Graham Corporation (GHM) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates strong financial performance, strategic growth initiatives, and optimistic guidance, despite some uncertainties in margin sustainability. The Q&A highlights robust aftermarket sales, a growing defense backlog, and promising opportunities in nuclear and space sectors. While management is cautious about future margins, the overall sentiment is positive with a record backlog and strategic investments. The absence of significant hiring challenges and a clear strategy for international growth further support a positive outlook. These factors suggest a likely stock price increase of 2% to 8% over the next two weeks.
Key Financial Performance
Revenue Revenue increased 11% to $55.5 million, reflecting continued performance across key markets. This growth was driven by increased sales in energy and process markets, particularly by refining, petrochemical, and new energy, along with strong aftermarket performance that was 33% higher than the prior year.
Adjusted EBITDA Adjusted EBITDA increased 33% year-over-year to $6.8 million or a 12.3% increase as a percentage of sales. This reflects continued focus on operational excellence and exceptional commitment by the team.
Backlog Backlog reached a company record of $482.9 million, a 22% increase over the prior year. Approximately 35% to 40% of this backlog is expected to convert to revenue over the next 12 months.
Gross Profit Gross profit increased 19% to $14.7 million, with gross margin expanding 170 basis points to 26.5% compared to the prior year. This improvement was driven by higher volume, improved sales mix, and better execution and pricing.
Net Income Net income for the quarter was $4.6 million or $0.42 per diluted share, up 56% compared with the $0.27 per diluted share in the prior year. Adjusted net income was $4.9 million or $0.45 per diluted share, a 36% increase year-over-year.
Orders Orders totaled $126 million, primarily reflecting the remaining $86.5 million of a $136.5 million total contract value follow-on order for the Virginia-class submarine program. Aftermarket orders for energy and process and defense markets totaled $10.5 million, up 16% over the prior year.
You have reached the limit. Sign up to access full content
Get started
Operating Highlights
Revenue growth: Revenue increased 11% to $55.5 million, driven by energy, process markets, and strong aftermarket performance.
New energy technologies: Momentum in small modular nuclear reactors and cryogenics with increased interest in mission-critical technologies.
Innovations: Advancing next-gen nozzle for vacuum distillation towers.
Defense market: Strong momentum with U.S. Navy programs, including $25.5 million follow-on order for MK48 Mod 7 torpedo program and $136.5 million follow-on contract for Virginia-class submarine program.
Space market: Excellent traction in the launch market with specialized applications and strong pipeline for low-rate production programs.
Backlog: Record backlog of $482.9 million, a 22% increase year-over-year, with 35%-40% expected to convert to revenue in the next 12 months.
Manufacturing facility: New 30,000 sq. ft. Batavia facility for U.S. Navy support, featuring automated welding and advanced machining, expected to be operational by Q3 2025.
ERP system: Implementation in progress, expected to streamline workflows and improve efficiency by end of 2025.
Strategic investments: $2.2 million investment from a defense customer for submarine programs, combined with Graham's $1.4 million contribution, totaling $3.6 million.
Capacity expansion: $13.5 million investment and $2.1 million Blue Forge Alliance grant for welder training and equipment capabilities.
M&A strategy: Focus on acquisitions that align with strategic initiatives and offer risk-adjusted returns.
You have reached the limit. Sign up to access full content
Get started
Risk or Challenges
Tariffs impact: The impact of tariffs on the company's financials remains fluid. While the current impact is not material, the potential range of increased tariffs for the full year is estimated to be between $2 million and $5 million.
Timing uncertainty in global capital projects: The company is experiencing timing uncertainties in larger global capital projects, which could impact revenue recognition and project execution.
ERP system implementation: The ERP system implementation in Batavia is ongoing and expected to be completed by the end of calendar year 2025. Delays or issues in implementation could disrupt workflows and operational efficiency.
Dependence on defense contracts: Approximately 87% of the company's backlog is tied to the defense industry, particularly U.S. Navy programs. This heavy reliance on defense contracts could pose risks if there are changes in government spending or priorities.
Lumpiness in order demand: The nature of the business, especially in defense, leads to lumpy order demand, which can cause variability in quarterly performance and financial results.
Capital expenditure risks: The company is making significant capital investments, including a new manufacturing facility and cryogenic testing facility. Delays or cost overruns in these projects could impact financial performance.
You have reached the limit. Sign up to access full content
Get started
Guidance & Outlook
Revenue Growth: The company expects 8% to 10% organic revenue growth per year through fiscal 2027.
Adjusted EBITDA Margins: The company targets low to mid-teen adjusted EBITDA margins by fiscal 2027.
Backlog Conversion: Approximately 35% to 40% of the current backlog is expected to convert to revenue over the next 12 months.
Capital Investments: Strategic capital investments, including a new manufacturing facility and cryogenic propellant testing facility, are expected to generate returns exceeding 20% and contribute to growth.
Defense Market: Strong visibility into future revenue is supported by U.S. Navy contracts, including a $136.5 million follow-on contract for the Virginia-class submarine program and a $25.5 million order for the MK48 Mod 7 torpedo program.
Energy and Process Markets: Momentum in small modular nuclear reactors, cryogenics, and new energy markets is expected to drive growth, though timing on larger global capital projects remains uncertain.
Space Segment: The company anticipates long-term growth opportunities in the space segment, supported by strong demand and a robust pipeline of specialized applications.
Operational Efficiency: The ERP system implementation and other operational initiatives are expected to streamline workflows and improve efficiency by the end of calendar year 2025.
M&A Strategy: The company plans to pursue opportunistic acquisitions to supplement organic growth and accelerate its product life cycle strategy.
You have reached the limit. Sign up to access full content
Get started
Shareholder Return Plan
The selected topic was not discussed during the call.
You have reached the limit. Sign up to access full content
Get started
Key Q&A
Q:What factors contributed to the EBITDA margins being over 14% for the quarter?
A:The high mix of aftermarket sales, which were 20% in the quarter compared to 15% last year, and other favorable mix drove the margins higher. Management expects margins to normalize for the remainder of the year and align with the guidance provided earlier.
Q:What opportunities exist in the aftermarket sales, particularly in defense?
A:There are opportunities in fleet maintenance, such as repairing existing assets in the field and upgrading them for extended use. Additionally, there is demand for spare parts to support torpedo programs, with inquiries from depots for overhaul support.
Q:Did the recent torpedo program order land in Q1 or Q2?
A:The entire order will be in Q2 as it was finalized after the quarter ended.
Q:What products is the company providing to the small nuclear reactor space, and what is the growth outlook?
A:The company provides helium circulators, molten salt pumps, and potentially supercritical CO2 machines for small modular nuclear systems. This market is in the early development phase, with significant growth opportunities expected over the next several years.
Q:What drove the gross margins to 26.5%, the highest since 2021?
A:The higher percentage of aftermarket business was the primary driver. However, management expects margins to decrease slightly due to higher material receipts with lower margins later in the year, aligning with the 24.5%-25.5% guidance.
Q:Why is the company not raising gross margin guidance despite strong results?
A:Management believes one quarter does not make a year. They do not expect the 33% year-over-year growth in aftermarket sales to continue and anticipate lower-margin work later in the year.
Q:What is the outlook for the space segment, and when will it scale?
A:The space segment is in the early phases of scaling, with low-rate production materializing for additional launch providers and assets like satellites. The company is also seeing interest in its cryogenic facility and liquid oxygen tank, which are expected to generate revenue soon.
Q:What is the status of the cryogenic facility, and when will it generate revenue?
A:The facility is undergoing safety procedures and testing. Conversations with customers are ongoing, and further details are expected to be disclosed next quarter.
Q:Are there any hiring challenges that could limit growth?
A:The company has not faced significant hiring challenges. Direct labor force increased by 10% year-over-year, and the market for new employees has softened, aiding recruitment efforts.
Q:How does the company plan to compete and grow in the defense space over the next five years?
A:The company focuses on executing current programs, investing in fleet modernization, and driving efficiency to absorb additional work. They are also exploring creative solutions to enhance speed and capacity.
Q:What is the potential length of the recent torpedo order, and how does it relate to submarine programs?
A:The $136.5 million order for Virginia-class submarines extends through the mid-2030s. The Mark 48 torpedo program is a single option year with three additional option years and potential for another block thereafter.
Q:What constitutes the majority of the $418 million defense backlog?
A:The majority of the backlog is related to submarine-related work and torpedo programs, with a small portion for CVN 81.
Q:What is the strategy for maintaining or increasing the backlog?
A:The company is pursuing large programs like torpedo production and restart while also focusing on proactive aftermarket services to create recurring revenue.
Q:What progress has been made in leveraging the installed base in petrochemical refining?
A:The company is actively mapping the installed base, engaging legacy employees, and using AI to accelerate quote turnaround. They are also developing next-generation nozzles for turnarounds.
Q:What is the impact of tariffs, and how is the company mitigating it?
A:The potential impact is $2 million to $5 million, primarily from raw material purchases overseas. The company mitigates this through in-country manufacturing, favorable contract terms, and equitable adjustment clauses.
Q:What is the strategy for international growth?
A:The company focuses on a nationalistic approach, using China for China and India for India. They are also leveraging India to serve a larger portion of the world and seeing momentum in global projects.
Q:Review of Unclear Management Responses
A:Management avoided providing specific revenue projections for the cryogenic facility, stating they would disclose further details next quarter. Additionally, they did not provide a clear timeline for when the space segment would significantly scale, citing its early development phase.
You have reached the limit. Sign up to access full content
Get started
Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Bair Wealth
Blue Forge
Brooks Northland
Capital Markets
Corporate
Director Cook
Division Brooks
Division Tate
Division Tony
ET day
Florida oxygen
Forge Alliance
Gary Schwab
Group LLC
Instructions event
Research Division
Unidentified
Virginia class
capital
class submarine
end calendar
funding
life cycle
manufacturing
mission
momentum
partner
partnership
phase
positioning
product life
product portfolio
return
side
submarine program
GHM Transcript
Graham Corporation (GHM) Q4 2026 Earnings Call Transcript
Neutral6-8
Graham Corporation (GHM) Q3 2026 Earnings Call Transcript
Positive2-6
The earnings call indicates strong demand in defense and space markets, improved net income, and strong cash flow. Investments in manufacturing facilities and strategic acquisitions align with long-term growth targets. Despite some concerns about sales mix and market potential specifics, the company's reaffirmed revenue guidance and ongoing strategic investments suggest a positive outlook. The Q&A section supports these views, highlighting strong defense demand and strategic growth initiatives.
Graham Corporation (GHM) Q2 2026 Earnings Call Transcript
Positive11-7
The earnings call reveals strong financial performance with a 15% increase in aftermarket sales and a 12% rise in gross profit. Despite maintaining guidance, the company has strategic investments and new facilities that are expected to drive growth. The Q&A section indicates healthy backlog and customer interest, minimal impact from government shutdowns, and promising developments in various markets. While some details were vague, the overall sentiment is positive due to strong revenue growth, strategic investments, and diversified defense orders.
Graham Corporation (GHM) Q1 2026 Earnings Call Transcript
Positive8-5
The earnings call summary indicates strong financial performance, strategic growth initiatives, and optimistic guidance, despite some uncertainties in margin sustainability. The Q&A highlights robust aftermarket sales, a growing defense backlog, and promising opportunities in nuclear and space sectors. While management is cautious about future margins, the overall sentiment is positive with a record backlog and strategic investments. The absence of significant hiring challenges and a clear strategy for international growth further support a positive outlook. These factors suggest a likely stock price increase of 2% to 8% over the next two weeks.
GHM Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
