Richard Ryan: Great. Thank you.
Daniel Thoren: Yeah.
Operator: Thank you. [Operator Instructions] Our next questions come from the line of Gary Schwab with Valley Forge Capital Management. Please proceed with your questions.
Gary Schwab: Yeah. Hi, guys, and I’d just like to say congratulations, great quarter.
Daniel Thoren: Thanks, Gary.
Christopher Thome: Thanks, Gary.
Gary Schwab: Have you been surprised — following up on Dick’s question on aftermarket. Have you been surprised by how strong the aftermarket sales have been in the past year?
Daniel Thoren: To some level. Now, I don’t have a lot of history with the company, so I couldn’t tell you what it was like 10 and 15 years ago. But we do know that – especially in the U.S., where the majority of our aftermarket comes from – that these refineries have been running hard. And so, they’ve got to continue to invest in them and keep them properly serviced, to be able to keep that high level of output going. And so, from a demand side, I would say, 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…
Gary Schwab: Okay. Because it’s really picked up a lot in the last year — and I know you have an aftermarket sales force that you started. What’s the — how have they become so successful in closing orders? Are the orders just there or is it the way you’re doing it?
Daniel Thoren: Well, I think it’s both. So certainly, the demand is up just because of the refinery output has been so high for a long time. The other part of it, we have been investing in our aftermarket team, adding more engineers, readjusted some of the leadership associated with aftermarket. And I think that’s been positive. We’re not done yet. As we kind of think about our installed base internationally, we’re trying to figure out how to go after that too. And so, we’ve got initiatives with both of our sales offices to figure out the communication strategies relative to life of components and service intervals and things like that. So, it is — has been a proactive approach to continue to grow that business. And honestly, I think that we still have quite a bit of room to improve. So, we’re encouraged in the aftermarket business that we can keep it going. So, we’ll see.
Gary Schwab: Is most of it installed base or is all of it installed base?
Daniel Thoren: Yeah. Pretty much all of it is installed base, yes.
Gary Schwab: So, the fact that these are all customers of yours that you’ve delivered product to before, 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 predicted wear rates or predicted failure dates?
Daniel Thoren: Yeah. We’ve got — we’ve actually got an initiative that’s starting this week. We’ve got a kickoff meeting to figure out how to automate — using AI is a little bit of a stretch, I would say, but automate our approach to aftermarket that uses this installed base — installed base database, understanding exactly when these things got installed and 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 quite a bit more we can do. And so, we’re not resting on our laurels here. We’re out there being aggressive and trying to figure out how to go get more.
Gary Schwab: Okay. And just one last question for Chris. Is this worth putting a line item on? You have space sales, chemical sales, refinery sales, defense sales – adding aftermarket sales as a line?
Christopher Thome: So, certainly something we can think about internally here. It’s definitely related to the refining and petrochemical markets. So, it’s kind of all encompassing, and our disclosure really is by market, which the aftermarket is related to, if anything else, we’d probably in the future, look to break out new energy because that’s becoming a higher growth and more important part of our business.
Gary Schwab: Okay. Because it is the biggest gross margin product that you carry?
Christopher Thome: Sure.
Gary Schwab: Okay. Thanks a lot and congratulations again.
Daniel Thoren: Thanks, Gary.
Christopher Thome: Thanks, Gary.
Operator: Thank you. Our next questions come from the line of John Bair with Ascend Wealth Advisors. Please proceed with your question.
John Bair: Thank you. Good morning. Congratulations, Dan and Chris.
Daniel Thoren: Thanks, John.
John Bair: Very good to see — real pleased to see the 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 or roughly — what’s the breakout between the traditional refining and marketing upgrades versus biodiesel, which you’ve said has been in the mix here?
Christopher Thome: Yes, John. So let me take the first one with regards to a dividend. As we’ve already been talking here on the call, 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 our main focus, and then as well as — we’ve really started to try to build out the pipeline with regards to M&A as well, and P3 is a great example of the types of opportunities that we’d like to take advantage of. So really, for the next several years, 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, the Board has not made any decision to reinstate that dividend at this point.
John Bair: That make sense.
Daniel Thoren: And then your question about aftermarket, traditional versus biodiesel. Certainly, we’ve seen an uptick in applications using biodiesel where some of these refineries are getting converted over. I would guess — I don’t have that detail as far as 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 I couldn’t quantify that for you, other than small in relationship to the refinery aftermarket.
John Bair: And what does that aftermarket look like as far as the international market where you have established — an established base of past business?
Daniel Thoren: Very various…
John Bair: Are they on the same cycle, I guess, is what I’m getting at? Is — our industry here drastically (ph) has been running hard. Is that a similar situation internationally?
Daniel Thoren: Yeah. It’s – 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 Middle East seems to also be planning on new capacity. And so that continues to grow on the new side. The aftermarket in the installed base internationally has not been a big piece of our business in the past. And as we build that installed base, we have plans to be much more aggressive in going after that. So, as I have said earlier, we’ve got initiatives in our sales offices internationally to figure out what that installed base is, where it is, and how we go after it in a concerted effort with the Batavia effort here.
John Bair: Well, great. Keep up the good work, it’s very encouraging. Thank you.
Daniel Thoren: Thanks, John.
Christopher Thome: Thanks, John.
Operator: 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 Thoren for any closing remarks.
Daniel Thoren: 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 22 and then the Sidoti conference on March 14. As always, please feel free to reach out to us at any time, and we look forward to talking with you again after our fourth quarter fiscal 2024 results. Enjoy your day.
Operator: 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.
