Graham(GHM) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sales for the quarter totaled $47 million, a 7.3% increase over the prior year [22] - Gross margin improved by 260 basis points to 24.8% of sales, driven by higher sales volume and better execution [25] - Adjusted EBITDA increased 36% over the prior year, totaling$ 4 million, with an adjusted EBITDA margin of 8.6% [29][40] Business Line Data and Key Metrics Changes - The defense sector saw notable growth, with an 11% increase contributing to overall performance [8] - Aftermarket revenue increased by 2.4% over record levels from the previous year, indicating strong demand [23] - The company reported a significant backlog of $385 million, with 80% attributed to the defense business [38] Market Data and Key Metrics Changes - Orders for the quarter declined to$ 24.8 million, but the nine-month period saw orders totaling $144.2 million, maintaining a book-to-bill ratio of one [35][36] - The space backlog increased by 59% over the previous year, reflecting growing opportunities in that sector [39] Company Strategy and Development Direction - The company is focused on expanding its manufacturing capabilities, including a new facility in Batavia, expected to enhance naval defense work [19] - Strategic investments in R&D and operational excellence are prioritized to drive long-term growth [18][44] - The leadership transition plan aims to ensure continuity and leverage internal talent for future growth opportunities [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term demand environment, emphasizing the company's ability to capture additional opportunities [10] - The company is optimistic about ongoing discussions with customers regarding new programs and expansions, despite challenges in the shipbuilding market [54] - Management highlighted the importance of maintaining strong customer relationships and operational excellence to navigate market dynamics [18] Other Important Information - The effective tax rate for the quarter was 29%, with expectations for the full year to be between 20% and 22% [31] - Capital expenditures for the quarter totaled$ 7.3 million, with projections for the full year now expected to be between $15 million and$ 19 million [33][34] Q&A Session Summary Question: Challenges in the shipbuilding market and potential opportunities - Management indicated that customers are focused on maintaining production schedules and are not experiencing slowdowns, leading to positive discussions about future opportunities [52][54] Question: Strength in aftermarket revenue - The aftermarket growth is primarily driven by energy and chemical sectors, with increasing inquiries from international customers for new technology [56][58] Question: Ideal book-to-bill ratio - The company aims for a book-to-bill ratio of 1.1 to support 8% to 10% organic revenue growth, despite current lumpiness in order flow [67][68] Question: Supply chain and labor challenges - Management is optimistic about continued government funding for supplier development, which will support capacity expansion [72][73] Question: Exposure to potential supplemental defense budgets - The company is involved in strategic programs that may benefit from increased defense spending, but the impact of a continuing resolution is uncertain [81][82] Question: M&A activity - The company is actively pursuing M&A opportunities, focusing on engineered products with strong IP and technology moats [101]