Jefferies 2013 Global Industrials Conference Relations/Presentations...NYSE MKT: GHM Jefferies 2013...

NYSE MKT: GHM www.graham-mfg.com

Jefferies 2013 Global Industrials Conference August 15, 2013

James R. Lines

President & Chief Executive Officer


© 2013 Graham Corp.

Safe Harbor Statement

2

This presentation contains forward-looking statements within the meaning of Section 27A of the Securities

Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Forward-looking statements are subject to risks, uncertainties and assumptions and are identified by

words such as “expects,” “estimates,” “projects,” “goal,” “target,” “anticipates,” “objectives,” “pursues,”

“believes,” “outlook,” “priorities,” “could,” and other similar words. All statements addressing operating

performance, events, or developments that Graham Corporation expects or anticipates will occur in the

future, including but not limited to, anticipated revenue, the timing of conversion of backlog to sales, profit

margins, foreign sales operations, its strategy to build its global sales representative channel, the

effectiveness of automation in expanding its engineering capacity, its ability to improve cost

competitiveness, customer preferences, changes in market conditions in the industries in which it

operates, changes in general economic conditions and customer behavior and its acquisition and organic

growth strategies are forward-looking statements. Because they are forward-looking, they should be

evaluated in light of important risk factors and uncertainties. These risk factors and uncertainties are more

fully described in Graham Corporation's periodic reports filed with the Securities and Exchange

Commission, including under the heading entitled “Risk Factors.”

Should one or more of these risks or uncertainties materialize, or should any of Graham Corporation's

underlying assumptions prove incorrect, actual results may vary materially from those currently

anticipated. In addition, undue reliance should not be placed on Graham Corporation's forward-looking

statements. Except as required by law, Graham Corporation disclaims any obligation to update or publicly

announce any revisions to any of the forward-looking statements contained in this presentation.

© 2013 Graham Corp. © 2013 Graham Corp.

Founded: 1936; IPO: 1968 NYSE MKT: GHM

Market capitalization $335.8 million

Recent price $33.47

52-week range $38.96 – $16.45

Avg. daily trading volume (3 mos.) 41.4 thousand

Common shares outstanding: 10.0 million

Annual dividend/dividend yield $0.12 / 0.4%

Ownership:

Institutional 71.8%

Insider 3.4%

Fiscal year end March 31

Graham Corporation - Market Data

3

Note: Market data as of August 8, 2013 [Source: Bloomberg]; ownership as of 3/31/13


Double Revenue in Next Cycle

A world leader in the design and manufacture of

Engineered–to–Order (ETO) products for the Energy

Markets with a goal to Double Revenue to Exceed

$200 Million in next cycle.

Goal:

Push peak of

cycles farther and

lift bottom cycles

higher

4


Specialized Engineering and Manufacturing Solutions

Q1 FY 2014 TTM Sales

$110.7 million

5

Condensers

32%

Ejectors

19%

Refining &

Petrochem

19%

Heat Exchangers and Pumps

13%

Aftermarket

Nuclear

13%

Critical applications: our

technologies and products allow our

customers to be successful

Customers focused on value: our process know-how, deep

understanding and familiarity with the

customer, and exceptional ability in

delivering solutions allow us to win

Differentiation wins: we are a

technology and quality leader in our

engineered-to-order industrial

products

Engineered-to-Order and Custom Fabrication Expertise

Nuclear

New Build

4%


Refining

39% Chemical/

Petrochemical

22%

Power

23%

Sales by Industry*

Navy/Other

16%

6

Diversification Drives Opportunity Energy Industry is Largest End-User Market

US

53%

Asia

19%

Middle

East

13%

Other

15%

Sales by Region*

Top tier operating performance

12% revenue CAGR (FY2005 to FY2013)

• Greater than 20% organic growth during

last up cycle (FY2005 to FY2009)

EBITDA** margins of mid 20% at last

peak

Strong cash flow

~90% of net income converted to cash (FY2006 to present)

Debt free balance sheet

* Based on Q1 FY2014 TTM sales of $110.7 million

** See supplemental slide for EBITDA reconciliation

and other important disclaimers regarding Graham’s

use of EBITDA


Early Stages of Next Cycle

$55.2

$65.8

$86.4

$101.1

$62.2

$74.2

$103.2 $105.0 $107.5(1)

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14E

Annual Trends

(Revenue in millions)

7

(1) Mid point of guidance provided as of July 25, 2013 ($100 million - $115 million)


Q1 FY13 Q1 FY14 Q1 FY13 Q1 FY14 Q1 FY13 Q1 FY14

$6.2

$2.7

Q1 FY13 Q1 FY14

Strong Start to FY2014

8

$0.14

11.9%

$6.2

* See supplemental slides for EBITDA reconciliation and other important disclaimers regarding EBITDA.

Gross Profit

& Margin

$10.0

21.8%

EBITDA

Margin*

$0.38

EPS Sales

$28.3

$22.5

($ in millions, except per share data)

35.4% 27.7%


9

Global Diversified Market Potential

Global Oil Refining Industry

• Total expected market demand ~$150 million to ~$200 million annually

• Leading supplier of surface condensers, ejectors and vacuum systems

• International new capacity

• US revamp/upgrades, feedstock changes, replacement equipment

Chemical/ Petrochemical

Industry Expansion

• Total expected market demand ~$80 million to ~$100 million annually

• Leading supplier of surface condensers, ejectors and vacuum systems

• US natural gas growth trend

• Global new capacity & replacement equipment

Power Industry Expansion

• Market demand drivers: MRO; new capacity; rerate, power augmentations

• Well positioned for replacement & upgrading equipment

• Emerging market new capacity

Naval Nuclear Propulsion Program

• Aircraft carrier program ~$35 million to ~$40 million per carrier

• Submarine program:

•~$15 million to ~$20 million per Virginia Class; 45 subs, building one to two subs per year

•~$20 million to ~$25 million per Ohio Replacement Class; 11 to 13 subs planned with construction scheduled to begin in 2021


Organically Driven Growth

Last Cycle

2009 Revenue: $100 Million

Refining 46%

Power 5%

Other 22%

Chemical/Petrochemical

27%

Next Cycle

Target Revenue: >$200 Million

Chemical/Petrochemical

15%-25%

Power20%-30%

Other10%-15%Navy

10%-15%

Refining20%-30%

10

Acquisitions present incremental growth potential

Energy Industry is Largest End-User Market


Year 1 Year 2 Year 3 Year 4 Year 5

Year 1 Year 2

Graham Competitive Advantage:

Early Involvement

Graham establishes competitive advantage during first 24 months…

Understanding pipeline, developing design options, identifying

decision makers, understanding timing, creating strong relationships to…

Gain advantage, optimize margin and win business

Value Enhancing Sales Cycle

Concept FEED* EPC Bid Purchase Construction

* Front End Engineering Design

11

Cradle to grave support


$200 million

to

$250 million

12

Bidding Pipeline

12

(Excludes Navy)


$750 million to $1.0 billion TTM

Studies, budget bids,

FEED projects, for immediate purchase

Bids to multiple EPCs or OEMs for one

opportunity

Near Term Pipeline Perspective

Award timing hard to predict; 25% to 30%

typically moves to the right

Long-term real capture rate is between 50%

and 65% for projects reaching purchase

decision stage

Under usual conditions, this would translate to

$70-$100 million

Full Pipeline Assessment

Double pipeline size compared with 2004

Long-term raw capture rate usually ranges

between 10% to 17% depending on phase

of market cycle

Bids expected to close

in next 2 to 3 quarters


Bidding Pipeline Growth

13

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

Consolidated

Core

($ in billions) Leads to Doubling Revenue

Consolidated* TTM of Bids

Historic Graham TTM of Bids

* Includes Energy Steel since December 2010 acquisition


$22.4 $33.1

$54.2

$75.7

$48.3

$94.3 $91.1 $94.9 $85.8 $90.4

14

Pipeline Converting to Orders

$19.0 $23.5 $21.9

$42.3

$19.7 $25.6 $24.6 $25.9

$32.8

Q1 FY12

Q2 FY12

Q3 FY12

Q4 FY12

Q1 FY13

Q2 FY13

Q3 FY13

Q4 FY13

Q1 FY14

($ in millions)

Orders

Orders by Industry

Power

17%

Refining

38%

Chemical /

Petrochemical

27%

Navy/Other

18%

Q1 FY2014 TTM: $108.9 million

Awarded $10 million in July 2013 orders for U.S.,

South American and Middle Eastern markets,

serving oil refining, petrochemical and nuclear power

markets

Recently announced additional $7 million in orders

serving oil refining, chemical/petrochemical and

nuclear power markets in North and South America

Projected backlog conversion:

Within 12 months: 70% - 75%

Within 12-24 months: 20% - 25%

Beyond 24 months: 5% - 10%

Backlog


(1) As a percent of revenue

(2) Organic business

Raised the Bar

Top of

Earlier

Cycle2 (FY97-98)

Bottom of

Earlier

Cycle2 (FY03-04)

Top of Last

Cycle2 (FY08-09)

Bottom of

Last

Cycle2 (FY10-11)

Next Top

Cycle Goal

Next

Bottom

Cycle Goal

Revenue $56M $40M $101M $55M >$200M $120M-

$140M

Gross

Margin 32% 16%-18% 40%-41% 28%-30%

Mid to

Upper

30s%

Mid to

Upper

20s%

SG&A1 22% 20% 15% 19%-22% Mid-

Teens%

Mid to

Upper

Teens%

EBITDA1 10% <0% 25%-27% 10%-15% Low to

Mid 20s%

Mid-

Teens%

15

Earlier

Graham

Future

Graham

Recent

Graham


Driving Execution Excellence

16

Execution capacity—office and operations

Invest in staff and reduce time to proficiency

Create a more flexible workforce

Expand variable production model

Execute focused capital investment

Improve value for our customer

Improve on-time delivery

Target reducing lead times

Continue driving towards a zero defect culture

Leverage information technology

Improve operating performance

Management team commitment

Sustainable earnings growth; Reducing earnings volatility

Generating high cash flow from operations

A strong focus on customers

Internal Cultural Alignment


Diversify products/markets

and/or geographic expansion

Engineered-to-order products

for energy industry

Strong management

team / customer &

quality focus

Return exceeds cost

of capital

Up to $60 million in revenue

17

Acquisition Strategy & Criteria


Outlook: FY 2014 and Beyond

18

Revenue $100 million - $115 million

Gross margin 29% - 31%

SG&A 15% - 16% of sales

Effective tax rate 33% - 34%

(1) Guidance provided as of July 25, 2013

Fiscal 2014 Guidance:(1)

Next “Top of Cycle” Target:

Exceed $200 million in organic revenue

FY2014 margins are expected to be impacted by the timing of

backlog conversion and a significant level of outsourcing


Jefferies 2013 Global Industrials Conference

August 15, 2013

Supplemental Information


21

Net Income Growth and Cash Position

($ in millions,

except per share data)

Cash, Cash Equivalents,

and Investments

Net Income

$15.0

$17.5

$6.4 $6.4 (1)

$11.0 (2)

$10.2 (3)

FY08 FY09 FY10 FY11 FY12 FY13

$58.6*

$43.1 $41.7

$51.7 $53.2

3/31/2010 3/31/2011 3/31/2012 3/31/2013 6/30/2013

($ in millions)

(1) FY2011 excludes $0.5 million (net of tax), or $0.05 per diluted share, in

acquisition costs (2) FY2012 excludes a charge of $0.43 million, or $0.04 per diluted share, for the

partial reversal of historical R&D tax credit claims (3) FY2013 excludes a net of tax gain of $0.98 million, or $0.10 per diluted share,

from an Energy Steel earn-out reserve reversal

Note: All earnings per share amounts adjusted for stock splits

• Five-for-four stock split on November 30, 2007

• Two-for-one stock split on September 5, 2008

Earnings per Share

Cash available for acquisitions

and organic growth

Energy Steel:

$18 million all-

cash acquisition

FY2011

No bank debt at

6/30/13

* Excludes $16 million in unusually high upfront and near-term

customer advances utilized to lock in raw material costs

$1.71 $0.64 $1.49 $0.64 (1) $1.10(2) $1.01(3)


EBITDA Reconciliation

EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Graham believes that when used in conjunction

with GAAP measures, EBITDA, which is a non-GAAP measure, assists in the understanding of Graham’s operating performance.

* Data from FY1993 though FY2005 excludes discontinued operations and is unaudited; 1997 was a three-month

transition year and is excluded from this comparison; 1996 reflects a 12-month period.

($ in thousands)

22

Fiscal Years Ended March 31

2013 2012 2011 2010 2009 2008 2007

GAAP operating profit $ 15,262 $ 17,095 $ 8,775 $ 10,042 $ 26,328 $ 21,088 $ 6,013

Acquisition costs $ - $ - $ 676 $ - $ - $ - $ -

Depreciation & amortization $ 2,079 $ 2,024 $ 1,648 $ 1,119 $ 1,005 $ 885 $ 887

EBITDA $ 17,341 $ 19,119 $ 11,099 $ 11,161 $ 27,333 $ 21,973 $ 6,900

2006 2005* 2004* 2003* 2002* 2001* 2000*

GAAP operating profit $ 5,454 $ (206) $ (1,969) $ (1,028) $ (1,296) $ (124) $ 332

Acquisition costs $ - $ - $ - $ - $ - $ - $ -

Depreciation & amortization $ 793 $ 780 $ 745 $ 704 $ 774 $ 776 $ 827

EBITDA $ 6,247 $ 574 $ (1,224) $ (324) $ (522) $ 652 $ 1,159

1999* 1998* 1996* 1995* 1994* 1993*

GAAP operating profit $ 2,591 $ 4,932 $ 3,995 $ 2,818 $ 1,075 $ 662

Acquisition costs $ - $ - $ - $ - $ - $ -

Depreciation & amortization $ 820 $ 804 $ 706 $ 732 $ 771 $ 807

EBITDA $ 3,411 $ 5,736 $ 4,701 $ 3,550 $ 1,846 $ 1,469


EBITDA Quarterly Reconciliation

23

(in millions)

Quarter Ended: Q1

FY12

Q2

FY12

Q3

FY12

Q4

FY12

Q1

FY13

Q2

FY13

Q3

FY13

Q4

FY13

Q1

FY14

Net Income $3.02 $5.47 $1.64 $0.43 $1.39 $2.61 $3.05 $4.10 $3.81

+ Acquisition transaction

costs $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

+ Interest Expense $0.02 $0.18 $0.06 $0.22 $0.08 $(0.37) $0.02 $0.01 $0.01

- Interest Income $(0.02) $(0.01) $(0.01) $(0.01) $(0.01) $(0.01) $(0.01) $(0.01) $(0.01)

+ Income Tax Provision $1.48 $2.77 $0.96 $0.92 $0.69 $1.25 $0.88 $1.60 $1.81

+ Depreciation &

Amortization $0.51 $0.42 $0.52 $0.56 $0.52 $0.52 $0.52 $0.52 $0.55

EBITDA $5.01 $8.83 $3.17 $2.12 $2.67 $4.00 $4.46 $6.21 $6.16

EBITDA is defined as earnings before interest, taxes, depreciation and amortization

Graham believes that when used in conjunction with GAAP measures, EBITDA, which is

a non-GAAP measure, assists in the understanding of Graham’s operating performance.


Executive Compensation

Base Salary

• Reviewed annually by our compensation committee and determined based on

company performance, individual performance, job responsibilities, and internal

pay equity

• Provides compensation that is not “at-risk” to compensate executive officers

Annual Incentive Cash Compensation

• Based on achievement of threshold, target and maximum levels of net income

and order level targets as well as personal goals

Long Term Equity Incentive Compensation

• Performance-Vested Restricted Stock

Revenue level 3 years out

Relative profitability measure (EBITDA vs. BICC (Baird Industrial Index))

• Time-Vested Restricted Stock

Designed to retain executives and align their interests with those of our

shareholders

Shareholder Alignment

24


North American Competition

Market Competitors

Refining vacuum distillation Gardner Denver

Chemicals/Petrochemicals Croll Reynolds; Schutte Koerting;

Gardner Denver

Turbomachinery OEM – refining,

petrochemical

Ambassador; SPX (Yuba); Krueger

Turbomachinery OEM – power and

power producer

Holtec; Babcock Thermal Engineering;

SPX (Yuba); Krueger

HVAC Alfa Laval; APV; ITT; Ambassador

Naval Nuclear Propulsion Program Joseph Oats; DCFAB

Nuclear Dubose; Consolidated; Tioga; Nova;

Maxim

25


International Competition

Market Competitors

Refining vacuum distillation GEA Jet Pump; Korting Hannover;

Edwards

Chemicals/Petrochemicals Croll Reynolds; Schutte Koerting;

GEA Jet Pump; Korting Hannover;

Edwards

Turbomachinery OEM – refining,

petrochemical

Donghwa-Entec; Bumwoo; Oiltechnik;

Krueger; various local fabricators

Turbomachinery OEM – power and

power producer

Holtec; Babcock Thermal Engineering;

SPX (Yuba); Krueger

26


Products: Surface Condenser

27

Supports a steam turbine and enables the conversion of maximum energy in high pressure steam into power.



VITAL PROCESSING COMPONENTS CONDENSERS AND EJECTORS

An ejector system lowers the

pressure in the distillation column to

allow crude oil to boil at a lower

temperature. This allows for more

efficient and cost-effective

separation of crude oil into valuable

products, such as diesel, gas oils,

kerosene, and other fuels.

A condenser supports

a steam turbine and

enables the conversion

of maximum energy in

high pressure steam into

power.

REFINERY EJECTOR SYSTEM

CNOOC HUIZHOU REFINERY–CHINA

240,000 BBL/DAY REFINERY

Vital Processing Components

28

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