GRAHAM CORP Q1 FY2026 earnings call

• Revenue increased 11% to $55.5 million, driven by energy and process markets and strong aftermarket performance. - Adjusted EBITDA increased 33% year-over-year to $6.8 million. - Strong book-to-bill ratio of 2.3x, backlog at a company record $482.9 million, 22% increase over prior year. - Defense side has strong momentum with Navy programs. - Strategic capital investments on schedule, including Batavia manufacturing facility and cryogenic propellant testing facility. - ERP system implementation in Batavia progressing, expected online by end of 2025. - Strong M&A pipeline aligning with strategic initiatives.

Revenue increased 11% to $55.5 million. Adjusted EBITDA increased 33% year-over-year to $6.8 million or a 12.3% percentage of sales. Energy and Process: saw growth in refining, petrochemical, new energy, with aftermarket sales 33% higher than prior year. Space: excellent traction with production programs. Defense: strong momentum with U.S. Navy programs, including a $25.5 million follow-on order for MK48 Mod 7 heavyweight torpedo program and a $136.5 million follow-on contract for Virginia-class submarine program. Revenue contribution: Energy and Process, Space, Defense segments all contributed to the overall growth.

• Reiterated full year fiscal 2026 outlook with midpoint 10% revenue growth and 12% adjusted EBITDA growth. - Fiscal 2027 target of low to mid-teen adjusted EBITDA margins. - Barber-Nichols earnout bonus phasing out by end of fiscal 2026, confident in achieving 2027 margin goal.

• Tariff impacts still fluid, potential impact for full year between $2 million and $5 million. - Quarter-to-quarter variability in performance.

Q: About EBITDA margins and unsustainable items, any particular headwinds?

A: Nothing unusual in current quarter, aftermarket sales were high but expect normalized level.

Q: On aftermarket sales and defense contribution, opportunity?

A: Favorable on fleet maintenance, Colorado facility modernized for asset overhaul, spare support on torpedo programs.

Q: Torpedo order timing, Q1 or Q2?

A: The whole order for Torpito program will be in Q2.

Q: Space segment momentum, quantification?

A: Small modular nuclear in early development, space launch and satellite systems seeing traction but early phases.

Q: Gross margins, why not raise guidance?

A: One quarter doesn't make a year, aftermarket sales growth won't continue at current rate, lower-margin work later in year.

Q: Space facility revenue generation timeline?

A: Expect to disclose further in next quarter after facility completion and safety checks.

Q: Hiring restrictions limiting growth?

A: HR teams doing well, direct labor force up 10% year-over-year, market softened helping.

Q: Wall Street Journal article on dry docks, competition?

A: Focus on executing programs, internal investment for fleet modernization, creativity in solutions.

Q: Torpedo order length, Virginia-class and torpedo work in backlog?

A: $136.5M Virginia-class order extends to mid-2030s, Mark 48 torpedo program has option years. Torpedo and submarine work bulk of defense backlog.

Q: Award pipeline and backlog maintenance?

A: Pursuing large lumpy programs and increasing reoccurring revenue on aftermarket.

Q: Petrochemical proactive outreach progress?

A: Sales team crafting strategy, engaging legacy employees, working on next-gen nozzle and R&D, using AI for quick quotes.

Q: Tariffs and mitigation?

A: In-country manufacturing partners and favorable contract terms help mitigate, impact still fluid.

Q: International growth strategy?

A: Using China for China, India for India with nationalistic approach, international director scaling team, seeing momentum in global jobs.