UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to ___________
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
As of July 28, 2020, there were outstanding
Graham Corporation and Subsidiaries
Index to Form 10-Q
As of June 30, 2020 and March 31, 2020 and for the three months ended June 30, 2020 and 2019
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Part I. |
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Item 1. |
3 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 |
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Item 3. |
21 |
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Item 4. |
22 |
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Part II. |
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Item 1A. |
22 |
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Item 2. |
23 |
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Item 6. |
24 |
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25 |
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2
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 2020
PART I – FINANCIAL INFORMATION
Item 1.Unaudited Condensed Consolidated Financial Statements
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended |
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June 30, |
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2020 |
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2019 |
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(Amounts in thousands, except per share data) |
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Net sales |
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$ |
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$ |
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Cost of products sold |
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Gross profit |
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Other expenses and income: |
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Selling, general and administrative |
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Selling, general and administrative – amortization |
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— |
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Other expense |
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— |
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Other income |
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( |
) |
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( |
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Interest income |
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( |
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( |
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Interest expense |
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Total other expenses and income |
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(Loss) income before provision for income taxes |
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( |
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(Benefit) provision for income taxes |
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( |
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Net (loss) income |
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$ |
( |
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$ |
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Per share data |
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Basic: |
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Net (loss) income |
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$ |
( |
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$ |
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Diluted: |
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Net (loss) income |
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$ |
( |
) |
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$ |
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Weighted average common shares outstanding: |
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Basic |
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Diluted |
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Dividends declared per share |
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
3
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
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Three Months Ended |
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June 30, |
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2020 |
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2019 |
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(Amounts in thousands) |
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Net (loss) income |
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$ |
( |
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$ |
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Other comprehensive income: |
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Foreign currency translation adjustment |
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( |
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Defined benefit pension and other postretirement plans net of income tax expense of $ ended June 30, 2020 and 2019, respectively |
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Total other comprehensive income |
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Total comprehensive (loss) income |
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$ |
( |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
4
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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June 30, |
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March 31, |
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2020 |
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2020 |
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(Amounts in thousands, except per share data) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Investments |
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Trade accounts receivable, net of allowances ($ March 31, 2020, respectively) |
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Unbilled revenue |
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Inventories |
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Prepaid expenses and other current assets |
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Income taxes receivable |
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Total current assets |
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Property, plant and equipment, net |
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Prepaid pension asset |
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Operating lease assets |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Current portion of finance lease obligations |
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$ |
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$ |
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Accounts payable |
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Accrued compensation |
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Accrued expenses and other current liabilities |
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Customer deposits |
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Operating lease liabilities |
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Total current liabilities |
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Finance lease obligations |
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Operating lease liabilities |
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Deferred income tax liability |
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Accrued pension liability |
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Accrued postretirement benefits |
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Total liabilities |
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Commitments and contingencies (Note 10) |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ outstanding at June 30 and March 31, 2020, respectively |
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Capital in excess of par value |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
) |
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( |
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Treasury stock ( respectively) |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
5
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended |
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June 30, |
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2020 |
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2019 |
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Operating activities: |
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(Dollar amounts in thousands) |
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Net (loss) income |
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$ |
( |
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$ |
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Adjustments to reconcile net (loss) income to net cash used by operating activities: |
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Depreciation |
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Amortization |
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— |
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Amortization of unrecognized prior service cost and actuarial losses |
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Equity-based compensation expense |
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Gain on disposal or sale of property, plant and equipment |
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( |
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— |
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Loss on sale of Energy Steel & Supply Co. |
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— |
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Deferred income taxes |
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(Increase) decrease in operating assets: |
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Accounts receivable |
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( |
) |
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Unbilled revenue |
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( |
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( |
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Inventories |
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( |
) |
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Prepaid expenses and other current and non-current assets |
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( |
) |
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( |
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Income taxes receivable |
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( |
) |
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( |
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Operating lease assets |
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Prepaid pension asset |
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( |
) |
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( |
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Increase (decrease) in operating liabilities: |
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Accounts payable |
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( |
) |
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( |
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Accrued compensation, accrued expenses and other current and non-current liabilities |
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( |
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Customer deposits |
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( |
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Operating lease liabilities |
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( |
) |
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( |
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Long-term portion of accrued compensation, accrued pension liability and accrued postretirement benefits |
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Net cash used by operating activities |
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( |
) |
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( |
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Investing activities: |
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Purchase of property, plant and equipment |
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( |
) |
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( |
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Proceeds from disposal of property, plant and equipment |
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— |
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Proceeds from the sale of Energy Steel & Supply Co. |
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— |
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Purchase of investments |
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( |
) |
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( |
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Redemption of investments at maturity |
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Net cash provided by investing activities |
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Financing activities: |
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Principal repayments on finance lease obligations |
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( |
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( |
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Principal repayments on long-term debt |
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( |
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— |
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Proceeds from the issuance of long-term debt |
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— |
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Dividends paid |
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( |
) |
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( |
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Purchase of treasury stock |
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( |
) |
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( |
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Net cash used by financing activities |
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( |
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( |
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Effect of exchange rate changes on cash |
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( |
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Net increase (decrease) in cash and cash equivalents, including cash classified within current assets held for sale |
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( |
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Net decrease in cash classified within current assets held for sale |
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— |
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Net increase (decrease) in cash and cash equivalents |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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6
See Notes to Condensed Consolidated Financial Statements.
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
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Common Stock |
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Capital in |
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Accumulated Other |
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Total |
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Par |
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Excess of |
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Retained |
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Comprehensive |
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Treasury |
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Stockholders' |
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Shares |
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Value |
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Par Value |
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Earnings |
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Loss |
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Stock |
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Equity |
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Balance at April 1, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Comprehensive income |
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( |
) |
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( |
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Issuance of shares |
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( |
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— |
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Forfeiture of shares |
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( |
) |
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( |
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— |
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Dividends |
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( |
) |
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( |
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Recognition of equity-based compensation expense |
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Purchase of treasury stock |
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( |
) |
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( |
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Balance at June 30, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Common Stock |
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Capital in |
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Accumulated Other |
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Total |
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Par |
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Excess of |
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Retained |
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Comprehensive |
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Treasury |
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Stockholders' |
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Shares |
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Value |
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Par Value |
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Earnings |
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Loss |
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Stock |
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Equity |
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Balance at April 1, 2019 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Cumulative effect of change in accounting principle |
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( |
) |
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( |
) |
Comprehensive income |
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Issuance of shares |
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( |
) |
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— |
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Forfeiture of shares |
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( |
) |
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( |
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— |
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Dividends |
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( |
) |
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( |
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Recognition of equity-based compensation expense |
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Purchase of treasury stock |
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( |
) |
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( |
) |
Balance at June 30, 2019 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
|
$ |
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|
See Notes to Condensed Consolidated Financial Statements.
7
GRAHAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except per share data)
NOTE 1 – BASIS OF PRESENTATION:
Graham Corporation's (the "Company's") Condensed Consolidated Financial Statements include its wholly-owned foreign subsidiaries located in Suzhou, China and Ahmedabad, India. The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP") for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X, each as promulgated by the U.S. Securities and Exchange Commission. The Company's Condensed Consolidated Financial Statements do not include all information and notes required by GAAP for complete financial statements. The unaudited Condensed Consolidated Balance Sheet as of March 31, 2020 presented herein was derived from the Company’s audited Consolidated Balance Sheet as of March 31, 2020. For additional information, please refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2020 ("fiscal 2020"). In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair presentation, have been included in the Company's Condensed Consolidated Financial Statements.
The Company's results of operations and cash flows for the three months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the current fiscal year, which ends March 31, 2021 ("fiscal 2021").
NOTE 2 – REVENUE RECOGNITION:
The Company recognizes revenue on contracts when or as it satisfies a performance obligation by transferring control of the product to the customer. For contracts in which revenue is recognized upon shipment, control is generally transferred when products are shipped, title is transferred, significant risks of ownership have transferred, the Company has rights to payment, and rewards of ownership pass to the customer. For contracts in which revenue is recognized over time, control is generally transferred as the Company creates an asset that does not have an alternative use to the Company and the Company has an enforceable right to payment for the performance completed to date.
The following table presents the Company’s revenue disaggregated by product line and geographic area:
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Three Months Ended |
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|||||
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|
June 30, |
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|||||
Product Line |
|
2020 |
|
|
2019 |
|
||
Heat transfer equipment |
|
$ |
|
|
|
$ |
|
|
Vacuum equipment |
|
|
|
|
|
|
|
|
All other |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Region |
|
|
|
|
|
|
|
|
Asia |
|
$ |
|
|
|
$ |
|
|
Canada |
|
|
|
|
|
|
|
|
Middle East |
|
|
|
|
|
|
|
|
South America |
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
All other |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
|
|
|
$ |
|
|
A performance obligation represents a promise in a contract to provide a distinct good or service to a customer. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Transaction price reflects the amount of consideration to which the Company expects to be entitled in exchange for transferred products. A contract’s transaction
8
price is allocated to each distinct performance obligation and revenue is recognized as the performance obligation is satisfied. In certain cases, the Company may separate a contract into more than one performance obligation, while in other cases, several products may be part of a fully integrated solution and are bundled into a single performance obligation. If a contract is separated into more than one performance obligation, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods underlying each performance obligation. The Company has made an accounting policy election to exclude from the measurement of the contract price all taxes assessed by government authorities that are collected by the Company from its customers. The Company does not adjust the contract price for the effects of a financing component if the Company expects, at contract inception, that the period between when a product is transferred to a customer and when the customer pays for the product will be one year or less. Shipping and handling fees billed to the customer are recorded in revenue and the related costs incurred for shipping and handling are included in cost of products sold.
Revenue on the majority of the Company’s contracts, as measured by number of contracts, is recognized upon shipment to the customer. Revenue on larger contracts, which are fewer in number but represent the majority of revenue, is recognized over time. However, in the three months ended June 30, 2020, revenue recognized over time was lower than revenue recognized upon shipment due to limited production on large contracts as a result of the COVID-19 pandemic. Revenue from contracts that is recognized upon shipment accounted for approximately
The timing of revenue recognition, invoicing and cash collections affect trade accounts receivable, unbilled revenue (contract assets) and customer deposits (contract liabilities) on the Condensed Consolidated Balance Sheets. Unbilled revenue represents revenue on contracts that is recognized over time and exceeds the amount that has been billed to the customer. Unbilled revenue is separately presented in the Condensed Consolidated Balance Sheets. The Company may have an unconditional right to payment upon billing and prior to satisfying the performance obligations. The Company will then record a contract liability and an offsetting asset of equal amount until the deposit is collected and the performance obligations are satisfied. Customer deposits are separately presented in the Condensed Consolidated Balance Sheets. Customer deposits are not considered a significant financing component as they are generally received less than one year before the product is completed or used to procure specific material on a contract, as well as related overhead costs incurred during design and construction.
Net contract assets (liabilities) consisted of the following:
|
|
June 30, 2020 |
|
|
March 31, 2020 |
|
|
Change |
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|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Unbilled revenue (contract assets) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Customer deposits (contract liabilities) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net contract liabilities |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Contract liabilities at June 30, 2020 and March 31, 2020 include $
Receivables billed but not paid under retainage provisions in the Company’s customer contracts were $
9
Incremental costs to obtain a contract consist of sales employee and agent commissions. Commissions paid to employees and sales agents are capitalized when paid and amortized to selling, general and administrative expense when the related revenue is recognized. Capitalized costs, net of amortization, to obtain a contract were $
The Company’s remaining unsatisfied performance obligations represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. The Company also refers to this measure as backlog. As of June 30, 2020, the Company had remaining unsatisfied performance obligations of $
NOTE 3 – INVESTMENTS:
Investments consist of certificates of deposits with financial institutions. All investments have original maturities of greater than three months and less than
NOTE 4 – INVENTORIES:
Inventories are stated at the lower of cost or net realizable value, using the average cost method.
Major classifications of inventories are as follows:
|
|
June 30, |
|
|
March 31, |
|
||
|
|
2020 |
|
|
2020 |
|
||
Raw materials and supplies |
|
$ |
|
|
|
$ |
|
|
Work in process |
|
|
|
|
|
|
|
|
Finished products |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
NOTE 5 – EQUITY-BASED COMPENSATION:
The Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value, as approved by the Company’s stockholders at the Annual Meeting on July 28, 2016, provides for the issuance of up to
Restricted stock awards granted in the three-month periods ended June 30, 2020 and 2019 were
During the three months ended June 30, 2020 and 2019, the Company recognized equity-based compensation costs related to restricted stock awards of $
The Company has an Employee Stock Purchase Plan (the "ESPP"), which allows eligible employees to purchase shares of the Company's common stock at a discount of up to