Graham Corporation (GHM)

F4Q 2011 Earnings Call

May 27, 2011 11:00 a.m. ET


Deborah Pawlowski - IR, Kei Advisors LLC

Jim Lines - President and CEO

Jeff Glajch - CFO


Rick Hoss - Roth Capital Partners

Joe Mondillo – Sidoti & Co.

Dick Ryan - Dougherty & Company

Tim San Lucas [Gabe] – Rosetta Capital Markets

George Walsh – Gilford Securities

John Sturges – Oppenheimer



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Greetings and welcome to the Graham Corporation fourth quarter 2011 quarterly results conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

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It is now my pleasure to introduce your host, Ms. Deborah Pawlowski, IR for Graham Corporation. Thank you, Ms. Pawlowski. You may now begin.

Deborah Pawlowski

Thank you, Christine, and good morning everyone. We appreciate your joining us today on Graham's fiscal 2011 fourth quarter conference call.

On the call I have with me today Jim Lines, President and CEO of Graham and Jeff Glajch, Chief Financial Officer. Jim and Jeff will be reviewing the results for the quarter, and also provide a review of the company's strategy and outlook. On our website at, you will find both the press release as well as supplemental slides that are posted there. Jim and Jeff will be referring to the slides during the following part of their discussion.

As you are aware, we may make some forward-looking statements during this discussion as well as during the Q&A. These statements apply to future events and are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what was stated here today. These risks and uncertainties and other factors are provided in the earnings release as well as other documents filed by the company with the Securities and Exchange Commission. These documents can be found at the company's website or at

So with that, let me turn it over to Jim to begin the discussion.

Jim Lines

Thank you, Debbie. Please turn to Slide 4.

We feel the company performed very well during the quarter, and we also had the full benefit of Energy Steel in the quarter. I was very pleased with order development in the quarter, orders through the quarter were $26.8 million of which about 20% come from Energy Steel. We did win two Geothermal Power plant Vacuum system orders, both hare for Asia. Continuing with our focus on North American renewable power, we won two biomassed energy projects in the quarter.

Also, we had a very nice level of business, of new orders that we refer to as our short-cycle business. These are orders that typically come in and convert to shipments within one week to three months.

Compared to where we had been through the downturn, which averaged about 4 to $5 million in a quarter, this past quarter, the short-cycle bookings were about $7 million; so that was a nice upturn for us.

Also in the quarter we won new orders for two refining projects. One in North America and one in Asia. Both of these are not for transportation fuels, they are for lubricating oil products.

As you can see also that we had a geographic split of 50% of the bookings were domestic and 50% international.

For sales, we had a very strong quarter, I feel. Sales came in at $25.9 million, Energy Steel contributing just over $5 million. We continued to have sequential sales growth quarter over quarter. Again, because of the short-cycle bookings that we had in the quarter, we also had a lift to our sales from that segment of our business.

We also began production on the Navy contract, which lifted our sales above what our prior guidance was for the quarter.

Margins, we’re very pleased with the profitability in the quarter. Gross margin for the quarter came in at 30.5%, and EBITDA margin at 18.1%.

This is driven off of improvement in our capacity utilization for the Batavia operation. We’re becoming more loaded in our production area. Also the benefit of the short-cycle sales, those tend to have a higher margin than do our major orders.

And also, we’re beginning to work through the backlog that was won at a time that we refer to as the bottom of the cycle, where margins were lower and we’re starting to bleed in some of the higher margin work from our backlog into sales.

Turning to Slide 5, summarizing the full year; we saw progressive improvement in the market conditions throughout the year. Particularly with orders. You might recall the first half bookings – it was a rough first half for us, came in at $18.6 million. Second half was much better organically compared to the 18.6 million; organic bookings were 38.5 million plus an additional 6.1 million from Energy Steel. So that was a nice improvement between the first half and the second half of the year.

We also saw, compared to full year last year, organic bookings increased 10% year over year. We’re also adding because of our view towards improved market conditions, personnel into both Energy Steel and into the Batavia facility to drive growth through ’12 and beyond.

Financial performance for the year, I was very pleased by the way our company executed through the downturn, and as we exited the downturn in the second half of the year, and delivered what I feel is a fine level of performance considering all the factors that we were facing.

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