Release Date: November 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Graham Corp (NYSE:GHM) reported record revenue of $53.6 million, marking a 19% increase, highlighting robust demand across its markets.
• The company achieved significant margin expansion, with gross margin improving by 790 basis points to nearly 24% of sales.
• Graham Corp (NYSE:GHM) operates from a position of financial strength with no debt and over $32 million in cash, along with access to an additional $43 million through its revolving credit facility.
• The company launched its next-gen steam ejector nozzle, marking a significant milestone with an estimated market opportunity exceeding $50 million over the next 5 to 10 years.
• Graham Corp (NYSE:GHM) raised its full-year guidance for both gross margin and adjusted EBITA, indicating strong future growth prospects.

Negative Points

• Aftermarket sales were down compared to last year's record levels, although they remain strong.
• The company faces potential challenges from supply chain issues in navy ship and submarine production, although it sees opportunities to capture additional work.
• SG&A expenses increased by $2.8 million over the prior year, primarily due to strategic investments in operations, personnel, and technology.
• The company anticipates a seasonally lighter third quarter revenue due to holidays and direct labor vacations.
• Capital expenditures are expected to remain elevated at around 7 to 10% of sales for the next several years to meet long-term growth objectives.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Signs with GHM.

Q: Can you discuss the performance and outlook of your space segment, given the industry slowdown? A: Matt Malone, VP and GM of Barber Nichols, explained that despite industry consolidation, Graham Corp sees growth in value-added space assets like satellite cooling and advanced propulsion technology. The transition from exploration to value-added assets is driving this growth, and the future remains bright for their space business.

Q: How might the recent election impact your business, particularly in defense and energy sectors? A: Dan Thorn, President and CEO, noted that while predicting the future is challenging, Graham Corp is well-positioned with a diversified business base. He expects stable or slightly growing defense budgets, particularly in strategic programs. In energy, potential changes could affect refineries and petrochemicals, but the company's diversified market mix provides resilience.

Q: Could you elaborate on the potential to capture additional work due to supply chain challenges in Navy shipbuilding? A: Dan Thorn mentioned that the Navy is actively supporting the supply chain and exploring opportunities to reallocate work to high-performing partners like Graham Corp. This environment presents opportunities for Graham to capture additional work traditionally held within Navy yards.

Q: With strong gross margins in recent quarters, are there any headwinds expected in the second half of the fiscal year? A: Chris Stone, CFO, indicated that the guidance reflects typical seasonal patterns, with a slowdown expected in the third quarter due to holidays. The year-to-date gross margin is around 24%, and the guidance range of 23-24% accounts for this seasonal variation.

Q: How does the recent land acquisition and cryogenic testing facility align with your long-term growth strategy? A: Matt Malone highlighted that these initiatives are crucial for future growth, providing space and capabilities to support current and future innovation. The land acquisition addresses space constraints, while the testing facility offers scalable solutions for critical programs, aligning with Graham's strategic goals.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.