Core Insights - Chart Industries reported quarterly earnings of $2.78 per share, missing the Zacks Consensus Estimate of $3.01 per share, but showing an increase from $2.18 per share a year ago, resulting in an earnings surprise of -7.64% [1] - The company posted revenues of $1.1 billion for the quarter ended September 2025, missing the Zacks Consensus Estimate by 6.95%, compared to $1.06 billion in the same quarter last year [2] - Chart Industries has underperformed the market with a 4.6% increase in shares since the beginning of the year, while the S&P 500 gained 17.2% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $4.04 on revenues of $1.31 billion, and for the current fiscal year, it is $11.29 on revenues of $4.58 billion [7] - The estimate revisions trend for Chart Industries was mixed ahead of the earnings release, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [6] Industry Context - The Manufacturing - General Industrial industry, to which Chart Industries belongs, is currently in the bottom 37% of over 250 Zacks industries, suggesting potential challenges for stock performance [8]

Group 1 - The article does not provide any relevant content regarding company or industry insights [1]

Financial Data and Key Metrics Changes - Revenue increased by 11% to $55.5 million, driven by strong performance in energy and process markets, particularly refining and petrochemical sectors [6][17] - Adjusted EBITDA rose by 33% year over year to $6.8 million, with an adjusted EBITDA margin of 12.3%, reflecting operational excellence [7][20] - Net income for the quarter was $4.6 million, or $0.42 per diluted share, a 56% increase compared to the prior year [20] - The company achieved a record backlog of $483 million, a 22% increase year over year, with a book to bill ratio of 2.3 times [21][22] Business Line Data and Key Metrics Changes - Sales to the energy and process market increased by $5.7 million, driven by commercial projects in chemical and petrochemical sectors, as well as momentum in new energy markets [18] - Aftermarket sales for energy and process and defense markets totaled $10.4 million, up 33% from the prior year, indicating robust demand [18] Market Data and Key Metrics Changes - Approximately 87% of the backlog is for the defense industry, with 35% to 40% expected to convert to revenue over the next twelve months [22] - The company continues to see strong momentum in U.S. Navy programs, including a $25.5 million follow-on order for the MK-48 Mod 7 torpedo program [8][9] Company Strategy and Development Direction - The company is focused on strategic capital investments, including a new 30,000 square foot manufacturing facility to support U.S. Navy programs, expected to be operational by the end of Q3 [13][14] - The company aims for 8% to 10% organic revenue growth per year and low to mid-teen adjusted EBITDA margins as it transitions to a growth phase [16][24] - The company is pursuing acquisition opportunities that align with its strategic initiatives to supplement organic growth [15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about growth prospects in the energy and process markets, particularly in small modular nuclear reactors and cryogenics [11][12] - The company is actively monitoring the impact of tariffs, estimating a potential impact of $2 million to $5 million for the full year, but did not see a material impact in the first quarter [19][82] Other Important Information - The company is implementing an ERP system to streamline workflows and improve efficiency, expected to come online by the end of 2025 [14] - The company has a strong balance sheet with $10.8 million in cash and no debt, providing a solid foundation for future growth [22] Q&A Session Summary Question: Regarding EBITDA margins and potential headwinds - Management noted that the high aftermarket sales mix contributed to the strong margins, but they expect a normalization in the future [28][29] Question: Opportunities in aftermarket sales - Management highlighted opportunities in fleet maintenance and spare support for torpedo programs as key growth areas [31][32] Question: Clarification on recent torpedo order - The entire order will be recognized in Q2, as it was finalized after the quarter ended [35] Question: Growth in small modular nuclear reactors - Management discussed supplying helium circulators and molten salt pumps for small modular nuclear systems, indicating significant growth potential [38][39] Question: Space segment traction - Management explained that while the space market is in early development phases, they are seeing increased interest and traction in low-rate production programs [52][54] Question: Tariff impacts and mitigation strategies - Management detailed their strategies to mitigate tariff impacts through in-country manufacturing partnerships and favorable contract terms [81][82] Question: International growth strategy - The company is focusing on a nationalistic approach in markets like India and China, aiming to leverage local production capabilities [84][85]

Financial Performance - Revenue for Q1 FY26 increased by $55 million, or 11%, reaching $555 million[11, 18] - Gross profit for Q1 FY26 increased by $24 million, or 19%, with gross margin expanding by 170 bps to 265%[11, 24] - Adjusted EBITDA for Q1 FY26 increased by 33% to $68 million, resulting in an Adjusted EBITDA margin of 123%[11, 26] - Net income for Q1 FY26 increased by 55% to $46 million[11] Orders and Backlog - Q1 FY26 orders totaled $1259 million, leading to a book-to-bill ratio of 23x[11] - Record backlog reached $4829 million[11] - Defense sector accounts for 87% of the backlog, while Energy & Process represents 11%, and Space comprises 3%[39] Financial Outlook for FY26 - Net sales are projected to be between $225 million and $235 million[44] - Adjusted EBITDA is expected to be in the range of $22 million to $28 million[44] - Capital expenditures are estimated at $15 million to $18 million[44]

Company Performance - Graham reported quarterly earnings of $0.45 per share, exceeding the Zacks Consensus Estimate of $0.25 per share, and up from $0.33 per share a year ago, representing an earnings surprise of +80.00% [1] - The company achieved revenues of $55.49 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 0.57% and increasing from $49.95 million year-over-year [2] - Over the last four quarters, Graham has consistently surpassed consensus EPS estimates and topped revenue estimates three times [2] Stock Movement and Outlook - Graham shares have increased approximately 29.1% since the beginning of the year, significantly outperforming the S&P 500's gain of 7.6% [3] - The future performance of Graham's stock will largely depend on management's commentary during the earnings call and the trends in earnings estimate revisions [3][4] - The current consensus EPS estimate for the upcoming quarter is $0.32 on revenues of $58.6 million, and for the current fiscal year, it is $1.23 on revenues of $230.3 million [7] Industry Context - The Manufacturing - General Industrial industry, to which Graham belongs, is currently ranked in the top 16% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Graham's stock performance [5][6]

Part I. FINANCIAL INFORMATION [Unaudited Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The company's unaudited statements show increased net income and sales, including detailed notes on various accounting policies Condensed Consolidated Statements of Operations (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $55,487 | $49,951 | $5,536 | 11.1% | | Gross profit | $14,721 | $12,368 | $2,353 | 19.0% | | Operating income | $4,964 | $3,224 | $1,740 | 53.9% | | Income before provision for income taxes | $5,013 | $3,294 | $1,719 | 52.2% | | Net income | $4,595 | $2,966 | $1,629 | 54.9% | | Basic Net income per share | $0.42 | $0.27 | $0.15 | 55.6% | | Diluted Net income per share | $0.42 | $0.27 | $0.15 | 55.6% | Condensed Consolidated Balance Sheets (As of) | Metric | June 30, 2025 (in thousands) | March 31, 2025 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total current assets | $127,523 | $141,372 | $(13,849) | -9.8% | | Total assets | $252,339 | $264,110 | $(11,771) | -4.5% | | Total current liabilities | $121,059 | $136,150 | $(15,091) | -11.1% | | Total liabilities | $128,955 | $144,533 | $(15,578) | -10.8% | | Total stockholders' equity | $123,384 | $119,577 | $3,807 | 3.2% | Condensed Consolidated Statements of Cash Flows (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change ($) | | :--- | :--- | :--- | :--- | | Net cash (used) provided by operating activities | $(2,259) | $8,716 | $(10,975) | | Net cash used by investing activities | $(7,004) | $(3,148) | $(3,856) | | Net cash used by financing activities | $(1,614) | $(889) | $(725) | | Net (decrease) increase in cash and cash equivalents | $(10,824) | $4,672 | $(15,496) | | Cash and cash equivalents at end of period | $10,753 | $21,611 | $(10,858) | [Basis of Presentation](index=8&type=section&id=NOTE%201%20%E2%80%93%20BASIS%20OF%20PRESENTATION) The interim financial statements are prepared according to GAAP and include all wholly-owned subsidiaries - The unaudited condensed consolidated financial statements include wholly-owned subsidiaries in Colorado, Florida, China, and India, prepared in accordance with GAAP for interim financial information and SEC rules[19](index=19&type=chunk) - Results for the three months ended June 30, 2025, are **not necessarily indicative** of the full fiscal year ending March 31, 2026[20](index=20&type=chunk) [Revenue Recognition](index=8&type=section&id=NOTE%202%20%E2%80%93%20REVENUE%20RECOGNITION) Revenue is recognized upon satisfaction of performance obligations, with detailed disaggregation by market, region, and method - Revenue is recognized when performance obligations are satisfied, either upon shipment or over time, depending on contract terms[21](index=21&type=chunk) - Remaining unsatisfied performance obligations (backlog) as of June 30, 2025, totaled **$482,860**, with **35% to 40%** expected to be recognized within one year[27](index=27&type=chunk) Revenue Disaggregated by Market (Three Months Ended June 30) | Market | 2025 (in thousands) | 2024 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Defense | $29,535 | $29,094 | $441 | 1.5% | | Energy & Process | $22,574 | $16,910 | $5,664 | 33.5% | | Space | $3,378 | $3,947 | $(569) | -14.4% | | **Net sales** | **$55,487** | **$49,951** | **$5,536** | **11.1%** | Revenue Disaggregated by Geographic Region (Three Months Ended June 30) | Geographic Region | 2025 (in thousands) | 2024 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Asia | $3,283 | $5,304 | $(2,021) | -38.1% | | Canada | $3,510 | $996 | $2,514 | 252.4% | | Middle East | $1,346 | $983 | $363 | 36.9% | | South America | $393 | $55 | $338 | 614.5% | | U.S. | $46,322 | $40,930 | $5,392 | 13.2% | | All other | $633 | $1,683 | $(1,051) | -62.5% | | **Net sales** | **$55,487** | **$49,951** | **$5,536** | **11.1%** | Revenue Recognition Method (Three Months Ended June 30) | Method | 2025 | 2024 | | :--- | :--- | :--- | | Revenue recognized over time | 80% | 82% | | Revenue recognized at shipment | 20% | 18% | [Inventories](index=12&type=section&id=NOTE%203%20%E2%80%93%20INVENTORIES) Inventories are valued at the lower of cost or net realizable value using the average cost method - Inventories are valued at the lower of cost or net realizable value using the average cost method[28](index=28&type=chunk) Major Classifications of Inventories (in thousands) | Classification | June 30, 2025 | March 31, 2025 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Raw materials and supplies | $5,806 | $5,859 | $(53) | -0.9% | | Work in process | $30,069 | $32,579 | $(2,510) | -7.7% | | Finished products | $1,511 | $1,587 | $(76) | -4.8% | | **Total** | **$37,386** | **$40,025** | **$(2,639)** | **-6.6%** | [Intangible Assets](index=12&type=section&id=NOTE%204%20%E2%80%93%20INTANGIBLE%20ASSETS) The company's intangible assets primarily consist of customer relationships, technology, tradenames, and goodwill - Intangible amortization expense was **$499** for the three months ended June 30, 2025, down from $554 in the prior year period[31](index=31&type=chunk) Intangible Assets (Net Carrying Amount, in thousands) | Asset Type | June 30, 2025 | March 31, 2025 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Customer relationships | $12,874 | $13,159 | $(285) | -2.2% | | Technology and technical know-how | $10,121 | $10,310 | $(189) | -1.8% | | Tradename (amortized) | $133 | $158 | $(25) | -15.8% | | Goodwill (not amortized) | $25,520 | $25,520 | $0 | 0.0% | | Tradename (not amortized) | $6,700 | $6,700 | $0 | 0.0% | [Equity-Based Compensation](index=13&type=section&id=NOTE%205%20%E2%80%93%20EQUITY-BASED%20COMPENSATION) The company utilizes an equity incentive plan for granting stock options, RSUs, and stock awards - The 2020 Graham Corporation Equity Incentive Plan allows for grants of stock options, restricted stock units (RSUs), and stock awards[32](index=32&type=chunk) Equity-Based Compensation Expense (Three Months Ended June 30, in thousands) | Type | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Restricted stock awards | $0 | $27 | $(27) | -100.0% | | Restricted stock units | $489 | $288 | $201 | 69.8% | | Employee stock purchase plan | $43 | $29 | $14 | 48.3% | | **Total** | **$532** | **$344** | **$188** | **54.7%** | [Income Per Share](index=14&type=section&id=NOTE%206%20%E2%80%93%20INCOME%20PER%20SHARE) This note provides the calculation and components of basic and diluted net income per share Income Per Share Data (Three Months Ended June 30) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Basic Net income per share | $0.42 | $0.27 | $0.15 | 55.6% | | Diluted Net income per share | $0.42 | $0.27 | $0.15 | 55.6% | | Weighted average common shares outstanding (Basic) | 10,927 | 10,862 | 65 | 0.6% | | Weighted average common and potential common shares outstanding (Diluted) | 11,033 | 10,958 | 75 | 0.7% | [Product Warranty Liability](index=14&type=section&id=NOTE%207%20%E2%80%93%20PRODUCT%20WARRANTY%20LIABILITY) This note details the changes in the company's product warranty liability during the period Product Warranty Liability Reconciliation (Three Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Balance at beginning of period | $786 | $806 | $(20) | -2.5% | | (Income) expense for product warranties | $(2) | $23 | $(25) | -108.7% | | Product warranty claims paid | $(53) | $127 | $74 | -58.3% | | **Balance at end of period** | **$731** | **$702** | **$29** | **4.1%** | [Cash Flow Statement](index=16&type=section&id=NOTE%208%20%E2%80%93%20CASH%20FLOW%20STATEMENT) This note provides supplemental information related to the consolidated statements of cash flows Supplemental Cash Flow Information (Three Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Interest paid | $63 | $51 | $12 | 23.5% | | Income taxes paid | $29 | $46 | $(17) | -37.0% | | Capital purchases recorded in accounts payable | $660 | $423 | $237 | 56.0% | [Commitments and Contingencies](index=16&type=section&id=NOTE%209%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) The company discloses its legal proceedings, investigations, and significant lease commitments - The Company is a co-defendant in asbestos-related lawsuits but believes their resolution will **not materially impact** financial position or results of operations[38](index=38&type=chunk) - An investigation into a whistleblower complaint at Graham India Private Limited (GIPL) identified misconduct totaling **$150** over four years, leading to employee terminations and strengthened internal controls[39](index=39&type=chunk) - Fixed minimum lease payments to Ascent Properties Group, LLC were **$252** for Q1 FY26, with future payments of **$4,544** as of June 30, 2025[41](index=41&type=chunk) [Income Taxes](index=16&type=section&id=NOTE%2010%20%E2%80%93%20INCOME%20TAXES) This note details the effective tax rate and the potential impact of recent tax legislation - The effective tax rate for Q1 FY26 was **8.3%**, compared to **10%** for Q1 FY25, primarily due to increased discrete tax benefits from restricted stock awards[45](index=45&type=chunk) - The Company is analyzing the One Big Beautiful Bill Act (OBBB) but does **not anticipate a material impact** on its financial statements or effective tax rate[46](index=46&type=chunk) [Changes in Accumulated Other Comprehensive Loss](index=18&type=section&id=NOTE%2011%20%E2%80%93%20CHANGES%20IN%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) This note reconciles the changes in each component of accumulated other comprehensive loss - Net current-period other comprehensive income was **$212 thousand** for the three months ended June 30, 2025, compared to $122 thousand in the prior year[47](index=47&type=chunk) Accumulated Other Comprehensive Loss (in thousands) | Component | April 1, 2025 | June 30, 2025 | Change ($) | | :--- | :--- | :--- | :--- | | Pension and Other Postretirement Benefit Items | $(6,671) | $(6,509) | $162 | | Foreign Currency Items | $(316) | $(266) | $50 | | **Total** | **$(6,987)** | **$(6,775)** | **$212** | [Debt](index=18&type=section&id=NOTE%2012%20%E2%80%93%20DEBT) The company details its revolving credit facility, outstanding letters of credit, and compliance with financial covenants - As of June 30, 2025, the Company had a **$50,000** revolving credit facility with **$44,254 available**[48](index=48&type=chunk)[49](index=49&type=chunk)[52](index=52&type=chunk) - The Company was in compliance with financial covenants, including a consolidated total leverage ratio not exceeding **3.50:1.00** and a fixed charge coverage ratio of at least **1.20:1.00**[50](index=50&type=chunk) - Total letters of credit outstanding as of June 30, 2025, were **$10,648**, down from $10,997 at March 31, 2025[54](index=54&type=chunk) [Segment Information](index=20&type=section&id=NOTE%2013%20%E2%80%93%20SEGMENT%20INFORMATION) The company operates as a single reporting segment and uses Adjusted EBITDA to evaluate performance - The Company operates as **one reporting segment**, designing and manufacturing technologies for the Defense, Energy & Process, and Space industries[55](index=55&type=chunk) - The CEO, as CODM, evaluates performance based on **Adjusted EBITDA**, a non-GAAP measure, to assess operating performance and earnings power[55](index=55&type=chunk) Adjusted EBITDA Reconciliation (Three Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net income | $4,595 | $2,966 | $1,629 | 54.9% | | Adjusted EBITDA | $6,838 | $5,137 | $1,701 | 33.1% | | Net income as a % of revenue | 8.3% | 5.9% | 2.4% pts | 40.7% | | Adjusted EBITDA as a % of revenue | 12.3% | 10.3% | 2.0% pts | 19.4% | [Accounting and Reporting Changes](index=20&type=section&id=NOTE%2014%20%E2%80%93%20ACCOUNTING%20AND%20REPORTING%20CHANGES) The company is currently evaluating the impact of newly issued accounting standards updates - The FASB issued ASU 2023-09 (Income Taxes) effective for annual periods after December 15, 2024, requiring additional income tax disclosures[60](index=60&type=chunk) - The FASB issued ASU No. 2024-03 (Expense Disaggregation Disclosures) effective for fiscal years after December 15, 2026, requiring additional income statement expense disclosures[61](index=61&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes financial condition and results, covering market performance, liquidity, backlog, and future outlook - Graham Corporation is a global leader in mission-critical technologies for Defense, Energy & Process, and Space industries, with key subsidiaries including Barber-Nichols, LLC[62](index=62&type=chunk)[64](index=64&type=chunk) - Orders booked in Q1 FY26 were **$125,898**, leading to a backlog increase of $70,525 to **$482,860** at June 30, 2025, with a book-to-bill ratio of **2.3x**[70](index=70&type=chunk) - Cash and cash equivalents decreased by **$10,824** to **$10,753** at June 30, 2025, primarily due to cash used by operating activities ($2,259) and capital expenditures ($7,004)[70](index=70&type=chunk) - Leadership changes were announced, with Daniel J. Thoren transitioning to Executive Chairman and Matthew J. Malone assuming the CEO role, effective June 10, 2025[70](index=70&type=chunk) Key Financial Highlights (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $55,487 | $49,951 | $5,536 | 11% | | Gross profit | $14,721 | $12,368 | $2,353 | 19% | | Gross profit margin | 26.5% | 24.8% | 1.7% pts | 6.9% | | SG&A expenses | $9,833 | $9,274 | $559 | 6% | | SG&A as a percent of sales | 17.7% | 18.6% | -0.9% pts | -4.8% | | Net income | $4,595 | $2,966 | $1,629 | 55% | | Income per diluted share | $0.42 | $0.27 | $0.15 | 56% | [Overview](index=23&type=section&id=Overview) The company designs and manufactures custom-engineered technologies for various critical industries worldwide - Graham Corporation specializes in custom-engineered vacuum, heat transfer, cryogenic pump, and turbomachinery technologies for Defense, Energy & Process, and Space industries[62](index=62&type=chunk) - Key subsidiaries include Barber-Nichols, LLC (turbomachinery), P3 Technologies, LLC (turbomachinery engineering), and operations in China and India[64](index=64&type=chunk) [Summary of Highlights](index=23&type=section&id=Summary) The first quarter of fiscal 2026 saw significant growth in sales, gross profit, net income, and backlog - Energy & Process sales increased by **$5,664 (33%)** due to Chemical/Petrochemical and New Energy markets, with strong aftermarket sales up **33%**[66](index=66&type=chunk) - Backlog increased by **$70,525** to **$482,860**, driven by **$125,898** in new orders, including **$86,500** for the U.S. Navy's Virginia Class Submarine program[70](index=70&type=chunk) - Cash and cash equivalents decreased by **$10,824** to **$10,753**, primarily due to **$2,259** cash used in operations and **$7,004** in capital expenditures[70](index=70&type=chunk) Q1 FY26 Financial Highlights (vs. Q1 FY25) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $55,487 | $49,951 | $5,536 | 11% | | Gross profit | $14,721 | $12,368 | $2,353 | 19% | | Gross profit margin | 26.5% | 24.8% | 1.7% pts | 6.9% | | SG&A expenses | $9,397 | $8,838 | $559 | 6% | | Net income | $4,595 | $2,966 | $1,629 | 55% | | Diluted EPS | $0.42 | $0.27 | $0.15 | 56% | [Cautionary Note Regarding Forward-Looking Statements](index=25&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This report contains forward-looking statements that are subject to various risks and uncertainties - The report contains forward-looking statements subject to known and unknown risks that may cause actual results to differ materially from expectations[67](index=67&type=chunk)[68](index=68&type=chunk) - Readers should not place undue reliance on forward-looking statements and should consider risk factors detailed in the Form 10-K[68](index=68&type=chunk) [Current Market Conditions](index=25&type=section&id=Current%20Market%20Conditions) The company anticipates strong demand in Defense, a transition in Energy & Process, and growth potential in Space - End market disclosures have been updated, consolidating several markets into "Energy & Process"[70](index=70&type=chunk)[71](index=71&type=chunk) - Demand in the **Defense market** is expected to remain strong and expand due to budget plans and accelerated ship build schedules[72](index=72&type=chunk) - The **Energy & Process market** faces transition, with long-term growth expected from industrial goods and alternative/clean energy[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk) - The Company is investing in technology like the **NextGen™ steam ejector nozzle**, with an estimated market opportunity exceeding **$50,000** over 5-10 years[76](index=76&type=chunk) - The **Space market** offers growth potential, but revenue can be uncertain due to the variable nature of sales[77](index=77&type=chunk) - The Defense market comprised **87% of total backlog** at June 30, 2025, reflecting a strategic focus on this market[78](index=78&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) The company achieved higher sales, improved gross profit margin, and significant growth in net income for the quarter - Gross profit margin improved by **170 basis points to 26.5%** in Q1 FY26, driven by higher sales volume and better execution[85](index=85&type=chunk) - SG&A expenses increased by **$559 (6%)** to **$9,833**, reflecting investments, but decreased as a percentage of sales from 18.6% to **17.7%**[86](index=86&type=chunk) - Net income for Q1 FY26 was **$4,595 ($0.42 diluted EPS)**, up from $2,966 ($0.27 diluted EPS) in Q1 FY25[90](index=90&type=chunk) Net Sales by Market (Three Months Ended June 30) | Market | 2025 (in thousands) | % of Total | 2024 (in thousands) | % of Total | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Defense | $29,535 | 53% | $29,094 | 58% | $441 | 2% | | Energy & Process | $22,574 | 41% | $16,910 | 34% | $5,664 | 33% | | Space | $3,378 | 6% | $3,947 | 8% | $(569) | -14% | | **Net sales** | **$55,487** | **100%** | **$49,951** | **100%** | **$5,536** | **11%** | Net Sales by Geographic Region (Three Months Ended June 30) | Geographic Region | 2025 (in thousands) | % of Total | 2024 (in thousands) | % of Total | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | United States | $46,322 | 83% | $40,930 | 82% | $5,392 | 13% | | International | $9,165 | 17% | $9,021 | 18% | $144 | 2% | | **Net sales** | **$55,487** | **100%** | **$49,951** | **100%** | **$5,536** | **11%** | [Non-GAAP Measures](index=31&type=section&id=Non-GAAP%20Measures) Management uses non-GAAP measures like Adjusted EBITDA and adjusted net income to assess performance - Adjusted EBITDA, adjusted net income, and adjusted net income per diluted share are non-GAAP measures used to assess financial and operating performance[91](index=91&type=chunk)[92](index=92&type=chunk) - These non-GAAP measures exclude charges and credits not directly related to operating performance, such as depreciation, amortization, and acquisition costs[93](index=93&type=chunk) Adjusted Net Income Reconciliation (Three Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net income (GAAP) | $4,595 | $2,966 | $1,629 | 54.9% | | Adjusted net income (Non-GAAP) | $4,938 | $3,584 | $1,354 | 37.8% | | GAAP net income per diluted share | $0.42 | $0.27 | $0.15 | 55.6% | | Adjusted net income per diluted share | $0.45 | $0.33 | $0.12 | 36.4% | [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity was impacted by bonus payments and increased capital expenditures, while maintaining a strong credit facility - Net cash used by operating activities was **$2,259** in Q1 FY26, compared to **$8,716** provided in Q1 FY25, primarily due to bonus payments[97](index=97&type=chunk) - Capital expenditures increased to **$7,004** in Q1 FY26, driven by investments in new manufacturing and testing facilities[98](index=98&type=chunk) - Fiscal 2026 capital expenditures are projected to be **$15,000 to $18,000**[99](index=99&type=chunk) - The Company has a **$50,000** revolving credit facility with **$44,254 available** as of June 30, 2025, and was in compliance with all financial covenants[101](index=101&type=chunk)[102](index=102&type=chunk) Liquidity Metrics (in thousands) | Metric | June 30, 2025 | March 31, 2025 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $10,753 | $21,577 | $(10,824) | -50.2% | | Working capital | $6,464 | $5,222 | $1,242 | 23.8% | | Working capital ratio | 1.1 | 1.0 | 0.1 | 10.0% | [Orders, Backlog, and Book-to-Bill Ratio](index=35&type=section&id=Orders%2C%20Backlog%2C%20and%20Book-to-Bill%20Ratio) Significant new orders, particularly in Defense, drove a substantial increase in total backlog and a strong book-to-bill ratio - Orders, backlog, and book-to-bill ratio are key operational metrics used to track current and future business performance[105](index=105&type=chunk) - Orders booked in Q1 FY26 were **$125,898**, including **$86,500** for the U.S. Navy's Virginia Class Submarine program, resulting in a book-to-bill ratio of **2.3x**[109](index=109&type=chunk) - Backlog increased **22%** year-over-year to **$482,860** at June 30, 2025, with **35% to 40%** expected to be recognized within one year[111](index=111&type=chunk) Orders by Market (Three Months Ended June 30, in thousands) | Market | 2025 | % of Total | 2024 | % of Total | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Defense | $106,690 | 85% | $28,617 | 51% | $78,073 | 273% | | Energy & Process | $18,795 | 15% | $25,796 | 46% | $(7,001) | -27% | | Space | $413 | 0% | $1,354 | 2% | $(941) | -69% | | **Total orders** | **$125,898** | **100%** | **$55,767** | **100%** | **$70,131** | **126%** | Backlog by Market (in thousands) | Market | June 30, 2025 | % of Total | June 30, 2024 | % of Total | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Defense | $417,768 | 87% | $327,827 | 83% | $89,941 | 27% | | Energy & Process | $51,975 | 11% | $60,890 | 15% | $(8,915) | -15% | | Space | $13,117 | 3% | $8,058 | 2% | $5,059 | 63% | | **Total backlog** | **$482,860** | **100%** | **$396,775** | **100%** | **$86,085** | **22%** | [Outlook](index=36&type=section&id=Outlook) The company reiterates its full-year fiscal 2026 guidance and remains on track to achieve its fiscal 2027 goals - The Company reiterates its full-year fiscal 2026 guidance, including Net Sales of **$225,000-$235,000** and Adjusted EBITDA of **$22,000-$28,000**[112](index=112&type=chunk)[113](index=113&type=chunk) - The Company is on track to achieve fiscal 2027 goals of **8% to 10%** average annualized organic revenue growth and low to mid-teens Adjusted EBITDA margins[114](index=114&type=chunk) [Contingencies and Commitments](index=37&type=section&id=Contingencies%20and%20Commitments) The company does not expect asbestos litigation or misconduct at its India subsidiary to materially impact financial results - The Company is a defendant in asbestos-related lawsuits but believes the resolution will **not have a material adverse effect** on its financial position[116](index=116&type=chunk) - An investigation into misconduct at Graham India Private Limited (GIPL) concluded, with **no material impact** on consolidated results anticipated[117](index=117&type=chunk) [Critical Accounting Policies, Estimates, and Judgments](index=38&type=section&id=Critical%20Accounting%20Policies%2C%20Estimates%2C%20and%20Judgments) Key accounting estimates involve revenue recognition, contingencies, and business combinations - Critical accounting estimates include labor hour estimates, total cost, and operational milestones for revenue recognition, accounting for contingencies, and business combinations[119](index=119&type=chunk) [New Accounting Pronouncements](index=38&type=section&id=New%20Accounting%20Pronouncements) Management expects no material impact from recently issued accounting pronouncements not yet adopted - Management evaluates new ASUs and accounting pronouncements, expecting **no material impact** from recently issued ones not yet adopted, other than those discussed in Note 14[120](index=120&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company details its exposure to market risks, including foreign currency, price, and interest rate fluctuations - Principal market risks include **foreign currency exchange rates, price risk, and interest rate risk**[121](index=121&type=chunk) [Foreign Currency](index=38&type=section&id=Foreign%20Currency) The company has limited exposure to foreign currency risk, with international sales comprising 17% of the total - International consolidated sales were **17% of total sales** for the first three months of fiscal 2026[123](index=123&type=chunk) - Foreign currency exchange rate fluctuations increased cash balances by **$53** in Q1 FY26[123](index=123&type=chunk) - The Company has limited exposure to foreign currency purchases (approximately **4%** of cost of products sold) and held no forward foreign currency contracts[124](index=124&type=chunk) [Price Risk](index=38&type=section&id=Price%20Risk) The company faces price pressure from global competition and cost inflation in labor, materials, and tariffs - The Company faces competition from global manufacturers with lower production costs, leading to potential price pressure[125](index=125&type=chunk) - Significant cost inflation in labor, raw materials, tariffs, and supply chain costs is a concern[125](index=125&type=chunk) - The estimated impact of increased tariffs over the prior year is **$2,000 to $5,000** for fiscal 2026[126](index=126&type=chunk) [Interest Rate Risk](index=40&type=section&id=Interest%20Rate%20Risk) The company's interest rate risk is minimal as it currently has no variable rate debt outstanding - The Company may borrow under its variable-rate Revolving Credit Facility to fund strategic growth[127](index=127&type=chunk) - As of June 30, 2025, there was **no variable rate debt outstanding** on the Revolving Credit Facility and no interest rate derivatives[127](index=127&type=chunk) [Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management confirms the effectiveness of disclosure controls and procedures with no material changes to internal controls - Disclosure controls and procedures were evaluated as **effective in all material respects** as of June 30, 2025[128](index=128&type=chunk) - **No material changes** to internal control over financial reporting occurred during the quarter[129](index=129&type=chunk) [Conclusion regarding the effectiveness of disclosure controls and procedures](index=40&type=section&id=Conclusion%20regarding%20the%20effectiveness%20of%20disclosure%20controls%20and%20procedures) The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the period - The CEO and CFO concluded that disclosure controls and procedures were **effective in all material respects** as of June 30, 2025[128](index=128&type=chunk) [Changes in internal control over financial reporting](index=40&type=section&id=Changes%20in%20internal%20control%20over%20financial%20reporting) No material changes were made to the company's internal control over financial reporting during the quarter - **No material changes** to internal control over financial reporting occurred during the quarter covered by this Form 10-Q[129](index=129&type=chunk) Part II. OTHER INFORMATION [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes from the risk factors previously disclosed in the Company's Form 10-K for fiscal year ended March 31, 2025[130](index=130&type=chunk) [Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This section confirms no issuer purchases of equity securities occurred and reiterates the company's current dividend policy - No purchases of equity securities by the issuer were made during the period[131](index=131&type=chunk) [Purchase of Equity Securities by the Issuer](index=41&type=section&id=Purchase%20of%20Equity%20Securities%20by%20the%20Issuer) The company did not purchase any of its equity securities during the reporting period - No equity securities were purchased by the issuer[131](index=131&type=chunk) [Dividend Policy](index=41&type=section&id=Dividend%20Policy) The company has no current intention to pay dividends and may be restricted by its credit facility - The revolving credit facility may restrict the ability to declare or pay dividends[132](index=132&type=chunk) - **No dividends were paid** during the three months ended June 30, 2025, or during fiscal 2025, and there is no current intention to pay dividends[132](index=132&type=chunk) [Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications and interactive data files - The report includes certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1)[134](index=134&type=chunk) - Material contracts referenced include the Annual Stock-Based Long-Term Incentive Award Plan and the Annual Executive Cash Bonus Program[134](index=134&type=chunk) - Interactive Data Files (XBRL) are embedded within the Inline XBRL document[134](index=134&type=chunk) [Index of Exhibits](index=42&type=section&id=INDEX%20OF%20EXHIBITS) The index lists material contracts, officer certifications, and interactive data files filed with the report - Lists material contracts, certifications (Rule 13a-14(a)/15d-14(a) and Section 1350), and Interactive Data Files (XBRL)[134](index=134&type=chunk) [Signatures](index=43&type=section&id=Signatures) The report is duly signed by the Vice President-Finance and Chief Financial Officer on behalf of the corporation - The report was signed by Christopher J. Thome, Vice President-Finance, Chief Financial Officer, Chief Accounting Officer and Corporate Secretary, on August 5, 2025[137](index=137&type=chunk)

[Executive Summary & Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Highlights) Graham Corporation achieved strong Q1 FY26 results with 11% revenue growth, 56% EPS increase, robust orders, and a record backlog, driven by Energy & Process and Defense sectors Key Financial Highlights | Metric | Q1 FY26 | Change | | :--- | :--- | :--- | | Revenue | $55.5 million | +11% | | Gross Profit | $14.7 million | +19% | | Gross Margin | 26.5% | +170 bps | | Net Income per Diluted Share | $0.42 | +56% | | Adjusted EBITDA | $6.8 million | +33% | | Adjusted EBITDA Margin | 12.3% | +200 bps | | Orders | $125.9 million | - | | Book-to-Bill Ratio | 2.3x | - | | Backlog | $482.9 million | - | - The company's performance was driven by strong growth in **Energy & Process markets**, particularly in commercial projects and aftermarket demand, as well as momentum in emerging segments like **small modular reactors (SMRs)** and **cryogenics**[4](index=4&type=chunk) - The **Defense business** continues to perform well, bolstered by significant follow-on orders, including **$86.5 million** for the **Virginia Class submarine program** and **$25.5 million** for the **MK48 Mod 7 Heavyweight Torpedo program**[4](index=4&type=chunk) - Graham is pursuing high-return initiatives, such as **automated welding** and a new **cryogenic testing facility**, to improve margins and create new revenue streams. The expansion of the **Batavia defense facility** was completed in August 2025[4](index=4&type=chunk) [Financial Performance Review (Q1 FY2026)](index=2&type=section&id=Financial%20Performance%20Review%20%28Q1%20FY2026%29) Q1 FY2026 saw 11% net sales growth to $55.5 million, with gross profit up 19% and operating income up 54%, driven by Energy & Process market strength Q1 FY2026 Financial Performance Summary | ($ in thousands except per share data) | Q1 FY26 | Q1 FY25 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $55,487 | $49,951 | 11% | | Gross profit | $14,721 | $12,368 | 19% | | Gross margin | 26.5% | 24.8% | +170 bps | | Operating income | $4,964 | $3,224 | 54% | | Operating margin | 8.9% | 6.5% | +240 bps | | Net income | $4,595 | $2,966 | 55% | | Net income per diluted share | $0.42 | $0.27 | 56% | [Revenue and Gross Profit](index=2&type=section&id=Revenue%20and%20Gross%20Profit) Net sales increased by $5.5 million, primarily from Energy & Process and strong aftermarket sales, leading to a gross margin improvement to 26.5% - Sales to the **Energy & Process market** increased by **$5.7 million**, driven by a surface condenser order for a North American **net-zero carbon emissions ethylene cracker** and increased sales to the **hydrogen** and **SMR markets**[7](index=7&type=chunk) - **Aftermarket sales** to both Energy & Process and Defense markets grew **33%** year-over-year, reaching **$10.4 million**[8](index=8&type=chunk) - **Gross margin expansion** was driven by **higher sales volume**, an improved mix of **higher-margin aftermarket sales**, and **better execution and pricing on defense contracts**[9](index=9&type=chunk) [Operating Expenses and Profitability](index=3&type=section&id=Operating%20Expenses%20and%20Profitability) SG&A expenses rose to $9.8 million due to investments but decreased to 17.7% of sales, reflecting improved financial discipline - **SG&A expenses**, including amortization, rose to **$9.8 million** from **$9.2 million** in the prior year, due to investments in operations, employees, and technology[10](index=10&type=chunk) - Despite the absolute increase in SG&A, its ratio to sales improved, decreasing from **18.6%** to **17.7%** year-over-year[10](index=10&type=chunk) [Orders and Backlog](index=3&type=section&id=Orders%20and%20Backlog) Q1 FY2026 saw strong orders of $125.9 million, a 2.3x book-to-bill ratio, and a record $482.9 million backlog, primarily from defense Orders and Backlog Summary | ($ in millions) | Q1 FY25 | Q1 FY26 | | :--- | :--- | :--- | | Orders | $55.8 | $125.9 | | Backlog | $396.8 | $482.9 | - The **book-to-bill ratio** for Q1 FY2026 was **2.3x**, driven by large defense orders[14](index=14&type=chunk) - Approximately **35% to 40%** of the current backlog is expected to convert to sales in the **next twelve months**. The **Defense industry** constitutes about **87%** of the total backlog[15](index=15&type=chunk) [Cash Flow and Balance Sheet](index=3&type=section&id=Cash%20Flow%20and%20Balance%20Sheet) Operating activities used $2.3 million cash, ending with $10.8 million cash and no debt, while investing $7.0 million in capital expenditures - **Cash and cash equivalents decreased** to **$10.8 million** from **$21.6 million** at the end of the previous quarter, mainly due to a **$4.3 million bonus payment** and **$7.0 million in capital expenditures**[11](index=11&type=chunk)[12](index=12&type=chunk) - The company remains **debt-free** and has **$44.3 million** available under its revolving credit facility[12](index=12&type=chunk) [Fiscal 2026 Outlook](index=4&type=section&id=Fiscal%2026%20Outlook) Graham Corporation reiterates FY2026 guidance, projecting $225-235 million in net sales and $22-28 million Adjusted EBITDA, aligning with long-term growth and margin targets Fiscal 2026 Guidance | Metric | Fiscal 2026 Guidance | | :--- | :--- | | Net Sales | $225 million to $235 million | | Gross Margin | 24.5% to 25.5% | | SG&A expense | 17.5% to 18.5% of sales | | Adjusted EBITDA | $22 million to $28 million | | Effective Tax Rate | 20% to 22% | | Capital Expenditures | $15.0 million to $18.0 million | - The company remains on track to reach its strategic goal of **8% to 10% annual organic revenue growth** and **low to mid-teen Adjusted EBITDA margins** by **fiscal 2027**[5](index=5&type=chunk) [Consolidated Financial Statements (Unaudited)](index=7&type=section&id=Consolidated%20Financial%20Statements%20%28Unaudited%29) Unaudited Q1 FY26 statements show 55% net income growth to $4.6 million, a strong balance sheet with $252.3 million in assets, and a $2.3 million operating cash outflow [Consolidated Statements of Operations](index=7&type=section&id=Consolidated%20Statements%20of%20Operations) Q1 FY26 net sales increased 11% to $55.5 million, with gross profit up 19%, operating income up 54%, and net income up 55% to $4.6 million Consolidated Statements of Operations (Unaudited) | ($ in thousands) | Q1 FY26 (2025) | Q1 FY25 (2024) | | :--- | :--- | :--- | | Net sales | $55,487 | $49,951 | | Gross profit | $14,721 | $12,368 | | Operating income | $4,964 | $3,224 | | Net income | $4,595 | $2,966 | [Consolidated Balance Sheet](index=8&type=section&id=Consolidated%20Balance%20Sheet) As of June 30, 2025, total assets were $252.3 million, with $10.8 million cash and $123.4 million in stockholders' equity Consolidated Balance Sheet (Unaudited) | ($ in thousands) | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | Cash and cash equivalents | $10,753 | $21,577 | | Total current assets | $127,523 | $141,372 | | Total assets | $252,339 | $264,110 | | Total current liabilities | $121,059 | $136,150 | | Total liabilities | $128,955 | $144,533 | | Total stockholders' equity | $123,384 | $119,577 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Q1 FY26 saw $2.3 million net cash used in operations, $7.0 million in investing, and $1.6 million in financing, leading to a $10.8 million net cash decrease Consolidated Statements of Cash Flows (Unaudited) | ($ in thousands) | Three Months Ended June 30, 2025 | | :--- | :--- | | Net cash (used) provided by operating activities | $(2,259) | | Net cash used by investing activities | $(7,004) | | Net cash used by financing activities | $(1,614) | | Net decrease in cash and cash equivalents | $(10,824) | [Non-GAAP Financial Measures & Reconciliations](index=5&type=section&id=Non-GAAP%20Financial%20Measures%20%26%20Reconciliations) Non-GAAP measures, including Adjusted EBITDA up 33% to $6.8 million and Adjusted Net Income up 38% to $4.9 million, provide insights into operating performance - The company uses **non-GAAP measures** like **Adjusted EBITDA** and **Adjusted Net Income**, which it believes are important for understanding operating performance by excluding items like amortization, acquisition costs, and other non-recurring expenses[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk) [Adjusted EBITDA Reconciliation](index=10&type=section&id=Adjusted%20EBITDA%20Reconciliation) Q1 FY26 Adjusted EBITDA reached $6.8 million, reconciled from net income by adding back depreciation, amortization, and equity-based compensation Adjusted EBITDA Reconciliation (Unaudited) | ($ in thousands) | Q1 FY26 (2025) | Q1 FY25 (2024) | | :--- | :--- | :--- | | Net income | $4,595 | $2,966 | | Depreciation & amortization | $1,523 | $1,411 | | Equity-based compensation | $532 | $344 | | **Adjusted EBITDA** | **$6,838** | **$5,137** | | Adjusted EBITDA margin | 12.3% | 10.3% | [Adjusted Net Income Reconciliation](index=11&type=section&id=Adjusted%20Net%20Income%20Reconciliation) Q1 FY26 Adjusted Net Income was $4.9 million, or $0.45 per diluted share, primarily adjusted for intangible asset amortization and acquisition-related income Adjusted Net Income Reconciliation (Unaudited) | ($ in thousands, except per share) | Q1 FY26 (2025) | Q1 FY25 (2024) | | :--- | :--- | :--- | | Net income | $4,595 | $2,966 | | Amortization of intangible assets | $499 | $554 | | **Adjusted net income** | **$4,938** | **$3,584** | | GAAP net income per diluted share | $0.42 | $0.27 | | Adjusted net income per diluted share | $0.45 | $0.33 | [Other Information](index=4&type=section&id=Other%20Information) This section provides conference call details, safe harbor statements for forward-looking information, and definitions of key operational performance indicators - Management will host a conference call and webcast on **August 5, 2025**, at **11:00 a.m. ET** to discuss the results[17](index=17&type=chunk) - The report includes a **Safe Harbor statement**, cautioning that forward-looking statements are subject to **risks and uncertainties** as described in the company's SEC filings[22](index=22&type=chunk)[23](index=23&type=chunk) - **Key Performance Indicators (KPIs)** such as **orders**, **backlog**, and **book-to-bill ratio** are used by management to measure financial performance and are considered **operational metrics**, not **non-GAAP measures**[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk)

Summary of Graham Corporation Conference Call Company Overview - **Company Name**: Graham Corporation (GHM) - **Industry**: Mission critical fluid, power, vacuum, and heat transfer solutions - **Founded**: 1936 - **Headquarters**: Batavia, New York - **Market Cap**: $487 million with a 21% CAGR since 2021 strategy unveiling [5][29] - **Employee Count**: 600 globally [4] Core Markets - **Segments**: Defense, Energy, and Process in Space - **Installed Product Base**: Over $1 billion globally [4] - **Backlog**: $412 million, indicating strong future revenue visibility [5][32] Financial Performance - **Fiscal Year 2025 Revenue**: $209.9 million, a 13% increase year-over-year [29] - **Quarterly Revenue Growth**: 21% to $59.3 million [29] - **Defense Market Growth**: 28% for the quarter and 23% for the full year [29] - **Adjusted EPS**: Increased by 97% to $1.24 [31] - **Adjusted EBITDA**: Increased by 69% to $22.4 million, with a margin of 10.7% [31] - **Gross Margin**: Improved by 330 basis points to 25.2% [30] Strategic Focus - **Growth Strategy**: Transitioning from a stabilized phase to an improving growth phase, with a focus on new product introductions and operational efficiencies [17][20] - **Investment in Facilities**: New facility in Batavia funded by a $13.5 million customer grant to enhance production capabilities [12][21] - **R&D Investment**: Plans to increase R&D spending to 1-2% of revenue to foster innovation [36] Market Dynamics - **Defense Sector**: 80% of Graham's portfolio is sole-sourced, primarily linked to naval nuclear submarines and weapon systems, with a long-term revenue opportunity of approximately $1.7 billion [8][12] - **Energy and Process Market**: Focus on both conventional and emerging applications, including hydrogen processing and lithium battery extraction [13][14] - **Space Market**: Represents 7% of the portfolio, growing due to geopolitical tensions and advancements in launch capacity [15][16] Future Outlook - **Fiscal Year 2026 Guidance**: Revenue expected between $225 million and $235 million, representing a 10% increase [37] - **Long-term Targets**: Aiming for low to mid-teen EBITDA margins by fiscal year 2027 [39] - **M&A Opportunities**: Actively exploring acquisitions that align with core markets and enhance product lifecycle [28] Leadership Transition - **New Leadership**: Transition to Matt Malone as CEO has been seamless, with Dan Thorin moving to Executive Chairman [43][44] - **Leadership Stability**: The existing leadership team remains intact, ensuring continuity in strategic direction [46] Additional Insights - **Cryogenic Facility in Florida**: Nearing completion, expected to support high demand for testing space products [40][41] - **Operational Efficiency**: Focus on improving product flow and throughput through new facilities and technology [21][22] This summary encapsulates the key points from the Graham Corporation conference call, highlighting the company's strategic direction, financial performance, and market positioning.

Financial Data and Key Metrics Changes - Full year revenue grew approximately 13% to $210 million, with adjusted EBITDA increasing 69% to $22.4 million, representing 10.7% of sales [6][30] - Record backlog reached $412 million as of March 31, up 7% sequentially, with a book to bill ratio of 1.1, marking the fifth consecutive year above 1.0 [7][34] - Fourth quarter net income was $4.4 million, compared to $1.3 million in the prior year, equating to $0.40 per share on a GAAP basis and $0.43 per share on an adjusted basis [30] Business Line Data and Key Metrics Changes - Defense market sales grew by $7.7 million or 28% year-over-year, driven by existing programs and improved execution [27] - Energy and process sales increased by $1.8 million, supported by higher capital equipment sales to the Middle East and Asia [27] - Revenue for the energy and process segment was up 1% year-over-year to $73 million for fiscal 2025 [10] Market Data and Key Metrics Changes - Strong growth in defense and energy markets, with defense sales up 23% for the full year [28] - Aftermarket sales for energy and process and defense markets totaled $12.1 million, a 3% increase from the prior year [27] - Orders for the fourth quarter included $50 million related to a $136.5 million contract for the Virginia class submarine program [32] Company Strategy and Development Direction - The company is focusing on a "stabilize, improve, grow" strategy, with a strong emphasis on operational improvements and capital investments targeting a return on investment exceeding 20% [10][19] - Plans to expand capabilities include a new 30,000 square foot facility in Batavia, New York, and investments in automated welding and advanced machining [20][21] - The strategic vision includes enhancing product life cycle management and expanding into new markets while leveraging existing technologies [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to meet fiscal 2027 goals of 8% to 10% organic revenue growth and low to mid-teens adjusted EBITDA margins [40] - The leadership transition is expected to ensure continuity in strategic vision and operational execution [12][13] - Management highlighted strong demand in defense and energy sectors, with expectations for continued growth driven by strategic investments [19][20] Other Important Information - The company secured a strategic investment of $2.2 million from a key defense customer to enhance capabilities in evaluating critical welds [9] - Capital expenditures for fiscal 2025 were $19 million, with expectations to maintain CapEx at 7% to 10% of sales in the coming years [10][36] - The company is actively pursuing both organic and inorganic growth opportunities, supported by a strong balance sheet and cash generation [36] Q&A Session Summary Question: Guidance and gross margin outlook - Management indicated that the gross margin outlook is primarily affected by tariffs and the absence of a grant, with process improvement initiatives in place to offset these factors [43][44] Question: Investment in radiographic equipment - The new X-ray equipment will significantly enhance the evaluation process for complex welds, improving efficiency and quality across both defense and energy sectors [45][46][48] Question: M&A opportunities and valuations - The M&A pipeline is robust, with opportunities arising from aging ownership groups and favorable valuations for strategic acquisitions [49][50] Question: Changes in contract profitability - Contracts remain largely unchanged, with new clauses protecting against commodity price volatility, ensuring stability in pricing [56][58] Question: Welder training program and capacity needs - The welder training program has been successful, with a 10% increase in welders year-over-year, supporting both defense and energy sectors [60][61] Question: Cryogenic facility utilization - The cryogenic facility is on track to be operational soon, with strong demand anticipated based on customer inquiries [65][66] Question: NextGen nozzle progress - The NextGen nozzle design is complete, with ongoing discussions with existing customers for upgrades during maintenance turnarounds [73][74]

Financial Data and Key Metrics Changes - Full year revenue grew approximately 13% to $210 million, with adjusted EBITDA increasing 69% to $22.4 million, representing 10.7% of sales [6][31] - Record backlog reached $412 million as of March 31, up 7% sequentially, with a book to bill ratio of 1.1, marking the fifth consecutive year above 1.0 [7][36] - Fourth quarter net income was $4.4 million, compared to $1.3 million in the prior year, equating to $0.40 per share on a GAAP basis [31] Business Line Data and Key Metrics Changes - Defense market sales grew by $7.7 million or 28% year-over-year, driven by existing programs and improved execution [28] - Energy and process sales increased by $1.8 million, supported by higher capital equipment sales to the Middle East and Asia [28] - Aftermarket sales for energy and process and defense markets totaled $12.1 million, up 3% from the prior year [28] Market Data and Key Metrics Changes - The defense sector remains a key focus, with significant contracts awarded, including a $136.5 million contract for the Virginia class submarine program [7][8] - The energy and process market is seeing continued demand, with innovative solutions driving customer interest [9] Company Strategy and Development Direction - The company is transitioning into a growth phase, focusing on product life cycle expansion, commercialization, global reach, and digital transformation [23][26] - Investments in automation and facility expansion are aimed at enhancing operational efficiency and throughput [21][22] - The strategic plan includes a target of 8% to 10% organic revenue growth and low to mid-teens adjusted EBITDA margins by fiscal 2027 [14][42] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to capitalize on opportunities in the defense and energy sectors, supported by a robust backlog and strategic investments [14][39] - The leadership transition is expected to ensure continuity in strategic vision and operational execution [12][13] Other Important Information - The company has secured a $50 million credit facility to support future growth initiatives [22] - Capital expenditures for fiscal 2025 were $19 million, with expectations to maintain CapEx at 7% to 10% of sales in the coming years [10][38] Q&A Session Summary Question: Inquiry about guidance and gross margin outlook - Management indicated that the gross margin outlook is primarily affected by tariffs and the absence of a training grant, with process improvement initiatives in place to offset these factors [45][46] Question: Details on the investment in radiographic equipment - The new X-ray equipment will enhance the evaluation of complex welds, improving efficiency and quality in production [47][48] Question: Update on M&A opportunities - The M&A pipeline is robust, with opportunities arising from aging ownership groups, and valuations are seen as favorable for strategic acquisitions [51][52] Question: Changes in contract terms for Navy orders - Management confirmed that there are protective clauses in contracts to mitigate commodity price volatility, ensuring stability in pricing [58][59] Question: Status of welder training program and future needs - The welder training program has been successful, with a 10% increase in welders year-over-year, supporting growth in both defense and energy sectors [62][63] Question: Utilization of the cryogenic facility - The cryogenic facility is on track to be operational soon, with strong demand anticipated based on customer inquiries [67][70] Question: Progress on NextGen nozzle and potential clients - The NextGen nozzle design is complete, with ongoing discussions with existing clients for upgrades during maintenance turnarounds [75][76]