GRAHAM CORP Q2 FY2025 earnings call

• Record revenue of $53.6 million, a 19% increase, with robust demand across markets.
• Gross margin improved by 790 basis points to 23.9% and adjusted EBITDA margin expanded by 550 basis points to 10.5%.
• Launched NextGen steam ejector nozzle at a Gulf Coast Refinery, with an estimated total market opportunity exceeding $50 million over 5-10 years.
• Purchased land in Arvada, Colorado, to support Barber-Nichols subsidiary's growth, with construction slated for fiscal 2026.
• Announced plans for a cryogenic propellant testing facility near P3 Technologies in Florida, aiming for groundbreak soon and initial testing by mid-2025.
• GAAP net income for the quarter was $3.3 million, a significant increase from the prior year, with adjusted net income growing 353%.
• Strong backlog of $407 million at September 30th, with a book-to-bill ratio of 1.2 times.

Graham Corporation achieved record revenue of $53.6 million in the second quarter of Fiscal Year 2025, a 19% increase. Sales to the defense market were a major driver, reaching $30.9 million (23.9% of total revenue). Refining and chemical petrochemical sales contributed $2.2 million. Aftermarket sales were strong but down from prior year levels. Gross margin expanded by 790 basis points to 23.9%, and adjusted EBITDA margin expanded by 550 basis points to 10.5% of sales. P3 Technologies, acquired in November 2023, added $0.9 million in incremental sales for the quarter.

• Anticipates revenue between $200 million and $210 million for fiscal 2025.
• Raised adjusted EBITDA guidance to $18 million to $21 million, implying a 47% increase at the midpoint.
• Sees the potential to achieve low- to mid-teen EBITDA margins by fiscal 2027, with the Barber-Nichols Supplemental Bonus expense contributing to this goal.

• Supply chain issues in Navy ship and submarine production, though short-term not expected to impact Graham's business.

Q: Talk about the space business and how it built up the backlog.

A: Matt Malone said the space segment has opportunity with large satellite deployment and microsatellites in Leo, growth in value-added space assets like satellite cooling and advanced propulsion technology.

Q: Potential additional growth from change in administration?

A: Dan Thoren said defense budgets are likely stable, legacy energy markets have pluses and minuses, and the diversified business base is safe.

Q: Elaboration on gross margin guidance lift and H2 compression?

A: Dan Thoren said it's reflective of typically seasonally lower Q3, with year-to-date margin at about 24% and guidance range 23%-24%.

Q: Implications of election on acquisition front?

A: Dan Thoren said acquisitions are part of the strategic plan, and they're opportunistic but no imminent changes.

Q: Scoping around NextGen nozzle and its marketability?

A: Chris Thome said it's targeting easy pickings with existing steam ejectors, and Dan Thoren mentioned global installed base and interest in other countries. Matt Malone added it's not a replacement for competitors' nozzles, requires replacing the entire steam ejector.

Q: Strategic sharing between Barber-Nichols, Batavia, and Florida?

A: Dan Thoren said there's sharing of best practices on HR, IT, and engineering, with P3 Technologies collaborating on computational fluid dynamics with Batavia's R&D group.

Q: Impact of GD's $450 million award to Austal Shipyard on Graham's business?

A: Dan Thoren said it doesn't affect Graham directly, but helps accelerate shipbuilding which Graham can support.

Q: Long-term plans for Graham?

A: Dan Thoren said they see growth in organic and inorganic ways, with potential to move towards subsystems and system integration in the next 5-10 years.