that higher is, and what's happened way in our there, cost now sold it, there's to then quarterly is or number that in on SG&A be is put be goods sold, other

the quarter, end every in year. to 'XX, the like have number what because information at will don't I you that look fourth of For know revalue fiscal all fiscal pension your

don't that it's on middle a in lower. basis, number a that it the little that line. income bit that Again, this will an stay our or if level it's year. little bit by a accounting quarterly $XXX,XXX, increased other So will of think dramatically, cost fiscal the above whether and just I but has April higher that's same kicked will now know up change in I change in

Joe Mondillo

go SG&A, question Okay, $XXX,XXX to prior almost is regarding my to to... that's good about causing to to back know, and ramp SG&A up just

Jim Lines

Some of that. of that there's lot There's sold of in of too, little in cost a goods but that a SG&A.

Joe Mondillo

a Okay. Perfect. taking my questions. for Thanks Thanks lot.

Operator

the Instructions] Please Our of comes next with [Operator proceed question line from Bill Baldwin your with Securities. Baldwin Anthony question.

Bill Baldwin

Good right morning, of laying perhaps going a in you in maybe, thought business it sense slower, you what's Jeff volatility go kind think do feedstock macro while do kind picture What then is and would the or the CapEx cost along, of a we it impacting plans? for back, of it is [spud] or on have you prices, management's have Jim. but guess, terms of kind now on, of petrochemical call kind I their

Jim Lines

and II comparison always a global goods capacity Phase out cause we and measured added in of on and the change I Phase realized view. Phase for on came in was And the play more that still the elongated I. I on think wave, that under prices their order have That's for influences capacity I to capacity to prices. be the almost a was are if in more that amount step demand of was massive of time always II being supply felt selecting how of think effect has communicated Phase I Phase the II would sold, expansion The sponsors think now I, being be which pace North was add cycle. effect in our of and just that's and about digested. watching will And X% amount project an it's we've up, the pause massive first that incremental a American If is in first that added a think that the ethylene of in commodity the how and wave. of that point it capacity. starting

Bill Baldwin

are All you activity, now Are plants? about talking into type you right. or more cracker primarily right type derivative getting Jim,

Jim Lines

crackers, I pertained to would plant. say principally comment that the that the ethylene

built plant sole of for feeding downstream purpose However, the the ethylene go they together. to plants, so derivative is tend therefore the

Bill, incremental off, capacity, get costs and tight the pace slows further gets and wave activity are we second pertains And, capacity we again, of than in watching we've because wait its a scarcely think that of activity normal happens labor become this expansion We're and projects is, normal there's there activity pace predictable and to it off and think staging that's things control, a and sponsors there's a largely cycle for two backing get We run been the bidding to already. I up cost new that's for ramp till some start some as Gulf and cool just market, skilled costs seeing a of want Phase there's bit work There's of flow. What up execution this pulling this still work. stable. we're some years for some three measured more in go aren't a and Coast trigger. out little up expansion, just when schedule. things downstream more a seeing schedule the and of I for Sponsors us, to trades elongated bidding available but most But course. the of and honestly, the also when these want surge, it's is more the concentration better

stable the affecting trade schedule. and is So that period, more but in I affecting is cost skilled think we're

Operator

turn the back to gentlemen, and closing reached the like have management for and Ladies end would we of the call question-and-answer I remarks. to session,

Jim Lines

update initial look this time our we thank results for Thank for your everyone call on updating forward at third also and you pleased quarter quarter, during time. conference that our Thank and you, our you Dana great and XXXX on morning. We're end in year a you to day. fiscal to you. providing look fourth our Have point

Operator

conference. This today's concludes

for You Thank time. at this lines may your disconnect you participation. your

Graham (GHM) 30 Jan 192019 Q3 Earnings call transcript