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GRAHAM CORP (GHM)·Q4 2025 Earnings Summary

Executive Summary

  • Q4 FY25 delivered a broad-based beat: revenue $59.35M (+21% YoY) and GAAP diluted EPS $0.40, with adjusted EPS $0.43; both revenue and EPS exceeded Street consensus for the quarter, a positive near-term catalyst . Consensus: revenue $55.67M*, EPS $0.183* (Primary) versus actual $59.35M and $0.40 GAAP; adjusted EPS $0.43 .*
  • Profitability inflected meaningfully: gross margin 27.0% (+110 bps YoY) and adjusted EBITDA $7.65M (12.9% margin), reflecting leverage on higher volume, better execution, and improved pricing .
  • Record backlog reached $412.3M with FY25 book-to-bill at 1.1x; orders were $86.9M in Q4, including $50M toward a $136.5M Virginia-class submarine contract, underpinning multi-year visibility .
  • FY26 guidance initiated: revenue $225–$235M, gross margin 24.5%–25.5%, adjusted EBITDA $22–$28M; management flagged a $2–$5M tariff headwind and non-recurring FY25 welder grant benefit that will not repeat, tempering margin lift trajectory .

What Went Well and What Went Wrong

  • What Went Well

    • Defense strength drove the quarter: Defense sales +$7.7M (+28% YoY), aided by program growth, execution, improved pricing, and milestone timing . “We closed fiscal 2025 with strong momentum… sustained demand across our diversified product portfolio” — CEO Dan Thoren .
    • Margin expansion and operating leverage: gross margin to 27.0% (+110 bps YoY) and operating margin to 9.3% (+620 bps YoY) on volume, execution, pricing . CFO: “Both periods reflected leverage on higher volume, better execution, and improved pricing” .
    • Backlog and orders visibility: record backlog $412.3M; Q4 orders $86.9M including $50M for Virginia-class long-lead materials; ~45% of backlog expected to convert over 12 months .

  • What Went Wrong

    • Tariff headwind into FY26: management estimates $2–$5M tariff impact embedded in FY26 guidance, moderating gross margin versus FY25 .
    • Non-recurring grant benefit: FY25 gross profit benefited ~$1.3M from BlueForge welder training grant (~62 bps); no additional grants expected in FY26 .
    • Annual orders down YoY due to lumpiness: FY25 orders $231.1M vs $268.4M FY24, reflecting timing in defense programs, though book-to-bill remained 1.1x .

Financial Results

Quarterly comparison (YoY and sequential):

MetricQ4 FY24Q3 FY25Q4 FY25
Revenues ($USD Millions)$49.07 $47.04 $59.35
Gross Margin %25.9% 24.8% 27.0%
GAAP Diluted EPS ($USD)$0.12 $0.14 $0.40
Adjusted EPS ($USD)$0.15 $0.18 $0.43
Adjusted EBITDA ($USD Millions)$2.96 $4.00 $7.65
Adjusted EBITDA Margin %6.0% 8.6% 12.9%

Segment breakdown:

Market Revenue ($USD Millions)Q4 FY24Q3 FY25Q4 FY25
Defense$27.23 (55%) $27.02 (57%) $34.91 (59%)
Energy & Process$19.09 (39%) $16.19 (34%) $20.93 (35%)
Space$2.75 (6%) $3.82 (8%) $3.50 (6%)

KPIs:

KPI ($USD Millions unless noted)Q2 FY25Q3 FY25Q4 FY25
Orders$63.68 $24.79 $86.88
Backlog$407.01 $384.70 $412.34
Book-to-Bill (x)1.2 0.5 1.5

Vs estimates (Q4 FY25):

MetricConsensus*Actual
Revenue ($USD Millions)$55.67*$59.35
Primary EPS ($USD)$0.183*$0.40
EBITDA ($USD Millions)$4.77*$7.65

Values with asterisks retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY26N/A$225M–$235M Initiated
Gross Margin %FY26N/A24.5%–25.5% Initiated
SG&A (% of sales)FY26N/A17.5%–18.5% Initiated
Adjusted EBITDAFY26N/A$22M–$28M Initiated
Effective Tax RateFY26N/A20%–22% Initiated
Capital ExpendituresFY26N/A$15M–$18M Initiated
Gross Margin %FY2523%–24% (as of Q2) 24%–25% (as of Q3) Raised
Adjusted EBITDAFY25$18M–$21M (as of Q2) $18M–$21M (as of Q3) Maintained

Notes: FY26 guidance includes estimated tariff impact of $2M–$5M and no recurring welder grant benefit .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 → Q3)Current Period (Q4)Trend
Defense programs (Virginia/Columbia)Record backlog; stable funding; opportunities as others struggle $136.5M Virginia-class award; $50M booked in Q4; ~83% backlog defense; clauses to protect commodity volatility Strengthening
Supply chain & laborNavy supplier development; welder program expansion; grant support Welders up ~10% YoY in Batavia; new X-ray capability to speed radiography Improving
Tariffs/macroNot highlightedFY26 tariff headwind $2–$5M embedded in guidance New headwind
R&D/technology (NextGen nozzle)Launched; ~$50M 5–10yr opportunity; global interest Design complete; targeting turnaround windows; strong ROI for users Building pipeline
Cryogenic testing facilityAnnounced; mid-2025 initial testing target Aggressive timeline; inquiries strong; bookings to follow commissioning Ramp in CY25
Pricing modelsImproved pricing driving margins Legacy pricing models maturing; bigger opportunity as new capabilities enable unique value capture Advancing
ERP/operationsBatavia ERP conversion cost noted ERP completion costs embedded in FY26 SG&A; process improvements offset headwinds Execution ongoing
M&AOpportunistic; targets with IP moats; robust pipeline Robust pipeline; valuations opportunistic; focus on strategic fit Active

Management Commentary

  • Strategic posture: “We’ve successfully transformed Graham into a well-diversified business… positioned for sustainable growth and improving profitability,” targeting 8%–10% organic revenue growth and low-to-mid teens adjusted EBITDA margins by FY2027 — CEO Dan Thoren .
  • Capacity investments: “Automated welding… 30,000 sq ft Batavia facility… cryogenic propellant testing facility in Florida… all completed in calendar year 2025” .
  • Backlog visibility: “Record backlog of $412 million… book-to-bill 1.1x for the fifth year in a row” .
  • Defense cadence: “This latest [Virginia-class] contract builds upon our successful execution… providing stable, recurring revenue through 2034” .
  • CFO margin color: “Gross margin expanded… driven by leverage on higher volume, better execution, improved pricing; FY25 benefited ~$1.3M from the BlueForge grant” .

Selected quotes:

  • “We continue to advance projects with an expected 20%+ ROIC… which will drive enhanced margins and create additional revenue opportunities.” — Dan Thoren .
  • “We expect revenue in the range of $225M–$235M… maintain strong gross profit margins… adjusted EBITDA $22M–$28M for fiscal 2026.” — CFO Chris Thome .

Q&A Highlights

  • Gross margin outlook: Guidance reflects tariff impact and absence of welder grant; no other major mix/labor factors cited; process improvements expected to offset .
  • Contract protections: Firm-fixed price with clauses to protect against commodity volatility; ordering high-risk materials early to reduce exposure on multi-year programs .
  • Throughput improvements: New radiographic testing equipment and automated welding will simplify complex weld evaluations and improve repeatability; potential cross-over to Energy & Process applications .
  • Welder capacity: Batavia welder workforce up ~10% YoY; program well-received; supports defense revenue growth .
  • Cryogenic facility: Aggressive commissioning timeline; enough inquiries to “fill up nicely” once operational; differentiates via onsite high-power availability .
  • Pricing maturity: Legacy models improved; future value capture as unique test capabilities and R&D deliver differentiated offerings .

Estimates Context

  • Q4 FY25 comparison: Revenue $59.35M vs consensus $55.67M*; Primary EPS $0.40 vs consensus $0.183*; adjusted EPS $0.43 (company-reported) .*
  • Forward estimates context: Street expects near-term EPS cadence to reflect seasonal and program timing (e.g., Q2–Q4 FY26 EPS consensus mean of ~$0.28*, ~$0.165*, ~$0.368*).*
  • Implication: Beat on both revenue and EPS suggests upward bias to near-term estimates, though FY26 tariff headwind and non-recurring FY25 grant imply moderated margin progression versus FY25 .

Values with asterisks retrieved from S&P Global.

Key Takeaways for Investors

  • Strong beat and margin expansion with record backlog should support near-term sentiment; defense award timing and Virginia-class long-leads underpin multi-year revenue visibility .
  • FY26 guide embeds tariff headwind and no welder grant benefit; near-term gross margin likely flattish-to-slightly down vs FY25, with process improvements and pricing initiatives offset .
  • Defense remains the growth engine (59% of Q4 revenue), with clauses mitigating commodity risk and workforce capacity expanding; watch order lumpiness but book-to-bill remains >1x over time .
  • Adjusted EBITDA trajectory improving; Barber-Nichols supplemental earn-out ends FY26, potentially adding ~200 bps to adjusted EBITDA margin in FY27 .
  • Commercial initiatives (NextGen nozzle, cryogenic testing) provide incremental growth optionality and cross-segment leverage; expect bookings as facilities come online in CY25 .
  • Near-term trading: beat vs consensus and record backlog are positive catalysts; monitor tariff developments and backlog conversion (45% next 12 months) for execution signals .
  • Medium term: executing stabilize→improve→growth phases, targeting low-to-mid teens adjusted EBITDA margins by FY2027; opportunistic M&A could accelerate product lifecycle expansion .