• Revenue: $47 million, a 7.3% increase over the prior year period.
• Gross Margin: Improved by 260 basis points to 24.8% of sales.
• Adjusted EBITDA Margin: Expanded by 180 basis points to 8.6% of sales.
• Net Income: GAAP net income of $1.6 million, translating to $0.14 per diluted share.
• Adjusted Net Income: $0.18 per diluted share, a 38% increase over the prior year.
• Adjusted EBITDA: $4 million, a 36% increase over the prior year.
• SG&A Expenses: Increased by $0.9 million due to strategic investments.
• Effective Tax Rate: 29% for the quarter, 20% year-to-date.
• Cash and Debt: $30 million in cash, no outstanding debt.
• Capital Expenditures: $7.3 million for the quarter; expected $15 million to $19 million for fiscal 2025.
• Orders: $24.8 million for the quarter; $144.2 million for the nine-month period.
• Backlog: $385 million as of December 31, with 80% from defense business.
• Fiscal 2025 Revenue Guidance: $200 million to $210 million.
• Fiscal 2025 Adjusted EBITDA Guidance: $18 million to $21 million.
• Fiscal 2025 Gross Margin Guidance: Increased to 24% to 25%.

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

Release Date: February 07, 2025

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

Positive Points

• Graham Corp (NYSE:GHM) reported a 7.3% increase in revenue for the third quarter, reaching $47 million, driven by growth across key end markets.
• The company's gross margin improved by 260 basis points to 24.8%, attributed to higher sales volume, favorable project mix, and better execution.
• Adjusted EBITDA margin expanded by 180 basis points to 8.6% of sales, indicating strong bottom-line growth.
• The company has a significant backlog of $385 million, providing excellent visibility into future operations and stability.
• Graham Corp (NYSE:GHM) is making strategic investments in new facilities and technologies, such as the Batavia manufacturing facility and cryogenic propellant test facility, to support future growth.

Negative Points

• Orders for the quarter declined to $24.8 million, reflecting the lumpiness and timing issues in the business.
• SG&A expenses increased by $0.9 million due to strategic investments, impacting short-term profitability.
• The company faces challenges in the shipbuilding market, with potential supply chain and labor issues affecting operations.
• Defense orders appeared lower than usual, attributed to the timing of large contracts and the inherent lumpiness in the sector.
• The effective tax rate for the quarter was 29%, which can vary significantly due to foreign subsidiaries and discrete items.

Q & A Highlights

Q: Can you provide insights into the challenges and opportunities in the shipbuilding market, particularly regarding new programs or expansions with existing customers? A: Daniel Thoren, President and CEO, explained that despite industry noise, their customers are focused on building ships and are eager to receive equipment as soon as possible. Graham Corp is in discussions with customers about expanding capacity and capabilities, which are positive and productive conversations.

Q: What is driving the strong growth in the aftermarket segment, and is defense contributing to this growth? A: Daniel Thoren noted that the aftermarket growth is primarily driven by the energy and chemical sectors, with domestic customers transitioning to maintenance mode. There is also growing international interest in their next-gen nozzle. While defense is contributing, the primary strength remains in energy and chemical sectors.

Q: Given the lumpiness in order flow, what is your ideal book-to-bill ratio to balance sales growth and lead times? A: Christopher Thome, CFO, stated that their goal is a book-to-bill ratio of 1.1 times to support 8% to 10% organic revenue growth annually. They are actively planning and investing in people, processes, and facilities to support this growth.

Q: Are there any updates on potential funding from BlueForge for supply chain and labor challenges? A: Daniel Thoren mentioned that the government plans to continue supplier development funding for several years. Graham Corp is actively discussing with customers where to invest and apply for funds to expand capabilities, with several proposals currently under review.

Q: How does the potential $200 billion defense budget supplemental impact Graham Corp, and what are the risks if a continuing resolution is implemented? A: Daniel Thoren explained that while it's difficult to predict specific impacts, Graham Corp is involved in strategic Navy programs funded by advanced procurement, providing some visibility. A supplemental budget would relieve pressure on programs, whereas a continuing resolution could pressure less strategic programs.

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