GHM - Earnings call transcript Q2 2020

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Operator

Greetings. Welcome to the Graham Corporation Second Quarter Fiscal Year 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.

the for to Graham turn Howard, host, now Relations Investor Corporation. will conference your over Karen I

You may begin.

Karen Howard

fiscal and Thank you, us Graham's joining We appreciate second Daryl, and good today morning, to results. half year first everyone. you XXXX quarter discuss

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

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

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

and to President Executive today Officer; our are to Manager Jim Jeff Batavia General the our Officer; Alan of and On with Glajch, facility. our and call me and Lines, I introduce Smith, Chief Chief Financial our President also Vice want you

for the of year. start the results will operations fiscal with financial remainder review strategic Jeff will an the will our provide a Alan outlook period business overview. and for of the Jim our overview and provide

will open the lines for Q&A. We then

are well as are to on during risks from make which aware, events materially and uncertainties, some subject As the may cause actual call. apply could stated future factors differ what statements statements well as during the These as and is forward-looking we to you as other to discussion, results this Q&A.

on Securities the the and and factors uncertainties the other Exchange website with and deck, These at risks our These as as or with and are Commission. earnings can provided other in in release well slide www.sec.gov. by found be the documents company documents filed

financial I evaluating performance. useful which are also we we in today's call, will discuss want point measures, some non-GAAP during to out that our believe

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

earnings tables to in the comparable release. provided non-GAAP have accompanying reconciliations of GAAP We measures today's

it's call my to And begin. to to over Jim? with the Jim turn that, pleasure

Jim Lines

we a focused joining begin and what you Thank second overview call. earnings will strategic everyone are on. appreciate our with I quarter Good of morning, you, Karen. we

to projects demand strengthen end strategy and key reduce slide refining volatility capital chemical streams. oil Our This will crude element performance expand four. financial cyclical on of revenue within The large remarks predictable is markets. our and start by caused

markets in contrary, variation in and change be years. historical Refining demand the To and to that and had with for observed peaks products coming more not is these expected markets bottoms. greater the chemical end between our today, we volatile variation to cycle large have

revenue. increase and U.S. participation Our providing long-lived Navy provide share will backlog, has that is typically multi-year to the and projection into to Program vision strategy not of subject large Nuclear revenue within Navy market a predictable predictable variation. Propulsion work level a

strategy Navy current backlog The has been at successful, for million. $XX with segment this approximately

are on nuclear of now propulsion Participation the is three components of vessel expanding, provided each the as We increases. programs. types

for for new one Over the next we XX carriers secure of one hope the supply two to the programs. and submarine components, the of other two months

expanding We on-time have sole our executed team is have that quality superbly. & the An and execution, executed on delivery backlog of well our naval source. confirmation in his differentiating strategy. success percentage one Alan is ongoing of Smith

with the involves procurement efficient very of for of Moreover, of We weldments competitively strategy and first certain was build now material complex work our All decade combinations. and are fabrications development production us flow sole-source the for of seeing done first-time were the This the R&D bid. orders many bidding. considerable methods.

in will as improvement margin more be will reflected and we efficiency fabrications. process drive better Productivity gains, move repeat into predictable and which fabrication

improve margin We quality to expand the expect to and coming also repeated to during years fabrications. begin we few as continue revenue

This end area M&A is market well. an as of concentration

segment With plan and carriers our serving to million of and without end have along two we revenue the and next into, new expected million Department markets. the M&A We $XX aerospace Defense $XX continue is actively with aircraft submarines, annually this in components discussions between components in companies engage portfolio to current years. to with of to provided break

are than we into equipment focusing more and delivered in last installed a base. at $XXX valued that we America. XX has In years, North on million base XXXXs installed billion. that American and our North Moreover, $X Graham America. North 'XXs, installation Also, the delivered global Graham the more in great was record a equipment installed with estimate base our approaches sizable supplied

is Here capital volatile as not segment too, large this projects. as

thesis to installation plants U.S. populations before their Mid-Atlantic get operating U.S. as to them regions, customers Alberta. invest and the Coast States are leverage investing that new their the Gulf generally Canada, West from Our in our large Regions capacity. more plus facilities out play continues well. Coast, to such keep Also, and certain dense will with

our identify what Customers expertise and be throughput may or to limiting product need performance and impacting knowledge risk quality.

not on engineers are performance and We work is regions base localizing installed our improvement key highly to margin cyclical. customers. in This and is focus typically high-quality assist to

performance six out Coast engineering on plans be on focus the were and to We expect placed Gulf and to in more two months. installed have individuals improvement continue engineers the building currently historic in Two customers' our addition our we U.S. next EPCs and are add there focus a and have we XXXX team. to had in These will OEMs. base, we'll which

crude our work. year two $XX million of and dampen highly refining coming in that our base the achieving revenue products XX% is installed per revenue anticipated of focus level predictable to also way approach cyclical in and/or predictable large impact When will to and base. Currently, the revenue Navy is from segments Upon are revenue, services. project some add it oil the taken years. XX% in installed M&A to chemical derived here the together, of

and competitiveness Also, in it in well. trade instances as on international materials affected impacted markets tariffs have and certain domestic our certain in markets policy us has

low-cost observing of of ejector are surface fabrication components, regions as critical our steam We systems also for such customer acceptance or condensers.

In share, the Four more drive the fabrication global were the parts. million installed of chain crude XX will expand by to $XX In to new orders unsuccessful last spare differently, than executing being is months, which market more of us. response, actually take refining coming used reposition previously to and were revenue retrofits secured to by revamps, base, our will and supply competitiveness for our due international follow-on that ultimately projects share in where to add projects and we for cost. decades were oil aggressively

In the supply targeted global manner. approached the or fabrication past, in we using chain limited

expand aggressively protection. A attempting change are and create share. broader scale market Now element to execution is key and quality we IP control proactive and participation,

are organization a success of Really, its are this building supply support strategy. surveillance ago management quality and validating. We cited in just out a moment chain was

success. formula a for have We good

or IP as be Graham's Importantly, of elements closely this unique the strategy. differentiating controlled will we execute

installed commercial XX% capacity. and installed commercial throughput incremental investing retrofits slide more and am revamps I those of XXXX base of to on level base our expanded moving percentage revenue. to consistent Comparing of also to the between is gain now parts, The from highlighted slide. end eight-year focus this by the to XXXX of come and revenue, users XXXX from period reliability from operational on XX% XXXX, success the revenue the stronger spare of This or -- has in to five. to derived improve or

likelihood When Graham a the revamp opportunity margin an original high order retrofit has getting equipment is of a or quality. strong with Graham's,

XX% Importantly, profit being comparison to two base. installed total base gross set during period derived from and these the as commercial shown the from slides, from in the gross of installed derived XX% of expanded second profit

in revamps invests the Crude sale. in oil revenue. parts refining an right are This oil Installations the picture market are environment initial follow-on on revenue after terrific there end also right. to and strong absolutely and the top due for operating refinery follow-on harsh spare retrofits

right, in years complete a a many after of less original parts there cases. operating life to if replacement Graham XX replacement is replacement for XX Surface but for condensers at do high-quality the margin good sale us. of likelihood lower drive is order Again the replacements offer a condenser kind potential in

Moving that order between anticipating. million. we on X, million Revenue guidance. confirm is and Navy are on $XXX a year This to quick-turn expected $XXX in Slide this be securing we predicated current quarter to is full

is between XX%. between spending Gross and be $XX XX% million. SG&A expected to $XX million margin be and will

is effective tax Our rate approximately XX%.

results. a financial to pass for I of Jeff will it now over review Jeff?

Jeff Glajch

you, and everyone. good morning Thank Jim

could of share last quarter were the second similar some quarter. X, quarter net million to the Slide QX share on down in $X.XX Sales $XX.X in turn last was the million second brief $X.XX million year. $X.X If $X.X a highlights to year. or you or income a the $XX.X million from

the were some been would those, -- income the related if to $X.X a divested business were losses to share. exclude numbers we commercial year's have $X.XX last year were net the nuclear recently comparable or last million in Included

Asia and United were driven quarter second by key million, some refining in at in Orders $XX.X orders the States. strong the

commercial The months. backlog the our to prior is business tripling past over our backlog divested periods, level out from And XX back the ever. improved includes a Our this has backlog when nuclear backlog million. largest $XXX.X we of

on X, last was again, to million Move domestic, in fairly year $XX.X versus XX% million international year. second quarter were domestic, were sales XX% QX XX% the last Slide $XX.X Sales similar to XX% international. which

$X.X primarily XX% in a to margin an projects. income XX.X% $X.X share, down $X.XX or unfavorable Gross last was million EBITDA as $X.X was from second or year quarter. of last due mix a from million the quarter net of from decreased Gross earlier, million was down to last in And X.X%, noted million level year's margin $X.XX adjusted profit from XX.X% down year. share. second I $X.X

were first Slide half year, the the the to first half in compared million last On million of half at $XX sales with first year. the XX, looking in $XX.X

occur half year per we that note this expecting to stronger than the opposite and first might half the You year. we're guidance, second a our clearly had last year much of

XX% Year-to-date sales XX% last and international compared with are XX% year. domestic, respectively XX%

in project helped the Canadian sales last large of international metal first higher. oil cost we a sands the may You push high recall had year, half which

down are lower as is volume. year year-to-date year million last due million, Gross well margins XX.X% as mix from gross unfavorable $XX.X $XX.X profit versus last to the sales million and $X.X

down XX.X% our commercial June. periods sold nuclear exclusion margins we in Year-to-date business X.X%, adjusted EBITDA the were year. Both from last of which reflect

Finally, or were or earnings as share last front-end income down the sales adjusted a from year's was loaded half $X.X share minimal million $X.X net million income with of net a second with year. year. the last $X.XX in Again $X.XX

the cash but our million, is million timing XX, of year, of working Slide capital. to this is in down half simply $XX.X $X first On the

dividend an per increased We or have noted in that per share per $X.XX $X.XX August our quarter annual of rate to we share.

Capital been $XXX,XXX year with of the in light year. at spending $XXX,XXX compared the first has half last

have expect still million to year we will few spend the half second the capital and $X.X full fiscal As in in our year. and the seen in years the between spending $X.X increase has past we million of

our the expand mentioned are the to pipeline, continue we -- arenas, aerospace particularly, that and list the to acquisition our as in we acquisition earlier Jim utilize cash with pursuing expand some are to of continue and of our we we sheet. on balance As Navy pleased quite considering companies

providing in Alan by Smith our on will more our complete QX. presentation operations depth

General you the He's XX Alan? Batavia various with For he's not have sales in and Manager Alan, who of years those roles. our approximately of met Graham business. engineering been

Alan Smith

Jeff. Thanks

could you Slide turn please If to XX.

year. same Second last quarter period revenue was comparable to the

However, projects year. in there variation. or execution end which quarter American industry down a any signal last number retrofit end due the Refining market were our was some fundamentals. was does This under of $X.X change sales market North to not were million. This in revamp

year. relative were last to On investments new was chemical in the driven This same by the other considerable retrofit. period hand and domestic sales capacity industry

sales ongoing due the of revenue down divestiture was Steel mix. is XXXX of Energy to longer no whose the are and Power part industry in

overall strength continue our that It routinely a refineries. occurring markets, and have is We is in U.S.-based of XX% to a of revamped of the and revenue. high the domestic chemical investments revenue. revenue, the to the due domestic concentration high Navy concentration end are Such

the the XXX%. order Please principally XX. The attention refining approximately low Slide and end From XX-month markets of turn are from level strength crude improvement and markets. watermark chemical about are up your ago, here to the years orders trailing oil that is the two levels highlight in Graham's commercial

be half. ratio expecting for nice one second book-to-bill for the We a a are expected the from not to bids stable U.S. the the There's strong oil order Navy refining our Chemicals refining market. crude but our are oil end as for strong pattern greater is of FY XXXX implying than pipeline Navy to anticipated and that U.S. orders markets. as international be in

XX. to I'm now referring Slide

$XX million million to million for the ongoing is have a that Navy roughly high backlog a the excluding Energy September backlog customers. business. Steel, represents backlog our reported backlog important $XX terrific It profitability and of and for know September We XXth high-quality the our XXth strengthen. on record continues approximately The refining with was crude at $XXX.X for oil to also

U.S. and XX% Our our the to effective have level within diversification XX% for next two XX% convert been operation, baseload years to XX strong backlog Navy convert for and within and our multiyear months to of the efforts provide of is a beyond. XX% anticipated

for the Daryl questions? Thank can you open line please you.

Operator

this session. [Operator from question. a At conducting with comes Litchfield Theodore the Instructions] Research. question-and-answer first be we proceed line Hills will from time of your Please Our O'Neill question

Theodore O'Neill

Thank you. Congratulations on a good quarter.

Jim Lines

Theo. Thanks,

Jeff Glajch

Thank you, Theo.

Theodore O'Neill

change building this? serve not us? a cyclical anymore. you of of and I it, new as here there this seven construction Slide parts? revenue some that And does equipment to years profit and to relative showing you're much that of there's about facilities has the they're not just years. is question ought imply previous new would at where But component a the to this retrofitting have there's cyclical? buying kind understand all last the X, -- building that equipment be just in that better. profit commercial Is is seven the aspect And in -- of I Where profit They're grown

Jim Lines

a it installed that in this installed resources because driven thought that's and first. that No our would off towards long-term to was thesis What downturn the the doesn't expansion investment the we first come initially customer-facing had be our what as began played actually mind of in our would had out and revenue coming we come base identified more of base. or signal that would where expected shift change. We we out

we before it's starts come new global where timing we be our bid invested. to downturn see look our a beginning perspective gets fill out focused As how more base with we work. a at global of and bid capacity our capacity however, more first a It's pipeline from Theo new installed typically are of pipeline on to

we the new to capacity. more last and won look as some orders filled beginning new with for global we it's global Now have or at expand in bid our so But year capacity. be refining pipeline

Theodore O'Neill

very much. Thanks Okay.

Operator

of question. of Sullivan Maxim comes your next the Our from Please line question Tate Group. proceed with

Tate Sullivan

Hi. follow-ups Navy your Thank defense of in and work work about aerospace couple you. A and on conversation general.

quick-turn give refer First what to to you what Navy mentioned that you context order? did you Can when -- a you do more please?

Jim Lines

order. Yes, that's an

to of out back naval can track fiscal if significant. or can you work that had a rather If order one track that XXXX, XXXX we and in back -- that fiscal type you or two acknowledged there quarters in quick-turn be comes be some

a We order I of versus XXXX. of to material maybe those step where a XXXX, It's those that fiscal of expecting to fabrication. type ask one are similar we more fiscal years both had be in might occur and the type But or you year to there would a order affect are again. in happen we anticipating XXXX, back

Tate Sullivan

imply next million and Okay. target? you Does the $XX equipment of XX years. aircraft I programs? to pardon it, defense is as And just misphrase and the programs? mentioned million that I beyond two annual to And aerospace $XX to then all if and annually submarine moving revenue still with but your the you for -- aircraft in sub Or referred work that XX -- and

Jim Lines

and That's what that the its backlog we're question. submarines. is those mix win our we anticipate to schedule, two with where great but conversion as our said that No to for a I to Plus for additional reflects Tate that hope carriers we win is carriers providing really components and that's plus and comment component current vessels programs. current submarine

aerospace into branching not all. it's at So

Tate Sullivan

Okay.

Navy your about break Okay. can commercial is into defense have there's to can you $XX you target Or other annual to it how and a think trailing another million? relative I back out that there's but give on number? I And revenue -- then industrial million you it I million for mean work. it's and that $XX for $XX work line

Jim Lines

a In That's group markets and segment most meaningful year. the the is oils, right be that other other we now between sales other far Navy. XX% into that. elements but what pharma, by given we -- in in edible range. could that XX% -- been It's been could of go in about the haven't end definite be other been And

Tate Sullivan

mean, Okay. I you're aircraft that there orders Thank do will program companies allocation Or that you. the procurement the you And submarine procurement the sound more does backlog? potentially? -- into the have based until and have then them orders to are cycle? waiting subject that Navy -- you how work and future visibility put and you there you and about for just optimistic how other on it talking are but on

Jim Lines

Well visibility we already have the we've that bids made. into

of We counterparty settle when the and on negotiate. It they be a to predict have can with when order. would dialogue begin release actually to difficult purchase the supplier they

have we That's based having U.S. opportunities months very close mature. the six book a are the the next already should a dialogue However, good the Navy. we're bids that on view for of in

Tate Sullivan

last one me. for And Okay.

I sorry from unchanged, the please? to did in in And million that some talk timing missed I keeping half in about prior of the if that dropping year, increase quarter $X.X earlier miss $X.X quarter it in why guidance you expense? did SG&A -- And million the and prior second should the

Jeff Glajch

this is A of Tate Sure. couple Jeff. things

quarter. do off, numbers steel have energy First the in the first we in

pushed also pushed timing in quarter second So got that the the half piece some some second year. of of things drop a that get the There to occur of off. the was will that's -- not did

-- increases. driving a part of be the there'll of little so bit that's And a what's

to occasion And happens a sometimes happen the first the the in quarter tends lightness it very quarter I what occur in to year We happen normal happened a it that would just second second the quarter. on this -- in happened -- call had to quarter of relative light to more quarter.

Tate Sullivan

Okay, you to thank detail. for Happy address… your last

Operator

comes question the of question. from next your Brian Please of Sidoti. with Our line proceed Lau

Brian Lau

quarter. a everybody. Joe on morning morning on Brian solid for good congrats Hey, this

Jim Lines

Thanks, Brian.

Jeff Glajch

you, Brian. Thank

Brian Lau

first Just this When in how real the half? if back some in quick more. for gross by you in not the gross kind the it I guidance are wanted be you little touch compare could anticipate shipments? the compared did a the result maybe bit on the orders And recent you more margin raised to quarter? on of some margin reaffirming of of margin implying the also backlog there some kind maybe that the then And gross surprise recent does quarter, to

Jim Lines

So a couple questions of there.

The we anticipate guidance the relative to first did that quarter one margin we gave. the is this

pretty This quarter have was line what much with in been. our expectations

that we gave inherent full the year. So guidance in was the for

your backlog, margin I margin see to continuing this what's We mix into talked out. quarter unfavorable was coming believe versus and an around in Secondly what's it. question the improvement we're bit an backlog and a into backlog -- going is the what's in backlog. What's going of about having in

So comment And that backlog. Alan I the clearly was backlog. part what's of than recently of quality quality margin the our come or high out think of mentioned, improving a profile better

Brian Lau

last does still orders you. Or kind as And kind cadence -- is that as for that really spoke? Thank forward? changed it going in like that everything is time bidding great. activity, far on sound Okay, the about sounds million right? anything since we Has $XX of of then track just

Jim Lines

have customer some we we that pushed projects. than do typical out thought Nothing just changed quarter. are the last booked a rather Brian one We two has of large really have delay. or could It's other now orders

because these million might million. how $X of quarter-to-quarter pipeline size terms So look projects between in in and some order chunky of our $XX of be some could of the the it flow

overall quarter. commentary view However, is last our unchanged from

Brian Lau

with then All just guys the come you right. Have all on It in of environment? least are at last, but there. kind M&A just the down honing general some And kind pipeline. targets not like sounds of on multiples

Jim Lines

side, and space our -- multiples really the defense aftermarket Unfortunately the the market way are we're pretty of as we'll But but commercial they know well through in no as you come -- not on some that the manage looking And really. still Not have frothy. in in down. the that. the

Brian Lau

Okay, well. job on quarter. Appreciate good it. And again,

Jim Lines

you, Brian. Thank

Operator

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

Bill Baldwin

initiatives you us of are expanding And morning. was your good Thank new regarding you've fabricators. color using some global to third-party secure you to to, fabricators? due-diligence offer you Can you and there fabricating more as fabricators? do undertaken insight and do you I vet can you those supply looking see fabricators. the Jim if what existing with what To... guess I entails? a chain offer so, Are that relationships how new adding Or the

Jim Lines

a and international And we intend A will we group question. do partners furthermore to fabrication have We great fabrication add Sorry. leverage. of to more historic continue that partners. expand

that do Graham fabrication have a around we select that order once very detach financial process quality, deliberate due-diligence organization, once we'll mean and we move to AVL, them into that ourselves to similar capabilities, on doesn't customer-centric an We business. sensibilities put and vendor our a we

control, manufacturing badge it being ensure function fairly businesses are quality to adherence surveilling we're that contractual our in Graham form those and fit what's Our proud regularly quality, delivered. of the and has and specialists

strategy we suited snipe and were that. more work at about deliberate opportunistic very very perspective, If when from the in I thought it historical this we're we a would us. So measured and

change thought by it we chain. market is cost more supply aggressively market, global how of Now certain reshape for using type last segments aggressively our share, we in drive fabrication want our the to of months the XX to down XX position that work about the basis our

for return day is of really expectation, take end to driving pricing market more different an share while And ourselves. within global the acceptable a

differently. thinking take beat our let's change position, share, is, let's the the base. lynchpin about more we're let's So Ultimately, it installed

$XX prepared Bill totaled a million. last said I that contracts half as XX we've in far months the so dozen had remarks, And million north $XX -- in something the of

with we're contracts with those are contracts partners. some We executing and of new old with partners some those executing of

Bill Baldwin

and Or it the is primarily Are markets? you refining for primarily fabricators refining? global these petrochemical using

Jim Lines

view want It's a declarative from player of point dominant in both, own and be the actually to refining. we

we Our lose to refining want attitude never is budget.

So make we position, sure I shift but to we dominant want want market share in that higher maintain to our also chemicals.

those moment are I refining projects the a projects just prepared of that four said two ago industry and six of I those projects. chemical in of are So as remarks, cited those

Bill Baldwin

there has Okay, very of of own on-site do tolerances to got could such sure in -- your good. work do just to that New some quality have people kind the terms And these -- do It's of you you've make clients have you the that York? extreme been your onboard to sometimes there there have and to mean your the in I go of products. work fabricators some meet have people of you do -- quality the go have of to

Jim Lines

Graham, Well that. let start no me it one like builds with

We are capable exceptionally fabricator. an

can optimizing and We're push good quality looking not fabricators a right we at fit However, our capabilities the outstanding for for us. balance expertise not price. for an certain fabrication looking fabricator into price. We're is between acceptable every

they're our risk, quality here going of you're They not or won't brand -- requirements. the we're So us. sort and won't tertiary what our secondary chain. They won't supply match citing fabrication fit they as to a

acceptable. to So quality strong, tolerances into if and capabilities and will criteria, customers going their is the you to of upper ability we their or are the tier our criterion of fabricators are where top-tier our fabricate the

balance. this striking we're So

lowest quality us. is delivering consistent and acceptable the -- brand quality putting we're first with execution something and priority we're chasing our for not execution at So cost an

So hopefully the that question. answers

Bill Baldwin

your there consider to access have you a mean insight. It's IP like to you're this Jim? any Yes. of issues giving good I to that are involved working protect proprietary? be you you here Are that with them when certain practices fabricators

Jim Lines

us No came this. the certainly methodologies that. first do we the execute thing to as team thing differentiates a to have of the the do critical strategy first that such we mind. management and mind embark to That's any of, how and time on that unique that moat comes IP is you and this That's the

that, What not into is differentiators vision we're We fabricators do fabricators' criterion that we secret is, available we a that will and this reserve that's with of clear critical into a the moat more Graham. don't key we competitor. less IP we that, put that parting A the wheelhouse. we commercially technology not hold create the and

Bill Baldwin

to to. sufficient here Exactly, number last want talk that's exactly. lastly I Yes are to you finding the there where want need there. folks of that where mean out pretty to criteria have are located those And do a meet them? much thing and you'll these people you you you be

Jim Lines

a sorry we've has country our a in added this an for we've type audit In AVL -- gone did process in massive fabricator and large and that It's just that -- to pretty we've chain is vendors a an of supply AVL. base of acronym five approved list.

X associate found with X and want we into work X, shops. We access. So fabricators of to X, they've brand our because got brand the our those envision audit standards passed market X, mustard putting and they gives that

expanded Our brand gives opportunity.

that market we're does, they because don't So to and provide. they scalability access us global work have execution with we don't receptiveness a finding really keen have and that the the Graham

So together sides to independent of both out it's how great each other. neither that figure partnership do something where do a can

Bill Baldwin

it's Right. door I I'll would be to Well Yes going installed to they'd with this happens knocking you what in to think reputation. exciting execute you it's there be your globally. your tell your share see you on the as got market base out

Jim Lines

it. Yes very by excited we're

Bill Baldwin

Thank you

Jim Lines

Thank you, Bill.

Operator

Heffernan of of question & line Gerry comes next Co. from Walthausen Our the

Gerry Heffernan

time taking for thank and you to here. call everybody morning my take Good the

Jim Lines

Gerry. Hi,

Gerry Heffernan

Jim, made now you of picture. in the of my been in In in it's M&A I out that was it's spud by real part question interested been though couple talking M&A. mind. here regards very the of to been discussed set years last many questions the for big caller a always never and did a statement we've

your there's So me my a sounds it competency? core your past. Graham's thinking is question that When perhaps the is think what as is of had core little news you interesting though in Graham, bit competency? And of more in it what than area efforts

that new add And you for in to are competency? you core competency? someone has regards to looking looking Or that are a M&A, same

Jim Lines

or Good that our are differentiators critical question. There value. we we we possess, five customers that or core believe competencies possess

is our integrates in design operating which design able facility they're our we customer-facing and how serve their partner to First and achieve foremost, the our in into their process customers how and platform, equipment conceptual as applicate for and results. the of a

need a And platform They customer to transfer, provide sharing designs. of of optimization knowledge we us. immense their information and built facing amount

their plants, run they'll their So when they meet objectives. operating

that front. So differentiate we think on we

market of the have before, that complex process. when organization, piece because engineering order, this able highly the that a equipment the all segment differentiator get after -- an how serve, very an work. have we've call which large integrates project knowhow a A second chosen Secondly, is order we of are and the critical process of is into complex this on to heard for we the before, probably designs this have heard to frozen you we're of rarely

the actually highly We process go through design the iterative. customer to finalize and it's a with

problem to that churn, of nature need and an executing work adaptive model to ops there's that they every these we problem, orders have for and make something for a and arises that. office flexible iteration in a don't we customer's vision So the design that's adeptness the have have we this an design have us portion and always

a that's differentiator. So second

bit Baldwin doing partners think had of these of capabilities large third and their complex questioned is as what differentiator very intolerances Bill that. exact the to weldments fabrication about The like custom fabrication our a we

our and massive the can and house fabricate complex artisans persons craft metal amounts incredible watch done to and have has over things period time. when capability Graham design these as fabrication of movement as We something's too material And big that be a unique in here frozen. has tolerances welding to even that a metal a not and long with at that's company and of developed might

whip feel model So to we go keep ops fluidly for high volume low mix can what Alan demands low-mix have there's we've key there's we that's and and well particular and -- we then an that when volume when a ample versus ops on have flowing change, production our stop that's goes on his That's have production resource a to to order have on us perfected. market and of team orders other stop jobs move differentiator where uniqueness floor a design high model. operations a model

about about fact care installed reliability. care A base, operational we is the we fourth differentiator that our

that We’re not using sale will equipment. We're life initial on the just our they're sure competition, where for I'm initial make not facility partner. focused We of being our they're disrespectful sale. operate partner. a an the life the the of Most facilities

that We've on post-award a built customer of not unlock the our the there's services transfer, latent strong of the solely. operational We're focused value organization provides on life out with and knowledge a sales organization. on initial pull the that technical relationship, capability reliability, helps

gave XX it's to doubled in aftermarket field that it we identity We've an providing team XX probably ago. about organization size added since We XX, – service. years the started

So that's initial competition of concentrating the a for our key that's on most that's differentiator sale, four.

invest The is ourselves. in we fifth one will

roofline last the business -- into this then our tools, drive our agents brought $XX and in we've into with XX invested years, to to our tools also our here and productivity into business. approaching do capabilities capital productivity We more we've of and aggressively and the million being workforce, in will capital change high-caliber improvements, facility expand then deploy our to put IT

really long-term differently customers all our And now think with the four versus these an -- of think differentiators value when and about the we creation that's ability to where two think because chore. orders ability has that's the us. to I that and them, of working us, managing fit, not these we're and to and complex casual statement a that's So need from have think execute about no they in function of middle And fabrication part, differentiators. income value why looking three an criterion that's what near-term shops other fabricate those someone how about then the we they the weldments we partner, that the our for form

So what that's for. looking we're

as I'll over M&A, to respect want in be to about And Jeff. But turn as M&A M&A. to thinking to it with moment just it we're clear pertains a I

that not On there just markets. we're something a thinking necessarily type ago, strategy of in of operations strategy with buying an international about the moment M&A talking we're

bricks which I well and can and and supply the a favor reluctant we to chain markets, nature long-term cyclical it the on to anything issues. demand in because international long-term as much focus buying cost these markets, resources in fabrication a -- Jeff in end creates that solves or or of is address very mortar M&A and don't think the the short-term because a I basis I'm of way, in needs global flexible with capacity first first

for over the focus M&A And discussion I'll at. Jeff more that turn a and it of to broad we're looking criteria our

Jeff Glajch

candidates. at Thanks potential we're Yes looking acquisition Jim. as Gerry

One of is of we're buy type We're looking on the per actually business as focused Jim model. to fits trying a for things buy not trying we're -- mentioned, operating that our to capacity se. we're

has people team That's that remain to we're the And have a the -- believe we're for for that quality buying well. not buying and And that's very wants but focus -- customer the to has buying good the key that with in our organization. management we that's business a business, critical us. So as customers. we us a and we're

markets We a how grow that parts has core we're our in to lot market. of who looking than Jim our energy the cyclical want attributes are of this Graham, about perhaps conveyed we business we same but someone believe less do that

ties Navy not certainly a do Navy. And they what it and and the looking we large many if it product earlier into companies we're aerospace exists. have component also -- an have So in Navy with maybe about aerospace the wise the big as us that is at talked because space we interesting of threw to that that but component

believe been large We're of volatile, percent. short-cycle the the The more to we much aftermarket XX%. our to refining also our -- our aftermarket business in markets, while or has volatility capital perhaps XX% XX%, our like looking be -- plus volatility tends vary XX the opportunities petrochemical because by and at in investment less can commercial experience of customers the and

business a cycle a down it's So in that's more sustainable.

management So acquisition. I companies I well-run Graham But let business for key remain clarify wants to have the that's to the a same that really we of in that know. please want can hope our a team focus on post find me that's are it have that attributes is the that helpful. further lot side. us If and as acquisition

Gerry Heffernan

international you that away, Alan very working have. that Jim. all your through strikes just you to that helpful, items you other much going the me the previous both for to is starting very metallurgy. the about competency question Baldwin and people-oriented to Jim go artistry custom Are of utilize with concerned there the when that of was just fabrication you're picked that you if the are those one That giving it Mr. of of as anything service five core aspect competencies and and players out that four be opposed

Jim Lines

correct. That's

there in critical While elements we moated of success our risk we've the is most doing factors. this, think

Gerry Heffernan

much. you, Thank Great. very

Operator

final line Our of Sullivan proceed question. from with question of comes the your Maxim Please Group. Tate

Tate Sullivan

for you. Thanks Thank taking quick follow-up.

in numbers when the usually think most equipment mentioned wise Is modifications the announced in the aftermarket? other or what orders And you orders quarter? before I Can -- besides then recent September, of design million. $XX.X was Just for -- on or refining you are What maintenance the are most in orders. of other orders in large orders. quarter you that the it earlier

Jim Lines

chemical in industry that one, course, some usual parts new two, and product orders in. four of small typically short-cycle came that equipment then three or come sales And of had spare our months. basket in out We work,

change industry So, short-cycle And then, much There million business where of order project announce the end mix then several million chemical dollars did that a But we had -- the that. represented of more so about million wasn't our the of announcement $XX it. large of sales. rest. of we the works And dollars of orders. few remainder market

Jeff Glajch

a or just kind to it one as of our that were to couple -- just was and came the announcement order. is to as the third-quarter this. it clarify it put $XX mentioned, might a call October a in like the that on larger announced and early quarterly of and it fairly late, million they had or we in it whether second-quarter in orders that we that quarter September. makes announcement it confuse believe off we the an sense in If in order has if about We talk so also come practice announced the early on hold we if Jim couple Tate, was like just any a those late

Tate Sullivan

Okay. Thank you.

Operator

any session. will question-and-answer now We have the for back reached closing over call turn the management our remarks. end I of to

Jim Lines

a questions your interest look you, updating about and appreciate financial you. three engagement questions strategies Daryl, of your in and and forward Well, everyone us. performance you thank Thank your our you and thought with the the this time you to We our executing in for of progress thank and January. the for we our on morning day. great Have which

Graham (GHM) 1 Nov 192020 Q2 Earnings call transcript