Graham Corporation · NYSE:GHM
Graham — Gabelli 31st Annual Pump, Valve & Water Symposium (February 2021)
32 slides from Graham's conference presentation, Feb 25, 2021
Slide 1: Gabelli 31st Annual Pump, Valve & Water Symposium
NYSE: GHM • February 25, 2021 Gabelli 31st Annual Pump, Valve & Water Symposium James R. Lines President & Chief Executive Officer Jeffrey F. Glajch Vice President & Chief Financial Officer 1 © 2021 Graham Corp.
Slide 2: Safe Harbor Statement
Safe Harbor Statement This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks, uncertainties and assumptions
Slide 3: Graham Corporation
Graham Corporation Manufacturer of critical equipment for defense, energy and process industries What we provide: Custom-fabricated, engineered-to-order products and solutions Combination of direct sales offices and manufacturers reps How we go to - Batavia, US Gulf Coast, India and China direct off
Slide 4: Mission-Critical Process Equipment Drives Sales
Mission-Critical Process Equipment Drives Sales Customers Require Quality, Complex, Engineered-to-Order Equipment Improving Sales High Cost of Failure (in millions) $94.9 $95.0 $91.8 $90.6 Low Fault Tolerance Performance Specifications $77.5 Difficult or Impossible to Replace Low Relative Cost FY18
Slide 5: Key Markets and Geographies
Key Markets and Geographies Q3 FY21 TTM Sales Q3 FY21 TTM Orders Long-term Strategic Goals $94.9 million $120.5 million Increase Predictable Revenue Streams • Execute Defense backlog; increase share of wallet U U Defense Refining • Focus on core installed base n n 24% 24% Refining • Acquire new prod
Slide 6: Strategic Lever: Large Installed Base
Strategic Lever: Large Installed Base End markets investing in existing facilities before new capacity Commercial Revenue* by Type Key Drivers • Executing strategy to leverage installed base $414.2 $444.8 19% • Implemented Performance Improvement engineering team 28% 30% 9% 51% • IT tools proactivel
Slide 7: Backlog Supports Revenue Expectations
Backlog Supports Revenue Expectations Defense becoming larger contributor to revenue Backlog by Industry Backlog December 31, 2020 ($ in millions) $149.7 U Refining $132.1 $127.8 n $122.9 20% $117.2 $112.4 $107.2 $114.9 Other Industrial i 3% $124.1 t e Defense Chemical/ 70% Petrochemical d 7% S t a
Slide 8: Exceptional Cash Generation
Exceptional Cash Generation ($ in millions) Capital Allocation Share Repurchases 3/31/2016 to 12/31/2020 $0.40 $30.8 CAPEX ($0.7) $69.3 $8.40 $65.1 ($18.8) ($8.4) Dividends $18.40 FY 2016 Cash Cash Flow from Return to Capital Financing/Other Q3 FY 2021 and Investments Operations Shareholders Expendi
Slide 9: Strong Balance Sheet
Strong Balance Sheet ($ in millions) Cash, Cash Equivalents Operating Cash Flow and Investments $77.8 $6.94 $7.9 cash/share $6.0 $73.0 $69.3 $1.2 3/31/19 3/31/20 12/31/20 FY19 FY20 Q3 FY21 TTM Capital Expenditures Working Capital Utilization(2) $2.4 $2.0 - $2.5(1) $2.1 9.9% 4.9% 2.3% FY19 FY20 FY21E
Slide 10: Graham Investment Highlights
Graham Investment Highlights Leading market position and worldwide brand recognition Global installed base provides > 30% of annual revenue Investing to capture more predictable, less volatile revenue streams Acquisition opportunities to moderate historical cyclicality Strong and flexible balance sh
Slide 11: Gabelli 31st Annual Pump, Valve & Water Symposium
NYSE: GHM • February 25, 2021 Gabelli 31st Annual Pump, Valve & Water Symposium 11 © 2021 Graham Corp.
Slide 12: Additional Information
Additional Information 12 © 2021 Graham Corp.
Slide 13: Mission-Critical Process Equipment
Mission-Critical Process Equipment Customers require quality, complex, engineered-to-order equipment High Cost of Failure Low Fault Tolerance Performance Specifications Difficult or Impossible to Replace Low Relative Cost 13 © 2021 Graham Corp.
Slide 14: Margin Improvement Initiatives
Margin Improvement Initiatives Initiative Actions Vendor Management • Negotiate to lower costs COVID creates procurement opportunities Hire and train skilled workers to • Implement on site Graham Weld School drive production volume • On-site weld lab and test facility • Improve on-boarding of skille
Slide 15: Graham Customer Support Key Differentiators
Graham Customer Support Key Differentiators Provide unique value before and throughout project life cycle • Detailed engineering and equipment scope analysis Consultative • Identify methods to achieve user’s operating objectives Selling Platform • Deliver in-depth solutions quickly and accurately •
Slide 16: Strategic Lever: Penetrating Defense Industry
Strategic Lever: Penetrating Defense Industry Reshaping revenue to diminish cyclicality Less cyclical, predictable, multi-year baseload of revenue Three programs: • CVN Carrier • SSN Virginia class submarine • SSBN Columbia class submarine Strategy: • Expand product set • Transform to sole source su
Slide 17: Naval Nuclear Propulsion Program
Naval Nuclear Propulsion Program Become lead supplier of surface condensers and ejectors for U.S. Navy Aircraft carrier program: ~$35 million to ~$40 million per carrier Chemical/ Submarine program Petrochem 27% • ~$15 million to ~$20 million per Virginia Class; 45 subs, building one to two subs per
Slide 18: Focused on Long-term
Focused on Long-term Goals Objectives Progress 1. Execute on defense backlog; Gain greater share Backlog has grown, increase in sole-source Increase status of wallet predictable 2. Focus on core installed base Data analytics complete; revenue IT tools and processes in progress streams 3. Acquisitive
Slide 19: Variable Quarterly Order Activity
Variable Quarterly Order Activity Quarterly Orders $61.8 (in millions) $43.5 $34.4 $2.7 $35.0 $32.6 $52.3 $20.3 $2.7 $1.4 $1.4 $12.6 $22.0 $23.2 $21.6 $20.1 $0.4 $3.8 $15.1 $31.7 $31.2 $7.1 $12.3 $11.5 $23.2 $21.5 $21.5 $22.4 $19.4 $15.1 $12.9 $12.3 $11.5 $9.5 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Fis
Slide 20: Market Outlook: Cautiously Optimistic
Market Outlook: Cautiously Optimistic Refining US Navy • Active pipeline in Asia • Healthy pipeline of bids Secured ~$20m YTD; Pipeline needs to rebuild • Active in all three programs • North America weak CVN Carrier A few active projects and less short cycle work SSN Virginia Class Subs Customers f
Slide 21: Graham Capital Allocation Priorities
Graham Capital Allocation Priorities Maintain a strong, prudently managed balance sheet Cash from Cash from Operations Balance Sheet Organic Growth Acquisition Strategy Seek opportunistic acquisitions Dividend Payments with cash return that exceeds equity cost of capital Invest in current operations
Slide 22: Acquisition Strategy
Acquisition Strategy Improve revenue and earnings; reduce volatility Existing end markets or adjacencies; Navy & aftermarket Strong management team with customer and quality focus $20 million – $60 million in annual revenue Cash return exceeds equity cost of capital Strong pricing discipline 22 © 20
Slide 23: Acquisition Priorities
Acquisition Priorities Extend our core competencies; reduce volatility Broaden participation in other programs Defense Additional products Additional products Aftermarket Expand share Energy/Chemical Additional products Capital Equipment Cost advantage 23 © 2021 Graham Corp.
Slide 24: Shareholder Focus
Shareholder Focus Annualized Dividends Per Share * Reflects date of dividend increase $0.40 $0.44 $0.44 Paid $3.3 million of dividends $0.36 $0.32 in YTD FY 2021 $0.16 $0.08 $0.12 Sustainable dividends reflect stability of operating cash flows across business cycle Institutional Ownership Sell-side
Slide 25: FY21 Guidance
FY21 Guidance(1) Excludes divested Energy Steel business Revenue: $93 million to $97 million • Implies $21.2 to $25.2 of revenue in Q4 Gross Margin: 21% to 22% SG&A: $17.3 million to $17.8 million Effective tax rate: 22% to 24% The revenue guidance and expectations for gross margin, SG&A expense and
Slide 26: Supplemental Information
NYSE: GHM • February 25, 2021 Supplemental Information 26 © 2021 Graham Corp.
Slide 27: Sales of Divested Business
Sales of Divested Business ($ in thousands) FY 2017 FY 2018 FY 2019 FY 2020 Consolidated sales as reported $ 91,769 $ 77,534 $ 91,831 $ 90,604 Commercial nuclear utility sales $ 13,921 $ 9,476 $ 8,336 $ 1,276 included above 27 © 2021 Graham Corp.
Slide 28: Executive Compensation
Executive Compensation Shareholder alignment Base Salary • Reviewed annually by our compensation committee and determined based on company performance, individual performance, job responsibilities, and internal pay equity • Provides compensation that is not “at-risk” to compensate executive officers
Slide 29: North American Competition
North American Competition Market Competitors Croll Reynolds Company, Inc.; Gardner Refining vacuum distillation Denver, Inc.; GEA Wiegand GmbH Croll Reynolds Company, Inc.; Gardner Chemicals/Petrochemicals Denver, Inc.; Schutte Koerting Turbomachinery OEM – refining, Donghwa Entec Co., Ltd..; KEMCO
Slide 30: International Competition
International Competition Market Competitors Edwards, Ltd.; Gardner Denver, Inc.; GEA Refining vacuum distillation Wiegand GmbH; Korting Hannover AG Croll Reynolds Company, Inc.; Edwards, Ltd.; Gardner Denver, Inc.; GEA Wiegand Chemicals/Petrochemicals GmbH; Korting Hannover AG; Schutte Koerting Che
Slide 31: Products: Surface Condenser
Products: Surface Condenser Supports a steam turbine and enables the conversion of maximum energy in high pressure steam into power. 31 © 2021 Graham Corp.
Slide 32: Vital Processing Components
Vital Processing Components A condenser supports An ejector system lowers the a steam turbine and pressure in the distillation column to enables the conversion allow crude oil to boil at a lower of maximum energy in temperature. This allows for more high pressure steam into efficient and cost-effect
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