Executive Summary

Q3 FY2025 delivered solid execution: revenue $47.0 million (+7.3% y/y), gross margin 24.8% (+260 bps y/y), adjusted EBITDA $4.0 million (8.6% margin, +180 bps y/y), and diluted EPS $0.14; adjusted diluted EPS $0.18 .
Backlog ended at $384.7 million (down 5.5% q/q given order lumpiness) with YTD book-to-bill ~1.0x; orders were $24.8 million, with aftermarket orders strong and defense anchoring long-term visibility .
Guidance refined: FY2025 gross margin raised to 24–25% (from 23–24%), SG&A lifted to 18–19% (from 17–18%) reflecting investments; revenue ($200–$210M), adjusted EBITDA ($18–$21M), ETR (20–22%), and capex increased to $15–$19M maintained/updated .
Leadership transition announced: CEO Dan Thoren to Executive Chairman (June 10, 2025); Matt Malone appointed President & COO (Feb 5, 2025), expected to become CEO in June—company reiterated sales and adjusted EBITDA guidance alongside succession plan, which may serve as a stock narrative catalyst (continuity + execution focus) .

What Went Well and What Went Wrong

What Went Well

Margin expansion on favorable mix and execution: gross margin +260 bps to 24.8% with adjusted EBITDA margin +180 bps to 8.6%; management highlighted “robust demand” and “solid execution” across markets .
Strategic initiatives advancing: cryogenic propellant test facility on track for mid-2025 initial testing; Batavia defense manufacturing expansion progressing and on schedule .
Strong balance sheet and liquidity: $30.0M cash, no debt, $43M revolver availability; nine‑month operating cash flow $27.9M, supporting growth investments and resilience .

Quotes:

“Our strong performance… reflects continually improving execution across our business… driving margin expansion through improved product mix and operational efficiency.” — CEO Dan Thoren .
“Construction of the Graham facility is progressing well and remains on schedule… This expansion will significantly enhance our manufacturing capabilities and capacity for naval defense work.” — Matt Malone .

What Went Wrong

Orders declined q/q to $24.8M due to lumpiness and outsized defense orders in prior periods; backlog down 5.5% sequentially to $384.7M .
SG&A up to $9.7M (20.6% of sales) on ERP, R&D, and talent investments; BN supplemental performance bonus weighed on reported SG&A and margins .
Refining sales fell q/q on project timing (Q3 is seasonally lower due to holidays/vacations) and international softness, partly offset by aftermarket strength .

Financial Results

Quarterly Trend (Q1 FY25 → Q3 FY25)

Metric	Q1 FY25	Q2 FY25	Q3 FY25
Net sales ($USD Millions)	$50.0	$53.6	$47.0
Gross margin (%)	24.8%	23.9%	24.8%
Operating margin (%)	N/A	N/A	4.7%
Net income ($USD Millions)	$3.0	$3.3	$1.6
Diluted EPS ($USD)	$0.27	$0.30	$0.14
Adjusted net income ($USD Millions)	$3.6	$3.4	$2.0
Adjusted diluted EPS ($USD)	$0.33	$0.31	$0.18
Adjusted EBITDA ($USD Millions)	$5.1	$5.6	$4.0
Adjusted EBITDA margin (%)	10.3%	10.5%	8.6%

Notes: Q3 FY25 financials benefited ~50 bps in gross margin from BlueForge grant recognition; BN supplemental bonus expensed in SG&A through FY2026; adjusted metrics exclude specified items per non-GAAP definitions .

Year-over-Year Comparison (Q3 FY24 vs Q3 FY25)

Metric	Q3 FY24	Q3 FY25
Net sales ($USD Millions)	$43.8	$47.0
Gross margin (%)	22.2%	24.8%
Operating margin (%)	2.1%	4.7%
Net income ($USD Millions)	$0.17	$1.59
Diluted EPS ($USD)	$0.02	$0.14
Adjusted net income ($USD Millions)	$1.45	$1.97
Adjusted diluted EPS ($USD)	$0.13	$0.18
Adjusted EBITDA ($USD Millions)	$2.97	$4.03
Adjusted EBITDA margin (%)	6.8%	8.6%

Segment Sales Breakdown (by Market)

Market ($USD Millions)	Q1 FY25	Q2 FY25	Q3 FY25
Defense	$29.09	$30.90	$27.02
Refining	$8.24	$8.42	$6.42
Chemical/Petrochemical	$4.78	$5.42	$6.79
Space	$3.95	$3.42	$3.82
Other	$3.89	$5.41	$2.98
Total	$49.95	$53.56	$47.04

KPIs

KPI	Q1 FY25	Q2 FY25	Q3 FY25
Orders ($USD Millions)	$55.8	$63.7	$24.8
Backlog ($USD Millions)	$396.8	$407.0	$384.7
Book-to-Bill (x)	1.1	1.2	0.5

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Sales	FY2025	$200–$210M	$200–$210M	Maintained
Gross Margin % of Sales	FY2025	23–24%	24–25%	Raised
SG&A (incl. amortization) % of Sales	FY2025	17–18%	18–19%	Raised
Adjusted EBITDA	FY2025	$18–$21M (raised from $16.5–$19.5M in Q1)	$18–$21M	Maintained
Effective Tax Rate	FY2025	20–22%	20–22%	Maintained
Capital Expenditures	FY2025	$13–$18M	$15–$19M	Raised

Management reiterated broader guidance during leadership transition announcement, aligning with the updated ranges above .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 FY25)	Previous Mentions (Q2 FY25)	Current Period (Q3 FY25)	Trend
Defense programs & Navy supply chain	Backlog ~$400M; BlueForge grant; strategic Navy programs; component→subsystem vision	Record backlog $407M; potential to capture work amid shipyard challenges	Backlog $385M; customers urging accelerated schedules; proposals for continued supplier development funding	Strong long-term visibility; near-term lumpiness; capacity expansion to support growth
Cryogenic testing facility	Announced project pipeline; engineering collaboration with P3	Florida facility plan with 2–3 year payback, >20% IRR	Initial testing expected mid-2025; facility progressing	Execution on schedule; capability expansion
NextGen steam ejector nozzle	R&D focus on energy efficiency; aftermarket database build	Launch at Gulf Coast refinery; ~$270k annual utility savings; $50M TAM estimate	Second order received; strong domestic interest; international inquiries (China/India)	Early commercialization; growing pipeline
Orders/book-to-bill	Orders $55.8M; book-to-bill 1.1x	Orders $63.7M; book-to-bill 1.2x	Orders $24.8M; YTD book-to-bill ~1.0x; target 1.1x annually	Lumpy but healthy over multi-quarter horizon
SG&A & investments	ERP, R&D, BN bonus; capex 5–7% of revenue	Investments elevate SG&A; capex raised; ROI >20%	SG&A 20.6% of sales; capex raised to $15–$19M; major projects on time/on budget	Opex elevated by strategic build-out

Management Commentary

“The long-term demand environment is extremely favorable… enabling us to capture additional opportunities while furthering Graham’s global reach.” — CEO Dan Thoren .
“This 29,000‑square‑foot expansion will significantly enhance our manufacturing capabilities and capacity for naval defense work… on schedule for completion in June.” — Matt Malone .
“We always set… a book‑to‑bill of 1.1x, which means that we’re continually growing our backlog and our sales.” — Dan Thoren .

Q&A Highlights

Defense/Navy cadence: Customers urged Graham to “not get sidetracked by the noise… we have ships to build,” with discussions on expanding capacity and deliveries .
Aftermarket drivers: Strong energy/chemical aftermarket; NextGen nozzle attracting international interest; second order domestic confirmed .
Book-to-bill target and planning: Aim for 1.1x to support 8–10% organic growth; planning recruits/facilities to improve deliveries .
Supplier development funding: Government intends to continue BlueForge-type funding; Graham has proposals “shovel‑ready” and training programs in place .
Orders lumpiness context: Defense orders down y/y due to prior year’s ~$100M quarter; not a concern given long-term contracts .

Estimates Context

S&P Global consensus EPS and revenue estimates were not retrievable in this session due to service limits; as a result, we cannot determine beat/miss versus Wall Street consensus for Q3 FY2025. Values unavailable from S&P Global at this time.
Directionally, management raised FY2025 gross margin guidance and maintained revenue and adjusted EBITDA ranges, which often prompts analysts to reassess margin and EBITDA assumptions pending full model updates .

Key Takeaways for Investors

Execution remains strong with sustained margin expansion and disciplined growth investments; adjusted EBITDA up 36% y/y in Q3 and 47% implied growth in FY2025 guidance midpoint .
Defense anchors multi-year visibility (80% of backlog), while space backlog rose 59% y/y; Batavia expansion and BlueForge-supported training bolster capacity and talent .
Order lumpiness is inherent; YTD book-to-bill ~1.0x with target 1.1x annually to support 8–10% organic growth—monitor quarterly cadence but focus on multi-quarter trajectory .
Balance sheet provides strategic flexibility: $30M cash, no debt, $43M revolver availability; nine‑month operating cash flow $27.9M funds capex and potential M&A .
Product innovation is gaining traction: NextGen nozzle early wins and international interest; cryogenic test facility adds capability and optionality across space/defense/new energy .
Guidance quality improved: gross margin range raised; SG&A elevated for strategic build—watch conversion of backlog to sales (45–50% next 12 months) and mix effects on margins .
Leadership succession plan signals continuity in strategy and execution with Dan Thoren as Executive Chairman and Matt Malone ascending to CEO in June 2025 .

Appendix: Non-GAAP and KPI Disclosures

Adjusted EBITDA excludes interest, taxes, D&A, equity-based comp, ERP costs, acquisition-related items; Adjusted net income applies normalized tax rate and adds back acquisition-related items and amortization; Barber‑Nichols supplemental performance bonus no longer excluded from adjusted metrics beginning Q4 FY2024 .
KPIs (orders, backlog, book‑to‑bill) are operational measures used by management; see disclosures in press release for definitions .

GRAHAM CORP (GHM)·Q3 2025 Earnings Summary