GRAHAM CORP Q3 FY2025 earnings call

• Dan Thoren highlighted third quarter results with 7.3% sales growth, 260 basis point gross margin improvement, and adjusted EBITDA margin expansion. He announced a leadership succession plan with Matt Malone becoming CEO and Mike Dixon promoted, while Dan transitions to Executive Chairman.
• Matt Malone provided updates on projects: the Batavia manufacturing facility construction is progressing well and on track for June completion, and the cryogenic propellant test facility is on track to begin initial testing by mid-2025.
• Chris Thome detailed financials: sales growth driven by key end markets, gross margin improvement, adjusted EBITDA growth, CapEx adjustments with fiscal 2025 CapEx now expected to be $15 million to $19 million, and orders details including a decline in quarter but strong nine-month orders and aftermarket performance.

Sales for the quarter totaled $47 million, a 7.3% increase over the prior year. Gross margin improved by 260 basis points to 24.8% of sales, driven by leverage on higher volume, favorable mix, and improving execution. Adjusted EBITDA margin expanded by 180 basis points to 8.6% of sales. Defense segment was notably up 11%, and aftermarket revenue was up 2.4% over record levels of the prior year. Defense represented 80% of the backlog as of December 31.

• Anticipates revenue between $200 million and $210 million, reflecting 11% growth mid-point.
• Adjusted EBITDA expected between $18 million and $21 million, implying 47% growth mid-point and 9.5% margin mid-point.
• Gross margin guidance increased to 24%-25% from prior 23%-24%.
• SG&A expense expected to be 18%-19% of sales.
• CapEx to be 7%-10% of revenue for the next several years, with major projects on-time and on-budget.

• Order lumpiness in the business.
• Potential impacts from government budget uncertainties, such as continuing resolutions affecting non-strategic programs.
• Supply chain and labor challenges mentioned in relation to shipbuilding.

Q: Dick Ryan asked about shipbuilding market challenges and aftermarket growth.

A: Dan Thoren stated customers are focused on shipbuilding and want equipment as soon as possible, with aftermarket strong in energy/chemical and seeing interest in defense and international markets for NextGen nozzle.

Q: Russell Stanley asked about book-to-bill ratio and BlueForge funding.

A: Chris Thome mentioned annual goal of book-to-bill of 1.1, and Dan Thoren discussed ongoing positive conversations with customers regarding BlueForge funding.

Q: Tony Bancroft asked about budget impacts.

A: Dan Thoren discussed uncertainty but positive outlook on strategic programs, noting strategic programs are funded with advanced procurement.

Q: Joshua Zoepfel asked about defense orders and M&A.

A: Dan Thoren explained defense orders are lumpy due to large contracts, and Matt Malone stated M&A program is active with focus on engineered product companies with IP moats.