Graham Corporation ( GHM) F2Q 2012 Earnings Conference Call October 28, 2011 11:00 ET Executives Deborah Pawlowski – Investor Relations Jim Lines – President and Chief Executive Officer Jeff Glajch – Chief Financial Officer Analysts Chris McCampbell – Stifel Nicolaus Joe Mondillo – Sidoti & Company Gabe Birdsall – Brasada Capital Management George Walsh – Gilford Securities Presentation Operator
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So with that, let me turn it over to Jim to begin the discussion. Jim?Jim Lines – President and Chief Executive Officer Thank you, Debbie. Good morning, everyone. We appreciate your joining us for our second quarter earnings conference call. We had a very solid quarter. I wish to comment that the management teams and employees at our Batavia, New York; Houston, Texas; Lapeer, Michigan; and Suzhou, China locations. The teams executed extremely well at closed collaboration for a couple of major projects and together delivered tremendous value for our customers and terrific financial results for the business. I cannot say enough about the fine work our employees do each day to ensure we remain a supplier of choice to our customers to develop deep and lasting relations with our customers by helping to solve their challenges and by adding value during every interaction with us, and to make our businesses better by improving quality, becoming more productive, and by developing ways to improve processes. Please turn to page four in the deck. By expanding our addressable markets during the downturn, we were able to have significant revenue growth in the quarter. Revenues were $33.6 million with power including sales by Energy Steel being about 30% of total revenue. The refining market was strong at 36% of sales. Our other commercial and industrial markets which include our work for the U.S. Navy, was about 20% of sales. Chem and Petrochem markets were about 12% of sales. There was exceptional comparable period growth of 68% along with 25% sequential growth. Short cycle organic sales continued to be strong, up 30% year-on-year and up 20% sequentially. Energy Steel provided $7.2 million of revenue in the quarter. The team in Energy Steel executed extremely well on an order in excess of $2 million, one at the very end of the first quarter that was mostly completed during the second quarter. Actual shipment for that order was completed mid October. This order lifted Energy Steel revenue above $7 million. Sales were fairly evenly split between domestic and international markets with domestic sales at 53%.
Please turn to page five. Terrific financial results in the quarter were achieved with net income at $5.5 million or 16% return on sales. Gross margin was 38% with EBITDA margin at 26% in the quarter. These results reflect solid execution by our teams and leverage from tight production utilization in Lapeer and Batavia operations. Added volumes through our ongoing outsourcing strategies, we had approximately 25% of the Batavia’s production that was outsourced.The benefit of increased volume from short cycle organic sales at higher margins and timing of backlog conversion related to recognizing revenue and profit, where a couple refining orders that actually were won in the third quarter and fourth quarter of fiscal 2009. Again, we achieved 16% return on sales, up from 10% year-over-year and 12% sequentially. Please turn to page six. I am very pleased by improvement, we continue to see in our markets and by order development and margin improvement on orders we are wining. The organic business increased short cycle sales year-over-year about 20%, with improved margin on those sales. Our larger orders increased substantially year-over-year about 35% comparing the periods of January through September of 2010 to January through September of 2011. And here too, margin is improving comparing the two periods. We also had $5.9 million of orders for the power market including $4.3 million from Energy Steel, $10.9 million of new booking from chemical and petrochemical markets. Just under $3 million came from the refining markets for new orders. Qualitatively, biding activity is improving. Outlook long-term is very positive. Short-term well see order levels vary somewhat, but all-in-all, we are seeing a much healthier market. Read the rest of this transcript for free on seekingalpha.com