Greetings, and welcome to the Graham Corporation First Quarter Fiscal Year 2021 Financial Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Chris Gordon, Investor Relations for Graham Corporation. Thank you, Mr. Gordon. You may begin.

Thank you, Devin, and good morning, everyone. We appreciate you joining us today to discuss Graham's Fiscal 2021 First Quarter Results. You should have a copy of the news release that was distributed across the wire this morning. We also have slides associated with the commentary that we are providing here today. If you do not have the release or the slides, you can find them on the company's website at www.graham-mfg.com. On the call with me today are Jim Lines, our President and Chief Executive Officer, Jeff Glajch, our Chief Financial Officer, and Alan Smith, Vice President and General Manager of our Batavia New York Facility. Jeff will review the financial results for the period. Alan will then provide the overview of our operations and Jim will wrap-up the prepared remarks with a strategic overview of our business and provide our outlook for the rest of fiscal year 2021. We will then open the lines for Q&A. As you are aware we may make some forward-looking statements, during this discussion as well as during the Q&A. These statements apply to future events and are subject to risks and uncertainties as well as other factors, which could cause actual results to differ materially from what is stated on the call. These risks and uncertainties and other factors are provided in the earnings release. And in the slide deck as well as other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at www.sec.gov. I also want to point out that, during today's call we will discuss some non-GAAP financial measures, which we believe are useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for the results prepared in accordance with GAAP. We have provided reconciliations of comparable GAAP to non-GAAP measures in the tables accompanying today's earnings release. With that, it's my pleasure to turn the call over to, Jim.

Chris, -- thank you, Chris, and good morning, everyone, this is Jeff actually.

Oh Sorry.

That's all right. No problem. As Jim and I have noted on our update calls in March and June, due to COVID-19 -- the COVID-19 pandemic we've reduced our facility staffing to approximately 10%, in late March. And after implementing new work practices enhanced cleaning and safety procedures and educating all of our employees on these changes, we gradually began to increase our staffing. By the end of May we were back at near-normal on-site staffing. And have continued at that level over the past two months. I want to compliment Alan Smith and his team, for ensuring a safer production environment in this difficult time as well as our human resources team for their continued focus on improving safety, in our workplace. As a result of these proactive measures, our average production staffing and capacity for the first quarter was only 50%. And hence our first quarter results suffered accordingly. Sales in the first quarter were $16.7 million, which included a project in China, which had been delayed by COVID from the fourth quarter of last year, into the first quarter of this year. That project made up approximately 30% of the quarter's revenue. On a positive note, our Defense or Navy sales were 21% of this total or $3.5 million. We will be reporting the level of our Navy sales on a quarterly basis going forward, which for this year we expect to be approximately 25% to 30% of total sales. In the first quarter we had a loss of $1.8 million or $0.18 per share. As I noted, we ran at half capacity in Batavia. Yet as discussed on prior calls, we continue to pay all of our employees their full benefits and wages. We did not accept, any PPP funding, so we consciously realized this type…

Thank you, Jeff. Good morning, everyone. I would ask that you refer to slide 9. $16.7 million of sales for the first quarter were negatively impacted, by how we responded to the COVID-19 outbreak, which resulted in 50% reduction of our operating capacity. During the first quarter we developed and implemented, COVID-19 protocols, which ensures that we would not experience such a low utilization rate for the remainder of, FY 2021. I am proud of the COVID return to work team. And the entire company for returning the employees back to work safely. And for following our newly implemented workplace safety practices. Everyone has stepped up and responded well to this new reality we find ourselves in. Highlights for the first quarter were that revenue from Defense projects was $3.5 million which represents a year-on-year increase of $1.4 million. As Jeff mentioned, we also completed a large project in China, which was responsible for approximately 30% of the quarter's revenue. You may recall that this project due to COVID-19 fell out of the fourth quarter. Moving on to slide 9. While COVID-19 has impacted the demand for our products there are several actions that are being implemented to ensure that we maximize the margin of the work that we will be converting this fiscal year. COVID-19 has created a buyer's market for raw material. Our supply chain has been very successful in securing materials at reduced costs. I'm expecting that we will be able to continue to be in this position for the rest of the our -- for the remainder of the year. We are also focusing on growing our skilled workforce in order to increase our production volume. To this end, we recently completed an expansion of our weld school. We now have the capacity to train up…

Thank you, Alan. Good morning, everyone. I am referring to slide 11. Jeff and Alan both provided good commentary about the impact to our financial results from the pandemic and price of crude oil. It has also impacted order patterns. Energy and petrochemical markets began to change adversely before the pandemic. Fourth quarter of last year and first quarter of this year each had net orders of approximately $12 million. There were no defense orders during those two quarters. Included in the net orders is $4 million of canceled orders and the impact of change orders. It was rather even with $2 million of backlog deductions in each quarter. The underlying bookings for new orders were a bit better than what is shown, however, still down considerably. I have been through four downturns while at Graham and now I'm in the fifth. The each are challenging went in them. However, this current downturn feels rather different. Customer behavior is less predictable this time. I imagine that is because no one has experienced this type of demand disruption or turmoil in the past. A couple of examples can illustrate well what we face. We initiated bidding to replace a 40-year old surface condenser in 2018. It was urgent for the end user and end-of-life situation where the customer did not know if the unit would last another year. Schedule was critical to meet a delivery window. Order was finally ready to be placed this last quarter. It was about a $2 million opportunity. Due to focus on preserving cash, the plant advised that they cannot procure the unit now. We offered in response very favorable cash flow terms, we worked our supply chain for better costs as Alan had mentioned that then resulted in a lower price to the end user.…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Joe Mondillo with Sidoti & Company. Please proceed with your question.

Hi, Jim and Jeff.

Good morning, Joe.

Hi, Joe

So first question, Jim. So I believe it was right around this time last year you came off a first quarter with not sort of below average bookings, obviously different environment a year ago but similar in terms of the bookings anyways. And at that time you were calling for a book-to-bill ratio over one, so we were anticipating a pretty big ramp-up throughout the year of bookings and you did see a second quarter that was really good and it just didn't really translate into the back half of the year. And I'm wondering what gives you the confidence to make that call essentially here again today, where some of the projects that you were looking forward to win last year just pushed out and you're getting closer to the finish line or sort of just wondering about that?

Sure. Last year we did see the end markets evolve as we got into the third fiscal quarter, we saw some behavioral changes that we weren't anticipating from our customers that were pushing order decisions to the right or they canceled some orders or they – our backlog was actually – some of our backlog was reconfigured at their convenience to be executed later than was originally planned. At this point, as we talk about fiscal 2021 and the guidance, it's really reflective of – we just completed a $16 million Q1 we have $107 million of backlog in hand absent further cancellations. And of that, the model that we have is 60% of the backlog certainly in hand on June 30 is projected to convert over Q2, Q3 and Q4, basically giving us $81 million of revenue that's predictable and in hand. And we have our typical in and out short-cycle work that we've governed down in our projections that can be somewhere between $4 million a quarter and $6 million a quarter. So we feel strongly confident that we'll land within the $90 million to $95 million guidance. I haven't given a book-to-bill guide – book-to-bill commitment at this point.

Yes. So I was just extrapolating from the comments in the press release where you state that back – you're expecting backlog to rise throughout the year. And so relative to that revenue guidance for fiscal 2021 for the backlog to grow you would have to get to a book-to-bill above one.

Okay. Thank you for pointing me to that. That was helpful. So the thesis that we have there or the modeling that we have there you had heard in the prepared remarks is there's $30 million to $50 million worth of naval work that we're expecting to be placed with someone during the next three quarters. And we're focused on it we're going after it and we hope to win a good percentage of that work. So that's a key element in our backlog growth. Secondarily, we have a pretty active pipeline in our traditional markets orders through July -- in the month of July are approaching $9 million. So we have had a strong July relative to comparing it to the first quarter in totality. And so we are seeing other orders that are supposed to close in this quarter. It's all about the pipeline conversion and the conversations that we're having and our belief that we can win a strong percentage of what's going to be placed.

Okay. As far as the Navy orders that you're hoping to win, are we still looking at roughly a $7 million or so per year on the carrier program and I thought it was maybe $3 million to $5 million on the submarine program? Just -- I guess I'm more wondering if you are able to win a good percentage of the $30 million to $50 million what hits in fiscal 2022? And then in addition to that your comments and the press release where you say you're going to be well-positioned for a stronger fiscal 2022, which I assume year-over-year stronger fiscal 2022?

Let me break that down. That might be helpful. When we think about a carrier opportunity CVN-80 or CVN-81. The addressed content for us in a carrier is $40 million to $50 million that's what we're going after. Whether we win it or not that will depend upon do we win it. But that's the addressable content. And typical revenue conversion just so I can do the math simply, let's say, the $40 million carrier content we typically have a four-year conversion of that type of order. So that might suggest that the carrier revenue in the future is in the range of $8 million to $10 million a year just using that simple math. That's if we get that type of $40 million order level. If it's $32 million then it goes down to $8 million a year. On the Columbia-class program the addressed opportunity by us is somewhere in the range of $25 million. And again this is no guarantee I use the term addressed not that we'll secure all of that and depending upon our success that might suggest that Columbias are going to be built every two years. Just so I can do simple math. If we won $15 million of that $25 million just so I can do simple math that would suggest $7.5 million per year of revenue conversion. And then on the Virginia-class program where they're building one or two submarines a year. The addressed content by Graham per submarine the addressed content is on the order of $5 million per sub. And so that might suggest there's $5 million a year of Virginia-class work. If you add all that up it's getting to what Jeff had said in his prepared remarks of 25% to 30% of the revenue is from the naval program and that's suggesting something in the mid-20s to $30 million type of revenue level in the years as we look forward.

Okay. And then, I guess, to follow-up there. I think you stated in your prepared remarks that you anticipate Defense to be up about 50% this year which would put you I believe at $30 million this year. So would you anticipate given what you're hoping to win in terms of orders this year would you anticipate next year to be sort of more of a flattish year on the Defense side?

We've come out and indicated I get this is a wide range, but I believe on the last call that we had we had said we expect Navy to be between $20 million and $30 million of revenue with what we're addressing and we're focused on can we find other components to go in and participate with. So that would suggest and it can depend upon where we are on backlog conversion. But I would expect there'll be years that are on the lower end of that range it will be years on the upper end of that range. It depends on where we are. And just to give some guidance on this current year I don't think we'll be heading toward $30 million. It will be somewhere in the mid-20s.

Joe just as a point of clarification our Navy revenue last fiscal year was in the mid-teens. It was not approaching $20 million.

Right. Yes, I have $15 million almost $15 million.

Okay. I think what you've stated suggested it was closer to $20 million with a 50% increase getting to $30 million that's not correct.

Yes. That is correct. I was doing that math wrong I believe. All right. No that definitely clears things up though regardless. And then I guess last question for me. I have a couple more, but I'll let someone else have a chance. Just wondering with the -- we've seen a pretty drastic move in the U.S. dollar and you do a lot of exporting. Does that -- do you think -- does that change anything for you at all, especially if it continues to move? Or is it just more so driven by projects and whether you're -- does it help win bids maybe? I'm just wondering if the U.S. dollar falling is helpful?

It can be helpful because I know the counter to that is a strong dollar can't be disadvantageous to us relative to some of our international competition. If there's a weakening of the U.S. dollar that's what you had said. And that can create a benefit for us relative to some of our other competitors in Europe or elsewhere. We don't typically get overly excited about a strong or a weak dollar. It just hasn't necessarily meaningfully changed order patterns or profitability, but we can identify more anecdotally that it has impacted positively or negatively us in the past, but it hasn't really changed our business performance measurably. Especially our revenue mix is somewhere around 60% to 70% domestic. At this point it's higher with the degree of the naval work.

Okay, I will jump back in queue. Thanks.

Thanks Joe.

[Operator Instructions] Our next question comes from the line of Theodore O'Neill with Litchfield Hills Research. Please proceed with your question.

Thank you. Congratulations on giving out guidance for the year while both of your end market customers are still not able to do that.

Well thank you. And I'll tell you we debated the merits of making that decision. However for the reasons that we cited we felt confident that we could do so.

Yes. I just have a -- just a clarification. In the press release you talked about the chemical and petrochemical orders being down because of COVID-19. But you talked in your presentation here, let's say, about the customers conserving cash and end demand but those are the real issues when you say COVID-19 in the press release that's specifically what you're talking about? It's not like your customers had a workforce shortage, and then everyone is back at work so things have changed. It's not that right?

It has not been that. It has been more the consequence of COVID and the disruption in demand therefore the disruption in their cash flows and their profitability and their need to preserve or conserve cash as a consequence.

Okay. Thanks very much, That’s it for me.

Thanks Theodore.

Thank you. Our next question is a follow-up question from the line of Tom Spiro.

Tom Spiro, Spiro Capital. Good morning everyone.

Good morning, Tom.

First question is regarding India. You highlighted that in the press release the opportunities in India. Have you done any major work in India yet? Or will these be really the first big jobs, if you win them?

So we've -- over our history we've done work in India where we were typically an outside-in selling strategy. We will be carried in by a multinational OEM or an EPC. And we have a number of sales in India for refining fertilizer pet chem with that type of model. What we chose to do in about two years ago was an inside decision of getting inside India and selling locally, winning business locally and executing with a partial local strategy with a shared margin type of structure. And we have a number of bids that we're pursuing. We did land an order in the current quarter, not last quarter this quarter. And so we have had some success. With our first large order it's around $5 million to $6 million that we were able to be successful on and we have some other bids that are in front of us now that we may close over the next couple of quarters for India with the new execution and a new sales model versus our historic model.

All right. So these jobs the one you just won and perhaps others down the road this will be the first time that you actually road test the new local strategy?

Correct.

Would it be reasonable to assume that since it's new for you folks and your power partners in India that in the first one or two times through margins might be lower than you would expect perhaps on projects on following years?

A great point, we have found whenever we plow a new field, we find some rocks. However we're deploying a model that we've done successfully in China and we've done successfully -- situationally in other areas. So we've deployed that model into India. But to be clear, we'll plow this field for the first time and we'll uncover some rocks. But we are very wise and very knowledgeable about how these orders are transacted and what we need to do to control margin, and control quality, and control delivery on time. So it's not as though, it's a new philosophy for us. It's just a new end market -- a new geographic region where we're doing it.

Sure. And you've described, I guess, the emerging markets as -- emerging market opportunities is a lot more price sensitive. Is it fair to say that given the circumstances we face today that they're still more price sensitive now than they might have appeared say a year ago?

Not with respect to India.

I see.

Outside of India it can depend. There can be large swings and margin potential based on end user, based on EPC and based on who is permitted into the bidding process.

I see.

And also is that end user a price focused end user, a quality focused end user, and the margins can vary greatly within a country, within a country.

And one or two of your slides mentioned the possibility of adding to workforce in Batavia. Are you adding to the workforce today as we speak? Or is that more an expectation that as circumstances change here domestically you'll do so?

We are adding to the workforce. This is a very -- I mentioned in my prepared remarks, unfortunately, I've been through four downturns and those around the table here with me have been through a couple. And we're in our -- another one. This one is different in that because of our backlog, because of our diversification strategies, we still need to add to our skilled labor workforce. And we are doing so now and we will be doing so throughout in 2021, because we want to convert the current backlog that we have more quickly, and we want to be ready for the additional work that's coming in, in particular the naval work and also from our more traditional markets. So, we aren't scaling back our direct labor workforce like would have occurred in the previous four downturns. In this downturn we're building it out.

And what would you hope to do if say nine, 12 months from now in the markets that you confront are as weak then as they are today?

We would convert more Navy work faster.

I see. I see. And lastly just a question for Jeff. You mentioned that for the last three quarters of the fiscal year the company hopes to be cash generative. Do you expect the cash balance at the end of the year to exceed $67 million or of CapEx working capital dividends, et cetera, the cash that you generate will be more than consumed?

Tom that's a good question. Yes, to clarify, I would expect the cash balance to be higher than $67 million. I should have been a bit a little clearer there, but absolutely higher.

Thanks very much. Good luck.

Thanks, Tom.

Thank you, Tom.

Thank you. Our next question comes from the line of Jon Dascher [ph], a private investor. Please proceed with your question.

Hi. I just have a quick housekeeping question. On the income statement, there's another expense for last year's quarter $523,000, what is that? I haven't been able to locate that.

Sure Jon. This is Jeff. That other expense in last year's first quarter we divested our Energy Steel, our commercial nuclear utility business and that other expense is related to that.

Okay. That's what it was. The divestment, okay.

Yes.

Thanks. And good luck.

Thank you, John.

Thank you.

Thank you. We have no further questions at this time. I'd like to turn the floor back over to Jim for closing comments.

Thank you Devin and thank you everyone for your time this morning on our first quarter conference call. Thank you for the detailed questions and we look forward to updating everyone on our next conference call in about three months. Be careful and be safe.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.