Greetings and welcome to the Graham Corporation Third Quarter Fiscal Year 2022 Financial Results Conference Call. [Operator Instructions] I will now turn the conference over to our host, Deborah Pawlowski, Investor Relations for Graham Corporation. Thank you. You may begin.

Thank you, Diego and good afternoon everyone. We certainly appreciate your time today and your interest in Graham Corporation. Joining me on the call are Dan Thoren, our President and CEO and Jeff Glajch, our Chief Financial Officer. You should have a copy of the third quarter fiscal 2022 financial results, which just released a few minutes ago. If not, you can access the release as well as the other slides that will accompany our conversation today at our website grahammanufacturing.com and I also want to point out that we also have now ir.grahamcorp.com to access the Investor Information. If you'll turn to Slide 2 in the deck, I will first review the safe harbor statement. You should be aware that we may make some forward-looking statements during the formal discussions, as well as during the Q&A session. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release, as well as with other documents filed with Securities and Exchange Commission. These documents can be found on our website or at sec.gov. During today's call, we will also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliation of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and the slides for your information. So with that, it's my pleasure to turn the call over to Dan to begin. Dan?

Thank you, Debbie and good afternoon everyone, I am starting on Page 3. As you might imagine, having just assumed the role of CEO in September, reporting this fiscal third quarter's results is a little bit rough. Revenue has increased to $28.8 million, but we had a loss of $0.35 per share. The loss was driven by Navy project cost overruns in our Batavia operations, as a result of decisions we made during the quarter, to ensure timely execution of our high-profile submarine and carrier projects. The multiple decisions that led to the loss were for long-term gain over short-term pain and were not made lightly. Our Navy business is very important for our future. We had to protect this business and ensure our customers knew we were committed to hitting their need dates, even though we took a significant financial hit in the quarter and over our fiscal year 2022. Jeff and I will provide more detail on subsequent slides. As a result of the quarter loss, we were out of compliance on our financial covenants, which required suspending our dividend. Jeff will talk more about the waiver we obtained and the coming amendment of our credit facility. While this was a disappointing quarter and has been a very challenging year, we are deeply committed to our strategy to diversify beyond refining at petrochem with our defense work. The pivot towards defense has been successful as indicated by bookings and revenue. Our defense revenue is now over half our total revenue. We had a huge bookings quarter at $68 million, over half of these bookings were at Barber Nichols. Now that we have the bookings, we have to execute this work profitably. Final point on this page is that Barber Nichols performance is exceeding our expectations. They are building…

Thank you, Dan and good afternoon, everyone. If you could turn to Slide 6, as Dan mentioned, our third quarter performance was quite disappointing. Sales were $28.8 million, up $1.6 million over last year's third quarter. Barber Nichols contributed $12 million in sales in the quarter, helping to offset the weak sales quarter of our legacy Graham manufacturing business. Our Batavia operations were impacted because of its need to focus on catching up and executing the two large navy projects. Those projects will both require more labor and material costs to complete than were projected at the start of the quarter. The additional labor hours to complete the projects impacted the quarter's revenue, since we did not move the projects as far along as expected. The added labor and material cost including the use of higher cost contract labors required us to record increased reserves. The sum of all these items impacted both revenue and gross margin. The impact of the cost increases and required fully burden contract cost in the quarter were $2 million. In addition, the delayed revenue was approximately $6 million and the delayed operating profit is approximately $750,000. Furthermore, to get back on schedule with the Navy projects, we reallocated our commercial labor to Navy work, which resulted in increases in cost estimates for those jobs, which have now been outsourced. All of the above items contributed to an adjusted EBITDA of negative $2.6 million in the quarter and adjusted net loss of $0.27 per share. On the positive front, with the addition of Barber Nichols, we had 58% of our sales to the defense industry, as well as 5% or $1.5 million to the space industry. We can move on to Slide 7. The impact of the third quarter results on top of a challenging…

Thank you, Jeff. We are now on Slide 11. At a high level, we have been talking about a strategic pivot towards defense for many years and we have been making good progress. The long-term visibility of strategic naval programs provide stability and an ability to invest intelligently in our business and it offsets the cyclicality and challenges of our refining and petrochemical markets. The acquisition of Barber Nichols strengthened the strategy and brought additional market experience to our company. As with any new venture, we have had some lessons learned and opportunities to further strengthen our strategy. I'd now like to give you some insight on how our strategy is evolving going forward. Let's turn to Page 12. Graham Corporation is a related group of mission critical, engineered product companies that win on superior quality performance and customer trust. Our corporate role is to strengthen our member companies with best practices, leader rotation and Board expertise, while providing value enhancing services and coordinating collaboration to win large programs. In fact we are filling out critical leadership positions and upgrading talent for what the future of Graham Corporation requires. Our Board took on this requirement themselves last year after the BN acquisition and they began a search for Director candidates was strong defense experience. Our Batavia operations which we are referring to as Graham manufacturing will continue to serve the Navy refining and petrochem markets with high-quality, highly engineered heat transfer and vacuum systems. It is expanding into new energy and will now put more focus on aftermarket opportunities to be a lifecycle partner with our customers. Internally, we are restructuring for a significant Navy growth and we'll be leveraging our large installed base for growth capital. Our strengths will help us realize our goals in Batavia we want to…

[Operator Instructions] Our first question comes from Tate Sullivan with Maxim Group. Please go ahead and state your question. Thank you.

Thank you, Dan, starting where you left off. Can you give more backup Barber Nichols. Have you historically grown with acquisitions and I mean is there a pause in that in the acquisition strategy, can you just start there fleet, timeline to start?

Yes, so Barber Nichols has grown organically over many, many, many years. I think the last acquisition they made might have been in '80s and it was a local machine shop. So it was all organic growth. And from about 2000 to present, they have been growing at about 10% per year. As we think about acquisitions going forward, we need to get healthy first. We need to get healthy, build up some cash and then start looking at acquisitions. We believe that there are some really interesting small companies out there that that would be interested in joining us, but we're not even thinking about that right now. We're really thinking about getting our performance back into place.

And on to the U.S. Navy of the developments with Columbia class and aircraft carrier work out of Batavia has but then coupled with increase in orders from the defense industry and I imagine much of that is Navy I mean is it fair to say that you fully satisfied the delivery timetables with the Navy and they worked with you on that or did they extend them? Can you just go it, I mean how happy of a customer are they?

Yes, they're actually pretty happy, they understand that we are at a market where we're challenged to bring on welders. They are in the same boat. They are really struggling to keep their workforce moving and growing. And so they completely understand where we are, but I mean these are strategic programs, there is a lot pressure to keep these things going and a lot of people that stand around if our equipment isn't there. So certainly, they have worked with us to rearrange potential work on their side to accommodate any slips on our side, but we are down to - we got to get that stuff to them. And so there is, there is very well defined deadlines for both Columbia and CVN-80 that we are working to. And we're very confident that we're going to hit those deliveries and the customer is very happy with the big moves, the big decisions that we made to try to expedite and mitigate the schedule impact that they might have seen, had we not done this.

Thank you. And our next question comes from Andrew Shapiro with Lawndale Capital Management. Please state your question.

Yes, hi. I'm kind of new to the story here and I'm just trying to understand, what's going on in Batavia to better understand how things I guess got out of whack in these programs were bid by Graham and with a certain timeline and then went under contract. And then things have happened that have caused cost overruns delays, etc. And then trying to understand the workforce vanish, was there supply difficulties for you guys, is it the labor were the problems. And then just to understand how they get out of whack from what was originally bid sure?

Sure. So a couple of different things there. First on the - on the labor deficit, if you will. So it was one of those gradually and then suddenly kind of things. So if you kind of look at that chart on Page 5, it shows our plan versus our actual. And if you look at the quarters, there's not a lot of difference between them. But as you start to stack those up, you get further and further behind. And so we had got to the point and the bottom part of it was in May of 2021 when we hit that bottom. Certainly, the company was searching hard for additional people to come in. The contracts had a plan and there was a labor plan that basically said, we're going to increase labor over time and work on those projects and hit the delivery dates, but as each quarter went by and we got a little bit more behind we had to take more and more drastic steps. So the first big step that the company took was started to move commercial while there's an assemblers over to the Navy side. There were some training that had to happen there, but by moving commercial folks over there, we can start to mitigate that slip if you will. It wasn't enough. We continue to try to hire, could not hire welders and in fact our customers were having the same problems that we were. Certainly COVID and some of the government subsidies to kind of help people stay at home, didn't help us for sure. But then we got into the Summer and it was becoming critical. And so we started a weld school at that point in time, a more formal weld school where we actually paid a…

Right. The acquisition of Barber Nichols and your assumption into heading up the company occurred in what quarter?

September 1st was when I became CEO, the acquisition occurred in June 1.

Okay. And your March fiscal year-end, so that's Q1, Q2 of '22?

Correct. It was Q1 - was the acquisition and Dan became CEO in the middle of Q2.

So I mean somewhat my observation it seems like the acquisition saved this company from all of this. And so usually it's the other way around where acquisitions tank a company, but I guess thank you.

We feel very fortunate to be able to have that backstop, yes.

Okay, that's all I. So when do you feel that this red line on Page 5, the cumulative labor deficit or hourly deficit that you'll have the program caught up and having the program caught up certainly has correlation in the trend of return to profitability, but while it's correlated, they might be on a different timeframe because you had to accelerate and pretty much recognize a certain portion of the contract basically as a zero margin going forward for a certain amount of time because that's defense accounting requires.

Right. So we believe that mid-fiscal year '23 we are caught up, but we actually have more capacity than demand right now. And so whenever we can, we're going to start trimming of this high cost labor out. We want to make sure that we hit our deliveries, but whenever we can start to trim off some of the high cost contract welders, we're going to do that. As soon as we can start to move our commercial welders out of Navy and back to the commercial side, that allows us to bring some of this outsourced work back inside and also helps our margins. So it will be almost a week-by-week kind of evaluation how we track in, can we start to reduce some of those high cost components of our business and start to build back our margins.

Thank you. Our next question comes from Theodore O'Neill with Litchfield Research. Please go ahead with your question.

Yes, thanks. I'm sorry about the results and certainly understand what you had to do to keep the business moving, but what I wanted to know is it over the last year, the firm has made a pretty big effort at telling us about how they've got a welding school program and you know that it's working well for you. And so I was wondering is or do you have to make changes to that program or you know exactly can't find enough people or give us some more granularity your internal welding corresponding school.

Yes, the - so a couple of welding school. So Graham has a welding school internally, that's not as formal, not - it kind of takes existing welders that already are trained in the skillset and then teach some of the Graham specifics. Since we couldn't find welders that already had experience, we went into more about let's start from scratch approach and that was done with a trade school in Rochester, New York. So that essentially takes people that do not have welding skills and it teaches them welding from the ground up. We were really happy with how that went. So our first class started I think it was July and it ended at the end of November. And we had our welders, our managing type folks going to the school, checking on the progress, kind of watching the students as they went through. We started with 10 I believe and we graduated eight in November. Those graduates then some of them I think started in December, most of them started in January actually on the floor. So they came back here, they learned the Graham kind of how you do it, how you track it, how you document, et cetera and then they were able to go to the floor and start producing for us. We are extremely happy with that program and we have our next class that starts in February here in the next couple of weeks I believe. And again, we'll probably have a class of 10. That's the - 10 is the limit of what they can put through there is my understanding. So won't be a huge class, but anything helps. And so we're really kind of excited about that.

And so that's going to be the ongoing way that you bring welders in?

Yes, Yes.

Thank you. Our next question comes from Chris McDonald with Kennedy Capital. Please go ahead.

Could you elaborate on some of the new hires in the defense business from a management perspective please for the new hires.

Yes, so as Graham has kind of been stuck in this downturn on the energy side for many, many years, it has been a struggle organizationally to keep profitability up and keep our workforce up as we've had to go through different types of layoffs. We ended up laying off not so much the direct charge welders, assemblers and stuff, but more probably more of the middle management types of folks. We've had some retirements that we did not replace etc. So we kind of wiped out our middle management unfortunately as we've suffered through this energy downturn. As the Navy has started to grow on the revenue side and the organizational side, we started to bring in managers from the outside that have some more of this Navy background. And so the latest one that we ended up bringing in starts on February 28 and it is an engineer background that has gone through some of the industry's best operational type programs. So he has been running plants and as a general manager type in both commercial and defense. He's going to join us in at the very end of February and he will be our leader on the defense side. So as we've grown this Navy business, we've kind of been having to build the organization as we go, so hiring supervisors, hiring managers and now a business leader. So essentially we unload our General Manager at Batavia and get him out of the day-to-day Navy business and have somebody that is responsible for that business going forward. Just to give you a sense of other folks, we've hired a Director of Sales on the commercial side. We had a press release that came out in November-ish that Jeff was going to step aside and retire. And so we've been working awfully hard and trying to find his successor. So we're awfully busy trying to fill our organizational leadership roles right now.

Okay. Yes, thanks for that. And could you just repeat where Barber Nichols is from a revenue run rate, annual revenue run rate and EBITDA margin perspective?

Sure, Chris. So, this is Jeff. Barber Nichols is - our guidance for the US$45 million to $48 million which we're on track for. Through the seven months of ownership revenue was $31.9 million and EBITDA is mid-teens. We had targeted for the fiscal year to be at $5.2 million of EBITDA on that $45 million to $48 million of revenue. And we're actually at that $5.2 million of EBITDA already on the, basically $32 million of revenue through seven months. So we're quite excited about where they're at. And as I mentioned in my earlier remarks, whatever EBITDA they achieve in the fourth quarter will be in excess of what our expectation was for the fiscal year.

Okay, great. In the $45 million to $48 million is obviously just for the 10 months of the fiscal year when the business was owned by Graham, correct?

Exactly, exactly. The other - the first the two months we didn't own them, they had approximately $10 million of revenue. So if you annualize that, you'd be somewhere in the mid to upper '50s, but it was just for the 10 months.

Okay, great. And then I think, Jeff, I think you mentioned $4.5 million forward loss on the Navy business and then sort of collateral $3 million EBIT headwind on the commercial business relative to some of the knock-on effects. Just help me square that up with some of the businesses lost 5 million, a little upon the $5 million EBITDA year-to-date, that represents call it 7.5%, Barber Nichols is contributing 5. So as the commercial just with the cycle the commercial business just decidedly unprofitable at these levels or am I missing something here?

The other issue is there is some delayed operating profit related to the Navy because the projects are taking a little longer to complete, there was another $1.5 million or so. But to your underlying question, yes, the commercial business - the commercial business was - is at a low revenue level in the first nine months of this year. We had really, really bad orders, low levels of orders in the second half of last year, which drove our backlog down. And we knew that this was going to be really challenging year for our commercial business and the expectation was that the Navy would cover some of that, obviously that's not been the case. But the commercial business has started to pick up. We've had a couple of orders that are in Asia, right now in India specifically. They are executing, that will help us through this from a top line standpoint for the fourth quarter and then into fiscal 2023. The aftermarket has absolutely been picking up and that's certainly going to help us going forward and hopefully we'll see a recovery in the commercial capital markets, we've not seen that yet. But to your underlying question, yes, the commercial business is in a rough spot coming into the year and we knew that.

And how do you feel about the gross margins and the backlog today with I would think the mix is meaningfully aftermarket that ought to be a good thing?

Sure. The gross margins in the aftermarket are good in the backlog and what we're continuing to see come through orders. The gross margins in the capital projects are perhaps a little better than what's coming up, but they're not - they're not at by any means at a strong level when if you're looking at the commercial business. And in the Navy we have as we work through the execution challenges that Dan has talked about and we look to the future of vessels that we have in backlog already, we expect significantly better gross margins there for two reasons, one, the pricing is better on these subsequent vessels, but also very importantly as we get through some of the operations and execution challenges we believe we will be able to execute those better than the current vessels are being executed.

Our next question comes from Dick Ryan with Colliers. Please go ahead.

Thank you. See, Dan, I think you mentioned project management skills and processes needed to advance, that seems more than just not having enough welders what and might be more fundamental to the store and maybe I'm reading that wrong, but what it sounds like some of the hires can maybe fill in some of those gaps, but we've been delivering against the Navy for quite a period of time, where did these deficiencies come from and are there any other issues that need to be dealt with other than just adding some more staffing there?

Sure, sure. So Graham is essentially pivoting from engineer to order commercial business to more of a repeat manufacturer Navy business. And it's a dramatically different skill set. It's dramatically different margins essentially margins of error. If you miss on a small commercial job, not a big deal, you miss on a very large Navy job, it can come back to bite you. And so just a whole lot more attention to - in a repeat manufacturing business, you're really looking at each of your processes and really trying to drive simplicity in, drive cost out, drive efficiency in. And you don't do that in a kind of a commercial engineer to order, everything is a snowflake kind of thing. And so if you just think about systems and processes and people, this is kind of a whole different approach. And honestly I saw the same thing at Barber Nichols when we grew up as a - as a prototype custom Turbo machinery kind of a place and then moved into that production Navy and we went through the same kind of learning curve challenges that Graham is going through right now. So if you haven't seen it, it's hard to hard to see it, but I've seen that at Barber Nichols and when I come in here and look at it, I say well, we're not quite there on the Graham side. We've got systems and processes and people and approaches that we really need to start to build for the repeat production associated with the Navy.

Okay. What Jeff you see so far on the getting the waivers altered and what might we expect with the new lending agreement?

I'm sorry, Dick, was your first part of the question fees?

Yes.

Okay. So on the fee side, the Bank of America has identified a fee of $250,000 for the waiver. However, they've only charged us $25,000 upfront. The other $225,000 is been pushed to the end of the agreement, which is a number of years out. So our actual upfront cash cost was relatively small, which was - we were certainly very thankful for. With regard to the amendment, we've been in discussions for a number of weeks around the waiver interest and process around the amendment. And quite honestly, once we finish up our - this call and our earnings release, we're going to start working wholeheartedly toward getting the amendment in place. Our expectation, my expectation, the bank's expectations are that we will have an amendment in place by the end of March. The bank has been very, very open and very reasonable with us and as I noted in my remarks, as we've talk through issues, they haven't taken a shortcut and just okay, I got that move on, they wanted to understand the depth of the business and understanding what we can and cannot affect and I think they've quite frankly from my perspective treated us very, very fairly and I expect they will do so in the amendment process also.

Jeff, I may have missed, Dan said something about the first quarter or the first month of '22, the profit profile improved, I must have missed out in the pre - in the commentary, can you run that one buy me again?

Certainly, I think what Dan mentioned and I did mention it, but no worries here. When we - at the end of December, we had $9.75 million outstanding on our revolver with our lender. We were able to reduce that from $9.75 million down to $6 million by the end of January and my expectation is through the next two quarters, next two months of this quarter that we should be able to reduce it further. So this is - that was really getting at our position, my position certainly that this is not a liquidity issue. This is simply more of a book P&L issue and obviously that drives a lot of the covenants, but that we are not in a liquidity crunch at all that we're actually in a very good situation from liquidity to be able to lower our revolver usage.

Our next question comes from Brett Kearney with Gabelli Funds. Please state your question.

Just want to quickly follow-up the - I know it's very much live taking place now, but the dividend suspension is the thinking at this point they'll probably be - need to be runway period that you get back in line with some form of amended covenants before we see that reinstated, just generally, any thoughts on that front?

So - but at this point, the dividend was suspended for this quarter out once the amendment is in place and the Board has an opportunity to discuss this further, they'll determine a future course. I can't really, I can't comment at this point on any timing of any kind of a dividend. I would suggest that we need to really look at what the business cash flows look like over the next number of quarters and whether or not a dividend, any kind of a dividend makes sensitive and if it does what levels at. But and no decision there, Dan, you want to add some more to that?

The Board has been considering a different approach to dividend. As we look forward and think about building cash for the next acquisition, they wanted management to present them an analysis of capital allocation priorities. And then they would make a decision there, but gosh, we're not there right now, we've got to get back in the covenants with our bank and then we can start to have those conversations.

Yes, understood. And then Dan just one last quick one. I know it's - we hear from plenty of companies the challenging operating environment out there. From the result, it seems Barber Nichols continues to execute very well. Just curious how Matt and the team they're dealing with any labor constraints on that front or just how they're managing through this current operating environment?

Sure, they're actually doing fairly well and I would attribute that to a couple of different things, one is that people are very willing to move to Colorado. The second is that, Barber Nichols has built kind of an exciting business looking forward. They're very, very vocal and talking about the exciting things that are going on. And so when they're interviewing folks, they're actually getting kind of their top candidates. It is a really tough environment out there, but the BN gang has done a great job of building up a culture and a business and excitement that that kind of gets people engaged. So they're actually doing pretty well.

Our next question comes from Tom Spiro with Spiro Capital. Please state your question.

Tom Spiro, Spiro Capital. Good afternoon. Dan for you please, focusing on Graham's naval business, you guys obviously are under extreme pressure to meet your deadlines, you're responding with contract labor, contract welders and newly trained welders. All of that makes me concern that two, three, four years from now we'll learn that there are a lot of failures and defects that only merge then, what are your thoughts about that and how do you guard against it? You've told us this is really mission critical equipment for Navy.

Yes, absolutely Tom and it's a great question. So one of the things that Navy does really, really well is non-destructive examination. So lots of welding, lots of penetrant inspection of the welds et cetera, X-ray of the wells and so. So we've got both customers and we've got defense contract, management agency type people that are looking over our processes. We get people qualified to these processes, they're evaluated on a regular basis. Each of the work steps are evaluated with a non-destructive examination kind of approach. And lots of eyes are looking at these things. So I think the risk of any quality issues is actually very small. Certainly we're not as efficient as we have new welders and contract welders working on these things. So I absolutely believe that we're not being efficient with our money at this point, but on the quality side I'm not concerned just because of the oversight and all the inspections that happen.

Thank you. That's helpful. Last question would be the process that Graham has been using to bid new work, Navy work and also the commercial work, but I guess I'm focusing particularly on the Navy work. Dan, have you had an opportunity to review that process, the old Graham process, are you comfortable with it, are you changing it, the right people, the wrong people, new tools, what you're thinking there?

Yes, so for Navy business development and new business, a lot of it especially now that we've been through a lot of the first article things, a lot of that process is of certified cost and pricing kind of an approach. And so it's based on the time that you actually spent on the last time that you built this stuff. So it's pretty cut and dried, you go off and get re-quotes on the raw material and the different outside services if you're bringing in outside machining for some very specialty machining or some quality types of things, you're going up and getting those quotes, but it's really pretty cut and dried relatively low risk, especially in a sole source certified cost and pricing environment. If we're doing this right, we should be getting better on each one that we make. So we actually should be building margin on new contracts that were based on old contract labor and costs. So, so it's pretty, pretty straightforward, I'm not too worried about it.

Our next question comes from Chris McDonald with Kennedy Capital. Please go ahead.

Just a couple of quick follow-ups here. One for the Navy programs with the forward losses, are those all delivered by September, I think you talked about halfway through fiscal '23 is the turning point here. So, are those largely done at that point?

Yes, Chris. They are - there is one that may have a little bit of Q3 revenue, but we're talking couple of hundred thousand dollars. But you have - they're basically done by mid-year of next year.

Okay. And what was the forward loss recognized in the quarter, I know you gave it year-to-date, Jeff, but it just didn't pick it up in the quarter?

Forward loss, I'm sorry, which - the$4.5 million that did year-to-date I just want to make sure I'm answering the right question.

Yes, just what I wanted to know is what you recognized in the quarter relative to the $2.6 million EBITDA loss at the total company level.

I'm sorry, Chris, I'm a little confused by your question.

So, yes, well, how much did you increase the forward loss by on those programs this quarter?

Understand. Got it, about $1 million.

Okay.

I mean, sorry, couldn't - didn't quite get you over that.

So about $1 million of increased forward loss in the quarter?

Exactly, yes.

Yes, indicating that. So you had to recognize a fair amount of pressure on those commercial programs this quarter, which was quite impactful of P&L it sounds like.

Correct, correct.

Yes, okay. And that's you consider that largely non-recurring, Jeff, I mean I think the thought process was breakeven next quarter which you get a big part of the way there, just by sticking to your plan on defense, but anything unique about recovery plan on the commercial side?

We should - no, I don't think - I think that's once we get the recovery on the commercial side, realistically probably happens on future jobs as we're getting labor, a direct labor back to the commercial side of the business those that have been transitioned over to Navy. So I think once we get pass this quarter going into fiscal '23, we from a labor allocation standpoint, we should be in a pretty good place perhaps one of the two major jobs, it has a big shipment in May, so might bleed a little bit into the first quarter. But once certainly when that shifts in May then we're done.

Okay. So and Dan I would think, just based on what I've heard ideally you won't have increased forward losses, you will have the next production lots on the defense side coming in at profitable levels, if the plan is executed effectively, would you just expect to see a number of quarters with sequential profitability improvement in the business, is that what the plan would yield?

Yes.

Thank you. And ladies and gentlemen, that's all the time we have for question. I will now turn the floor back to Dan Thoren for closing remarks.

Thank you, Diego. Again, this was a rough quarter, but I see great promise on what we are creating by bringing Graham manufacturing business together with Barber Nichols. We're going to leverage the talent across the organizations, we're going to implement better business processes and training that can elevate the potential of both. And we'll build on new capabilities both organically and ultimately with more acquisitions. Thank you so much for your time today.

Thank you. And that concludes today's conference. All parties may disconnect. Have a great day.