Karen Howard - IR Jim Lines - President and CEO Jeff Glajch - CFO.

Jason Ursaner - CJS Securities Chase Jacobson - William Blair Joe Mondillo - Sidoti & Company Chris Mccampbell - Southwest Securities John Bair - Ascend Wealth.

Greetings, and welcome to the Graham Corporation Fourth Quarter and Full Fiscal Year 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to Karen Howard, Investor Relations for Graham Corporation. Thank you. Please go ahead..

Thank you, Brenda, and good morning everyone. We certainly appreciate your time today. You should have a copy of the news release detailing Graham's results across the wire this morning. We also have slides associated with the commentary that we are providing here today.

If you do not have the release or the slides, you can find them at the company's Web site at www.graham-mfg.com. On the call with me today are Jim Lines, our President and Chief Executive Officer; and Jeff Glajch, our Chief Financial Officer. Jim and Jeff will review the results of the quarter and the full year of fiscal 2015, as well as our outlook.

We will then open up the lines for Q&A. As you are aware, we may make some forward-looking statements during this discussion as well as during the Q&A. These statements apply to future events and are subject to risks and uncertainties as well as other factors which could cause actual results to differ materially from what is stated on the call.

These risks and uncertainties and other factors are provided in the earnings release and in the slide deck, as well as with other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our Web site or at www.sec.gov. And with that, I'm going to turn the call over to Jim to begin.

Jim?.

Thank you, Karen, and good morning everyone. We are pleased to report our fourth quarter and full year results, as well as discuss our strategy. I am on Slide 3. Our results in the fourth quarter and for the full year of fiscal 2015 demonstrate the value of our strategy to leverage all of our assets to drive top line growth, and expand earnings.

We will continue to execute our current strategy to double revenue. Admittedly, we are in an operating environment now that is far different from one year ago, or how we projected fiscal 2016 growth at this time last year.

Regardless of the immediate challenges, underlying fundamentals in our markets that create long-term demand for Graham products remain intact. Our estimated timing for achieving our near-term objective of doubling revenue has certainly shifted due to the dramatic contraction in our oil refining and chemical industry markets over the past two years.

The strategy we are executing is straightforward.

We will leverage our capabilities and capacity to capture greater share in our key markets of refining, petrochemicals, power, and naval; expand less cyclical sales to strengthen earnings by reducing the impact of the cyclicality in our refining and petrochemical markets, and use our strong balance sheet and operating cash flow to both diversify and strengthen revenue opportunities.

Please turn to Slide 4. Our fourth quarter revenue was $37.5 million, up 44% from the prior year. The full year revenue was $135 million, a 32% increase from fiscal 2014.

This level of solely organic revenue expansion is a result of the early investments made in workforce capabilities and capacity, capital investments to expand our production facilities, and add modern machine tools and welding equipment; and most importantly, is derived from a talented highly engaged team of employees that are committed to improving Graham and delivering exceptional quality and service to customers.

Net income for the quarter was $4.2 million, or $0.41 per share. Excluding a non-recurring restructuring charge, earnings in the quarter were $5.3 million. Full year earnings were $14.7 million, or $15.9 million excluding the restructuring charge. Orders for the full year were $136.5 million, or a book-to-bill of just above 1.0.

We are exiting fiscal 2015 with a record year end backlog. I am now referring to Slide 5. We continued to have strong domestic sales, which were 64% in both the fourth quarter and for the full year. This is due to strong investments in new United States chemical production capacity along with our naval and nuclear strategies.

In the fourth quarter, the refining industry comprised 32% of sales, chemical industry was 36% of sales, power was just under 10%, and other markets, which included U.S. Navy sales were 23% of total sales. Please move to Slide 6. Dampening the impact to earnings caused by the cyclical nature of our refining and chemical markets has been a priority.

Through several key initiatives, our predictable less cyclical sales have expanded from what had been $18 million in fiscal 2005 to $51 million in fiscal 2015.

We are committed to expanding these segments further in order to strengthen sustained earnings and reduce volatility in our financial performance, aftermarket short cycle new equipment sales, naval, and nuclear MRO, what we refer to as our predictable less cyclical sales base.

I have been pleased with our progress in developing this stronger base of business. I wish to turn the call over to Jeff for a further review of the financial details.

Jeff?.

Thank you, Jim, and good morning everyone. I'm now on Slide 8. Our Q4 sales were $37.5 million, up 44% from $26.1 million in last year's fourth quarter.

The sales split of 64% domestic and 36% international was different from last year's fourth quarter, which was 78% domestic and 22% international, but still strong domestic sales because of the investment in the domestic petrochem and refining markets. Gross margins were 34.1%, up from 28.4% in last year's fourth quarter.

Adjusted EBITDA margin was 23% for Q4, up from 14% last year. Q4 net income, as Jim mentioned, was $4.2 million, or $0.41 per share, but when adjusted for the one-time restructuring charge, was $5.3 million or $0.53 per share, compared with $2.3 million or $0.23 per share last year.

On to Slide 9, our full year results were quite strong compared with last year. Sales were $135.2 million, up 32% compared with $102.2 million last year. Sales for the full year were 64% domestic and 36% international, fairly similar to last year, which was 62% domestic and 38% international.

Gross profit was up $10 million at $41.8 million, though gross margin was relatively flat, down 20 basis points to 30.9%. SG&A for the year was $18.5 million, up 8% compared with $17.2 million last year. SG&A as a percentage of sales dropped 310 basis points to 13.7%.

The adjusted EBITDA margin was up 240 basis points to 18.9%, and adjusted net income was up 57% to $1.57. The strong results of fiscal 2015 are a testament to all Graham employees who as a team performed quite admirably. On to Slide 10; our cash position for the year was down slightly by $800,000 to $60.3 million.

The decrease is simply due to timing of accounts receivable and unbilled revenue. We expect a very strong cash flow over the next one to two quarters, and excluding any impact of share repurchases we would expect this cash position to be well above $70 million by midyear.

The doubling of our dividend, in January, and the availability of a share repurchase plan is further evidence of our confidence in long-term cash flow.

Despite the use of cash for these activities in the future, this will not have any impact on our ability to continue to reinvest in our organic business as needed, as well as funding potential acquisition opportunities. I'll pass it back to Jim for some commentary on fiscal 2016 and beyond..

Thank you, Jeff. I'll now refer to Slide 12. It is terrific to have a book-to-bill greater than 1.0, especially considering the abrupt contraction in our oil refining and chemical markets that took hold starting in our fiscal third quarter. A large percentage of the orders in the fourth quarter are for the U.S. Navy.

That of course is terrific, and is proof that we continue to execute well on our naval strategy to be a supplier to both surface and submarine nuclear propulsion programs. There are restrictions regarding our ability to discuss specifics about naval orders.

We have communicated that our strategy is to supply products to both of the submarine programs, as well as the carrier program. We have secured work for all three programs; however, there is little further detail we can provide. Importantly, refining and chemical markets turned down precipitously starting in our third fiscal quarter.

This was best conveyed by third and fourth quarter orders totaling less than $35 million, when excluding the naval orders, and factoring in the impact of $5.9 million of orders of backlog that were cancelled. Consistent with sales, orders were heavily domestically weighted at 67% of total.

On to Slide 13; backlog on March 31st was $113.8 million, up slightly from last year, and higher than it ever has been at year end. The value of initiatives to leverage our capabilities into new markets is clear when considering 55% of our backlog at year end is from markets or customers not served five years earlier.

Backlog conversion is projected to be 45% to 50% over the next 12 months; 5% to 10%, 12 to 24 months; and 40% to 45% beyond 24 months. Please move on to Slide 14.

Our guidance for fiscal 2016 is for revenue to be between $95 million and $105 million, gross margin to be between 26% and 28%, SG&A to be 17% to 18% of sales, and our effective tax rate 32% to 33%.

This guidance for fiscal 2016 reflects the impact of third and fourth quarter depressed orders from the refining and chemical industries, the effects of $5.9 million of backlog that had been planned for 2016.

That was cancelled along with approximately $10 million of backlog, where conversion to revenue has been pushed to 2017 at the request of our customers. Also reflected in the guidance is our continued concern about the timing of our bid pipeline converting to orders.

And with respect to cost management, the guidance reflects the savings anticipated from our voluntary early retirement program, which is expected to be approximately two-thirds of the $3 million of full year annual savings in 2016 due to timing.

As I mentioned earlier, despite this short-term setback in our refining and chemical markets, we remain focused on our near-term goal of exceeding $200 million in organic revenue. Now, Brenda, I would ask that you open the line now for questions. Thank you..

Certainly. [Operator Instructions] Our first question comes from the line of Jason Ursaner with CJS Securities. Please go ahead with your question..

Good morning..

Good morning, Jason..

You mentioned achievement of the record orders and backlog, but, Jim, you also talked about conversion taking longer than 24 months with more than normal, and aside from the Navy order, the core markets resemble fiscal year '12, fiscal year '13 more closely before we saw some of the boom in domestic investment.

Just how are you looking at next year in the context of the cycle overall, and kind of moving towards that long-term goal, and should investors be thinking about it as an earnings trough at all?.

Investors should indeed be thinking about it as an earnings trough as the consequence of a very sharp and very sudden pullback in our refining and chemical markets. I think a difference from the 2012-2013 timeframe that you mentioned. Looking at the backlog, it's fairly comparable.

What's important though to bear in mind is the order environment today is different than it was in 2012 and 2013, and I think there is more risk today than there was two years ago or three years ago regarding the timing of when our pipeline converts the orders.

And that's our most significant risk I would say at this point, as it relates to how high we can push 2016 is new business booked and its conversion, and that is different today than the timeframe you mentioned of 2012 and '13..

Okay. And one of the things you talked about last quarter was a sense that price equilibrium, that returning for the market was somewhat more important than the actual price in terms of seeing investment return.

Functionally, this happened in that $50 to $60 per barrel range, yet it certainly doesn't feel like it in terms of confidence and in finding a new level though.

How do you think about that in seeing orders return to the market, and some of the pipeline of conversion-to-orders as you think about fiscal year 2017 and beyond for you guys?.

Our thesis says it would pertain to a good price for oil or an equilibrium-type price for oil is in the $70 to $90-per-barrel range, while directionally it's moved from 50 up to 60. That's very positive. I still feel it has some way to go. Our thesis before -- it's back to business as usual.

Now, having said that, what gives us strong confidence in looking at our bid pipeline, which still does remain elevated at the $800 million to a $1 billion level for the trailing 12-month aggregate amount of our quotations, a very high percentage of that, but less than 50% is in the 25% to 35% range of that pipeline is refining.

And we do expect that to convert. We do view this as timing. I think you characterized it correctly, as an earnings trough; it's certainly in front of us for '16. But by no means do I think our longer term outlook is changed. And we're going to manage across this downturn and come out stronger, and capitalize when our markets do recover..

Okay, and with fiscal year '16 being what it is, you're still expecting to be profitable. Jeff, you mentioned confidence in the cash flow, you guys doubled the dividend. You certainly seem well capitalized or maybe even overcapitalized for operational needs.

Why wouldn't we expect you to be more aggressive on the share repurchase?.

Well, one of the things that needs to just -- we'll be upfront about it, borne in mind as to why there hasn't been share repurchase thus far is, we entered into a voluntary blackout. We're trading in shares because we knew or we felt highly confident we were going to win the large naval order.

We felt we had material inside information, and we judged to conservatively to act prudently on the implementation of our share repurchase plan. And we implemented a blackout, and no trading of our stock by those that knew, and the company knew about that order as being highly probable.

So we entered a blackout period that doesn't open again until Tuesday..

And, Jason, we entered that blackout very shortly after the January earnings call, in early February..

Got it, understood. All right, thanks guys..

Our next question comes from the line of Chase Jacobson with William Blair. Please go ahead with your questions..

Hi, good morning..

Good morning, Chase..

Hi, Chase..

Hi, so -- Jim, I appreciate the comments in the previous questions there about your confidence in the bid pipeline, the fact that less of the prospects are refining than they historically have; you've been doing an extremely good job winning the navy work here, obviously.

That doesn't really get going for a couple of years, even if you get it -- the next carrier coming in. I guess what I'm trying to figure out is that, we sit here today, you're looking about a 100 million in revenue in fiscal '16. It seems a long way off from the 200 million.

I mean, how do we get there from here? I mean you're going to really need -- are there more initiatives that Graham can put in place to gain share or do you really need refining, and chemical, and power, and navy to all be working at the same time to get to that 200 million level?.

There's a couple of ways I'm going to answer this. One, certainly deploying our capital toward an acquisition would facilitate getting us there faster. And we do have an active acquisition program that we have in place. So that would get us there faster.

We decided our strategy was to go for X to Y organically, or $100 million to $200 million organically. But that certainly is heavily predicated on the strength of our core markets; refining and petrochemicals, and putting that aside, for a moment, let's look at the building block.

We decided going from $100 million to $200 million really has -- would come from about $30 million to $35 million, in that type of range, for the power segment, growing from its current level today.

So that's not aligned with refining and petchem, that's taking market share in refining, that's executing our strategy to get that segment of our business to grow. Secondarily, the naval strategy, clearly we're having some traction there, and some success. Regrettably, it takes a period of time to get those wins into revenue conversion.

However, it's clear to us, that strategy is being actualized and should meet our expectations of being mid-20s type level of revenue. So put those two together, I'll pick an easy number that my head can do the math with, 35 and 25, that's 60 million of the 200 million. That would leave us with a 140 million of the core work.

And I don't have much apprehension about us being able to do that, but it is predicated, Chase, on strong market fundamentals. We can create demand, and we can hustle inside the market we're playing in to take share, to out-maneuver our competition, but if there isn't a market we can't make the market.

So therefore, the remainder of our growth, as it pertains to organic, does hinge on market fundamentals. But I did want to qualify that we can also get there faster from $100 million to $200 million via acquisition..

Okay, so the natural question; and I guess for Jeff, can you talk about the acquisition pipeline a little bit? It's something that you always mention, but now if you might be entering a period with lower revenue for at least this year and see if the orders turn, but can you talk about the acquisition pipeline a little bit?.

Sure, Chase. Yes, we have -- there are a quite number of opportunities in the pipeline, and you've seen some activity within our market recently. And we have accelerated our activity there recently.

And as the energy markets have gotten a little soft, some of the pricing perhaps got a little more favorable also, or will get more favorable I think is probably a better way to look at it, particularly for the type of companies that we're looking at. So we're pretty encouraged about what's out there, and the pricing of what we think is out there.

But it will take some time, as it always does, to get that level of equilibrium where we're comfortable. But be assured we're being active right now..

And just to go further on Jeff's comments, clearly this pullback in our traditional markets has elevated the importance on our agenda of the acquisitions. We're not pleased that there's a market pullback, however it has occurred, and then we need to respond to it, and we are elevating the importance of our acquisition strategy.

However, that doesn't mean we will move hastily, or move imprudently, and we'll follow our same discipline. But I can share with you that it's at Board level, of Senior Management level; it's more topical than it was when we envisioned several successive years of strong organic growth..

Okay. And on the gross margin guidance for next year, understand that the pricing pressure and lower volume. But up until a couple of quarters ago, you talked about better price, and you're doing more of the work on your own, less outsourcing, and -- I guess, this 400 basis point declined next year is just -- is greater than we expected.

Can you maybe break that down at all, as to how much of the decline comes from volume and pricing, and other, and how does the restructuring offset there? How does that play into the guidance? Does that provide upside, or is that, kind of, baked in already?.

The restructuring is baked in, in the prepared remarks we've looked at the restructuring as an annualized savings of $3 million. During the timing of that flowing into our income statement, about two-thirds of that restructuring of savings will impact positively, and is reflected in our Guidance 2016.

And in rough numbers, it's about two-third COGS, and about one-third in SG&A, on the annualized basis. Most importantly, there's two things that we -- clearly there's going to be margin trending down. And the two drivers for that are one, Management's discretionary decision to not take the easy path of aligning our capacity and cost with demand.

That's formulaic; we know how to do that. To me, that would be wrong. We have a naval strategy that's taking off. We have imbedded costs in our business well ahead of revenue and corresponding profit that are necessary to be able to execute that strategy.

We're not going to unwind those, but they're in our COGS, and they're affecting what you're speaking to here. Secondly, we've built this incredibly strong value-based brand. And there is immense [ph] un-priced value in how we support our customers in this down cycle.

If we begin to unwind that, we begin to take the luster off of our brand that could be irreparably harming our long-term pricing power. We're electing not to do that. Thirdly, we need to have the capacity and the flexibility to be opportunistic when aftermarket orders come in.

And they can be large, $1 million, $2 million, or $3 million is not uncommon. And if we strip back our cost basis to align with our projected demand, we won't be ready to do that service to our customers or take opportunistically orders. And then lastly and most importantly, we probably got a little too aggressive in the 2009 timeframe.

In retrospect, we are growth-fortunate that recovery limped along, and we could build our infrastructure, and I'm not willing to limp into the next recovery because we stripped out our capabilities in our business.

So one is an intentional decision by management to keep the horsepower, support a value proposition, and deal with this downturn, and this earnings for us, and that's reflected in our margins.

Secondly and equally impactful is we're in a very harsh pressing environment, the scarcity of orders and competitiveness of pricing is what we haven't seen in quite some time. And we've got to step in, we are going to defend our market share, we're not going to let people enter into our core accounts.

And that's going to have a short-term impact on margin, but again, that's the right decision; a discretionary decision, but it's a right decision. I'm not happy with the pullback and gross margin, but they are for the reasons that I've just mentioned, and in the long-term value creation from this business is the right call..

Okay. That's very helpful. Thank you very much..

Welcome..

Our next question comes from the line of Joe Mondillo with Sidoti & Company. Please go ahead with your question..

Hi guys, good morning..

Good morning, Joe..

First off, I wanted to ask just if you could give us some perspective on how you're looking at where we are and sort of this temporary or mini down-cycle, or however, you want to phrase it; do you think you've seen the worst in terms of cancellations, weak orders, are we -- I know, it's happened really fast.

And it's been very severe over the last nine months.

Are we at the bottom when you think maybe a flat line for a quarter or two and then possibly progress? Or do you think you know starting, even in this quarter, are we continuing to see weaker results and there could be more risk of cancellations, or how are you looking at it, where we are?.

Our view is -- our refining and petrochemical customers have exercised their immediate judgment or how they were going to react to the downturn. I think that judgment plays out, we're much of 2016.

Is there a possibility of further cancellation? I think there certainly would be a possibility, and that depends on how our customers view next year, the year after this year.

Right now I think though the paints [ph] already been put into the supply chain and adjustments have been made, $10 million of our backlog has been pushed from conversion in 16 to conversion in 17; not at our desire, but at the requirement of our customer.

We don't want to cancel those orders because they feel we'll get back to business as usual, about a year out. We'll watch with careful attention as this year unfolds, are those projects becoming more risky or is the market environment becoming more favorable. This is a very unsettled time. I wish I could be more definitive.

I think businesses are exercising their judgment. I think the judgment that was exercised rolls out for the next few quarters. And then there's a more informed perspective as we exit calendar '15..

Okay..

In terms of the orders, it's going to be unpredictable if you strip away the naval order from the second half bookings, the underlying business' bookings where we're pretty rough. In the prepared remarks, we noted they were roughly $35 million with the second half of the year. I don't feel that's necessarily sustainable.

I think the markets will provide more opportunities in there. As an example to the months to date bookings, we're at about $15 million. Not months to date, sorry, quarter to date bookings run about $15 million. So we have had some positive signs. Again, I'd like our pipeline is largely weighted towards refining.

That's always been our strongest hand to play. And to me it's just timing. Again, I wish I could be more definitive, but what gives us the enthusiasm and why we still feel we can execute our growth strategy from going from $100 million to $200 million, subject to market fundamentals is the enormity of our pipeline. It's just massive.

And it's in our sweet spot; refining, petchem, and we always do well. When that pipeline is bulging it translates to orders at some point..

Okay. So a couple of follow-ups mainly on the oil refining part of the business; you saw about $700,000 of orders in refining in the quarter.

It feels like not just from your business, but it feels like from the sector altogether that the first quarters maybe, at least the first half is going to be -- it feels like that's going to be the worst of it at this point anyways? Do you anticipate a couple of quarter of that $700,000 of orders, that type of a -- that week of orders? Or does that feel like everything came to our head, and everything got frozen and pushed out a little bit and just that was not really a normal, even considering the extremity of the environment right now, that's really not what you're anticipating on a quarter-to-quarter basis? Or is it that bad that could be the new normal for our quarter two at least?.

No, Joe, I certainly don't think that is the case. And I just want to clarify. In the quarter, that math is actually accurate, but it reflects roughly $6 million of refining orders that were cancelled. If those orders weren't cancelled, new bookings would have appeared stronger from that sector.

Of course, net of those cancellations is that would result in that order and depressed results, but that did not convey the underlying bookings pattern from that segment of our business. I'll answer it, I feel much more confident..

Okay..

We were depressed of the low refining orders that were reported in the quarter, the fourth quarter, because they reflected $5.9 million being cancelled from backlog..

Okay. So the orders in refining was really about $7 million, but then you take up 6 million of cancellations, and it really looks like….

I don't recall the actual numbers, but I do know whatever the number was, it reflected deducting $5.9 million of refining orders from our backlog..

Okay.

And the 10 million of backlog gets pushed into fiscal '17, is that mainly oil refining?.

Yes, it is..

Okay. So a big part of the gross margin for fiscal '16, I would imagine, a large part if not the number one factor is that oil refining is going to be maybe 20% to 25% of total sales as opposed to 30% to 35% in the past couple of years, and that generally carries higher margin.

So is that the number one factor?.

Yes. That's a very influential factor. The summation of all this is the capacity utilization is under-loading our asset and through a discretionary decision that we've chosen to make. We're keeping our asset base strong. And therefore it's impacting our gross margin, bring it down. Again as I responded to chase, I feel the wrong call.

The value creation capability of this business is to align capacity more closely with demand; that will be wrong..

All right, okay..

We'll have to try to do that. So it's more of absorption of overheads, because of the embedded cost with the naval strategy and the fact that we will not take the luster off our value-based brand..

Right, I understand. In regard to say a two-year outlook of refining, these refineries at least in the U.S. are running at the highest rate that they've been at, in -- I don't know, at least five to ten years over 90%.

I understand that a lot of these oil companies are just cutting across the boards trying to save any cost whatsoever, but at a point because the refineries are actually running at very high levels, your customer actually should be -- their production is very high, capacities, utilizations very high, the environment should be actually strong, but because the other side of the business the upstream and the rest of the business is struggling they're making cuts across the board.

So do you anticipate at a point they can't put off this sort of work forever, and maybe in a matter of a year the story could be actually completely different with your particular customers?.

We tend to reason through the market in a similar way that you've just described. It is possible to discretionarily delay maintenance and ongoing CapEx. Much of our U.S. based refining activity can be a little bit of new capacity but it mainly goes under maintenance and de-bottlenecking and revamps. I was always been excited about refining market.

It does have intermittent pullbacks like we're seeing here. But as you said, Joe, there's a point in time when they have to get back to investing and keeping those refineries going, and we're excited by that. We'll be ready for that, and they can't under-invest for too much longer is our view..

Okay. Just two more questions; regarding SG&A, in terms of the top line guidance that you've given, it's comparable to fiscal '14. And when I look at fiscal '14, SG&A the percent of sales was 16.8%; the guidance that you're providing the midpoint is 17.5%.

Just wondering why that would be higher, given similar sales base of back in fiscal '14? Is that related to the additional capacity expansion that you've built regarding overhead and more labor and such? What's….

Joe, as Jim has mentioned we've kept some cost embedded in the business to be able to take advantage of growth in the future. And that's really that difference between what you're referring to two years ago and today..

Okay.

Okay, so you're maybe a little bit leaner, would you say in '14, but you're still anticipating a lot more work in a year or two, and so you'd rather keep that capacity on hand?.

Well, the interesting part about our business which is fantastic, but also can be troubling as you try to look at our cost basis. We have this fantastic bid pipeline that has to be served.

We need the SG&A assets -- the assets that's really supporting that bid pipeline and being there even though our customers aren't spending money doing the bid iterations, helping them develop the cost basis for their planned investments. And we are prepared to keep that some cost in our business to support pipeline management.

So when they're ready to buy, we're the one most likely to win it. And '14 versus '16, the pipeline is fairly similar, maybe up a little bit, but again ultimately we are reluctant to align costs perfectly with current demand, because we're not that type of business model..

Okay. Okay, and then just lastly in terms of the petrochem part of your business, the chemical processing petrochem, the orders in that business has been relatively stable for the last five quarters. And it's been a while since we saw that surge in early fiscal '14 -- in the first half of '14.

Just wondering what you're seeing within that business; any opportunities in the next few quarters do you think amongst that build out you've done in the Midwest and the U.

S., and the whole utilizing that low natural gas prices and all that?.

Sure. The first way it worked at, we saw that during that timeframe you were referring to a good amount of that came from U.S. lean capacity, five vessel plants proceeded, six proceeded, we got four of them. What we're seeing now and we've been anticipating this, those plants are built to feed downstream derivative plants.

At the beginning, we see the inquiries were the downstream derivative plants that require all of our equipment, not just our [indiscernible]. And we've secured a little bit of that work already, though we're seeing that beginning to enter into our bid pipeline. It was a little long in coming, but we're beginning to see it now.

And then secondarily, we also have our tracking between four to six new ethylene projects in South America. Having said that, I don't expect all of them to go ahead, but I do expect a few of them to go ahead. And I'm expecting our sales team to get us in a position to win those orders.

So we're seeing in the next wave of activity begin to show up in our bid pipeline and we're positive about that. We've secured a little bit of that work now, and there's more to come. And we always felt that this North American petchem first wave would be in two phases, and I think we're entering the second phase now..

Okay, great. Okay, thanks a lot. I appreciate it..

You're welcome..

Our next question comes from the line of Chris Mccampbell with Southwest Securities. Please go ahead with your question..

Yes, as a long-term shareholder, I'm thankful for you guys ability to manage through these cycles.

But with regards to the M&A environment with pricing still relatively high, does it ever made sense to go the other way and solicit interest for Graham from larger companies?.

Good question. We think the value creating capability of Graham is still very strong. Is that a topic of discussion that we do have? Of course, we think we've not run out of one way to create value. We're all frustrated by the very abrupt in and quick pullback from our core markets.

We don't view though that has disrupted or transformed our value creating model. And we think remaining independent is the best way at this point to maximize the value of this business..

What will be the conditions that you would think you need to see to make that more likely?.

A suitor willing to pay the right price..

Understood..

And Chris, to Jim's point on our value creation, I think if you look at our result in fiscal year '15, they're a very good example of the kind of value that we can create in a good market. And quite frankly, unfortunately, as Jim mentioned in the prepared remarks, the market turned pretty significantly over the last six to nine months.

And we have to work our way through that, but we're positioning ourselves -- we are well-positioned we believe to create that type of value creation. And quite frankly quite a bit more as the markets recover as well as taking advantage of the in-roads that we've made with the U.S.

navy and the power side and then over the next few years when things start to rely both on the energy side as well as starting to see some additional conversion of the navy side additional growth on the power side we think our shareholders will be quite happy with what we've done..

I appreciate it guys. Thanks..

Thank you..

Thank you..

Our next question comes from the line of John Bair with Ascend Wealth. Please go ahead with your question..

Good morning, Jim and Jeff..

Hi, John..

Wondering if the order cancellations -- were those domestic or international or a combination, and likewise with the 10 million of push out orders?.

They are North American, so somewhere U.S. in both cancellation and delays and some are Canadian. But to be clear, they're all under our refining umbrella..

Right.

Well, the reason I'm asking that; some of the trade publications, I've read in the last month, I've seen -- I've just jotted these down in anticipation of this call, mostly international, but for roughly six announcements of some fairly -- that I thought fairly significant refining and petrochemical projects that have been set-to-go; Nigeria, India, Iraq, Peru, and so I'm wondering if these other international areas perhaps are not suffering as badly as what appears to be happening domestically or let's say North America.

Could you elaborate some on that?.

Sure. In the international market most of the refiners are state-owned enterprises, and in some cases they are part of OPEC.

And safety of the [indiscernible] work -- I'm sorry; Kuwait activity, some out coming Saudi Arabian activity, that is being impacted by their incoming cash flow on the selling of crude oil, and that's changing the face of what they're investing in new capacity. But we're aware of the Iraqi projects. We're also aware of metro Peru.

We're aware of the projects in India. So we have activity in those different areas. And again, our pipeline for all of our bids is heavily weighted towards defining. And to me, that's the nice formula for future success..

Okay. And can some of those -- did you anticipate or is it possible that some of these cancellations could possibly -- you resurrect it down the road or was that pretty firm decision that they are not going to go forward with that? [Indiscernible] pushed out, but somebody, I guess the….

Right, [indiscernible]..

You said, we're not going forward, done..

I'll speak to each specifically. One, I think was due to extreme need to preserve cash. It is an expenditure that has to happen, but it was discretionary expenditure to occur right now. So I do expect that project to be active again at some point when the market stabilizes.

The second order of that was cancelled was the second half of a larger order Phase A, Phase B, and because that customer couldn't project when they would commence Phase B the proceeding was Phase A.

They elected to cancel the second half of the order, but their long-term view is that reactivate that, but they couldn't tell us if it was 16, 17 or 18, and therefore they elected to just cancel it..

So that would require for re-bid process then? Was it….

Yes..

Okay, very good.

And my last -- really more of a comment than anything, and that is, given the rather small amount of shares outstanding; from a personal standpoint I'd rather see you use your cash to either increase the dividend a little bit, I mean I know you already just did, or probably even better, and I think to some of the comments previously, the acquisition and I know over the years that's been a point that's come out repeatedly, why you're setting out cash and why you're using it, but I'd see it go towards a good acquisition rather than reducing the share count.

So that's just a comment on my bag….

John, just response on your comment, with regard to the share repurchase program, as you're aware it's up to 18 you million additional requirement to spend there. So we could spend anywhere from up to 80 million or [indiscernible]. So I just tell you're aware that this….

No, I understand that. But that would not give your share count down by almost 10% as it is -- I look at as -- I would hope that we would be able to put that money to work better with a good acquisition that's going to increase your overall sales and maybe new market or whatever, so….

Right. Fair enough..

John, this is Jim..

I am certainly happy what you have a nice amount of cash in there. So anyway, thanks for your time..

John?.

Yes, sir..

Just one answer of the follow-on to your question; I just want to share with you about the Board of Directors, Management, each of us and collectively together, we're solely focused on long-term value creation. Putting our all of our assets to work, to create, improve shareholder return.

We're disappointed in how '16 is going to shape up, and understand how we got here. But mostly every conversation we're having is how do we create value more quickly than we otherwise are going to be able to do when in this pullback? And it's top of mind for Management. It's top of mind for the Board. And we're thinking of the shareholder every day..

I have no doubt. Thank you..

Our next question comes from the line of Jason Ursaner with CJS. Please go ahead with your question..

I know the call is running long, so I appreciate you taking the follow-up. And Jim, I appreciate all the details on the discretionary decision impacting gross margin for what it's worth. Yes, I agree that I think it's definitely the correct move for a long-term thing in the brand.

The one factor I want to have more about with that though, you mentioned a harsh pricing environment, is that all or mostly coming top-down from the producers and [indiscernible] users, and also any reflection on changing competitive landscape?.

Actually it's on both sides of the table. This is more anecdotal, so I don't want to come across this being broad based, but it's a sufficient frequency that's impacting margin. From the customer side, we're seeing heightened attention on cost-based decisions.

And being willing to wait and lot of suppliers going through backlog to become a little hungrier to get a more favorable price. We hadn't necessarily seen that in our past. So, we're seeing the customer, the difference in our behavior on focused on getting the best price.

That has an impact and then on the other side of the table, again more anecdotally, so please don't consider this as the ground model is broken.

So we have some near term headwinds where our competition is seemingly being reckless on their pricing decisions and we have to decide are we going to let them take share or are we going to stand up and serve our customers and get through this and make sure we retain that customer and they experience our value.

And they don't get exposed to our competition. So we're situationally being aggressive and what we're prepared to accept. We've had to shift and [indiscernible]. We had to shift from more focused on quality of order selection to driving volume, utilizing our capacity, leveraging our assets and defending our market share.

Again, I think that's the right decision for the long-term health of our business, but it has some near term implications on margin..

Aside from price, though, in terms of technical capabilities in quality or some of your competitors, is that changing, were they're getting better or are you seeing any new competitors internationally or is it mainly just with price issue?.

It's mainly just price. We don't typically bump into new competition and if there is old competition with greater assertiveness and their willingness to dive on price..

Okay. And the Navy order in the quarter, I don't remember if that was in the original press release, but it's now implied that it was 35 million.

Was that entirely CVN-80 and how does that compare with the 25 million from the surface condenser order for 79, and/or maybe with just total addressable content that you could have on a carrier order?.

It was not related to a carrier order..

Okay. And just following-up on the question you had before on the acquisition pipeline.

How active in the process or maybe how far along would you be before it might lead to a blackout on the share repurchase? Is it going to be one of those things where every quarter there is enough going on and it's going to be difficult; you got anything done there?.

Jason, this is Jeff. For an acquisition to have an impact on a share repurchase and I'll think back to when we brought Energy Steel. We did get a blackout on our management team and our board for a period of time, but it was not -- it was more of a four to six weeks before the acquisition closed in that case.

There would not be a situation where we have a blackout offer for many months. And just like the blackout that was put in for the -- around the Navy order, that just coincidentally happened to hit, it would have opened the window of approximately six weeks.

And it happened to hear right through the beginning of that six-week window, and the blackout related to the Navy or ended just after the window closed. But unfortunately then we had a blackout on, because of our earnings.

So in that particular case, or the Navy case, it was coincidental in timings, but to your question around acquisition, we would not put a blackout on. What we would likely, not for the blackout until we were fairly certain of the acquisition when it closed as we did with Energy Steel back in 2010, yes..

Okay, I appreciate the follow-ups. Thanks guys..

You're welcome..

Ladies and gentlemen, this concludes today's Q&A session. I would like to turn the floor back to management for closing remarks..

Thank you, Brenda, and thank you everyone for listening into our fourth quarter and fiscal year end 2015 conference call. We're very pleased to have updated you and to go through a pretty detailed review about perspective of the business and the outlook in the near-term. And we look forward to updating you on our next call. Thank you very much..

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. And thank you for your participation..