Q1 2021 Graham Corp Earnings Call
Greetings and welcome to the Graham Corporation first quarter fiscal year 2021 financial results. At this time all participants are in listen only mode. A brief question and answer session will follow the formal presentation. If any what's your acquire operator assistance. During the conference. Please press star zero under telephone keypad. As a reminder, this conference is being record.
Good.
My pleasure to introduce your host Chris Gordon Investor Relations for grab Corporation. Thank you Mr. Gordon you may begin.
Thank you Devin and good morning, everyone. We appreciate you joining us today to discuss grabs the school 2021 first quarter results.
Should have a copy of the news release that was distributor crossed the wires. This morning. We also have flight associated with the commentary that we're providing here today.
You do not have the release for the slide you can find them on the company's website at Www Graham Dash EM F G Dot com.
The call with me today, or Jim lines, our President and Chief Executive Officer, Jeff Gleick, Our Chief Financial Officer, and Alan Smith, Vice President General manager of our Batavia in New York itself.
Jeff will start with the financial overview of the period.
Alan will then provide the overview of our operations and Jim will wrap up the prepared remarks with the strategic overview of our business and provide our outlook for the rest go right. So that's cool your 2021, well then open the lines for Q1 day.
As you are aware, we may make some forward looking statements during this discussion as well as during the Q1 day.
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 flight deck.
Well its other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at Www Dot as you see dot Gov.
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 to that additional information that isolation or as a substitute for the results prepared in accordance with gap.
We have provided reconciliations to 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 Oh, Thank you, Chris and good morning, everyone. This is Jeff actually [laughter], that's right no problem as Jim I have noted on our update calls in March and June.
Due to covert 19, the Carbonite team pandemic, we reduced our facility staffing.
To approximately 10% in late March and after implementing new work practices enhanced <unk> 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 onsite staffing and have continued at that level over the past two months.
I want to complement Alan Smith, and his team for the for ensuring a safer production environment in this difficult time as well as our human resources team for their continued focus on improving safety you know 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 was $16.7 million, which included a project in China, which had been delayed bayko bid from the fourth quarter 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 18 cents per share as I noted, we ran at half capacity in Batavia.
As discussed on prior calls we continued to pay all of our employees their full benefits on wages.
We did not accept any PPP funding. So we consciously realize this type of loss would occur.
As Jim will discuss later, we view Q1 is a discreet event and assuming there are no significant impacts to our business or operations. The rest of fiscal 2021 will be operating as normal in Q2 and beyond I would expect far better results going forward.
Cash at the end of June was $67.2 million and our backlog was 107.2 million split evenly between defense and commercial the strong backlog level supports our guidance for the rest of fiscal 2021.
On the slide five.
Sales in the first quarter were down $3.9 million. Please note.
Q1 of last year included $1.3 million.
From our energy still business, which was sold in that quarter.
Gross profit EBITDA and diluted earnings per share were all down significantly due to a low capacity level, yet more normal level of operating expenses, which occurred in the quarter.
Moving on to slide six our cash position decreased $5.8 million in Q1, the 67.2 million or $6.74 per share. We expected. This to occur as I noted during our update call in late March if we were shut down for a month, we would expect to you.
Lies approximately $3 million of cash per month.
At 50% capacity in the quarter. This is equivalent to one of the half months average shutdown, hence the reduction in cash.
As with sales and profitability, we expect cash generation to be positive for the rest of fiscal 2021.
We paid $1.1 million of dividends in the quarter and it continues to be is secure and an important part of our capital allocation provided directly back to shareholders.
Capital spending in the quarter was light of $300000, we expect capital for the full year to be the 2.0 to 2.5 million dollar range.
Finally, our business development management team at board continue to be focused on utilizing our strong balance sheet to opportunistically identify and close on acquisitions, which have near and long term benefits to our shareholders.
Alan will now discuss our operations and then Jim will complete our presentation with a strategic update and our fiscal 2021 guidance Alan.
Thank you Jeff Good morning, everyone I would ask that you refer to slide nine.
$16.7 million and sales for the first quarter were negatively negatively impacted by how we responded to the Colgate 19 outbreak, which resulted in 50% reduction of our operating capacity.
During the first quarter, we developed and implemented Colgate 19 protocols, which ensures that we would not experienced such a low utilization rate for the remainder of at slide 21, I am proud of the cobot returned to work team and the entire company for returning the please back to work safely and what.
Following our newly implemented work place safety practices, everyone has stepped up and responded well to this new reality, we find ourselves it [noise].
Highlights for the first quarter, where that revenue from defense project was three and half million dollars, 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 do you hope at 19 fell out of the fourth quarter.
Moving on to slide nine.
Well call. It 90 has it impacted the demand for our products. There are several actions that are being implemented to ensure that we maximize the margin.
<unk> that we will be converting this fiscal year.
In 19 has created a buyers market for raw material.
Supply chain has been very successful in securing materials at reduced cost.
I'm expecting that we'll be able to continue to be in this position for the rest of there for the remainder of the year.
We're also focusing on growing our skilled workforce in order to increase their production volumes.
Today than they recently completed an expansion of our web school, we now have the capacity to train up to eight welders.
[noise] up from four.
We established our wells go approximately five years ago and is proving to be effective means to developing rollout workforce.
Currently we have PREIT prioritizing improving productivity and our navy production areas.
The company has completed many first time operations.
The productivity enhancements will stem from improved built flows employee training, creating a jigs and fixtures and lastly, applying lessons learned.
I T Department is developing tools.
Well improve our ability to manage our global fabrication partners a management dashboard is being developed to track all aspects of our outsourced projects. This dashboard will aggregate information is stored in several I'd platforms and will greatly improve the productivity of our project managers.
Finally, we are continuing efforts to grow our low cost outsourcing capabilities, which will allow us to compete on projects what cost is the main decision driver.
I see the then.
Market disruptions as an opportunity to be clear I disliked or the disruptions. However, attitudes to take advantage of them investor ourselves improve our processes.
Game try to activity, so that we come out stronger and performing better.
Our attitude is let's not wait the downturn by being a victim out of it but rather let's play offense to create benefits because of it.
I'll now hand to presentation Optigrid after Jim.
Thank you Alan.
Good morning, everyone.
I am referring to slide 11.
Just on Ellen.
Provided good commentary about the impact to our financial results from the pandemic and present crude oil.
Excuse me.
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.
Clued into that orders is $4 million up canceled orders and the impact of change orders.
It was rather even with 2 million of backlog deductions and each quarter.
The underlying bookings for new orders were a bit better than water show, however, still down considerably.
I've been through four downturns, while a gram and now I'm in the fifth.
So each are challenging.
One end.
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 kinda 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 is critical to me to delivery window order was finally.
Ready to be placed this last quarter.
It was about a 2 million dollar opportunity.
Due to focus on preserving cash the plant advised that they cannot be cure the unit, though we offered and responds very favorable cash flow terms.
Worked our supply chain for better cost as Ellen had mentioned that then resulted in a lower price to the end user.
Corporate so simply would not Butch.
The risk of an unplanned shutdown or reduction in plant throughput is high but.
But cash preservation prevailed.
And the other times this would have been an order placed.
Put into our backlog and be a contributor to current your revenue.
Another example is a larger project.
That's about $5 million for a refinery rebound.
You are too we've been building it for a couple of years.
Learned last quarter it was to be pushed out another year.
Well for weeks ago, we got Reengaged with the PC.
Needed, our engineering and to complete their plant layout in structural design.
In response, we proposed an engineering only order.
We get a call. This week that corporate is likely to sponsor final investment decision and now the full orders back in play for fiscal 2002 revenue.
The order is now projected to close this quarter and everything is hurried to get it done.
Well it actually proceed or perhaps there might be an order placed that's subsequently was cancelled but we have experienced in the recent couple of quarters I simply don't know it's difficult to predict.
They offer these two examples to convey order patterns, maybe unpredictable and lumpy.
We have no control over the direction of our end markets and little influence over the decisions or customer may make regarding will a project received funding.
I can convey though that we're on top of the available opportunities controlling well that which we can control, which is how we support customers manage opportunities [laughter] differentiate from the competition with our speed our knowledge sharing options analyses that we provide.
And ultimately get our company in a position to win that should an order get placed.
Well now take an order at a particular price, but the job of our sales team.
The team doesn't wells is to get Graham in a position to accept or decline in order.
Even today are unable bid pipeline is unpredictable morsel with timing.
But it still is difficult to define within a quarter. When an order is going to be placed from the U.S. Navy weather or they're a prime contractors.
Moving onto slide 12.
Stepping through our different key end markets.
Refining.
Is down in North America.
Across our three segments, which would be.
He is the integrator refiner.
The independent refiner.
And also the MRO segment spares and parts.
That's down in Asia, we do see a pretty active pipeline for new capacity.
It would be for India, China or elsewhere in Asia.
For the Middle East.
Or Latin America, there's really nothing significant in our pipeline right now.
We think those new capacity opportunities will present themselves after fiscal 21.
For the U.S. Navy, we have a very healthy active bid pipeline across the three programs that we are in.
The carrier program, the Virginia class submarine program and also the Columbia Class program.
What's great is certain of these bids are for new components that are currently in backlog that we've we've not done so our focus on expanding our share of wallet.
As is presenting opportunities that we hadn't seen previously.
And then we're going to go after those and hopefully when those all across the next.
Three quarters, we anticipate somewhere between $30 million to $50 million of work would be placed by the Navy [laughter] with the suppliers such as Graham.
And hopefully we will win a strong share of that.
The chemical petrochemical market.
Sided with the one example.
Have a bit opportunity.
Focuses on preserving cash without demand had collapsed globally.
This market is really focused on a clamping down on capital spending expenditures MRO expenditures and just conserving cash accretive cash across 2021, I'm, sorry, a calendar 2000 and cross fiscal 2021.
We are beginning to see some early signs of the next wave of new ethylene capacity than you might recall that we view ethylene as the surrogate that's a surrogate for the overall chemical industry.
An important though.
Consideration at this point in time is we're trying to understand for the next wave the relevance of North American investment.
It may not be as strong as this most recent wave that began in the.
2012, 2013 14 timeframe.
On the short cycle side.
That seems to have pulled back 15% to 20%.
We are seeing some improvement on the a spare parts side.
However, the OEM work again. This is shorts logo work that seems to be off correlated to the global economy and end market demand collapse.
We are also involving ourselves in a new.
Markets are emerging markets, if you will.
Alternative energy markets hydrogen fuel cells market compressed natural gas.
And also supercritical fluids, we have certain technology. These are high pressure applications, where our product lines fits extraordinarily well.
These are not a large orders the S. P is probably under average selling prices probably under a $100000.
For that type of cell, but it's very nice bread and butter work and we're focused on our participation in securing a presence of these new emerging markets.
Let's move onto the next slide.
Slide 13.
Our balance sheet and also backlog position entering.
This downturn our bulk beneficial.
After the first quarter, which we do consider an event isolated to that quarter, we get back into backlog conversion in the second quarter and had stronger conversion in the third and fourth quarters.
$107 million of backlog as of June Thirtyth is terrific to apps.
70% to 75% of that backlog as planned to convert over the next 12 months.
You May have noted in our press release that we indicate approximately 60% of this backlog converts across fiscal 21.
Q2, Q3 Q4.
That implies for fiscal 21 $81 million of fiscal 21 revenue is in hand.
They are converted during the first quarter or from current backlog.
This provided us the confidence to give full year guidance that will speak to in a moment.
Our backlog is split.
Roughly 50 50 between naval work and.
Orders, where our traditional end markets.
And for the naval work as we've been saying for last several quarters.
We are in all three programs.
And have backlog and full conversion mode.
Again by programs, we mean, one program for the carrier when other for Virginia class submarine and the third program is Colombia class submarine.
Let's move onto the guidance slide.
Well coming out with full year guidance because of the confidence that we have vote with our backlog and how we see the remainder of the year shaping up.
Revenue guidance is expected to be between.
Before revenue to be between 90 and $95 million.
Gross margin is projected to be between 20 and 22%.
Our rest Jna spend.
Is projected to be between 17 and $18 million and the effective tax rate is 22%.
Implicit in this guidance.
Is that we continue to continue to run that hope that sorry implicit in this guidance is that we continue to run at high production levels and don't have work stoppage or curtailments due to another cobot related impacts to our operations are those of our supply chain fabrication partners.
This is a risks that management will address and communicate about should it alter fiscal 2021 performance.
Of course, a second risk is that a customer may plays a large order on hold or cancel it.
We are unaware of particular orders and backlog without risk.
Now moving on to slide 15.
This provides a quick snapshot of.
What we're focused on what our strategic goals are.
And then a bit of up progress update we have been focused for number of years on increasing what we call are predictable revenue streams are predictable base.
A key component there is our as our work for the defense because of the long life nature of that backlog that gives us a strong level up predictable revenue.
For a comparison, we are projecting that fiscal 21.
Revenue compared to fiscal 20 revenue for the defense work will be up about 50%.
We're also focusing on our installed base we are.
An 80 plus year old company, we have this massive installed base around the world.
Very large installed base and North America, and we've been allocating resources toward focusing on that differently than our company had an passed in the past.
To be candid with whats occurred with the pandemic, there's been a bit of a pause on our investment there and putting personnel into regions, where the installed base is high.
Primarily because our customers art.
Openly permitting access to their plants.
There are being being very careful about admitting personnel into their facilities. So we can't game gain access to those sites and also we're very mindful about worker safety and and having our people travel at this point in time to the consequences of being sequestered are isolated upon return so therefore.
For our investment this is a bit of a pause it doesn't reflect our.
Our commitment to the strategy. It's just the consequence of what we're currently facing.
And then of course, we're looking at M&A and our M&A program, we're focused on more stable revenue streams.
To support our expansion of a predictable base of our business.
We're also.
Taking action and have taken action.
To reposition our company to be more successful.
In price focused opportunities.
We participated in those opportunities before.
We more situationally secured those orders when it made sense to us.
We've now structured in our structuring and making investments to go in and carve out a meaningful market share for ourselves and that underserved market. Previously we have seen these opportunities in the past, we're still seeing them today.
The operations team is now structuring too.
How to go windows and execute within a lower market price out an acceptable returns.
We've had a healthy level of that type of revenue in fiscal 20.
And we'll actually have a greater level of revenue level of fiscal 21 compared to 20. So the strategy is being executed well.
And I'm very pleased with our progress there and our ability to extract and realize the margins that we we targeted.
Also were.
Of course focused on strengthening our financial results.
A key element here is to push more volume through our through our roofline and put less into our local supply chain.
With our fabrication partners.
Alan and his team our along with the HR team are looking to continue to add to our skilled workforce welders machinists assemblers.
I'd like to see us with about 20 to 25 more direct laborers over the next one to two years, probably the next two years.
That will be very very helpful and lifting our margins.
In the Naval program.
We need to earn our position as a sole source supplier.
We have some of that work now which can come in sole source, but.
There's more that through good performance through strong execution through program management risk identification risk mitigation.
And the cost efficiency.
We may be able to secure additional work under sole source bidding.
That's earned that's not given and Alan and his team are doing a really good job to position us to be into that type of supplier category.
Also for our naval work Ellen mentioned.
In his remarks, we have had some of that work that's first time.
Articles for us.
First time fabrications and that has of an aspect of.
[noise] cost structure that we've carried for that type of order.
That has a little bit of a headwind on the on the gross margin side elevated cost of goods sold.
However, as we get through those first article fabrications and Alan and his team focus on.
Flow improvement production optimization.
Reconfigure the operations to flow work more efficiently.
Now that we've gone through the first article that will drop down to.
Improved financial performance from that segment of our business.
And also will balance our or near term realities.
With with the reduction in demand on the on the order front.
With a long term strategies to grow this business, we've chosen not to.
Right size, our costs for what was happening in our first quarter or to the extent, what's happening in our second quarter with where revenue is.
Because we believe in the long term than we believe in our and our strategies and we'll balance decisions will make around.
Proving near term quarters that could be to the detriment of long term value creation. So we will be very mindful of that and watch all fiscal 2022 begins to tape should take shape.
With that I think it's a property time to open the call up for procurement.
[noise] Devon would you please open the line.
Yeah, we will now be conducting a question and answer session. If he would like to ask your question. Please press star one on your telephone keypad a confirmation tunnel indicate your line is another question can you May press star too if you would like to remove your question from the kit for participants using speaker equipment, it maybe necessary to pick up your hands that before president Starkey.
On the please what we poll for questions.
Our first question comes from the line of Joe Mondello with Sidoti and company. Please proceed with your question.
Hi, Jim Jeff.
More to 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.
You know sort of below average bookings, obviously different environment, a year ago, but similar in terms of the bookings anyways.
And at that time, Youre, 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. There 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 coal essentially here again today worse, where some of the project.
Next 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 let last year, we did see the end markets evolve.
As we got into the third fiscal quarter slots and behavioral changes that we weren't anticipating from our.
From our customers that were pushing order decisions to the to the right.
Or they cancel some orders.
Or are they.
Our backlog was actually some of our backlog was reconfigured at their convenience to be executed later.
It was originally planned.
This point as we talk about fiscal 2021 and the guidance.
It's really reflective of.
We just completed 60 million dollar Q1.
We have another $7 million of backlog in hand.
Absent further cancellations and all of that the model that we have a 60% of the backlog currently in hand on June Thirtyth is projected to convert over Q2 Q3 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 gotten are down in our projections that can be somewhere between 4 million a quarter and $6 million per quarter.
So we feel strongly confident that will land within the $90 million to $95 million guidance.
I haven't given.
Hey, a book to Bill Guide a book to Bill commitment at this point.
Yeah. So I was just extrapolating from the comment 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 2001 for the backlog to grow you would have to.
Get through a book to bill above one.
Okay. Thank you for pointed me to that that was helpful.
So the thesis that we have there are the modeling that we have there you would hurt 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 a good percentage of that works. So that's a key element in our in our backlog growth.
Secondarily, we have a pretty active pipeline in our traditional markets.
Orders through.
In July in the month of July are approaching $9 million.
So we have had a strong strong july relative to comparing it to the first quarter in totality.
And so we are seeing other orders that are supposed to close of 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.
$7 million are 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 I'm more from a wondering if you were are able to win a good percentage of the 30 to 51.
It's in fiscal 22.
And then in addition to that.
Your comments in the press release, where you say you're going to be well positioned for a stronger physical 22, which I assume.
Year over year stronger fiscal 22.
So let me break that down but that might be helpful. When we when we think about a carrier opportunity.
It's 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 when it or not that will depend upon do we with it but that's the addressable content.
And typical revenue conversion just like to do the math simply let's say.
$40 million carrier content, we typically have a four year conversion, though [laughter] 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 are if we get that type of $40 million order level.
It was $32 million than if it goes down to eight A. 8 billion a year on the Columbia class program.
He addressed opportunity by us is somewhere in the range of $25 million.
Again this is no guarantee I use the term addressed not not that will secure all of that.
Depending upon our success that might suggest columbia's are going to be built every two years.
So I can do simple math, if we won 15 million of that 25 million to second do simple math that would suggest something in a $1 billion per year of revenue conversion.
And then on the Virginia Class program, where they are building one or two submarines a year you addressed content by Gram per submarine.
Yes to content is on the order of $5 million per sub.
And so that might suggest there's there's $5 billion a year of.
Virginia class worked at all that up it's getting to what Jeff said in his prepared remarks of 25% to 30% of the revenue is.
As for the Naval program and that suggesting something in the mid Twentys to 30 million dollar type of revenue level.
In the years as we look forward.
Okay, and then I guess the follow up there I think you stated in your prepared remarks that you anticipate Nate defense to be up about 50%. This year, which would put you I believe that 30 million. This here.
So we do anticipate see 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 here.
At the on the defense side.
We've come out and indicated I get this is of a wide range, but I believe on the last.
Call that we had we had said we expect navy to be between 20 and $30 million of revenue with the with what we're addressing and we're focused on can't can we find other components to go wind and participate with.
So that would suggest.
And can depend upon where we are backlog conversion, but I would expect there'll be there'll be years that are on the lower end of that range. There will be years on the upper end of that range. It depends on where we are.
And just to give some guidance on a on this this current year.
I don't think will be heading towards 30 million.
It will be somewhere in the mid Twentys.
Joe just as a point of clarification, our Navy revenue last fiscal year was in the mid teens was not.
Good morning.
Right, Yeah, I have 15, but almost 15 million. Okay. I think I think would you had stated suggested it was closer to 20 with a 50% increase getting to 30 yeah.
That is correct, yeah, I was doing the math for what went wrong actually alright, not know that that definitely clear 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 I just wondering a with a you know weve seen a pretty.
Drastic move in the U.S. dollar and you do a lot of exporting.
Does that does that do you think or does that change anything for you at all if you know, especially if it continues to move.
Or is it just more so driven by.
Projects and whether you're you know does it help when bids maybe I'm just wondering if the U.S. dollar following its helpful.
It can be helpful.
Because it because I know the.
The counter to that is a strong dollar can be does advantageous to us.
Relative to some of our international competition so.
There's a weakening of the U.S. dollar.
You had said that can create a benefit for us relative to some of our other competitors.
Europe or or elsewhere.
We don't typically.
Get overly excited about a strong or 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 over I think understood our revenue revenue mix is somewhere around 60% to 70% domestic.
At this point in time with the with the degree of the Naval work.
Okay. Okay.
Okay I'll jump back in queue. Thanks.
Well, you're very welcome thanks Joel.
Thank you as a reminder, ladies and gentlemen, if he would like to ask a question. Please press star one on your telephone keypad.
Next question comes from the line of Theodore O'neill with Whats the LTL Smith, Sir. Please proceed with your question.
You.
Hey, congratulations on giving out guidance for the year well, both your geared and end market customers are.
Still not able to do that.
Well. Thank you Glen I'll tell you we debated the merits of making that decision. However, the reasons that we decided we felt confident that we could do so.
Yeah.
I just have a just a clarification in their press release, you talked about the chemical and petrochemical borders being down because it could 19, but you you talked in the in in your presentation here the about their customers conserving cash and end demand, but those are that those are the real issues. When you say covert 19 in the press release, that's specifically what you are.
Talking about it's not like or your customers that had a workforce a shortage and then there was back at work so things have changed it's not that right.
It has not been that it does it has been more the consequence of coated and the disruption in demand.
Therefore, the disruption in their their cash flows and their profitability and their need to preserve our conserve cash as a consequence.
Okay. Thanks, very much that's it for me.
Very welcome thanks.
Thank you. Our next question is a follow up question from kind of Tom Spiro. Please proceed with your question [noise].
Yeah, Tom Spyros spiral capital good morning, everyone.
Good morning, Tom Hi, Tom.
First question is regarding India, you highlighted that in the press release the opportunities in India.
Now on any major work in India, yet or will these be really the.
The first big jobs, if you win them.
So weve over our history, we've done work in India, where we were.
Typically an outside in selling strategy.
We would be carried in by a multinational OEM already PC 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 a insight decision of getting inside India.
And selling locally winning business locally and executing with a with a with a partial local strategy with a shared.
With a shared margin type of structure.
And we have a number of bids that were pursuing we did land a an order in the current quarter.
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 may close close over the next couple of quarters.
India with the new execution in a new sales model versus our historic model.
Hi show these jobs when you just wanting perhaps others down the road in this will be the first time to you.
Actually wrote cash the new local strategy.
Correct.
What would it be reasonable to assume that since it's a it's a new for all for around for you folks in here partners in India that.
Just had one or two times true up margins might be a.
Lower than you would expect that perhaps on the projects one following years.
Oh, Great point, we have found whenever we flower new fields you find some rocks.
However, we are deploying a 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 will plow. This field for the first time.
And we'll uncovered some some rocks but.
But we are very wise and very knowledgeable about how these orders are transacted and what we need to do to control margin that 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 and Mark a new.
Geographic region, where we're doing it sure Hi, <unk> you described I guess in 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 there there's still more price sensitive now than they might have appeared say year ago.
Not with respect to India.
Hey by outside of India. It can depend.
The there can be large swings and.
In margin potential based on.
End user based on PC and based on who is permitted into the bidding process.
Okay and also is that end user apprise focused end user quality focused end user.
And the margins can vary greatly.
Within the country with other countries.
And one or two in your slides you mentioned, the and the possibility of adding to the workforce and may not Batavia or are you, adding to the workforce today as we speak or is that more.
And expectation that as circumstances change here domestically you will do so.
We are adding to the workforce. This this.
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 I've 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.
We are doing so now we will be doing so.
Throughout 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 particular the naval work.
But also from our more traditional markets. So we aren't scaling back.
Our direct labor workforce like would have occurred in the previous for downturns and this downturn we're building it out.
And what are what would you hope to do we have sachet, yeah, and 912 months from now through the end markets that you can front or this week and as they are today.
We would convert more navy work faster.
I see.
I see.
And lastly, you just a question for for Jeff You mentioned that debt for the last three quarters in fiscal year as a company hopes to be cash generative.
Do you expect the cash balance at the ended the year to exceed 67, or Capex working capital dividends et cetera. The cash that you generate will be will be more than consumed.
Tom That's a good question you had to clarify I would expect the cash balance to be higher than 67.
I should have.
But a little clear there, but absolutely.
Thanks, very much good luck.
Thanks, Tom Thank your job.
Our next question comes from the line of John Thanks, or a private Investor. Please proceed with your question.
Oh, Hi, I just have a quick.
Housekeeping question.
On the income statement there is another expense.
Oh for last year's quarter 523000.
One is that I haven't been able to locate that.
Sure. John This is Jeff that other expense up in last year's first quarter, we divested our.
Our.
Energy Steele, our commercial nuclear utility business and that other expenses related to that.
Okay, that's what it wants to the divestiture okay.
Hi, 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 break up the Jim for closing comments.
Thank you Devon and thank you everyone for your time. This morning on our first first quarter conference call.
Thank you for the detailed questions and we look forward to updating everyone. Our next conference call and at about three months.
They care he said.
This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and I have a wonderful day.