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Graham(GHM) - 2026 Q1 - Earnings Call Transcript
2025-08-05 16:00
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]