Q4 2025 Graham Corp Earnings Call
Greetings and welcome to Graham Corporation's fiscal fourth quarter and full year of fiscal 2025 conference call.
At this time, all participants say it will be in listen only mode.
The question answer session will follow the formal presentation.
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Speaker Change: At this time I'll turn the conference over to Tom Cook Investor Relations for Graham Corporation, Tom You May now begin your presentation.
Speaker Change: Thank you, Rob and good morning, everyone welcome to Graham's fiscal fourth quarter and full year 2025 earnings call with me on the call today are Dan Doron, CEO, Christophe CFO and that alone President and CFO. This morning, we released our financial results our earnings release and accompanying presentation today's call are available.
Speaker Change: On our website at IR Doc Graham Corp, Dot com.
Speaker Change: Be aware that we may make forward looking statements during the formal discussion as well as during the Q&A session. These statements apply to future events.
Speaker Change: Subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These.
Speaker Change: These risks and uncertainties and other factors are provided in the earnings release as well as with other documents that are filed by the company with the Securities and Exchange Commission you can find these documents on our website or at SEC Gov. During.
Speaker Change: 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 in isolation or as a substitute for results prepared in accordance with GAAP we.
Speaker Change: We have provided reconciliations of non-GAAP measures to 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.
Speaker Change: These key performance metrics are Archie.
Speaker Change: There's backlog and book to Bill ratio. These are operational measures and a quantitative reconciliation is not required work provided.
Speaker Change: You can find a disclaimer regarding our use of kpis at the back of today's presentation.
Dan Doron: So with that if you'll please advance to slide three I'll turn it over to Dan to begin Dan.
Dan Doron: Thank you Tom.
Dan Doron: Good morning, and welcome everyone to our fourth quarter.
Dan Doron: And full year fiscal 2025 earnings call.
I'm pleased to report we finished the year with strong momentum as our full year revenue grew approximately 13%.
Dan Doron: So $210 million and adjusted EBITDA increased 69%.
Dan Doron: $222.4 million or.
10, 7% as a percentage of sales.
These results reflect the continued long term demand of our product portfolio and solid execution of our business plan.
I'd, particularly like to highlight our record backlog of $412 million as of March 31.
Up 7% sequentially.
Dan Doron: Additionally, our book to Bill ratio was 1.1.
Dan Doron: The fifth year in a row book to Bill was over one pointed out.
Dan Doron: This underscores our strong market position and deep expertise in delivering highly engineered mission critical products.
Speaker Change: Before I turn it over to Matt, who will outline our stabilize improve growth strategy.
Speaker Change: And then to Chris for a detailed review of our financials.
Speaker Change: I'd like to first highlight our end markets and recent commercial successes followed by an update on key strategic initiatives that are beginning to deliver results.
Speaker Change: On the defense side, we continue to be a key supplier for U S Navy programs, including both the Columbia Class and Virginia class submarine programs.
Other vital shipbuilding initiatives.
Speaker Change: This is demonstrated by our recently announced $136 5 million dollar contract award to.
Speaker Change: To provide mission critical equipment for the Virginia class submarine program.
Speaker Change: Our Barbara Nicole's Division has been integral to the Virginia class submarine program.
Speaker Change: Since the 19 eighties, given our strong performance of high quality on time production.
Speaker Change: Additionally, this latest contract builds upon our successful execution of previous work for these types of multiyear programs.
Speaker Change: As that relationship with the U S. Navy deepens. These multiyear programs provide graham with stable recurring revenue as.
Speaker Change: As well as strong visibility into our future revenue for years to come.
Speaker Change: Additionally, we announced last month that we secured a strategic investment from one of our key defense customers.
Speaker Change: The investment of $2 $2 million will enhance our capabilities and evaluating critical wells and supportive of Columbia, and Virginia class submarine programs.
Speaker Change: As part of the investment.
Speaker Change: Graham will also contribute $1 4 million for a total project cost of $36 million.
Speaker Change: This builds upon previously announced investments from partners.
Speaker Change: The $13 5 million dollar investment to support our capacity expansion initiatives and a $2 1 million grants by Blue forged alliance to expand our welder training program and equipment.
Speaker Change: In our energy and process side of the business, our diversified product portfolio and innovative solutions are driving continued demand and customer interest.
Speaker Change: Revenue for the year was up 1% year over year, reaching $73 million for fiscal 2025.
Speaker Change: From a capex perspective in fiscal 2025, we deployed $19 million of capital demonstrating our commitment to future growth and our product life cycles.
Speaker Change: Looking ahead for the next few years, we expect capital expenditures to be approximately 7% to 10% of sales as we continue to invest in our businesses in order to support our long term organic growth goals and to gradually increase our R&D spend to the 1% to 2% of revenue.
Speaker Change: As a reminder, our maintenance capex is approximately $2 million per year.
Speaker Change: It is important to note and these strategic investments are targeting a return on investment exceeding 20%. These initiatives remain on track and on budget that includes state of the art automated welding capabilities, our 30000 square foot Batavia manufacturing facility.
Speaker Change: Enhanced assembly and testing capabilities in Arvada.
Speaker Change: Expanded X-ray capabilities in Batavia, and our cryogenic pet propellant testing facility in Florida.
Speaker Change: We expect to see all of these completed in calendar year 2025.
Speaker Change: These increased capabilities will drive increased throughput and improve quality in future years.
Speaker Change: Before wrapping up I am pleased to report that since announcing our leadership transition in February.
Speaker Change: The process could not have gone any smoother.
Speaker Change: Matt and I have been working closely together to ensure a seamless handover.
Speaker Change: To reiterate what we announced last quarter.
Speaker Change: Matt will become president and CEO, beginning Tomorrow June 10.
Speaker Change: And I will be moving to a strategic adviser role focused on corporate development and become executive chairman.
Speaker Change: Jon painter, our current chairman will become lead independent director.
Speaker Change: This succession plan reflects our strong ability as a company to develop internal talent.
Speaker Change: Yours continuity and our strategic vision highlighted by the internal promotion of match and Mike Dickson, who has this who has assumed the role of VP and general manager of Barbara Nichols.
Speaker Change: His leadership capabilities industry knowledge are second to none which is what made him an easy candidates nominated for this role.
Speaker Change: As I mentioned in last quarter's earnings call, Matt has demonstrated exceptional leadership as general manager of Barbara nickel since 2021 <unk>.
Speaker Change: Delivering impressive results, including 9% compound annual revenue growth and achieving double digit revenue growth in each of the last two years.
Speaker Change: I am more than confident that Matt has what it takes along with our strong bench of leaders, who will support him and share his vision and taking Graham to the next level.
Speaker Change: These past four years have been the most challenging yet most intellectually stimulating period of my career.
Speaker Change: We have successfully transformed graham into a well diversified business with great visibility and a strategic plan that implements continual improvement with investments to position us for sustainable growth and improving profitability.
Speaker Change: I am, particularly proud of our team's dedication and resilience in turning this business around.
Speaker Change: I'm highly confident in our strategic direction and our ability to capitalize on the opportunities ahead under Matt's leadership.
Speaker Change: Our investments in automation facility expansion and new technologies are creating a strong foundation for future growth.
Speaker Change: The combination of our robust backlog strategic market position and operational improvements position us well to achieve our long term goals of 8% to 10% organic revenue growth at <unk>.
Speaker Change: Low to mid teens, adjusted EBITDA margins by fiscal 2027.
Speaker Change: Finally, I want to take a moment to express my deepest gratitude.
Speaker Change: To our employees your dedication resilience.
Speaker Change: And commitment to excellence have been instrumental in transforming our company.
Speaker Change: Your hard work has helped us navigate challenges and emerge stronger than ever.
Speaker Change: And to our customers.
Speaker Change: Thank you for your continued trust and partnership.
Speaker Change: It's been honored to lead this remarkable organization.
Speaker Change: I look forward to continuing to contribute to Graham success in.
Speaker Change: In my new role as executive Chairman.
Mats: Now I'll turn it over to Mats mats.
Mats: Thank you Dan and good morning, everyone I will begin my remarks on slide five.
Speaker Change: First I want to acknowledge Dan's tremendous leadership and stabilizing and transforming Graham Corporation, particularly with resetting the corporate strategy and driving consistent results under.
Speaker Change: Under his direction, we've established a strong foundation for sustainable growth moving forward at.
Speaker Change: At the end of fiscal year 2022, we introduced our five year strategic vision to provide investors insight into where we are headed.
Speaker Change: Since then we've executed on the first phase stabilize which we focused on rebuilding the foundation of the business across people processes structure and core operating fundamentals.
Speaker Change: All under the umbrella of continuous improvement.
Speaker Change: This foundational work is now complete and we're leveraging that momentum as we evolve into the next phases of improve and growth.
Speaker Change: Which all go hand in hand.
Speaker Change: I'll walk through these in more detail, let's start on slide six with where we've been.
The stabilized phase initiated under the new leadership team, we focus on resetting our strategy and positioning the business for sustainable success, we address critical areas, including process rigor customer engagement employee alignment and the completion of low margin legacy jobs and since rolling out our.
Speaker Change: The plan in the mid 2022, we've consistently delivered results in line with expectations.
Speaker Change: A few highlights revenue more than doubled from $97 $5 million to over $210 million, while we reshaped our portfolio from 75% commercial and 25% defense to a more balanced 40% commercial and 60% defense mix we.
Speaker Change: Executed.
Speaker Change: Doesn't organic capital projects, each exceeding our 20% ROIC hurdle, including the Mark 48 production ramp up and the Arvada machine shop expansion.
Speaker Change: Backlog tripled from $138 million to $412 million enhancing visibility and supporting disciplined capital deployment.
Speaker Change: Adjusted EBITDA declined from six 1% to a low of minus three 4% during fiscal year 2022 <unk>.
Speaker Change: During the Companys reset we have since improved steadily to over 10, 7% today with a clear path towards low to mid teens.
Speaker Change: By fiscal year, 'twenty, seven less than one year away.
Speaker Change: Okay.
Speaker Change: Turning to slide seven.
Speaker Change: With the stabilized phase behind US we've now moved into the improved phase with a focus on completing high ROIC capex implementations to realize returns.
Speaker Change: In fiscal 2026, we expect to complete a high or a number of high ROIC projects with benefits beginning to flow in fiscal 2027 and beyond.
Speaker Change: But even now we are laying the groundwork for the growth phase.
Speaker Change: We see strong tailwind across all three of our core markets, including defense energy and process and space and we are aligning both organic and inorganic investments to capture that opportunity.
Speaker Change: In defence rising demand for naval platforms is driving significant investment we're responding with a new 30000 square foot Navy focus facility in Batavia, New York, which features automated welding optimize product flow and advanced machining to accelerate throughput.
Speaker Change: This $17 $5 million initiative.
Speaker Change: Is being supported by a $13 5 million customer grant additional.
Speaker Change: Investments include a renovated Navy overhaul center, a new X-ray facility and enhanced workforce development programs.
Speaker Change: In energy and process markets, we're advancing innovations like our nextgen novel for vacuum distillation towers, which can reduce steam consumption by up to 10% or increased throughput.
Speaker Change: An opportunity we believe could generate 50 plus million dollars of revenue over the next five years to 10 years.
Speaker Change: We're also building a state of the art cryogenic test capabilities in Arvada in Jupiter, Florida to serve the internal needs of our customers lacking testing capacity.
Speaker Change: <unk>, thus far has been very strong and our team is busy fielding customer inquiries.
Speaker Change: Many of these investments our cross functional and scalable from automated welding and expanded R&D to workforce training and will position us well for future growth.
Speaker Change: In parallel we're enhancing our internal operations through initiatives, such as our new ERP system in Batavia, and our recently secured $50 million credit facility to support future growth, both organic and inorganic.
Speaker Change: Many of these initiatives will come online at the end of calendar 2025 with benefits to follow in fiscal year 2027, after a short ramp up phase.
Speaker Change: Now as we introduce the growth phase we're focused on key four key growth drivers product lifecycle expansion commercialization global reach and digital transformation.
Speaker Change: We've broken the product lifecycle into three stages value identification value creation and value extraction.
Speaker Change: Historically Graham has excelled at value creation, delivering highly engineered custom solutions.
Speaker Change: Going forward, we aim to multiplier impact by extending our reach into the value identification and extraction.
Speaker Change: As Dan transitioned to executive chair, he will lead our efforts in proactively identifying emerging market needs and aligning them with our technology roadmap.
Speaker Change: This will broaden our focus beyond engineering execution, two early stage value identification.
Speaker Change: We're also working to commercialize our deep product library of proprietary technologies shifting from one off solutions to scalable offerings that can serve multiple markets and customers.
Speaker Change: Internationally, we're expanding the global footprint to better support customers and cost sensitive regions and unlock additional aftermarket opportunities across our greater than $1 billion global installed base.
Speaker Change: Digitally revolving our systems to be smarter and more proactive starting with the aftermarket using tools like AI to enhance efficiency responsiveness and repeatability.
Speaker Change: And finally, we continue to evaluate M&A opportunities that align with our core markets and accelerate our product lifecycle strategy from value creation to value extraction.
Speaker Change: To wrap up our strategy is clear the foundation is in place and the momentum is building the transformation we set in motion in fiscal year 2022 has taken hold and we are now firmly on the path towards our fiscal year 2027 targets and the long term value creation.
Speaker Change: With that I will turn it over to Chris to cover our results in more detail Chris.
Chris: Thanks, Matt.
Chris: Good morning, everyone.
Chris: I will begin my review of results on slide nine, but first I would like to point out that we have updated our end market disclosures to better align with how we evaluate our business and product portfolio.
Chris: As part of this change revenue previously classified as refining chemical petrochemical and other which included new energy product sales are now consolidated into one market, which has been renamed energy and process.
Chris: The defense and space end market classifications remain unchanged.
Chris: Prior period amounts have been updated to reflect this change.
Chris: And with that let's begin.
Chris: We had strong growth for our fourth quarter of fiscal 2025 with sales of $59 3 million. This was up 21% over the prior year and included growth across all markets.
Chris: Sales to the defense market grew by $7 7 million or 28% from the prior year period, driven by growth in existing programs better execution improved pricing.
Speaker Change: And the timing of key project milestones.
Speaker Change: Energy and process sales contributed $1 8 million to growth driven by increased sales of capital equipment to the middle East and Asia and higher aftermarket sales.
Speaker Change: Aftermarket sales to the energy and process and defense markets of $12 1 million remains strong and were 3% higher than the prior year.
Speaker Change: Looking at the full year, you can clearly see the effectiveness of our strategic initiatives.
Speaker Change: We achieved record sales of $209 9 million in fiscal 2025, which was up $24 4 million or 13% over fiscal 2024.
Speaker Change: This growth has primarily been organic and it's been driven by strong defense sales, which was up 23%.
Speaker Change: Having a full year of <unk> three results contributed $2 8 million to this increase which was primarily to the space and defense markets.
Speaker Change: Turning to slide 10, gross margin expanded 110 basis points to 27% in the quarter and 330 basis points to 25, 2% for the year.
Speaker Change: Both periods reflected leverage on higher volume better execution and improved pricing.
Speaker Change: Additionally, fiscal 2025 gross profit benefited $1 3 million or 62 basis points in margin from the Blue Forge Alliance Welder training Grant received earlier this year to reimburse us for the cost of our defense well their training program in Batavia.
Speaker Change: We currently do not expect to receive an additional training grant in fiscal 2026.
Speaker Change: Turning to slide 11, you can see how our strong performance is translating to the bottom line.
Speaker Change: Fourth quarter net income was $4 4 million compared to $1 3 million in the prior year.
Speaker Change: This equated to <unk> 40 per share on a GAAP basis, and 43 per share on an adjusted basis for the quarter.
Speaker Change: Full year net income significantly improved as well to $12 2 million from $4 6 million in the prior year.
Speaker Change: Earnings per share on a GAAP basis for fiscal 2025 was a dollar of <unk> 11 per share and adjusted EPS was $1 24 per share a 97% increase over the prior year.
Speaker Change: We saw strong fourth quarter and full year 2025, adjusted EBITDA performance as well.
Speaker Change: For the quarter adjusted EBITDA was seven 7, million% to 159% increase over the prior year.
Speaker Change: As a percentage of sales adjusted EBITDA margin for the quarter increased 690 basis points to 12, 9%.
Speaker Change: For the full year.
Speaker Change: Fiscal 2025, adjusted EBITDA increased 69% to $22 4 million.
Speaker Change: <unk> to $13 3 million in fiscal 2024.
Speaker Change: Adjusted EBITDA margin increased 350 basis points to 10, 7% for fiscal 2025.
Speaker Change: As a reminder, fiscal 2025 adjusted results include the impact of the supplemental earn out bonus from the acquisition of Barbara Nichols, which will go away at the end of fiscal 2026.
Speaker Change: This supplemental bonus and applicable taxes amounted to $4 3 million in fiscal 2025, or 203 basis point decrement to our adjusted EBITDA margin.
Speaker Change: Given our progress to date and expectations for the future. We are confident in our ability to meet our fiscal 2027 goal of low to mid teens adjusted EBITDA margins.
Speaker Change: Moving to slide 12, you can see that we had a very strong orders for the quarter, which as you know can be very lumpy given the nature of our business and being a defense contractor.
Speaker Change: Orders for the fourth quarter of fiscal 2025 were 80, net $86 9 million and included $50 million of our $136 5 million total contract value.
Speaker Change: To procure long lead materials for follow on contracts to support the U S Navy, Virginia class submarine program.
Speaker Change: The remaining $86 5 million of this contract was recorded in the first quarter of fiscal 2026, when the Po was definite timing.
Speaker Change: And we will provide a stable source of recurring revenue.
Speaker Change: Through the year 2034.
Speaker Change: Aftermarket orders for the energy and process and defense markets remained strong as well and totaled $11 8 million for the fourth quarter of fiscal 2025, an increase of 50% over the prior year.
Speaker Change: Finally orders for the quarter also included $2 2 million from one of our larger defense customers for the expansion of our X-ray capabilities in <unk> to support the U S Navy's Columbia, and Virginia class submarine programs.
Speaker Change: For fiscal 2025 orders decreased to $231 million compared to $268 million in fiscal 2024.
Speaker Change: Primarily due to follow on orders for critical U S. Navy programs in fiscal 2024, and the Lumpiness of defense market orders.
Speaker Change: Aftermarket orders in fiscal 2025 for the energy and process and defense markets increased 8% to $46 6 million compared with fiscal 2024.
Speaker Change: Despite the lumpiness during the year orders resulted in a book to Bill ratio of one one times for fiscal 2025 meeting our annual goal.
Speaker Change: This drove our backlog to reach a record $412 million with approximately 83% of it to the defense industry.
Speaker Change: We expect approximately 45% of this backlog to convert to revenue over the next 12 months, providing great visibility into fiscal 2026.
Speaker Change: Turning to slide 13, you can see a summary of our balance sheet and liquidity position.
Speaker Change: For fiscal 2025 cash provided by operating activities totaled $24 3 million and was driven primarily by our strong cash earnings.
Speaker Change: Cash and cash equivalents at the end of the year were 21 6 million up $4 6 million over the prior year.
Speaker Change: As a significant portion of our cash flow from operations was reinvested back into our business.
Speaker Change: Capital expenditures for fiscal 2025 were $19 million and focused on capacity expansion increasing capabilities and.
Speaker Change: And productivity improvements.
Speaker Change: Importantly, all major capital projects are on time and on budget and I'll have a greater than 20% ROIC.
Speaker Change: As Matt indicated many of these initiatives will come online by the end of calendar 2025 with benefits to follow in fiscal 2027, after a short ramp up phase.
Speaker Change: For the next several years, we expect to continue to pursue both organic and inorganic growth opportunities, which will be funded by our strong cash generation and revolving credit facility.
Speaker Change: This includes capex spend which will be between 7% to 10% of sales.
Speaker Change: And gradually increasing our R&D spend to 1% to 2% of sales over the next few years.
Speaker Change: These investments are necessary in order to support our organic growth goals maintain our technological competitive advantage and.
Speaker Change: And disrupt the markets, we serve but only if these opportunities have the proper return on investment.
Speaker Change: Additionally, we expect to offset a portion of this increased R&D spend through process improvement and operational efficiencies.
Speaker Change: Moving to guidance.
Speaker Change: Slide 14 details our outlook for fiscal 2026, which reflects continued momentum and the initial impacts of the 20% plus ROIC strategic investments.
Speaker Change: I should point out that the outlook. We're providing also reflects the expected impact of tariffs on our fiscal 2026 results, which we estimate to be approximately $2 million to $5 million.
Speaker Change: It goes without saying that this is subject to change based on the fluidity of global trade policy.
Speaker Change: We expect revenue in the range of $225 million to $235 million.
Speaker Change: A 10% increase over fiscal 2025 at the midpoint of that range and it's supported by our strong backlog and continued momentum across our key markets.
Speaker Change: We expect to maintain our strong gross profit margins.
Speaker Change: I mean, 24, 5% and 25, 5% for the full year.
Speaker Change: Reflecting continuous improvement as well as the expected impact of tariffs and no longer receiving a benefit from the world their training Grant mentioned earlier.
Speaker Change: SG&A expenses are projected to be between 17, and a half and 18, 5% of sales as.
Speaker Change: As we continue to invest in our R&D and operational capabilities, including the final cost of our ERP implementation in Batavia as well as the continuing impact of the Barbara Nichols earn out bonus which ends at the end of fiscal 2026.
Speaker Change: Based on these factors, we expect adjusted EBITDA to be between $22 million and $28 million.
Speaker Change: For fiscal 2026% to 12% increase over fiscal 2025 at the midpoint of that range.
Speaker Change: And reflecting our continued focus on operational excellence and margin expansion.
Speaker Change: These projections keep us firmly on track toward our fiscal 2027 strategic goals of 8% to 10% organic revenue growth.
Speaker Change: And low to mid teens adjusted EBITDA margins.
Speaker Change: With that I will.
Dan Doron: Now I'll turn the call back to Dan.
Speaker Change: Thanks, Chris on.
Speaker Change: On slide 15, we would like to remind everyone of our strategic and operational priorities that will drive our long term success.
Speaker Change: Our expanded R&D investments and capital programs are power and key growth initiatives.
Speaker Change: With a target return on invested capital exceeding 20%.
Speaker Change: For all of our major investments.
Speaker Change: These opportunities coupled with our strong balance sheet provides us with the flexibility to pursue growth both organically and inorganically as we remain opportunistic for any potential strategic acquisitions.
Speaker Change: We are proud of what we have accomplished to date, but we still have a lot of work ahead of us to achieve our fiscal 2027 financial goals of 8% to 10% organic revenue growth per year and low to mid teens adjusted EBITDA margins.
Speaker Change: The long term strategic plan, we have in place.
Speaker Change: With our culture of continuous improvement.
Speaker Change: And our newly expanded executive team led by Matt.
Speaker Change: Gives me great confidence that we will hit those marks.
Speaker Change: With that we can now open the call for questions.
Speaker Change: Thank you will.
Speaker Change: I'll now be conducting a question and answer session.
Speaker Change: To ask a question at this time, please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if he like to withdraw your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please where we poll for the first question. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you and our first question is from the line of Russell Stanley with Beacon Securities. Please proceed with your questions.
Russell Stanley: Good morning, and congrats on an excellent quarter.
Speaker Change: Maybe my first question just around the guidance and the gross margin outlook in particular relative to what you produced in fiscal 'twenty five I understanding that you've got the tariffs in there.
Speaker Change: Absence of a grant I'm wondering if there are any other factors you'd call out behind the gross margin outlook, such as revenue mix or labor availability.
Speaker Change: Packaging that or if it's really just the first two items. Thanks.
Speaker Change: Yes.
Ross: Thanks Ross.
Ross: It really is just those first two items, which we are.
Ross: We are working to offset with.
Ross: With process improvement.
Ross: Initiatives that we have in place that we talked about on the call today, but it really is just those two factors that are causing maybe a little bit lower than expected margin lift.
Ross: Okay.
Ross: That's great maybe just coming in coming back to that investment you announced.
Ross: Grabbed our testing equipment can.
Ross: Can you elaborate I guess on how that helps the business I imagine that allows you to bring something in house and the extent, perhaps towards that equipment can be used for other verticals.
Matt: Yes, Ross this is Matt.
Matt: The X-ray equipment has been this will be a huge lift for the business today.
Matt: Wells are quite complex on the Navy side, specifically and.
Matt: And we either have to we have to go through shots.
Matt: Shots that could take up to a week of time.
Matt: This new piece of equipment has the ability to penetrate into the entire structure within one two shots that can greatly simplify the process and then really hone in on ensuring that rework is very exact when it's needed and so between the automated welding really looking too.
Matt: Create stability and repeatability with the in process, coupled with a very.
Matt: An efficient process to evaluate the world as we see great implications from it what we're starting to also see is the benefit of that same technology across the energy and process side and so I think youll continue to hear the theme moving forward of what we're experiencing in one core market can be applied to others and leveraged.
Matt: Yeah.
Matt: Got it and maybe one last question for me if I can just around acquisitions.
Matt: Wondering what youre seeing with respect to target quality and valuation expectations at this point and how youre, how youre seeing that opportunity now thanks.
Dan Doron: Yes, so the M&A pipeline is I would say robust and Dan and I have continued to interact with many great business leaders around what.
Dan Doron: What we're seeing is this we're seeing a lot of opportunity from the aging.
Dan Doron: Single or small ownership group, mostly private.
Dan Doron: And we're seeing valuations that I would say are opportunistic for us.
Dan Doron: Exit plans due to capital availability and others is complicated.
Dan Doron: We're really seeing at the highest level is.
Dan Doron: We're seeing opportunities that look like nice because they integrate into our strategy. So there is strategic acquisitions that others wouldn't be able to get the lift from and so we're sort of in a well.
Dan Doron: On an island of M&A that large businesses wouldn't.
Dan Doron: <unk> transformation from but they can impact our smaller corporation and great magnitude.
Dan Doron: That's great color. Thanks, I'll hop back in the queue Congrats again.
Dan Doron: Thank you Ross.
Dan Doron: The next questions come from the line of <expletive> Ryan with Oak Ridge Financial. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: Congratulations guys on continued strong performance.
Dan Doron: Thanks, Nick.
Speaker Change: You know obviously with the commentary we've heard from the shipbuilders.
Dan Doron: Past, whatever six six months to a year.
Dan Doron: The demand is there to get the ships delivered to the Navy Chris when you look at the $136 million Thats come in is there anything changing within those orders from what you've seen in the past either from a margin perspective or cost plus versus fixed anything changing in the.
Dan Doron: Sure.
Dan Doron: The contracts that are being rewarded from the profitability side.
Dan Doron: And Nick this is Matt maybe I will take that one.
Dan Doron: So the answer is no there's not much changing with one with one important update so.
Dan Doron: We now have clauses that we have worked to include in the contracts that protect the business from.
Dan Doron: Commodity based pricing volatility.
Dan Doron: So we've been negotiating in to protect us.
Dan Doron: And it's been really important for us moving forward. So we are on firm fixed prices was disclosed in the announcement.
Dan Doron: But we have some protection clauses for things that are sort of outside of our business control and on a program as you can imagine that lasts.
Dan Doron: Five plus years those protections are really critical in addition, the one other color I'd add is we've been able to factor in the ability to order. The majority of the high risk material early on so that really allows quote validity is to still be active and allows us to press on and get material.
Dan Doron: In house.
Dan Doron: Take out some of that volatility.
Dan Doron: Great and on the.
Dan Doron: The expansion of your capacity you have made that you've made investments move forward July it's currently up another customer investments.
Dan Doron: Where are you in your welder.
Dan Doron: Fleet I mean.
Dan Doron: Hopefully not going to go back to a situation of fiscal 'twenty, one 'twenty two but how is your employment on the welding side held up and what do you see going forward as far as.
Dan Doron: So as the needs might be.
Dan Doron: Yes.
Dan Doron: Oh go ahead.
Dan Doron: No I was just going to say are well. They are training program has been a tremendous success and it's been really well received both within the community and.
Dan Doron: Within Graham.
Dan Doron: I can report that our welders and our <unk> facility are up 10% year over year.
Dan Doron: So the supply of welders has not been an issue for us and that's enabling us to.
Dan Doron: Grow our revenue on the defense side.
Matt Ross: Matt anything you wanted to add there.
Dan Doron: Hit it.
Dan Doron: Okay, great. Thank you.
Dan Doron: Okay.
Speaker Change: Our next questions are from the line of Joe Gomes with Noble capital markets. Please proceed with your questions.
Joe Gomes: Good morning, let me add my congrats to the nice quarter and year.
Speaker Change: Hey, Joe.
Joe Gomes: So on the cryogenic facility.
Speaker Change: You mentioned it should be up and running this year just wondering.
Joe Gomes: You talked about you're out there talking to people for you.
Joe Gomes: Use of the facility.
Joe Gomes: How is the book filling up so to speak.
Joe Gomes: What kind of utilization rate do you think the facility is going to have.
Joe Gomes: Once you once you are up and running.
Joe Gomes: Yes, so Joe Great question.
Speaker Change: The first reality is we're on a really aggressive timeline. When you look at facilities of this magnitude they can be years, and we've got Phil <unk>, who is the founder and owner at P. Three running it because he's set these up in the past.
Speaker Change: And we're essentially sticking to plan what that means is a lot of the energy has gone into.
Speaker Change: Getting the building up going through the permitting so today I can confidently say that we're progressing.
Speaker Change: The next few months, having it online.
Speaker Change: The booking side, we're now just starting to transition our energy to it.
Speaker Change: And the reason being is we had to make sure that we had a facility that was ready to operate.
Speaker Change: And what I'll say is we don't have any firm bookings today, but we have enough inquiries to make us confident that.
Speaker Change: That it will feel fill up nicely.
Speaker Change: And there's two main differentiators just for your knowledge. So the first is we're augmenting a great need out there. Most of this testing is happening at places like NASA and others at this large scale.
Speaker Change: The second is we actually have power on the facility and so when you talk three phase high power capability with all of these <unk>.
Speaker Change: This new shift towards electrification is requiring power at test facilities, which are conventionally located in deserts and other areas where power is not plentiful and so we're seeing as a result of that pretty heavy demand.
Speaker Change: In the pipeline.
Speaker Change: Okay. Thank you. Thank you for that and just.
Speaker Change: You mentioned the contribution from <unk> three for the year.
Speaker Change: How is that.
Speaker Change: As <unk> met your guys' objective objectives from when you first acquired it.
Speaker Change: Where you're still seeing growth potential there is just a little color on that acquisition.
Speaker Change: Yes, so the acquisition has gone quite well.
Speaker Change: They are at this point fully integrated with the Barbara Nichols team in terms of ERP system.
Speaker Change: Quality manuals and rigor around quality.
Speaker Change: There's always an evolution as an acquisition unfolds and what we're seeing is actually potential for greater benefit that we had originally forecasted in the two areas that we're seeing that the first is the ability to bring advanced technology to our existing energy and process business, which we didn't expect and so we're seeing them.
Speaker Change: Use advanced analytical capability to accelerate the R&D process at the parent DRAM business.
Speaker Change: The second is they've become in some ways. The fast lane for opportunities that may not have been good fits for Barbara Nichols and so you know.
Speaker Change: Projects are applications that require a 1% to six month turnaround time for what I'll call. A novel design. They have a very small capable team that can move extremely rapidly.
Speaker Change: And deploy and so we've actually just in the fourth quarter finished a few of those jobs that have those characteristics that frankly, we may have had to pass on in the past. So I would say integration going going well pretty much done at this point.
Speaker Change: And continued path forward looking quite favorable with the biggest focus being on.
Speaker Change: Designs that actually impact the larger business units and Graham Corporation.
Speaker Change: Great and then one last one for me if I may maybe just give us an update on the progress of the Nextgen nozzle and the.
Speaker Change: Potential clients and customers out there.
Speaker Change: Yes, so nexgen nozzle.
Speaker Change: It's a completed design, but we're never done this theme of continuous improvement so.
Speaker Change: On the next Gen nozzle, it's specifically today designed for a subset of large scale CME injectors.
Speaker Change: We have made contact with all of the installed base that has those.
Speaker Change: Has the nozzles installed today, which it can upgrade.
Joe Gomes: And now what happens Joe is you have to get to the point, where they have an upcoming turnaround which is when they take the facility down.
Joe Gomes: For updates and maintenance so we're essentially waiting for for that process to play out which could be over the next as mentioned sort of five plus years, but the sort of conversion or hit rate is going quite well on those inquiries because the ROI for the end users.
Speaker Change: <unk> is an immediate payback.
Speaker Change: Very short term payback I should say.
Speaker Change: And.
Speaker Change: It's becoming what I would call a playbook for the future New technologies. This is Juan ejector style of nozzle and we have many more that we think we can apply the same the same capability to so excited about what this can sort of become.
Speaker Change: Great. Thanks for that I'll get back in queue.
Speaker Change: Okay.
Speaker Change: Our next questions are from the line of Christopher Glynn with Oppenheimer. Please proceed with your questions.
Christopher Glynn: Thanks, Good morning.
Speaker Change: So.
Speaker Change: Healthy backlog you talked about 45% conversion next 12 months suggests about 20% of the outlook would be book and ship variety and just looking for a little better.
Speaker Change: Better understanding of that.
Speaker Change: It doesn't strike one is a high bar, but whats your normal <unk>.
Speaker Change: Strengths in pulling book ship business within current year forecast.
Speaker Change: Yes, Thanks, Chris.
Speaker Change: So.
Speaker Change: Most of our business as you know our long lead projects right. So from book to ship can be anywhere from six months to over a year.
Speaker Change: So really at the start of the year, we have to have a large portion of the orders for the next fiscal year and backlog, which we do as you pointed out.
Speaker Change: The low run rate business that we have is really our aftermarket business, which is about $40 million.
Speaker Change: So that's really those typically book and ship within one to three months. So that's really what we're.
Speaker Change: We're looking to kind of fill that gap.
Speaker Change: And right now as you saw from the numbers today orders still continue remained strong.
Speaker Change: But we continually continuing to monitor the situation based upon.
Speaker Change: The uncertainty that's in the market today.
Speaker Change: Okay great.
Speaker Change: You mentioned five years running positive book to Bill you do have some very long cycle characteristics.
Speaker Change: Does that lend itself to sustain.
Speaker Change: And an ability to comment if you expect to sustain positive book to Bill This year end.
Speaker Change: Either scenario, maybe you could provide some context.
Speaker Change: Yes, so as stated in the commentary every year our goal is to grow our backlog. So we always set.
Speaker Change: In our long term goals of a book to Bill ratio of one one for the year.
Speaker Change: For our goals for the year.
Speaker Change: And as you mentioned, we have been successful in seeing that for the last five years, but also as you know R. R.
Speaker Change: Our orders tend to be very lumpy given the nature of our business.
Speaker Change: One thing that will give us the lift for fiscal year 'twenty six as we mentioned on the call is the $86 $5 million of the $136 5 million dollar order for the to support the Virginia class submarine so that gives us a great start to the year.
Speaker Change: Okay and last one for me you mentioned improved pricing models as part of the gross margin expansion that you've delivered.
Speaker Change: And just curious if you'd call your pricing models more or less mature right now or still in the process of.
Speaker Change: Building the analytics for competitive value capture.
Speaker Change: So I'll answer that one in two ways. The first is we've made great progress on the pricing models.
Speaker Change: For legacy product I think where the biggest opportunity is still lies as we talk through this full product lifecycle capability as we add testing.
Speaker Change: Facilities and capability of the portfolio plus disruptive enter disruptive solutions through R&D, we start to enter regime aura.
Speaker Change: <unk> point that no one else potentially could offer that value and so really the remaining stoned on turnover is in bringing additional value that the customers are willing to pay for.
Speaker Change: Great I appreciate that thank you.
Speaker Change: Our next question is from the line of Tommy Bancroft Gabelli funds. Please proceed with your question.
Tommy Bancroft: Yes. Thank you good morning, gentlemen, and congratulations.
Tommy Bancroft: Maybe I could just.
Tommy Bancroft: Just take a minute to just sort of update us on what the Navy is viewing obviously after.
Tommy Bancroft: Recent news of.
Tommy Bancroft: The increase in shipbuilding.
Tommy Bancroft: Nuclear strategy I noticed just as critical to them, there's a lot going on.
Tommy Bancroft: Are you guys able to are going be able to keep up with this huge amount of demand I know you've put a lot of.
Tommy Bancroft: A lot of investment in but it just seems like it's a.
Tommy Bancroft: It's an outrageous number just maybe you could just give us your view on that and just your thoughts on sort of keeping up with that growth.
Tony: Yes, Tony.
Tony: Two things I'll share. The first is yes, we're seeing continued opportunity as mentioned not only in our core swim lanes, which is the stuff. We've conventionally provided but also where others are falling down.
Tony: We've made some key investments that have really driven that will that have and will continue to drive efficiency in the process and what I mean by that is we have automated welders that are being deployed throughout the factory in combination with our extremely skilled welder workforce that we have.
Tony: As just one example, and so we're actually we're keeping up today and we're adding capability to further even expand and absorb more the second thing I'd mention is we're building this new facility in Batavia.
Tony: 30000 square feet and we have basically put in the infrastructure to put two additional facilities next to it should we need to in the future.
Tony: What I mean by that is the electricity.
Tony: The communal meeting areas and stuff are all built for additional expansion. So the the turnaround time between need and upstanding of new new additional capacity. Even in addition to what we have is there.
Tony: And then lastly, when you look at the Barbara nickel side, we've proactively.
Tony: Acquired Opportunistically land nearby as mentioned.
Tony: It's right next to our current facilities and we're developing that land in this calendar year to be ready. So we're sort of to your point, Tony staying one step ahead, and ensuring that we're shovel ready across all of the different facilities.
Tony: That's great well done thank you.
Speaker Change: The next question is from the line of Gary Schwab with Valley Forge Capital Management. Please proceed with your question, Yes, Hi, guys great quarter. Thanks for taking my question.
Speaker Change: A question about <unk>.
Speaker Change: Well there is I know you said that the new welding school year up 10% again. This year is that going to commercial or is it going to the navy side.
Speaker Change: And what will your new needs be for the head count growth with these three the Batavia expansion they radio graphics, the <unk> test lab.
Speaker Change: How many new roles will be required to support all these capabilities in training and certifications.
Speaker Change: Yes, so I'll take that one because it's a pretty expansive question, but I'll start with the Wilder programs specifically.
Speaker Change: You know that.
Speaker Change: In Batavia, specifically, so when you look at Batavia, the majority of that welding talent is going.
Speaker Change: To a mix of defense and energy and process. What we're seeing Gary is we're actually working on cross utilizing a lot of those resources and so we're able to maximize the resource allocation based on the needs in the business.
Speaker Change: It happens so much right now it happens to be right now that a lot of that demand is in the navy side to sort of.
Speaker Change: Catch up and then exceed.
Speaker Change: But we're seeing those resources in times of need deploy to the energy and process side.
Speaker Change: At.
Speaker Change: <unk>, specifically this new test facility coming online, we're being efficient with this it's not a huge lift in terms of additional personnel all of the personnel there today knows how to execute and maintain in and do the work. That's there in that new facility. So it's bringing on someone to oversee the facility as well.
Speaker Change: As and execute are but it's not an extensive list of personnel.
Speaker Change: So I would just say, it's a continued methodical approach kind of that.
Speaker Change: In parallel with the percentages that align with our <unk>.
Speaker Change: With our revenue growth and what I'd Lastly, add is the nice thing is the majority of it is direct labor. So it really does directly translate to value.
Speaker Change: Alright.
Speaker Change: Hum.
Speaker Change: So as you grow these facilities.
Speaker Change: It seems like youre going to need to grow your.
Speaker Change: Your base labor greater than 10% Youre, adding three new facilities basically have you had any discussions with your primes to help secure labor if needed because there are certain.
Speaker Change: Certifications that are needed for some of these jobs.
Speaker Change: Yes, so Gary I'd flip the script on that question and say.
Speaker Change: We are we have an engaged workforce and it's a great place to work we're recruiting the talent internally and we're actually there's a place for our customers are asking us how we're doing it. So it's not so much of an ask us asking them. They are supporting us like with the well there.
Speaker Change: With a well their workforce program, but we're actually becoming more of a pilot for how it's done.
Speaker Change: So I think we see continued capability to add the talent to fill these facilities and maximize the output.
Speaker Change: Okay, Great and I just have one last question on <unk> III has SCAMP been sold or is it being evaluated in any industries outside of space, such as medical and what about sales of the EMC deal are there any natural gas operations valuation.
Speaker Change: Mcd.
Speaker Change: Yes, so just for the rest of the crew Mcd is multichannel diffuser and I'll keep this response really high level and Gary what I would suggest is Dan is going to introduce that we're attending some conferences we're going to.
Speaker Change: Have some updates at those so I'd I'd suggest following along what I would tell you is this scam has.
Speaker Change: A lot of interest across a lot of applications far reaching out of space.
Speaker Change: And so yes, we have provided as disclosed previously for medical applications and we are seeing in applications in transportation, both on ground and an error. So theres a lot of there's a lot of uses for SCAMP.
Speaker Change: Which is basically for the rest of the crew of solenoid pump.
Speaker Change: On the Mcd.
Speaker Change: So one of the things that we're working with that Dan is leading the charge on is working product market fit for the multichannel Diffusers and we see a huge opportunity to bring new technology and disrupt frankly, I'm just going to say at all $24 seven pumps so pumps.
Speaker Change: Operate $24 seven we are confident that that this potential technology advancement.
Speaker Change: Could have a huge impact on that market. So we are in the early phases. It has not been deployed at this point and one of the first business development areas as part of our.
Speaker Change: Enhanced strategy.
Speaker Change: Is to bring it to market.
Speaker Change: Thank you.
Dan Doron: At this time, we've reached the end of our question and answer session I will hand, the floor over to Dan <unk> for closing remarks.
Speaker Change: Okay. Thank you operator.
Speaker Change: Yes.
Speaker Change: I'd also like to remind everyone that we will be presenting at the Wells Fargo Industrials Conference. Later this week on June 12th in Chicago.
Speaker Change: And that's with Northland growth conference on June 25th, which is virtual and for certain investors should contact their sales representative to register and schedule, one on one or group meetings.
Speaker Change: As always a live webcast of the presentation, along with presentation materials will be available on our Investor Relations website, we hope to see you there and as always please reach out with any questions. Thank you everyone for joining us today and for your interest in Graham.
Speaker Change: This concludes today's conference. Thank you for your participation you may now disconnect your lines at this time.