GRAHAM CORP Q4 FY2025 earnings call

Management Statement and Operational Highlights:

• Dan Thoren noted full year revenue growth, adjusted EBITDA increase, record backlog, and book-to-bill ratio of 1.1. Highlighted defense contracts, strategic investments in automation and facilities, and leadership transition with Matt Malone becoming President and CEO.
• Matt Malone discussed the stabilize, improve, growth strategy, completion of the stabilized phase, progress in the improved phase, and growth drivers including product life cycle expansion, commercialization, global reach, and digital transformation.
• Chris Thome reviewed financial results, updated end market disclosures, detailed fourth quarter and full year sales, gross margin, net income, adjusted EBITDA, orders, backlog, balance sheet, and liquidity.

Segment Performance:

• Defense: Full year revenue grew approximately 13% to $210 million, with adjusted EBITDA increasing 69% to $22.4 million, contributing 60% of revenue. Key highlights include a record backlog of $412 million and a $136.5 million contract award for the Virginia-class submarine program.
• Energy and Process: Revenue for the year was up 1% year-over-year, reaching $73 million, contributing 40% of revenue. Capital expenditures of $19 million were deployed in fiscal 2025, with expectations of 7% to 10% of sales being spent on CapEx in the next few years.

Guidance:

• Fiscal 2026 revenue expected in the range of $225 million to $235 million, a 10% increase over fiscal 2025 at the midpoint.
• Gross profit margins projected to be between 24.5% and 25.5% for the full year.
• SG&A expenses projected to be between 17.5% and 18.5% of sales.
• Adjusted EBITDA expected to be between $22 million and $28 million for fiscal 2026, a 12% increase over fiscal 2025 at the midpoint.

Risks:

• Impact of tariffs on fiscal 2026 results, estimated at approximately $2 million to $5 million.
• Fluidity of global trade policy affecting guidance.
• Dependence on defense contracts and potential lumpy orders in the business.

Q: Russell Stanley on guidance and gross margin outlook, investment in radiographic testing equipment, acquisitions.

A: Dan Thoren stated gross margin outlook is mainly due to tariffs and absence of a grant, with process improvement initiatives to offset. Matt Malone elaborated on the radiographic testing equipment's benefit in simplifying weld processes and potential application to other verticals. Matt Malone mentioned the M&A pipeline is robust with a focus on strategic acquisitions.

Q: Dick Ryan on Navy contracts, welder fleet.

A: Matt Malone noted no major changes in Navy contracts but mentioned protection clauses for commodity-based pricing volatility. Dan Thoren reported welders at Batavia facility are up 10% year-over-year, with no supply issues.

Q: Joe Gomes on cryogenic facility, P3 acquisition, next-gen nozzle.

A: Matt Malone said the cryogenic facility is on track to be operational by year-end with strong demand inquiries. The P3 acquisition is integrated well with potential for greater benefit than forecasted. The next-gen nozzle is a completed design with positive inquiries and potential for broader application.

Q: Christopher Gordon on book-to-bill, pricing models.

A: Dan Thoren explained book-to-bill ratio goal of 1.1 and that orders are lumpy. Matt Malone said progress made on pricing models for legacy products, with remaining opportunity in capturing additional value through full product life cycle capability.

Q: Tony Bancroft on Navy demand and keeping up with growth.

A: Matt Malone stated they are keeping up with demand through investments in automation, skilled workforce, a new 30,000 square foot facility in Batavia with expansion potential, and proactive land development near Barber-Nichols.

Q: Gary Schwab on welders, P3, MCD.

A: Matt Malone said welder talent is utilized across defense and energy and process. The P3 test facility has efficient personnel needs. On MCD, they are in early phases of bringing new technology to market with potential for impact on 24/7 pumps.