Greetings, and welcome to the Graham Corporation Fiscal Third Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Tom Cook, Managing Director at ICR. Please go ahead.

Thank you, Paul, and good morning, everyone. Welcome to Graham's fiscal third quarter 2025 earnings call. With me on the call today are Dan Thoren, CEO; Chris Thome, Chief Financial Officer; and Matt Malone, President and Chief Operating Officer. This morning, we released our financial results. Our earnings release and accompanying presentation to today's call are available on our website at ir.grahamcorp.com. You should 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 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. These risks and uncertainties and other factors provided in the earnings release, as well as with other documents are filed by the company with the Securities and Exchange Commission. You can find those documents on our website or at scc.gov. 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. These key performance metrics are orders, backlog and a book-to-bill ratio. These are operational measures and a quantitative reconciliation of each of this is not required or provided. You can find the disclaimer regarding our use of KPIs at the back of today’s presentation. So, with that, if you’ll please advance to Slide 3, I’ll turn it over to Dan to begin. Dan?

Thanks, Tom, and good morning, everyone. Many of you likely saw the press release we issued yesterday morning regarding our leadership succession plan. I'm excited to share additional details. But first, I will spend a minute on our third quarter results [Technical Difficulty] in a 7.3% increase over the prior year period. We saw strength across our key end markets with defense notably up 11%. Our gross margin improved by 260 basis points, reaching 24.8% of sales, driven by leverage on higher volume, favorable mix, and improving execution. And finally, our adjusted EBITDA margin expanded by 180 basis points to 8.6% of sales. This margin expansion translated into meaningful bottom line growth, reinforcing our focus on high margin opportunities and solid execution throughout the business. Overall, I am very pleased with our performance in the fiscal third quarter, which reflects the hard work of our entire Graham team has undertaken over the last several years. Looking ahead, I could not be more excited about the future. The long-term demand environment is extremely favorable with our proprietary and highly engineered product portfolio enabling us to capture additional opportunities, while furthering Graham’s global reach. We continue to focus internally on improving our operations, engaging with key stakeholders and implementing best practices across the organization. Turning to Slide 4. As we announced yesterday, we are implementing a thoughtfully structured two phase leadership transition that has been thoroughly evaluated and approved by our Board over the last 18 months. On February 5, Matt Malone was appointed President and Chief Operating Officer, while Mike Dixon has been promoted to General Manager of Barber Nichols. In the second phase, effective June 10, I will transition to Executive Chairman, focusing on Strategic Advisory and Business Development initiatives, while Matt will assume the CEO role and is expected…

Thank you, Dan, and good morning, everyone. I am truly grateful for the trust placed in me by Dan, the Board, and our entire organization. Having worked closely with the entire executive team and the Board on developing and executing our strategic plan over the last couple of years, I am energized to lead Graham into its next chapter of growth. Our strategic plan remains firmly in place as the team and I continue tremendous potential to build on our strong foundation through our robust sales pipeline, operational improvement initiatives and opportunities in adjacent markets. We continue to believe in this strategy and are fully committed to executing it while driving sustainable growth. Our success has always been rooted in our talented team, strong customer relationships and commitment to technology and operational excellence. I look forward to working with our entire organization to capture the significant opportunities that lie ahead and importantly providing our customers with leading quality products and service. I'd like to spend a minute providing an operational update on a couple of key projects we recently announced. Starting with our new Batavia manufacturing facility, we are excited to announce that the construction of the Graham facility is progressing well and remains on schedule for completion in June of this year. This 29,000 square foot expansion will significantly enhance our manufacturing capabilities and capacity for naval defense work. This expansion will support our planned growth and continue to strengthen our position as a key supplier to the U.S. Navy. Turning to our state-of-the-art cryogenic propellant test facility, this facility is continuing to progress towards construction and will provide a scalable cost effective alternative to existing centers. The facility will serve critical programs, meeting timely specialized testing solutions for liquid hydrogen, liquid oxygen and liquid methane across space, defense, new energy and potentially even medical applications. We are expecting initial testing to begin by mid-calendar year 2025. These initiatives coupled with our investments in R&D and focus on operational excellence, will help drive our long term growth forward. With that, I will turn it over to Chris for third quarter financial details. Chris?

Thanks, Matt, and good morning, everyone. I will begin my review of results on Slide 5. Sales for the quarter totaled $47 million, a 7.3% increase over last year. This was driven by growth across our key end markets, including chemical, petrochemical, space, defense and the commercial aftermarket. These increases were partially offset by lower refining revenue due to the timing of projects. Our growth was supported by the expansion of new defense programs, improved pricing and execution and the timing of projects. Further, we are observing continued strength in our aftermarket revenue, which was up 2.4% over the record levels of last year. As a reminder, the third quarter of our fiscal year is typically our lowest revenue quarter, reflecting the holiday season and increased levels of vacation. Turning to Slide 6. Our gross margin for the quarter expanded 260 basis points to 24.8%. This improvement was primarily driven by higher sales volume, a favorable project mix, enhanced pricing and better execution. This was partially offset by higher incentive compensation. Our gross profit for the quarter also benefited $254,000 or roughly 50 basis points from the BlueForge Alliance welder training grant we announced in July. As a reminder, the BlueForge Alliance is a non-profit that supports the U.S. Navy Submarine Industrial Base. This $2.1 million grant supports our defense welder training program in Batavia and funds related equipment. To date, we have received $1.5 million of funding under this grant and expect to recognize the balance in the next two quarters. We are grateful for this partnership as we expand our capabilities and talent pipeline. Turning to Slide 7. You can see the strength of our earnings from the quarter and on a more historical basis. GAAP net income for the third quarter reached $1.6 million, a $1.4 million…

Thanks, Chris. On Slide 11, we would like to remind everyone of our strategic and operational priorities that will drive our long-term success. Our expanded R&D investments and capital programs are powering key growth initiatives with a target return on invested capital exceeding 20% for all of our major investments. 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. 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-teen adjusted EBITDA margins. The long-term strategic plan we have in place, coupled with our culture of continuous improvement and our newly expanded executive team led by Matt, gives me great confidence that we will hit those marks. With that, we can now open the call for questions.

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Dick Ryan with Oak Ridge Financial. Please proceed with your question.

Thank you. So I'd like to offer my congratulations, Dan, to both you and Matt on the next chapters that you're moving onto within Graham, that sounds like exciting opportunities for both you -- both you guys and the company. So congratulations on that front.

Yeah. Thanks, Dick.

Thank you, Dick.

So Dan, we continue to hear challenges in the shipbuilding side of the market. I think maybe last call, you indicated that you could see some potential opportunities as some other suppliers run into issues. And then in your news release, you're talking about advanced discussions on new programs or expansions with existing customers. Can you kind of just square the circle on how that dynamic is playing out to you guys?

Yes. From a Navy discussion point, we have regular program reviews with our customers all the time. And the message that we're getting from our customers is, don't get sidetracked by the noise. We have ships to build, and we'll take your equipment as soon as you can get it to us. We're not talking about any slowdowns. Just keep it coming. And then, as we're able to show that we're hitting our delivery schedules and showing that we're able to increase our capacity via additional people, additional floor space. We're in discussions with our customers about what more we can do. Too early to say, exactly what those opportunities are and what they'll result in, in the future, But it's very positive conversation, very productive conversation. And so we're feeling very good about it.

Okay. Good. One other one on the aftermarket, continue to show some very strong results there. And it wasn't all that long ago that aftermarket was just going after the refining and Petrochem side, now you expanded it into defense. I mean, the strong growth we're seeing year-over-year is that Defense kicking in? Or is that still too early? Or where is the strength coming from in the aftermarket?

Yeah. I would say the aftermarket still is more on the energy and chemical side. Our customers had told us that domestically, they were definitely transitioning over to the maintenance mode. There's still a lot of demand for fuel, refined fuels and then feedstocks for Petrochem. So everybody is trying to keep their plants up, running and going strong. We are seeing some additional inquiries from our installed base internationally. So this NextGen nozzle that we've recently announced and put into a plant here domestically, we've got our international customers now calling and saying, we're really interested in that. China has a big initiative to reduce their steam consumption. And India, as they continue to grow, they want to see more and more efficiency just because it allows them to grow smarter, faster and more efficiently. So there's a lot of interest in this NextGen nozzle. And so we're expecting to see even our installed base internationally to really want to start to bring that type of new technology in. And then on the defense side, certainly, we're seeing, especially the U.S. Navy wanting to make sure that they've got their submarines at speed. And so there's been a big push from the Navy to make sure that we're getting this equipment turned around and back to them quickly so that they can maintain availability as high as they can maintain it. So all really strong at this point for aftermarket, Dick, and we're very pleased.

Okay. Just quickly, Chris mentioned the second order for the NextGen nozzle. Was that domestic or international?

That one was domestic.

Okay. Great. Okay. Thanks again, guys. Congratulations.

Thanks, Dick.

Thank you. Thanks, Dick.

Thank you. Our next question is from Russell Stanley with Beacon Securities. Please proceed with your question.

Good morning, and thanks for taking my question. Just given the orderness or the lumpiness in order flow, which is obviously quite natural if you look historically, I'm wondering where you see your ideal book to bill ratio being, where is the best balance between driving sales growth and while ensuring reasonable lead times for customers?

Yeah. So our annual goal, Russ is to, as you know, our annual goal is to increase revenue 8% to 10% organically per year, right? So we always set a sales goal, an order goal for ourselves of a book-to-bill of 1.1 times, which means that we're continually growing our backlog and our sales by that amount. As you pointed out, our orders tend to be lumpy and our book-to-bill ratio is one times for the year to date period. And I would also point out that our order pipeline is very robust at this point in time. It's just lumpy as you pointed out.

Yeah. And I think Russ maybe a little bit more color on that. We're planning on and aligning our future revenue to hit this 1.1%, which basically means that we need to be able to recruit the people and to have the facilities ready to support that 1.1% growth. So we're very active in strategic planning and investments in our people, our processes and our plants to continue to support that. We -- in an ideal world, we're not pushing out deliveries at all, but actually improving deliveries. And so there's a lot of activity on the planning strategic side to be able to support that.

Got it. And that dovetails, I think, in my next question, the two major shipbuilders just talked to ongoing supply chain challenges and labor challenges. And I'm wondering what you're seeing with given your plans, what you're seeing with respect to potential funding, additional funding from BlueForge given the success you've had to date?

Yeah. So the government has said that they plan on continuing the supplier development funding for several years still in the future. And we are talking to our customers about where is the next need, where should we be planning to invest ourselves as well as apply for funds to be able to expand capabilities and capacities. So it's an active conversation. We have several proposals in front of our customers today, and we're just kind of waiting for them to sort it through. I mean, they've got a lot of requests and they're just looking at it from a priority and a return on investment kind of perspective. It really helps to have shovel ready projects and it really helps to have established training programs in place, which Graham does have. So we're cautiously optimistic that this funding will continue to flow to Graham Corp.

That's great. That's all for me for now. Thanks again and congrats on the quarter.

Thanks Russ.

Thanks Russ.

Thank you. Our next question is from Tony Bancroft with Gabelli Funds. Please proceed with your question.

Yes. Good morning, gentlemen. Nice job on your performance. Just I attended a sort of a Marine Corps (ph) lecture dinner the other night and the guest of honor was a Senior General just actually discussing the budget and talked about the supplemental potential for the $200 billion supplemental that is being kicked around. Maybe question one is, would you have any exposure? And if so, sort of what kind of exposure to that potential upside above the 895 (ph)? And then, on the flip side, what are your thoughts of, you also talked about the downside of we don't get an April 30 budget, then we go back to the, as you know, the 2023 minus 1% and then an impact of the CR, which I've heard that number -- the other number being kicked around on the Navy side of like negative almost $4 billion if a CR gets implemented. I know you guys are long-term -- you have long term program, which is a beautiful thing, but just the impacts, maybe puts and takes on those two dynamics?

Yeah. That's at that kind of top line level, it's really kind of hard to understand how it might come down and affect other programs. You're right in that, we feel very fortunate that we're involved in some of the most strategic programs that the U.S. Navy has. And so given that we're often funded by advanced procurement types of funding that, that is spent, several years in advance of the actual shift being approved. We feel very, very fortunate that we have some visibility of that. So the supplemental, if they're going to bump up overall defense spending, that takes pressure off probably all programs. If we go into continuing resolution, it's probably going to put more pressure on those programs that aren't as strategic. Boy, being able to look into that crystal ball and seeing what effect it might have on our specific programs, I'm not good enough to tell you that one.

Got it. That's very helpful. Thank you and great job and congratulations, Dan, Matt and Mike looking forward to following with you guys.

Yes. Thanks, Tony.

Great. Thanks, Tony.

Thank you. Our next question is from Joe Gomes with Noble Capital Markets. Please proceed with your question.

Hey, guys. This is Joshua Zoepfel just filling in for Joe. I just wanted to congratulate you guys, Dan, Matt and Mike on the new goals and the transitions. I'm looking forward to seeing where you guys -- how the next story unfolds for you. But, this kind of, you guys mentioned in your prepared remarks, obviously, on-going back into the order lumpiness. And just kind of looking just at the defense orders, they kind of seem lower than usually their usual trend. Do you guys really have any kind of additional color maybe to why that is?

Well, certainly versus the prior year, our orders are down because in the third quarter of last year, we had $100 million in orders related to some follow-on orders for some of our -- the programs we're on. And typically, we'll get some of those once a year. We announced last quarter that we won the Air Turbine Pump for the Columbia-class submarine, as well as the follow on order for the MK48 Torpedo. So really just given the long-term nature and the large size of these contracts, it just lends itself to be lumpy and but we're not concerned with the order flow right now in the defense programs.

Okay. Yes. That's helpful. And kind of just moving along, you guys usually mentioned before just kind of core targets from M&A side of things. Can you guys -- can tell me a little bit maybe progression on that front, how the kind of market is looking, obviously, with the new administration coming in not even a month ago? So just a little bit of an update on that front.

Yes. Maybe expand your question just a little bit more.

I just wanted to see, are you seeing any potential targets maybe on the M&A side that you guys have maybe looked at?

Okay. You want me to?

Go ahead.

Okay. Yeah. So we have a pretty active M&A program going right now. We put out a target description of the types of companies that we're looking for, and we're actively on the road talking to different companies about what their plan is, their openness to acquisition, etc. So I would say that it's actually fairly active. I can't really comment on the pipeline per se, But generally, we really like engineered product. We like companies that have engineered product that have some kind of an IP moat, some kind of a technology moat. And then what that allows you to do is, is really reinvent yourself. So if you're capable of upgrading product and improving its performance, that's long term, that's a great place to be. So that innovation, that ability to reinvent yourself through engineered product and then manufacturing that same product is also a nice place to be. Once you have it installed base, then you've got the aftermarket that goes with that. So if you kind of painted the picture of the type of company we're looking for, It's a company that ultimately enables us to continue to look at the full lifecycle of the product with our customers. It allows us to get in very early in the conceptual design phase and then support them all the way through with aftermarket. We had stated earlier that we were kind of looking for companies as small as maybe $10 million in revenue up to a size of like the Barber Nichols type of an acquisition. So there's $70 million or $80 million. And as Chris talked about earlier, we've got a very strong balance sheet to be able to go after those types of acquisitions. So again, active there, we're on the road talking to companies that fit those attributes and in pipelines too early to really talk about what's there today.

Okay. Perfect. Yeah. Thank you so much.

Yeah.

Thank you. There are no further questions at this time. I'd like to hand the call back over to Daniel Thorne for any closing comments.

Thank you, Paul. Thank you, everyone for joining us today and your interest in Graham. I'd like to remind you that we will be presenting at the TD Cowen Aerospace and Defense Conference next week on February 12 in Arlington, Virginia, as well as the Oppenheimer Emerging Growth Conference being held virtually on February 25 and 26, and then the Gabelli Funds 35th Annual Pump, Valve and Water Symposium in New York City on February 27. Interested investors should contact your sales representative to register and schedule one-on-one or group meetings. 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. Have a great rest of your day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.