Graham Corporation Reports Third Quarter Fiscal 2025 Results

BATAVIA, N.Y.--(BUSINESS WIRE)--Graham Corporation (NYSE: GHM) (“GHM” or the “Company”), a global leader in the design and manufacture of mission critical fluid, power, heat transfer and vacuum technologies for the defense, space, energy, and process industries, today reported financial results for its third quarter for the fiscal year ending March 31, 2025 (“fiscal 2025”). “Our strong performance through the first three quarters of our fiscal year reflects continually improving execution across our business. Customer demand for our diversified product portfolio is robust, driving margin expansion through improved product mix and operational efficiency. The progress we have shown to date, coupled with advancing discussions on both new programs and expansions with existing customers, reinforces our confidence in achieving our long-term growth targets,” said Daniel J. Thoren, Chief Executive Officer. ____________________ 1 Adjusted EBITDA margin, Adjusted Net Income per Diluted Share and Adjusted EBITDA are non-GAAP measures. See attached tables and other information for important disclosures regarding Graham’s use of these non-GAAP measures. 2 Orders, backlog and book-to-bill ratio are key performance metrics. See “Key Performance Indicators” below for important disclosures regarding Graham’s use of these metrics. Third Quarter Fiscal 2025 Performance Review (All comparisons are with the same prior-year period unless noted otherwise.) ($ in thousands except per share data) Q3 FY25 Q3 FY24 $ Change % Change Net sales $ 47,037 $ 43,818 $ 3,219 7% Gross profit $ 11,686 $ 9,723 $ 1,963 20% Gross margin 24.8 % 22.2 % +260 bps Operating profit $ 2,210 $ 911 $ 1,299 143% Operating margin 4.7 % 2.1 % +260 bps Net income $ 1,588 $ 165 $ 1,423 862% Net income margin 3.4 % 0.4 % +300 bps Net income per diluted share $ 0.14 $ 0.02 $ 0.12 600% Adjusted net income* $ 1,966 $ 1,451 $ 515 35% Adjusted net income per diluted share* $ 0.18 $ 0.13 $ 0.05 38% Adjusted EBITDA* $ 4,027 $ 2,965 $ 1,062 36% Adjusted EBITDA margin* 8.6 % 6.8 % +180 bps *Graham believes that, when used in conjunction with measures prepared in accordance with U.S. generally accepted accounting principles, adjusted net income, adjusted net income per diluted share, adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP measures, help in the understanding of its operating performance. See attached tables and other information for important disclosures regarding Graham’s use of these non-GAAP measures. Quarterly net sales of $47.0 million increased 7.3%, or $3.2 million. Sales to the defense market grew by $2.7 million, or 11.1% from the prior year period, driven by the addition of new defense programs, the ramp-up of existing programs, better execution, and the timing of key project milestones. Additionally, higher chemical/petrochemical sales contributed $2.7 million to growth, driven by increased sales of capital equipment. Aftermarket sales to the refining, chemical/petrochemical, and defense markets of $9.7 million remained strong and were 2.4% higher than the prior year. See supplemental data for a further breakdown of sales by market and region. Gross profit for the quarter increased $2.0 million to $11.7 million compared to the prior-year period of $9.7 million. As a percentage of sales, gross profit margin increased 260 basis points to 24.8%, compared to the fiscal third quarter of 2024. This increase was driven by leverage on higher volume, better execution, and improved pricing, partially offset by higher incentive compensation compared to the prior year period. Additionally, the third quarter of fiscal 2025 gross profit benefited $0.3 million from a $2.1 million grant received from the BlueForge Alliance earlier this fiscal year to reimburse Graham for the cost of the Company’s defense welder training programs in Batavia and related equipment. To date, the Company has received $1.5 million of funding under this grant. Selling, general and administrative expense (“SG&A”), including amortization, totaled $9.7 million, or 20.6% of sales, up $0.9 million compared with the prior year. This increase reflects the Company’s continued investments in its people, processes, and technology to drive long-term sustainable growth. Included in other operating income for the third quarter of fiscal 2025 was a $0.2 million reversal of a previously accrued contingent earnout liability for P3. The reversal was due to delayed orders/projects that extended beyond the earnout period. Cash Management and Balance Sheet Cash provided by operating activities totaled $27.9 million for the nine-month period ending December 31, 2024, an increase of $8.4 million from the comparable period in fiscal 2024. As of December 31, 2024, cash and cash equivalents were $30.0 million, up from $16.9 million at the end of fiscal 2024. Capital expenditures of $13.8 million for the first nine months of fiscal 2025 were focused on capacity expansion, increasing capabilities, and productivity improvements. The Company increased its expected fiscal 2025 capital expenditures to be in the range of $15.0 million to $19.0 million from its previous expectations of $13.0 million to $18.0 million due to a faster pace of execution on the capital projects in process. All major capital projects are on time and on budget. The Company had no debt outstanding at December 31, 2024 with $43 million available on its revolving credit facility after taking into account outstanding letters of credit. Orders, Backlog, and Book-to-Bill Ratio See supplemental data filed with the Securities and Exchange Commission on Form 8-K and provided on the Company’s website for a further breakdown of orders and backlog by market. See “Key Performance Indicators” below for important disclosures regarding Graham’s use of these metrics. (in millions) Q2 24 Q3 24 Q4 24 FY24 Q1 25 Q2 25 Q3 25 FY25 Orders $ 36.5 $ 123.3 $ 40.8 $ 268.4 $ 55.8 $ 63.7 $ 24.8 $ 144.2 Backlog $ 313.3 $ 399.2 $ 390.9 $ 390.9 $ 396.8 $ 407.0 $ 384.7 $ 384.7 As expected, orders for the third quarter of fiscal 2025 declined to $24.8 million given the higher level of orders earlier in the fiscal year. Orders tend to be lumpy given the nature of our business (i.e. large capital projects) and in particular, orders to the defense industry, which span multiple years and are larger in size. Orders for the nine-month period ended December 31, 2024, were $144.2 million, resulting in a year-to-date book-to-bill ratio of 1.0x. After-market orders for the refining, petrochemical, and defense markets remained strong and totaled $13.0 million for the third quarter of fiscal 2025, an increase of 51% over the prior year. Backlog at quarter end was $384.7 million, down 3.6% over the prior-year period and down 5.5% sequentially. Approximately 45% to 50% of orders currently in backlog are expected to be converted to sales in the next twelve months and another 35% to 40% are expected to convert to sales within one to two years. The majority of orders expected to convert beyond twelve months are for the defense industry, specifically the U.S. Navy. Fiscal 2025 Outlook The Company’s outlook for 2025 was updated as follows: (as of February 7, 2025) Updated Fiscal 2025 Guidance Previous Guidance Net Sales $200 million to $210 million $200 million to $210 million Gross Margin 24% to 25% of sales 23% to 24% of sales SG&A expense (including amortization)(1) 18% to 19% of sales 17% to 18% of sales Adjusted EBITDA(2) $18 million to $21 million $18 million to $21 million Effective Tax Rate 20% to 22% 20% to 22% Capital Expenditures $15.0 million to $19.0 million $13.0 million to $18.0 million (1) Includes approximately $6.5 million to $7.5 million of Barber-Nichols supplemental performance bonus, equity-based compensation, and enterprise resource planning (“ERP”) conversion costs included in SG&A expense. (2) Excludes net interest expense, income taxes, depreciation, and amortization from net income, as well as approximately $2.0 million to $3.0 million of equity-based compensation and ERP conversion costs included in SG&A expense and approximately $0.9 million of acquisition and integration income, net. Webcast and Conference Call GHM’s management will host a conference call and live webcast on February 7, 2025 at 11:00 a.m. Eastern Time (“ET”) to review its financial results as well as its strategy and outlook. The review will be accompanied by a slide presentation, which will be made available immediately prior to the conference call on GHM’s investor relations website. A question-and-answer session will follow the formal presentation. GHM’s conference call can be accessed by calling (201) 689-8560. Alternatively, the webcast can be monitored from the events section of GHM’s investor relations website. A telephonic replay will be available from 3:00 p.m. ET today through Friday, February 14, 2025. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13750971 or access the webcast replay via the Company’s website at ir.grahamcorp.com, where a transcript will also be posted once available. About Graham Corporation Graham is a global leader in the design and manufacture of mission critical fluid, power, heat transfer and vacuum technologies for the defense, space, energy, and process industries. Graham Corporation and its family of global brands are built upon world-renowned engineering expertise in vacuum and heat transfer, cryogenic pumps, and turbomachinery technologies, as well as its responsive and flexible service and the unsurpassed quality customers have come to expect from the Company’s products and systems. Graham Corporation routinely posts news and other important information on its website, grahamcorp.com, where additional information on Graham Corporation and its businesses can be found. Safe Harbor Regarding Forward Looking Statements This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks, uncertainties and assumptions and are identified by words such as “expects,” “future,” “outlook,” “anticipates,” “believes,” “could,” “guidance,” ”may”, “will,” “plan” and other similar words. All statements addressing operating performance, events, or developments that Graham Corporation expects or anticipates will occur in the future, including but not limited to, profitability of future projects and the business, its ability to deliver to plan, its ability to continue to strengthen relationships with customers in the defense industry, its ability to secure future projects and applications, expected expansion and growth opportunities, anticipated sales, revenues, adjusted EBITDA, adjusted EBITDA margins, capital expenditures and SG&A expenses, the timing of conversion of backlog to sales, orders, market presence, profit margins, tax rates, foreign sales operations, customer preferences, changes in market conditions in the industries in which it operates, changes in general economic conditions and customer behavior, forecasts regarding the timing and scope of the economic recovery in its markets, and its acquisition and growth strategy, are forward-looking statements. Because they are forward-looking, they should be evaluated in light of important risk factors and uncertainties. These risk factors and uncertainties are more fully described in Graham Corporation’s most recent Annual Report filed with the Securities and Exchange Commission (the “SEC”), included under the heading entitled “Risk Factors”, and in other reports filed with the SEC. Should one or more of these risks or uncertainties materialize or should any of Graham Corporation’s underlying assumptions prove incorrect, actual results may vary materially from those currently anticipated. In addition, undue reliance should not be placed on Graham Corporation’s forward-looking statements. Except as required by law, Graham Corporation disclaims any obligation to update or publicly announce any revisions to any of the forward-looking statements contained in this news release. Non-GAAP Financial Measures Adjusted EBITDA is defined as consolidated net income (loss) before net interest expense, income taxes, depreciation, amortization, other acquisition related expenses, and other unusual/nonrecurring expenses. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of sales. Adjusted EBITDA and Adjusted EBITDA margin are not measures determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP. Nevertheless, Graham believes that providing non-GAAP information, such as Adjusted EBITDA and Adjusted EBITDA margin, is important for investors and other readers of Graham's financial statements, as it is used as an analytical indicator by Graham's management to better understand operating performance. Moreover, Graham’s credit facility also contains ratios based on Adjusted EBITDA. Because Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures and are thus susceptible to varying calculations, Adjusted EBITDA, and Adjusted EBITDA margin, as presented, may not be directly comparable to other similarly titled measures used by other companies. Adjusted net income and adjusted net income per diluted share are defined as net income and net income per diluted share as reported, adjusted for certain items and at a normalized tax rate. Adjusted net income and adjusted net income per diluted share are not measures determined in accordance with GAAP, and may not be comparable to the measures as used by other companies. Nevertheless, Graham believes that providing non-GAAP information, such as adjusted net income and adjusted net income per diluted share, is important for investors and other readers of the Company’s financial statements and assists in understanding the comparison of the current quarter’s and current fiscal year's net income and net income per diluted share to the historical periods' net income and net income per diluted share. Graham also believes that adjusted net income per share, which adds back intangible amortization expense related to acquisitions, provides a better representation of the cash earnings of the Company. Forward-Looking Non-GAAP Measures Forward-looking adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures. The Company is unable to present a quantitative reconciliation of these forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures because such information is not available, and management cannot reliably predict the necessary components of such GAAP measures without unreasonable effort largely because forecasting or predicting our future operating results is subject to many factors out of our control or not readily predictable. In addition, the Company believes that such reconciliations would imply a degree of precision that would be confusing or misleading to investors. The unavailable information could have a significant impact on the Company’s fiscal 2025 financial results. These non-GAAP financial measures are preliminary estimates and are subject to risks and uncertainties, including, among others, changes in connection with purchase accounting, quarter-end, and year-end adjustments. Any variation between the Company’s actual results and preliminary financial estimates set forth above may be material. Key Performance Indicators In addition to the foregoing non-GAAP measures, management uses the following key performance metrics to analyze and measure the Company’s financial performance and results of operations: orders, backlog, and book-to-bill ratio. Management uses orders and backlog as measures of current and future business and financial performance, and these may not be comparable with measures provided by other companies. Orders represent written communications received from customers requesting the Company to provide products and/or services. Backlog is defined as the total dollar value of net orders received for which revenue has not yet been recognized. Management believes tracking orders and backlog are useful as they often times are leading indicators of future performance. In accordance with industry practice, contracts may include provisions for cancellation, termination, or suspension at the discretion of the customer. The book-to-bill ratio is an operational measure that management uses to track the growth prospects of the Company. The Company calculates the book-to-bill ratio for a given period as net orders divided by net sales. Given that each of orders, backlog, and book-to-bill ratio are operational measures and that the Company's methodology for calculating orders, backlog and book-to-bill ratio does not meet the definition of a non-GAAP measure, as that term is defined by the U.S. Securities and Exchange Commission, a quantitative reconciliation for each is not required or provided. FINANCIAL TABLES FOLLOW. Graham Corporation Consolidated Statements of Operations - Unaudited (Amounts in thousands, except per share data) Three Months Ended Nine Months Ended December 31, December 31, 2024 2023 % Change 2024 2023 % Change Net sales $ 47,037 $ 43,818 7% $ 150,551 $ 136,463 10% Cost of products sold 35,351 34,095 4% 113,698 108,572 5% Gross profit 11,686 9,723 20% 36,853 27,891 32% Gross margin 24.8 % 22.2 % 24.5 % 20.4 % Operating expenses and income: Selling, general and administrative 9,260 8,429 10% 26,821 21,563 24% Selling, general and administrative – amortization 436 383 14% 1,309 930 41% Other operating income (220 ) - NA (946 ) - NA Operating profit 2,210 911 143% 9,669 5,398 79% Operating margin 4.7 % 2.1 % 6.4 % 4.0 % Loss on extinguishment of debt - 726 (100%) - 726 (100%) Other expense, net 91 93 (2%) 273 280 (3%) Interest (income) expense, net (128 ) 37 NA (442 ) 277 NA Income before provision (benefit) for income taxes 2,247 55 NA 9,838 4,115 139% Provision (benefit) for income taxes 659 (110 ) NA 2,003 899 123% Net income $ 1,588 $ 165 862% $ 7,835 $ 3,216 144% Per share data: Basic: Net income $ 0.15 $ 0.02 650% $ 0.72 $ 0.30 140% Diluted: Net income $ 0.14 $ 0.02 600% $ 0.71 $ 0.30 137% Weighted average common shares outstanding: Basic 10,890 10,775 10,880 10,709 Diluted 11,057 10,920 11,016 10,792 NA: Not Applicable Graham Corporation Consolidated Balance Sheets – Unaudited (Amounts in thousands, except per share data) December 31, March 31, 2024 2024 Assets Current assets: Cash and cash equivalents $ 30,046 $ 16,939 Trade accounts receivable, net of allowances ($402 and $79 at December 31, and March 31, 2024, respectively) 34,951 44,400 Unbilled revenue 37,777 28,015 Inventories 39,026 33,410 Prepaid expenses and other current assets 3,866 3,561 Income taxes receivable 46 - Total current assets 145,712 126,325 Property, plant and equipment, net 44,133 32,080 Prepaid pension asset 6,571 6,396 Operating lease assets 6,433 7,306 Goodwill 25,520 25,520 Customer relationships, net 13,444 14,299 Technology and technical know-how, net 10,499 11,065 Other intangible assets, net 6,939 7,181 Deferred income tax asset 2,928 2,983 Other assets 2,071 724 Total assets $ 264,250 $ 233,879 Liabilities and stockholders’ equity Current liabilities: Current portion of finance lease obligations $ 21 $ 20 Accounts payable 25,390 20,788 Accrued compensation 16,695 16,800 Accrued expenses and other current liabilities 4,645 6,666 Customer deposits 92,971 71,987 Operating lease liabilities 1,138 1,237 Income taxes payable 65 715 Total current liabilities 140,925 118,213 Finance lease obligations 51 65 Operating lease liabilities 5,630 6,449 Accrued pension and postretirement benefit liabilities 1,257 1,254 Other long-term liabilities 1,956 2,332 Total liabilities 149,819 128,313 Stockholders’ equity: Preferred stock, $1.00 par value, 500 shares authorized - - Common stock, $0.10 par value, 25,500 shares authorized, 11,064 and 10,993 shares issued and 10,890 and 10,850 shares outstanding at December 31 and March 31, 2024, respectively 1,106 1,099 Capital in excess of par value 33,546 32,015 Retained earnings 89,834 81,999 Accumulated other comprehensive loss (6,667 ) (7,013 ) Treasury stock (174 and 143 shares at December 31, and March 31, 2024, respectively) (3,388 ) (2,534 ) Total stockholders’ equity 114,431 105,566 Total liabilities and stockholders’ equity $ 264,250 $ 233,879 Graham Corporation Consolidated Statements of Cash Flows – Unaudited (Amounts in thousands) Nine Months Ended December 31, 2024 2023 Operating activities: Net income $ 7,835 $ 3,216 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,712 2,375 Amortization of intangible assets 1,663 1,487 Amortization of actuarial losses 586 632 Amortization of debt issuance costs - 131 Equity-based compensation expense 1,204 1,002 Loss on extinguishment of debt - 726 Change in fair value of contingent consideration (946 ) - Deferred income taxes (91 ) 935 (Increase) decrease in operating assets, net of acquisitions: Accounts receivable 9,394 (11,335 ) Unbilled revenue (9,879 ) 11,213 Inventories (5,628 ) (4,357 ) Prepaid expenses and other current and non-current assets (1,665 ) (1,526 ) Income taxes receivable (46 ) (459 ) Operating lease assets 965 894 Prepaid pension asset (175 ) (215 ) Increase (decrease) in operating liabilities, net of acquisitions: Accounts payable 3,914 (3,949 ) Accrued compensation, accrued expenses and other current and non-current liabilities (1,380 ) 2,948 Customer deposits 21,000 16,590 Operating lease liabilities (948 ) (825 ) Income taxes payable (646 ) - Long-term portion of accrued compensation, accrued pension, and postretirement benefit liabilities 4 - Net cash provided by operating activities 27,873 19,483 Investing activities: Purchase of property, plant and equipment (13,800 ) (5,193 ) Proceeds from disposal of property, plant and equipment - 38 Acquisition of P3 Technologies, LLC (170 ) (6,812 ) Net cash used by investing activities (13,970 ) (11,967 ) Financing activities: Borrowings of short-term debt obligations - 13,000 Principal repayments on debt - (22,522 ) Payment of debt exit costs - (752 ) Repayments on finance lease obligations (237 ) (224 ) Issuance of common stock 334 225 Payment of debt issuance costs - (241 ) Purchase of treasury stock (854 ) (57 ) Net cash used by financing activities (757 ) (10,571 ) Effect of exchange rate changes on cash (39 ) (39 ) Net increase (decrease) in cash and cash equivalents 13,107 (3,094 ) Cash and cash equivalents at beginning of period 16,939 18,257 Cash and cash equivalents at end of period $ 30,046 $ 15,163 Graham Corporation Adjusted EBITDA Reconciliation (Unaudited, $ in thousands) Three Months Ended Nine Months Ended December 31, December 31, 2024 2023 2024 2023 Net income $ 1,588 $ 165 $ 7,835 $ 3,216 Acquisition & integration (income) expense (220 ) 274 (900 ) 274 Debt amendment costs - 744 - 744 ERP Implementation costs 157 56 704 56 Net interest (income) expense (128 ) 37 (442 ) 277 Income tax expense (benefit) 659 (110 ) 2,003 899 Equity-based compensation expense 426 377 1,204 1,002 Depreciation & amortization 1,545 1,422 4,375 3,862 Adjusted EBITDA(1) $ 4,027 $ 2,965 $ 14,779 $ 10,330 Net sales $ 47,037 $ 43,818 $ 150,551 $ 136,463 Net income margin 3.4 % 0.4 % 5.2 % 2.4 % Adjusted EBITDA margin 8.6 % 6.8 % 9.8 % 7.6 % (1) Beginning in the fourth quarter of fiscal 2024, Adjusted EBITDA no longer excludes the Barber-Nichols supplemental performance bonus, but now excludes the impact of non-cash equity-based compensation expense in order to be more consistent with market practice. Prior period results have been adjusted to reflect these changes on a comparable basis. The Barber-Nichols supplemental performance bonus expense was $1.1 million and $3.2 million for the third quarter and first nine months of fiscal 2025, respectively, and $1.3 million and $2.8 million for the third quarter and first nine months of fiscal 2024, respectively, and will be completed at the end of fiscal year 2026. Graham Corporation Adjusted Net Income and Adjusted Net Income per Diluted Share Reconciliation (Unaudited, $ in thousands, except per share amounts) Three Months Ended Nine Months Ended December 31, December 31, 2024 2023 2024 2023 Net income $ 1,588 $ 165 $ 7,835 $ 3,216 Acquisition & integration (income) expense (220 ) 274 (900 ) 274 Amortization of intangible assets 554 596 1,663 1,487 Debt amendment costs - 744 - 744 ERP Implementation costs 157 56 704 56 Normalized tax rate(1) (113 ) (384 ) (337 ) (589 ) Adjusted net income(2) $ 1,966 $ 1,451 $ 8,965 $ 5,188 GAAP net income per diluted share $ 0.14 $ 0.02 $ 0.71 $ 0.30 Adjusted net income per diluted share(2) $ 0.18 $ 0.13 $ 0.81 $ 0.48 Diluted weighted average common shares outstanding 11,057 10,920 11,016 10,792 (1) Applies a normalized tax rate to non-GAAP adjustments, which are pre-tax, based upon the statutory tax rate. (2) Beginning in the fourth quarter of fiscal 2024, Adjusted Net Income no longer excludes the Barber-Nichols supplemental performance bonus. Prior period results have been adjusted to reflect this change on a comparable basis. The Barber-Nichols performance bonus expense, net-of-tax, was $0.8 million and $2.5 million for the third quarter and first nine months of fiscal 2025, respectively, and $1.0 million and $2.2 million for the third quarter and first nine months of fiscal 2024, respectively, and will be completed at the end of fiscal year 2026. Acquisition and integration (income) expense are incremental costs that are directly related to and as a result of the P3 acquisition. These costs (income) may include, among other things, professional, consulting and other fees, system integration costs, and contingent consideration fair value adjustments. ERP implementation costs primarily relate to consulting costs (training, data conversion, and project management) incurred in connection with the ERP system being implemented throughout our Batavia, New York facility in order to enhance efficiency and productivity and are not expected to recur once the project is completed. Debt amendment costs consist of accelerated write-offs of unamortized deferred debt issuance costs and discounts, prepayment penalties and attorney fees in connection with the amendment of our credit facility in October 2023.

Graham Corporation Reports Third Quarter Fiscal 2025 Results

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