Q2 2022 Graham Corp Earnings Call

Greetings and welcome to the Graham Corporation second quarter fiscal year 2022 financial results conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded I would now like to turn the conference over to your host Deborah Pawlowski Investor Relations up Graham Corporation. Please go ahead.

Thank you Maria and good morning, everyone. We certainly appreciate your time today and your interest in Graham Corporation. Joining me on the call are Dan Thornton, our president and CEO and Jeff like our Chief Financial Officer.

You should have a copy of the second quarter fiscal 2022 financial results, which we released this morning before the market. If not you can access the release as well as the slides that will accompany our conversation today at our website Www Dot Graham hyphen M. S. G dot com after our formal presentation, we will be opening the line for Q&A.

If you'll turn to slide two 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. 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.

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.

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 Jeff Flake to begin Jeff.

Thank you Debbie and good morning, everyone. If you could turn to slide three Rev.

Revenue in the second quarter was $34 $1 million up $6 million or 22% compared with last year's second quarter. The addition of Barbara Nichols contributed $16 $5 million in the quarter, our legacy Grand manufacturing business offset part of the game.

Two reasons first in the comparable quarter last year, we had a non repeatable material only order.

In addition, we had a significant level of Chinese sub contracting in the second quarter last year. These two items made up approximately $10 million and lower revenue compared with last year.

We are pleased with our strategic expansion into the defense business ever.

Evident that with 58% of our quarterly revenue coming from this key market, while we await the recovery of the energy and petrochemical markets.

As we look to the second half of the year, we continue to expect strong performance from Barbara Nichols.

For the <unk> facility, we expect to see a significant shift toward a higher profit defense jobs.

In our commercial markets, we expect to have a large increase in subcontracted production plans for both the United States, and India, which will measurably improved revenue and gross profit in the second half of the year.

I would caution however that this large increase in the amount of outsourcing while set up very nicely right now is dependent on our subcontracting partners and Ken occasion take longer.

Can on occasion take longer than planned. So there is a risk a portion of this could shift out of the fiscal year into fiscal <unk> into Q1 of fiscal 2023.

Orders, an increase of $31 $4 million up from $20 9 million in Q1.

Orders were split evenly between the manufacturing business and Barbara Nichols.

$233 million backlog is strong with 78% of it is coming from the defense market.

In the quarter gross margins and profitability were impacted by two Batavia based defense orders, which utilized a significant amount of labor that had a very low revenue per labor hour.

One project was the first article order, which had been won competitively.

There was a fabrication order, which had a significant portion of its profit recognized in previous years when the material portion of the project was executed on a separate order.

Both of these projects will make us a significantly lower portion of the expected revenue in the second half of the year in.

In addition, we expect both of these projects to be nearly complete by the end of the fiscal year.

We did have a strong quarter Barbara Nichols I continue to be pleased with their performance through four months their business through the $20 million of revenue and $3 million of EBITDA.

Our expectation for the full year remains at $45 million to $48 million of revenue.

At 11% EBITDA margin or $5 $2 million.

So they are ahead of pace to hit the fiscal year expectations for the 10 months of the business that will be part of a gram in this fiscal year.

I do caution extrapolating, the four month numbers, but I am encouraged about their performance and the integration within Graham.

In the second quarter, we had two onetime items.

We had a pretax gain of $1 $9 million related to the earn out of the Barbara Nickels acquisition I will discuss this in a minute. We also had a charge, but offsetting charge of $798000 related to the termination of our prior CEO.

The net of these two items $1 1 million or approximately $882000. After taxes are included in the reported results.

Regarding the earn out adjustment for Barbara Nichols, we have made a change which we believe will further strengthen the long term incentives of the business.

The acquisition earn out which was for $7 million to $14 million payout based on fiscal 'twenty 'twenty four results I'm.

I'm, sorry fiscal 2024 EBITDA results has been cancelled.

This had represented a 10% to 20% addition to the original $70 $1 million acquisition price.

This earn out had been valued using a Monte Carlo accounting.

Purchase of Monte Carlo purchase price accounting analysis at $1 $9 million.

Therefore, with the cancellation of this earn out the economic value of that earn out is now zero and the gain had to be recognized through income through the income statement in the quarter.

However, I'm excited that we have initiated a new incremental bonus pool for a broader portion of the Barbara nickels employees.

This pool will be an annual cash bonus pool and incremental incremental annual cash bonus pool based on fiscal year results 2020 for 2025 and 2026.

For each year the pool will allow for a range of at the low end $2 million once the EBITDA threshold is met at.

At a maximum of $4 million is the maximum.

EBITDA is achieved within the year, therefore across the three years the maximum opportunity is $12 million.

In those years this will be reported as a period cost.

We believe this bonus pool will be an excellent retention tool and will be in place for the third fourth and fifth years. Following the acquisition of Barbara Nichols.

If we can move on to slide four.

Much of slides four and five have already discussed.

We'll note that Q2 last year essentially included all the profit of the full fiscal year, obviously this quarter.

The current year was challenged and however, the challenges we're completely within the Batavia operation and.

In addition, those challenges are short term and many of them are behind us or mostly behind US. We expect the next two quarters to see a noticeable improvement in.

In profitability.

You will note the GAAP and adjusted EPS are similar for Q2, along with the $1 1 million onetime items that I mentioned earlier, we also have adjusted out the purchase accounting amortization of $784000 as well as a $124000 of acquisition related costs.

Full year reconciliation of GAAP to adjusted EPS are in the appendix of this deck.

Moving on to slide five.

For the year to date results the nine.

$9 $6 million revenue gain came from.

$20 million of addition of Barbara Nichols.

Offset by the same items noted for the quarter earlier, namely last year, having the benefit of a onetime material order and higher Chinese sub contracting in the first half of the year.

As with the quarter results the year to date GAAP and adjusted EPS are similar for the same reasons noted for the second quarter again. This is reconciled in the appendix of the deck.

You may recall last year, we had a big impact from Covid in the first quarter, while we were shut down for approximately three weeks and we were running at half capacity throughout the quarter. While this year's first quarter were impacted by the same lower margin defense orders that were noted for the second quarter.

Moving on to slide six.

As many of you know I was very pleased that we invested our formerly high cash balance.

Barbara Nichols I am very pleased about their performance to date and after seeing even more of their team in action the future and Barbara Nichols is extremely exciting they are executing very well and the early returns, which can often be a risk for an acquisition have been stellar.

Our balance sheet with the term loan that was taken as part of the acquisition provides us flexibility for future investments, we will continue to be willing to use our balance a strong balance sheet for future internal and external growth opportunities.

Dan will talk further about our backlog our strategy and our guidance for the full year Dan.

Thank you, Jeff and good morning, everyone.

I'm starting on slide seven.

We had a nice mix of orders in the second quarter $12 $5 million came from our defense customers almost 19 from our commercial customers.

Defense orders were for both new and existing programs.

New and overhaul equipment, giving us full lifecycle exposure.

Space related orders were around $2 million.

And advanced energy orders were close to $2 million or commercial balance orders or spares are trending upwards.

The big change in backlog from fiscal year 'twenty, one to fiscal year 'twenty two was mostly from the acquisition of Barbara Nichols.

Of the $233 million backlog, 78% or $182 million as in defense.

From a backlog perspective Graham has certainly made the transition from an energy and chemical business with some defense work to a defense company with an important contribution from energy and chemical.

About one half the backlog is expected to convert to revenue in the next 12 months.

The remaining 12 month order graph does not include be an orders prior to the acquisition.

On June one 2021.

Moving to slide eight.

Graham strategy started many years ago has been realized through both organic and inorganic means the organic defense business supplying vacuum in heat transfer equipment on maybe carriers and submarines has been very successful the.

The acquisition of Barbara Nichols has added more defense business that helps to offset the cyclicality and the heritage energy and chemical business our.

Our second quarter revenue and defense was $20 million.

Up 12, 7% from the first quarter or be it I contributed for one month.

The really nice thing about defense business is the visibility.

Ships and submarines take a long time to build so budgeting and plans are in place long before orders come.

In some cases, the navy will place orders for multiple strategic assets at one time, giving us a large backlog that converts over several years. These long term orders provide good value for our customer and allows us to continually improve margins as the projects repeat in our shops.

Please turn to slide nine for our updated fiscal 'twenty two guidance.

Okay.

Revenue remains unchanged in the $130 million to $140 million range as discussed by Jeff. We started slow in the first half was $54 million of revenue and we are ramping up each quarter.

<unk> is expected to contribute $45 million to $48 million for the year, our gross margin will be 17% to 18%, reflecting lower margin maybe work at Batavia with SG&A around 15 or 16% of revenue.

We have tightened adjusted EBITDA from $7 million to $9 million to $7 million to $8 million capital expenditures remain unchanged at three $5 million to $4 million.

Certainly we continue to track supply chain in COVID-19 related disruptions.

The biggest potential impact to our projections that we are tracking now is the executive order on ensuring adequate COVID-19 safety protocols for federal contractors. This requirement would be slowed down contractually to Graham manufacturing and Barbara Nichols and would require that all.

All of our employees that do not have exemptions be vaccinated against COVID-19 effective December eight 2021.

Yeah.

Slide 10 summarizes how we are driving value for our shareholders.

The defense strategy has been successful.

And we see additional growth available in the energy market, that's refining and petrochemicals, we are seeing leading indicators of an upcycle expansion.

We are preparing our company at our supply base for the increase in business there.

We have several initiatives to enhance our market positions and brand recognition. These range from marketing so listen one of the things we're doing as an upside website upgrade.

And also resuming our successful back to Dennis training program.

We're also taking different approaches to our markets, we're leveraging our installed base, where redeveloped or relationships with license or as customers and <unk> that has been strained through this COVID-19 environment that we've been in.

We have made excellent progress with balance sheet efficiency over the last six months as Jeff has discussed.

Finally, we are developing a multiyear strategic plan that will generate cash to enable more growth.

Third our first our first strategic plan iteration with our board yesterday.

<unk> had some great feedback they are encouraged with what we're planning.

With that I'd like to turn it back to Maria to open the lines, So Jeff and I can answer questions from the audience.

At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.

You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.

One moment, please I'll we poll for questions.

Our first question is from appeal O'neil with Litchfield Hills Research. Please proceed with your question.

Thank you very much I want to ask about the nuclear sub opportunity in Australia.

What I can tell here, Australia. It does have some capacity to make submarines diesel electric variety, but.

Does this present can you talk about what kind of opportunity this would present.

For Graham Corporation in Australia.

Yes, absolutely.

So our understanding and it's certainly not written in stone at this point, but our understanding is that.

That the Australians are interested in nuclear propulsion.

That the that the U S and Britain, having their submarines.

And if it goes that way.

Graham has been providing some of the heat transfer and vacuum equipment.

For the United States nuclear submarines the power plants in there so.

So we would expect that there might be an opportunity.

To provide that same or similar type equipment for the Australia and subs.

This would be a new design, it's many years out.

But we're encouraged by that.

Barbara Nickels also makes torpedo injection pumps for.

The United States Navy submarines.

Yes.

The.

Technology go this or that way for the Australia and subs.

Barbara Nichols could have an opportunity to supply torpedo injection pumps for the Australia subs also.

And if you if you get that kind of business does that strategically set you up in a better position for more business in Asia in general.

Does it change anything about that or the contracting subcontract.

Part of the business.

I would guess not because.

The United States holds their nuclear propulsion.

Very very tightly and so they only share it with their closest allies and so I would expect that it goes no further than Australia.

Okay. Thanks very much.

Yes.

Sure.

Yeah.

Our next question is from Tate Sullivan with Maxim. Please proceed with your question.

Hi, Thank you staying within the defense work.

Can you just your view and your comments on the competitively bid first.

Article Defense work. It did you say that job and so that's not a source for the higher margins in the second half of your fiscal year.

Is that correct.

Sure.

Those jobs are actually continuing through the second half of the year, but at a much smaller percentage of our total revenue and then by the end of the fiscal year both of the jobs that have been.

Pulling down the profitability will be very close to complete we're expecting them to be between 90, and 95% complete by the end of the year and so they'll have a very minimal impact on fiscal 'twenty three.

Okay, and then is there.

Are those are these lower margin projects related to some of the opportunities that you have with the U S. Navy to go more sole source from competitively bid or are they separate or can you give a little more detail.

Sure of course.

They both both of these projects.

Our projects that we now have sole sourced opportunities going forward and they are already in our backlog.

At a different pricing point as they were sole source and very importantly, particularly on the first article one week.

We've gotten through all the learnings out of the first article side. So as we're running through the project, we're seeing better efficiency towards the end of the project and we were certainly in the beginning of the project because we treat it as one project, though you get the you get the good and the bad.

From a profitability standpoint, when we recognize revenue so our expectation going forward on both of these.

Type of projects is that.

With what's in backlog right now, we will see significantly better results.

When we're converting the next vessel.

Okay. Thank you and going back to the comments on the earn out just to clarify the change in the earn out and then go into a bonus as it was not related at all that Barbara Nichols performance so far.

Not at all actually.

Not at all basically it was really a.

The sellers typically in an earn out scenario.

Sellers are ones, who receive the benefit of an earn out.

The sellers the sellers.

Decided.

But they did not what they wanted to do something a little different so that we basically canceled as it was and then separately we've put in our bonus program to allow the a much broader group of individuals that Barbara nickels to participate some of them are the sellers, but they are much smaller percentage of the <unk>.

Total that obviously, 100%.

<unk>.

We believe this bonus program will be very very impactful to retain individuals', perhaps to even attract individuals.

And because it goes over fiscal years 2004 through 26 by the end of fiscal year 'twenty $6 that will be the fifth year of the acquisition. So it's a really nice retention pool and attraction pool for employees now that will help us retain them and attract further employees.

Through years three to five of the acquisition. So we're really excited about this change in a quite frankly.

Have to tip my hat to the sellers, who quite frankly, it could very easily just taken the the.

Earn out when I'm, assuming it was earned in fiscal 'twenty four.

The metrics for the earn out for fiscal 'twenty four.

There were certain metrics the metrics for the bonus for fiscal 'twenty four are exactly the same for fiscal 'twenty five in fiscal 'twenty six theyre actually an increase off of the fiscal 'twenty four numbers. So.

From a corporation standpoint.

We believe that it is not only fair, but it's it will lead to.

Very strong returns.

Very excited about it.

Okay. Thank you.

Thanks Tate.

Yeah.

Our next question is from <expletive> Ryan with Colliers. Please proceed with your question.

Okay.

Thank you.

Dan you mentioned on the order front, both new and existing programs can you give us any more color on what new opportunities you've brought in.

Yes, I cant right now <expletive>.

<unk>.

Some of those we have to get customer approval to talk about so I can't give you any specifics there, but but we are really excited about.

We continue to get some new programs.

And then the other piece of it that I talked about in my prepared remarks was we.

We are expanding our overhaul business and so that that full lifecycle is something that we've been working towards and we're starting to see that.

The fruits of those labors.

Being a full lifecycle supplier.

For the Navy.

As an excellent position to be in and we're really happy about about these new orders coming in.

Okay.

What risks.

Could you see from the executive order on vaccine mandates.

In terms of maybe your second half results.

Would it be cost the ability to deliver or have you been able to kind of parse those risks solid at all.

Yeah.

It's a great question and something that.

We're putting a lot of brainpower in too.

I'll start with the.

<unk>.

The exact requirements are fully defined for us yet.

The executive order has some has some.

Unclear and that's associated with it that we're still trying to parse apart.

What is very clear is that it would be flowed down contractually we have not seeing have not seen contract mods from our customers.

Yet relative to.

Relative to that federal acquisition regulation slowdown yet.

I'm suspecting that we would.

And when that does flow down.

Very clear that to continue to execute we have to have.

Employees vaccinated or with approved exemptions by December eight.

Our.

Our employee base is not 100% vaccinated.

And so I would suspect that if if they choose not to get vaccinated then it will have an impact on our workforce.

A reduced workforce and the ability to.

To execute the programs as scheduled would be compromised.

So ultimately what that means for us is probably lower revenue in the second half.

And then.

Then.

Schedule delays to our customers that that we would go back and ask for.

Some type of some type of.

Consideration to.

To address that change essentially that's been driven by the government.

Yes, and lots of lots of things kind of rolling right now youre seeing.

Different defense companies that have rolled this out in and there are negative consequences that they are saying they are losing people because of it.

Okay.

Okay.

You talked about early indicators in the energy side, what are you seeing and is that more is that more international domestic or how do you see that business opportunity falling.

Yeah. So so.

People, who have been around Graham manufacturing for a long time, they tell me.

That when we start to see our balance orders picking up.

That's a that's a leading indicator for an up cycle in <unk>.

Energy and petrochemicals.

We are seeing our spares orders increasing they.

The majority of our spares do come from domestic.

And so it isn't a mess and it's more of a domestic situation that we're seeing.

But what that means is that that our customers feel like they they see an up cycle timing they want to.

Repair their plants getting getting them up to tip top condition. So that they can really benefit from that.

The increase in energy prices so.

So were seeing was indications at the same time as we talk to our customers.

They say any major projects are still 12 to 24 months out.

And so we expect this to be a very slow up cycle.

But but but.

The really good news is that there's indications that it actually might be coming.

So we're excited about that.

Great. Thank you.

Yes.

Our next question is from Gary Schwab with Valley Forge Capital Management. Please proceed with your question.

Yeah, Hi.

First of all I want to congratulate you on creating such an improvement on your website over what you had at the end of last quarter I mean, I think it's a thousand times better.

Wanted to think that'd be Pulaski, because I know that she was the driving force behind getting that new website up and running so quickly.

Gary.

Gary This is Gary this is Jeff there's a lot more coming I assure you.

Okay great.

But secondly, I wanted to drill down some more on your first article projects in.

How that affects your margins is there a big difference.

Between the initial cost and learning curve on first article D O D projects very.

Very similar commercial projects that arent D O D.

Okay.

Oh, that's a great question. So Gary this is Jeff Let me, let me try to hit part of it if I can.

On the commercial side.

We do a lot of projects that are every project is a little bit different on the commercial side. However, there is such a long history.

Within within Graham manufacturing of these projects that a lot of times, we can take a lot of what was learned from previous projects and apply them to the.

The next projects, so while they're all different.

There's a lot of similarities there and there's a lot of history there on the defense side first.

First articles, there's a lot of the engineering. So let me give you a good example, one of the projects Thats in fabrication right. Now was a project that was won in I believe it was fiscal 2015.

And there was <unk> 16, and there was there was a lot of engineering work that was done over a number of years and so that.

After the engineering work when you start the fabrication work.

Ah you're dealing with new engineering work from our side, you're dealing with new.

Vessel.

Configuration from the Navy side, and it's really just.

There's a lot of back and forth between us and the government as there is in the government. The Navy I'm sorry, the Navy and the customers as there is on the commercial side, but that back and forth on the commercial side is a six month process the back and forth here is a many year process and there's a lot of changes as you go and some of the fabrication when we thought about this four or five.

Five years ago, and we're looking at it now it's.

It's difficult fabrication difficult welding and as things that we're doing for the first time on the commercial side, we've done very similar welding.

Many many times and so it is not as much of a lift the nice thing about it though is once you get through that learning curve and we're seeing it even in the vessels were doing now the latter part of the project is much more efficient than the beginning part of the project and so as we look at the next project, we expect that that learning all the learnings that we got from the first article are behind.

US now and really are part of our procedures. So very long answer to a short question, but I hope that was helpful.

Is this different for you.

You make big hunks of metal versus a b N, which makes more.

Uh huh.

I dunno sophisticated electronic.

Smaller pieces of equipment in other words as your first article is the is the cost.

Uh huh.

And learning curve versus the versus the final selling price.

A higher percentage for Graham because.

You have to make all these jigs and malls and everything that BN doesn't have to do.

Is it a little different.

I would.

Jeff's answer was actually really good.

So it really kind of goes back to what do you have experience with.

So if you look at Graham's commercial business.

A lot of the injectors and heat exchangers are.

While they may be custom designs there based on prior designs.

The work is really really accustom that youre trying to fit something into a into a vessel and it has all kinds of different.

Shapes that it kind of has to work around and so it's a very custom chip.

Challenging first article.

For Barbara Nichols.

We kind of play in the same realm, where if we have a pump or a turbine compressor and motor drive.

That is a new order if it's pretty similar to something we've done in the past then the risks are lower.

If it's boy, if it's brand new with lots of new requirements.

That we Havent worked before the risks are higher.

The first article so so I would I would say that both companies are similar that way and if we can leverage something that we've done in the past we can reduce risk.

And if and if we're out there kind of on the leading edge, if you will or.

Ploughing, new ground than the risks are higher and we're seeing that on the gram side, but but frankly.

Not.

Not unusual within the industry.

On the defense side.

Okay.

And just looking at your current backlog of $182 million I know you said that you'll be finishing your first article work well.

What youre working on now are there are there other different on started first article projects that are still in your backlog that youll be getting too in a year or two.

Yes, they're very small, but Gary I will tell you that.

That we are pursuing.

New equipment new applications too.

To continue to grow our defense business.

And we would expect.

The first time that we make these new things that we've been in the future to go through the first article challenges.

It is very typical so this will this will.

Be somewhat of a recurring theme. The beauty is is that if we can build up. This this catalog if you will or these programs.

So that we've got many of them in place and were taking.

One new first article then the impact of that on our overall results would be less.

But we're going to continue to chase the new business to continue to grow the defense business and we will have first articles in the future yes, Gary It's just unfortunate that in this particular first half of the year, it's been a much bigger percentage of our overall business and it's impactful normal.

When that happens, it's not particularly impactful in it.

It doesn't it doesn't move the needle.

Mhm, Okay can I ask one more question.

Of course, Sir.

From what I understand the Navy wants to get back to their pre pandemic production schedule. They were building three subs a year. They were building two Virginia's one Columbia class.

And.

They said they want to get back onto that schedule again.

Does that mean that and they want to get onto that schedule again for like the next 20 years. So they're talking about three subs a year, they even we'd like to push it to four but I don't think they can do that right now.

Does that mean that you would probably win.

Whatever youre doing currently.

And all of these new projects as they come along.

And I guess the question I have is if theyre doing three subs a year.

Can you even handle that.

Yes.

Yes.

Gary It's a great question and I would say that everybody from from the shipbuilders down to the sub contractors are having those conversations right now so the shipbuilders start and say.

Okay, we're ramping up.

We don't have enough capacity, so we want to push some additional things that we've been doing in house to our supply chain the supply chain is saying.

We appreciate the opportunities and we're working hard to figure out how to to to help you out.

So.

The opportunities that are coming at us are wonderful.

Some of them will be competitively bid some of them will be sole sourced.

We've got to.

To plan and manage our business and continue to invest in it.

To be able to take as much as it makes sense to take.

We won't Overcommit.

But at the same time, we love the visibility of this business is long term business it can be very profitable business.

And so we're we're definitely in gosh weekly conversations with our customers about.

What is coming in the future and how can we help you.

Okay, Alright, great and then one last thing.

This goes back to a question that somebody else asked about COVID-19.

I was just wondering.

On this testing that's due by December 1st.

Do you have any critical.

Employees like supervisors, or foreman that havent been vaccinated and.

Is there alternative like I know some companies are saying well if you don't get vaccinated then you have to be tested twice a week.

Doing anything like that or is that is that in the plan.

Yeah. So thus far there has been no requirement.

For employees to tell employ yours.

Whether they are vaccinated or not.

The Covid protocol that we have is.

That if youre not vaccinated, we're asking you to wear masks and socially distance it follows the CDC guidance.

Going forward, it's not as clear.

So to answer your question, specifically, we don't know.

Who is vaccinated and unvaccinated, because we don't have cards for everybody.

So there is the potential that that there is some some some folks that are not vaccinated that.

Could be impacted by this this rule, we just don't know yet.

Certainly where we're <unk>.

Communicating to our employees and letting them know what's coming.

Okay.

But we don't have a requirement yet.

Contractually our customers have to flow down this federal acquisition regulation.

That embodies the.

The executive order and we haven't seen that yet, but we're but we're trying to get ready for it.

I would suspect just kind of based on.

Other companies that we've heard about in the Western New York area in Colorado area frankly.

That there will be some fallout, but boy characterizing it now and giving you specificity I just can't go there.

Okay.

Alright. Thanks.

Thanks, Gary.

Our next question is from William Bremer with Vanquish Capital Partners. Please proceed with your question.

Okay.

Hi, Dan Jeff solid coal.

Thank you.

I've got two questions that are sort of out of the box type of thinking.

Number one.

Been a lot of talk in the last six months and in the press regarding the big three bezos brands in Musk.

On space when we've seen it.

And I know, we have a small and immaterial piece of that.

Was wondering if you could provide us what your opportunity may be.

As this.

<unk> starts to become more commercialized.

Sure.

So this all kind of started a win win.

People were looking forward into the future and saying gosh.

Wouldn't it be nice to connect us all better.

And start to get out side of our World and then start to explore our universe.

The connect us piece has been very active and very robust.

The a lot of the commercial investments into launch.

We're we're driven by the desire to connect everybody.

Across the world So so.

This concept of the other $3 billion that people that are not connected how do we connect them, but we do that with <unk> with.

With communication satellites.

And so as that as that notion is starting to come.

A lot of these folks if we got to get the satellites up there and we got to get a bunch of them up there and so the $1 billion started to invest.

And we have been involved with those folks helping them to develop new launch capabilities.

And in some cases, we have.

Production opportunities.

For those those launch vehicles, namely in the rocket engine Turbo pump right now.

So then.

You think about the payload what is going up as rockets that go up and a lot of them are communication satellites and essentially what they're trying to do is as pack more and more communication gear into a smaller and smaller package on satellites.

So they're kind of pushing the envelope of power density.

Which means that.

You have to worry about the heat and so thermal management systems or something to that.

Barbara Nicklaus gets involved with and so we do have.

Thermal management pumps that are pumping around liquid help cool electronics on these satellites.

And.

Those are being built today.

The next level.

Okay, now, let's let's get up into this space and kind of have a a departure departure point.

Two to go visit other planets sort of solar systems or whatever.

So you think about space habitats habitation and then you think about fueling rockets in space. So that you don't have to launch.

From the Earth.

Surface and.

So Barbara Nicole's gets involved in cryogenic liquid transfer.

And so while we're talking to folks about that you also worry about environmental and life support.

Types of systems up in space and we're involved in.

And those types of systems also so I look at it as a.

A fun exciting area of that that has some growth. It is not a huge market from from what I can tell.

For either grant manufacturing work, Barbara nickels, but but certainly.

Unique and interesting area to work at and it provides some diversity in our business. So so so we kind of like.

To be in different markets and serve different customers.

So from that perspective.

We look at it as a great place to work and play.

No I completely agree with you.

Second question out there as well a little bit.

Starting to see a renaissance in the nuclear area with these globalization of these small and modular reactor.

Do we have any exposure there.

We do.

Can't talk about it but yes, we do.

That's why I'm asking that is why I'm asking the question in a public forum.

So.

A lot of these are start ups that are that are very concerned about about their IP.

And so.

So we've signed nondisclosure agreements with many of them too.

Just to say that we would not let details out, but but we can say that we are.

Are participating in those small modular nuclear types of programs.

And other types of renewable energy type programs.

And it's yes, it's a really neat area that you don't know where it goes.

But if it does go somewhere you want to be part of it and so that's the interesting thing about having a.

Engineering capable company in both Barber Nicholson Graham our engineering capable to help our customers design and develop a brand.

Brand, new kind of out there.

Types of equipment, and so yeah again exciting place debates.

You'll never bat a 1000 in this in this lag.

So so but you learned a lot along the way.

And so we're excited to be part of that also.

Thank you for confirming my data in my channel checks I appreciate it.

Sure.

Our next question is from Tom Spiro Spiro capital. Please proceed with your question.

Tom Spiro Spiro capital good morning.

Hey, Tom.

Two or three quarters ago as I recall the company won a number of large Asian refinery project, maybe two of them three of them how could you give us an update on where those projects stand number one and number two the outlook for further Asian opportunities.

Sure Tom This is Jeff I.

I think the opportunities Youre speaking of were one perhaps a year or so ago, maybe even a little longer specifically for the Indian market.

And there are you're correct there.

Two opportunities that we won the two projects that we won those are proceeding well.

One of them the first one of them is.

In fabrication now we've had some of the work done by our third party fabricators in India.

Delivered a component.

A portion of it and.

On time on budget. So we're very pleased about that.

That one is in process now the second one had a delay on it for a little while it was up more.

Collyn engineering timing delay that wont be starting.

We will be starting up shortly and we will see some.

A significant portion of the.

Manufacturing subcontract manufacturing hours that were assuming and assuming we are projecting in the second half of the year and that will continue not only in the second half of the year, but into fiscal year 'twenty. Three so we don't have all of it in the next six months, we have a good chunk of it in the next six months, but then we have some more into fiscal 'twenty three with.

With regard to other opportunities as we look at that particularly in that market. There is a good number of projects over the next.

Sixth probably 36 months that are teed up to go to bid we will participate in all of them were hopeful that we will be successful and some of them certainly not all of them.

But we believe we are well positioned. These first couple of projects have really shown are our capabilities and our the strength of our brand within the Indian market and we think that will help us.

So with the future opportunities.

Has the first couple of projects.

Hi, can you hear enthusiasm or diminished. It are you are you comfortable with how they are proceeding or.

Not.

No we are comfortable Tom absolutely and in fact, one of the things that you see anytime you enter a new market.

Even though a little before my time I harken back to when we entered the Chinese market.

Had some ups along the way there and to be fair, we haven't had that level of bumps along the way here in India.

Subcontractors have been doing very well for us so far and.

We expect to continue to.

So we're excited about the opportunities in the Indian market, given the particularly given the quantity of them.

And how successful we've been so far so.

We're definitely looking at a better today than even we were a year or two ago.

Well that's great. Thanks, so much and good luck.

Thanks, Tom Kim.

Okay.

It appears that there are no further questions at this time.

I would like to pass the floor back over to Dan <unk>, President and CEO for closing remarks.

Thank you very much Maria.

So thank you all for participating today.

This does conclude our earnings call. We wish you a great fall season, and we'll look forward to talking to you again in another quarter.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

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