Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Graham Corp (GHM, Financial) achieved record quarterly sales of $50 million, marking a 5% increase over the prior year.
- The company's defense market sales reached $29.1 million, a 28% increase, setting a new quarterly record.
- Gross margin expanded by 170 basis points to 24.8%, benefiting from improved execution and pricing on defense contracts.
- Strong cash generation of $8.7 million for the quarter, with a robust balance sheet featuring $21.6 million in cash and no debt.
- The backlog remains strong at nearly $400 million, providing good visibility into future operations and stability.
Negative Points
- Aftermarket sales were down compared to the record levels of the prior year, despite remaining robust overall.
- SG&A expenses increased by $2 million year-over-year, driven by investments in operations, people, and technologies.
- The company faces challenges in updating its contact database for aftermarket sales due to turnover within plants and refineries.
- There are still some lower-margin first article units in the pipeline, which could impact future gross margins.
- The expansion of the Batavia facility experienced a slight delay, moving the groundbreaking from July to August.
Q & A Highlights
Q: Can you provide more details on the competitive bid process for the air turbine pump program and what set Graham apart?
A: (Matthew Malone, Vice President, General Manager - Barber-Nichols) The bid was competitive, and our extensive experience with air turbine pumps for the Virginia-class submarine positioned us well. Our successful delivery of first article units demonstrated our capability, which was a key factor in winning the bid.
Q: How is the project to develop a database of your products' life cycles progressing?
A: (Daniel Thoren, President, Chief Executive Officer, Director) We have a comprehensive database of our equipment installations, but updating contact information has been challenging due to turnover and COVID. We are exploring automated solutions to keep this information current and plan to leverage this database more proactively for aftermarket sales.
Q: What caused the delay in breaking ground for the new facility from July to August?
A: (Daniel Thoren, President, Chief Executive Officer, Director) The delay was typical for such projects. We are still confident in our overall schedule and will be doing a ceremonial groundbreaking soon.
Q: How are your efforts to increase your labor force by 10% in fiscal 2025 progressing?
A: (Christopher Thome, Chief Financial Officer, Chief Accounting Officer, Vice President - Finance, Corporate Secretary) Our HR teams have done an excellent job, and our workforce increased by 23 during the quarter, up 13% year-over-year. We have seen a slight softening in the labor market, making recruitment a bit easier.
Q: Are there any capacity issues at Barber-Nichols due to recent contract wins?
A: (Matthew Malone, Vice President, General Manager - Barber-Nichols) The new programs fit well into our long-term capacity plans. We have investments planned, particularly in cryogenic testing capabilities, to support these programs.
Q: What is the pipeline of opportunities for P3 Technologies since its acquisition?
A: (Matthew Malone, Vice President, General Manager - Barber-Nichols) P3 continues to excel in its existing opportunities and supports R&D efforts at both Barber-Nichols and Graham Corporation. We see strong opportunities, particularly in space programs.
Q: Are there any remaining first article issues affecting gross margins?
A: (Christopher Thome, Chief Financial Officer, Chief Accounting Officer, Vice President - Finance, Corporate Secretary) Most major first article units were shipped last year. While some lower-margin articles remain, they are a smaller percentage of our backlog compared to previous years.
Q: What led to the increase in the size and investment for the new facility from the original proposal?
A: (Daniel Thoren, President, Chief Executive Officer, Director) Initially, we applied for a smaller grant, but after receiving it, we reassessed our needs and decided to build a larger, bespoke facility to better support our Navy program and future growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
