ROTH Growth Stock ConferenceJeff Glajch, Vice President & CFOROTH Growth Stock Conference
March 16, 2010
Safe Harbor Statement Regarding Forward Looking Statements
This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 asThis 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,” “anticipates,” “believes,” “could,” and other similar words. All statements addressing operating performance events or developments that Graham Corporation expects or anticipates will occur in the futureoperating performance, events, or developments that Graham Corporation expects or anticipates will occur in the future, including but not limited to, statements relating 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 strategy are forward looking statements Because they are forward looking they should bebehavior and its acquisition strategy 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 inGraham Corporation's most recent Annual and Quarterly 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 underlyingShould 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 relianceshould 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 press release.
Graham CorporationFounded: 1936; IPO: 1968;
NYSE Amex: GHM $19.51
Common shares outstanding 9.845 million$Market capitalization $192 million
52-week price range $21.84 – $8.27Avg. daily trading volume (12 mos.) 138,517Stock splits:
► 5 for 4 1/2/2008
► 2 for 1 10/7/2008Ownership:
►Institutional 60.7%►Insider 2.8%
Note: Market data as of March 11, 2010; ownership as of most recent filing.
Our Vision
Our goal is to be a Our goal is to be a world leader in the design world leader in the design o d eade t e des go d eade t e des g
and manufacture of and manufacture of ENGINEEREDENGINEERED--TOTO--ORDERORDER
products for the products for the ENERGYENERGY MARKETSMARKETS
P d tProductsCondensers
27%
EjectorsHeat
Exchangersjec o s35%
Exchangers10%
Pumps6%
Aftermarket22%
U.S. 48%
International 52%
Note: All percentages based on Fiscal 2010 nine-month revenue of $48.4 million
Di ifi d M k tDiversified Markets
Chemical Processing Original Equipment
M f t
Refining43%
Processing32%
Manufacturers(Dresser Rand, GE etc.)
EPC Contractors(Jacobs, Fluor etc.)to
mer
s
43%Power &
Other25%
( , )
End Users(Exxon Mobil, Chevron etc.)C
ust
Note: Percentages based on Fiscal 2010 nine-month revenue of $48.4 million
C lti t Di M k t
OIL REFINING CHEMICAL PROCESSING
Cultivate Diverse Markets
OIL REFINING
Conventional crude oilOil sandsExtra-heavy crude oil
CHEMICAL PROCESSING
EthyleneAmmoniaNitrogen
Ethylene glycolDetergent alcoholsPlastics, resins, fibersExtra heavy crude oil
Sour crudeLube oil
NitrogenMethanol StyrenePolystyrene
Plastics, resins, fibersCoal-to-liquids (CTL)Gas-to-liquids (GTL)
POWER GENERATION
CogenerationWaste to energy
OTHER APPLICATIONSEdible oil/OleochemicalsBiofuels:Waste-to-energy
Heat, power and lightGeothermalNuclearI it
Biofuels:EthanolBiodiesel
HVACIndustrial gasesIn-situ Industrial gasesCryogenic
Di ersified Geographies & Ind striesDiversified Geographies & Industries Fiscal 2010 Nine-month Orders
Refining $36.1 million Oman, Saudi Arabia, Taiwan, Brazil, China, Thailand,Colombia, USA
Chemical Processing $14.9 million Vietnam, Thailand, Malaysia India USAMalaysia, India, USA
Power Generation & Other
$39.0 million USA, China
Total $90.0 million
Global Distillation Capacity Growth
Total Net Growth: 6 mb/d
Global Distillation Capacity Growth(through 2015)
Europe: 0.2 mb/d
Total Net Growth: 6 mb/dRussia and Eastern Europe:
US & Canada:0.9 mb/d
Europe: 0.2 mb/d
Latin/South
Asia-Pacific: 2.9 mb/d
America & Africa: 0.3 mb/d
Middle East: 1.3 mb/d
mb/d = million barrels per daySource: OPEC World Oil Outlook 2009
I t ti l M k t E diInternational Markets Expanding
Asia (China)• Refining, petrochemical,
coal-to-liquid fertilizercoal-to-liquid, fertilizer
Middle East• Refining petrochemical
Sales Mix: becoming
more Refining, petrochemical
South America
internationally weighted
• Refining, petrochemical
M j P j t C lY 1 Y 2 Y 3 Y 4 Y 5
Major Project CycleYear 1 Year 2 Year 3 Year 4 Year 5
Conception to RFP Contracts awarded Construction
Graham Competitive Advantage:Early Involvement
awarded
Year 1 Year 2
Early Involvement$150 million
pipeline consistent with past few years
Graham establishes competitive advantage during first 24 months… Understanding pipeline, developing design options, identifying
p y
decision makers, understanding timing, creating strong relationships to…Gain advantage, optimize margin and win business
($ in millions)
Captured Revenue in Expansion Cycle
$86.4$101.1
$76 3
$41.3
$55.2$65.8 $61.5$60 - $63
$76.3
$48 4
FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 E t *
$48.4
Q3 2009 YTD Q3 2010 YTDFY2005 FY2006 FY2007 FY2008 FY2009 FY2010 Est.*
* Guidance provided as of January 29, 2010 and is not being updated as part of this presentation
Q3 2009 YTD Q3 2010 YTD
being updated as part of this presentation
EBITDA Margins
$110
EBITDA MarginsPrevious Cycle: FY1993 to 2000* Current Cycle: FY2005 to Present
$86.4
$101.1
$95
$110($ in millions)
$55.2
$65.8
$73.3
$51.8
$65
$80
$41.3$40.3 $41.0$46.4 $46.8
$51.8$48.9
$34.9$35
$50
FY2005 FY2006 FY2007 FY2008 FY2009 Q3 FY10 TTM
$20FY1993 FY1994 FY1995 FY1996 FY1998 FY1999 FY2000
3.6% 4.5% 25.5%10.5%11.3%1.4%3.3%7.0%11.1%10.1%7.7% 27.1% 21.8%
**
Margin
* Data from FY1993 though FY2000 excludes discontinued operations.** 1997 was a three-month transition year and is excluded from this comparison; 1996 reflects a 12-month period.Note: See supplemental slides for EBITDA reconciliation.
N t I d EPS($ in millions)
Net Income and EPS
$15.0$17.5
$13.9
$3.6$5.8 $5.8
$0.3
FY2005* FY2006 FY2007 FY2008 FY2009Q3 2009 YTD Q3 2010 YTD
Earnings per Share $1.71$1.49$0.58**$0.38$0.03 $1.36 $0.58
Note: All earnings per share amounts adjusted for stock splits
* From continuing operations ** Includes R&D tax credit of $0.16
St B l Sh tStrong Balance Sheet
Cash, Cash Equivalents and Investments
($ in millions) ($ in millions)
Working Capital, Net of Cash, Cash Equivalents & Investments
$8.5
$5 8$36.8
$46.2
$57.7($ in millions) ( )
$5.8 $5.1
$0.2
$3.3
$2.7$11.0
$15.1
-$2.5
FY2005 FY2006 FY2007 FY2008 FY2009 Q3 FY10
FY2005 FY2006 FY2007 FY2008 FY2009 Q3 FY10
3 3%0 2%7 7%10 5%20 5% (3 4)%*Percent of 3.3%0.2%7.7%10.5%20.5% (3.4)%
* Based on Q3 FY10 TTM revenue of $73.3 million
Revenue
C t l t Ch i Fi i l P fCatalysts Changing Financial PerformanceA Company-wide Approach to a Better Graham Today and in the Future
Selling Process:• Re-branding• Adding value
• VacAdemics• VacWorks• Technical support
Operational Excellence:• Capital plan • Graham production system• Focus on lead time reduction• First time, every time• Training
Improved Operating Performance
Throughout Cycle
• Technical support• Redefining profit metrics• Decision rights & disciplined
approach• Gain market share• Not every order is a good order
• Training • Safety culture• Continuous improvement• Creating scale
• IT• OutsourcingThroughout Cycley g g• Variable costs
People Process:• Accountability• Policy deployment
Sustainability:• Leadership commitment• Long-term visionPolicy deployment
• Performance management• Change agents:
• IT, HR, OPS & executive
• Alignment
Long term vision• Balance financial results with
investing in the future• Graham management system• Succession planning
• Engagement
D ti C l Shift$107.1 $110.5($ in millions)
Dramatic Cycle Shift
$54.2
$75.7
$48 3 $50 5
$89.8
$49.9
$66.2
$86.5$73.9
$54.9$67.0
($ )
$22.4$33.1
$48.3$37.0
$50.5$49.9
FY2005 FY2006 FY2007 FY2008 FY2009 Q1FY2010 TTM
Q2FY2010 TTM
Q3FY2010 TTM
$51.6OrderVariation
Orders Backlog($ in millions)
$27.8$17.5
$8.1
$20.5
$8.8
$29.6
Variation($ )
Orders are historically lumpy and best evaluated on at least a trailing four
Q109 Q209 Q309 Q409 Q110 Q210 Q310$25 million U.S. Navy order
gquarter basis
A i iti C it iAcquisition CriteriaEngineered-
to-orderto-order products for
Energy Industry
Geographic Expansion
and/or
Strong management Up to
$60 million and/orDiversify
Products/Markets
gteam / quality
culture$60 million in revenue
Return exceeds cost
f it lof capital
A i iti St t Th O tiAcquisition Strategy: Three OptionsGeographic Expansiong p p
• Asia, especially China• Middle East• South America
Product Diversification• Specialty heat exchangers
Market Diversification• PowerSpecialty heat exchangers
• Process vacuum equipment• Packaged systems• Process vessels
E i t l
Power√ Nuclear√ Solar√ Alternative energy
• Environmental
I t t Hi hli htInvestment HighlightsExpected long-term energy demand growth
resulting in capacity expansionresulting in capacity expansion
Worldwide brand recognition
Sales model based on early engineering involvement
Demonstrated success in Asia, Middle EastDemonstrated success in Asia, Middle East and South America
Strong balance sheet
Acquisition opportunities
Results-oriented management team