Graham (NYSE:GHM) FY Conference Transcript

Summary of Graham Corporation Conference Call Company Overview - Company Name: Graham Corporation - Industry: Defense, Energy, Process, and Space - Core Products: Mission-critical vacuum systems and heat transfer systems for various industries including petrochemical, refining, and defense [2][3] Key Points Business Model and Strategy - Graham has a diversified portfolio with a 50/50 split between defense and commercial sectors, providing stability and visibility with over two years of backlog [3][4] - The company has invested approximately $42 million in capital expenditures (CapEx) to enhance its operations, targeting a return on invested capital (ROIC) greater than 20% [4][12] - The defense segment accounts for about 60% of the portfolio, focusing on nuclear submarines and aircraft carriers, with 80% of work being sole source [4][5] Financial Performance - Revenue increased by 21% in the latest quarter, driven primarily by a 31% growth in the defense sector [22][23] - Adjusted EBITDA rose to $6 million, a 50% increase year-over-year, with a year-to-date increase of 30% [25] - The company aims for low- to mid-teen EBITDA margins (13%-15%) by fiscal year 2027 [26] Backlog and Growth - The backlog reached a record $516 million, with 85% related to defense contracts, providing long-term visibility for investments [28] - The book-to-bill ratio for the first nine months of the year is 1.6, indicating strong demand in defense and space sectors [27][29] Recent Developments - Graham recently acquired FlackTek for $35 million, enhancing its capabilities in mixing technology, which is expected to open new market opportunities [18][19] - The company is focusing on operational improvements, including a new Navy facility that will reduce product lead times from two years to one year [12][14] Market Dynamics - The company is experiencing sluggishness in its legacy energy and process business due to geopolitical tensions and lower gas prices, but is offsetting this with growth in defense and new energy sectors [27] - Graham is also exploring opportunities in space cooling, leveraging its cryogenics experience to meet increasing demand for power density in space applications [47][48] Cultural and Operational Changes - There is a cultural shift within the company towards a growth-oriented mindset, with improved employee engagement and a focus on continuous improvement [60][61] - The company is transitioning from a legacy ERP system to a modern one, which is expected to enhance operational efficiency [60] Additional Insights - The company is working on developing commercially available products that can command higher margins, moving away from the constraints of build-to-print contracts [39][40] - Graham's legacy business still constitutes a significant portion of revenue, but the company is positioning itself for future growth through innovation and market expansion [63][64] This summary encapsulates the key points discussed during the conference call, highlighting Graham Corporation's strategic direction, financial performance, and market opportunities.