UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20222023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________
Commission File Number 001-08462
GRAHAM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 16-1194720 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
20 Florence Avenue, Batavia, New York | 14020 |
(Address of principal executive offices) | (Zip Code) |
585-343-2216
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, Par Value $0.10 Per Share | GHM | NYSE |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |
Non-accelerated filer | ☐ | |||
| | Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of November 1, 2022,August 3, 2023, there were outstanding 10,611,06110,702,920 shares of the registrant’s common stock, par value $0.10 per share.
Graham Corporation and Subsidiaries
Index to Form 10-Q
As of SeptemberJune 30, 20222023 and March 31, 20222023 and for the three and six months ended SeptemberJune 30, 20222023 and 20212022
Page | ||
Part I. | ||
Item 1. | 3 | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. |
| |
Item 4. |
| |
Part II. | ||
Item 1A. |
| |
Item 6. |
| |
| ||
2
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
SEPTEMBERJUNE 30, 20222023
PART I – FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
(Unaudited)
|
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
|
| Three Months Ended |
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
|
| June 30, |
| |||||||||
|
| (Amounts in thousands, except per share data) |
| (Amounts in thousands, except per share data) |
|
| 2023 |
|
| 2022 |
| ||||||||||||||
Net sales |
| $ | 38,143 |
|
| $ | 34,146 |
|
| $ | 74,218 |
|
| $ | 54,303 |
|
|
| $ | 47,569 |
|
| $ | 36,075 |
|
Cost of products sold |
|
| 32,863 |
|
|
| 30,703 |
|
|
| 62,194 |
|
|
| 49,946 |
|
|
|
| 36,592 |
|
|
| 29,331 |
|
Gross profit |
|
| 5,280 |
|
|
| 3,443 |
|
|
| 12,024 |
|
|
| 4,357 |
|
|
|
| 10,977 |
|
|
| 6,744 |
|
Other expenses and income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Selling, general and administrative |
|
| 5,059 |
|
|
| 4,973 |
|
|
| 10,544 |
|
|
| 9,805 |
|
|
|
| 7,019 |
|
|
| 5,485 |
|
Selling, general and administrative – amortization |
|
| 273 |
|
|
| 274 |
|
|
| 547 |
|
|
| 365 |
|
|
|
| 274 |
|
|
| 274 |
|
Other operating income, net |
|
| — |
|
|
| (1,102 | ) |
|
| — |
|
|
| (1,102 | ) |
| ||||||||
Operating income (loss) |
|
| (52 | ) |
|
| (702 | ) |
|
| 933 |
|
|
| (4,711 | ) |
| ||||||||
Other income, net |
|
| (62 | ) |
|
| (145 | ) |
|
| (125 | ) |
|
| (305 | ) |
| ||||||||
Interest income |
|
| (24 | ) |
|
| (14 | ) |
|
| (32 | ) |
|
| (31 | ) |
| ||||||||
Interest expense |
|
| 270 |
|
|
| 129 |
|
|
| 435 |
|
|
| 168 |
|
| ||||||||
Income (loss) before provision (benefit) for income taxes |
|
| (236 | ) |
|
| (672 | ) |
|
| 655 |
|
|
| (4,543 | ) |
| ||||||||
Provision (benefit) for income taxes |
|
| (40 | ) |
|
| (180 | ) |
|
| 175 |
|
|
| (925 | ) |
| ||||||||
Net income (loss) |
| $ | (196 | ) |
| $ | (492 | ) |
| $ | 480 |
|
| $ | (3,618 | ) |
| ||||||||
Operating income |
|
| 3,684 |
|
|
| 985 |
| |||||||||||||||||
Other expense (income), net |
|
| 93 |
|
|
| (63 | ) | |||||||||||||||||
Interest expense, net |
|
| 185 |
|
|
| 157 |
| |||||||||||||||||
Income before provision for income taxes |
|
| 3,406 |
|
|
| 891 |
| |||||||||||||||||
Provision for income taxes |
|
| 766 |
|
|
| 215 |
| |||||||||||||||||
Net income |
| $ | 2,640 |
|
| $ | 676 |
| |||||||||||||||||
Per share data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income (loss) |
| $ | (0.02 | ) |
| $ | (0.05 | ) |
| $ | 0.05 |
|
| $ | (0.35 | ) |
| ||||||||
Net income |
| $ | 0.25 |
|
| $ | 0.06 |
| |||||||||||||||||
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income (loss) |
| $ | (0.02 | ) |
| $ | (0.05 | ) |
| $ | 0.05 |
|
| $ | (0.35 | ) |
| ||||||||
Net income |
| $ | 0.25 |
|
| $ | 0.06 |
| |||||||||||||||||
Weighted average common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic |
|
| 10,617 |
|
|
| 10,681 |
|
|
| 10,614 |
|
|
| 10,442 |
|
|
|
| 10,653 |
|
|
| 10,610 |
|
Diluted |
|
| 10,617 |
|
|
| 10,681 |
|
|
| 10,618 |
|
|
| 10,442 |
|
|
|
| 10,719 |
|
|
| 10,630 |
|
Dividends declared per share |
| $ | — |
|
| $ | 0.11 |
|
| $ | — |
|
| $ | 0.22 |
|
|
See Notes to Condensed Consolidated Financial Statements.
3
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollar amounts in thousands)
(Unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| ||||
|
| (Amounts in thousands) |
|
| (Amounts in thousands) |
|
| ||||||||||
Net income (loss) |
| $ | (196 | ) |
| $ | (492 | ) |
| $ | 480 |
|
| $ | (3,618 | ) |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustment |
|
| (337 | ) |
|
| (35 | ) |
|
| (680 | ) |
|
| 93 |
|
|
Defined benefit pension and other postretirement plans net |
|
| 131 |
|
|
| 251 |
|
|
| 262 |
|
|
| 421 |
|
|
Total other comprehensive (loss) income |
|
| (206 | ) |
|
| 216 |
|
|
| (418 | ) |
|
| 514 |
|
|
Total comprehensive income (loss) |
| $ | (402 | ) |
| $ | (276 | ) |
| $ | 62 |
|
| $ | (3,104 | ) |
|
|
| Three Months Ended |
| |||||
|
| June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net income |
| $ | 2,640 |
|
| $ | 676 |
|
Other comprehensive income (loss): |
|
|
|
|
|
| ||
Foreign currency translation adjustment |
|
| (252 | ) |
|
| (343 | ) |
Defined benefit pension and other postretirement plans net |
|
| 164 |
|
|
| 131 |
|
Total other comprehensive loss |
|
| (88 | ) |
|
| (212 | ) |
Total comprehensive income |
| $ | 2,552 |
|
| $ | 464 |
|
See Notes to Condensed Consolidated Financial Statements.
4
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share data)
(Unaudited)
|
| September 30, 2022 |
|
| March 31, 2022 |
|
| ||||||||||
|
| (Amounts in thousands, except per share data) |
|
| June 30, 2023 |
|
| March 31, 2023 |
| ||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 14,122 |
|
| $ | 14,741 |
|
|
| $ | 24,662 |
|
| $ | 18,257 |
|
Trade accounts receivable, net of allowances ($84 and $87 at September 30 and |
|
| 27,109 |
|
|
| 27,645 |
|
| ||||||||
Trade accounts receivable, net of allowances ($1,878 and $1,841 at June 30 and |
|
| 29,544 |
|
|
| 24,000 |
| |||||||||
Unbilled revenue |
|
| 30,670 |
|
|
| 25,570 |
|
|
|
| 34,467 |
|
|
| 39,684 |
|
Inventories |
|
| 19,848 |
|
|
| 17,414 |
|
|
|
| 25,490 |
|
|
| 26,293 |
|
Prepaid expenses and other current assets |
|
| 2,235 |
|
|
| 1,391 |
|
|
|
| 2,675 |
|
|
| 1,534 |
|
Income taxes receivable |
|
| 570 |
|
|
| 459 |
|
|
|
| 509 |
|
|
| 302 |
|
Total current assets |
|
| 94,554 |
|
|
| 87,220 |
|
|
|
| 117,347 |
|
|
| 110,070 |
|
Property, plant and equipment, net |
|
| 24,354 |
|
|
| 24,884 |
|
|
|
| 25,910 |
|
|
| 25,523 |
|
Prepaid pension asset |
|
| 7,384 |
|
|
| 7,058 |
|
|
|
| 6,179 |
|
|
| 6,107 |
|
Operating lease assets |
|
| 7,887 |
|
|
| 8,394 |
|
|
|
| 8,071 |
|
|
| 8,237 |
|
Goodwill |
|
| 23,523 |
|
|
| 23,523 |
|
|
|
| 23,523 |
|
|
| 23,523 |
|
Customer relationships, net |
|
| 11,013 |
|
|
| 11,308 |
|
|
|
| 10,571 |
|
|
| 10,718 |
|
Technology and technical know-how, net |
|
| 9,427 |
|
|
| 9,679 |
|
|
|
| 9,048 |
|
|
| 9,174 |
|
Other intangible assets, net |
|
| 8,300 |
|
|
| 8,990 |
|
|
|
| 7,438 |
|
|
| 7,610 |
|
Deferred income tax asset |
|
| 2,288 |
|
|
| 2,441 |
|
|
|
| 1,792 |
|
|
| 2,798 |
|
Other assets |
|
| 175 |
|
|
| 194 |
|
|
|
| 149 |
|
|
| 158 |
|
Total assets |
| $ | 188,905 |
|
| $ | 183,691 |
|
|
| $ | 210,028 |
|
| $ | 203,918 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Short-term debt obligations |
| $ | 2,500 |
|
| $ | — |
|
| ||||||||
Current portion of long-term debt |
|
| 2,000 |
|
|
| 2,000 |
|
|
| $ | 2,000 |
|
| $ | 2,000 |
|
Current portion of finance lease obligations |
|
| 23 |
|
|
| 23 |
|
|
|
| 26 |
|
|
| 29 |
|
Accounts payable |
|
| 20,149 |
|
|
| 16,662 |
|
|
|
| 15,085 |
|
|
| 20,222 |
|
Accrued compensation |
|
| 9,745 |
|
|
| 7,991 |
|
|
|
| 10,334 |
|
|
| 10,401 |
|
Accrued expenses and other current liabilities |
|
| 4,781 |
|
|
| 6,047 |
|
|
|
| 5,706 |
|
|
| 6,434 |
|
Customer deposits |
|
| 26,079 |
|
|
| 25,644 |
|
|
|
| 56,016 |
|
|
| 46,042 |
|
Operating lease liabilities |
|
| 972 |
|
|
| 1,057 |
|
|
|
| 1,114 |
|
|
| 1,022 |
|
Income taxes payable |
|
| 8 |
|
|
| — |
|
|
|
| 62 |
|
|
| 16 |
|
Total current liabilities |
|
| 66,257 |
|
|
| 59,424 |
|
|
|
| 90,343 |
|
|
| 86,166 |
|
Long-term debt |
|
| 14,625 |
|
|
| 16,378 |
|
|
|
| 9,303 |
|
|
| 9,744 |
|
Finance lease obligations |
|
| — |
|
|
| 11 |
|
|
|
| 77 |
|
|
| 85 |
|
Operating lease liabilities |
|
| 7,103 |
|
|
| 7,460 |
|
|
|
| 7,278 |
|
|
| 7,498 |
|
Deferred income tax liability |
|
| 104 |
|
|
| 62 |
|
|
|
| 1 |
|
|
| 108 |
|
Accrued pension and postretirement benefit liabilities |
|
| 1,663 |
|
|
| 1,666 |
|
|
|
| 1,337 |
|
|
| 1,342 |
|
Other long-term liabilities |
|
| 2,187 |
|
|
| 2,196 |
|
|
|
| 1,968 |
|
|
| 2,042 |
|
Total liabilities |
|
| 91,939 |
|
|
| 87,197 |
|
|
|
| 110,307 |
|
|
| 106,985 |
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
| ||||||||||
Commitments and contingencies (Note 9) |
|
|
|
|
|
| |||||||||||
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Preferred stock, $1.00 par value, 500 shares authorized |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
Common stock, $0.10 par value, 25,500 shares authorized, 10,758 and 10,801 shares |
|
| 1,076 |
|
|
| 1,080 |
|
| ||||||||
Common stock, $0.10 par value, 25,500 shares authorized, 10,818 and 10,774 shares |
|
| 1,082 |
|
|
| 1,075 |
| |||||||||
Capital in excess of par value |
|
| 27,849 |
|
|
| 27,770 |
|
|
|
| 28,641 |
|
|
| 28,061 |
|
Retained earnings |
|
| 77,556 |
|
|
| 77,076 |
|
|
|
| 80,083 |
|
|
| 77,443 |
|
Accumulated other comprehensive loss |
|
| (6,889 | ) |
|
| (6,471 | ) |
|
|
| (7,551 | ) |
|
| (7,463 | ) |
Treasury stock (147 and 164 shares at September 30 and March 31, 2022, respectively) |
|
| (2,626 | ) |
|
| (2,961 | ) |
| ||||||||
Treasury stock (143 and 138 shares at June 30 and March 31, 2023, respectively) |
|
| (2,534 | ) |
|
| (2,183 | ) | |||||||||
Total stockholders’ equity |
|
| 96,966 |
|
|
| 96,494 |
|
|
|
| 99,721 |
|
|
| 96,933 |
|
Total liabilities and stockholders’ equity |
| $ | 188,905 |
|
| $ | 183,691 |
|
|
| $ | 210,028 |
|
| $ | 203,918 |
|
See Notes to Condensed Consolidated Financial Statements.
5
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
|
| Six Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| September 30, |
|
| June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Operating activities: |
| (Dollar amounts in thousands) |
|
|
|
| ||||||||||
Net income (loss) |
| $ | 480 |
|
| $ | (3,618 | ) | ||||||||
Adjustments to reconcile net income (loss) to net cash used by operating |
|
|
|
|
|
| ||||||||||
Net income |
| $ | 2,640 |
|
| $ | 676 |
| ||||||||
Adjustments to reconcile net income to net cash provided (used) by operating |
|
|
|
|
|
| ||||||||||
Depreciation |
|
| 1,724 |
|
|
| 1,399 |
|
|
| 793 |
|
|
| 856 |
|
Amortization |
|
| 1,238 |
|
|
| 1,009 |
| ||||||||
Amortization of intangible assets |
|
| 446 |
|
|
| 619 |
| ||||||||
Amortization of actuarial losses |
|
| 336 |
|
|
| 455 |
|
|
| 211 |
|
|
| 168 |
|
Amortization of debt issuance costs |
|
| 93 |
|
|
| — |
|
|
| 59 |
|
|
| 34 |
|
Equity-based compensation expense |
|
| 312 |
|
|
| 330 |
|
|
| 293 |
|
|
| 114 |
|
Gain on disposal or sale of property, plant and equipment |
|
| — |
|
|
| 13 |
| ||||||||
Change in fair value of contingent consideration |
|
| — |
|
|
| (1,900 | ) | ||||||||
Deferred income taxes |
|
| 174 |
|
|
| 693 |
|
|
| 855 |
|
|
| 225 |
|
(Increase) decrease in operating assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable |
|
| 38 |
|
|
| (2,289 | ) |
|
| (5,769 | ) |
|
| (34 | ) |
Unbilled revenue |
|
| (5,283 | ) |
|
| (1,944 | ) |
|
| 5,171 |
|
|
| (2,580 | ) |
Inventories |
|
| (2,560 | ) |
|
| 3,278 |
|
|
| 780 |
|
|
| (930 | ) |
Prepaid expenses and other current and non-current assets |
|
| (782 | ) |
|
| (1,233 | ) |
|
| (1,065 | ) |
|
| (745 | ) |
Income taxes receivable |
|
| (136 | ) |
|
| (2,894 | ) |
|
| (159 | ) |
|
| (6 | ) |
Operating lease assets |
|
| 901 |
|
|
| 432 |
|
|
| 293 |
|
|
| 467 |
|
Prepaid pension asset |
|
| (325 | ) |
|
| (603 | ) |
|
| (72 | ) |
|
| (163 | ) |
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts payable |
|
| 3,730 |
|
|
| (4,477 | ) |
|
| (4,745 | ) |
|
| 3,016 |
|
Accrued compensation, accrued expenses and other current and non-current |
|
| 553 |
|
|
| 779 |
|
|
| (868 | ) |
|
| (878 | ) |
Customer deposits |
|
| 544 |
|
|
| 1,835 |
|
|
| 10,002 |
|
|
| (504 | ) |
Operating lease liabilities |
|
| (840 | ) |
|
| (387 | ) |
|
| (256 | ) |
|
| (431 | ) |
Long-term portion of accrued compensation, accrued pension liability |
|
| (595 | ) |
|
| 420 |
| ||||||||
Net cash used by operating activities |
|
| (398 | ) |
|
| (8,702 | ) | ||||||||
Long-term portion of accrued compensation, accrued pension and |
|
| (6 | ) |
|
| (593 | ) | ||||||||
Net cash provided (used) by operating activities |
|
| 8,603 |
|
|
| (689 | ) | ||||||||
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Purchase of property, plant and equipment |
|
| (1,176 | ) |
|
| (1,227 | ) |
|
| (1,499 | ) |
|
| (284 | ) |
Redemption of investments at maturity |
|
| — |
|
|
| 5,500 |
| ||||||||
Acquisition of Barber-Nichols, LLC |
|
| — |
|
|
| (59,563 | ) | ||||||||
Net cash used by investing activities |
|
| (1,176 | ) |
|
| (55,290 | ) |
|
| (1,499 | ) |
|
| (284 | ) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Borrowings of short-term debt obligations |
|
| 5,000 |
|
|
| 4,000 |
| ||||||||
Principal repayments on debt |
|
| (3,511 | ) |
|
| (510 | ) |
|
| (500 | ) |
|
| (2,500 | ) |
Proceeds from the issuance of debt |
|
| — |
|
|
| 20,000 |
|
|
| — |
|
|
| 2,000 |
|
Repayments on lease financing obligations |
|
| (136 | ) |
|
| (91 | ) | ||||||||
Principal repayments on finance lease obligations |
|
| (11 | ) |
|
| (6 | ) | ||||||||
Repayments on financing lease obligations |
|
| (74 | ) |
|
| (67 | ) | ||||||||
Payment of debt issuance costs |
|
| (122 | ) |
|
| (150 | ) |
|
| — |
|
|
| (122 | ) |
Dividends paid |
|
| — |
|
|
| (2,353 | ) | ||||||||
Purchase of treasury stock |
|
| (22 | ) |
|
| (41 | ) |
|
| (57 | ) |
|
| (22 | ) |
Net cash provided by financing activities |
|
| 1,209 |
|
|
| 20,855 |
| ||||||||
Net cash used by financing activities |
|
| (642 | ) |
|
| (717 | ) | ||||||||
Effect of exchange rate changes on cash |
|
| (254 | ) |
|
| 68 |
|
|
| (57 | ) |
|
| (146 | ) |
Net decrease in cash and cash equivalents |
|
| (619 | ) |
|
| (43,069 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents |
|
| 6,405 |
|
|
| (1,836 | ) | ||||||||
Cash and cash equivalents at beginning of period |
|
| 14,741 |
|
|
| 59,532 |
|
|
| 18,257 |
|
|
| 14,741 |
|
Cash and cash equivalents at end of period |
| $ | 14,122 |
|
| $ | 16,463 |
|
| $ | 24,662 |
|
| $ | 12,905 |
|
See Notes to Condensed Consolidated Financial Statements.
6
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollar amounts in thousands)
(Unaudited)
|
| Common Stock |
|
| Capital in |
|
|
| Accumulated |
|
|
| Total |
|
| Common Stock |
|
| Capital in |
|
|
| Accumulated |
|
|
| Total |
| ||||||||||||||||||||||||||||
|
|
|
| Par |
| Excess of |
| Retained |
| Comprehensive |
| Treasury |
| Stockholders' |
|
|
|
| Par |
| Excess of |
| Retained |
| Comprehensive |
| Treasury |
| Stockholders' |
| ||||||||||||||||||||||||||
|
| Shares |
|
| Value |
|
| Par Value |
|
| Earnings |
|
| Loss |
|
| Stock |
|
| Equity |
|
| Shares |
|
| Value |
|
| Par Value |
|
| Earnings |
|
| Loss |
|
| Stock |
|
| Equity |
| ||||||||||||||
Balance at April 1, 2022 |
|
| 10,801 |
|
| $ | 1,080 |
|
| $ | 27,770 |
|
| $ | 77,076 |
|
| $ | (6,471 | ) |
| $ | (2,961 | ) |
| $ | 96,494 |
| ||||||||||||||||||||||||||||
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
| 676 |
|
|
| (212 | ) |
|
|
|
|
| 464 |
| ||||||||||||||||||||||||||||||||
Forfeiture of shares |
|
| (32 | ) |
|
| (3 | ) |
|
| 3 |
|
|
|
|
|
|
|
|
|
|
|
| — |
| |||||||||||||||||||||||||||||||
Recognition of equity-based |
|
|
|
|
|
|
|
| 114 |
|
|
|
|
|
|
|
|
|
|
|
| 114 |
| |||||||||||||||||||||||||||||||||
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (21 | ) |
|
| (21 | ) | |||||||||||||||||||||||||||||||||
Balance at June 30, 2022 |
|
| 10,769 |
|
|
| 1,077 |
|
|
| 27,887 |
|
|
| 77,752 |
|
|
| (6,683 | ) |
|
| (2,982 | ) |
|
| 97,051 |
| ||||||||||||||||||||||||||||
Balance at April 1, 2023 |
|
| 10,774 |
|
| $ | 1,075 |
|
| $ | 28,061 |
|
| $ | 77,443 |
|
| $ | (7,463 | ) |
| $ | (2,183 | ) |
| $ | 96,933 |
| ||||||||||||||||||||||||||||
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
| (196 | ) |
|
| (206 | ) |
|
|
|
|
| (402 | ) |
|
|
|
|
|
|
|
|
|
|
| 2,640 |
|
|
| (88 | ) |
|
|
|
|
| 2,552 |
| ||||||||
Issuance of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| 53 |
|
|
| 8 |
|
|
| (8 | ) |
|
|
|
|
|
|
|
|
|
|
| — |
| |||||||||
Forfeiture of shares |
|
| (11 | ) |
|
| (1 | ) |
|
| 1 |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| (9 | ) |
|
| (1 | ) |
|
| 1 |
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||||
Recognition of equity-based |
|
|
|
|
|
|
|
| 198 |
|
|
|
|
|
|
|
|
|
|
|
| 198 |
|
|
|
|
|
|
|
|
| 293 |
|
|
|
|
|
|
|
|
|
|
|
| 293 |
| ||||||||||
Issuance of treasury stock |
|
|
|
|
|
|
|
| (237 | ) |
|
|
|
|
|
|
|
| 356 |
|
|
| 119 |
|
|
|
|
|
|
|
|
| 294 |
|
|
|
|
|
|
|
|
| (294 | ) |
|
| — |
| ||||||||
Balance at September 30, 2022 |
|
| 10,758 |
|
| $ | 1,076 |
|
| $ | 27,849 |
|
| $ | 77,556 |
|
| $ | (6,889 | ) |
| $ | (2,626 | ) |
| $ | 96,966 |
| ||||||||||||||||||||||||||||
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (57 | ) |
|
| (57 | ) | |||||||||||||||||||||||||||||||||
Balance at June 30, 2023 |
|
| 10,818 |
|
| $ | 1,082 |
|
| $ | 28,641 |
|
| $ | 80,083 |
|
| $ | (7,551 | ) |
| $ | (2,534 | ) |
| $ | 99,721 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
| Capital in |
|
|
|
|
| Accumulated |
|
|
|
|
| Total |
| ||||||||||
|
|
|
|
| Par |
|
| Excess of |
|
| Retained |
|
| Comprehensive |
|
| Treasury |
|
| Stockholders' |
| |||||||
|
| Shares |
|
| Value |
|
| Par Value |
|
| Earnings |
|
| Loss |
|
| Stock |
|
| Equity |
| |||||||
Balance at April 1, 2021 |
|
| 10,748 |
|
| $ | 1,075 |
|
| $ | 27,272 |
|
| $ | 89,372 |
|
| $ | (7,397 | ) |
| $ | (12,393 | ) |
| $ | 97,929 |
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
| (3,126 | ) |
|
| 298 |
|
|
|
|
|
| (2,828 | ) | ||||
Issuance of shares |
|
| 135 |
|
|
| 13 |
|
|
| (13 | ) |
|
|
|
|
|
|
|
|
|
|
| — |
| |||
Forfeiture of shares |
|
| (9 | ) |
|
| (1 | ) |
|
| 1 |
|
|
|
|
|
|
|
|
|
|
|
| — |
| |||
Dividends |
|
|
|
|
|
|
|
|
|
|
| (1,177 | ) |
|
|
|
|
|
|
|
| (1,177 | ) | |||||
Recognition of equity-based |
|
|
|
|
|
|
|
| 353 |
|
|
|
|
|
|
|
|
|
|
|
| 353 |
| |||||
Issuance of treasury stock |
|
|
|
|
|
|
|
| (194 | ) |
|
|
|
|
|
|
|
| 9,158 |
|
|
| 8,964 |
| ||||
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (41 | ) |
|
| (41 | ) | |||||
Balance at June 30, 2021 |
|
| 10,874 |
|
|
| 1,087 |
|
|
| 27,419 |
|
|
| 85,069 |
|
|
| (7,099 | ) |
|
| (3,276 | ) |
|
| 103,200 |
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
| (492 | ) |
|
| 216 |
|
|
|
|
|
| (276 | ) | ||||
Issuance of shares |
|
| 27 |
|
|
| 3 |
|
|
| (3 | ) |
|
|
|
|
|
|
|
|
|
|
| — |
| |||
Forfeiture of shares |
|
| (91 | ) |
|
| (9 | ) |
|
| 9 |
|
|
|
|
|
|
|
|
|
|
|
| — |
| |||
Dividends |
|
|
|
|
|
|
|
|
|
|
| (1,177 | ) |
|
|
|
|
|
|
|
| (1,177 | ) | |||||
Recognition of equity-based |
|
|
|
|
|
|
|
| (23 | ) |
|
|
|
|
|
|
|
|
|
|
| (23 | ) | |||||
Issuance of treasury stock |
|
|
|
|
|
|
|
| (63 | ) |
|
|
|
|
|
|
|
| 191 |
|
|
| 128 |
| ||||
Balance at September 30, 2021 |
|
| 10,810 |
|
| $ | 1,081 |
|
| $ | 27,339 |
|
| $ | 83,400 |
|
| $ | (6,883 | ) |
| $ | (3,085 | ) |
| $ | 101,852 |
|
|
| Common Stock |
|
| Capital in |
|
|
|
|
| Accumulated |
|
|
|
|
| Total |
| ||||||||||
|
|
|
|
| Par |
|
| Excess of |
|
| Retained |
|
| Comprehensive |
|
| Treasury |
|
| Stockholders' |
| |||||||
|
| Shares |
|
| Value |
|
| Par Value |
|
| Earnings |
|
| Loss |
|
| Stock |
|
| Equity |
| |||||||
Balance at April 1, 2022 |
|
| 10,801 |
|
| $ | 1,080 |
|
| $ | 27,770 |
|
| $ | 77,076 |
|
| $ | (6,471 | ) |
| $ | (2,961 | ) |
| $ | 96,494 |
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
| 676 |
|
|
| (212 | ) |
|
|
|
|
| 464 |
| ||||
Forfeiture of shares |
|
| (32 | ) |
|
| (3 | ) |
|
| 3 |
|
|
|
|
|
|
|
|
|
|
|
| — |
| |||
Recognition of equity-based |
|
|
|
|
|
|
|
| 114 |
|
|
|
|
|
|
|
|
|
|
|
| 114 |
| |||||
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (21 | ) |
|
| (21 | ) | |||||
Balance at June 30, 2022 |
|
| 10,769 |
|
| $ | 1,077 |
|
| $ | 27,887 |
|
| $ | 77,752 |
|
| $ | (6,683 | ) |
| $ | (2,982 | ) |
| $ | 97,051 |
|
See Notes to Condensed Consolidated Financial Statements.
7
GRAHAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except per share data)
NOTE 1 – BASIS OF PRESENTATION:
Graham Corporation's (the "Company's") Condensed Consolidated Financial Statements include its wholly-owned subsidiaries located in Arvada, Colorado, Suzhou, China and Ahmedabad, India at SeptemberJune 30 and March 31, 2022, and its recently acquired wholly-owned subsidiary, Barber-Nichols, LLC ("BN"), located in Arvada, Colorado at September 30, 2022 and for the period June 1, 2021 through March 31, 2022 (See Note 2).2023. The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP") for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X, each as promulgated by the U.S. Securities and Exchange Commission. The Company's Condensed Consolidated Financial Statements do not include all information and notes required by GAAP for complete financial statements. The unaudited Condensed Consolidated Balance Sheet as of March 31, 20222023 presented herein was derived from the Company’s audited Consolidated Balance Sheet as of March 31, 2022.2023. For additional information, please refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 20222023 ("fiscal 2022"2023"). In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair presentation, have been included in the Company's Condensed Consolidated Financial Statements.
The Company's results of operations and cash flows for the three and six months ended SeptemberJune 30, 20222023 are not necessarily indicative of the results that may be expected for the current fiscal year, which ends March 31, 20232024 ("fiscal 2023"2024").
NOTE 2 – ACQUISITION:
On June 1, 2021, the Company acquired BN, a designer and manufacturer of turbomachinery products located in Arvada, Colorado that serves the defense and aerospace industry as well as the energy and cryogenic markets. The Company believes this acquisition furthers its growth strategy through market and product diversification, broadens its offerings and strengthens its presence in the defense industry, builds on its presence in the energy markets and adds capabilities in the space industry.
This transaction was accounted for as a business combination which requires that assets acquired and liabilities assumed be recognized at their fair value as of the acquisition date. The purchase price of $72,014 was comprised of 610 shares of the Company's common stock, representing a value of $8,964 at a price of $14.69 per share, and cash consideration of $61,150, subject to certain potential adjustments, including a customary working capital adjustment. The cash consideration was funded through cash on-hand and debt proceeds. The purchase agreement included a contingent earn-out dependent upon certain financial measures of BN post-acquisition, in which the sellers were eligible to receive up to $14,000 in additional cash consideration. At June 30, 2021, a liability of $1,900 was recorded for the contingent earn-out. Subsequent to the acquisition, the earn out agreement was terminated and the contingent liability was reversed into Other operating income, net, on the Company’s Condensed Consolidated Statement of Operations. Prior to the acquisition, BN and Ascent Properties Group, LLC, a related party, entered into a nine year operating lease agreement for an office and manufacturing building in Arvada, Colorado. This lease was acquired as part of the Company's acquisition of BN and has a monthly payment in the amount of $40 with a 3% yearly escalation. Also prior to the acquisition, BN and Ascent Properties Group, LLC entered into a seven-year equipment lease agreement to lease various machinery and equipment. This equipment lease was also acquired as part of the Company's acquisition of BN and has a monthly payment of $16. Acquisition related costs of $93 and $262 were expensed in the three and six month periods ending September 30, 2021, and are included in selling, general and administrative expenses in the Condensed Consolidated Statement of Operations.
The cost of the acquisition was allocated to the assets acquired and liabilities assumed based upon its estimated fair value at the date of the acquisition. The following table summarizes the final purchase price allocation, after adjustments were recorded in the measurement period, of the assets acquired and liabilities assumed:
8
|
| June 1 |
| |
|
| 2021 |
| |
Assets acquired: |
|
|
| |
Cash and cash equivalents |
| $ | 868 |
|
Accounts receivable, net of allowances |
|
| 8,074 |
|
Unbilled revenue |
|
| 7,068 |
|
Inventories |
|
| 3,549 |
|
Prepaid expenses and other current assets |
|
| 476 |
|
Property, plant & equipment, net |
|
| 8,037 |
|
Operating lease assets |
|
| 9,026 |
|
Goodwill |
|
| 23,523 |
|
Customer relationships |
|
| 11,800 |
|
Technology and technical know-how |
|
| 10,100 |
|
Other intangibles, net |
|
| 10,600 |
|
Total assets acquired |
|
| 93,121 |
|
Liabilities assumed: |
|
|
| |
Accounts payable |
|
| 1,842 |
|
Accrued compensation |
|
| 1,341 |
|
Accrued expenses and other current |
|
| 707 |
|
Customer deposits |
|
| 6,048 |
|
Operating lease liabilities |
|
| 9,066 |
|
Other long-term liabilities |
|
| 2,103 |
|
Total liabilities assumed |
|
| 21,107 |
|
Purchase price |
| $ | 72,014 |
|
The fair value of acquisition-related intangible assets includes customer relationships, technology and technical know-how, backlog and trade name. Backlog and trade name are included in the line item "Other intangible assets, net" in the Condensed Consolidated Balance Sheet. The fair value of customer relationships were calculated using an income approach, specifically the Multi Period Excess Earnings method, which incorporates assumptions regarding retention rate, new customer growth and customer related costs. The fair value of trade name and technology and technical know-how were both calculated using a Relief from Royalty method, which develops a market based royalty rate used to reflect the after tax royalty savings attributable to owning the intangible asset. The fair value of backlog was determined using a net realizable value methodology, and was computed as the present value of the expected sales attributable to backlog less the remaining costs to fulfill the backlog.
The purchase price was allocated to specific intangible assets as follows:
| Weighted Average Amortization Period |
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| |||
At September 30, 2022 |
|
|
|
|
|
|
|
|
|
| |||
Intangibles subject to amortization: |
|
|
|
|
|
|
|
|
|
| |||
Customer relationships | 20 years |
| $ | 11,800 |
|
| $ | 787 |
|
| $ | 11,013 |
|
Technology and technical know-how | 20 years |
|
| 10,100 |
|
|
| 673 |
|
|
| 9,427 |
|
Backlog | 4 years |
|
| 3,900 |
|
|
| 2,300 |
|
|
| 1,600 |
|
|
|
| $ | 25,800 |
|
| $ | 3,760 |
|
| $ | 22,040 |
|
|
|
|
|
|
|
|
|
|
|
| |||
Intangibles not subject to amortization: |
|
|
|
|
|
|
|
|
|
| |||
Tradename | Indefinite |
| $ | 6,700 |
|
| $ | — |
|
| $ | 6,700 |
|
|
|
| $ | 6,700 |
|
| $ | — |
|
| $ | 6,700 |
|
Technology and technical know-how and customer relationships are amortized in selling, general and administrative expense on a straight line basis over their estimated useful lives. Backlog is amortized in cost of products sold over the projected conversion period based on management estimates at time of purchase. Intangible asset amortization was $619 and $784 for the three months ended September 30, 2022 and 2021, respectively, and $1,238 and $1,009 for the six months ended September 30, 2022 and 2021, respectively. The estimated annual amortization expense is as follows:
9
|
| Annual Amortization |
| |
Remainder of 2023 |
| $ | 1,238 |
|
2024 |
|
| 1,782 |
|
2025 |
|
| 1,318 |
|
2026 |
|
| 1,095 |
|
2027 |
|
| 1,095 |
|
2028 and thereafter |
|
| 15,512 |
|
Total intangible amortization |
| $ | 22,040 |
|
|
|
|
|
The Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2021 included net sales from BN of $16,486 and $19,957, respectively. The following unaudited pro forma information presents the consolidated results of operations of the Company as if the BN acquisition had occurred at the beginning of the fiscal period presented:
|
| Six Months Ended |
| |
|
| September 30, 2021 |
| |
Net sales |
| $ | 69,779 |
|
Net loss |
|
| (2,256 | ) |
Loss per share |
|
|
| |
Basic |
| $ | (0.21 | ) |
Diluted |
| $ | (0.21 | ) |
The unaudited pro forma information presents the combined operating results of Graham Corporation and BN, with the results prior to the acquisition date adjusted to include the pro forma impact of the adjustment of depreciation of fixed assets based on the preliminary purchase price allocation, the adjustment to interest income reflecting the cash paid in connection with the acquisition, including acquisition-related expenses, at the Company’s weighted average interest income rate, interest expense and loan origination fees at the Company’s current interest rate, amortization expense related to the fair value adjustments for intangible assets, non-recurring acquisition-related costs and the impact of income taxes on the pro forma adjustments utilizing the applicable statutory tax rate.
The unaudited pro forma results are presented for illustrative purposes only. These pro forma results do not purport to be indicative of the results that would have actually been obtained if the acquisition occurred as of the beginning of each of the periods presented, nor does the pro forma data intend to be a projection of results that may be obtained in the future.
NOTE 3 – REVENUE RECOGNITION:
The Company recognizes revenue on contracts when or as it satisfies a performance obligation by transferring control of the product to the customer. For contracts in which revenue is recognized upon shipment, control is generally transferred when products are shipped, title is transferred, significant risks of ownership have transferred, the Company has rights to payment, and rewards of ownership pass to the customer. For contracts in which revenue is recognized over time, control is generally transferred as the Company creates an asset that does not have an alternative use to the Company and the Company has an enforceable right to payment for the performance completed to date.
The following table presents the Company’s revenue disaggregated by product line and geographic area:
10
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
Product Line |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Refining |
| $ | 7,568 |
|
| $ | 6,317 |
|
| $ | 15,443 |
|
| $ | 10,936 |
|
Chemical/Petrochemical |
|
| 5,804 |
|
|
| 3,483 |
|
|
| 11,679 |
|
|
| 8,086 |
|
Defense |
|
| 14,855 |
|
|
| 19,798 |
|
|
| 24,655 |
|
|
| 26,877 |
|
Space |
|
| 4,306 |
|
|
| 1,292 |
|
|
| 10,768 |
|
|
| 2,017 |
|
Other Commercial |
|
| 5,610 |
|
|
| 3,256 |
|
|
| 11,673 |
|
|
| 6,387 |
|
Net sales |
| $ | 38,143 |
|
| $ | 34,146 |
|
| $ | 74,218 |
|
| $ | 54,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Geographic Region |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Asia |
| $ | 4,255 |
|
| $ | 5,483 |
|
| $ | 8,503 |
|
| $ | 8,992 |
|
Canada |
|
| 1,707 |
|
|
| 879 |
|
|
| 2,704 |
|
|
| 2,087 |
|
Middle East |
|
| 686 |
|
|
| 963 |
|
|
| 1,145 |
|
|
| 1,575 |
|
South America |
|
| 399 |
|
|
| 236 |
|
|
| 1,860 |
|
|
| 478 |
|
U.S. |
|
| 30,325 |
|
|
| 26,201 |
|
|
| 58,494 |
|
|
| 40,095 |
|
All other |
|
| 771 |
|
|
| 384 |
|
|
| 1,512 |
|
|
| 1,076 |
|
Net sales |
| $ | 38,143 |
|
| $ | 34,146 |
|
| $ | 74,218 |
|
| $ | 54,303 |
|
|
| Three Months Ended |
| |||||
|
| June 30, |
| |||||
Market |
| 2023 |
|
| 2022 |
| ||
Refining |
| $ | 6,867 |
|
| $ | 7,875 |
|
Chemical/Petrochemical |
|
| 6,041 |
|
|
| 5,875 |
|
Defense |
|
| 22,817 |
|
|
| 9,800 |
|
Space |
|
| 4,822 |
|
|
| 6,462 |
|
Other Commercial |
|
| 7,022 |
|
|
| 6,063 |
|
Net sales |
| $ | 47,569 |
|
| $ | 36,075 |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Geographic Area |
|
|
|
|
|
| ||
Asia |
| $ | 5,902 |
|
| $ | 4,248 |
|
Canada |
|
| 899 |
|
|
| 997 |
|
Middle East |
|
| 1,049 |
|
|
| 459 |
|
South America |
|
| 27 |
|
|
| 1,461 |
|
U.S. |
|
| 38,141 |
|
|
| 28,169 |
|
All other |
|
| 1,551 |
|
|
| 741 |
|
Net sales |
| $ | 47,569 |
|
| $ | 36,075 |
|
In the current quarter, the Company changed the descriptions of its disaggregated product line information to reflect the way in which management evaluates the business performance of its products and services. The Company's products and services include the design and manufacture of mission critical fluid, power, heat transfer and vacuum technologies for the defense, space, energy and process industries. The prior period results were reclassified to conform with the current period presentation.
A performance obligation represents a promise in a contract to provide a distinct good or service to a customer. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Transaction price reflects the amount of consideration to which the Company expects to be entitled in exchange for transferred products. A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized as the performance obligation is satisfied. In certain
8
cases, the Company may separate a contract into more than one performance obligation, while in other cases, several products may be part of a fully integrated solution and are bundled into a single performance obligation. If a contract is separated into more than one performance obligation, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods underlying each performance obligation. The Company has made an accounting policy election to exclude from the measurement of the contract price all taxes assessed by government authorities that are collected by the Company from its customers. The Company does not adjust the contract price for the effects of a financing component if the Company expects, at contract inception, that the period between when a product is transferred to a customer and when the customer pays for the product will be one year or less. Shipping and handling fees billed to the customer are recorded in revenue and the related costs incurred for shipping and handling are included in costCost of products sold.
Revenue on the majority of the Company’s contracts, as measured by number of contracts, is recognized upon shipment to the customer. Revenue on larger contracts, which are fewer in number but represent the majority of revenue, is recognized over time. Revenue from contracts that is recognized upon shipment accounted for approximately 25% and 20% of revenue for the three-month periods ended September 30, 2022 and 2021, respectively, and revenue from contracts that is recognized over time accounted for approximately 75% and 80% of revenue for the three-month periods ended September 30, 2022 and 2021, respectively. Revenue from contracts that is recognized upon shipment accounted for approximately 30% and 25% of revenue for the six-month periods ended September 30, 2022 and 2021, respectively, and revenue from contracts that is recognized over time accounted for approximately 70% and 75% of revenue for the six-month periods ended September 30, 2022 and 2021, respectively. The Company recognizes revenue over time when contract performance results in the creation of a product for which the Company does not have an alternative use and the contract includes an enforceable right to payment in an amount that corresponds directly with the value of the performance completed. To measure progress towards completion on performance obligations for which revenue is recognized over time the Company utilizes an input method based upon a ratio of direct labor hours incurred to date to management’s estimate of the total labor hours to be incurred on each contract, an input method based upon a ratio of total contract costs incurred to date to management’s estimate of the total contract costs to be incurred or an output method based upon completion of operational milestones, depending upon the nature of the contract. The Company has established the systems and procedures essential to developing the estimates required to account for performance obligations over time. These procedures include monthly review by management of costs incurred, progress towards completion, identified risks and opportunities, sourcing determinations, changes in estimates of costs yet to be incurred, availability of materials, and execution by subcontractors. Sales and earnings are adjusted in current accounting periods based on
11
revisions in the contract value due to pricing changes and estimated costs at completion. Losses on contracts are recognized immediately when evident to management. Revenue on the majority of the Company's contracts, as measured by number of contracts, is recognized upon shipment to the customer. Revenue on larger contracts, which are fewer in number but represent the majority of the revenue, is recognized over time. The following table presents the Company's revenue percentages disaggregated by revenue recognized over time or upon shipment:
|
| Three Months Ended |
| |||||
|
| June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Revenue recognized over time |
|
| 81 | % |
|
| 65 | % |
Revenue recognized at shipment |
|
| 19 | % |
|
| 35 | % |
The timing of revenue recognition, invoicing and cash collections affect trade accounts receivable, unbilled revenue (contract assets) and customer deposits (contract liabilities) on the Condensed Consolidated Balance Sheets. Unbilled revenue represents revenue on contracts that is recognized over time and exceeds the amount that has been billed to the customer. Unbilled revenue is separately presented in the Condensed Consolidated Balance Sheets. The Company may have an unconditional right to payment upon billing and prior to satisfying the performance obligations. The Company will then record a contract liability and an offsetting asset of equal amount until the deposit is collected and the performance obligations are satisfied. Customer deposits are separately presented in the Condensed Consolidated Balance Sheets. Customer deposits are not considered a significant financing component as they are generally received less than one year before the product is completed or used to procure specific material on a contract, as well as related overhead costs incurred during design and construction.
Net contract assets (liabilities) consisted of the following:
|
| September 30, 2022 |
|
| March 31, 2022 |
|
| Change |
|
| June 30, 2023 |
|
| March 31, 2023 |
|
| Change |
|
| Change due to revenue recognized |
|
| Change due to invoicing customers/ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Unbilled revenue (contract assets) |
| $ | 30,670 |
|
| $ | 25,570 |
|
| $ | 5,100 |
|
| $ | 34,467 |
|
| $ | 39,684 |
|
| $ | (5,217 | ) |
| $ | 26,478 |
|
| $ | (31,695 | ) |
Customer deposits (contract liabilities) |
|
| (26,079 | ) |
|
| (25,644 | ) |
|
| (435 | ) |
|
| (56,016 | ) |
|
| (46,042 | ) |
|
| (9,974 | ) |
|
| 10,978 |
|
|
| (20,952 | ) |
Net contract assets (liabilities) |
| $ | 4,591 |
|
| $ | (74 | ) |
| $ | 4,665 |
| ||||||||||||||||||||
Net contract (liabilities) assets |
| $ | (21,549 | ) |
| $ | (6,358 | ) |
| $ | (15,191 | ) |
|
|
|
|
|
|
Contract liabilities at SeptemberJune 30 and March 31, 20222023 include $8,5889,069 and $4,2166,092, respectively, of customer deposits for which the Company has an unconditional right to collect payment. Trade accounts receivable, as presented on the Condensed Consolidated Balance Sheets, includes corresponding balances at SeptemberJune 30 and March 31, 2022,2023, respectively. Revenue recognized in the three and six months ended September 30, 2022 that was included in the contract liability balance at March 31, 2022 was $ 8,127 and $16,557, respectively. Changes in the net contract liability balance during the six months ended September 30, 2022 were impacted by a $5,100 increase in contract assets, of which $33,220 was due to contract progress offset by invoicing to customers of $28,120. In addition, contract liabilities increased $435 driven by new customer deposits of $16,992 offset by revenue recognized in the current period that was included in the contract liability balance at March 31, 2022.
9
Receivables billed but not paid under retainage provisions in the Company’s customer contracts were $2,7772,563 and $3,1822,542 at SeptemberJune 30 and March 31, 2022,2023, respectively.
Incremental costs to obtain a contract consist of sales employee and agent commissions. Commissions paid to employees and sales agents are capitalized when paid and amortized to selling, general and administrative expense when the related revenue is recognized. Capitalized costs, net of amortization, to obtain a contract were $35 and $32 at September 30 and March 31, 2022, respectively, and are included in the line item "Prepaid expenses and other current assets" in the Condensed Consolidated Balance Sheets. The related amortization expense was $23 and $24 in the three months ended September 30, 2022 and 2021, respectively, and $24 and $34 in the six-month periods ended September 30, 2022 and 2021, respectively.
The Company’s remaining unsatisfied performance obligations represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. The Company also refers to this measure as backlog. As of SeptemberJune 30, 2022,2023, the Company had remaining unsatisfied performance obligations of $313,340322,003. The Company expects to recognize revenue on approximately 40% to 4550% of the remaining performance obligations within one year, 25% to 30% in one to two years and the remaining beyond two years.
NOTE 43 – INVENTORIES:
Inventories are stated at the lower of cost or net realizable value, using the average cost method.
Major classifications of inventories are as follows:
|
| September 30, |
| March 31, |
|
| June 30, |
| March 31, |
| ||||||
|
| 2022 |
|
| 2022 |
|
| 2023 |
|
| 2023 |
| ||||
Raw materials and supplies |
| $ | 4,131 |
|
| $ | 4,145 |
|
| $ | 3,587 |
|
| $ | 4,344 |
|
Work in process |
|
| 13,904 |
|
|
| 11,631 |
|
|
| 20,309 |
|
|
| 20,554 |
|
Finished products |
|
| 1,813 |
|
|
| 1,638 |
|
|
| 1,594 |
|
|
| 1,395 |
|
Total |
| $ | 19,848 |
|
| $ | 17,414 |
|
| $ | 25,490 |
|
| $ | 26,293 |
|
NOTE 4 – INTANGIBLE ASSETS:
Intangible assets are comprised of the following:
12
| Weighted Average Amortization Period |
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| |||
At June 30, 2023 |
|
|
|
|
|
|
|
|
|
| |||
Intangibles subject to amortization: |
|
|
|
|
|
|
|
|
|
| |||
Customer relationships | 20 years |
| $ | 11,800 |
|
| $ | 1,229 |
|
| $ | 10,571 |
|
Technology and technical know-how | 20 years |
|
| 10,100 |
|
|
| 1,052 |
|
|
| 9,048 |
|
Backlog | 4 years |
|
| 3,900 |
|
|
| 3,162 |
|
|
| 738 |
|
|
|
| $ | 25,800 |
|
| $ | 5,443 |
|
| $ | 20,357 |
|
|
|
|
|
|
|
|
|
|
|
| |||
Intangibles not subject to amortization: |
|
|
|
|
|
|
|
|
|
| |||
Tradename | Indefinite |
| $ | 6,700 |
|
| $ | — |
|
| $ | 6,700 |
|
|
|
| $ | 6,700 |
|
| $ | — |
|
| $ | 6,700 |
|
Technology and technical know-how and Customer relationships are amortized in Selling, general and administrative expense on a straight line basis over their estimated useful lives. Backlog is amortized in Cost of products sold over the projected conversion period based on management estimates at time of purchase. Intangible amortization was $446 and $619 for the three months ended June 30, 2023 and 2022, respectively. The estimated annual amortization expense by fiscal year is as follows:
|
| Annual Amortization |
| |
Remainder of 2024 |
| $ | 1,336 |
|
2025 |
|
| 1,318 |
|
2026 |
|
| 1,095 |
|
2027 |
|
| 1,095 |
|
2028 |
|
| 1,095 |
|
2029 and thereafter |
|
| 14,418 |
|
Total intangible amortization |
| $ | 20,357 |
|
|
|
|
|
10
NOTE 5 – EQUITY-BASED COMPENSATION:
The 2020 Graham Corporation Equity Incentive Plan (the "2020 Plan"), as approved by the Company’s stockholders at the annual meeting of stockholders held on August 11, 2020, provides for the issuance of 422 shares of common stock in connection with grants of incentive stock options, non-qualified stock options, restricted stock units and stock awards to officers, key employees and outside directors, including 112 shares that became available under the 2020 Plan from the Company’s prior plan, the Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value (the "2000 Plan"). As of August 11, 2020, the effective date of the 2020 Plan, no further awards will be granted under the 2000 Plan. However,
13 sharesThe following grants of unvestedtime-vesting restricted stock under the 2000 Plan remain subjectunits ("RSUs") and performance-vesting restricted stock units ("PSUs") were awarded:
|
| Vest 100% on First |
|
| Vest One-Third Per Year |
|
| Vest 100% on Third |
|
|
| |||
|
| Anniversary (1) |
|
| Over Three-Year Term (1) |
|
| Anniversary (1) |
|
|
| |||
|
|
|
|
| Officers and |
|
| Officers and |
|
| Total Shares | |||
Three month period ending June 30, |
| Directors |
|
| Key Employees |
|
| Key Employees |
|
| Awarded | |||
2023 |
|
|
|
|
|
|
|
|
|
|
| |||
Time Vesting RSUs |
| 38 |
|
| 40 |
|
|
| — |
|
| 78 | ||
Performance Vesting PSUs |
|
| — |
|
|
| — |
|
| 79 |
|
| 79 | |
2022 |
|
|
|
|
|
|
|
|
|
|
| |||
Time Vesting RSUs |
| 37 |
|
| 56 |
|
| 18 |
|
| 111 | |||
Performance Vesting PSUs |
|
| — |
|
|
| — |
|
| 112 |
|
| 112 |
The following restricted stock units were granted in the six months ended September 30, 2022:
|
| Six Months Ended |
|
| |
|
| September 30, |
|
| |
|
| 2022 |
|
| |
Officers |
| $ | 186 |
|
|
Directors |
|
| 37 |
|
|
|
| $ | 223 |
|
|
112 restricted stock units, granted to officers, vest 100% on the third anniversary of the grant date subject to the satisfaction of the performance metrics for the applicable three-yearaward.
period. 56 restricted stock units, granted to officers, vest 33⅓% per year over a three-year term. 18 restricted stock units, granted to an officer, vest 100% on the third anniversary of the grant date. 37 restricted stock units, granted to directors, vest 100% on the first year anniversary of the grant date. No restricted stock units were granted in the three-month period ended September 30, 2022 and 2021.
No restricted stock awards were granted in the three and six-month period ended September 30, 2022. Restricted stock awards for 27 shares were granted in the three-month period ended September 30, 2021, 18 shares of which vest 100% on the third anniversary of the grant date subject to the satisfaction of the performance metrics for the applicable three-year period and 9 shares that vest 33⅓% per year over a three-year term. Restricted stock awards of 162 shares were granted in the six-months period ended September 30, 2021. 88 restricted shares granted to officers in fiscal 2022 vest 100% on the third anniversary of the grant date subject to the satisfaction of the performance metrics for the applicable three-year period. 54 restricted shares granted to officers and key employees in fiscal 2022 vest 33⅓% per year over a three-year term. 20 restricted shares granted to directors in the first quarter of fiscal 2022, vest 100% on the first year anniversary of the grant date. No stock option awards were granted in the six-month period ended September 30, 2022 and 2021.
During the three months ended September 30, 2022 and 2021, the Company recognized equity-based compensation costs related to restricted stock awards of $201 and ($22), respectively. The income tax benefit recognized related to equity-based compensation was $44 and ($6) for the three months ended September 30, 2022 and 2021, respectively. During the six months ended September 30, 2022 and 2021, the Company recognized equity-based compensation costs related to restricted stock awards of $306 and $315, respectively. The income tax benefit recognized related to equity-based compensation was $67 and $69 for the six months ended September 30, 2022 and 2021, respectively.
The Company has an Employee Stock Purchase Plan, as amended (the "ESPP"), which allows eligible employees to purchase shares of the Company's common stock at a discount of up to 15% of its fair market value on the (1) last, (2) first or (3) lower of the last or first day of the six-month offering period. As of SeptemberJune 30, 2022,2023, a total of 400 shares of common stock may be purchased under the ESPP. During the three months ended September 30, 2022 and 2021, the
The Company has recognized equity-based compensation costs of ($as follows:3) and ($1), respectively, related to the ESPP and ($1) and ($1), respectively, of related tax benefits. During the six-month periods ended September 30, 2022 and 2021, the Company recognized equity-based compensation costs of $6
and $15, respectively, related to the ESPP and $1 and $4, respectively, of related tax benefits.
|
| Three Months Ended |
| |||||
|
| June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Restricted stock awards |
| $ | 87 |
|
| $ | 50 |
|
Restricted stock units |
|
| 196 |
|
|
| 55 |
|
Employee stock purchase plan |
|
| 10 |
|
|
| 9 |
|
|
| $ | 293 |
|
| $ | 114 |
|
|
|
|
|
|
|
| ||
Income tax benefit recognized |
| $ | 65 |
|
| $ | 25 |
|
NOTE 6 – INCOME (LOSS) PER SHARE:
Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares
1311
of common shares outstanding and, when applicable, potential common shares outstanding during the period. A reconciliation of the numerators and denominators of basic and diluted income (loss) per share is presented below:
|
| Three Months Ended |
|
| Six Months Ended |
|
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
|
| June 30, |
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
|
| 2023 |
|
| 2022 |
| ||||||
Basic income (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Basic income per share |
|
|
|
|
|
| |||||||||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income (loss) |
| $ | (196 | ) |
| $ | (492 | ) |
| $ | 480 |
|
| $ | (3,618 | ) |
| ||||||||
Net income |
| $ | 2,640 |
|
| $ | 676 |
| |||||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Weighted average common shares |
|
| 10,617 |
|
|
| 10,681 |
|
|
| 10,614 |
|
|
| 10,442 |
|
|
|
| 10,653 |
|
|
| 10,610 |
|
Basic income (loss) per share |
| $ | (0.02 | ) |
| $ | (0.05 | ) |
| $ | 0.05 |
|
| $ | (0.35 | ) |
| ||||||||
Basic income per share |
| $ | 0.25 |
|
| $ | 0.06 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Diluted income (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Diluted income per share |
|
|
|
|
|
| |||||||||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income (loss) |
| $ | (196 | ) |
| $ | (492 | ) |
| $ | 480 |
|
| $ | (3,618 | ) |
| ||||||||
Net income |
| $ | 2,640 |
|
| $ | 676 |
| |||||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Weighted average common shares |
|
| 10,617 |
|
|
| 10,681 |
|
|
| 10,614 |
|
|
| 10,442 |
|
|
|
| 10,653 |
|
|
| 10,610 |
|
Restricted stock units outstanding |
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
|
| 66 |
|
|
| 20 |
|
Weighted average common and |
|
| 10,617 |
|
|
| 10,681 |
|
|
| 10,618 |
|
|
| 10,442 |
|
|
|
| 10,719 |
|
|
| 10,630 |
|
Diluted income (loss) per share |
| $ | (0.02 | ) |
| $ | (0.05 | ) |
|
| 0.05 |
|
| $ | (0.35 | ) |
| ||||||||
Diluted income per share |
| $ | 0.25 |
|
| $ | 0.06 |
|
NOTE 7 – PRODUCT WARRANTY LIABILITY:
The reconciliation of the changes in the product warranty liability is as follows:
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||
Balance at beginning of period |
| $ | 496 |
|
| $ | 522 |
|
| $ | 441 |
|
| $ | 626 |
|
| $ | 578 |
|
| $ | 441 |
|
BN warranty accrual acquired |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 169 |
| ||||||||
Expense (income) for product warranties |
|
| 13 |
|
|
| (5 | ) |
|
| 90 |
|
|
| (21 | ) | ||||||||
Expense for product warranties |
|
| 91 |
|
|
| 76 |
| ||||||||||||||||
Product warranty claims paid |
|
| (22 | ) |
|
| (68 | ) |
|
| (44 | ) |
|
| (325 | ) |
|
| (53 | ) |
|
| (21 | ) |
Balance at end of period |
| $ | 487 |
|
| $ | 449 |
|
| $ | 487 |
|
| $ | 449 |
|
| $ | 616 |
|
| $ | 496 |
|
Income of $5 and $21 for product warranties in the three and six months ended September 30, 2021, respectively, resulted from the reversal of provisions made that were no longer required due to lower claims experience.
The product warranty liability is included in the line item "Accrued expenses and other current liabilities" in the Condensed Consolidated Balance Sheets.
NOTE 8 – CASH FLOW STATEMENT:
Interest paid was $362and $135 in the six-month periods ended September 30, 2022 and 2021, respectively. Incomeincome taxes paid for the six months ended September 30, 2022as well as non-cash investing and 2021 were $151 and $1,318, respectively.
At September 30, 2022 and 2021, there were $205 and $39, respectively, of capital purchases that were recorded in accounts payable and are not included in the caption "Purchase of property, plant and equipment" in the Condensed Consolidated Statements of Cash Flows.
The $59,563 of cash utilized for the acquisition of BN included the cash consideration of $61,150, net of cash acquired of $1,587. Upon completion of the final purchase price allocation and after the adjustments made during the measurement period, the cash utilized for the acquisition was $60,282, including cash consideration of $61,150, net of cash acquired of $868. In the three months ended June 30, 2021, non-cashfinancing activities included the issuance of 610 treasury shares valued at $8,964, included as part of the consideration for the acquisition.
14
Non-cash activities included pension adjustments, net of income tax, of $68.
NOTE 9 – EMPLOYEE BENEFIT PLANS:
The components of pension cost are as follows:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Service cost |
| $ | 83 |
|
| $ | 94 |
|
| $ | 166 |
|
| $ | 187 |
|
Interest cost |
|
| 308 |
|
|
| 298 |
|
|
| 616 |
|
|
| 598 |
|
Expected return on assets |
|
| (542 | ) |
|
| (682 | ) |
|
| (1,085 | ) |
|
| (1,364 | ) |
Amortization of actuarial loss |
|
| 165 |
|
|
| 229 |
|
|
| 330 |
|
|
| 442 |
|
Net pension cost (benefit) |
| $ | 14 |
|
| $ | (61 | ) |
| $ | 27 |
|
| $ | (137 | ) |
|
| For the Three Months Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Interest paid |
| $ | 256 |
|
| $ | 141 |
|
Income taxes paid |
|
| 70 |
|
|
| 11 |
|
Capital purchases recorded in accounts payable |
|
| 197 |
|
|
| 95 |
|
The Company made no contributions to its defined benefit pension plan during the six months ended September 30, 2022 and does not expect to make any contributions to the plan for the balance of fiscal 2023.
The components of the postretirement benefit cost are as follows:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Interest cost |
| $ | 3 |
|
| $ | 4 |
|
| $ | 7 |
|
| $ | 7 |
|
Amortization of actuarial loss |
|
| 3 |
|
|
| 6 |
|
|
| 6 |
|
|
| 12 |
|
Net postretirement benefit cost |
| $ | 6 |
|
| $ | 10 |
|
| $ | 13 |
|
| $ | 19 |
|
The Company paid no benefits related to its postretirement benefit plan during the six months ended September 30, 2022. The Company expects to pay benefits of approximately $63 for the balance of fiscal 2023.
The components of net periodic benefit cost other than service cost are included in the line item "Other income, net" in the Condensed Consolidated Statements of Operations.
The Company self-funds the medical insurance coverage it provides to its Batavia based employees. The Company maintains a stop loss insurance policy in order to limit its exposure to claims. The liability of $209 and $164 on September 30, 2022 and March 31, 2022, respectively, related to the self-insured medical plan is primarily based upon claim history and is included in the caption "Accrued compensation" as a current liability in the Condensed Consolidated Balance Sheets.
NOTE 109 – COMMITMENTS AND CONTINGENCIES:
The Company has been named as a defendant in lawsuits alleging personal injury from exposure to asbestos allegedly contained in, or accompanying, products made by the Company. The Company is a co-defendant with numerous other defendants in these lawsuits and intends to vigorously defend itself against these claims. The claims in the Company’s current lawsuits are similar to those made in previous asbestos-related suits that named the Company as a defendant, which either were dismissed when it was shown that the Company had not supplied products to the plaintiffs’ places of work or were settled for immaterial amounts. The Company cannot provide any assurances that any pending or future matters will be resolved in the same manner as previous lawsuits.
12
As of SeptemberJune 30, 2022,2023, the Company was subject to the claims noted above, as well as other potential claims that have arisen in the ordinary course of business.
Although the outcome of the lawsuits, legal proceedings or potential claims to which the Company is, or may become, a party to cannot be determined and an estimate of the reasonably possible loss or range of loss cannot be made for the majority of the claims, management does not believe that the outcomes, either individually or in the aggregate, will have a material adverse effect on the Company’s results of operations, financial position or cash flows.
The Company previously entered into related party operating leases with Ascent Properties Group, LLC ("Ascent"), for two building lease agreements and two equipment lease agreements in Arvada, Colorado. In connection with such leases, the Company made fixed minimum lease payments to the lessor of $224 and $211 during the three months ended June 30, 2023 and 2022, respectively, and is obligated to make payments of $729 during the remainder of fiscal 2024. Future fixed minimum lease payments under these leases as of June 30, 2023 are $6,514.
NOTE 1110 – INCOME TAXES:
The Company files federal and state income tax returns in several domestic and international jurisdictions. In most tax jurisdictions, returns are subject to examination by the relevant tax authorities for a number of years after the returns have been filed. The Company is subject to U.S. federal examination for the tax years 20182019 through 20212022 and examination in state tax jurisdictions for
15
the tax years 20172018 through 20212022. The Company is subject to examination in the People’s Republic of China for tax years 20182019 through 20212022 and in India for tax yearyears 20182019 through 20212022.
There was no liability for unrecognized tax benefits at either SeptemberJune 30, 20222023 or March 31, 2022.2023.
NOTE 1211 – CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS:
The changes in accumulated other comprehensive loss by component for the sixthree months ended SeptemberJune 30, 20222023 and 20212022 are as follows:
|
| Pension and |
|
| Foreign |
|
| Total |
|
| Pension and |
|
| Foreign |
|
| Total |
| ||||||
Balance at April 1, 2022 |
| $ | (6,970 | ) |
| $ | 499 |
|
| $ | (6,471 | ) | ||||||||||||
Balance at April 1, 2023 |
| $ | (7,470 | ) |
| $ | 7 |
|
| $ | (7,463 | ) | ||||||||||||
Other comprehensive income before reclassifications |
|
| — |
|
|
| (680 | ) |
|
| (680 | ) |
|
| — |
|
|
| (252 | ) |
|
| (252 | ) |
Amounts reclassified from accumulated other comprehensive |
|
| 262 |
|
|
| — |
|
|
| 262 |
|
|
| 164 |
|
|
| — |
|
|
| 164 |
|
Net current-period other comprehensive income |
|
| 262 |
|
|
| (680 | ) |
| $ | (418 | ) |
|
| 164 |
|
|
| (252 | ) |
| $ | (88 | ) |
Balance at September 30, 2022 |
| $ | (6,708 | ) |
| $ | (181 | ) |
| $ | (6,889 | ) | ||||||||||||
Balance at June 30, 2023 |
| $ | (7,306 | ) |
| $ | (245 | ) |
| $ | (7,551 | ) |
|
| Pension and |
|
| Foreign |
|
| Total |
|
| Pension and |
|
| Foreign |
|
| Total |
| ||||||
Balance at April 1, 2021 |
| $ | (7,698 | ) |
| $ | 301 |
|
| $ | (7,397 | ) | ||||||||||||
Balance at April 1, 2022 |
| $ | (6,970 | ) |
| $ | 499 |
|
| $ | (6,471 | ) | ||||||||||||
Other comprehensive income before reclassifications |
|
| 68 |
|
|
| 93 |
|
|
| 161 |
|
|
| — |
|
|
| (343 | ) |
|
| (343 | ) |
Amounts reclassified from accumulated other comprehensive |
|
| 353 |
|
|
| — |
|
|
| 353 |
|
|
| 131 |
|
|
| — |
|
|
| 131 |
|
Net current-period other comprehensive income |
|
| 421 |
|
|
| 93 |
|
|
| 514 |
|
|
| 131 |
|
|
| (343 | ) |
| $ | (212 | ) |
Balance at September 30, 2021 |
| $ | (7,277 | ) |
| $ | 394 |
|
| $ | (6,883 | ) | ||||||||||||
Balance at June 30, 2022 |
| $ | (6,839 | ) |
| $ | 156 |
|
| $ | (6,683 | ) |
13
The reclassifications out of accumulated other comprehensive loss by component for the three and six months ended SeptemberJune 30, 20222023 and 20212022 are as follows:
Details about Accumulated Other |
| Amount Reclassified from |
|
|
| Affected Line Item in the Condensed | ||||||
|
| Three Months Ended |
|
|
|
| ||||||
|
| September 30, |
|
|
|
| ||||||
|
| 2022 |
|
|
| 2021 |
|
|
|
| ||
Pension and other postretirement benefit items: |
|
|
|
|
|
|
|
|
|
| ||
Amortization of actuarial income (loss) |
| $ | 168 |
| (1) |
| $ | (236 | ) | (1) |
| Income (loss) before benefit for income taxes |
|
|
| 37 |
|
|
|
| (53 | ) |
|
| Benefit for income taxes |
|
| $ | 131 |
|
|
| $ | (183 | ) |
|
| Net income (loss) |
Details about Accumulated Other |
| Amount Reclassified from |
|
| Affected Line Item in the Condensed |
| Amount Reclassified from |
|
| Affected Line Item in the Condensed | ||||||||||||||
|
| Six Months Ended |
|
|
| Three Months Ended |
|
| ||||||||||||||||
|
| September 30, |
|
|
|
| June 30, |
|
|
| ||||||||||||||
|
| 2022 |
|
| 2021 |
|
|
|
| 2023 |
|
| 2022 |
|
|
| ||||||||
Pension and other postretirement benefit items: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Amortization of actuarial loss |
| $ | 336 |
| (1) |
| $ | (455 | ) | (1) |
| Loss before benefit for income taxes |
| $ | 211 |
| (1) |
| $ | 168 |
| (1) |
| Income before benefit for income taxes |
Tax effect |
|
| 47 |
|
|
|
| 37 |
|
|
| Provision for income taxes | ||||||||||||
|
|
| 74 |
|
|
|
| (102 | ) |
|
| Benefit for income taxes |
| $ | 164 |
|
|
| $ | 131 |
|
|
| Net income |
|
| $ | 262 |
|
|
| $ | (353 | ) |
|
| Net loss |
16
NOTE 13 – LEASES:
The Company leases certain manufacturing facilities, office space, machinery and office equipment. An arrangement is considered to contain a lease if it conveys the right to use and control an identified asset for a period of time in exchange for consideration. If it is determined that an arrangement contains a lease, then a classification of a lease as operating or finance is determined by evaluating the five criteria outlined in the lease accounting guidance at inception. Leases generally have remaining terms of one year to five years, whereas leases with an initial term of twelve months or less are not recorded on the Condensed Consolidated Balance Sheets. The depreciable life of leased assets related to finance leases is limited by the expected term of the lease, unless there is a transfer of title or purchase option that the Company believes is reasonably certain of exercise. Certain leases include options to renew or terminate. Renewal options are exercisable per the discretion of the Company and vary based on the nature of each lease. The term of the lease includes renewal periods only if the Company is reasonably certain that it will exercise the renewal option. When determining if a renewal option is reasonably certain of being exercised, the Company considers several factors, including but not limited to, the cost of moving to another location, the cost of disrupting operations, whether the purpose or location of the leased asset is unique and the contractual terms associated with extending the lease. The Company’s lease agreements do not contain any residual value guarantees or any material restrictive covenants and the Company does not sublease to any third parties. As of September 30, 2022, the Company did not have any material leases that have been signed but not commenced.
Right-of-use ("ROU") lease assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make payments in exchange for that right of use. Finance lease ROU assets and operating lease ROU assets are included in the line items "Property, plant and equipment, net" and "Operating lease assets", respectively, in the Condensed Consolidated Balance Sheets. The current portion and non-current portion of finance and operating lease liabilities are all presented separately in the Condensed Consolidated Balance Sheets.
The discount rate implicit within the Company’s leases is generally not readily determinable, and therefore, the Company uses an incremental borrowing rate in determining the present value of lease payments based on rates available at commencement.
The weighted average remaining lease term and discount rate for finance and operating leases are as follows:
|
| September 30, |
|
| September 30, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Finance Leases |
|
|
|
|
|
| ||
Weighted-average remaining lease term in years |
|
| 0.92 |
|
|
| 1.91 |
|
Weighted-average discount rate |
|
| 10.67 | % |
|
| 10.72 | % |
|
|
|
|
|
|
| ||
Operating Leases |
|
|
|
|
|
| ||
Weighted-average remaining lease term in years |
|
| 7.25 |
|
|
| 7.91 |
|
Weighted-average discount rate |
|
| 3.28 | % |
|
| 3.26 | % |
17
The components of lease expense are as follows:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization of right-of-use assets |
| $ | 5 |
|
| $ | 5 |
|
| $ | 10 |
|
| $ | 10 |
|
Interest on lease liabilities |
|
| 1 |
|
|
| 2 |
|
|
| 2 |
|
|
| 3 |
|
Operating lease cost |
|
| 287 |
|
|
| 384 |
|
|
| 671 |
|
|
| 540 |
|
Short-term lease cost |
|
| 1 |
|
|
| 10 |
|
|
| 5 |
|
|
| 15 |
|
Total lease cost |
| $ | 294 |
|
| $ | 401 |
|
| $ | 688 |
|
| $ | 568 |
|
Operating lease costs during the six-month periods ended September 30, 2022 and 2021 were included within cost of sales and selling, general and administrative expenses.
As of September 30, 2022, future minimum payments required under non-cancelable leases were:
|
| Operating |
|
| Finance |
| ||
Remainder of 2023 |
| $ | 487 |
|
| $ | 13 |
|
2024 |
|
| 1,215 |
|
|
| 11 |
|
2025 |
|
| 1,200 |
|
|
| — |
|
2026 |
|
| 1,209 |
|
|
| — |
|
2027 |
|
| 1,245 |
|
|
| — |
|
2028 and thereafter |
|
| 3,770 |
|
|
| — |
|
Total lease payments |
|
| 9,126 |
|
|
| 24 |
|
|
|
|
|
|
|
| ||
Less – amount representing interest |
|
| 1,051 |
|
|
| 1 |
|
Present value of net minimum lease payments |
| $ | 8,075 |
|
| $ | 23 |
|
NOTE 1412 – DEBT:
On June 1, 2021, the Company entered into a $20,000 five-year term loan with Bank of America.America (the "Term Loan"). The term loanTerm Loan requires monthly principal payments of $167 through June 1, 2026, with the remaining principal amount plus all interest due on the maturity date. The interest rate on the term loanTerm Loan is the applicable Bloomberg Short-Term Bank Yield Index ("BSBY"), plus 1.50%, subject to a 0.00% floor.
Long term debt is comprised of the following:
|
| September 30, |
| March 31, |
|
| June 30, |
| March 31, |
| |||||||
|
| 2022 |
|
| 2022 |
|
|
| 2023 |
|
| 2023 |
| ||||
Bank of America term loan |
| $ | 17,500 |
|
| $ | 18,500 |
|
|
| $ | 12,000 |
|
| $ | 12,500 |
|
Less: unamortized debt issuance costs |
|
| (875 | ) |
|
| (122 | ) |
|
|
| (697 | ) |
|
| (756 | ) |
|
|
| 16,625 |
|
|
| 18,378 |
|
|
|
| 11,303 |
|
|
| 11,744 |
|
Less: current portion |
|
| 2,000 |
|
|
| 2,000 |
|
|
|
| 2,000 |
|
|
| 2,000 |
|
Total |
| $ | 14,625 |
|
| $ | 16,378 |
|
|
| $ | 9,303 |
|
| $ | 9,744 |
|
As of SeptemberJune 30, 2022,2023, future minimum payments, by fiscal year, required were as follows:
Remainder of 2023 |
| $ | 1,000 |
|
2024 |
|
| 2,000 |
|
2025 |
|
| 2,000 |
|
2026 |
|
| 12,500 |
|
2027 |
|
| — |
|
2028 and thereafter |
|
| — |
|
Total |
| $ | 17,500 |
|
18
Remainder of 2024 |
| $ | 1,500 |
|
2025 |
|
| 2,000 |
|
2026 |
|
| 2,000 |
|
2027 |
|
| 6,500 |
|
2028 and thereafter |
|
| — |
|
Total |
| $ | 12,000 |
|
On June 1, 2021, the Company terminated its revolving credit facility agreement with JPMorgan Chase Bank, N.A. and entered into a five-year revolving credit facility with Bank of America (the "Revolving Credit Facility") that provided a $30,000 line of credit, including letters of credit and bank guarantees, expandable at the Company's option and the bank's approval at any time up to $40,000. As of SeptemberJune 30, 20222023 and March 31, 2022,2023, there was $2,500 and $0 outstanding on the line of credit, respectively.Revolving Credit Facility. Amounts outstanding under the facility agreementRevolving Credit Facility bear interest at a rate equal to BSBY plus 1.50%, subject to a 0.00% floor. As of SeptemberJune 30, 2022,2023, the BSBY rate was 3.95095.10279%. Outstanding letters of credit under this agreementthe Revolving Credit Facility are subject to a fee of 1.50% per annum of the outstanding undrawn amount of each letter of credit that is not secured by cash and 0.60% of each letter of credit that is secured by cash. Amounts available for borrowing under the revolving credit facilityRevolving Credit Facility are subject to an unused commitment fee of 0.25%. As of SeptemberJune 30, 2022,2023, there was $5,7065,594 letters of credit outstanding with Bank of America.
Under the original Bank of America term loan agreementTerm Loan and revolving credit facility,Revolving Credit Facility, as amended (the "Credit Facility"), the Company covenanted to maintain a maximum total leverage ratio, as defined in such agreements,the Credit Facility, of 3.0 to 1.0, with an allowable increase to 3.25 to 1.0 following an acquisition for a period of twelve months following the closing of the acquisition. In addition, the Company covenanted to maintain a minimum fixed charge coverage ratio, as defined in such agreements,the Credit Facility, of 1.2 to 1.0 and minimum margined assets, as defined in such agreements, of 100% of total amounts outstanding on the revolving credit facility,Revolving Credit Facility, including letters of credit. At December 31, 2021, the Company was out of compliance with its bank agreement covenants and was granted a waiver for noncompliance by Bank of America.
The Company has entered into amendment agreements with Bank of America since origination. Under the amended agreements, the Company is not required to comply with the maximum total leverage ratio and the minimum fixed charge coverage ratio covenants contained in the original term loan agreement for the periods ending December 31, 2021 and March 31, June 30 and September 30, 2022. The principal balance outstanding on the line of credit may not exceed $15,000, unless letters of credit exceed $11,500, in which case the limit is $17,000, until the compliance date. The compliance date is defined as the date on which Bank of America has received all required financial information with respect to the Company for the fiscal year ending March 31, 2023 and no event of default exists. In addition, on or before September 1, 2023 and at all times thereafter, all of the Company's deposit accounts, except certain accounts, will be either subject to a deposit account control agreement or maintained with Bank of America. The Company covenantsalso covenanted to maintain EBITDA, as defined in such amendment, of at least ($700) for the twelve-month period ending June 30, 2022 and $1,800 for the twelve-month period ending September 30, 2022; maintain a total maximum leverage ratio of 4.0 to 1.0 for the twelve-month period ending December 31, 2022 and 3.0 to 1.0 for the period ending March 31, 2023; and maintain liquidity, as defined in such amendment,the Credit Facility, of at least $10,000 prior to the occurrence of the compliance date and $20,000 from and after the occurrence of the compliance date.. As of SeptemberJune 30, 2022,2023, the Company was in compliance with the amended financial covenants of its loan agreement.the
14
Credit Facility. At SeptemberJune 30, 2022,2023, the amount available under the revolving credit facilityRevolving Credit Facility was $7,65725,905, subject to the above liquidity and leverage covenants.
In connection with the waiver and amendments discussed above,to the Credit Facility, the Company is required to pay a back-end fee of $725 to Bank of America payable upon the earliest to occur of (i) any default or event of default, (ii) the last date of availability under the revolving credit facility,Revolving Credit Facility, and (iii) repayment in full of all principal, interest, fees and other obligations, which may be waived or cancelled if certain criteria are met.
On June 1, 2021, theThe Company entered into an agreement to amend itshas a letter of credit facility agreement with HSBC Bank USA, N.A. and decreased the Company's line of credit from $15,000 to $7,500 (the "Letter of Credit Facility"). Under the amended agreement,Letter of Credit Facility, the Company incurs an annual facility fee of $5 and outstanding letters of credit are subject to a fee of between 0.75% and 0.85%, depending on the term of the letter of credit. Interest is payable on the principal amounts of unreimbursed letter of credit draws under the facility at a rate of 3% plus the bank's prime rate. The Company's obligations under the agreementLetter of Credit Facility are secured by cash held with the bank. As of SeptemberJune 30, 2022,2023, there was $6,4426,623 letters of credit outstanding with HSBC.HSBC and availability under the Letter of Credit Facility was $877. The agreement is subject to an annual renewal by the bank on July 31 of each year.
LettersTotal letters of credit outstanding as of SeptemberJune 30, 20222023 and March 31, 20222023 were $12,14812,625 and $12,23312,842, respectively.
NOTE 15 – OTHER OPERATING INCOME, NET:
On August 9, 2021, the Company and James R. Lines entered into a Severance and Transition Agreement (the "Transaction Agreement") pursuant to which Mr. Lines resigned from his position as the Company’s Chief Executive Officer and as a member of the board of directors, and from positions he held with all Company subsidiaries and affiliates, effective as of the close of business on August 31, 2021. The Transition Agreement provides that for a period of 18 months following the separation date, Mr. Lines is paid his base salary as well as health care premiums. As a result, a liability was recorded in the amount of $798 in Accrued Compensation on the Company’s Condensed Consolidated Balance Sheets and recognized against "Other operating income, net" on the Condensed Consolidated Statements of Operations.
1915
During the second quarter ended September 30, 2021, the Company terminated the earn out agreement related to the acquisition of BN (see Note 2), therefore the Company recognized a change in fair value of the contingent liability in the amount of $1,900, which was included in "Other operating income, net" on the Company’s Condensed Consolidated Statement of Operations.
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollar and share amounts in thousands, except per share data)
Overview
We are a global leader in the design and manufacture of mission critical fluid, power, heat transfer and vacuum technologies for the defense, space, energy and process industries. We design and manufacture custom-engineered vacuum, heat transfer, pump and turbomachinery technologies. For the defense industry, our equipment is used in nuclear and non-nuclear propulsion, power, fluid transfer, and thermal management systems primarily for the U.S. Navy.systems. For the space industry our equipment is used in propulsion, power and energy management systems and for life support systems. OurWe supply equipment for vacuum, heat transfer and fluid transfer applications used in energy and new energy markets includeincluding oil refining, cogeneration, and multiple alternative and clean power applications including hydrogen. For the chemical and petrochemical industries, our heat transfer equipment is used in fertilizer, ammonia, ethylene, methanol and downstream chemical facilities.
Our brands are built upon our engineering expertise and close customer collaboration to design, develop, and produce mission critical equipment and systems that enable our customers to meet their economic and operational objectives. Continual improvement of our processes and systems to ensure qualified and compliant equipment are hallmarks of our brand. Our early engagement with customers and support until the end of service life are values upon which our brands are built.
Our corporate headquarters is co-locatedlocated with our production facilities in Batavia, New York, where surface condensers and ejectors are designed, engineered, and manufactured. Our wholly-owned subsidiary, Barber-Nichols, LLC ("BN"), based in Arvada, Colorado, designs, develops, manufactures and sells specialty turbomachinery products for the aerospace, cryogenic, defense and energy markets (see "Acquisition" below).markets. We also have wholly-owned foreign subsidiaries, Graham Vacuum and Heat Transfer Technology Co., Ltd. ("GVHTT"), located in Suzhou, China and Graham India Private Limited ("GIPL"), located in Ahmedabad, India. GVHTT provides sales and engineering support for us in the People's Republic of China and management oversight throughout Southeast Asia. GIPL serves as a sales and market development office focusing on the refining, petrochemical, edible oils, and fertilizer markets in India and the middle east.Middle East.
Our currentWe refer to our fiscal year, (whichwhich ends March 31, 2024, as fiscal 2024. Likewise, we refer to as "fiscal 2023") endsour fiscal year that ended March 31, 2023.2023 and March 31, 2022 as fiscal 2023 and fiscal 2022, respectively.
Acquisition
We completed the acquisition of BN on June 1, 2021. Founded as a specialty turbomachinery engineering company in 1966, BN grew rapidly from programs that involve complex production and systems integration. By integrating knowledge in rotating equipment, power generation cycles, and electrical management systems, BN has successfully won the design and development of different power, fluid transfer, and propulsion systems used in underwater vehicles among many other accomplishments.Summary
The acquisition of BN changedHighlights for the composition of our end market mix. Forthree months ended June 30, 2023 include:
The BN transaction was accounted fortiming of projects, as well as the loss of Virgin Orbit Holdings, Inc. ("Virgin Orbit") as a business combination, which requires that assets acquiredcustomer in April 2023 due to its Chapter 11 bankruptcy. We also had lower refining industry sales of $1,008 primarily due to a decrease in revenue from our India and liabilities assumed be recognized at their fair value as of the acquisition date. The purchase price of $72,014 was comprised of 610 shares of common stock, representing a value of $8,964 at $14.69 per share, and cash consideration of $61,150. The cash consideration was funded through cash on-hand and debt proceeds (See Note 2China subsidiaries due to the Condensed Consolidated Financial Statements includedtiming of projects and lower demand in Item 1China reflecting the impact of Part I of this Quarterly Report on Form 10-Q). The purchase agreement also included a contingent earn-out dependent upon certain financial measures of BN post-acquisition, pursuant to which the sellers were eligible to receive up to $14,000 in additional cash consideration. At June 30, 2021, a liability of $1,900 was recorded for the contingent earn-out. In the second quarter of the fiscal year ended March 31, 2022 (which we refer to as "fiscal 2022"), the earn-out agreement was terminated and the contingent liability was reversed into other operating income, net, on our Condensed Consolidated Statement of Operations. its COVID 19 shutdown.
Summary
Highlights foryear (the "BN Performance Bonus"). During the three months ended September 30, 2022 include:
21
16
Cautionary Note Regarding Forward-Looking Statements
This report on Form 10-Q (the "Form 10-Q") and other documents we file with the Securities and Exchange Commission ("SEC") include 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 (the "Exchange Act").amended. All statements other than statements of historical fact are forward-looking statements for purposes of this report.Form 10-K. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results implied by the forward-looking statements. Forward-looking statements are indicated by words such as "anticipate," "believe," "continue," "could," "estimate," "can," "may," "intend," "expect," "plan," "goal," "predict," "project," "outlook," "potential," "should," "will," and similar words and expressions.
Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause our actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements including, but not limited to, those described in the "Risk Factors" section in Item 1A of our Annual Report on Form 10-K for fiscal 20222023 and elsewhere in this report.the reports we file with the SEC. Undue reliance should not be placed on our forward-looking statements. New risks and uncertainties arise from time to time and we cannot predict these events or how they may affect us and cause actual results to differ materially from those expressed or implied by our forward-looking statements. Therefore, you should not rely on our forward-looking statements as predictions of future events. When considering these risks, uncertainties and assumptions, you should keep in mind the cautionary statements contained in this report and any documents incorporated herein by reference. You should read this document and the documents that we reference in this Quarterly Report on Form 10-Q (the "Form 10-Q") completely and with the understanding that our actual future results may be materially different from what we expect. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
All forward-looking statements included in this Form 10-Q are made only as of the date indicated or as of the date of this Form 10-Q. Except as required by law, we undertake no obligation to update or announce any revisions to forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.
22
Current Market Conditions
Demand for our equipment and systems for the defense industry is expected to remain strong and continue to expand, based on our significant backlog, improved execution, long-standing relationship with the U.S. Navy, defense budget plans, the projected procurement of submarines, aircraft carriers and undersea propulsion and power systems and the solutions we provide. In addition to U.S. Navy applications, we also provide specialty pumps, turbines, compressors and controllers for various fluid and thermal management systems used in Department of Defense radar, laser, electronics and power systems. We have built a leading position, and in some instances, a sole source position, for certain systems and equipment for the defense industry.
Our traditional energy markets are undergoing significant transition. While we expect that fossil fuels will continue to be an important component in the global energy industry for many years to come, there are significant changes in the priorities for capital investments by our customers and the regions in which those investments are being made. We expect that the systemic changes in the energy markets, which are influenced by the increasing use by consumers of alternative fuels, will lead to demand growth for fossil-based fuels that is less than the global growth rate. Currently, opportunities in the energy markets outside North America have been greater than opportunities inside of North America, but opportunities outside of North America are highly competitive and pricing is challenging. In those instances, we have been selective in the opportunities we have pursued in order to ensure we receive the proper return on our investment. Over the long term, weWe also anticipate that future investment by refiners in renewable fuels (e.g., renewable diesel), in existing refineries (e.g., to expand feedstock processing flexibility and to improve conversion of oil to refined products) to gain greater throughput, or to build new capacity (e.g., integrated refineries with petrochemical products capabilities), will continue to drive demand for our products and services. The timing and catalyst for a recovery in these markets (crude oil refining and chemical/petrochemical) remainremains uncertain. Accordingly, we believe that in the near term the quantity of projects available for us to compete for will remain low and that new project pricing will remain challenging.
Of note, over the last yearfew years we have experienced an increase in our energy and chemical aftermarket orders, primarily from the domestic market. Aftermarket orders have historically been a leading indicator of future capital investment by our customers in their facilities for upgrades and expansions. As such we believe there is the possibility ofHowever, if a cyclicalcapital investment upturn in calendar year 2023 following several years of reduced capital spending in a low oil price environment. However,were to occur, we do not expect the next cycle to be as robust as years past due to the factors discussed above.
17
The alternative and clean energy opportunities for our heat transfer, power production and fluid transfer systems are expected to continue to grow. We assist in designing, developing and producing equipment for hydrogen production, distribution and fueling systems, concentrated solar power and storage, and small modular nuclear systems. We are positioning the Company to be a more significant contributor as these markets continue to develop.
We believe that chemical and petrochemical capital investment will continue to decouple from energy investment. Over the long term, we expect that population growth, an expanding global middle class and an increasing desire for improved quality of life and access to consumer products will drive increased demand for industrial goods within the plastics and resins value chain along with fertilizers andor related products. As such, we expect investment in new global chemical and petrochemical capacity will improve and drive growth in demand for our products and services over the long term.services.
Our turbomachinery, pumps and cryogenic products and market access provide revenue and growth potential in the commercial space/aerospace markets. The commercial space market has grown and evolved rapidly, and we provide rocket engine turbo pump systems and components tofor many of the key players in the industry.launch providers for satellites. We expect that in the long term extended space exploration will become more prevalent, and we anticipate that our thermal/fluid management and environmental control and life support system turbomachinery will play important roles. We are also participating in future aerospace power and propulsion system development through supply of fluid and thermal management systems components. Small power dense systems are imperative for these applications and we believe our technology and expertise will enable us to achieve sales growth in this market as well. For the first six months of fiscal 2023, salesSales and orders to the space industry represented 15%are variable in nature and many of our sales comparedcustomers, who are key players in the industry, have yet to 0% priorachieve profitability and may be unable to the BN acquisition.continue operations without additional funding similar to Virgin Orbit. Thus, future revenue and growth to this market can be uncertain and may negatively impact our business.
The chartAs illustrated below, illustrateswe have succeeded over the last several years with our strategy to increase our participation in the defense market.market as opportunities in our legacy refining and petrochemical markets diminished. The defense market comprised 79% of our total backlog at SeptemberJune 30, 2022 and generally have longer conversion times than our other markets. We believe this strategy shift provides us more stability and visibility and is especially beneficial when our refining and process markets are weak.2023.
23
*Note:Note: FYE"FYE" refers to fiscal year ended March 31
We have faced, and may continue to face, significant cost inflation, specifically in labor costs, raw materials, and other supply chain costs due to increased demand for raw materials and resources caused by the broad disruption of the global supply chain associated with the impact of COVID-19. International conflicts or other geopolitical events, including the 2022 Russian invasion of Ukraine, may further contribute to increased supply chain costs due to shortages in raw materials, increased costs for transportation and energy, disruptions in supply chains, and heightened inflation. Further escalation of geopolitical tensions may also lead to changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain, and consequently our results of operation. While there could ultimately be a material impact on our operations and liquidity, at the time of this report, the impact could not be determined.
Results of Operations
To better understand the significant factors that influenced our performance during the periods presented, the following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the notes to our Condensed Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q.
The following table summarizes our results of operations for the periods indicated:
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|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net sales |
| $ | 38,143 |
|
| $ | 34,146 |
|
| $ | 74,218 |
|
| $ | 54,303 |
|
Gross profit |
| $ | 5,280 |
|
| $ | 3,443 |
|
| $ | 12,024 |
|
| $ | 4,357 |
|
Gross profit margin |
|
| 14 | % |
|
| 10 | % |
|
| 16 | % |
|
| 8 | % |
SG&A expenses (1) |
| $ | 5,332 |
|
| $ | 5,247 |
|
| $ | 11,091 |
|
| $ | 10,170 |
|
SG&A as a percent of sales |
|
| 14 | % |
|
| 15 | % |
|
| 15 | % |
|
| 19 | % |
Net income (loss) |
| $ | (196 | ) |
| $ | (492 | ) |
| $ | 480 |
|
| $ | (3,618 | ) |
Diluted income (loss) per share |
| $ | (0.02 | ) |
| $ | (0.05 | ) |
| $ | 0.05 |
|
| $ | (0.35 | ) |
Total assets |
| $ | 188,905 |
|
| $ | 191,836 |
|
| $ | 188,905 |
|
| $ | 191,836 |
|
Total assets excluding cash and cash equivalents |
| $ | 174,783 |
|
| $ | 175,373 |
|
| $ | 174,783 |
|
| $ | 175,373 |
|
|
| Three Months Ended |
| |||||
|
| June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net sales |
| $ | 47,569 |
|
| $ | 36,075 |
|
Gross profit |
| $ | 10,977 |
|
| $ | 6,744 |
|
Gross profit margin |
|
| 23 | % |
|
| 19 | % |
SG&A expenses (1) |
| $ | 7,293 |
|
| $ | 5,759 |
|
SG&A as a percent of sales |
|
| 15 | % |
|
| 16 | % |
Net income |
| $ | 2,640 |
|
| $ | 676 |
|
Diluted income per share |
| $ | 0.25 |
|
| $ | 0.06 |
|
The Second Quarterfollowing tables provide our net sales by product line and First Six Monthsgeographic region including the percentage of Fiscal 2023 Compared withtotal and change in comparison to the Second Quarterprior year for each category and First Six Months of Fiscal 2022period presented:
| Three Months Ended |
|
|
|
|
|
|
| |||||||||||||
| June 30, |
|
| Change |
| ||||||||||||||||
Market | 2023 |
| % |
|
| 2022 |
| % |
|
| $ |
|
| % |
| ||||||
Refining | $ | 6,867 |
|
| 14 | % |
| $ | 7,875 |
|
| 22 | % |
| $ | (1,008 | ) |
|
| -13 | % |
Chemical/Petrochemical |
| 6,041 |
|
| 13 | % |
|
| 5,875 |
|
| 16 | % |
|
| 166 |
|
|
| 3 | % |
Space |
| 4,822 |
|
| 10 | % |
|
| 6,462 |
|
| 18 | % |
|
| (1,640 | ) |
|
| -25 | % |
Defense |
| 22,817 |
|
| 48 | % |
|
| 9,800 |
|
| 27 | % |
|
| 13,017 |
|
|
| 133 | % |
Other |
| 7,022 |
|
| 15 | % |
|
| 6,063 |
|
| 17 | % |
|
| 959 |
|
|
| 16 | % |
Net sales | $ | 47,569 |
|
| 100 | % |
| $ | 36,075 |
|
| 100 | % |
| $ | 11,494 |
|
|
| 32 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Geographic Region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
United States | $ | 38,141 |
|
| 80 | % |
| $ | 28,169 |
|
| 78 | % |
| $ | 9,972 |
|
|
| 35 | % |
International |
| 9,428 |
|
| 20 | % |
|
| 7,906 |
|
| 22 | % |
|
| 1,522 |
|
|
| 19 | % |
Net sales | $ | 47,569 |
|
| 100 | % |
| $ | 36,075 |
|
| 100 | % |
| $ | 11,494 |
|
|
| 32 | % |
Net sales for the secondfirst quarter of fiscal 20232024 were $38,143, an increase of 12% from$47,569, up $11,494 or 32% compared with $36,075 for the secondfirst quarter of fiscal 2022 and was across our diversified revenue base.2023. This increase includedover the prior year was primarily due to sales to the defense industry, which increased $13,017 versus the prior year period primarily due to an improved mix of higher margin defense projects, better execution, the timing of material receipts, and improved pricing. Net sales also benefitted from continued growth in commercial aftermarket of approximately $3,000 in comparison to the prior year period, which is included in our commercialrefining and chemical/petrochemical markets. Partially offsetting these increases was a $1,640 decline in space market which increased $3,014sales primarily due to the timing of projects, as well as the loss of Virgin Orbit as a customer in April 2023 due to its Chapter 11 bankruptcy. We also had lower refining industry sales of $1,008 primarily due to a decrease in revenue from our India and our new energy market which increased approximately $1,500 as newly awarded programs continuedChina subsidiaries due to ramp up. Additionally, our salesthe timing of projects and lower demand in China reflecting the impact of its COVID 19 shutdown.
24
continued to benefit from strong growth in our commercial aftermarket, which increased $4,672. These increases were partially offset by lower defense sales of $4,943 due to project timing. Domestic sales as a percentage of aggregatenet sales wereincreased to 80% in the secondfirst quarter of fiscal 20232024 compared with 77%78% in the secondfirst quarter of fiscal 2022, reflecting the increase in our defense and commercial space industry businesses which are U.S. based. Sales in the three months ended September 30, 20222023. These sales were 20%primarily to the refining industry, 15% to the chemical and petrochemical industries, 39%U.S. defense market, which represented 48% of net sales for the defense industry, 11% to space, and 15% to other commercial and industrial applications which includes sales to the new energy market. Sales in the three months ended September 30, 2021 were 18% to the refining industry, 10% to the chemical and petrochemical industries, 58% for the defense industry, 4% to space, and 10% to other commercial and industrial applications.first quarter of fiscal 2024. Fluctuation in sales among markets, products and geographic locations varies, sometimes significantly, from quarter-to-quarter based on timing and magnitude of projects.
Net sales for the first six months of fiscal 2023 were $74,218, an increase of $19,915 or 37% from the first six months of fiscal 2022 and was across our diversified revenue base. Approximately $8,900 of this increase was due to having three months of BN results in the first quarter of fiscal 2023 compared to one month in the first quarter of fiscal 2022. Additionally, our sales continued to benefit from our diversified revenue base including strong growth in commercial aftermarket of approximately $7,000, commercial space market of $3,014 and our new energy market which increased approximately $1,500. These increases were partially offset by lower defense sales of $2,222 due to project timing. Domestic sales as a percentage of aggregate sales were 79% in the first six months of fiscal 2023 compared with 74% in the first six months of fiscal 2022, reflecting the increase in our defense and space industry businesses which are U.S. based. Sales in the six months ended September 30, 2022 were 21% to the refining industry, 16% to the chemical and petrochemical industries, 33% for the defense industry, 15% to space, and 15% to other commercial and industrial applications. Sales in the six months ended September 30, 2021 were 20% to the refining industry, 15% to the chemical and petrochemical industries, 49% for the defense industry, 4% to space, and 12% to other commercial and industrial applications. See also "Current Market Conditions," above. For additional information on anticipated future sales and our markets, see "Orders and Backlog" below.
Gross profit margin for the secondfirst quarter of fiscal 20232024 was 14%23%, compared with 10%19% for the secondfirst quarter of fiscal 2022. Gross profit for the second quarter of fiscal 2023 increased compared with fiscal 2022, to $5,280 from $3,443. These increases were primarily due to2023. This increase reflected an improved mix of sales related to higher margin defense projects (space and commercial aftermarket) and improvedaftermarket, as well as better execution and pricing on defense contracts, partially offset by higher incentive compensation. Inoverall incentive-based compensation in comparison with the second quarter of fiscal 2023, we shipped an additional first article U.S. Navy project and are on schedule to complete the remaining significant first article projects by the end ofprior year. Gross profit for the first quarter of fiscal 2024.
Gross profit margin for the first six months of fiscal 2023 was 16%2024 increased $4,233, or 63%, compared with 8% for the first six months of fiscal 2022. Gross profit for the first six months of fiscal 2023, increased compared with fiscal 2022, to $12,024 from $4,357. These increases were$10,977. This increase was primarily due to an improved mix ofthe increase in net sales related to higherand gross profit margin projects (space and commercial aftermarket) and improved execution and pricing on defense contracts, partially offset by higher incentive compensation. In the first six months of fiscal 2023, we completed three first article U.S. Navy projects. In addition to the above, the first six months of fiscal 2023 includes two additional months of operations from BN compared to the first six months of fiscal 2022.
SG&A expense including amortization for the second quarter of fiscal 2023 was $5,332 compared to $5,247 for the second quarter of fiscal 2022. This increase was due to higher incentive compensation, partially offset by cost savings and deferral initiatives. These efforts included reducing the use of outside sales agents, cost management, and delayed hiring of non-critical positions. As a result, SG&A expense as a percentage of sales in the second quarter of fiscal 2023 was 14% of sales compared with 15% of sales in the comparable period in fiscal 2022.discussed above.
SG&A expense including amortization for the first six monthsquarter of fiscal 20232024 was $11,091$7,293, up $921$1,534 compared with $10,170 for the first six monthsquarter of fiscal 2022.2023. Approximately $1,400$900 of this increase was due to having two additional monthsincreased performance-based compensation expense, which includes $767 related to the BN Performance Bonus. The remainder of BN resultsthe increase in SG&A expense primarily relates to cost increases due to inflation, as well as increased professional services of approximately $200 due to growth in our complexity. As a percentage of net sales, SG&A expense in the first six monthsquarter of fiscal 2023 compared2024 improved to the prior year period, as well as higher incentive compensation. These increases were partially offset by cost savings and deferral initiatives which included reducing the use of outside sales agents, cost management and delayed hiring of non-critical positions. As a result, SG&A expense as a percentage of sales in the first six months of fiscal 2023 was 15% of sales compared with 19% of sales16% in the comparable fiscal 2023 period in fiscal 2022.as we were able to leverage our existing infrastructure and grow revenue faster than our SG&A expenses.
During the second quarter of fiscal 2022, we terminated the BN contingent earn-out agreement and the contingent liability of $1,900 was reversed into other operating income, net, on our Condensed Consolidated Statement of Operations. In connection with the termination of this earn-out agreement, we entered into a Bonus Agreement to provide certain employees of BN with performance-based awards based on results of BN for fiscal years ending March 31, 2024, 2025, and 2026. Additionally, in the second quarter of fiscal 2022 we incurred $798 of severance costs related to the departure of our Chief Executive Officer, which was also recorded into other operating income, net.
Net interest expense for the second quarter of fiscal 2023 was $246 compared to $115 in the second quarter of fiscal 2022 due to an increase in interest rates since the second quarter of fiscal 2022, partially offset by lower debt levels of $4,375 due to repayments made since the second quarter of fiscal 2022.
2519
Net interest expense for the first six monthsquarter of fiscal 2024 was $185 compared with $157 in the first quarter of fiscal 2023 was $403 compared to $137 in the first six months of fiscal 2022 primarily due to increased borrowings related to the BN acquisition, as well as increased interest rates since the first quarter of 2023, which was partially offset by the repayment of $6,000 of debt since the first quarter of fiscal 2022.2023.
Our effective tax rate in the secondfirst quarter of fiscal 20232024 was 17%22.5%, compared with 27%24.1% in the secondfirst quarter of fiscal 2022. Our effective tax rate for the first six months of fiscal 2023 was 27%, compared with 20% for the first six months of fiscal 2022.2023. This increasedecrease was primarily due to discrete tax expense recognized in the first quarter of fiscal 2023 compared with a discrete benefit in the first quarter of fiscal 2024 related to the vesting of restricted stock awards. Our expected effective tax rate for fiscal 20232024 is 21%22% to 22%23% as the impact of these discrete tax items on our effective tax rate lessens over the course of fiscal 2023.
The net result of the above is that net loss and loss per diluted share for the second quarter of fiscal 2023 were $196 and $0.02 per share, respectively, compared with a loss of $492 and $0.05 per share, respectively, for the second quarter of fiscal 2022. Adjusted net income and adjusted net income per diluted share for the second quarter of fiscal 2023 were $325 and $0.03 per share, respectively, compared with a loss of $639 and $0.06 per share, respectively, for the second quarter of fiscal 2022. Net income and income per diluted share for the first six monthsquarter of fiscal 20232024 were $480$2,640 and $0.05$0.25 per share, respectively, compared with a loss of $3,618$676 and $0.35$0.06 per share, respectively, for the first six monthsquarter of fiscal 2022.2023. Adjusted net income and adjusted net income per diluted share for the first six monthsquarter of fiscal 20232024 were $1,654$3,574 and $0.16$0.33 per share, respectively, compared with a loss of $3,450$1,329 and $0.33$0.12 per share, respectively, for the first six monthsquarter of fiscal 2022.2023. See "Non-GAAP Measures" below for a reconciliation of adjusted net income (loss) and adjusted net income (loss) per diluted share to the comparable GAAP amount.
Non-GAAP Measures
Adjusted earnings (loss) before net interest expense, income taxes, depreciation and amortization ("EBITDA"), adjusted net income, (loss), and adjusted net income (loss) per diluted share are provided for information purposes only and are not measures of financial performance under accounting principles generally accepted in the U.S. ("GAAP"). Management believes the presentation of these financial measures reflecting non-GAAP adjustments provides important supplemental information to investors and other users of our financial statements in evaluating the operating results of the Company. In particular, those charges and credits that are not directly related to operating performance, and that are not a helpful measure of the performance of our underlying business particularly in light of their unpredictable nature. These non-GAAP disclosures have limitations as analytical tools, should not be viewed as a substitute for net income (loss) or net income (loss) per diluted share determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP, nor is itare they necessarily comparable to non-GAAP performance measures that may be presented by other companies. In addition, supplemental presentation should not be construed as an inference that our future results will be unaffected by similar adjustments to net income (loss) or net income (loss) per diluted share determined in accordance with GAAP. Adjusted EBITDA, adjusted net income (loss) and adjusted net income (loss) per diluted share are key metrics used by management and our board of directors to assess the Company’s financial and operating performance and adjusted EBITDA is a basis for a portion of management's performance-based compensation.
Adjusted EBITDA excludes charges for depreciation, amortization, net interest expense, taxes, other acquisition related expenses, the BN Performance Bonus, and other unusual/nonrecurring expenses. Adjusted net income (loss) and adjusted net income (loss) per diluted share excludes intangible amortization, the BN Performance Bonus, other costs related to the acquisition, related expenses,and other unusual/nonrecurring expenses and the related tax impacts of those adjustments.expenses.
A reconciliation of adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per diluted share to net income (loss) in accordance with GAAP is as follows:
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| September 30, |
|
| September 30, |
| ||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net income (loss) | $ | (196 | ) |
| $ | (492 | ) |
| $ | 480 |
|
| $ | (3,618 | ) |
Acquisition related inventory step-up expense |
| - |
|
|
| 41 |
|
|
| - |
|
|
| 41 |
|
Acquisition & integration costs |
| - |
|
|
| 93 |
|
|
| 54 |
|
|
| 262 |
|
Change in fair value of contingent consideration |
| - |
|
|
| (1,900 | ) |
|
| - |
|
|
| (1,900 | ) |
CEO and CFO transition costs |
| - |
|
|
| 798 |
|
|
| - |
|
|
| 798 |
|
Debt amendment costs |
| 41 |
|
|
| - |
|
|
| 194 |
|
|
| - |
|
Net interest expense |
| 246 |
|
|
| 115 |
|
|
| 403 |
|
|
| 137 |
|
Income taxes |
| (40 | ) |
|
| (180 | ) |
|
| 175 |
|
|
| (925 | ) |
Depreciation & amortization |
| 1,487 |
|
|
| 1,588 |
|
|
| 2,962 |
|
|
| 2,408 |
|
Adjusted EBITDA | $ | 1,538 |
|
| $ | 63 |
|
| $ | 4,268 |
|
| $ | (2,797 | ) |
Adjusted EBITDA margin % |
| 4.0 | % |
|
| 0.2 | % |
|
| 5.8 | % |
|
| -5.2 | % |
| Three Months Ended |
| |||||
| June 30, |
| |||||
| 2023 |
|
| 2022 |
| ||
Net income | $ | 2,640 |
|
| $ | 676 |
|
Acquisition & integration costs |
| - |
|
|
| 54 |
|
BN Performance Bonus |
| 767 |
|
|
| - |
|
Debt amendment costs |
| - |
|
|
| 153 |
|
Net interest expense |
| 185 |
|
|
| 157 |
|
Income taxes |
| 766 |
|
|
| 215 |
|
Depreciation & amortization |
| 1,239 |
|
|
| 1,475 |
|
Adjusted EBITDA | $ | 5,597 |
|
| $ | 2,730 |
|
Adjusted EBITDA as a % of revenue |
| 11.8 | % |
|
| 7.6 | % |
2620
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||
| September 30, |
|
| September 30, |
| ||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
|
| 2021 |
| |||||
Net income (loss) | $ | (196 | ) |
| $ | (492 | ) |
| $ | 480 |
|
|
| $ | (3,618 | ) | |
Acquisition related inventory step-up expense |
| - |
|
|
| 41 |
|
|
| - |
|
| - |
|
| 41 |
|
Acquisition & integration costs |
| - |
|
|
| 93 |
|
|
| 54 |
|
| - |
|
| 262 |
|
Amortization of intangible assets |
| 619 |
|
|
| 784 |
|
|
| 1,238 |
|
|
|
| 1,009 |
| |
Change in fair value of contingent consideration |
| - |
|
|
| (1,900 | ) |
|
| - |
|
|
|
| (1,900 | ) | |
CEO and CFO transition costs |
| - |
|
|
| 798 |
|
|
| - |
|
|
|
| 798 |
| |
Debt amendment costs |
| 41 |
|
|
| - |
|
|
| 194 |
|
|
|
| - |
| |
Normalize tax rate(1) |
| (139 | ) |
|
| 37 |
|
|
| (312 | ) |
|
|
| (42 | ) | |
Adjusted net income (loss) | $ | 325 |
|
| $ | (639 | ) |
| $ | 1,654 |
|
|
| $ | (3,450 | ) | |
Adjusted diluted earnings (loss) per share | $ | 0.03 |
|
| $ | (0.06 | ) |
| $ | 0.16 |
|
|
| $ | (0.33 | ) |
| Three Months Ended |
| |||||
| June 30, |
| |||||
| 2023 |
|
| 2022 |
| ||
Net income | $ | 2,640 |
|
| $ | 676 |
|
Acquisition & integration costs |
| - |
|
|
| 54 |
|
Amortization of intangible assets |
| 446 |
|
|
| 619 |
|
BN Performance Bonus |
| 767 |
|
|
| - |
|
Debt amendment costs |
| - |
|
|
| 153 |
|
Normalize tax rate(1) |
| (279 | ) |
|
| (173 | ) |
Adjusted net income | $ | 3,574 |
|
| $ | 1,329 |
|
|
|
|
|
|
| ||
GAAP diluted net income per share | $ | 0.25 |
|
| $ | 0.06 |
|
Adjusted diluted net income per share | $ | 0.33 |
|
| $ | 0.12 |
|
Diluted weighted average common shares outstanding |
| 10,719 |
|
|
| 10,630 |
|
|
|
|
|
|
| ||
(1) Applies a normalized tax rate to non-GAAP adjustments, which are pre-tax, based upon the statutory tax rate of 23%. |
| ||||||
|
|
(1) Applies a normalized tax rate to non-GAAP adjustments, which are pre-tax, based upon the full fiscal year expected effective tax rate.
Liquidity and Capital Resources
The following discussion should be read in conjunction with our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows:
|
| September 30, |
| March 31, |
|
| June 30, |
| March 31, |
| ||||||
|
| 2022 |
|
| 2022 |
|
| 2023 |
|
| 2023 |
| ||||
Cash and cash equivalents |
| $ | 14,122 |
|
| $ | 14,741 |
|
| $ | 24,662 |
|
| $ | 18,257 |
|
Working capital (1) |
|
| 28,297 |
|
|
| 27,796 |
|
|
| 27,004 |
|
|
| 23,904 |
|
Working capital ratio(1) |
|
| 1.4 |
|
|
| 1.5 |
|
|
| 1.3 |
|
|
| 1.3 |
|
Working capital excluding cash and cash equivalents |
|
| 14,175 |
|
|
| 13,055 |
| ||||||||
Working capital excluding cash and cash equivalents as a percent |
|
| 9.9 | % |
|
| 10.6 | % |
Net cash usedprovided by operating activities for the first six monthsquarter of fiscal 20232024 was $398$8,603 compared with $8,702cash used by operating activities of cash used$689 for the first six monthsquarter of fiscal 2022. This decrease in2023. The cash usedprovided by operations was primarily due to higher cash net income during the first six monthsquarter of fiscal 20232024 was higher than the comparable prior year period lowerprimarily as a result of higher cash net income and a reduction in working capital build, andas a result of the timing of payments and receipts.change in payment terms related to a large defense customer during the quarter.
Dividend payments and capital expenditures in the first six months of fiscal 2023 were $0 and $1,176, respectively, compared with $2,353 and $1,227, respectively, for the first six months of fiscal 2022. In the fourth quarter of fiscal 2022, we suspended our dividend in accordance with the terms of our credit agreement with Bank of America. There can be no guarantee that we will pay dividends in the future and any determination by our board of directors with respect to dividends will depend on a variety of factors, including our future financial performance, organic growth and acquisition opportunities, general economic conditions and other factors, many of which are beyond our control. Capital expenditures for fiscal 2023 are expected to be approximately $3,000$12,000 to $4,000. Our fiscal 2023$13,500 and includes approximately $5,500 related to the expansion of production capabilities at our Batavia facility, which is being funded by one of our defense customers. Fiscal 2024 capital expenditures are expected to be primarily for machinery and equipment, as well as for buildings and leasehold improvements to fund our growth and costproductivity improvement initiatives. The majority of our planned capital expenditures are discretionary. We estimate that our maintenance capital spend is approximately $2,000 per year.
Cash and cash equivalents were $14,122$24,662 at SeptemberJune 30, 20222023 compared with $14,741$18,257 at March 31, 2022, as2023, up $6,405 primarily due to cash usedprovided by operating activities and foroperations, offset by capital expenditures, were funded with amounts borrowed under our credit facility.and debt repayments. At SeptemberJune 30, 2022,2023, approximately $6,400$7,000 of our cash and cash equivalents wasis used to secure our letters of credit and $1,802$2,514 of our cash wasis held by our China and India operations.
On June 1, 2021, we entered into a $20,000 five-year term loan with Bank of America.America (the "Term Loan"). The term loanTerm Loan requires monthly principal payments of $167 through June 1, 2026, with the remaining principal amount plus all interest due on the maturity date. The interest rate on the term loanTerm Loan is the applicable Bloomberg Short-Term Bank Yield Index ("BSBY"), plus 1.50%, subject to a 0.00% floor.
27
On June 1, 2021, we entered into a five-year revolving credit facility with Bank of America (the "Revolving Credit Facility") that provided a $30,000 line of credit, including letters of credit and bank guarantees, expandable at our option and the bank's approval at any time up to $40,000. As of SeptemberJune 30, 2023 and March 31, 2022, there was $2,500$0 outstanding on the line of credit.Revolving Credit Facility. Amounts
21
outstanding under the facility agreementRevolving Credit Facility bear interest at a rate equal to BSBY plus 1.50%, subject to a 0.00% floor. As of SeptemberJune 30, 2022,2023, the BSBY rate was 3.9509%5.10279%. As of SeptemberJune 30, 2022,2023, there was $5,706$5,594 letters of credit outstanding with Bank of America.
Under the original term loan agreementTerm Loan and revolving credit facility,Revolving Credit Facility, as amended (the "Credit Facility"), we covenanted to maintain a maximum total leverage ratio, as defined in such agreements,the Credit Facility, of 3.0 to 1.0, with an allowable increase to 3.25 to 1.0 following an acquisition for a period of twelve months following the closing of anthe acquisition. In addition, we covenanted to maintain a minimum fixed charge coverage ratio, as defined in such agreements,the Credit Facility, of 1.2 to 1.0 and minimum margined assets, as defined in such agreements, of 100% of total amounts outstanding on the revolving credit facility,Revolving Credit Facility, including letters of credit. At December 31, 2021, we were out of compliance with our bank agreement covenants and were granted a waiver for noncompliance by Bank of America.
We entered into amendment agreements with Bank of America since origination. Under the amended agreements, we are not required to comply with the maximum total leverage ratio and the minimum fixed charge coverage ratio covenants contained in the original term loan agreement for the periods ending December 31, 2021 and March 31, June 30 and September 30, 2022. The principal balance outstanding on the line of credit may not exceed $15,000, unless letters of credit exceed $11,500, in which case the limit is $17,000, until the compliance date. The compliance date is defined as the date on which Bank of America has received all required financial information with respect to us for the fiscal year ending March 31, 2023 and no event of default exists. In addition, on or before September 1, 2023 and at all times thereafter, all of our deposit accounts, except certain accounts, will be either subject to a deposit account control agreement or maintained with Bank of America. We covenantalso covenanted to maintain EBITDA, as defined in such amendment, of at least ($700) for the twelve-month period ending June 30, 2022 and $1,800 for the twelve-month period ending September 30, 2022; maintain a total maximum leverage ratio of 4.0 to 1.0 for the twelve-month period ending December 31, 2022 and 3.0 to 1.0 for the period ending March 31, 2023; and maintain liquidity, as defined in such amendment,the Credit Facility, of at least $10,000 prior to the occurrence of the compliance date and $20,000 from and after the occurrence of the compliance date.$20,000. As of SeptemberJune 30, 2022,2023, we were in compliance with the amended financial covenants of our loan agreement.agreement and our leverage ratio as calculated in accordance with the terms of the Credit Facility was 1.6x. At SeptemberJune 30, 2022,2023, the amount available under the revolving credit facilityRevolving Credit Facility was $7,657$25,905, subject to the above liquidity and leverage covenants.
In connection with the waiver and amendments discussed above,to the Credit Facility, we are required to pay a back-end fee of $725 to Bank of America payable upon the earliest to occur of (i) any default or event of default, (ii) the last date of availability under the revolving credit facility,Revolving Credit Facility, and (iii) repayment in full of all principal, interest, fees and other obligations, which may be waived or cancelled if certain criteria are met.
We did not have any off-balance sheet arrangements as of SeptemberJune 30, 20222023 and 2021,2022, other than letters of credit incurred in the ordinary course of business.
We believe that cash generated from operations, combined with the liquidity provided by available financing capacity under our credit facility, will be adequate to meet our cash needs for the immediate future. However, we expect to amend our credit facility in fiscal 2024 in order to provide funding for our long-term strategic growth initiatives.
Orders and Backlog
In addition to the non-GAAP measures discussed above, management uses the following key performance metrics to analyze and measure the Company's financial performance and results of operations: orders, backlog, and book-to-bill ratio. Management uses orders and backlog as measures of our current and future business and financial performance.performance and these may not be comparable with measures provided by other companies. Orders represent written communications received from customers requesting us to supplyprovide products and/or services. Orders for the three-month period ended September 30, 2022 were $91,511 compared with $31,386 for the same period last year. This increase is attributable to strong demand across all of our diversified revenue base. More specifically, the second quarter of fiscal 2023 order level was driven by:
Domestic orders in the second quarter of fiscal 2023 were 93% of total orders compared with the second quarter of fiscal 2022 when domestic orders were 80% of total orders. Our ratio of orders to net sales during the second quarter of fiscal 2023 was 2.4.
28
During the first six months of fiscal 2023, orders were $131,819, compared with $52,253 for the same period of fiscal 2022. Domestic orders were 87% of total orders in the first six months of fiscal 2023 compared with 77% for the same period of fiscal 2022. Our ratio of orders to net sales for the first six months of fiscal 2023 was 1.78.
Backlog was $313,340 at September 30, 2022, an increase of 22% compared with $256,536 at March 31, 2022. Backlog is defined as the total dollar value of net orders received for which revenue has not yet been recognized. Approximately 40%Management believes tracking orders and backlog are useful as it often times is a leading indicator of future performance. In accordance with industry practice, contracts may include provisions for cancellation, termination, or suspension at the discretion of the customer.
The book-to-bill ratio is an operational measure that management uses to 45%track the growth prospects of the Company. The Company calculates the book-to-bill ratio for a given period as net orders divided by net sales.
Given that each of orders, currentlybacklog and book-to-bill ratio is an operational measure and that the Company's methodology for calculating these measures does not meet the definition of a non-GAAP measure, as that term is defined by the SEC, a quantitative reconciliation for each is not required or provided.
The following tables provides our orders by market and geographic region including the percentage of total and change in comparison to the prior year for each category and period presented:
22
| Three Months Ended |
|
|
|
|
|
|
| |||||||||||||
| June 30, |
|
| Change |
| ||||||||||||||||
Market | 2023 |
| % |
|
| 2022 |
| % |
|
| $ |
|
| % |
| ||||||
Refining | $ | 14,321 |
|
| 21 | % |
| $ | 11,491 |
|
| 29 | % |
| $ | 2,830 |
|
|
| 25 | % |
Chemical/Petrochemical |
| 10,863 |
|
| 16 | % |
|
| 5,543 |
|
| 14 | % |
|
| 5,320 |
|
|
| 96 | % |
Space |
| 4,606 |
|
| 7 | % |
|
| 7,274 |
|
| 18 | % |
|
| (2,668 | ) |
|
| -37 | % |
Defense |
| 32,958 |
|
| 49 | % |
|
| 11,317 |
|
| 28 | % |
|
| 21,641 |
|
|
| 191 | % |
Other |
| 5,185 |
|
| 8 | % |
|
| 4,683 |
|
| 12 | % |
|
| 502 |
|
|
| 11 | % |
Total orders | $ | 67,933 |
|
| 100 | % |
| $ | 40,308 |
|
| 100 | % |
| $ | 27,625 |
|
|
| 69 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Geographic Region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
United States | $ | 52,115 |
|
| 77 | % |
| $ | 29,697 |
|
| 74 | % |
| $ | 22,418 |
|
|
| 75 | % |
International |
| 15,818 |
|
| 23 | % |
|
| 10,611 |
|
| 26 | % |
|
| 5,207 |
|
|
| 49 | % |
Total orders | $ | 67,933 |
|
| 100 | % |
| $ | 40,308 |
|
| 100 | % |
| $ | 27,625 |
|
|
| 69 | % |
Orders booked for the three-month period ended June 30, 2023 were $67,933, an increase of $27,625 over the comparable period of fiscal 2023. This increase was primarily driven by growth in defense, refining and petrochemical aftermarket, offset by reductions in the space market. Noteworthy variances related to orders during the first quarter of 2024 included the following:
For the three-month period ended June 30, 2023, our book-to-bill ratio was 1.4x compared with 1.1x for the same period last year. We believe the continuation of repeat U.S. Navy orders and strategic investment received during the quarter validates the investments we made, our position as a key supplier to the defense industry and our customer's confidence in our backlogexecution. Additionally, we believe the strong aftermarket orders are expectedsignificant because they historically have been a leading indicator of a cyclical upturn in capital project orders. However, we do not expect the next cycle to be convertedas robust as years past due to salesthe factors discussed above under "Current Market Conditions."
Orders to the U.S. represented 77% of total orders for the first quarter of fiscal 2024 compared to 73% in the first quarter of the prior year. These orders were primarily to the defense market which represented 49% of orders and are U.S. based.
The following table provides our backlog by market, including the percentage of total backlog, for each category and period presented:
|
| June 30, |
|
|
|
| June 30, |
|
|
| Change |
| |||||||||
Market |
| 2023 |
| % |
|
| 2022 |
| % |
| $ |
|
| % |
| ||||||
Refining |
| $ | 33,264 |
|
| 10 | % |
| $ | 27,939 |
|
| 11 | % | $ | 5,325 |
|
|
| 19 | % |
Chemical/Petrochemical |
|
| 12,794 |
|
| 4 | % |
|
| 13,853 |
|
| 5 | % |
| (1,059 | ) |
|
| -8 | % |
Space |
|
| 8,675 |
|
| 3 | % |
|
| 15,143 |
|
| 6 | % |
| (6,468 | ) |
|
| -43 | % |
Defense |
|
| 253,358 |
|
| 79 | % |
|
| 193,195 |
|
| 74 | % |
| 60,163 |
|
|
| 31 | % |
Other |
|
| 13,912 |
|
| 4 | % |
|
| 10,545 |
|
| 4 | % |
| 3,367 |
|
|
| 32 | % |
Total backlog |
| $ | 322,003 |
|
| 100 | % |
| $ | 260,675 |
|
| 100 | % | $ | 61,328 |
|
|
| 24 | % |
Backlog was $322,003 at June 30, 2023, a 24% increase over the prior year period. We expect to recognize revenue on approximately 50% of the backlog within one year, and 25% to 30% afterin one year but withinto two years and the remaining beyond two years. The majority of the orders that are expected to convert beyond twelvetwenty-four months are for the defense industry, specifically the U.S. Navy that have a long conversion cycle (up to six years). At September 30, 2022, 79% of our backlog was attributable to defense projects, 9% for refinery project work, 4% for chemical and petrochemical projects, 4% for space projects and 4% for other industrial applications. At March 31, 2022, 76% of our backlog was attributable to defense projects, 10% for refinery project work, 5% for chemical and petrochemical projects, 4% for space projects and 5% for other industrial applications.
Outlook
Our objective is to leverage our engineering know-how and depth of application experience to identify more opportunities for our products and technologies in our targeted markets.
Sales in fiscal 2023 are expected to beEarly in the range of $135,000 to $150,000. We expect gross profit margins for the fiscal year to be approximately 16% to 17% of sales and SG&A expenses to be 15% to 16% of sales. Adjusted EBITDA is expected to be $6,500 to $9,500 for fiscal 2023. Our results for the first halfsecond quarter of fiscal 2023 were in-line with our expectations and give us confidence2024, we will be able to achieve our full year guidance. Fiscal 2022 and year-to-date fiscal 2023 results were impacted by our large, lower margin,shipped the fifth of six units of first article U.S. Navy projects and we believe this negative impact will continue throughare on schedule to complete the remaining first article unit in the third quarter of 2024 when the last of these largerfiscal 2024. In fiscal 2023, we completed four first article projects is completed. We expect repeat orders for these larger U.S. Navy units. These projects will be at higher margins through increased pricingwere the source of the majority of the losses incurred in fiscal 2022. There are additional first article programs in our backlog but none as significant as the projects impacting fiscal 2022 and better execution. It is also importantare expected to note thatcomprise a lower percentage of revenue going forward.
23
Outlook
We are providing the Company's third quarter is typically impacted by lower labor hours due to the holidays.following fiscal 2024 outlook:
Net Sales | $170 million to $180 million | |
Gross Profit | 18% to 19% of sales | |
SG&A Expenses(1) | 15% to 16% of sales | |
Tax Rate | 22% to 23% | |
Adjusted EBITDA(2) | $11.5 million to $13.5 million | |
(1) Includes approximately $2 million to $3 million of BN performance bonus and approximately $0.5 million to $1.0 million of ERP conversion costs. | ||
(2) Excludes approximately $2 million to $3 million of BN performance bonus and approximately $0.5 million to $1.0 million of ERP conversion costs. |
Our expectationsSee "Cautionary Note Regarding Forward-Looking Statement" and "Non-GAAP Measures" above for salesadditional information about forward-looking statements and profitability assume that we will be able to operate our production facilities at planned capacity, have access to our global supply chain including our subcontractors, and do not experience significant COVID-19-related disruptions or any other unforeseen events.non-GAAP measures. We have not reconciled non-GAAP forward-looking Adjusted EBITDA to its most directly comparable GAAP measure, as permitted by Item 10(e)(1)(i)(B) of Regulation S-K. Such reconciliation would require unreasonable efforts to estimate and quantify various necessary GAAP components largely because forecasting or predicting our future operating results is subject to many factors out of our control or not readily predictable.
We have made significant progress with the advancements in our business, which puts us on schedule in achieving our fiscal 2027 goals. As a result, we continue to believe we can achieve greater than $200,000 in revenue (8% to 10% average annualized revenue growth) and Adjusted EBITDA margins in the low to mid-teens by fiscal 2027.
29Our expectations for sales and profitability assume that we will be able to operate our production facilities at planned capacity, have access to our global supply chain including our subcontractors, do not experience significant global health related disruptions, and assumes no further impact from Virgin Orbit or any other unforeseen events.
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Contingencies and Commitments
We have been named as a defendant in lawsuits alleging personal injury from exposure to asbestos allegedly contained in or accompanying our products. We are a co-defendant with numerous other defendants in these lawsuits and intend to vigorously defend ourselves against these claims. The claims in our current lawsuits are similar to those made in previous asbestos lawsuits that named us as a defendant. Such previous lawsuits either were dismissed when it was shown that we had not supplied products to the plaintiffs’ places of work, or were settled by us for immaterial amounts.
As of SeptemberJune 30, 2022,2023, we are subject to the claims noted above, as well as other legal proceedings and potential claims that have arisen in the ordinary course of business. Although the outcome of the lawsuits, legal proceedings or potential claims to which we are or may become a party cannot be determined and an estimate of the reasonably possible loss or range of loss cannot be made for the majority of the claims, we do not believe that the outcomes, either individually or in the aggregate, will have a material adverse effect on our results of operations, financial position or cash flows.
Critical Accounting Policies, Estimates, and Judgments
Our unaudited condensed consolidated financial statements are based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make significant assumptions. We believe that the most critical accounting estimates used in the preparation of our condensed consolidated financial statements relate to labor hour estimates, total cost, and establishment of operational milestones which are used to recognize revenue over time, accounting for contingencies, under which we accrue a loss when it is probable that a liability has been incurred and the amount can be reasonably estimated, accounting for business combinations and intangible assets, and accounting for pensions and other postretirement benefits. For further information, refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8 "Financial Statements and Supplementary Data" included in our Annual Report on Form 10-K for the year ended March 31, 2022.2023.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The principal market risks (i.e., the risk of loss arising from market changes) to which we are exposed are foreign currency exchange rates, price risk, and interest rate risk.
The assumptions applied in preparing the following qualitative and quantitative disclosures regarding foreign currency exchange rate, price risk and interest rate risk are based upon volatility ranges experienced by us in relevant historical periods, our current knowledge of the marketplace, and our judgment of the probability of future volatility based upon the historical trends and economic conditions of the markets in which we operate.
Foreign Currency
International consolidated sales for the first sixthree months of fiscal 20232024 were 21%20% of total sales compared with 26% for the same period of fiscal 2022.sales. Operating in markets throughout the world exposes us to movements in currency exchange rates. Currency movements can affect sales in several ways, the foremost being our ability to compete for orders against foreign competitors that base their prices on relatively weaker currencies. Business lost due to competition for orders against competitors using a relatively weaker currency cannot be quantified. In addition, cash can be adversely impacted by the conversion of sales made by us in a foreign currency to U.S. dollars. In each of the first sixthree months of fiscal 20232024 and fiscal 2022,2023, substantially all sales by us and our wholly-owned subsidiaries, for which we were paid, were denominated in the local currency of the respective subsidiary (U.S. dollars, Chinese RMB or India INR). For the first six months of fiscal 2023, foreign currency exchange rate fluctuations reduced our cash balances by $254 primarily due to the strengthening of the U.S. dollar relative to the Chinese RMB.
We have limited exposure to foreign currency purchases. In the first sixthree months of fiscal 2023,2024, our purchases in foreign currencies represented approximately 7%4% of the cost of products sold. At certain times, we may enter into forward foreign currency exchange agreements to hedge our exposure against potential unfavorable changes in foreign currency values on significant sales and purchase contracts negotiated in foreign currencies. Forward foreign currency exchange contracts were not used in the periods being reported in this Form 10-Q and as of SeptemberJune 30, 20222023 and March 31, 2022,2023, we held no forward foreign currency contracts.
Price Risk
Operating in a global marketplace requires us to compete with other global manufacturers which, in some instances, benefit from lower production costs and more favorable economic conditions. Although we believe that our customers differentiate our products on the basis of our manufacturing quality, engineering experience, and customer service, among other things, such lower production costs and more favorable economic conditions mean that our competitors are able to offer products similar to ours at lower prices. In extreme market downturns, such as we recently experienced, we typically see depressed price levels. Additionally, we have faced, and may
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continue to face, significant cost inflation, specifically in labor costs, raw materials, and other supply chain costs due to increased demand for raw materials and resources caused by the broad disruption of the global supply chain, associated withincluding as a result of the impact of
25
COVID-19. International conflicts or other geopolitical events, including the 2022 Russian invasion ofongoing war between Russia and Ukraine, may further contribute to increased supply chain costs due to shortages in raw materials, increased costs for transportation and energy, disruptions in supply chains, and heightened inflation. Further escalation of geopolitical tensions may also lead to changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain, and consequently our results of operation. While there could ultimately be a material impact on our operations and liquidity, at the time of this report, the impact could not be determined.
Interest Rate Risk
In connection with the BN acquisition, we entered into a $20,000 five-year term loanTerm Loan and a five-year revolving credit facilityRevolving Credit Facility with Bank of America. The term loanTerm Loan and revolving credit facilityRevolving Credit Facility bear interest rates that are tied to BSBY, plus 1.50%, subject to a 0.00% floor. As part of our risk management activities, we evaluate the use of interest rate derivatives to add stability to interest expense and to manage our exposure to interest rate movements. As of SeptemberJune 30, 2022,2023, we had $17,500$12,000 outstanding on our term loan, $2,500Term Loan, $0 outstanding on our revolving credit facilityRevolving Credit Facility and no interest rate derivatives outstanding. See ''Debt'' in Note 1412 to the Unaudited Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for additional information about our outstanding debt. A hypothetical one percentage point (100 basis points) change in the BSBY rate on the $20,000$12,000 of variable rate debt outstanding at SeptemberJune 30, 20222023 would have an impact of approximately $200$120 on our interest expense for fiscal 2023.2024.
Item 4. Controls and Procedures
Conclusion regarding the effectiveness of disclosure controls and procedures
Our President and Chief Executive Officer (our principal executive officer) and Vice President - Finance and Chief Financial Officer (our principal financial officer) each have evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, and as of such date, our President and Chief Executive Officer and Vice President - Finance and Chief Financial Officer concluded that our disclosure controls and procedures were effective in all material respects.
Changes in internal control over financial reporting
Other than the events discussed under the section entitled Barber-Nichols Acquisition below, thereThere has been no change to our internal control over financial reporting during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting.
Barber-Nichols Acquisition
On June 1, 2021, we acquired Barber-Nichols, LLC, a privately-owned designer and manufacturer of turbomachinery products for the aerospace, cryogenic, defense and energy markets, located in Arvada, Colorado. For additional information regarding the acquisition, refer to Note 2 to the Unaudited Condensed Consolidated Financial Statements included in Item 1 in this Quarterly Report on Form 10-Q and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 2 in this Quarterly Report on Form 10-Q. Based on the recent completion of this acquisition and, pursuant to the Securities and Exchange Commission’s guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment for a period not to exceed one year from the date of acquisition, the scope of our assessment of the effectiveness of internal control over financial reporting as of the year ended March 31, 2022 does not include Barber-Nichols, LLC. We plan to include Barber-Nichols, LLC in our annual assessment for the fiscal year ending March 31, 2023.
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PART II - OTHER INFORMATION
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in Part 1 – Item 1A of the Company’s Form 10-K for the fiscal year ended March 31, 2022.2023.
Item 2: Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities
Purchase of Equity Securities by the Issuer
During the first quarter of fiscal 2024, we directly withheld shares for tax withholding purposes from restricted stock awarded to officers that vested during the period. Common stock repurchases in the quarter ended June 30, 2023 were as follows:
Period |
| Total Number of Shares Purchased |
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| Average Price Paid Per Share |
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| Total Number of Shares Purchased as Part of Publicly Announced Program |
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| Maximum Number of Shares That May Yet Be Purchased Under the Program |
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4/01/2023-4/30/2023 |
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| — |
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| — |
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| — |
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5/01/2023-5/31/2023 |
| 2 |
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| $ | 11.78 |
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| — |
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| — |
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6/01/2023-6/30/2023 |
| 3 |
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| $ | 11.90 |
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| — |
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| — |
| |
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| 5 |
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| $ | 11.84 |
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| — |
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| — |
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Dividend Policy
We do not currently pay a cash dividend on our common stock. Our credit facility with Bank of America contains certain provisions that restrict our payment of cash dividends. Any future determination by our boardBoard of directorsDirectors regarding dividends will depend on a variety of factors, including our compliance with the terms of theour credit agreement, organic growth and acquisition opportunities, future financial performance, general economic conditions and financial, competitive, regulatory, and other factors, many of which are beyond our control. There can be no guarantee that we will pay dividends in the future.
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Item 6. Exhibits
INDEX OF EXHIBITS
(10) | Material Contracts | |||
# | 10.1 | |||
# | 10.2 | |||
+# |
| |||
|
| |||
| 10.3 |
(31) | Rule 13a-14(a)/15d-14(a) Certifications | |||
+ | 31.1 | |||
++ | 31.2 | |||
(32) | Section 1350 Certification | |||
+ | 32.1 | |||
(101) | Interactive Data File | |||
+ | 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||
+ | 101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||
+ | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
+ | 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
+ | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | ||
+ | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
(104) | Cover Page Interactive Data File embedded within the Inline XBRL document | |||
+ ++ # | Exhibit filed with this report Exhibit furnished with this report Management contract or compensation plan |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GRAHAM CORPORATION | |||
By: | /s/ CHRISTOPHER J. THOME | ||
Christopher J. Thome | |||
Vice President-Finance, | |||
Chief Financial Officer, | |||
Chief Accounting Officer and Corporate Secretary | |||
(On behalf of the Registrant and as Principal Financial Officer) |
Date: NovemberAugust 7, 20222023
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