Graham Corporation ((GHM)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Graham Corporation’s latest earnings call conveyed a robust financial performance, marked by record revenue and backlog growth, significant defense contract acquisitions, and enhanced profitability. While strategic investments are advancing well, concerns about the irregular nature of orders and potential tariff impacts were noted.
Record Revenue and Backlog
Graham Corporation reported an impressive 11% increase in revenue, reaching $55.5 million. The company’s backlog also hit a record high of $482.9 million, reflecting a 22% growth over the previous year. This growth underscores the company’s strong market position and effective strategies in capturing new business opportunities.
Strong Growth in Key Markets
The energy and process markets were significant contributors to Graham’s growth, with notable sales increases in refining, petrochemical, and new energy sectors. The aftermarket segment also performed exceptionally well, with a 33% rise compared to the previous year, highlighting the company’s successful expansion in these critical areas.
Significant Defense Contracts
Graham secured substantial defense contracts, including a $136.5 million follow-on contract for the U.S. Navy’s Virginia-class submarine program and a $25.5 million follow-on order for the MK48 Mod 7 heavyweight torpedo program. These contracts reinforce Graham’s strong presence and reliability in the defense sector.
Improved Profitability
The company achieved a 33% year-over-year increase in adjusted EBITDA, reaching $6.8 million, with a gross margin expansion of 170 basis points to 26.5%. This improvement in profitability demonstrates Graham’s operational efficiency and effective cost management strategies.
Operational and Strategic Investments
Graham’s strategic capital investments, including a new manufacturing facility in Batavia and a cryogenic testing facility in Florida, are progressing on schedule and within budget. These investments are expected to enhance the company’s production capabilities and support future growth.
Lumpy Order Nature
The nature of Graham’s business, particularly in defense, results in lumpy orders that can create variability in financial results. This characteristic requires careful management to ensure consistent performance despite the inherent unpredictability.
Potential Tariff Impact
While the impact of tariffs was not significant in the first quarter, Graham anticipates a potential impact ranging from $2 million to $5 million for the full year. The company remains vigilant in monitoring these developments and mitigating potential risks.
Forward-Looking Guidance
Looking ahead, Graham Corporation remains optimistic about its future performance. The company expects to convert 35% to 40% of its record backlog into revenue within the next 12 months. Additionally, Graham aims to achieve 8% to 10% organic revenue growth per year and maintain low to mid-teen adjusted EBITDA margins by fiscal 2027. These targets reflect the company’s confidence in its strategic direction and market opportunities.
In summary, Graham Corporation’s earnings call highlighted a strong financial performance with record revenue and backlog growth, significant defense contracts, and improved profitability. While strategic investments are on track, the company remains cautious about the potential impacts of lumpy orders and tariffs. Overall, Graham’s forward-looking guidance indicates a positive outlook for sustained growth and profitability.