Q3 2024 Graham Corp Earnings Call
[music].
Greetings and welcome to the Graham Corporation third quarter fiscal year 2024 financial results call.
Operator: Greetings, and welcome to the Graham Corporation third quarter fiscal year 2024 financial results call. At this time, all participants are in a listen-only mode.
At this time all participants are in a listen only mode.
Operator: The 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. Please note this conference is being recorded. I will now turn the conference over to Deborah Pawlowski, Investor Relations, Graham Corporation. Thank you.
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. Please note. This conference is being recorded.
I'll now turn the conference over to Deborah Pawlowski Investor Relations for Graham Corporation.
Deborah K. Pawlowski: Thank you, Daryl, and good morning everyone. We certainly appreciate your time today and your interest in Graham Corporation. Here with me on the call are Dan Thorin, our President and CEO, and Chris Thome, our Chief Financial Officer. Dan and Chris are going to provide their formal remarks, after which we will open the line for questions.
You may begin.
Thank you Daryl and good morning, everyone. We certainly appreciate your time today and your interest in Graham Corporation.
Here with me on the call are Dan Thornton, our president and CEO and Chris <unk>, Our Chief Financial Officer.
And Chris are going to provide their formal remarks, after which we will open the line for questions.
Deborah K. Pawlowski: You should have a copy of the third quarter fiscal 2024 financial results that were released this morning, and if not, you can access the release on our website, at ir.gramcorp.com. You'll also find the slides that will accompany today's discussion. If you will turn to slide two on that deck, I will review the safe harbor statement.
You should have a copy of the third quarter of fiscal 'twenty 'twenty four financial results that were released this morning, and if not you can access the release on our website.
And I are have got Graham Corp Dotcom.
You'll also find there the slides will accompany today's discussion.
If you'll turn to slide two on the deck I will review the Safe Harbor statement.
Deborah K. Pawlowski: You should be aware that we may make some forward-looking statements during the formal discussion 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 in other documents filed by the company with the Securities and Exchange Commission. You can find those documents on our website or at sec.gov.
Be aware that we may make some forward looking statements during the formal discussion 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 by the company with the Securities and Exchange Commission.
You can find those documents 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. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP.
Deborah K. Pawlowski: During today's call, we will also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP.
Deborah K. Pawlowski: We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides. We also use key performance indicators to help gauge the progress and performance of the company. These key performance metrics are orders, backlog, and book-to-bill ratios. They are operational measures, and the company's methodology for calculating these numbers does not meet the definition of a non-GAAP measure, as that term is defined by the SEC. So, as a result, a quantitative reconciliation of each of these is not required or provided.
We've provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides.
We also use key performance indicators to help gauge the progress and performance of the company. These key performance metrics, our orders backlog and book to Bill ratios. They are operational measures in the company's methodology for calculating these numbers does not meet the definition of a non-GAAP measure as that term is defined by the SEC.
So as a result, a quantitative reconciliation of each of these is not required or provided but you can find the disclaimer regarding our use of key performance metrics at the back of our deck in our supplemental slides.
Deborah K. Pawlowski: But you can find the disclaimer regarding our use of key performance metrics at the back of our deck in the supplemental slides. So with that, if you would please advance to slide three, I will turn it over to Dan to begin.
So with that if you would please advance to slide three I will turn it over to Dan to begin.
Dan.
Dan Thorin: Thanks, Debbie, and good morning, everyone. Reflecting on the past few years, we firmly believe that our business is now in a significantly improved position due to the strategic actions that we've taken. This has been a great team effort, and I would like to thank our customers, our employees, and our service providers for their contribution to our turnaround. In the third quarter, our performance demonstrated robust strength, underscoring the consistent execution of our strategic approach aimed at cultivating high-quality top-line growth, along with Margin of Creative Initiatives to enhance our future earnings potential. Notable highlights from the quarter include gross and adjusted EBITDA margin expansion, a substantial increase in bookings that led to a record backlog of nearly $400 million. And we refinanced our debt with a lower cost and more flexible credit facility, further solidifying our financial framework. Our bottom line was muted, however, given some atypical expenses that Chris will talk about.
Thanks, Debbie and good morning, everyone.
Reflecting on the past few years, we firmly believe that our business is now in a significantly improved position due.
Due to the strategic actions that we've taken.
This has been a great team effort.
I would like to thank our customers our employees and our service providers.
For their contribution to our turnaround.
In the third quarter, our performance demonstrated robust strength.
Underscoring the consistent execution of our strategic approach aimed at cultivating high quality top line growth.
Along with margin accretive initiatives to enhance our future earnings potential.
Notable highlights from the quarter include gross and adjusted EBITDA margin expansion.
A substantial increase in bookings that led to a record backlog of nearly $400 million.
And we refinanced our debt with a lower cost and more flexible credit facility further solidifying our financial framework.
Our bottom line was muted however, given some atypical expenses that Chris will talk to.
Dan Thorin: But on an adjusted basis, net income was up over 180 percent to $2.4 million. We generated strong cash from operations during the quarter, given recent working capital initiatives, along with stronger financial discipline. This enabled significant debt paydown during the quarter and strategic investments, both organic and inorganic. We highlight on slide four a significant investment made during the quarter, which was the acquisition of P3 technologies. This was a great bolt-on business, which brings highly complementary technology that enhances and expands our turbo machinery solution, engineering, and development team. Their patented technologies deepen our reach into existing space and new energy markets and create greater diversification with the addition of medical markets. From a financial perspective, P3 brings about $6 million of annual revenue, a creative, gross, and adjusted EBITDA margin, and approximately $6 million of backlog.
But on an adjusted basis net income was up over 180% to $2 $4 million.
We generated strong cash from operations during the quarter given recent working capital initiatives.
Along with stronger financial discipline.
This enabled significant debt pay down during the quarter and strategic investments, both organic and inorganic.
We highlight on slide four a significant investment made during the quarter, which was the acquisition of <unk> technologies.
This was a great bolt on business, which brings highly complementary technology that enhances and expands our turbo machinery solutions.
Engineering and development team.
Their patented technologies deepen our reach into existing space and new energy markets and create greater diversification with the addition of medical markets.
From a financial perspective P. Three brings about $6 million of annual revenue accretive gross and adjusted EBITDA margins and approximately $6 million of backlog.
Dan Thorin: They also have what we feel are a lot of high growth pipeline opportunities that are highly complementary to our Barbara Nichols Turbo Machinery business. In fact, in the short period that they have been with us, that business has already proven instrumental in fortifying some of our solution offerings and has amplified our financial profile, including being accretive to earnings in the third quarter. It is important to note that given this quarter's robust cash generation, we were able to repay nearly all of the debt associated with the acquisition during the third quarter. Together, we believe we have a bright future as we aim to create opportunities for product and technology integration to provide more effective solutions across multiple markets. As we look forward, we are focused on advancing Graham by building a collaborative culture across our brands, leveraging best practices, and advancing employee development to reinforce our core capabilities of precision machining of critical turbo machinery components and specialty welding for fabrication of critical equipment for large heat transfer and vacuum applications. Our confidence remains high in our ability to consistently execute our strategy and leverage the multitude of opportunities before us. With that, let me turn it over to Chris for the financial details. Chris.
They also have what we feel is a lot of high growth pipeline and opportunities that are highly complementary to our Barbara Nichols turbo machinery business.
In fact in the short period that they had been with US that business has already proven instrumental and fortifying some of our solution offerings and has amplified our financial profile incur.
Including being accretive to earnings in the third quarter.
It is important to note that given this quarter's robust cash generation.
We were able to repay nearly all of the debt associated with the acquisition during the third quarter.
Together, we believe we have a bright future as we aim to create opportunities for product and technology integration to provide more effective solutions across multiple markets.
As we look forward, we are focused on advancing Graham.
By building, a collaborative culture across our brands leveraging best practices and advancing employee development to reinforce our core capabilities of precision machining.
Critical turbo machinery components, and specialty welding for fabrication of critical equipment for large heat transfer and vacuum applications.
Our confidence remains high and our ability to consistently execute our strategy and leverage the multitude of opportunities before us.
With that let me turn it over to Chris for the financial details Chris.
Thank you Dan and good morning, everyone.
Chris Thome: Thank you, Dan, and good morning, everyone. As Dan highlighted, our results for the quarter include approximately two months of operation from P3, which was acquired on November 9, 2023. On slide five, you can see that we had strong growth for our third quarter of fiscal 2024, with sales of $43.8 million. This was up 10% or $3.9 million over the prior year and included approximately $1 million of incremental sales from P3. Strong sales in the commercial aftermarket continue to help offset cautious spending on capital projects in the refining and petrochemical industry. Aftermarket sales were $8.6 million in the quarter, up $3.2 million.
As Dan highlighted our results for the quarter include approximately two months of operation from P. Three which was acquired on November 9th 2023.
On slide five you can see that we had a strong growth for our third quarter of fiscal 'twenty 'twenty four with sales of $43 8 million.
This was up 10% or $3 9 million over the prior year and included approximately 1 million of incremental sales from <unk> three.
Strong sales in the commercial aftermarket continued to help offset the cautious spending on capital projects in the refining and petrochemical industries.
Aftermarket sales were $8 6 million in the quarter up $3 2 million or 59% over the third quarter of last year.
Defense revenue was also solid with an increase of $2 6 million or 12%.
Reflecting higher priced contracts as well as increased capacity indirect labor hours.
We did see a decline in the space market, which had a lot to do with project timing.
We had strong order growth during the quarter that I will talk to you in a few slides.
We are still seeing the impact of the Virgin orbit bankruptcy last year, but should finally cycled through that once we finish out fiscal 'twenty 'twenty four.
P. Three helped offset some of this decline and we expect further lift from that acquisition within this industry mix as well as a robust pipeline of other opportunities in the new energy defense and medical markets.
U S sales for the quarter were <unk>, 84% of total revenue and continue to reflect the size and growth of our defense business.
Looking to the chart on the right gross profit was another positive story with an increase of $3 5 million or 56% to.
To $9 7 million in the third quarter.
The 660 basis point expansion of gross margin reflected higher volume and the related improved absorption.
Mix also played a role with higher margin commercial aftermarket sales.
As well as the margin accretive sales from Pete three.
And lastly, we are benefiting from improved execution and pricing on defense contracts.
Turning to slide six you can see our bottom line and adjusted EBITDA results.
As Dan mentioned net income was impacted by a number of items this past quarter.
SG&A, excluding amortization was $8 4 million or 19% of sales up from 13% of sales during last year's period.
The increase reflects higher performance based compensation, including a 1.3 million supplemental performance bonus for Barbara Nickels employees in connection with the 2021 acquisition.
Also contributing to the increase in SG&A was P. Three acquisition related costs increased professional fees largely related to our international operations.
And initial ERP conversion costs.
Separately on the income statement and you will also see a line item for our costs associated with the debt extinguishment during the quarter, which amounted to <unk> 7 million.
When excluding many of these atypical costs on a non-GAAP basis, adjusted net income was $2.4 million or 22 cents per diluted share.
183% from a year ago.
Similarly, you.
You can see the improvements in adjusted EBITDA, which grew 72% to $3 9 million or eight 8% of sales up 320 basis points.
Turning to slide seven you can see how a strong quarter of cash generation enabled us to further improve our balance sheet, while still making strategic investments.
At the beginning of the quarter, we refinanced all of our outstanding debt with a new five year $50 million revolving credit facility that matures in 2028.
This facility provides us with reduced borrowing costs and greater flexibility to fund our long term strategic goals growth goals.
Cash generated from operations in the third quarter was $7 6 million and $19.5 million for the year to date period of fiscal 2024.
We utilize some of this cash to reduce our debt balance by $7 9 million to.
To $3 million at quarter end.
<unk> was acquired with the combination of cash stock and contingent earn out based upon the future performance of <unk> three.
As Dan highlighted most of the debt associated with the acquisition was paid off during the quarter.
However in January 2024, after the quarter ended we.
We paid off the remaining $3 million of debt.
Currently, leaving us debt free.
Capital expenditures of $1 9 million in the quarter and $5 2 million year to date, we're focused on capacity expansion productivity improvements.
And the start of the ERP implementation at <unk> facility.
In total we expect the ERP project to cost approximately $2 million in capital and $1 million in expense.
With an anticipated go live date of about a year from now.
We decreased our expected fiscal 2020 for capital expenditures to now be in the range of 8 million to $10 million.
Primarily due to the projected timing of cash flows.
All projects continue to move forward at a steady and thoughtful pace.
If you turn to slide eight.
During the quarter, we had a record orders of over a $123 million, which were up six times over the prior year.
And resulted in a book to bill ratio of 2.8.
These were largely follow on orders for critical U S Navy programs.
Although aftermarket orders for the refining and petrochemical markets remained strong at $7 8 million.
We also saw nice order flow from our space customers of $6 1 million, which was up $4 $5 million year over year and double the sequential quarter.
It remains a key growth driver in our diversified portfolio.
Turning to slide nine you'll see that our backlog is nearly $400 million.
Also a record level.
Which provide several years of visibility given the long lead times of some of our defense contracts.
The P three acquisition added $6 million to our backlog.
Approximately 40% of our backlog is expected to convert to sales in the next 12 months and another 25% to 30% is expected to convert to sales over the next one to two years.
The majority of our orders that convert beyond 12 months or for the defense industry, specifically the U S Navy.
Turning to slide 10, we can review our guidance for fiscal 'twenty 'twenty four.
Given our strong performance year to date and the addition of P. Three.
We have raised our revenue expectations to be between $175 million and 185 million for fiscal 2024.
Up $5 million at the bottom and top end.
This implies top line growth over fiscal 2023% to 15% at the midpoint of that range.
From a margin perspective, our gross margin guidance is approximately 20% up from the 18% to 19% we guided last quarter.
Additionally, our expectations for SG&A, including amortization to be between 16% to 17% of sales up one percentage point over our previous guidance.
This includes costs associated with the supplemental performance bonus for our Barbara Nickels employees.
The P three acquisition costs.
As well as ERP implementation expenses at our Batavia facility.
We also raised our adjusted EBITDA guidance for fiscal 'twenty 'twenty four to range between $15 million to $16 million up from our previous guidance of 11, and a half to $13 5 million.
The new range implies an adjusted EBITDA margin of about 9% at the end.
At the midpoint.
I should point out that our adjusted EBITDA guidance excludes the SG&A items, I, just mentioned and approximately <unk> $7 million of debt.
Extinguishment charges.
We are delivering continuous improvement and are on track to achieve our fiscal 'twenty 'twenty seven goals.
We continue to expect 8% to 10% annualized organic growth per year, which implies 225 million to $240 million.
In revenue for fiscal 2027.
And with margins improving steadily we're on target to achieve our low to mid teen adjusted EBITDA margin goal.
With that I will pass the call back to Dan.
Thanks, Chris.
Significant strides are being made within our organization.
Yet there remains a lot of work to be done.
Our team is devoted to the ongoing pursuit of our strategy for sustained growth.
I am grateful for their unwavering dedication enthusiasm and diligent efforts.
Our record backlog and the acquisition of P. Three add up to a bright future for Graham <unk>.
<unk> opportunities lie ahead, and we anticipate that these will pay play a pivotal role in propelling our growth and bolstering our future earnings.
With that Daryl you can open the call for questions.
Yeah.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
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Our first questions come from the line of Theodore O'neill with Litchfield Hills Research. Please proceed with your questions.
Thank you and congratulations on the good quarter.
Okay.
Great Dan in your prepared remarks, you you mentioned that there was a.
Pipeline of high growth opportunities that was part that you got as part of the P. Three acquisition I was wondering if you could give us some more detail on that.
Yeah.
Mostly on the space side and.
I, probably won't be able to give you a whole lot of detail there just because of M D as but.
But P. Three has been working and propel.
Propulsion pumps.
Fluid management pumps for space applications. So they're actually are an awesome a complement to Barbara Nichols from that perspective, and it really probably deepens, our our oh.
Engagement with this with the space community.
The other thing I get excited about P. Three as they're also involved in some of the new energy waste heat power Gen.
Types of applications.
And then.
Do cryogenic pumps, which are which really get into some of the medical applications that theyre trying to apply those too and then they've got some some very cool IP that.
We believe we we havent scratched the surface on that yet as far as how.
How and when where we would like to take that to market, but that's definitely something we're pretty excited about.
And.
One of those is what they call a multichannel diffuser.
Which is a.
Efficiency enhancement that can be applied to basically any pump pumping liquids and and so we're pretty excited about that and then their cryogenic pump capability.
Really complements again Barbara Nichols.
It is mostly centrifugal types of pumps and M. P. Three brings a positive displacement pumps.
That complements that so lots of really cool things and Phil and his team are are topnotch engineers.
And we're really really excited to have them.
Okay.
And Chris in the press release, you say that the improve.
Improved working capital was largely due to changes in payment terms related to large defense customer can you give us any more detail on that what that means.
Sure. So for the last couple of years you know the team has actively been working on you know putting in stronger discipline with regards to capital management, you know basic blocking and tackling collecting receivables sooner pushing out payment terms, where possible and several of our large defense.
Contracts had really unfavorable payment terms, where basically once you got <unk>.
Past, 50% production you couldn't bill anymore until project completion, whereas you know some of these projects can go on for several years so that was.
Putting our cash cash restrained.
On our business and over the past.
I would say three to four quarters, we were able to renegotiate some of the payment terms, where we're where we're now billing more milestones and more on a percentage complete basis so that.
Really provided a significant uplift to the cash generation over the last couple of quarters.
Additionally, as you know with the $123 million of orders that we had this quarter.
And then a large amount of defense orders over the last year a lot of those pay for the materials up front. So we've been able to cash collect that cash up front, but we'll have to pay for that inventory as it comes in so as we've discussed in the past you know we fully expect our cash.
Generation from quarter to quarter to be pretty lumpy.
But the team has done an excellent job I'm really improving some of the payment terms in helping that cash flow alone.
Okay, and and given the growth that you're experiencing there.
Are there any potential capex expenditures that you'll need to make or have to make investments in skilled employees to keep up with it all of that.
Yeah definitely as you know you know we've guided for Capex of eight to 10 million for this year, which is about 5% at the midpoint of the guidance you know when we think that.
You know our Capex spend is going to be in the 3% to 5% range over the next several years just to support that growth and the facility expansion.
You just mentioned so yeah, we certainly expect capital expenditures to remain elevated for a few years here.
Okay. Thanks very much.
Thank you our next questions come from the line of <expletive> Ryan with Oak Ridge Financial. Please proceed with your questions.
Thank you.
Congratulations also on a great quarter guys.
Thanks, Nick.
I think Chris looking at the Opex.
Your leverage gets a little obscured with all the puts and takes in this quarter.
You still guide to that 16 17 ish range for this year I know youre not providing.
Guidance for 'twenty five yet, but is there any reason to think that.
Kind of how the S. T a level out at this at this percent of sales changes materially with your aspirational goals going into 'twenty, seven or will we start seeing the leverage kind of kick in over the next few quarters.
Sure well.
Thanks for the question <expletive> you know as <unk>.
I outlined in my comments today, we had some unusual items in the quarter.
With regards to SG&A.
We've been recording the Barbara Nichols earn out bonus for the last several quarters.
We also had some elevated acquisition costs as a result of the P. Three acquisition professional fees were a little bit elevated related to our foreign subsidiaries and then as you know we've kicked off the ERP implementation.
So talking to those items the Barbara Nichols performance bonus is going to be with us for several years you know as we've discussed on other calls it's a three year program for fiscal 'twenty four 'twenty five and 26, so that's going to be around for a while here.
The ERP implementation ERP implementation really just kicked off in the current quarter in earnest. So as I mentioned in my prepared remarks today, we expect that to be about $1 million of expense over the next year.
So I would expect SG&A to be a little bit elevated for the next year here as we work through these things, but then yes, youre certainly right the leverage should kick in and you know by the time, we get to 'twenty to 'twenty seven it should allow us to get to those you know low to mid teen EBITDA margin percentages.
Okay. Thank you.
Dan the strength you've seen in aftermarket over the last few quarters does that still kind of a.
Potential precursor of what you might see on capital budgets in refining and petrochemical or what.
What's your view of those those end markets.
Yeah, So I guess first of all the aftermarket.
Is remaining strong so so we're still saying that that elevated.
<unk>.
Level continuing.
Continuing on.
We are seeing and hearing about some some nice capital projects that are.
That are our customers are planning for this year and we're starting to bid on so we're encouraged but but again it will not be you know the big the big boom I think like like grant as seen in the past.
So we're encouraged we're happy that the.
And if the aftermarket continues on strong and I and we're getting ready to you know if if there is a a significant uptick.
We've been working pretty hard as far as training new employees.
Employees at our businesses and our and the supply chain challenges are starting to work out and less of an issue. There. So I think that we're going to be in a pretty decent position.
If and when that does take off.
I think Chris mentioned, some increased professional fees in your international operations does that reflect you said maybe some of these early capital project discussions or is that something else.
Yeah, I can take that one <expletive> you know and as.
As we disclosed in our 10-Q today you know earlier in the year Audit Committee received a whistleblower complaint.
From our India subsidiary.
And as a result of that.
They launched an investigation, which included hiring outside legal counsel and some forensic professionals.
You know that investigation did confirm the whistleblower complaint.
Which lord which led to a broader investigation, where other misconduct was identified you know mostly with with regards to improper expense reimbursement expense reimbursements.
As we disclosed in the 10-Q.
The impact was relatively minor as about 150000 in total over four years.
But that did result in an increase in professional services fees, probably about 750000.
Year to date that we've incurred in that investigation.
Okay.
Sure.
And then one of the arguments for P. Three was you know Graham can bring the scope to really.
Expand the potential of both companies you talked a lot about entering some new market opportunities with <unk> three.
When you talk bringing scale to the story is that broadening the end markets or is there a potential to get deeper into the space business, Let's say when you guys are combining efforts.
Yeah, we see it as both <expletive> so so P. Three has has connections to markets that Barbara nickels doesn't necessarily have.
And they've they're really strong engineering group and so they're actually bring some strength on the engineering side.
Barbara Nickels also.
So we see.
Probably some breath that comes with P. Three.
P three doesn't necessarily have.
The production capabilities that Barbara Nicholls has so so we're actually going to be able to to satisfy U P. Threes customers on the production side also.
Going forward, so so I I see it as is.
A real win win and that it is broadening and deepening with with some of.
The technology that <unk> brings to the table.
Great. Thank you yep.
Yep.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Gary Schwab with Valley Forge Capital Management. Please proceed with your questions.
Yeah, Hi, guys and dislike too.
Congratulations great quarter.
Thanks, Gary Thanks, Gary.
Have you been surprised following up on.
Dick's a question on aftermarket have you been surprised by how strong the aftermarket sales have been in the past year.
To some level now now I don't have a lot of history with the company. So I Couldnt tell you you know what it what it is like you know 10 and 15 years ago.
But we do know that that especially in the U S where the majority of our aftermarket comes from that these refineries have been have been running hard and and so you know they've got to continue to invest in them and keep them.
<unk> serviced.
But to be able to keep that that high level of output going and so you know from a from a demand side.
I would say you know not too surprising.
Just because we're not adding a bunch of new capacity here in this country and you got to keep the existing assets.
Running at top performance so.
Okay, because it's really picked up a lot in the last year.
And I know you have an aftermarket sales force.
That you'd that you started.
<unk>.
What what's what's the how would they become so successful in closing orders or the orders just there or is it the way you're doing it.
Well I think it's I think it's both.
So certainly the demand is up.
Just because of the refinery output has been so so high for a long time.
The other part of it we have been investing.
Investing in our aftermarket team, adding more engineers.
We adjusted some of the the.
Leadership.
Associated with aftermarket and and I think that's been positive we're not done yet.
As we as we kind of think about.
Our installed base internationally.
We're trying to figure out how how to go after that to and so so we've got our initiatives with both of our sales offices.
To to figure out.
The communication strategies relative to life up components at and the service intervals and things like that.
So it is it has been a proactive approach.
Two to continue to grow that business.
And honestly I think that we still have quite a bit of room to to to improve so.
So we're encouraged.
You know in the aftermarket business that we can keep it going so well we'll see.
As most of it installed base or.
Whereas all of an installed base.
Pretty much all of it its installed base yep.
So the fact that.
These are all customers of yours that you delivered product to before.
Yeah.
And you talked last quarter about really not having much visibility is there a way that you can increase visibility almost like.
Setting up a subscription business for replacement parts based on particular predicted where rates or predicted failure dates.
We've got we've actually got.
A.
Initiative that starting this week, we've got a kickoff meeting to figure out how to automate.
Using AI as a little bit.
A stretch I would say, but but automate our approach to aftermarket that that uses this installed base it installed.
Base database.
Understanding exactly you know when these things got installed and you know the typical life associated with the components and.
Starting to automate our market outreach.
To those installed base customers so.
Again, I said I think that there's there's quite a bit more we can do it.
And so we're we're not we're not resting on our laurels here, where we're out there being aggressive and trying to figure out how to go get more.
Mhm, Okay and just one last question for Chris is this worth putting a line item on <unk>.
You have space sales chemical sales in refinery sales defense sales, adding aftermarket sales as a as a line.
So certainly are something we can we can think about internally here.
It's it's definitely related to the.
You know refining and petrochemical markets. So it's kind of all encompassing in our disclosure really is by market, which the aftermarket is related to.
If anything else, we'd probably be in the future look to break out new energy, because that's becoming a higher growth and more important part of our business.
Mhm, Okay, because it is the biggest.
Gross margin product that you carry.
Oh sure.
Okay, well, thanks, a lot and congratulations again.
Thanks, Gary.
Thank you our next questions come from the line of.
John Bair with ascend wealth advisors. Please proceed with your questions.
Thank you good morning, Congratulations Dan and Kriss.
Thanks, John.
Very good to see a real pleased to say that debt out of there and so I've got two questions quick questions. One is.
Contemplation, perhaps.
Within the next year or.
12 months beyond Reinstituting, a dividend and the second question would be.
With regards to the aftermarket.
Sales.
What percentage are roughly what's what's the breakout between the traditional.
Refining and marketing upgrades versus buy.
Oh diesel which you've seen.
It has been.
In the mix here.
Yeah, John So let me take the first take the first one with regards to a dividend.
As we've already been talking here on the call you know we have quite a bit of capex that needs to get spent over the next several years.
And we have a lot of organic growth opportunities that are in front of us that are well in excess of 20% ROI. So those are really are our main focus and then as well as you know we really started to try to build out the.
Pipeline with regards to M&A as well and P. Threes, a great example of the types of opportunities that we'd like to take advantage of.
So really for the next several years you know, we're going to be focused on organic growth and M&A and paying down any kind of debt that might come with M&A.
So right now you know the board has not made any decision to reinstate that dividend at this point.
That makes sense yeah.
And then your question about aftermarket traditional versus biodiesel.
Certainly we've seen an uptick.
And applications using biodiesel, where some of these refineries are getting converted over.
I would guess.
I don't have that detail as far as you know what the aftermarket looks like the installed base is relatively small at this point compared to refineries. So I would suspect that the aftermarket is relatively small also but but I couldnt I couldnt quantify that for you.
Other than small and in relationship to the to the refinery aftermarket.
And what does that aftermarket looked like and as far as the international market, where you have established.
You know an established base of Paas business, Yeah, very weird or are they on the same cycle. I guess is what I'm getting at is as you know our our industry here domestically has been running hard.
Is that a similar.
Situation internationally.
Yeah.
Internationally, we're seeing.
New capacity being brought on so there's been quite a bit of new capacity in China, and India for instance, and and Middle East seems to also be planning on new capacity and so so you know that continues to grow on the new side.
The aftermarket.
The installed base internationally has not been a big piece of our business.
In the past and you know us.
As weak as we build that installed base.
We have plans to be much more aggressive in going after that so.
As I had said earlier.
Got initiatives in our sales offices internationally.
To figure out what that installed base is where it is and how.
How we go after it in a concerted effort with our with the Batavia effort here.
Great keep up the good work.
Encouraging thank you.
Sure. Thanks, John.
Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Dan Thornton for any closing remarks.
Thank you all for joining us today I hope that you can sense. The excitement we have here at Graham about our future.
We will be participating virtually in two upcoming conferences, the gabelli pump valve and water symposium on February 22nd.
And then the Sidoti Conference on March 14th.
Always please feel free to reach out to us at any time, and we look forward to talking with you again after.
After our fourth quarter of fiscal 'twenty 'twenty four results enjoy your day.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.
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