Q4 2024 Graham Corp Earnings Call

Operator: Greetings. Welcome to Graham Corporation's fourth quarter fiscal year 2024 financial results conference call. This time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference today, please press star zero on your telephone keypad. Please note that this conference is being recorded. At this time, I'll now turn the conference over to Debbie Pulaski, Investor Relations for Graham Corp. Debbie, you may now begin.

Greetings welcome to Graham Corporation's fourth quarter fiscal year, 'twenty 'twenty four financial results conference call.

Speaker Change: At this time, all participants are in listen only mode.

Speaker Change: And answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference today. Please press star zero from your telephone keypad.

Speaker Change: Note that this conference is being recorded.

At this time I'll now turn the conference over to Debbie Pawlowski Investor Relations for Graham Corp, That'd be you may now begin.

Deborah K. Pawlowski: Thank you, Rob, and good morning, everyone. We certainly appreciate your time today and your interest in Graham Corporation. Here with me on the call are Dan Thoren, our President and CEO, and Chris Thome, our Chief Financial Officer. Dan and Chris are going to provide their formal remarks, after which we will open the line for questions. You should have a copy of the fourth quarter and full year 2024 financial results that were released this morning. If not, you can access the release on our website at ir.gramcorp.com.

Speaker Change: Thank you Rob and good morning, everyone. We certainly appreciate your time today and your interest in Graham Corporation.

Deborah K. Pawlowski: Here with me on the call are Dan store in our President and CEO and Chris <unk>, Our Chief Financial Officer.

Deborah K. Pawlowski: Dan and Chris the place to provide their full formal remarks, after which we will open the line for questions.

Deborah K. Pawlowski: You should have a copy of the fourth quarter and full year 'twenty 'twenty four financial results were released this morning.

Deborah K. Pawlowski: If not you can access the release on our website at IR Dot Graham Corp Dot com.

Deborah K. Pawlowski: You will find there as well the slides that will accompany today's discussion. If you turn to slide two, I will review the Safe Harbor Statement. You should be aware that we may make some forward-looking statements during the formal discussion, as well as during the Q&A session. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated here today.

Deborah K. Pawlowski: You will find there as well the slides that will accompany today's discussion.

Deborah K. Pawlowski: If you turn to slide two I won't read you the safe Harbor statement.

Deborah K. Pawlowski: You shouldn't be aware that we may make some forward looking statements during the formal discussion as well as during the Q&A session.

Deborah K. Pawlowski: These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today.

Deborah K. Pawlowski: These risks and uncertainties and other factors are provided in the earnings release as well as in other documents filed by the company with the Securities and Exchange Commission. You can find those documents on our website or at scc.gov.

Deborah K. Pawlowski: These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed by the company with the Securities and Exchange Commission.

Deborah K. Pawlowski: You can find those documents on our website or at SEC Gov.

Deborah K. Pawlowski: During today's call, we will also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides. We also use key performance indicators to help gauge the progress and performance of the company.

Deborah K. Pawlowski: During today's call. We will also discuss non-GAAP financial measures. We believe these will be useful in evaluating our performance. However, you should not consider the presentation of this additional information and isolation or as a substitute for results prepared in accordance with GAAP.

Provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides.

Deborah K. Pawlowski: We also use key performance indicators to help gauge the product crop progress and performance of the company. These key performance metrics, our orders backlog and book to Bill ratio their operational measures and a quantitative reconciliation of each of these is not required or provided you can find the disclaimer Gardner.

Deborah K. Pawlowski: These key performance metrics are orders, backlog, and book-to-bill ratio. However, they are operational measures, and a quantitative reconciliation of each of these is not required or provided. You can find the disclaimer regarding our use of key performance metrics at the back of our deck in the supplemental slides. I should also point out that we do post on our website supplemental data information regarding orders, revenue, and backlog that you might find useful, as well as another tab this quarter that will help to provide you historical adjusted EPS and adjusted EBITDA, which the form of reporting has changed that Chris will discuss more fully during the call. So with that, if you would please advance to slide three, I'll turn it over to Dan to begin. Dan?

Deborah K. Pawlowski: Just to keep her funnel metrics at the back of our Jack in the supplemental slides.

Deborah K. Pawlowski: I should also point out that we do post on our website supplemental data information regarding.

Deborah K. Pawlowski: Orders revenue and backlog that you might find useful as well as another tab. This this quarter that will help to provide.

Deborah K. Pawlowski: Provide you historical adjusted.

Speaker Change: Adjusted EPS and adjusted EBITDA, which is a form of reporting has changed that Chris will discuss more fully during the call.

Dan: So with that he would please advance to slide three I'll turn it over to Dan to begin <unk>.

Daniel J. Thoren: Thanks, Debbie, and good morning, everyone. Steady execution on our strategic plan that we laid out two years ago has resulted in strong financial performance and meaningful progress towards our long-term goal. In fiscal 24, we achieved record revenue and orders. A Step Change Improvement in Profitability and Strong Cash Flow. Our improved performance, strengthened balance sheet, and increased financial flexibility have enabled us to make meaningful investments to further grow the business, both organically and inorganically. We eliminated our debt and also refinance for more flexibility and lower rates.

Debbie: Thanks, Debbie and good morning, everyone.

Dan: Steady execution on our strategic plan that we laid out two years ago has resulted in strong financial performance and meaningful progress towards our long term goals.

In fiscal 'twenty, four we achieved record revenue and orders.

Dan: A step change improvement in profitability.

Dan: Strong cash flow.

Dan: Our improved performance strengthened balance sheet and increased financial flexibility has enabled us to make meaningful investments to further grow the business both organically and inorganically.

Dan: We eliminated our debt.

Dan: And also refinance for more flexibility and lower rates.

Daniel J. Thoren: We believe these results validate the effectiveness of our Strategic Growth and Profitability Initiative. The most important driver of our success has been our strong relationship with the U.S. Navy. During the year, we completed and shipped the remaining two first article units, which were heat exchangers for the Naval Nuclear Propulsion Program used in the Columbia-class submarine and Ford-class carrier programs.

Dan: We believe these results validate the effectiveness of our strategic growth and profitability initiatives.

The most important driver of our success has been our strong relationship with a U S. Navy.

Dan: During the year, we completed and shipped the remaining two first article units, which were heat exchangers for the naval nuclear propulsion program.

Dan: Used in the Columbia class submarine and Ford class carrier programs.

Daniel J. Thoren: Importantly, we have taken the lessons learned throughout the first article process to enable greater production efficiencies and, along with better pricing on subsequent orders, to expand our margins. The Navy expansion in Colorado has also been successful, resulting in higher production rates to support the Mark 48 Mod 7 heavyweight torpedo program. The higher volume translated into operating leverage to drive profitability as well. At the core of our company are our employees.

Dan: Importantly, we have taken the lessons learned throughout the first article process.

Dan: To enable greater production efficiencies and along with better pricing on subsequent orders expand our margins.

Dan: The Navy expansion, Colorado has also been successful.

Dan: Resulting in higher production rates to support the Mark 48 months seven heavyweight torpedo program the.

Dan: The higher volume translated into operating leverage to drive profitability as well.

Dan: At the core of our company or our employees.

Daniel J. Thoren: We have strategically expanded our workforce with targeted hires while advancing our team through comprehensive development programs. Additionally, we have refined our leadership structure, resulting in improved execution and outstanding performance, as demonstrated by our recent results. In addition to the improvements around the defense side of our business, we've also gained better insight and leverage on the commercial side and captured better pricing power to expand our margins. The acquisition of P3 Technologies is a great example of our strategy to add complementary technology to expand our turbomachinery solutions and enhance our engineering and development team. We have successfully integrated P3 into our Barbara Nichols operation.

Dan: We have strategically expanded our workforce with targeted hires while advancing our team through comprehensive development programs.

Additionally, we have refined our leadership structure, resulting in improved execution and outstanding performance as demonstrated by our recent results.

Dan: In addition to the improvements around the defense side of our business. We've also gained better insight and leverage on the commercial side and captured better pricing power to expand our margins.

Dan: The acquisition of P. Three technologies is a great example of our strategy to add complementary technology to expand our turbo machinery solutions and enhance our engineering and development team.

Dan: We have successfully integrated P. Three and toured Barbara Nickels operations.

Daniel J. Thoren: In addition to providing the manufacturing capabilities to help scale the business, we plan to leverage their patented technologies to further deepen our reach into existing space, defense, and new energy markets while increasing market diversification with technology solutions for the medical industry. Another highlight of Fiscal 24 was the $13.5 million strategic investment we received from a major defense customer to expand and enhance our Batavia, New York, production capabilities. Design on the new facility is nearly complete, and we expect to break ground in July.

Dan: In addition to providing the manufacturing capabilities to help us scale the business, we plan to leverage their patented technologies.

Dan: To further deepen our reach into existing space defense and new energy markets well.

Dan: Well, increasing market diversification with a technology solutions for the medical industry.

Dan: Another highlight of fiscal 'twenty four was the $13 5 million strategic investment we received from a major defense customer to expand and enhance our Batavia, New York production capabilities.

Dan: Design on the new facility is nearly complete and we expect to break ground in July.

Daniel J. Thoren: This expansion provides the capacity we need to support the U.S. Navy's shipbuilding schedule and meet expanded scope requests. The pie chart on slide 4 visually depicts the diversity within our served markets and the evolving market mix over the past three fiscal years. The impact of our strategic initiatives is clearly evident. Since fiscal 21, our revenue has nearly doubled, with a noticeable shift toward the defense sector and the addition of space.

Dan: This expansion provides the capacity we need to support the U S. Navy's shipbuilding schedule and meet expanded scope requests.

Dan: The pie charts on slide four.

Dan: Visually depict the diversity within our served markets and the evolving market next over the past three fiscal years.

Dan: The impact of our strategic initiatives is clearly evident.

Dan: Since fiscal 'twenty one.

Dan: Our revenue has nearly doubled with a noticeable shift towards the defense sector and the addition of space.

Daniel J. Thoren: Furthermore, the other category now includes new energy and medical markets. Overall, the diverse industry mix underscores our strategic approach, ensuring resilience and mitigating risk. With that, let me turn it over to Chris for the financial details.

Dan: Furthermore, the other category and now includes new energy and medical markets.

Dan: Overall, the diverse industry index underscores our strategic approach.

Dan: Ensuring resilience and mitigating risk.

Speaker Change: With that let me turn it over to Chris for the financial details.

Dan: Yes.

Christopher J. Thome: Thank you, Dan, and good morning, everyone. As a reminder, our full year results include approximately five months of operations from P3 Technologies, which was acquired in November of 23. I will begin on slide five. As you can see, we had strong growth for our fourth quarter of fiscal 24, with sales of 49.1 million, which was a quarterly record. This was up 14% or $6 million over the prior year and included $1.2 million of incremental sales from P3.

Chris: Thank you Dan and good morning, everyone.

Chris: As a reminder, our full year results include approximately five months of operations from P. Three technologies, which was acquired in November of 'twenty three.

Chris: I will begin on slide five.

Chris: As you can see we had strong growth for our fourth quarter of fiscal 'twenty four with sales of $49 1 million, which was a quarterly record.

Chris: This was up 14% or 6 million over the prior year and included $1 2 million of incremental sales from P. Three.

Christopher J. Thome: Sales of $27.2 million to the defense market were up 43% for the quarter. Also contributing to our overall sales growth was a 22% increase in aftermarket sales. Of note, our aftermarket sales, which were historically from the refining and petrochemical sectors, now include more meaningful defense aftermarket sales, given our expanded defense business and our efforts to provide full life cycle solutions for our customers. P3's contribution to sales to the space market helped to offset lower revenue due to the loss of a customer in April of 23, due to its bankruptcy. Going forward, we have now cycled through that one customer's impact on our space business.

Chris: Sales of $27 2 million to the defense market were up 43% for the quarter.

Chris: Also contributing to our overall sales growth was at 22% increase in aftermarket sales.

Chris: Of note, our aftermarket sales, which was historically from the refining and petrochemical markets.

Chris: Now includes more meaningful defense aftermarket sales.

Chris: Given our expanded defense business and our effort and our efforts to provide full lifecycle solutions for our customers.

P threes contribution of sales to the space market helped to offset lower revenue due to the loss of a customer in April 23.

Chris: Due to its bankruptcy.

Chris: Going forward, we have now cycled through that one customer's impact on our space business.

Christopher J. Thome: U.S. sales for the quarter were 86% of total revenue, and it continues to reflect the magnitude of our U.S.-based defense. Looking at the full year, you can clearly see the effectiveness of our strategic initiative.

Chris: U S sales for the quarter were 86% of total revenue and it continues to reflect the magnitude of our U S base defense business.

Chris: Looking at the full year.

Chris: You can clearly see the effectiveness of our strategic initiatives.

Christopher J. Thome: We achieved record sales of $185.5 million in fiscal 24, which was up 28.4 million, or 18%, over fiscal 23. In fact, our compound annual growth rate over the last two years has been 23 percent. This growth has primarily been organic and has been driven by defense and aftermarket demand. Turning to slide 6.

Chris: We achieved record sales of $185 5 million in fiscal 'twenty, four which was up $28 4 million or 18% over fiscal 'twenty three.

Chris: In fact, our compound annual growth rate over the last two years.

Chris: 23%.

Chris: This growth has primarily been organic and it's been driven by defense and aftermarket demand.

Christopher J. Thome: Gross margin expanded 930 basis points to 25.9% in the quarter and 570 basis points to 21.9% for the year. Both periods reflected higher volume and the related improved absorption. Higher-margin aftermarket sales also played a role, as did margin-accretive sales from the P3 equity. Lastly, we benefited through the year from improved execution and pricing on our defense contract. Turning to slide 7, you can see that our strong performance is translating to our bottom line. I should point out that we have made a change to the way we calculate adjusted net income. Beginning in the fourth quarter of fiscal 24, we will no longer exclude the Barbara Nichols Supplemental Performance Bonus.

Chris: Turning to slide six.

Chris: Gross margin expanded 930 basis points to 25, 9% in the quarter.

Chris: And 570 basis points to 21, 9% for the year.

Chris: Both periods reflected higher volume and the related improved absorption.

Chris: Higher margin aftermarket sales also played a role as did margin accretive sales from the P. Three acquisition.

Chris: Lastly, we benefited through the year from improved execution and pricing on our defense contracts.

Turning to slide seven you can see our strong performance is translating to our bottom line.

Chris: I should point out that we have made a change to the way we calculate adjusted net income.

Chris: Beginning in the fourth quarter of fiscal 'twenty, four we no longer exclude the Barbara Nichols supplemental performance bonus.

Christopher J. Thome: Prior period results have been adjusted to reflect this change on a comparable basis, and you can see a supplemental data sheet filed with the SEC and provided on our website for additional history of adjusted net income and adjusted net income per diluted share. Net income in the fourth quarter of $1.3 million compares with a net loss of $481,000 in the fourth quarter of 2023. This equated to $0.12 net income per share and $0.15 of adjusted net income per share for the fourth quarter of fiscal 24.

Chris: Prior period results have been adjusted to reflect this change on a comparable basis and you could see a supplemental data sheet filed with the SEC and provided on our website for additional history of adjusted net income and adjusted net income per diluted share.

Chris: Net income in the fourth quarter of $1 3 million compares with a net loss of 481000 in the fourth quarter of 'twenty three.

Chris: This equated to 12 cents net income per share and.

Chris: <unk> 15 cents of adjusted net income per share for the fourth quarter of fiscal 'twenty four.

Christopher J. Thome: Full-year net income significantly improved to $4.6 million from just $367,000 in fiscal 23. Earnings per share for fiscal 24 were $0.42, and adjusted EPS was $0.63, a 163% increase over the prior year. Lower tax rates for the quarter and for the full year reflected higher tax credits available with higher income and increased investment in R&D.

Chris: Full year net income significantly improved to $4 6 million from just 367000 in fiscal 'twenty three.

Chris: Earnings per share for fiscal 'twenty, four was 42 cents and adjusted EPS was <unk> 63.

Chris: 163% increase over the prior year.

Chris: Lower tax rates for the quarter and for the full year reflected higher tax credits available with higher income and increased investment in R&D.

Christopher J. Thome: There was also some discrete tax expense recognized in last year's period, as well as a lower mix of income and higher-rate foreign tax jurisdictions in the current and Slide 8 is Adjusted EBITDA. Similar to Adjusted Net Income, we have made some changes to the way we calculate Adjusted EBITDA to remove the add-back of the Barbara Nichols Supplemental Performance Bonus. We are also now excluding non-cash equity-based compensation expense, which aligns more consistently with general practice.

Chris: There was also some discrete tax expense recognized in last year's period as.

Chris: As well as the lower mix of income and higher rate foreign tax jurisdictions in the current year.

Chris: On slide eight as adjusted EBITDA.

Chris: Similar to adjusted net income we have made some changes to the way we calculate adjusted EBITDA to remove the add back of the Barbara Nichols supplemental performance bonus.

Chris: We are also now excluding noncash equity based compensation expense, which aligns more consistently with general practice.

Christopher J. Thome: As with adjusted net income, prior period results have been adjusted to reflect these changes on a comparable basis. Fourth quarter adjusted EBITDA doubled to $3 million over the comparable 2023 period, while fiscal 24 adjusted EBITDA increased 56% to $13.3 million. Despite higher SG&A, Adjusted EBITDA margin expanded by 180 basis points to 7.2% and puts us solidly on track to achieve our fiscal 2027 goal of a low to mid-teen Adjusted EBITDA margin. During slide nine, we had a strong year of cash generation of $28.1 million, or more than double fiscal 23. This further improved our balance sheet while still making strategic investments both organically and inorganically. During the year, we paid off our remaining outstanding debt, which included borrowings in support of the P3 acquisition.

Chris: With adjusted net income prior period results have been adjusted to reflect these changes on a comparable basis.

Chris: Fourth quarter, adjusted EBITDA doubled to 3 million over the comparable 2023 period.

Chris: While fiscal 'twenty four adjusted EBITDA increased 56% to $13 3 million.

Chris: Despite higher SG&A adjusted EBITDA margin expanded 180 basis points to seven 2% and puts us solidly on track to achieve our fiscal 2027 call of low to mid teen adjusted EBITDA margin.

Chris: Turning to slide nine we had a strong year of cash generation of $28 1 million or more than double fiscal 'twenty three.

Chris: This further improved our balance sheet, while still making strategic investments both organically and inorganically.

Chris: During the year, we paid off our remaining outstanding debt, which included borrowings and supported the P. Three acquisition.

Christopher J. Thome: We continue to have access to a $50 million revolving credit facility, which was amended during the past year to provide greater flexibility to fund our long-term strategic growth goals and reduce our costs. Capital expenditures of $9.2 million during the year were focused on capacity expansion, productivity improvements, including factory automation, and the start of the ERP implementation at our Batavia facility. CapEx for fiscal 25 is expected to be between $10 to $15 million, of which approximately half is related to the expansion of our Batavia facility for our defense. I should point out that this will also benefit our commercial business.

Chris: We continue to have access to a 50 million revolving credit facility, which was amended during the past year to provide greater flexibility to fund our long term strategic growth goal.

And reduced our costs.

Chris: Capital expenditures of $9 2 million in the year, we're focused on capacity expansion.

Chris: Productivity improvement, including factory automation.

Chris: And the start of the ERP implementation or at our Batavia facility.

Chris: Capex for fiscal 'twenty, five is expected to be between $10 million to $15 million.

Chris: Of which approximately half is related to the expansion of our Batavia facility for our defense business.

Chris: I should point out that this will also benefit our commercial business.

Christopher J. Thome: If you turn to slide 10, you'll see we had record orders in fiscal 24 of $268 million, an increase of 32% over the prior year. Our book-to-bill ratio was an impressive 1.4 times. Sixty-six percent of the orders, or 177.4 million, were largely follow-on orders for critical U.S. Navy programs.

Chris: If you'll now turn to slide 10, you'll see we had record orders in fiscal 'twenty four of $268 million.

Chris: An increase of 32% over the prior year.

Our book to Bill ratio was an impressive one four times.

Chris: 66% of the orders or a $177 4 million.

Chris: We're largely follow on orders for critical U S Navy programs.

Christopher J. Thome: Notably, though, orders for the petrochemical market increased 55%, while space orders improved 11% to $16.8 million, helped by the addition of P3. Turning to slide 11, you'll see that our backlog was up 30% over fiscal 23, providing several years of visibility given the long lead times of some of our defense contracts. The P3 acquisition added about $6 million to our backlog. The decline on a sequential basis is to be expected, as our long-lead defense orders tend to be lumpy.

Chris: Notably, though orders for the petrochemical market increased 55%.

Chris: Base orders improved 11% to $16 8 million helped.

Chris: Helped by the addition of P. Three.

Chris: Turning to slide 11, you'll see that our backlog was up 30%.

Chris: Over fiscal 'twenty, three providing several years of visibility given the long lead times of some of our defense contracts.

Chris: The P. Three acquisition added about 6 million to our backlog.

Chris: The decline on a sequential basis as to be expected as our long lead defense orders tend to be lumpy.

Christopher J. Thome: Approximately 35% to 40% of our backlog is expected to convert to sales in fiscal 2025, and another 25% to 30% is expected to convert to sales over the following 12 months. The majority of orders that convert beyond 12 months are for the defense industry, specifically the U.S. Navy.

Chris: Approximately 35% to 40% of our backlog is expected to convert to sales in fiscal 2025.

Chris: And another 25% to 30% is expected to convert to <unk>.

Chris: Sales over the following 12 months.

Chris: The majority of orders that convert beyond 12 months or for the defense industry, specifically the U S Navy.

Christopher J. Thome: Slide 12 highlights our guidance for fiscal 25. Given the addition of P3 and our record level of orders, we're expecting revenue to be between $200 million and $210 million for fiscal 25. This implies top-line growth of 11% at the midpoint of that range. From a margin perspective, we expect continued expansion of our gross margin to a range of 22% to 233%. Additionally, our expectation for SG&A, including amortization, is to be between 16.5% and 17.5% of sales.

Slide 12 highlights our guidance for fiscal 'twenty five.

Chris: Given the addition of P. Three and a record level of orders, we are expecting revenue to be between $200 million and 210 million for fiscal 'twenty five.

Chris: This implies topline growth of 11% at the midpoint of that range.

Chris: From a margin perspective, we expect continued expansion of our gross margin to a range of 22% to 23%.

Chris: Additionally, our expectation for SG&A, including amortization to be between 16, 5% to 17, 5% of sales.

Christopher J. Thome: This includes costs associated with the Barbara Nichols Supplemental Bonus, equity-based compensation, and ERP conversion costs of approximately $6.5 million to $7.5 million. The net result is that we expect adjusted EBITDA for fiscal 25 to be between $16.5 million and $19.5 million, which implies a 35% increase at the midpoint. The range also implies an adjusted EBITDA margin of 9% at the midpoint, or nearly a 200 basis point improvement over this past fiscal

Chris: This includes costs associated with the Barbara nickel supplemental bonus <unk>.

Chris: Equity based compensation and ERP conversion cost of approximately $6 5 million to seven and a half million dollars.

Chris: The net result is that we expect adjusted EBITDA for fiscal 'twenty five.

Chris: Between <unk> 16, and a half million to $19 5 million.

Chris: Which implies a 35% increase at the midpoint.

Chris: The range also implies an adjusted EBITDA margin of 9% at the midpoint.

Chris: Or nearly 200 basis point improvement over this past fiscal year.

Christopher J. Thome: I should point out that our adjusted EBITDA guidance reflects our revised method of determining adjusted EBITDA and only excludes equity-based compensation and ERP conversion costs from EBITDA, but not the Barbara Nichols Supplemental Performance Bonus. We are delivering continuous improvement and are solidly on track to achieve our long-term fiscal 2027 financial goal. We continue to expect 8 to 10% annualized organic revenue growth per year, which implies $240 million to $250 million in revenue for fiscal 2027, based on the fiscal 25 guidance we just provided. And with margins improving steadily, we believe we are on track to achieve our low to mid-teen adjusted EBITDA margin goal. With that, I will pass the call back to Dan.

Chris: I should point out.

Chris: That our adjusted EBITDA guidance reflects our revised method of determining adjusted EBITDA and only excludes equity based compensation and ERP and Kurt ERP conversion costs from EBITDA.

But not the barber nickel supplemental performance bonus.

Chris: We are delivering continuous improvement and are solidly on track to achieve our long term fiscal 'twenty 'twenty seven financial goals.

Chris: We continue to expect 8% to 10% annualized organic revenue growth per year, which implies 240 million to $250 million in revenue for fiscal 2027.

First off our fiscal 'twenty five guidance, we just provided.

Chris: And with margins improving steadily we believe we are on track on track to achieve our low to mid teens adjusted EBITDA margin goal.

Speaker Change: With that I will pass the call back to Dan.

Dan: Thanks, Chris.

Daniel J. Thoren: On slide 13, I'll highlight our strategic and operational priorities that we expect to enable us to deliver on our long-term goals. Engaging with our customers to develop full lifecycle product opportunities is a top priority. We are seeing the results of this effort in the progress we have made with our defense aftermarket business. New equipment opportunities in the Middle East and India are growing along with aftermarket from equipment installed in the past.

Dan: On slide 13, I'll highlight our strategic and operational priorities that we expect to enable us to deliver on our long term goals.

Dan: Engaging with our customers to develop full lifecycle product opportunities as a top priority.

Dan: We are seeing the results of this effort and the progress we have made with our defense aftermarket business.

Dan: New equipment opportunities in the Middle East and India are growing along with aftermarket from equipment installed in the past.

Daniel J. Thoren: We are also developing a more proactive aftermarket plan for China for equipment we've supplied over the last 15 years. We are pleased with our progress in R&D, which is focused on improving the operational efficiency of our products to drive competitive advantage and to support our and our customers' sustainability initiatives. Continuous improvement on the shop floor has been a focus, with initiatives originating from and led by employees. New operations leadership in Batavia has been highly effective, and our investment in automated welding equipment for complex Navy jobs is estimated to save several weeks in scheduling.

Dan: We are also developing a more proactive aftermarket plan for China for equipment, we've supplied over the last 15 years.

Dan: We are pleased with our progress in R&D.

Dan: Which is focused on improving the operational efficiency of our products to drive competitive advantage and to support our and our customers' sustainability initiatives.

Dan: Continual improvement on the shop floor has been a focus with initiatives originating from and led by employees.

Dan: New operations leadership in Batavia has been highly effective and our investment in automated welding equipment for complex Navy jobs is estimated to save several weeks and scheduling.

Daniel J. Thoren: These investments stem from our expanded capital program, which will continue to support growth initiatives in all of our businesses. With no debt on the balance sheet, we are focused on investments that fuel growth and maximize shareholder return. This includes both organic and inorganic initiatives. Early returns on capital investments over the past two years have been promising, aligning with our expectations. Our CapEx plan for fiscal 25 is to invest approximately 5 to 10 percent of revenue.

Dan: These investments stemmed from our expanded capital program that.

Dan: That will continue to support growth initiatives in all of our businesses.

Dan: With no debt on the balance sheet, we are focused on investments that fuel growth and maximize shareholder return.

This is both organic and inorganic initiatives.

Dan: Early returns on capital investments over the past two years have been promising aligning with our expectations.

Dan: Our Capex plan for fiscal 'twenty, five is to invest approximately 5% to 10% of revenue.

Daniel J. Thoren: We are targeting projects with expected ROIs greater than 20%, further underscoring our commitment to growth, profitability, and creating shareholder value. We believe in involving all stakeholders in enhancing our operations. This includes increased community engagement, supplier development, and ongoing training and apprenticeship programs to support our associates. Moving forward, our nearly $400 million in backlog and the rising demand from the Navy for expedited projects and broader objectives create an exciting time for our Graham team.

Dan: We are targeting projects with expected rois greater than 20%.

Dan: Further underscoring our commitment to growth profitability and creating shareholder value.

We believe an involving all stakeholders and enhancing our operations. This includes increased community engagement supplier development.

Dan: And ongoing training and apprenticeship programs to support our associates.

Moving forward, our nearly $400 million of backlog and the rising demand from the Navy for expedited projects and broader objectives create an exciting time for our Gram team.

Daniel J. Thoren: I want to thank all of our associates who made Fiscal 24 such a success and who are as passionate about our future as I am. With that, Rob, we can open the call to questions. Thank you.

Dan: I want to thank all of our associates, who made fiscal 'twenty for such a success and who are as passionate about our future as I am.

Speaker Change: With that Rob we can open the call for questions.

Speaker Change: Thank you.

Operator: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Speaker Change: This time, we'll be conducting a question and answer session.

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Speaker Change: For participants using speaker equipment maybe.

It may be necessary to pick up your handset before pressing the star keys.

Operator: One moment, please, while we poll for questions, and once again, that's star number one. Thank you. Thank you. And our first question today will be coming from the line of Joe Gomez with Noble Capital Markets. Please receive your question.

Speaker Change: One of them please pull for questions and once again that starwood. Thank you.

Speaker Change: Yeah.

Speaker Change: Thank you. Our first question today will be coming from the line of Joe Gomes with Noble capital markets. Please proceed with your questions.

Joe Gomez: Good morning; congratulations on the quarter and the full year. Thanks, Joe. Thanks, Joe. I wanted to start just on some of the estimates you had put out previously or the guidance you kind of put up previously. Wanted to get a little more color here. So like SG&A as a percent of revenue for the year, um, I think it came in a little over 18%; the forecast was 16 to 17%. I'm just looking for a little more color there, unadjusted EBITDA. You originally talked about it being 15 to 16 million, or 9% of revenue came below that, but was all of that just due to the change in calculation there, or was there anything else there?

Joe Gomes: Good morning, and congrats on the quarter and the full year.

Speaker Change: Thanks, Joe Thanks, Joe.

Joe Gomes: I wanted to start.

Speaker Change: Just on some of the <unk>.

Speaker Change: Estimates you had put out previously our guidance kind of you put out previously and just.

I wanted to get a little more color here, so like SG&A as a percent of revenue for the year I think came in a little over 18% of forecast was 16% to 17%.

Speaker Change: Just looking for a little more color there on adjusted EBITDA.

Speaker Change: You originally had talked about it being $15 million to $16 million or 9% of revenue came below that but it was all of that just due to the.

Speaker Change: Change in calculation, there or was there anything else there.

Christopher J. Thome: Yeah, good question, Joe. So our SG&A percentage in the quarter was a little bit higher than our normal run rate. And a couple factors that were driving that were the Barbara Nichols supplemental earn-out bonus that you just referred to, as well as just a general overall increase in performance-based compensation, which is directly tied to our results. So as our results improve, the performance-based compensation goes up. Additionally, professional fees were also up in the quarter.

Speaker Change: Yeah good questions. So.

So our SG&A percentage in the quarter was a little bit higher than our normal run rate and a couple of factors that were driving that is the Barbara nickel supplemental earn out bonus that you just referred to as well as just the general overall increase in performance based compensation, which is directly tied to.

Speaker Change: Our results so as our results improves.

Speaker Change: Performance based compensation goes up.

Additionally, professional fees were also up in the quarter. So I would say the current quarters.

Christopher J. Thome: So I would say the current quarter's SG&A percentage was a little bit higher than normal. As you saw from the release today, we are projecting 16.5% to 17.5% next year, as that still includes the supplemental bonus for Barbara Nichols. On an adjusted EBITDA basis, you're absolutely correct. Last quarter, we guided $15 to $16 million, but that included, and excluded the impact of the Barbara Nichols bonus. But it did not exclude stock-based compensation.

Speaker Change: SG&A percentage was a little bit higher than normal.

Speaker Change: As you saw from the release today, we are projecting 16, 5% to 17, 5%.

Next year is that still is that still includes the supplemental bonus for Barbara Nichols.

Speaker Change: On an adjusted EBIT basis, Youre, absolutely correct last quarter, we guided 15 to 16 million, but that included.

Speaker Change: The are that excluded the impact of the Barber Nichols bonus.

Speaker Change: But it but it did not exclude.

Speaker Change: Stock based compensation so during the quarter as I mentioned in my comments, we tweak the way that we do the calculation.

Christopher J. Thome: So during the quarter, as I mentioned in my comments, we changed the way that we do the calculation. So on an apples-to-apples basis, if you add back $4.3 million for the Barber-Nichols earn-out bonus and if you back out stock-based comp costs, which was not in our previous guidance, we actually would have been at $16.2 million of adjusted EBITDA, which was just above the high end of the range.

Joe Gomez: Okay, thanks for that clarification. It is much appreciated.

Speaker Change: So on an apples to apples basis, if you back out the Barber nickels performance bonus of $4 3 million or I'm, sorry, if you add back $4 3 million for the Barber Nichols earn out bonus S.

Speaker Change: And if you back out ERP or I'm, sorry stock based comp costs, which was not in our previous guidance. We actually would have been done at $16 2 million of adjusted EBITDA, which was just above the high end of the range.

Joe Gomez: And then when you talk about aftermarket sales, it looks like you've included some defense aftermarket sales when, previously, I think it was more towards the refining area and in the petrochemical industry. I'm just wondering, you know, why are you including defense now? And do you have a number that is just kind of the refining in petro? I think, you know, the first three quarters of the year were running in that, you know, nine to 10 million, even a little bit more than that level. Just wondering what that was for the fourth quarter? Yeah, so

Speaker Change: Okay. Thanks for that clarity much appreciate it.

Speaker Change: And then when you talk about aftermarket sales.

Speaker Change: It looks like now you've included some defense aftermarket sales when previously I think it was more towards the refining.

Speaker Change: Area and in the petrochemical and I'm just wondering why are you, including the defense now and do you have a number that is just kind of refining and Petro I think the first three quarters of the year. It was running in that you know $9 million to $10 million, even a little bit more than that.

Speaker Change: Level, just wondering what that was for the fourth quarter.

Christopher J. Thome: Yeah, so as you know, part of our strategic objectives is to provide full life cycle support for our customers, which includes design all the way up through aftermarket sales. And you are correct.

Speaker Change: Yeah. So as you know, it's you know part of our strategic objectives is to <unk>.

Speaker Change: Provide a full lifecycle support for our customers So which includes design all the way up through aftermarket sales and you are correct historically, our aftermarket sales have been concentrated around.

Christopher J. Thome: Historically, our aftermarket sales have been concentrated around refining and petrochemical, but this past year, our defense aftermarket sales, particularly within Barber Nichols, have really grown. So we felt it was important to start including that in our aftermarket sales since it's been so significant. So for the year, we were around 35 million in aftermarket sales for refining and petrochemical and about 5 million for the defense aftermarket.

Speaker Change: Refining and petrochemical, but over this past year our defense.

<unk> aftermarket sales, particularly within Barbara Nicholls has really grown so we felt it important to start including that in our aftermarket sales since it's been.

Speaker Change: It has been so significant so for the year, we were around $35 million of air aftermarket sales to refining in petrochemical and about $5 million for defense aftermarket.

Joe Gomez: Great. Thanks for that. I'll get back in queue.

Speaker Change: Great. Thanks for that I'll get back in queue.

Joe Gomes: Thank you Joe.

Operator: Our next questions are from the line of Dick Ryan with Oak Ridge Financial. Please proceed with your questions.

Our next questions are from the line of <expletive> Ryan with Oak Ridge Financial. Please proceed with your question.

Richard Allen Ryan: Thank you. Also, I have my congratulations on the strong performance, guys.

Thank you also add my congratulations on a strong performance.

Richard Allen Ryan: Say Chris, you talked about the gross margin getting unshackled from the first articles. Will there be any drags on any projects in fiscal 25 on the gross margin line? Or should we see kind of what we saw in the fourth quarter, you know, gradually, getting into that?

Speaker Change: Hey, Chris.

Speaker Change: Sorry, Chris can you talk about the gross margin getting on shelf from the first article.

Speaker Change: Will there be any drag that any projects.

Speaker Change: That's about 25 in the gross margin line.

Speaker Change: Or shall we say kind of what we saw in the fourth quarter.

Speaker Change: Gradually improve.

Speaker Change: Yeah.

Christopher J. Thome: Yeah, so we do still have a small amount of lower-margin first article work that's in our backlog. However, as a percentage of the overall backlog, it's much smaller than it was a few years ago. You know, we would always hope to have a certain percentage of backlog that is first article work, right, because that just means we're winning new programs from the Navy. So we will always have some.

Yeah.

Speaker Change: Yes, so we do still have a small amount of lower margin first article work that's in our backlog however, as a percentage of the overall backlog, it's much smaller than where it was a few years ago.

Speaker Change: We would always hope to have a certain percentage of backlog.

Speaker Change: That is first article work right because that meet that just means we're winning new programs from the Navy. So we will always have some.

Richard Allen Ryan: But as a percentage of the overall backlog, it'll get less. As far as fiscal year 25, we do expect some drag still. But again, it won't be as to the magnitude of what it was in years past, which is why we gave guidance to a higher gross margin of 22% to 23% next year.

Speaker Change: But it won't as a percentage of the overall backlog it'll get less as far as fiscal year 'twenty five.

Speaker Change: Do expect some drag still.

Speaker Change: But again it won't be as to the magnitude of what it was in years past, which is why we gave guidance to a higher gross margin of 22% to 23%.

Speaker Change: Next year.

Daniel J. Thoren: Okay, great. Thanks. So Dan, you talked about the investments being made in Batavia, allowing for higher capacity, but you also alluded to potentially increasing the scope of business. Can you give us a sense of what that might yield over the next few years?

Speaker Change: Okay, great. Thanks, So Dan you talked about the investments being made in Batavia.

Speaker Change: Allowing for higher capacity, but also you alluded to potentially increasing the scope of business can you give us a fab so what that ideal.

Speaker Change: Two years.

Daniel J. Thoren: Yeah, absolutely. I won't be able to give you any specific numbers, but I can tell you that the Navy has approached us about producing additional equipment. We know that the Navy is working on the SSN Act, which is the next generation attack submarine, the design of which, and Graham has a small part in that, helping them to design heat exchangers. But beyond that, the U.S. government really is making a bunch of effort to develop their supply chain and get ships and submarines built faster.

Speaker Change: Yeah, absolutely I won't be able to give you any specific numbers, but I can tell you that that.

Speaker Change: The Navy has approached us about about producing additional equipment.

Speaker Change: We know that.

Speaker Change: Navy is working on the S. S N X.

Which is the next generation attack submarines that design of such.

And Graham is has a small part and that helping them to.

Speaker Change: To design heat exchangers.

Speaker Change: But beyond that the U S government really is putting a bunch of effort to develop their supply chain and get ships and submarines.

Daniel J. Thoren: So we're getting opportunities to bid on equipment that we haven't built in the past. So to Chris's point, it's a nice opportunity to get equipment on these long-term strategic programs, and we're going to be pretty careful about overcommitting and not getting into a position of taking on a whole bunch of first articles. But that continual ability to refresh yourselves and grow the business in a controlled manner is exactly what we're looking for.

Chris: Easter So we're getting opportunities to bid on equipment that we have not built in the past so to Chris's point.

Chris: It's a nice opportunity to to get equipment on these long term strategic programs.

Chris: And we're going to be pretty careful about you know over committing and not getting into a position.

Chris: Of of taking on a whole bunch of first articles, but at continual ability to refresh yourselves and grow the business in a controlled manner is exactly what we're looking for and.

Daniel J. Thoren: And as we continue to perform for the Navy, I think we're going to get those opportunities. So essentially, what that does is it continues to build our revenue towards our 2027 goals into the quarter million dollar range. So we're kind of excited about that.

Chris: As we continue to.

Chris: To perform for the Navy I think we're going to get those those opportunities. So so essentially what that does is it continues to build our revenue too.

Chris: Towards our 2027 goals.

Chris: We ended the quarter million.

Chris: Dollar range. So we're kind of excited about that.

Chris: For quarter four.

Quarter billion sorry.

Yeah.

Daniel J. Thoren: So strong orders, obviously 1.4 booked the bill for the year, not asking you specifically what's in store for 25, but you announced a very strong couple of orders in energy that we haven't seen in a while. Can you give us a little color on what you think your visibility is on the energy side and also on the defense side for this year?

Speaker Change: Thanks, Don Auto's, obviously, a one four book to bill for the year.

Speaker Change: Specifically, what they are in store for 'twenty five but.

Speaker Change: The very strong a couple of orders in energy that we haven't seen in a while.

Speaker Change: Can you give us a little while.

Speaker Change: Colorado, what do you think your visibility is.

Speaker Change: Hi.

Speaker Change: And.

Speaker Change: Also on the defense side this.

Daniel J. Thoren: Yeah, absolutely. So the defense will be lumpy, as you've seen over the last several years. Those orders tend to be, for the equipment that we're supplying, very significant. And so when one of those orders hits, it's pretty significant. We've got several in the pipeline. We're expecting some of those to hit this year. But hitting one or missing one could cause some lumpiness.

This year.

Speaker Change: Yeah, absolutely so the defense will be lumpy.

Speaker Change: As you've seen.

Speaker Change: Seen over the last several years.

Speaker Change: Those orders tend to be in the equipment that we're supplying very significantly and so when one of those orders had so it's pretty significant.

Speaker Change: We've got several in the pipeline.

Speaker Change: We're expecting some of those to hit this year.

Speaker Change: But.

Speaker Change: Hitting one or missing one could cause some lumpiness on the on the Navy side is it's going to be kind of.

Daniel J. Thoren: So on the Navy side, it's going to be kind of business as usual, a little lumpy. On the refinery PetroChem side, what we're seeing, domestically, you know, North America is really moving into a maintenance kind of a mode. And so there are several studies out there that we pay attention to that track how much money will be spent in the North American market on refinery PetroChem. The refinery is strictly maintenance.

Speaker Change: Business as usual a little lumpy.

Speaker Change: On the on the refinery petrochemical side, what we're seeing.

Speaker Change: Domestically.

Speaker Change: The north.

Speaker Change: Erica is really moving into a maintenance kind of a mode and so there's there are several studies out there that we pay attention to.

Speaker Change: That track.

Speaker Change: How much money will be spent.

Speaker Change: In the North American.

Speaker Change: Market.

Speaker Change: In refinery and Petro Chem.

Speaker Change: The refinery is strictly maintenance there is a few new projects.

Speaker Change: Not many so we you know to really focus on aftermarket in North America is is where we're going and really trying to make sure that that we get our fair share of that aftermarket.

Daniel J. Thoren: There are a few new projects, but not many. So we, you know, really focus on the aftermarket in North America is where we're going and really trying to make sure that we get our fair share of that aftermarket. The new capital projects in refinery are really going to be mostly in India and Saudi Arabia. So we are very committed to our Indian group and working to strengthen that group going forward to really go after that Middle East India type of work.

Speaker Change: The new capital projects in.

Speaker Change: In refinery are really going to be mostly in India and Saudi Arabia.

Speaker Change: So were we are very committed to our India group and and working to to strengthen that group going forward.

Speaker Change: Two to really go after that that middle East India type of work.

Daniel J. Thoren: China is slow. China just really hasn't come back. And so China, we're continuing to have that group look at the Chinese market for new opportunities, but also having them now refocus a little bit more on the aftermarket in China because we've been in China for 15 plus years. So making sure that we're getting the aftermarket out of China is important, and then that Chinese sales group is going to be focusing a little bit more on Southeast Asia and some opportunities that we're seeing there.

Speaker Change: China is slow.

Speaker Change: China, just really hasn't come back and so China, where we're we're we're continuing to have that group look at the China.

Speaker Change: Market for new opportunities, but but but also hasnt, having them now refocus a little bit more on aftermarket in China, because we've been in China for 15 plus years. So so so making sure that we're getting the aftermarket out of China is important and then that China sales group, who is going to be focusing a little bit more.

Speaker Change: More on southeast Asia, and some opportunities that we're seeing there so.

Daniel J. Thoren: So the bottom line is we're seeing this in certain parts of the world, some opportunities, and where there are not new capital opportunities, we're going to go double down on our aftermarket. So the proactive approach is really important, and the refinery petrochem business will remain very important for Graham going forward.

Speaker Change: Bottom line is we're seeing this this.

Speaker Change: This.

Certain parts of the world some opportunities.

Speaker Change: And where there's not new capital opportunities, we're going to go double down on our aftermarket so.

Speaker Change: The proactive approaches is really important and.

Speaker Change: And the refinery petrochemical business will remain very important for for Gram going forward.

Richard Allen Ryan: Okay, good. Thank you for that, and again, congratulations. Thank you.

Okay.

Speaker Change: Thank you for that and again congratulations.

Speaker Change: Thank you.

Speaker Change: No.

Operator: Our next questions are from the line of Gary Schwab with Valley Forge Capital. Please submit your questions.

Speaker Change: Our next questions are from the line of Gary Schwab with Valley Forge capital. Please proceed with your questions.

Gary Schwab: Yeah, hi Dan and Chris. Ditto, confirmation, great execution across the board. Um, I have just a quick update. You mentioned automated welding a couple of times on the call. That automated welder that you ordered back in 22 is in and operating?

Gary Schwab: Yeah, Hi, Dan and Kriss Ditto confirmation great execution across the board.

Speaker Change: Yeah.

Speaker Change: I have just a quick update you mentioned automated welding a couple of times on the call.

Speaker Change: That automated well there that you would back in 'twenty, two that's in and operating.

Daniel J. Thoren: Yeah, yeah, so what we're doing with, we've got a couple now in the plant, so we're developing new solutions for some of the challenging welds that we've got on some of the Navy programs. We're really liking the results.

Yeah, Yeah. So so what we're doing.

Speaker Change: With we've got a couple now in plant.

Speaker Change: So we are developing.

Speaker Change: New solutions for some of the challenging.

Speaker Change: Wells that we've got on some of the Navy programs.

Speaker Change: We're we're really liking the results.

Daniel J. Thoren: Chris and I actually got to go down to the floor and and watch it operate. It's a fantastic machine that that is it's measuring a lot both visually and and from sensors as to what's going on with the weld is as that goes around. It is programmed such that it can continuously weld and so you see a lot of reduction in time that is spent welding a particular segment and and essentially you know after you get done and you go back and you do some NDT x-ray for instance to to verify the quality of the weld you know if you pick up something within the x-ray then you can go back to the data and and see exactly what happened when and it's it's going to to really change especially some of the really complex welding that we do and make it a lot more a lot less art and a lot more science.

Speaker Change: Chris and I actually got to go down to the floor and.

And why should operate.

It's a fantastic machine.

Speaker Change: That is it's measuring a lot both visually and and from sensors as to what's going on with the world as that goes around it.

Speaker Change: As programs such that it can continuously world.

Speaker Change: And so you see a lot of a of a.

Speaker Change: Reduction in time.

Speaker Change: That is spent welding at a particular segment.

Speaker Change: And and essentially you know after you get done and you go back and you do some N D. T. X-ray for instance to to verify the quality of the world.

Speaker Change: If you pick up something within the X-ray then you can go back to the data and see exactly what happened when.

Speaker Change: And it's going to to really change.

Especially some of the really complex welding that we do.

Speaker Change: And make it a lot more a lot less art.

Speaker Change: And a lot more science.

Daniel J. Thoren: And so we're really excited about what we're seeing thus far in our development efforts, and And I hope that we can apply more of those now, you know, as part of this Navy investment. We ordered seven more. And so, we're expecting some pretty significant automation within the Navy programs, and then we'll also apply it to our commercial programs and in situations where, you know, the automation can really provide some benefit.

Speaker Change: And so we're really excited about what we're seeing thus far in our development efforts and hope that that we can apply more of those now you know as part of this Navy investment we ordered seven more.

Speaker Change: And so so we're we're expecting some pretty significant to automation.

Speaker Change: Within the Navy programs and then we'll also apply it to our commercial programs in the situations where.

Speaker Change: You know the the automation can really provide some benefit.

Gary Schwab: That sounds great. Can you add some color?

Speaker Change: That sounds great.

Speaker Change: Can you add some color where all those machines going are any of them going into the original plant or are they all going to have to go into the new plant.

Speaker Change: There'll be there'll be a mix between.

So so some of this space that.

Speaker Change: We're currently doing the Navy program.

Speaker Change: That will move into the into the new building.

We will allow for.

Speaker Change: Installation of some of those machines in that whole space, so it'll be a mix of both mhm.

Speaker Change: Now you said youre going to start <unk>, the new plant in July when do you think it will be finished and are you going to operationally phase it in or do you expect.

How is that all going to work.

Daniel J. Thoren: Where are all those machines going? Are any of them going to go back into the original plant, or are they all going to have to go into the new plant?

Speaker Change: So so we break ground in July and in our current schedule shows that we get a certificate of occupancy basically a year later June July of 2025.

Daniel J. Thoren: They'll be mixed between both. So some of the space that we're currently doing, the Navy program, that will move into the new building will allow for the installation of some of those machines in that old space. So it'll be a mix of both.

Speaker Change: But we're going to be able to start to utilize some of the equipment that has been funded by the Navy beforehand. So for instance, we are we were able to get some roles that.

Speaker Change: Enable some of the rolling of the big place that we use around here.

And that role is.

Speaker Change: As in house, we're modifying the building that will be that it will be installed in today.

Speaker Change: And we expect that the roles.

Speaker Change: Will be up and functioning here in the next month or so.

Speaker Change: Okay.

Speaker Change: Some of the automated welders, obviously, we're going to be able to start to set those up.

Speaker Change: As we as they come in and as we have time to to work to develop some of these new welding processes. So it'll be a very very a lot of in parallel kind of activities. While the building is being built.

Speaker Change: The Navy wants us to go go go in and so we are.

Speaker Change: Yeah, they're really pushing.

Have you designed additional open space in the new facility. If the Navy wants you to keep going or do you have to build another plant.

Speaker Change: Once this.

Speaker Change: As set up how is that going to work yeah. So we've got a kind of a long term strategic facility planned for Batavia debt.

Gary Schwab: Now you said you're going to start Batavia, the new plant, in July. When do you think it'll be finished, and are you going to operationally phase it in, or do you expect? You know, how is that all going to work?

Daniel J. Thoren: Yeah, so we break ground in July, and our current schedule shows that we get a certificate of occupancy basically a year later, June-July of 2025. But we're going to be able to start to utilize some of the equipment that has been funded by the Navy beforehand. So, for instance, we were able to get some rolls that enable some of the rolling of the big plates that we use around here. And that roll is made in-house.

Speaker Change: The first building is one of potentially three kind of side by side Bill.

Daniel J. Thoren: We're modifying the building that it will be installed in today, and we expect that the rolls will be up and functioning here within the next month or so. And some of the automated welders, obviously, we're going to be able to start to set those up as they come in and as we have time to work to develop some of these new welding processes. So it'll be a lot of in-parallel activities while the building is being built. The Navy wants us to go, go, go, and so we are.

Speaker Change: Buildings that we could put together to enable more capacity for for Navy programs and so we're thinking longer term just like the Navy is just like this.

Speaker Change: Multi decade programs are and.

Speaker Change: And as the need in and our ability to to continue to serve the Navy.

Gary Schwab: Yeah, they're really pushing. Have you designed additional open space in the new facility if the Navy wants you to keep going, or do you have to build another plant? Once this is set up, how is that going to work?

Speaker Change: Continues to grow then then we can grow our campus accordingly, so you.

Daniel J. Thoren: Yeah, so we've got a kind of a long-term strategic facility plan for Batavia that You know this the the first building is one of potentially three kind of side-by-side Buildings that that we could put together to enable more capacity for for Navy programs and so we're thinking longer term just like the Navy is just like those you know multi-decade programs are and And as the need and and and our ability to to continue to serve the Navy Continues to grow then then we can grow our campus accordingly

Speaker Change: You have to do you have room for two more buildings on your facility at your facilities there.

Gary Schwab: So you have room for two more buildings at your facilities there? Are you running at close to 100% capacity now?

Yep.

Speaker Change: Are you running at close to 100% capacity now can you add some color to that.

Daniel J. Thoren: You know, there's always room for more capacity. It's just can you man it, right? So we're running generally two 10-hour shifts. And, you know, ideally, you could run three, but it's really tough to man that.

Speaker Change: You know there's always room for more capacity is is can you manage right. So so we're running generally 210 hour shifts.

Speaker Change: And.

Speaker Change: And you know ideally you could run three but it's really tough to man that.

Daniel J. Thoren: So I would say that there's still capacity on the people side, and I will say that our welder training program is continuing to really benefit us, and I think that we graduated 15 here this fall. Last Thanksgiving, and they're hitting the production floor now. Our summer class is going to be starting up here in July. Our January class, which is coming close to the end, I think, has 12 or 18 people in it.

Speaker Change: So I was I would say that there is still capacity.

Speaker Change: On the people side, and and I will say that our welder training program is continuing to to really benefit us and.

Speaker Change: I think that we graduated 15.

Speaker Change: Here. This this.

Speaker Change: Last.

Speaker Change: Thanks, giving and they're hitting the production floor now.

Speaker Change: Our summer class is going to be starting up.

Speaker Change:

Speaker Change: Here in July our January class that is coming close to the end I think has 12 or 18 18 people out. So I mean, we're we're we're really working hard on the people side of it.

Daniel J. Thoren: So, I mean, we're really working hard on the people side of it, so we expect, you know, somewhere between 20 and 40 new welders coming out of that program every year going forward. And we're getting a really nice name around western New York about, you know, Graham does a nice job of training new employees, and it's a great place to work. So, gosh, we're feeling very fortunate to be able to both get the people and have space to continue to grow.

Speaker Change: So we expect somewhere between 20 and 40, new welders coming out of that program every year going forward and.

Speaker Change: We're getting a really nice name around Western New York about you know.

Speaker Change: <unk> does a nice job of training new employees and it's a great place to work so.

Speaker Change: We're feeling very fortunate to be able to to both get the people and have space to.

Speaker Change: To continue to grow.

Daniel J. Thoren: Our VAD is doing the same thing, Barbara Nichols. They've also got a strategic program for their facilities, and they just rolled out an apprenticeship program for machinists, which is going very well, too. So, lots of good things going on, Gary.

Speaker Change: Our bad is doing the same thing Barbara Nichols.

Speaker Change: They've also got a a strategic program for their facilities.

Speaker Change: They just rolled out a.

Speaker Change: British apprenticeship program for.

Speaker Change: For machinists.

Speaker Change: Which is which is going very well too so lots of good things going on Gary.

Gary Schwab: Thank you.

Operator: As a reminder, if you'd like to ask a question at this time, you may press star 1 on your telephone keypad. The next questions are from the line of Graham Madison with Water Tower Research. Please submit your questions.

As a reminder, if he likes to ask a question at this time you May press star one from your telephone keypad.

Speaker Change: Our next questions are from the line of Graham Madison with water Tower Research. Please proceed with your questions.

Graham Madison: Hi, good morning everyone. Again, congratulations on the progress you guys have made in the last few years.

Hi, good morning, everyone and again congratulations on the progress you guys have made in the last few years one question on the EBITDA guidance.

Graham Madison: One question on the EBIDTA guidance. It's a nice step up from last year, but what gets you to the higher end of the range versus the lower end of the range? Is it just as simple as the leverage from the additional revenue, or are there some other initiatives that could move the needle there?

Speaker Change: Yeah, It's a nice step up from last year, but what gets you to the higher end of the range versus the lower end of the range is it just something is it just as simple as that.

Speaker Change: The leverage from the additional revenue or are there some other initiatives that could move the needle there for.

Christopher J. Thome: For fiscal year 25 guidance? Yes. Well, it really comes down to execution, right? As you know, we have 400 million, nearly 400 million in backlog. So it really just comes down to execution. So, you know, do we get all the materials in time? Are we able to hire and train Dan just walked you through enough direct labor in time?

Speaker Change: For the fiscal year 'twenty five guidance.

Speaker Change: Yes.

Speaker Change: Well it really comes down to execution right. As you know, we have a 400 million nearly $400 million of backlog.

Speaker Change: So it really just comes down to execution. So do we get all the materials in time are we able to hire and train that Dan just walked you through enough direct labor and time.

Speaker Change: As you know we are a direct labor business. So as our direct labor goes so does our revenue and we know this past year, we grew our direct labor almost 10% and we had budgeted another 10% increase for next year, which as you know in this environment is not necessarily easy to do but the H.

Speaker Change: Our teams have done a great job in executing and bringing people onboard and.

Speaker Change: Again, it really just comes down to execution.

Speaker Change: Okay great.

Graham Madison: Thank you. And then on the last call, you talked about P3 and getting some traction on the cryogenic pumps. Is there any LNG terminal outlook in your forecast for that market? Or is that a possibility that should things change post-November since we're looking at potential? a lame duck president one way or the other, the likelihood of the LNG ban being lifted?

Speaker Change: Thank you and then the last call you talked about a P. Three and getting some traction in the cryogenic pumps are is there any LNG terminal outlook in your forecast for that market or is that a possibility that should things change post November.

Speaker Change: And yet potentially a lame duck president one way or the other the likelihood of the LNG ban being lifted.

Daniel J. Thoren: Yeah, we're not that exposed to the LNG market. Barbara Nichols makes a few liquid natural gas pumps, but they're not in production environments. I would say that the more likely opportunity for us is really on the hydrogen side. So we've been working quite a bit with several different companies as they develop solutions for the hydrogen economy. It'll be a slow, slow rollout, so we don't look at that as an immediate high growth opportunity but something that we definitely want to be on the ground floor such that when it does go, we're in a great position. I would say that we may not have gotten on the ground floor with the big LNG push, and that's why we're not expecting any significant impact on the LNG side.

Speaker Change: Yes.

Speaker Change: We're not that.

Speaker Change: We exposed to the LNG market.

Speaker Change: Barbara Nickels makes a few are.

Speaker Change: Liquid natural gas pumps, but there, but they're not in production.

Speaker Change: Environment, So I would say that.

Graham Madison: All right, great. Thank you. Thank you for the color on hydrogen. Certainly enough money is being pumped into that sector, so the opportunity will be there. Thanks so much. I'll jump back in line.

Speaker Change: The more likely opportunity for us is really on the hydrogen side.

Speaker Change: So we've been working quite a bit with several different companies as they develop solutions for the hydrogen economy.

Speaker Change: It'll it'll be a slow slow rollout. So we don't look at that.

Speaker Change: As an immediate high growth opportunity, but something that we definitely want to be on the ground floor.

Speaker Change: Such that so that when it when it does go that we're in a great position.

Speaker Change: I would say that that we may not have gotten on the ground floor with the big LNG push.

Speaker Change: And that's why we're not expecting any significant impact on the LNG side.

Speaker Change: Alright, great. Thank you and thank you for the color on the hydrogen certainly enough money is being pumped into that segment.

Speaker Change: The African you'll be there. Thanks, so much I'll jump back in queue.

Speaker Change: Thank you.

Daniel J. Thoren: At this time, we've reached the end of our question and answer session, and I'll turn the floor over to Dan Thoren for closing remarks.

Speaker Change: At this time, we've reached end of our question and answer session now I'll turn the floor over to Dan Thornton for closing remarks.

Daniel J. Thoren: Thank you, Rob. Thank you all for joining us today. If you would like an opportunity to speak with us in more detail, we will be participating virtually in two upcoming conferences, the Sidoti Small Cap Conference on July 13th and the Northland Growth Conference on June 25th. Sidoti is on June 13th, and Northland is on June 25th. As always, please feel free to reach out to us at any time, and we look forward to talking with you again after our first quarter of Fiscal 25 results. Enjoy your day.

Speaker Change: Thank you Rob.

Daniel J. Thoren: Thank you all for joining us today.

Speaker Change: If you would like an opportunity to speak with us in more detail, we will be participating virtually in two upcoming conferences.

Daniel J. Thoren: The Sidoti small cap conference on July 13th and the Northland growth Conference on July <unk>.

Speaker Change: June 25th I'm, sorry, Sidoti is June 13th Northland is June 25th.

Speaker Change: As always please feel free to reach out to us at any time and we look forward to talking with you again after our first quarter of fiscal 'twenty five results enjoy your day.

Operator: This will conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.

This will conclude today's conference you may disconnect your lines at this time and we thank you for your participation.

Speaker Change: Yeah.