Graham Corporation Stock

Greetings and welcome to the Graham Corporation Fiscal Second Quarter 2027 Earnings Call.

[Operator Instructions]

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Cook, Investor Relations. Thank you. You may begin.

Thank you, Sachi, and good morning, everyone. Welcome to Graham's second quarter fiscal 2027 earnings call. With me on the call today are Matt Malone, President and CEO, and Chris Thome, Chief Financial Officer.

This morning, we released our second quarter fiscal 2027 financial results. Our earnings release and accompanying presentation for 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, 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 today's call, we will also discuss non-GAAP financial measures. We believe these will be useful in evaluating our performance. 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 ROIC, orders, backlog, and book-to-bill ratio. These are operational measures, and a quantitative reconciliation of each is not required or provided. You can find a 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 the call over to Matt to begin.

Thank you, Tom, and good morning, everyone. We appreciate you joining us to review our second quarter fiscal 2027 results. We have continued to execute on our strategic priorities with growth in defense and space, significant improvement in profitability, another quarter of record backlog, and continued momentum in our FlackTek business.

Second quarter revenue was $69.8 million, up 6% from the prior year. Adjusted EBITDA increased 64% to $10.3 million, representing a margin of 14.8%. Orders totaled $73.7 million and backlog reached a record $561 million. This performance reflects the sustained demand for our mission-critical technologies, the contributions of FlackTek, and better execution across our entire business platform.

We are excited by the improvement in profitability while we continue to invest in our people, processes, and technology. Operational improvements on new and existing programs, a more favorable mix in defense and space work, and the addition of FlackTek are all additive to our results. Program mix and the timing of material receipts also affect our margins, and Chris will discuss those factors in more detail in a few minutes.

The investments we have made across our organization to support capacity, automation, testing, and systems are increasingly supporting the business. FlackTek's integration is translating into stronger results. We completed our first customer test at our new cryogenic test facility this quarter. We also broke ground on our new Arvada facility in Colorado to support our continued growth.

Based on our first half performance and expectations for the remainder of the year, we are reaffirming our fiscal 2027 revenue and adjusted EBITDA guidance. We have also increased our gross margin outlook to reflect better execution and mix. We remain focused on our three-year framework that we outlined at our June Investor Day, targeting 8% to 10% organic revenue growth and adjusted EBITDA margins of 14% to 16% by fiscal 2029. This quarter demonstrates progress towards those objectives as we work towards becoming a top-quartile performer over time.

Turning to our markets on Slide 4 and starting with defense, revenue increased 12% from the prior year quarter and represented 66% of total sales. Growth reflected project milestone timing, new programs, expansion of existing programs, and the addition of FlackTek, partially offset by approximately $10 million lower material receipts than the prior year's quarter. Defense orders were up $41.8 million and defense backlog increased 10% from a year ago.

Our primary naval positions include the Columbia and Virginia-class submarine programs and the Mark 48 Mod 7 heavyweight torpedo, which are both bipartisan supported. We also supply the Mark 19 Mod 2 air turbine pump assemblies to support submarines' fleet spares. These positions give us exposure to both new production and the recurring requirements of the installed fleet.

Additionally, our thermal management and cooling technologies position us well for growth in radar and directed energy platforms, where we are seeing continued progress from development towards production. These systems are becoming increasingly more important as warfare is reshaped by the proliferation of drones and other new technologies. From a margin perspective, we are seeing the benefits of operational excellence and a more profitable mix of work. Better execution on existing programs together with pricing discipline on new opportunities supports our long-term margin goals.

Before turning to space, I want to spend a minute discussing the defense budget and framing Graham's interplay. The vast majority of the programs we support have requirements that extend well beyond any individual budget or political cycle. Shipbuilding, for example, is a multi-decade cycle with strong bipartisan support and one where America's adversaries are making strides ahead of the U.S. We have appropriations, and while funding timing still matters, the multi-year nature of these programs provides visibility as we plan capacity and investments alongside our customers. Our defense backlog is 85% funded, and we are excited about the continued momentum.

Moving to space, growth continues to build. Revenue increased 59% from the prior year quarter, reflecting commercialization, higher launch cadences, the ramp of existing programs, and contributions from FlackTek. Orders were $10.6 million, representing a book-to-bill ratio of 1.7x. For the first half, space orders totaled $25 million, or 2x sales, and the space backlog was up 108% from a year ago.

As customers advance their programs, demand is growing for turbomachinery, cryogenic systems, pumps, and related technologies that we provide. FlackTek adds advanced materials processing capabilities that broaden our participation in space and defense applications, including missiles. Our testing investments are also strengthening our offering. We successfully completed the first customer test at our new cryogenic facility in Florida this quarter.

Together with our liquid nitrogen testing capabilities in Colorado, this allows us to validate performance under demanding conditions and deliver fully tested solutions. That is valuable to our customers as they work through qualification and scale production.

Turning to energy and process, revenue declined 17% from the prior year quarter. Large capital projects remain soft amid global uncertainty, and sales to customers outside the U.S. were lower. Growth in new energy and contributions from FlackTek partially offset those pressures, and we continue to manage the business with that large project environment in mind.

The aftermarket remains a strong and important opportunity across energy, process, and defense. Combined aftermarket sales were $8.6 million, down 3% from the prior quarter, while orders increased 91% to $18.3 million. Sales remained at a high level, and the strength in our bookings supports future activity. With a more than $1 billion installed base of Graham equipment around the world, we have a substantial group of customers who need ongoing maintenance, replacement parts, and performance improvements. Expanding that lifecycle remains a key priority.

In new energy, we continue to see opportunities in development programs supporting micro-reactors, small modular reactors, and other technologies. These markets are still developing, and we will continue to pursue opportunities where our engineering capabilities can solve specific customer needs.

Turning now to FlackTek, which I want to highlight and am very excited about. The integration has gone exceptionally well, and that is showing up in the business results. Revenue increased to $9.5 million from $6.6 million in the first quarter, and the business is contributing margins that are accretive to the portfolio.

A key focus has been sales excellence. The team is following a more rigorous process to help customers understand the technology, validate its application, and move towards an order. We are seeing the time from request for quotation to order shorten alongside greater demand for larger machines and higher-value purchase orders.

The key message is the shift towards production. As customers move from evaluating the technology to using it in production, the scale and the opportunity expands. That is why we remain particularly excited about the MEGA platform and the potential to introduce FlackTek's advanced materials processing technologies to the world.

FlackTek is also a useful example of how we approach M&A. We look for differentiated, engineer-led businesses with proprietary technology that can expand our addressable markets and create opportunities for profitable growth. Alongside our investments in technologies such as Xdot, our focus is on turning technical differentiation into commercial results.

Turning to operational excellence on Slide 5, our focus continues to move from not only building capabilities, but to getting more out of those capabilities as well. The NDE and X-ray facilities in Batavia, automated welding, expanded assembly and testing in Colorado, and the cryogenic testing facility in Florida give us a stronger base from which to serve our customers. We are also continuing to modernize our systems through our ERP initiatives. The next step is to translate those capabilities into higher utilization, shortened cycle times, and improved throughput.

The operational improvements contributing to this quarter's gross margin are encouraging, and we see further opportunity as we repeat that execution across more programs. During the quarter, we broke ground on our new 30,000-square-foot facility at our Arvada campus. This expansion is intended to support increasing demand and provide additional capacity for our turbomachinery applications. It is an investment in our ability to execute the work ahead of us and support future growth.

We continue to evaluate special capital projects against our 20% ROIC hurdle rate. Our focus is on investments that expand capacity, improve productivity, and strengthen differentiated capabilities. The change in our capital expenditure outlook reflects the timing of major projects, which Chris will discuss in more detail.

These investments support the execution and visibility of our backlog, which increased 12% from a year ago and represents our seventh consecutive quarter of record backlog. Approximately 83% is in defense, with many programs extending over multiple years. Our year-to-date book-to-bill is 1.2x. Together with our active pipeline, this supports our confidence in the fiscal 2027 outlook and our longer-term framework.

As we move into the second half, we will build on these opportunities in space and defense, expand aftermarket support, commercialize our proprietary technologies, and improve profitability through disciplined pricing. We also remain selective as we pursue acquisitions that complement our organic growth strategy and offer attractive returns.

The foundation we have built is contributing more meaningfully to our results. We are pleased with our progress through the first half of the fiscal year and recognize there is more work ahead as we continue improving execution and creating value for our customers and shareholders. I want to thank every one of our employees for their continued commitment to our customers and seeing our vision come to life.

With that, I'll turn the call over to Chris for a detailed review of our financial results and outlook. Chris?

Thanks, Matt, and good morning, everyone. Turning to our second quarter results, starting on Slide 6. We delivered another solid quarter with continued growth in defense and space, meaningful gross margin expansion, and strong cash generation. The results reflect the benefits of operational execution, the investments we have made to support our long-term growth strategy, and the acquisition of FlackTek.

Second quarter revenue increased 6% to $69.8 million, compared with $66 million in the prior year period. FlackTek contributed $9.5 million of revenue during the quarter. Defense revenue increased 12% year-over-year, primarily driven by the timing of project milestones, new programs, and continued expansion of existing programs, along with the contributions from FlackTek.

This growth was partially offset by approximately $10 million of lower material receipts compared with the extraordinarily high level of the prior year quarter. Defense represented 66% of quarterly sales. Space revenue increased 59% year-over-year and reflects commercialization, accelerated launch cadences, and the ramp of existing programs, as well as the addition of FlackTek.

Within energy and process, revenue decreased 17% from the prior year period, reflecting softness in large capital project investments amid geopolitical uncertainty and lower sales to customers outside the U.S., partially offset by growth in new energy and FlackTek. Aftermarket sales across energy and process and defense were $8.6 million, down 3% year-over-year, but remained at high levels.

Turning to Slide 7, gross profit increased 38% to $19.7 million, compared with $14.3 million in the prior year period. Our gross margin expanded 650 basis points to 28.2% compared with 21.7% a year ago. This increase reflects operational improvements from the investments we have made, contributions from FlackTek, and a more favorable sales mix, particularly within space and defense. The comparison also benefited from lower material receipts in the second quarter of fiscal '27 as compared to the prior year, which had lower margins.

Moving to Slide 8, selling, general, and administrative expenses, including intangible amortization, increased $3.4 million, or 34%, compared with the prior year period. Approximately $2.3 million of the increase reflected incremental SG&A associated with FlackTek, and acquisition and integration expenses contributed $0.7 million to the increase.

We also continue to invest in our people, our processes, and our technology. These investments are expected to total approximately $2.5 million of incremental costs in fiscal 2027 to support future growth and accelerate commercialization. These increases were partially offset by the end of the Barber-Nichols performance bonus in fiscal 2026. The prior year quarter included $1.1 million of expense related to that bonus with no corresponding expense in the current quarter.

Net income increased 50% to $4.6 million, compared with $3.1 million in the prior year quarter. Net income per diluted share increased 39% to $0.39 compared with $0.28 a year ago. On an adjusted basis, net income increased 80% to $6.2 million, compared with $3.4 million a year ago. Adjusted net income per diluted share increased 68% to $0.52, compared with $0.31 in the prior year quarter.

Adjusted EBITDA increased 64% to a record $10.3 million, compared with $6.3 million in the prior year period. Adjusted EBITDA margin expanded 530 basis points to 14.8% from 9.5% a year ago. For the first half of fiscal 2027, revenue increased 16% to $141 million and adjusted EBITDA increased 45% to $19.1 million, representing an adjusted EBITDA margin of 13.5%. Overall, we are pleased with the improvement in profitability while continuing to invest to support future growth.

Turning to Slide 9, orders totaled $73.7 million during the quarter, resulting in a book-to-bill ratio of 1.1x. For the first six months of fiscal 2027, our book-to-bill ratio was 1.2x, and our pipeline of opportunities remained strong. With that said, orders can be lumpy given the nature of our business, particularly large capital projects and multi-year defense orders.

Defense orders totaled $41.8 million in the quarter. As Matt discussed earlier, the vast majority of the programs we support have requirements that extend well beyond any individual budget or political cycle. Shipbuilding is a multi-decade cycle with strong bipartisan support. While funding timing can be impacted, the multi-year nature of these programs provides visibility as we plan capacity and investments alongside our customers. Our defense backlog is 85% funded, and we are excited about the continued momentum.

Space orders were $10.6 million, representing a book-to-bill ratio of 1.7x. For the first half of fiscal '27, space orders totaled $25 million, or 2x sales. Aftermarket orders across defense and energy and process increased 91% to $18.3 million. And finally, our FlackTek business continues to build momentum as book-to-bill was 1.3x for the first half of the year.

Backlog reached another record of $561 million, up 12% from the prior year period, marking our seventh consecutive quarter of record backlog. Defense backlog increased 10% and space backlog increased 108% from a year ago. Defense represented approximately 83% of backlog at quarter end.

We currently expect approximately 30% to 35% of quarter-end backlog to convert to revenue within the next 12 months, another 20% to 25% within 1 to 2 years, and the remainder beyond 2 years. This backlog continues to provide meaningful visibility into future revenue.

Turning to Slide 10, our balance sheet remains strong and provides significant flexibility to support our strategic priorities. Net cash provided by operating activities was $34.1 million for the first six months of fiscal 2027. The strong cash generation primarily reflects the timing of accounts receivable collections and customer deposits, along with higher cash net income.

Net capital expenditures totaled $4.9 million for the first half of 2027 as we continue to invest in growth and productivity improvements. We ended the quarter with $71 million of cash, no outstanding debt, and $75 million available under our revolving credit facility. This financial flexibility positions us to pursue both organic and inorganic growth plans.

Turning to guidance on Slide 11, we are reaffirming our fiscal 2027 revenue and adjusted EBITDA outlook while updating our gross margin, SG&A, and capital expenditure assumptions based on first half performance and our expectations for the remainder of the fiscal year. We continue to expect revenue to be between $285 million and $295 million, representing an increase of 18% over the prior year at the midpoint, and our adjusted EBITDA to be between $35 million to $40 million, representing a 44% increase at the midpoint.

I should remind everyone that our fiscal third quarter is typically our lowest revenue quarter of the year, given the holidays and the dependence of our business on direct labor.

Before concluding, I would like to remind everyone of the three-year financial framework that we laid out at our Investor Day in June. Our objectives remain to achieve 8% to 10% organic revenue growth per year and adjusted EBITDA margins of 14% to 16% by fiscal 2029, supported by higher volumes, operational improvements, a more commercial mix, and continued leverage from our business investments.

That framework implies approximately $340 million to $350 million in revenue and $50 million to $55 million of adjusted EBITDA by fiscal 2029. We remain focused on disciplined capital allocation and targeting returns above our 20% ROIC hurdle rate for our CapEx investments.

Overall, we are pleased with our results through the first half of fiscal 2027. Our record backlog, continued execution, and strong balance sheet position us well to deliver on our full-year outlook. With that, operator, we are now ready for questions.

[Operator Instructions]

The first question is from Russell Stanley from Beacon Securities. Please go ahead.

Good morning. Maybe just starting with defense orders, anything you can share on this front, but we generally assume, I think, that subs and carriers drive the vast majority of that number along with torpedoes. I'm wondering what you can say as to the share of defense orders that are from non-Navy applications or opportunities, and just trying to understand what your objectives might be for that component as a share of the order book going forward.

Yes, thanks, Russ. So again, another great quarter of orders, 1.1x book-to-bill, 1.2x for the full year. So that's impressive given that last year's book-to-bill ratio was 1.5x. So we continue to see very good momentum in our backlog and our orders.

On the call today, our aftermarket orders were up 91% for the year. Our orders in space were up very significantly as well. So we're just seeing health across all the portfolios. We did mention we did have some larger Navy orders that are within defense, but as you know, those can be very lumpy in nature.

Maybe moving on to Batavia, just wondering how the facility has performed, the expansion facility, how that's performed relative to expectations, and understanding you just broke ground on the Arvada expansion facility, and wondering what your appetite may be for additional expansion facilities in New York.

Thank you. Yes, Russ, we're definitely seeing the facility come online here. The machining centers are full during day shift, and I say that in reference to where I'm going to go after this. We continue to see the automated welders come online and all of the welding procedures get approved as we move forward.

We're approaching a stance of utilization that I say is a critical milestone, which means we're reaching targets that are consistent with the other parts of our business. But we're not there. We've got work to go do. The RT facility is also online, and we're using it. It's been fantastic to not have to drive an asset and then go through in an iterative cycle outside of the facility. These things are large, and so it was driving quite a bit of churn into our business.

So that investment has paid off on the defense side, and obviously we can utilize it as well more broadly. The last thing I'll note on the first part of the question is, we have the opportunity to bring on a second shift if we get to that point. And so it's going well, the Batavia facility.

I'm going to stick to Batavia for a second. We had mentioned early on that we laid the foundation for Building 14 with two additional bays next door, which are basically exactly the same facility. And we're seeing our backlog continue to expand, an opportunity for potential growth and need for growth on this campus as we move forward in the defense sector.

Moving to the Colorado facility, yes, that 30,000-square-foot facility, we have great confidence. That's really to support our increasing backlog, so it's not so much—I'll say acceleration of backlog conversion. It really is more out in supporting our future growth.

Look, we've already got plans for it, and the team's working on laying out the facility. It utilizes the majority of new equipment, so we don't have to relocate from an existing building. So it's coming along nicely. Ground's being moved, and concrete should be poured here in the next few weeks. So, progressing.

That's great. Maybe one more for me and I'll get back in the queue, just around space. Congrats on the success and significant growth there, looks great. A lot of media reports, media attention around the shortage of launch vehicle access. And I'm just wondering if you are seeing that as a potential headwind to your growth here directly or perhaps a little further down the chain. Thank you.

Yes, with respect to space, I don't see it as a headwind. I see it more as a continued tailwind. We did not have content on Falcon, so what that allows us to do is continue to expand with that particular customer on their larger asset as well as the assets that will replace the backfill for Falcon.

We're seeing continued increase in opportunities, not only with the large rocket—I'll just say large rocket customers, but we're also seeing continued interest from the folks that are going to replace that smaller fleet of launch. So I would say that it's a tailwind at this point, which is what's being reflected in our order pipeline or orders and pipeline.

That's great, Matt. That's all for me. Thank you.

The next question is from Tomohiko Sano from J.P. Morgan. Please go ahead.

Hi, good morning, everyone.

Hi, Tomo.

Maybe just on gross margins, which improved significantly to 28.2%, up 650 basis points. While your full year guidance is 25% to 26%, could you unpack a little bit more the margin expansions behind several factors, and how should we think about the margins going forward into the back half to stay at a high level? Thank you.

Yes, thanks for the question. Margins were a little bit higher than our normal run rate for the quarter, and that really was a function of mix as well as higher volumes, but primarily the impact on the margin was lower material receipts.

If you recall, in the second quarter of last year, we had about $10 million of extraordinarily high material receipts, which carry with them lower margins. So you have a little bit lower than normal margin in the prior year quarter, and we have a little bit higher than normal margin in the current quarter. So we would expect that to normalize as the year progresses.

However, it was ahead of our expectations, which is why we bumped our gross margin guidance by about 50 basis points on the bottom and top end.

Yes, and what we're seeing there is we're seeing improved execution. We're seeing more favorable pricing start to come out of the backlog. So we had talked before about how we had to get lower margin jobs out of the backlog, and that process has been unwinding. So it's a little bit of pricing, it's a little bit of improved execution, as Chris mentioned, and then it's a little bit of just mix versus material receipts.

And more specifically on the mix, space obviously is a lot higher in the current year, which carries with it higher margins, as you know. Additionally, FlackTek was higher this quarter versus the prior year and versus the sequential quarter, and they have a higher margin business as well.

And then, one thing that may not be intuitive, within our defense business, we are starting to enter into some higher margin programs now that we have some of the older orders off the books. So it's not only the mix within the markets, but within defense itself as well.

Thank you. And then on cash flow, please. Operating cash flow was very strong in Q2, partially reflecting the timing with receivable collections and customer deposits. But what level of cash generation should we expect in future quarters? And also, as related to that, any comments on the M&A pipeline in any areas? Appreciate it. Thank you.

Yes, sure. Yes, we had an exceptionally strong cash flow quarter. The teams did a great job on receivables collections. As you know, our business is very cash flow positive, as with many of our contracts, we're able to bill for the materials ahead of time before we actually have to pay for them.

With that said, they can also be very lumpy. We had some receivables push out from the first quarter to the second quarter, which is why the second quarter was so high. As you know, we typically like to speak to EBITDA as far as our cash flow generation, just because of the lumpiness of our cash and our working capital.

We literally can have a $5 million or $10 million payment that shifts from one quarter or one year to the next, which can kind of skew the results from quarter to quarter, which is why we don't provide cash flow guidance and prefer to talk to adjusted EBITDA.

And as far as M&A, when we look at what we're prioritizing with the cash that we have, since we have no debt, first priority is continued investment in organic growth. We see that as the highest avenue for return for our shareholders, and specifically, we continue to have that 20% hurdle rate.

The next in line would be debt, but we don't have any, so third in line is M&A, and I'll just say the pipeline remains full. We're only focused on extremely strategic opportunities that meet the criteria that we've laid out in our investor slide deck. And yes, the pipeline remains full, conversations are active, and we're excited about potential opportunities on the horizon.

Great. Thank you very much. Congrats on the quarter.

Thanks, Tomo. Thank you.

[Operator Instructions]

The next question is from Robert Brooks from Northland Capital Markets. Please go ahead.

Hey, good morning, team. As we think of the increasing needs for more power-dense items in high-stress environments, that really kind of plays right into your favor in what you guys specialize in, right? So I was just curious to hear any new orders you'd like to highlight so far year-to-date for your fiscal '27 that exemplify that thesis in action.

Yeah, something that just gets me jazzed. So Bobby, I'll talk through a few examples at a high level. The first, specifically I want to hone in on even a sub-sector of nuclear. If you look at micro-reactors, so I'm talking containerized reactors that could be deployed at a hyperscale level, and look, it's not going to happen overnight, but we do still feel optimistic.

Barber-Nichols does design and produce some of the most power-dense rotating machines on the market, and with the micro-reactor, power density matters. You got to be able to fit the rotating machine that cools the reactor within the shipping container. And so we are seeing a number of opportunities that have entered into our design environment and now production environment that meet those needs. And so that's one example in the micro-reactor space.

The next area where we're seeing it is on the defense side. If you look specifically, you hone in and you say radar, we've had some opportunities this year that have converted that have to do with increasing the visibility on the battlefield from a directional radar platform to 360 degrees. And I would specifically say, we've talked about that at our Investor Day, but what's happening is it's starting to scale to low-rate and now rate production. And so we're starting to see the scaling effect of that.

Lastly, on the space side, Barber-Nichols has had heritage on the space side with complex rotating machines and, more specifically, power-dense rotating machines for now 20-plus years. And we're seeing opportunities in space to cool—I'll say we have had bookings and opportunities to cool long-term launch vehicles as well as satellite systems, as well as astronaut backpacks. So some of that's been a long conversation, some of it's converted more recently.

So I would just say it's an area where power-dense, electrified rotating machines is the differentiator, and we're seeing it connect with the market need.

That's really helpful color there. And then just as we maybe step back or expand the view, obviously you have a really strong position within supplying U.S. naval programs. I was just curious to get a sense of maybe what are the key hurdles for you guys to clear to win defense positions business with American allied naval programs? Or is that something that's not really on the table and you kind of focus where there's better opportunities domestically?

No, it's a great question. We do it today. The nice thing is as we do it through the folks that buy it, so our integrator, our prime, or upstream is actually the one that then regulates it to where it goes to foreign allies.

And so we basically have increased content. Shipbuilding as an example, it gets integrated at a prime and then it could go to AUKUS, which is other different avenues for usage. Other examples of that, we do supply spare parts for different submarine solutions globally. So I would just say it is a part of our business today and we continue to see opportunity there for growth.

That's great to hear. And then maybe just the last one for me on capacity. So it seems like you don't necessarily have capacity constraints today, but then the Arvada expansion is more about building better, not about throughput, but about growing the business in the future. I was a little confused there. I just want to clear up my understanding.

Okay, so think of it this way. We're not capacity constrained today, but when you overlay the backlog that's been growing for seven straight quarters, you get to a situation in the future where current capacity doesn't meet it.

So you essentially have to build ahead to meet the capacity constraints, because you can't build a facility overnight. And so it's just leveling up to meet the backlog overlay in our portfolio. And that's what we've done really well for the last number of years.

That's definitely the case. I appreciate the time and congrats on another strong quarter.

Thanks, Bobby.

This concludes the question-and-answer session. I'd like to turn the floor back over to Matthew Malone for closing comments.

Thank you. Overall, we are pleased with a solid start to the first half of the year. With that said, we recognize there is still significant work ahead, and we remain focused on disciplined execution, profitable growth, and getting better every day as we work towards becoming a top-quartile performer and creating value for our customers and shareholders.

As always, please reach out with any questions. Thank you everyone for joining us today and your interest in Graham.

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

This live transcript is auto-generated without human intervention or review.

Thank you. Greetings. Welcome to the Graham Corporation Fiscal First Quarter 2027 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Tom Cook, Invest Relations. Thank you, Tom. You may begin.

Thank you, Dylan. Good morning, everyone. Welcome to Graham's first quarter fiscal 2027 earnings call. With me on the call today are Matt Malone, President and CEO, and Chris Thome, Chief Financial Officer. This morning, we released our first quarter fiscal 2027 financial results. Our earnings release and accompanying presentation to today's call are available on the web. website at ir.gramcorp.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. 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 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 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 ROIC, orders, backlog, and book-to-bill ratio.

They are operational measures and a quantitative reconciliation of each is not required or provided. You can find a disclaimer regarding our use of KPIs at the back of today's presentation. with that if you'll please advance to slide three I'll turn the call over to Matt to begin Matt.

Thank you, Tom, and good morning, everyone. We appreciate you joining us to review our first quarter fiscal 2027 results. I'm pleased with the start to fiscal year 2027 as we continue to execute on our strategic priorities and see significant momentum across the end markets we serve. Our first quarter results demonstrate the continued growth and durability of our platform. We delivered record first quarter revenue of $71.3 million, an increase of 29%, with growth across each of our businesses. Adjusted EBITDA increased 28% to $8.8 million, totaling a total of $95.9 million and backlog increased to another $1.8 million. record of $557 million. These results reflect the strength of our diversified business model, strong demand for our mission-critical technologies, and disciplined execution across the organization.

The benefits of these investments we have made over the last several years are beginning to bear fruit as well. We have expanded capacity, strengthened our engineering and manufacturing capabilities, invested in automation and advanced testing infrastructure, modernized our systems, and broadened our technology portfolio through the acquisitions of FlakTek and xDOT. Many of these investments are now operational and beginning to support higher production volumes, new program opportunities, and improved operational performance. On our fourth quarter earnings call and our investor day in June, we provided our guidance for fiscal 2027, calling for 18% revenue growth and 44% adjusted EBITDA growth. Our strong start to fiscal 2027 positions us well to achieve those targets. Additionally, we outlined how the investments are making combined with favorable demand environment and our record backlog. Positioned ground for sustained profitable growth.

We introduced a three-year financial framework targeting 8% to 10% organic revenue growth and adjusted EBITDA margins of 14% to 16%. by fiscal year 2029. With our sights set on achieving top quartile performance over time, During the quarter, we continued to make significant progress towards these goals. Turning to our end markets on slide four and starting with defense, demand remains very strong. Defense revenue increased 40% during the quarter, driven by timing of project milestones, new program activity, and continued growth across existing programs. Our performance reflects the strategic importance of the platforms we support, the durability of our customer relationships, and our ability to execute on highly complex mission-critical applications. Our naval business continues to benefit from increasing activity across the Columbia and Virginia-class submarine programs, as well as the MK-48 Mod 7 heavyweight torpedo program. During the first quarter, we received approximately $61.8 million of new and follow-on defense orders supporting these programs.

Also, as we announced in our release last night, we secured a new contract to provide MK-19 Mod 2 air turbine pump assemblies supporting submarine fleet spares, which when combined with the Mark 48 award in the first quarter, totaled approximately $43 million. awards are a validation of the investments we have made to increase our capacity and technical capabilities. Our new Navy and X-ray facilities in Batavia are operational, our automated welding systems have been commissioned, and our assembly and test capabilities are increasingly supporting production. These investments improve throughput, enhance quality, and position us to meet increasing production requirements across critical Navy platforms for decades to come. Beyond our traditional Navy business, we continue to see attractive opportunities in next generation defense applications, including radar and directed energy systems. thermal management, cooling, power electronics, and turbo machinery technologies provide meaningful advantages in applications where customers require greater capability in increasingly compact systems. Several of these programs are transitioning from development to production and represent attractive multi-year growth opportunities. Moving to space, momentum continues to build. Space revenue increased 86% during the quarter, reflecting new programs, the continued ramp of existing programs, and contributions from Plaquetech.

Orders totaled $14.4 million, representing a book to bill of 2.3 times. Customers across both commercial and government funded programs continue to advance from development and qualification into production. That progress, that progression is increasing demand for our highly engineered turbo machinery, cryogenic systems, pumps, motor controllers, and precision components. Our investments in testing and manufacturing capabilities are strengthening our competitive position as these programs scale.

Thank you. Thank you. we are experiencing a technical difficulty. Please remain on the line.

© BF-WATCH TV 2021 Hey, Tom, can you hear us? Yes, we can.

Okay. All right. Where did we stop? You said our investments in manufacturing. I don't think it ever cut off.

Okay, we'll continue. Our investments in testing and manufacturing capabilities are strengthening our competitive position as these programs scale. Our liquid nitrogen testing capabilities are operational and actively supporting customer programs. While our cryogenic testing facility in Florida expands our ability to validate increasingly complex products before delivery. These capabilities allow us to provide customers with more fully tested and integration ready solutions. helping reduce program risk while deepening Graham's role as a critical technology partner. As launch cadence increases and commercial and government space infrastructure continues to mature, we believe GRAM is well positioned to participate across launch vehicles, satellites, lunar exploration systems, and other critical space platforms. Turning to energy and process, revenue increased 5% during the quarter. Continued strength in aftermarket activity and the additional FLAC tech helped offset ongoing pushouts in large capital projects within the refining and petrochemical markets.

Aftermarket revenue across energy and process and defense increased 20%, demonstrating the value of our installed base and the reoccurring demand associated with maintaining mission-critical equipment. With more than $1 billion of Graham's installed equipment around the world, we see a meaningful opportunity to expand lifecycle support, introduce new technologies into the install base, and deepen our customer relationships. Over time, growing our investment in aftermarket and reincurring revenue streams should also support a more balanced business mix and improve profitability. Within New Energy, we continue to see increasing customer engagement across small modular nuclear reactors, cryogenic applications, and other emerging energy technologies. These markets remain relatively early in their commercialization, but activity continues to build and our engineering expertise and mission-critical product portfolio position Graham to benefit as these technologies advance. Turning now to FLACTECH, integration continues to progress extremely well. FLACTECH established advanced materials processing as Graham's third core technology platform, alongside vacuum and heat transfer systems and turbo machinery.

The business contributed $6.6 million of revenue and $13.3 million of orders during the quarter, representing a book-to-bill ratio of approximately two times. The strength of Flack Tech's first quarter bookings reflects healthy customer engagement and attractive growth characteristics of the business. Flack Tech brings differentiated intellectual property, reoccurring revenue, and exposure to several markets where Graham has already had deep relationships. We remain particularly excited about the commercialization potential of the Mega Platform and the opportunity to introduce FlacTech's advanced materials processing solutions across our broader customer base. Teams are working well together, and we continue to add capabilities required to support growth. Black Tech remains an excellent example of our disciplined acquisition strategy. which is acquiring differentiated, engineer-led businesses that expand our addressable markets, strengthen our technology portfolio, and create opportunities for long-term profitable growth. Turning to the operational excellence and investments beginning on slide 5.

Our focus is increasingly moving from building capabilities to leveraging those capabilities. Over the last several years, we deliberately invested ahead of demand to expand capacity and capabilities, improve productivity, enhance quality, and broaden our product offerings. These investments include our Batavia Navy facility, automated welding, advanced x-ray systems, expansion, and more. assembly and testing capabilities in Colorado, cryogenic testing capabilities in Florida, and the modernization of our ERP systems. Many of these initiatives are now operational or approaching completion and are beginning tribute to performance. Going forward, our focus is on increasing utilization, shortening production cycle times, improving throughput, and driving greater operational leverage as volume increases. We're also continuing to invest in the next phase of growth, including a construction of a new 30,000 square foot manufacturing facility on our Arvada campus. This additional capacity will support increasing customer demand and further strengthen our ability to scale production across our growing portfolio of turbo machinery applications.

Importantly, we evaluate these investments through a disciplined capital allocation framework and target returns above our 20% ROIC hurdle rate. believe the combination of higher volumes, improved business mix, automation, and continued operational execution provide the clear path to margin expansion outlined at our investor day. Graham's recent investments encompass manufacturing, testing, automation, and system modernization, which each evaluated against that return threshold. These investments are needed in order to fulfill our backlog, which totaled $557 million at the end of the quarter. Importantly, the quality of our backlog remains strong. Many of the programs we support are long-cycle applications tied to critical customer priorities and extendable. over multiple years. Combined with our active pipeline, expanding capabilities, and continued momentum across our markets, this backlog gives us confidence in both our fiscal year 2027 outlook and the long-term framework which we presented in June. Beyond fiscal year 2027, our priorities remain clear.

We will continue expanding our participation in attractive markets, commercializing our proprietary technologies, growing aftermarket and reoccurring revenue, investing in operational excellence. and pursuing disciplined acquisitions that complement organic growth strategy. We believe Graham has entered an important new phase. The foundation has been built. Our backlog is at record levels. Our capabilities are expanding, and the investments we have made are beginning to contribute more meaningfully. With that, I'll turn the call over to Chris for a detailed review of our financial results. Chris?.

Thanks, Matt, and good morning, everyone. Apologies for the slight technical difficulties earlier, but it appears we're back on track. I'll begin my formal remarks on slide six. We are off to a strong start for fiscal 2027, delivering record first quarter revenue while continuing to execute against our long-term growth strategy. Our results reflect broad-based demand across our diversified end markets, disciplined execution, and initial contributions from our strategic investments. First quarter revenue increased 29% to a record $71.3 million. On an organic basis, revenue was up an impressive 17%.

This growth reflects the strength of our diversified revenue base, including continued momentum across our defense and space businesses, as well as contributions from FLACTECH, which added $6.6 million of revenue during the quarter. Defense revenue increased 40% year-over-year, primarily driven by the timing of project milestones, new program awards, and continued growth across existing programs. Space revenue increased 86% year-over-year, benefiting from new programs, the continued ramp of existing programs, and contributions from Black Tech. Within energy and process, revenue increased 5% from the prior year period. as continued strength in aftermarket demand and the addition of FLAC tech helped offset ongoing pushouts in large capital project activity. Aftermarket sales across the energy and process and defense markets remain strong, increasing 20% year over year. Similar to our sales, our gross profit for the quarter increased 21% to $17.8 million. However, as a percentage of sales, our gross profit margin decreased to 25% compared with 26.5% in the prior year period.

The year-over-year decline in gross margin primarily reflects the mix of sales during the quarter, which included a higher level of defense revenue and material receipts, which carry lower margin characteristics than many of our other businesses. and the tough comparable versus the prior year first quarter. It is noteworthy that versus the sequential fourth quarter of fiscal 2026, our gross margin percentage increased 230 basis points. Moving to slide eight. Selling general and administrative expenses increased $3.2 million during the quarter, primarily due to acquisition and integration activities, incremental costs associated with Slack Tech, and our continued investments in people, processes, and technology. Note that these incremental investments are being made in order to enable our future growth and accelerate the commercialization of Graham products and technologies. and are expected to amount to approximately $2.5 million in fiscal 2027. These increases were partially offset by lower costs associated with the Barbara Nichols performance bonus, which was no longer in effect during fiscal 2027. Net income for the first quarter was $3.9 million or $0.33 per diluted share, compared with $4.6 million or $0.42 per diluted share in the prior year period. However, on an adjusted basis, adjusted net income for the quarter increased to $5.7 million or $0.49 per diluted share, compared with $4.9 million or $0.45 per diluted share in the prior year, up 16% and 9% respectively.

Similarly, adjusted EBITDA for the first quarter increased 28% to $8.8 million, representing an adjusted EBITDA margin of 12.3%, which was consistent with the prior year period. Overall, we believe these results demonstrate the resiliency of our business model and the effectiveness of our long-term strategy. We continue to successfully balance investments for future growth while maintaining disciplined execution and positioning the company to capitalize on significant opportunities ahead. Moving to slide 9, orders remain strong during the quarter and continue to reinforce the favorable demand environment across our core markets. First quarter orders were 96 million, resulting in a book-to-bill ratio of 1.3 times. This demonstrates the continued momentum we are seeing in our end markets and builds upon the 1.5 times book to bill ratio for fiscal 2026. Border activity continued to reflect strong demand across our defense business, including 61.8 million of new and follow-on orders supporting the U.S.

Navy's Columbia and Virginia-class submarine programs, as well as the next option year for mission-critical hardware for the MK-48 Mod 7 heavyweight torpedo. Space orders continued their strong momentum from the prior year, totaling $14.4 million for the quarter, representing a 2.3 times book-to-bill ratio. while FlacTech generated 13.2 million of orders during the quarter, representing a two times book to bill ratio. As a result, backlog increased to another record 557 million, up 15% from the prior year period. and is the sixth consecutive quarter of record backlog. We continue to expect approximately 35 to 40% of backlog to convert into revenue over the next 12 months and another 20% to 25% the following year. demonstrating the high visibility and stability of our business. Turning to slide 10, our balance sheet remains exceptionally strong and provides significant flexibility to continue executing our strategic priorities. During the quarter, we strengthened our balance sheet through the previously announced $50 million strategic investment from accounts advised by T. Rowe Price and utilized approximately $13 million of the proceeds to repay our outstanding debt.

Net cash used by operating activities during the quarter was $12.7 million. primarily reflects the timing of billing and collections on accounts receivable, unbilled revenue and customer deposits, and the payment of fiscal 2026 bonuses during the quarter, which included the Barbara Nichols performance bonus. Capital expenditures during the quarter totaled $2.6 million and remain focused on capacity expansion, expanding capabilities, and productivity improvements. As a result, we ended the quarter with $27 million of cash on hand, no outstanding debt and approximately 75 million of available capacity under our revolving credit facility. which provides us significant flexibility to execute our strategic, and inorganic growth plans. Turning to guidance, Slide 11 outlines our outlook for fiscal 2027, which remains unchanged from last quarter. We continue to expect revenue to be in the range of $285 million to $295 million supported by our record backlog, favorable demand environment, a full year contribution from FLAC Tech, and continued execution across our businesses. We continue to expect gross margin to be between 24.5% and 25.5%, reflecting the benefits of operational improvements automation investments, productivity initiatives, integration efforts, and an improved sales mix versus fiscal 2026. SG&A expenses expected to be between 16.5% and 17.5% of sales, and as mentioned earlier, includes approximately $2.5 million of incremental investments in people, processes, and technology to support our commercialization initiatives and future growth.

Embedded within our outlook are approximately $5.5 million to $6.5 million of equity-based compensation acquisition and integration costs, and ERP conversion costs. Based on these assumptions, we continue to expect adjusted EBITDA to be between $35 million and $40 million, representing an increase of 44% at the midpoint of that range and unchanged from last quarter. We also continue to expect our capital expenditures to be between $18 million and $22 million as we continue investing in strategic growth initiatives, expanded operational capabilities, and productivity-enhancing projects, including construction of a new 30,000-square-foot manufacturing facility in Arvada. Before I conclude, I'd like to briefly revisit the long-term financial framework we introduced at our Investor Day in June, shown on slide 12. As we discussed then, our confidence in the outlook extends well beyond fiscal 2027, supported by our record backlog, strong demand across our defense, space, and energy and process markets, and the investments we have made over the past several years. We continue to expect organic revenue growth of approximately 8 to 10% annually over the next several years. At the same time, we believe we have a clear path to continued margin expansion through a combination of higher production volumes, a more balanced business mix, ongoing operational improvement initiatives, and continued leverage from our manufacturing and automation investments. expect adjusted EBITDA margins to expand into the 14 to 16 percent range by fiscal 2029.

Importantly, we do not view fiscal 2029 as the finish line. Our objective remains to build a best-in-class industrial technology company capable of delivering top quartile financial performance over time. Overall, we are pleased with our strong start to fiscal 2027. A record backlog, healthy demand across our end markets, disciplined execution, and strong balance sheet position us well to deliver another year of profitable growth while continuing to invest in long-term opportunities ahead.

With that, operator, we are now ready for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Robert Brooks with Northland Capital.

Please go ahead.

Hey, good morning team and thank you for taking my question. And just one of the things I wanted to unpack, the robust strength in the space segment sales up 86% year over year, orders even stronger, 2.3 booked a bill, I believe. So that would suggest to me that this is more than maybe just a timeline. benefit and something more structural occurring. Is my logic fair there? And just any color on specific drivers on the strength and expectations going forward?.

Yes, thanks, Bobby. You know, the structural change, you know, began last year, and you can see it through the strong order volume last year, you know, as well as the first quarter this year. Our space business, just like our other businesses, the orders can be very lumpy. So we don't expect this level every quarter. But the current run rate of revenue for the quarter is the new norm. So you could expect that going forward.

That's great to hear. And then just like specific projects or is it just as simple as like more things getting shot up into space that opens up more opportunities for you? Just what maybe end market wise is driving that higher floor going forward?.

Yes, as we've said for the last several quarters, it's just that some of the development programs that we've been on for the last year or so have started to hit production volumes and are ramping up. So that's really just the continuation of those programs.

programs. Got it. And one of my key takeaways from the investor day in June. was a much deeper appreciation for FlacTech's technology. And I even had the FlacTech face myself as Matt showed me the demonstration for me. So I just wanted to ask, eight months into your ownership, any specific wins you'd call out that came about from either you introducing a legacy gram customer to FlacTech tech tech or just from broadly having the infrastructure benefit of being under a larger company like Graham.

just color there. Yes, I mean, you can see from our book to bill at Black Tech, field of support of Graham and what I'll say is the integration has gone extremely well. The leader of that business, Matt Gross, has done a great job and the staff has really stepped up and become, you know, really engaged in the path forward. With that being said, I can talk high level on a few examples. They happen to be at Barbara Nichols as we speak right now because there's quite a few applications that are directly applicable. we're seeing a lot of opportunity on, I'll say advanced space applications, specifically adhesives for critical components that provide reentry and other sort of examples. The short of it is, they really are changing the game versus versus bladed mixing. So you got to see it in person at the investor day, I recall, and we're seeing that across a bunch of different end markets. I would say aerospace and defense and space specifically are where we're seeing the most opportunity right now.

Appreciate the call and congrats on another terrific quarter.

Thanks, Bobby. Thanks, Bobby. Our next question comes from Russell Stanley with Beacon Securities. Please go ahead.

Good morning and congrats on the quarter and another strong quarter for orders. You noted obviously the contributions from the submarine programs to orders in the quarter week. Last week, we saw the big awards go to General Dynamics and Huntington Ingalls. I'm just wondering to what extent those orders from last week were only in your backlog or what the implications are for those orders for the pipeline for additional orders out of those programs for you?.

Yes, so, Russell, obviously, it's a mix of all the above, some of them in, some of them not. The reality for us is it's just more of a confirmation of how strategic these programs are in long term. We continue to feel the tailwinds and the desire to accelerate submarine production, and we think we're going to do that. well positioned. So with that, our investments that we put in place have been well received, and we continue to see not only the need for us to execute our backlog, but also the pipeline remains strong. So... keep it high level there. Understood.

I want to follow up on one of your remarks, I think from the June call, Matt, you talked a bit about munitions. We're seeing, honestly, a lot of headlines around shortages on that front. Wondering if you can talk about what you're seeing seeing now and the opportunities out there and how much retail and that might be for Grant.

Yes, missiles had not been a conventional market for Graham. Specifically torpedoes were the area that we played and we've seen that demand across the Mark 48 platform, which of course we've just published yet another year over year follow on order. So we're continuing to see opportunity in the torpedo space. Flak Tech really is the business that opened our eyes to the missile production side, and obviously there's been quite a bit of publicity about the mega being involved in some critical developments on the missile, specifically the solid rocket motors. What I will say is as we've learned that business through FLAC Tech, we are seeing opportunities broadly across Graham I can't talk in too much detail but most specifically around Barbara Nichols with rotating machines etc so I'll keep it kind of high level but our early entry in the missiles was through flak tech and we're seeing some broader opportunity.

That's great. Maybe one more for me and I'll get back in the queue on gross margins. You know, you talked about the year-over-year drivers, but on the quarter-over-quarter lift, 230 beats, was that largely scale economies on a strong top line, or can you talk to the other drivers behind that? Sorry if I missed it earlier, but I'd love to hear more color there. Sure.

Yes, you know, as we mentioned on our fourth quarter call, Russ, we had some impacts from initial purchase accounting adjustments for FLAC Tech in the fourth quarter. But largely, if you look at our margin, quarter over quarter and all the variances it directly correlates you know with the mix of defense so you know we had about 58 percent of of our revenue this quarter was in defense versus 60 in the fourth quarter, but versus 53% last year. So it really is directly correlated to the defense, as you know, which is a lower margin business versus our commercial portfolios, which is why we wanna get closer to that 50-50.

mix as time goes on. Got it. That's great, Keller. Thanks. I'll get back in the queue. Congrats again.

Thanks, Russ. Thanks, Russ. Once again, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Christopher Glynn with Oppenheimer & Co. Please go ahead.

Thanks. Good morning, everyone. I'm just curious about some of the mixed developments in defense orders. I think this year's orders included follow-ons with the subs, but also some new orders. I think some new design applications are indicated there. And the big chunk last year, I think, was all follow-on orders. So just curious about the idea of diversification and expansion of the revenue sources or even the order sources, you know, relative to the main sub and torpedo programs.

Yes, it's a good question. Still the lion's share, of course, is in the submarine platforms, most strategically, or most specifically the Virginia and Columbia class subs. We continue to see healthy demand there. And while there's tailwinds, obviously, we're going to continue to step up. I think one thing, a few things of note that I'll go into more detail. as it pertains specifically to aerospace and defense. The first is, some of these solicitations are competitive and they allow for healthier margins. So we're winning not only the sole source opportunities, Chris, but we're also today winning opportunities where we did have competitive, we had competitors. With that, more broadly, we continue to see programs like we mentioned at our Investor Day specifically around radar and laser platforms where we're doing the thermal management or cooling solutions.

We are seeing those programs move from into production, and so we're seeing some diversification there. program like that is we bring the intellectual property to the table and that is a, I'll say a commercially available product that we use in defense. So we're able to, I'll just say charge market bearing prices on those programs rather than go through certified cost and pricing. So the diversification is coming in a few areas. Another area where we're feeling growth and feeling potential is around the torpedo space. I can't get into much detail there, but obviously we provide the Mark 48 and we're seeing opportunities opportunity for continued growth and diversification. So the lion's share is in the submarine and aircraft carrier. That's sole sourced and under TINA cost and pricing.

And then the other up and comings we've seen the ability to differentiate and get higher margin.

Great, thanks for that elaboration. And on the aftermarket, you know, nice growth there, healthy run rates, I think above what it's averaged recently. So I'm curious if that's just kind of good concentration of activity in the period relative to the baseline, or if you're starting to see a little bend upward in the traction of your strategic emphasis to build out the aftermarket.

You know, I would just really characterize it, Chris, as it continues to be strong. As you know, Graham has over a billion-dollar installed base across the globe, and even though the refiners and the OEMs aren't investing in large capital projects, they are investing in the facilities and maintaining them and running them at peak capacity. So we continue to see aftermarket strong. We expect it to continue. Our book to bill for aftermarket was 1.1 during the quarter. And it was up, as you saw, 20% year over year. A lot of that growth though was driven by our defense aftermarket. So we do still have some opportunity there as well on the defense side.

Yes, and I just want to add one thing. I think it's important.

about 96% utilization in refineries in North America. So a typical, what is 75% at 96%. And so these refineries are operating at capacity. And what you see when that happens is two things. One is they're only doing maintenance when they must. And so with Graham's install, we're well positioned to serve that. The second is they're only willing to take any downtime when there's pretty significant increases in either efficiency or utilization.

And so some of the programs that we're seeking there and have been winning and executing have been around on rebates. which is us providing improved performance within existing facilities. So I would just characterize it as emergency aftermarket of our install base as well as improved efficiency. But these facilities today are.

they're full speed ahead. Thanks for that description, Matt. And last one for me, I think, for Chris. Chris, anything, we start with a baseline of guidance. Curious if there's anything cadence-wise we should consider across 2Q to 4Q versus, say, a prorating sort of thought through the quarters?.

Yes, as you know, our business tends to be cyclical in our fiscal third quarter due to the two holidays in that quarter. We are a direct labor driven business. So if direct if our direct labor is off during the holidays, it. It does impact our revenue for the quarter. So between the three quarters, you know, we typically – or actually the four quarters of the year, you know, typically the third quarter is the lowest. But outside of that – there isn't much other cyclicality in our business. Thanks. Appreciate the update, guys.

Thanks, Chris. Our next question is from Robert Brooks with Northland Capital. Please go ahead.

I just wanted to jump back on. On the awards yesterday, it kind of, reading through it, it seems like they've... or an expansion of wallet share on the MK-48s and the MK-19s? Or just, am I... reading that right could you just help clarify my understanding there because it seems like you're expanding the wall chair is that more of a follow-on just trying to help help me understand that better.

Yep. So simply put, MARC48 is a sole sourced award and that is a follow on, so it's another option here. that is not, you know, additional scope. It's actually just the incremental year. On the other program that we announced that was a competitive solicitation and it was a good win for the Barbara Nichols team. So I'll keep it as sort of high level as that, but it is an expansion of scope to support fleet maintenance and fleet spares.

Got it. And maybe just sticking with the expansion of scope, are there any particular... like technologies that you're bringing to the table that you think can be, that can drive expansion of scopes on projects that you're currently serving. Just wanted, maybe a good place to end there. Thanks.

Yes, so I'll start with the one that often gets overlooked. Just execution, period. Taking in work with the critical capabilities and welding that we have, as well as road rotating machines and we take in orders and we deliver on time and on quality. And when you do that, you get more work because as you read, the Navy does not have that currently with its supply chain. The other areas I mentioned, I'll just reiterate, we are seeing additional opportunity on the torpedo side and on the cooling for the radar and laser platforms. Thank you very much.

We have reached the end of our question and answer session. I would now like to turn the floor back over to Matt Malone, CEO, for closing comments.

Thank you, Dylan. Overall, we are pleased with our strong start to fiscal year 2027. With that said, we recognize there is still significant work ahead and we will always focus on continuing improvement. Our first quarter fiscal results represent another step forward for the objectives that we outlined at our Investor Day. We remain focused on disciplined execution, profitable growth, and getting better every day as we work towards becoming a top quartile performer and creating enduring value for our customers and shareholders. As always, please reach out with any questions. Thank you, everyone, for joining.

your interest in ground. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good morning, everyone. Welcome. I am excited to announce that we have a very content-rich day for Graham Corporation today. Lots of good stuff to talk about. For those of you I haven't met yet, my name is Rachel Jaakkola, I'm the Chief Human Resource Officer for Graham Corporation. 90 years ago, Graham Corporation was founded on engineering excellence, manufacturing expertise and the ability to solve some of the most complex and crazy industrial challenges in the world. Yet in many ways, Graham Corporation, we know today is still very young.

While we carry a proud 90-year legacy, we are less than 5 years into the transformation of a reimagined company and one that has expanded its capabilities, entered new markets and positioned itself in the center of extraordinary growth opportunities. Think about the environment we're operating in today. Defense spending continues to grow. The space economy is expanding rapidly. Energy infrastructure is evolving and modernizing around the globe. Demand across our markets are accelerating and customers are looking for trusted partners who can deliver quality, innovation and reliability at scale. This is where Graham stands today. What makes this moment so compelling is the combination of who we have always been and who we're becoming.

We have the ability and ambition of a company building towards the future, paired with the expertise, credibility and industrial strength that comes with 9 decades of execution. We know how to build, we know how to scale, and we know how to deliver. But opportunity alone doesn't guarantee success. Capturing this moment requires focus, it requires speed and it requires continual improvement. Most importantly, it requires us to ensure that our time, capital and talent are consistently directed toward the areas where they have the greatest impact.

At the same time, we're navigating significant organizational evolution. Our internal transformation is occurring alongside historic market growth. That means building the culture, systems, process and leadership capabilities necessary to meet increasing demand while maintaining the quality and execution that our customers expect. Today's meeting is about aligning around that mission. It's about understanding where we're heading, hearing directly from our customers, discussing our strategic priorities and ensuring that every part of our organization is prepared to contribute to Graham's next chapter of growth. I believe we have the people, the capabilities and the determination to seize this moment. Thank you for being here, and thank you for your commitment to Graham Corporation.

During today's presentation and discussions, including the question-and-answer sessions, we may make forward-looking statements regarding future events, performance and business expectations. These statements are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Additional information regarding these risks can be found on our SEC filings and other public disclosures. We may also reference certain non-GAAP financial measures and key performance indicators throughout today's presentations. Related disclosures are included in the presentation materials for your reference.

Let's get started. I'll hand it over to Matt Malone.

Good morning, everyone, and thank you for joining us on this day where the Knicks are out there celebrating. So I think everyone in the audience at this point knows who I am. But Matt Malone, President and CEO at Graham, what a pleasure and an honor today be in front of you to talk to where we're headed. First, I want to start with a few key messages. The first one is Graham is built on credibility through action. Over the last 4 years, we have come together as an organization and delivered on every expectation that we set for our shareholders. Second, Graham has an incredible industrial fabric that's been built over the last 90 years, and we're using that as we move forward as the foundation that we're building upon for the future.

What we're going to talk a lot about today is the improve the growth phase. And they're specifically connected in terminology because we're focused on improving and delivering on the investments that we've made over the last 4 years as well as laying the next foundation for the growth phase that we're going to move into. The second, we have been investing in our people, tools and processes to enable ourselves to align with quite a few market tailwinds that we're seeing in our business units. So when we talk about that, we talk about defense, space, energy and process, small modular as a subsection of energy and process. These end markets have incredible tailwinds. But the technology and the competencies that we're developing in Graham are actually market agnostic and can be used as we move forward in any industry.

The next, I mentioned credibility through action. We've been driving strong financial performance, including cash generation and disciplined capital allocation. Chris Thome will give you the speech later today, but we are incredibly, incredibly responsible with the capital that we deploy in this business. And we do that with a very concrete plan, and we stick to that plan, and that's how we're able to deliver. With that, Graham at a glance. Well, we're an evolving company. And so you're going to see that our sort of tagline changes over time. And what's important in today's conversation is we're committed to delivering mission-critical equipment to our end users every single day. That mission-critical equipment is surrounding 2 key areas. And the 2 key areas are small, compact, highly efficient and really focused around size, weight and power optimization, which we'll talk a lot about today.

With that, while our technology and our competencies are market agnostic, we are serving today defense, space and energy and process with the majority of our business. Graham was founded in 1936, 90 years of success here. But it's come to life with our 750 employees that are dedicated every day and treat this corporation like they're entrepreneurs. And so what you'll see in Graham is an employee base that is 100% feeling like they own the company, and I hope from the leadership team today, you feel that. Market cap growing. Obviously, it's been a great journey over the last 4 years. We've seen roughly 20% CAGR. It's an aggressive clip, but we are excited about where we're headed, and we feel like that momentum can carry forward.

For those that don't know Graham, we have a global landscape, actually $1 billion of installed base over the last 9 years globally. And we have offices in -- 2 offices in Colorado with the FlackTek business and Barber-Nichols. We have a satellite campus of Barber-Nichols in Jupiter, Florida. Upstate New York and Batavia is where the headquarters is and Graham was founded. And then we have 2 satellite locations internationally in China and India. With that, in order to understand where we're going, you have to understand where we've come from. So Graham, the nice thing is we're accelerating from a position of strength, but we had to go through a quite long stabilized phase.

Before we get into that, though, I just want to talk through how we've gotten here. So as you cycle back to Graham from 1938 until the early 2000s, highly cyclical, process business, oil and gas up and down, extract value in the highs and survive during the lows. In the early 2000s, Graham leadership decided to diversify into defense, which is where the condenser business for the undersea platform came into life. And at that time, Graham started using the vacuum and heat transfer capability in a new market, which was defense, perfect timing for the upswing that we've had recently.

In 2018, Graham started cording Barber-Nichols and in 2021, completed a transaction that was transformational for the corporation. With that transaction came leadership, came a spirit of innovation and became a much stronger position in the defense portfolio that we talk about today. We then moved into the last 4 years. It hasn't been the easiest journey. Day 1 after the acquisition, we were talking about cash conservation. We had lost $10 million as a result of further investing in the defense business, and that has served us so well over the last 4. The commitment to those industries has been shown to our customers and they believe in us.

With that being said, the stabilized phase, as mentioned, has not been easy, but we've laid the fabric for the future as we grow forward. And I'm happy to report today the stabilized phase is behind us, and we're healthily in the improving growth phase. So I'm going to talk today a lot about the improved phase, and then we're going to lay the foundation for where we're headed in the growth phase. With that, we've shown this slide quite a bit before, but I have some highlights that I want to bring to mention to the team. So the first is in the defense side of the business, 60% of the portfolio today. So we've really diversified into that. The majority of that business is focused around aircraft carriers and nuclear submarines. With that, inside of submarines, just think the main nuclear power plant on board the submarine, which is the differentiating capability in the nuclear sub.

Graham provides the main condenser, which is what thermally regulates the nuclear power plant, absolutely critical for those assets. In addition, we provide nuclear cooling equipment for some of the electronics. And we also provide the air turbine pump in the front of the asset, which is what actually ejects the torpedo from the submarine. Recently, and I'm happy to share, we were announced that we won a $22 million PO, and that PO is undefinitized at this time, but it allows us additional key content on the Virginia-class submarine that we have not been able to announce to date. It complements our capability that we have in heat transfer and vacuum technology. And we believe the slide that we've been showing on the nuclear naval submarine, we actually add additional content as we move forward. To date, this has been sole sourced with a single vendor and now Graham is competitively positioned.

What I'm most proud of is not the award. It's how we got the award. We have delivered on our commitments. We have made commitment to the Navy, and we will continue to use the -- we will continue to deliver and invest in that asset. With that, torpedoes, a natural extension. The Barber-Nichols business has been doing this since 1966 very well. And Graham is now using the technology in torpedoes in the UUV space. In addition, we talk about directed energy lasers and we talk about radar platforms. We're using agnostic technology that can apply between those 2 businesses, and one of our leaders will go through that with you.

In space, it's 6% of our business, but we see tremendous amount of growth. We'll talk about that in our order segment. Everyone says, why is revenue flat? Well, orders are not, and we see that launch cadence is increasing pretty rapidly. So we'll talk through that. Energy and process, backbone of Graham. We've been doing it for 90 years. We have credibility and missions over those 90 years, and we're using that same technology to leverage in cooling for data centers, and we're also bringing small modular nuclear reactors to life that will act as key, key enablers as we diversify the energy segment.

Looking at why we win. Graham wins for many reasons, but I'll go through a few today. We win because we have strong technical expertise that's been rooted over the last 90 years. We have tool sets. We have IP-protected technology that we apply into critical end markets where niche knowledge is critical. And then we bring into that system knowledge where we understand the ecosystem, which I'll talk to later. Second, you're actually going to hear from some of our customers today. Our customers, they are long-standing, many of which didn't come yesterday. Two of them you're going to hear from today over decades of experience with. And these -- all of our business today are pick up the phone. So our business is an incoming sales. We're going to talk about outgoing sales today as well.

But you only establish new work is if you deliver on the work that you've already committed to. Full life cycle, we want to be able to deliver solutions from the beginning at concept through the end, which is delivery. And then, oh, by the way, that asset must work for years and sometimes decades. And we're going to support that equipment and make sure that our customers know how important we are to them. The last is you're going to hear from 15 leaders today. These 15 leaders as well as every employee 750 are growth-oriented with a spirit of continuous improvement and always have the most integrity.

So introducing the 3-year targets. I don't want to sound like a broken record, but the story is going to continue on. We're going to continue with focus on 8% to 10% organic investment -- organic growth. And what I'll say is where we have opportunity to accelerate, we're going to continue to do that. We're going to continue our journey on incremental margin expansion. And we've been talking to date about let's get in line with our peers. At the next phase, we're going to start -- how do we start to advance to the top quartile within our peer group. We talk about ROIC.

So to date, you've seen 20% ROIC. The reality is we are going to continue to do investments that are greater than 20% ROIC. But when I say 14%, that's at the aggregated corporate level. So every project that goes through Chris, and I assure you that Chris is going to watch this very closely, will go through with the continued scrutiny that we've had to date. And then in addition, we have not built in M&A, but we're going to continue to be very selective and ensure that these M&A opportunities are accretive to our long-term strategy.

With that, today's presentation, a lot of the folks in the audience and on the webcast have met Chris and I. The reality is this corporation is way stronger than the 2 of us. And so today, you're going to hear from the leaders that bring this vision to life every day. We have diverse experience. We have a growth mindset. We treat it like entrepreneurs and everyone you're going to hear from today cares. We care about listening to our people. And as a result, people say, where do 20% ROIC opportunities come from every day? If you just listen to your employees, you'd be amazed what you can learn. In addition, we have our Chairman of the Board, Jon Painter, in the audience, and we have a Board that's ready to support our growth path.

So with that, I'm going to introduce Mike Dixon. And while I do that, I do want to let the audience know, we had the opportunity because the Knicks declined, but we're going to actually have the opportunity today to ring the bell. So the folks in the room at 9:10, we're actually going to step out for a little bit. You all can come down to the floor, so we're going to escort down. We'll repick up at 9:45 and then we'll continue on. We have a pretty succinct agenda, so we still will finish on time. So we're going to get through defense, and then we'll move down that path. So Mike runs the Barber-Nichols business. He's done an absolutely fantastic job and excited to have you talk about defense.

Thanks, Matt, and thanks for everybody listening online for taking time today. And thank you, especially to everybody here in the room who fought the crowds on such a historic day for the city of New York. I appreciate you taking the time. As Matt said, my name is Mike Dixon. I'm the General Manager of the Barber-Nichols business unit within Graham based out of Arvada, Colorado, and really excited to talk to you all about our defense business and extremely proud to represent Barber-Nichols here today.

Some of the key messages I hope everybody takes away from our talk here today. Graham's defense business is built around a pretty simple strategy, secure positions on the most critical long-cycle defense platforms and then leverage those positions to drive decades of growth, recurring revenue and new technology insertion opportunities. Global security concerns are driving record spending and budgets within the defense sector. And Barber-Nichols as well as the Greater Graham Corporation is proud to support the mission of the war fighter and protecting the freedom for each and every one of us.

Over the last 5 years, Graham's defense revenue has grown from approximately $62 million to $147 million, representing a 24% CAGR. That growth is not the result of short-term program wins. It's the result of being deeply embedded on strategic platforms that the U.S. and their allies will be funding for decades. Today, Graham's defense backlog provides a stable foundation, and it's supporting some of the most important defense platforms in the world, including the Ford-class aircraft carriers, Virginia, Ohio and Columbia-class submarines, torpedo systems, advanced radar systems, directed energy applications as well as many, many others. What this stable backlog allows for us is perspective into the future and allows us to deploy our capital very strategically to ensure that the growth that we're experiencing today is sustainable for years to come.

What makes positions like ours particularly valuable is that more than 80% of our defense revenue is sole sourced or it's supported by substantial competitive advantages. So once our systems are qualified and integrated, replacing them becomes extremely difficult due to performance requirements, qualification costs and program risks if we were to be replaced. As a result, investors should think about our defense business as a portfolio of long-duration infrastructure-like assets embedded within national security programs and priorities. The next question investors often ask is what exactly are we supplying on these platforms? And Matt had an opportunity to introduce some when he spoke.

But one thing I want to emphasize is Graham is not providing commodity hardware. We provide mission-critical systems that enable propulsion, power generation, thermal management and most importantly, survivability. Our capabilities within the corporation have been enhanced by grants from our customers of over $29 million. I personally believe that these grants demonstrate the belief of our Navy and defense customers in Graham Corporation, but most -- and just as importantly, they need our products and our technology to be successful and to be safe.

On submarines, our equipment includes the main condensers, as Matt mentioned, within the engine room. We make torpedo injection pump systems that eject torpedoes from the submarine and exist on the pressure boundary, which is a critical component to ensuring that all sailers on that submarine return home safely. Overall, our systems are essential to vessel operation. On aircraft carriers, we provide critical heat transfer and fluid management systems, such as the propulsion plant freshwater heat exchangers. We're increasingly applying our core competencies in high-speed turbomachinery, power dense motors, controls and thermal management into emerging defense priorities such as advanced torpedo propulsion.

Outside of naval platforms, we're applying that same technology to cooling systems for next-generation radar and directed energy weapons, advanced power management solutions and modular nuclear reactors that can be deployed on the battlefield. The common thread across all these markets is that increasing power density creates increasing thermal management load and managing that heat effectively is becoming a strategic requirement across defense systems, and that's exactly where Graham excels. If there's one slide investors should remember from today's presentation, I personally believe it's this one. Navy shipbuilding plans provide extraordinary visibility into future demand. And based on publicly available projections, the platforms shown here represent approximately $1.8 billion in revenue opportunity through 2056. These are not speculative programs. These are platforms that are under construction, in service, already funded and central to the United States National Security strategy.

What makes this opportunity unique is that we're already embedded on these programs today. We aren't trying to win our way on. We're executing on them each and every day we show up to work. Recent examples demonstrate how strong execution creates additional opportunity, and Matt already had the opportunity to mention that Graham's existing component work on Columbia-class submarines recently enabled us to secure similar work on Virginia-class subs for orders for the next 2 boats already placed. Expanding our content position on one of the Navy's most important submarine programs will ensure that the growth projections that we have continue on into the future. At the same time, renewed investment in areas like torpedo electrification is creating entirely new opportunities that leverage decades of experience in power dense motors, controls and propulsion systems. These are just a couple of examples where Graham performance and execution continues to enable growth into the next-generation programs of the future.

So while this slide shows approximately $1.8 billion of opportunity, we believe it understates the future content growth potential. This next slide is a nice little summary that illustrates how Graham converts engineering differentiation into shareholder value. Modern defense systems, as I mentioned previously, are becoming dramatically more power dense and generating significantly more thermal load. In this example here, the transition from unidirectional legacy radar systems to 360-degree actively scanned array radars significantly increased their capability. But as I mentioned, it significantly -- also significantly increased the thermal load generated. Managing thermal loads in a mobile battlefield environment requires solutions that are smaller, lighter, more efficient and more reliable than commercial alternatives.

Earlier, Matt mentioned size, weight and power. I'll add to that cost, and that's an acronym most commonly known as SWaP-C, and that is where Graham particularly excels. Our radar cooling pump achieves roughly half the weight and approximately 60% of the volume of comparable industrial solutions while delivering the required battlefield performance in terms of flow, pressure and environmental survivability. The important point for investors is, frankly, it's not the pump itself. The important point is that the same technology architecture can be leveraged across multiple future applications, including other radar systems, directed energy weapons, advanced airborne platforms and other advanced thermal management needs where SWaP-C is paramount. This is how we create growth beyond our traditional naval business by taking proven core technologies and applying them to emerging defense priorities.

We see 3 primary drivers of long-term growth within Graham Corporation. First, we're going to continue expanding content on strategic naval platforms where we already possess strong positions, while scaling manufacturing capacity to support that increasing demand. Second, we apply our core competencies to emerging defense priorities in undersea warfare, hypersonics, directed energy, radar, national security and space and energy resilience initiatives. And third, as we grow our installed base and expand our life cycle support, sustainment, overhaul and spare parts revenue to ensure that the products that we field are supported and working as intended for years to come. As more systems transition from development to production, it creates decades of recurring aftermarket opportunity for the corporation.

Before I leave the stage here, I'd like to leave you with 4 reasons Graham is uniquely positioned to continue creating value. #1, we're entrenched on the most strategic naval platforms in the world, providing decades of visibility and stability. #2, we possess differentiated technology in turbomachinery, cryogenics, thermal management, power generation, motors and fluid systems that are increasingly relevant to future defense requirements. #3, we've invested in highly specialized manufacturing infrastructure with capabilities that very few others have. We've invested in workforce development to ensure that we have a pipeline of talent that's able to support our growth as we continue forward. And we have quality systems and other processes that create substantial barriers to entry for other competitors. And #4, and perhaps the most importantly, we occupy a unique position in the defense industrial base.

We combine the technical sophistication typically associated with large prime contractors with the speed, agility and responsiveness of a mid-tier supplier. When you put all this together, long-cycle platforms, sole-source positions, differentiated technology, visible backlog and multiple pathways for future growth, we believe Graham is exceptionally well positioned to benefit from increasing defense investment for many years to come. Thank you very much for your time today.

So with that, we're going to take a little bit of time to go ring the bell. For the folks that are here visiting, you're going to go down with ICR team down to the floor or you can stay here and work. At 9:45, we're going to come back together and we'll get restarted. Next up is going to be Charlie with space, and then we'll go through right after Charlie with energy and process. And then we'll move to FlackTek in great detail. So I appreciate you understanding the opportunity to ring the bell this morning. I know for the folks that travel down here, that is not why you're here. What I will say is we'll be good stewards of your time today. So we'll pick back up at 9:45.

[Break]

All right. Charlie, we're going to start promptly at 9:45.

All right. Welcome back. Really cool experience. I appreciate letting us be a little disruptive there and going down and ringing the bell, great opportunity, pretty grateful for it. I'm Charlie Straka, Engineering Director, Barber-Nichols subsidiary of Graham based out of Colorado. Talk a little bit about space. The next frontier or the last frontier, as my kids like to say, to Infinity and beyond. To me, it's the now frontier. And if you just look at the number of launches that are happening, I mean, it's almost globally won a day in last year. It's increased almost 7x in the last -- within the last 10 years or so. I mean, it's pretty wild. And with that is a lot of opportunity. So excited for what Graham has ahead of us here in the space market. So let's jump into it.

Today, Graham is a turbomachinery provider for a lot of different space product from fluid pumps to cryogenic pumps to rocket turbopumps and all of them mission-critical applications. And with that, need to be reliable, must be safe, must meet performance and have the quality. And we have demonstrated that, and we've proven that and our customers trust in us for that. And the fact we've got product there, it's enabling us to get on other applications as we look forward and as the market expands in this space. We're serving everything from launch vehicles to various payloads, be it satellites, astronauts, backpacks, lunar development, deep mission, interplanetary missions, -- so a wide breadth of applications.

And as the commercialization continues to expand, there's going to be additional applications. Talk about data centers in space. They're going to require cooling and those are applications that we can serve. Furthermore, it's rapidly developing. These are things where you need to move with the pace because it's a competitive market now. These aren't NASA programs. So we have to move fast to win with our customers so that they can win. And we have the product that we can iterate off of to enable that. And I think when you put all those together, we're starting to see a story here where the orders are increasing year-over-year and a 70% increase just from FY '25 to FY '26. So momentum is building here, and it's really exciting.

If I get a little deeper here on just what are some of the products that Graham is providing today. I'll start with launch vehicles. Rocket engine turbopumps. We actually have an example model in the back table. I encourage you to go check it out and play with it. These are complicated machines, and they're the heart of the rocket. It's what's delivering the fuel to the rocket, the propellant, if you will. These things run at 30,000 RPMs or faster, 10,000 horsepower machines, they're mission-critical. Without them, you don't get left. Cryogens, if you look at the propellant, if you were going to have a gaseous propellant, the tank sizes would be impractical for a rocket, right? So you need to cool those down to cryogenic states. We're talking minus 400 degrees Fahrenheit. Very, very cold. You have to manage that propellant by recirculating it to keep temperatures similar throughout the system. Without that, you risk rupture failures, tank failures, vapor lock that prevents fluid from moving to the engine. Again, mission-critical component.

Thirdly, Thrust Vector Control. These are what steer the rocket. So ultimately, you have to maintain a hydraulic pressure so that those rocket engines can gabble in order for the rocket to meet the trajectory that needs for the mission it's fulfilling. So another mission-critical component. If I move to the payload side of things, we're serving large satellites that require active cooling. As you add more computational load on these satellites, you need to cool those electronics. And you have to do that through active cooling, where you're moving fluid through the electronics, pulling that heat out and rejecting it. We have product currently on satellites today that are providing cooling, and that's going to continue to expand in the market.

And lastly, my favorite, we have the Oxygen Fan Blower on the NextGen space suit, talk about mission critical. So our customers, they trust us because we've demonstrated it. And as we move forward and as more applications, they're going to come to us for solutions because we've demonstrated in these mission-critical applications. If we get a little bit deeper here, let's talk cryogenics. Graham has been doing cryogenics for almost 50 years for various applications for ground based as well as space, for synchrotrons, superconducting magnets, hydrogen mobility, the list goes on.

And if you look at space, anything that's going to require moving in space is going to require propeller. And that's going to be a cryogen. And those are things that you're going to need those recirculation pumps, you're going to need transfer pumps, things of that nature. You talk tug vehicles to move satellites between orbits, refilling in satellites, refilling -- excuse me, refueling in space. Those are things that are on the horizon, and we're ready to serve those markets.

If you look at just the propulsion market alone, $30 billion by 2030. That's pretty substantial. And we're ready to capitalize on that. And why? Mike mentioned it earlier, the SWaP acronym. We specialize in power dense machines. Size matters in space, weight definitely matters in space when you're talking payload mass and performance power. And the way we do that is we speed up our machines. And to do that, you got to have bearing solutions that can accommodate that. We're talking about cryogenic cold fluids. You need to keep the heat away from that fluid from what the motor produces and so forth. And we have thermal isolation solutions that we have honed evolved over the years to accommodate that.

And I think it's demonstrated if you look at a couple of the opportunities that we're moving into low-rate production, long-cycle opportunities. For example, the upper stage cryogenic pump for launch vehicles, lunar landers. So these are starting to pick up momentum and we have long tailwinds behind them, and we're excited about the opportunities coming. If we look growth, and you'll see a common theme here, we're sticking to our core. It's what differentiates us. That's high-speed turbomachinery, cryogenics and the power electronics to drive that. Those are things we're going to continue to mature our technology, continue to grow. And we're going to use that through testing. And we've got some world-class test facilities. We just put down a propellant test facility down in Florida that, quite frankly, no one else in the world really has and can really demonstrate testing our product so we can test and learn to fail fast, but also we can test with our customers so we can collaborate with them so that we can deliver a solution that meets the mission.

As we look into the increasing content platform, we're in discussions today on launch vehicles for NextGen, satellite platforms for NextGen actively today with customers. There's a lot of activity here. We're also going to continue to look where we can provide more than just the components, but full systems, where can we add additional service to a customer where they don't have to do the integration work. You get on the back table, there's another example of that where it's not just the turbomachinery, it's the motor. It's the power electronics that drive it, it's the heat exchanger, the full system, if you will, so that our customers can focus on their mission and we can provide more value to them.

And lastly, I mentioned earlier, pace. These are not bespoke designs anywhere. These are not 3-, 5-, 10-year NASA development programs. Customers need solutions now. It's becoming a competitive market, and we're ready to move pace with them. And we're going to continue to focus in areas where we can add velocity through our supply chain, we can enhance our engineering processes faster, again, adding more test capabilities so we can learn fast. And last, I'll leave with just why is Graham uniquely positioned to win? And if I were to summarize, we've got the technology. It's there. We're proven it. Our customers trust us, we've delivered on it. We've got the test facilities that others don't have to further our technology and our customers' technology.

And lastly, as the sector grows, as these launch vehicles, we've got more launches going on, more applications going to space, such as your data centers and so forth. We're positioned because our technology is agnostic of the application. Anyone that needs propellant, anyone that needs cryogen, we're going to be able to serve that, and that's going to be a wide variety of applications that are going to be launched in the space in the near future. So I'm really excited about what we got in front of us. It's been just a wild ride when you look at space over the last decade, and there's a lot of room in front of us. We are ready and we're positioned. We're ready to go execute and really nail this. So I'm excited about it. We've got a great team and really looking forward to the opportunity. So thank you.

I'd like to introduce Will Zmyndak, our General Manager, Graham Manufacturing, talk about Energy and Process.

So it was amazing. He got my name right on the first try. So my name is Will Zmyndak, I am the General Manager of Graham Manufacturing. We are the facility or the business that's based up in Batavia, New York. I think when you think of Graham, this is really the legacy of what Graham name stands for, Energy and Process. This is the business we've been in for 90 years. It's the business that we've grown on, and it's the business that, as Matt mentioned, is the backbone of Graham.

So let me talk a little bit about some of the key messages I want to share. #1, we are mission-critical. We go into installations that are hundreds of millions of dollars, and our part has to work the first time, and we do that every time. We are leveraging R&D to drive efficiencies. So that's what our value proposition is to our customers. And I'll spend a little bit more time on that and how we do that and then how we're going to take that and be able to use it to grow the business as we move forward. But we are leveraging R&D right now smartly, putting the investment dollars in and making sure that we evolve the business so that we're ready for future markets. We're transforming our aftermarket. So we've been very reactive.

And again, I'm going to spend more time on this later today, but we wait for people to call us on the phone. And then we pick up the phone and we say, what do you need? We don't go out to them and we don't go obtain that work that's out there for us. We're going to go change that model, and we're in the process of doing that right now. And I think the most important thing is our core competencies go across diverse markets. And you'll hear that message across a lot of the businesses that we talk about today. We can -- we've been in the refining and the petchem for a very long time. But there's other markets that we play in that give us the ability to say, okay, if one is down, we have the ability to be able to leverage that other market and stay as a healthy business. And you'll see some of the areas that we're going to be utilizing for growth like geothermal, nuclear and hydrogen.

So that's kind of a segue into this slide here. And we are versatile and a lot of our technology and our information is proprietary. So when you have 90 years of proprietary information, it gives you an advantage over your competitors, which we utilize on a daily basis. Our technology is an enabling technology for the global energy demand. So I'm going to spend some more time on nuclear here in a couple of minutes. But we know with the AI infrastructure and some of the data centers that are going to be coming out there, this is going to be a big, big ask for the marketplace, and we're ready to enable that. And then there's a stable demand in the oil and gas industry. So we're not going to give up on our legacy business. We're going to continue to support it, and we will be a premier supplier.

So I think the best way to illustrate that is the pictures that are over to the left-hand side of the slide, you're right. When you take a look at the top, that is an oil refinery, that big column in the middle there is a vacuum distillation unit. That is our historical business. What we provide is vacuum and heat transfer technology in that unit, and that allows our customers to gain more yield out of a barrel of oil because of the efficiencies they gain that we provide with that technology. The middle is a tanker truck that's transporting hydrogen. That is a cryogenic pump that is produced at Barber-Nichols, so Mike's business out in Arvada. And we do the pumping for loading that and also unloading that. So without that technology, you couldn't do that, and we're ready for the hydrogen economy when that comes back. And then I think the bottom one is probably the most exciting. It's a microreactor.

So this is going to be a game changer for forward deployment of power, whether it be portable or whether it be in installations in areas where you normally couldn't put power generation. Again, out in the Arvada facility, helium circulators, which regulate thermal in the reaction process and then super critical CO2 turbo machinery, which drive the power that come out of that unit. So again, very critical. And I think that's a really good segue to the next slide. So we're really excited about this because our technology transfers very well into this marketplace. So we're very much focused on SMRs moving forward. As I mentioned, we know power generation and power density is going to outweigh what we can currently produce as a country and as a globe. That's going to be -- that's a fact, and that's the way that the market is going to be.

So a lot of what's happening now is how do we find energy sources beyond our fossil fuels and beyond the green technologies that have been developed that will be able to serve those marketplaces. Nuclear is definitely going to be the answer. That is a fact at this point. And so we have product that spans all the way from the micro reactors that I showed all the way up to gig. And a matter of fact, a lot of people don't know this, but Graham has been involved in the nuclear industry since 1966. So we have over 150 installations on refineries -- on nuclear reactors that are out there today. And one of the focuses that we're going to be really keying in on is SMRs. There's over 80 active designs on small modular reactors today. That's a huge, huge marketplace and a huge opportunity. Our vacuum systems, our heat exchangers and our turbomachinery all can be enablers and be accretive to that marketplace.

And if you take a look at what the market shows, our obtainable market for a 1 gigawatt plant, which is your large nuclear reactors, the traditional nuclear reactors, $15 million to $30 million per reactor worth of products. And if you take a look at the serviceable obtainable market for a 300-megawatt SMR, somewhere between $5 million and $15 million. So we're uniquely positioned with our technology to go drive growth into the business and also enable our customers to be able to put this technology out there and be able to generate the energy that we know we're going to need moving forward. So how are we going to grow? We're going to continue to grow off our strong core. So we do not abandon our core business, oil and gas, the traditional refinery. This is an area where we're going to leverage -- continue to leverage vacuum, continue to leverage our heat transfer technology, and we're also going to make sure we're supporting our customers on the service side.

And how are we doing that? We're investing capital in the business, and you'll see examples of that a little bit later on in the presentation. And we're improving our responsiveness by investing in systems. So upgraded ERP systems, AI applications, which we're developing today, which will be enablers moving forward. We're going to continue to increase our content on NextGen platforms. So for us, that's nuclear, geothermal, those type of applications. I spent some time on that in the next -- on the last slide. We will leverage the technologies that we've developed over the 90 years. We will continue to evolve those so that we gain more efficiency, and we will apply those to those technologies so that we have growth capability many years beyond today. And then the last one is we will accelerate our aftermarket.

So again, we were very reactive in the past. We are going to be very proactive. And we will do that through AI-enabled tools. We have data sets that go back many years that we know where all of our installations are. So we're going to go out and we're going to make sure we pick up the phone first and we get that work from the customer and they know we're there to support us. And that will be the 3 growth enablers that we have. So why are we uniquely positioned to win in this portion of the industry? #1, we are a one-stop solution provider. And so again, when you think about Graham and how long we've been around? We have 90 years of experience. We start with initial concept, and we go all the way through the end of life for an asset and then replacement of that asset. And we do everything in between that from service to engineering to maintenance and parts, and we will continue to do that.

The second thing is we have decades of proprietary application knowledge. What does that mean? All of the data that we've gotten on how do we apply our technology to our customers' needs and create value and efficiency for that customer, we've captured that. And again, we utilize that on everything that comes into us from a customer RFQ or need. We're going to have a strong pull-through on opportunity. As Matt mentioned, we have a $1 billion installed base, $1 billion. That is the installed base that we can go and service in a very, very highly profitable aftermarket environment. Our business model is resilient because we've diversified. So we're not -- we don't cycle like we used to with one segment, but it gives us the ability to invest as a business. And then when there's an upswing in that particular segment, we are ready and able to take advantage of it.

And then lastly, our process systems and intelligence, we are intimate with our customers as far as their processes, and that allows us to drive value. And what I like to tell people about our business is we've been winning for 90 years. And because of this, we're going to continue to win for 90 more years. Thank you.

All right. I will introduce Matt Gross, really exciting addition to the corporation to talk about FlackTek.

I've got the easier last name to go with. So really excited to be here chatting with you all today. My hope is that you get to fully understand our technology. It's definitely a niche technology with massive impact. So I hope that you can see the synergy that we have with Graham and the impact that we're going to have in the market going forward.

So pre-January of this year, I was the co-founder and owner of FlackTek, and we were looking for a growth partner. And today, as of today, I'm the GM of this new business unit of Graham representing this new disruptive technology. And we already have some close or near-term wins that happened early in this year. So my goal of choosing Graham as part of this acquisition was I believe that they could help with speed. Speed to market, speed to commercialization and scale of commercialization and super excited to announce that we've already achieved some of those wins early on.

So with that, where do you find FlackTek? You're not going to find us on system. So when I say on system, I'm talking satellite thermal protection system, rocket motors, you're not going to see our technology on systems. We're behind the systems. So when I say behind the systems, think of like a CNC machine that's tooling up aluminum or steel or cutting a part that then ends up on a satellite. We're the same way, but for liquids, semisolids and pastes. So a lot of people don't fully understand the ecosystem that exists in this non-solids world. There's just as critical pathways for processing and materials development in these liquid solids -- or sorry, in semisolids that there are in the metals and CNC.

So much like a CNC, the mills of yesteryear that were manual that you had to set up manually and run manually until the CNC came in that allowed for automation. We're the same style technology for bladed machines to non-blade -- to bladeless machines. And what I mean by that is if you're operating a bladed machine, you're typically having manpower over the bowl, doing scraping, working with the material, you can't automate that process. It's very limited by the interaction the human has to do. And with FlackTek, we're disruptive because we completely removed human from that equation, and we fully can process the material with no interaction whatsoever. And that enables automation repeatability, reliability of the product that comes out of there.

And because of mixing is, I'll call it, a nebulous application, we're market agnostic. We literally sold to over 40 different market segments last year. Of course, aerospace, the defense, chemicals industry, but we're in biomedical, pharmaceutical and many industries ranging from that. We've also got a really deep customer base already built some great logos over there with the ability to continue to work deeper with those customers as well as to expand them into our other product lines.

So moving on, look at a bit how our technology actually works. I want to take some time to go over this slide so that you can actually see how the technology works. And it would be helpful if my video plays, try one more time. There it is. Okay. So bottom right-hand corner of the screen, you're going to see 2 motions, 2 arrows. There is a demo in the back of the room. So those of you that are in person, stop by, we've got a mini version of this, but the arm spinning in 2 directions. We call this a dual asymmetric centrifuge. So when you think of a typical centrifuge, you think of spinning in one motion. We do spin one motion. But as we're spinning in that singular motion, we actually rotate the cup counter clockwise. So in that graphic, you'll see a red arrow and then the blue arrow, they oppose each other. That action creates flow inside the cup. So bladed material moves blades through material. We move the material with a cup, no blades. So it's fully bladeless.

Next, if you look above the graphic, you're going to see a robot integrated into one of our machines. This is a 20-kilo machine. It mixes in about a 5-gallon bucket. And you're going to see a lid on the bucket, and we're going to look down in. That's where the vacuum chamber will go in this system. But that bucket can be fully loaded with whatever material, a thermal paste, a rocket motor fuel, a cosmetic, a pharmaceutical, you name it, same machine, agnostic to industry, and it can be automated. And you can imagine, as we look over to the left side of the screen here that for a bladed machine is really difficult. You've got to be able to clean the bowl afterwards. You've got much longer cycle times. We haven't even talked about speed.

One of the more unique things about our technology is I'd like to say that we turn every molecule into a blade. We're bladeless, but we use the material in the cup as the blade itself. And because of that, we apply shear instantly everywhere in a container. So mixing processes that typically can take 2 to 16 hours, we can literally do in seconds to minutes. I'd like to say most people think in hours when they think about their mixing process, and we can literally think in seconds.

Typically, also for bladed machines, they are highly batch production, meaning like if you need to make 1,500 gallons or something because it's so hard to mix, you're going to make that 1,500 gallons at one time. In our technology, because you can mix so efficiently and so repeatedly, you can cut that down into a batch style production and still get the same throughput. Why that's impactful? If you think about a rocket motor production facility, they might require a 400-acre campus to house their mixing equipment, to house their production equipment because we're mixing these large arduous batches at one time. We can do that same rate of production and call it a few acres of space. So massive implications when shrinking the footprint of how we can impact the processing technology.

And I'll touch again on the heavy skilled labor. Like when you set up these big mixers, they're not set it and forget it. You have skilled laborers that work over these large mixers. So I like to say the factory of the future isn't going to be built by people standing over mixing container scraping down the wall. The factory of the future is going to be built with automated bladeless mixing, and we're leading that charge.

Okay. So next, what's really unlocked growth for FlackTek is the picture on the bottom right there, our mega machine. So historically, for the last 15, 20 years, we were able to offer a small, medium, large equipment, which is the top right. That equipment is really great for specialty production, R&D formulation, small-scale niche needs. But we were never able to follow our customer the whole way through full rate production. And what's changed now is we can hit full rate production with the mega machine. We can do 12 -- 2,000 kilos an hour in our mega machine versus before we were stopped at that 5-gallon bucket size limitation. So this is really transformational for the business that we can follow the customer the whole way from R&D through full formulation.

I do want to point out because we work so closely in lab scale, the lab-scale world, we have deep relationships with these customers because any product that ends up in production spend a lot of time in the R&D and formulation lab, and we've got really great lasting relationships with those folks. I will -- you've heard me say it a few times, but just to like hit the nail on the head here, like our machine uses rotary technology, vacuum technology, thermal transfer technology and it moves fluids. And you combine all those things, that's Graham. So it is a really unique fit that we can apply ourselves across all business units and all end customers. We even share a lot of the same customer base.

So I'm going to go through a video here. This is the mega in action. Mega machine is the first of its kind, the largest and most sophisticated in the world by an order of magnitude. So we've produced this video with a customer Anduril. It's fascinating for me to be here saying that we released this machine less than a year ago, and it is the centerpiece of Anduril's rocket motor production facility in Fort McHenry (sic) [ McHenry ], Mississippi. Their entire production facility operates with this machine as the centerpiece. So just some whizbang graphics here, the machine moving. That's 12,000 pounds of rotational mass, spinning, gets you the feel of the machine and then onwards, there's a bit of an interview here, I think.

[Presentation]

You can say it yourself all day long, but when you get your customer to sit down and say it to you, it's a pretty powerful thing. So really proud of that partnership with Anduril, and there's definitely more to come with them.

So what is our growth strategy? It's pretty simple. Three specifics here. We're going to double down on our installed base. We've got over 2,500 machines in the field already. So we can continue to win new customers as well as work with those existing customers. Middle part of this slide, it's effectively use our legacy installed customer base as a wedge into mega machine. So we have the world's deepest and greatest list of users of centrifugal mixers, and now we can simply reapproach them and figure out who are the ones that need to take their product into full rate production. It also -- in this middle section for Mega, there's plenty of customers that never wanted to work with FlackTek because we didn't have scale. And the fact that we do have scale actually already opens doors that weren't open yesteryear.

And then finally, I haven't talked much about it, but we actually have a consumable ecosystem that lives with the machine. Every time you mix with the machine, one of the reasons you don't have to clean up afterwards is because you mix inside a disposable plastic container. We have a facility in South Carolina that owns the molds and does all the logistics of our containers all throughout the world. And we control -- we literally shipped over 3 million containers last year all around the world. So a huge ecosystem built around container use. Also service and reliability. The deeper we get into production with these customers, the more they want us to support their equipment and the more they're willing to pay us to show up to be the white glove service that supports this niche equipment. So we've got a really deep lock-in on that.

So I think my entire presentation here sort of pointed to why we're positioned to win. We've got a unique moat around this from an IP perspective. Our customers are also locked in from the sense of if they've developed a process with our technology for a rocket motor system or for a thermal protection shield, they call out our system, and it's a really high switching cost to get out of that system. So we're locked in with those customers. We've got some really cool things in the R&D and innovation pipeline coming with machine learning and actually being able to watch mixing and discern mixing and prove capability of is something mixed. So I've been super passionate about FlackTek my entire career, and I'm about 100x more excited for where we're headed in the future with this partnership with Graham. So thanks for listening.

Yes, and we're pretty versatile. And following on with Matt, one thing I just wanted to call out is we're really focused on the commercialization of that mega. It's actually [ Ted Hollywoods ], who's in the audience here. His sole job is to go sell the mega machine. And so we're surrounding with the capability and the credibility to go do that. So I'm excited to watch that product launch.

This is actually one of the most impactful things for me. When you have customers that you've worked with for over 20 years on stage that can talk through why you're critical in their applications and the relationships that have been formed, it shows the gravity of the criticality of the equipment, one, but two, the long-standing partnership and the value that's been provided. Today, I'm so incredibly honored to welcome 2 long-standing customers, Tony and Royce. These gentlemen have stood by Graham for, like I said, decades, and they still do today.

With that, Tony is a retired government prime contractor. He worked at Bechtel Plant Machinery, who has directly supported the U.S. Navy shipbuilding program for over 35 years. During his career at BPMI, Tony managed overall activities related to the design, manufacturing and fleet support of various reactor power plants for the naval submarine programs. He worked on transfer equipment or heat transfer equipment for multiple submarine surface ship platforms. And today, Tony still consults in this area because he's so passionate about it. So Tony, thank you for joining us.

Royce has 30 years of experience in conventional hydrocarbon and biofuels refining industry, spanning mass transfer, process design, simulation, desalting and water treatment. Royce is currently a crude fractionalization and water treatment SME at Delek USA. Prior to this role, he was responsible for worldwide crude and vacuum unit technical support, optimization and troubleshooting in addition to water treatment for a Fortune 50 multinational energy company and proudly got his degree at Notre Dame. We have another in the stands as well.

With that, today, we're just going to have a quick Q&A. And I want them to share their experience, one with Graham, but more importantly, the criticality of the mission that they're providing. So gentlemen, thank you so much for joining us. They've traveled to be here today, and I'm grateful for that.

So with that, I want to start off. So we're going to go back and forth. We've got 5 questions, so we'll keep it somewhat tight. The first section is really focused around customer mission and operating environment. So Tony, maybe we'll start off with you. Could you explain the criticality of your end application and how Graham equipment enables it?

Sure. Absolutely. You heard over all the conversations say the term mission-critical. But this is what it means to me, personal safety, product assurance, operating reliability. I've been on submarines. People are operating your equipment in an environment where, quite frankly, it's in harm's way. So the assurance that you have on meeting the requirements is paramount to their personal safety. Similarly, from a quality assurance standpoint, minor flaws or imperfections, quite frankly, can impact a mission-critical operation, i.e., noise, natural frequency. Submarines, one of the greatest benefit of it is obviously stealth. So having quality assurance is mission-critical.

Lastly, operating reliability. The product lines that I've supported and from start to finish, 30 years, up to 60 years of operating flawlessly. I've had the opportunity to talk to commanding officers on submarines, making split decisions on what to do, how to operate. They tell us they don't even hesitate to do what they have to do, knowing this equipment is going to meet its intended purpose. And lastly, from a mission-critical standpoint, strategically, the U.S. Navy is allowed to port across the world. They're parking nuclear reactor power plant in Japan, U.K., Australia, having a flaw, an issue or an event, that would not happen. And quite frankly, an event like that would be worldwide news.

So that quality culture, that's what Matt and his team have ingrained at Graham from this level of people today to, quite frankly, my interactions with the shop floor. That all being said, quality is nothing if you don't deliver on time and affordable. That's what make Graham, I think, unique and special to support the mission that I supported for over 35 years.

Thank you, Tony. Really good insight. And before Royce goes, one of the things I want to share with Royce is if you have a process question with anything to do with vacuum, this gentleman has solved some of the hardest vacuum challenges in any refinery around the world. So we're not just talking to a guy that's sort of done this once or twice. He's kind of the go-to guy in the business if you have an issue. So Royce, with that, could you also describe the mission criticality of your equipment?

Yes. Sure, Matt. Thanks. So at the heart of the refining industry is our crude unit, which is the first unit that processes the crude oil. And the highest value uplift you see in a refinery is between the residual, which is the heaviest component that comes to make -- that makes asphalt and then your distillate, your clean gasoline, diesel, jet fuel. And so the criticality of the Graham equipment is that they make the vacuum ejectors that they showed previously, you saw the big giant vacuum tower. And so the big giant vacuum ejectors are, again, critical to the profitability of refinery and to the smooth operation of the refinery.

And they don't actually have any moving parts. They just work on steam. Steam is that provides the energy to make it work. So they're very, very unique design and Graham has a special know-how to design them for very large systems. And all the major oil companies have Graham equipment in their refinery, and they've been a partner with myself for the last 25 years designing and done almost 10 different revamps with them and new design. So they've been a very trusted partner.

Yes. Thank you for that. So the next up, I'd love to go into a little bit more detail about that. We've talked a little bit high level about why Graham. But maybe more -- what's been your experience with Graham just in sort of the working relationship? And then what's differentiated more -- maybe a little bit more detail of that experience?

I'll start. Thank you. From a working relationship standpoint, I've kind of uniquely, I've been your customer. And quite frankly, since I retired, I've been their supplier. And one of the reasons why I continue this relationship after I retired is the reason why Graham is, I think, here today. So transparency, when I first started working with Graham, we've always had issues. We've always want to do things faster, better. And that was kind of my role working with Graham. So we quickly realized that to do that, we had to be transparent. And we had to put our cards on the table, make those tough decisions, which, quite frankly, from a customer-supplier relationships, sometimes is difficult.

Well, they've embraced that and made these challenges that we had, I'll say, a lot more palatable where we can get through them and both serve each other's needs. But the biggest thing from Graham, how you enable what we did at BPMI, we're doing today, is you heard that you see and feel the technical expertise. A lot of organizations have that. What -- Graham is different. They're not technically arrogant. And the differentiator to me is they're open, willing and embrace people coming in and providing different opinions, different views and accelerating and elevating those tough technical decisions.

And what that does is twofold in my opinion, Matt, I hope you agree, is one makes the right technical decision because, again, we have to do that based on the reasons we just talked about, but makes that decision faster. And you heard speed to market. That is one of the ways that they have allowed that in our working relationship. But lastly, I think what makes -- enables Graham to do this type of work is empowerment. I've seen it working with Matt and his team. I've seen it on our projects that we're working on past and present. You empower people to own the solution, you provide the support and resources. And lastly, excuse me, is the proper level of oversight or governance to make sure it's done right. So I always follow the philosophy of plan, do, check, act, right? That's how Graham approaches their business.

Yes, it's really good insight. And with everything going on that empowerment is so critical, people ask like, how do you have this much stuff going on? And it's a really deep planning phase that then we allow people to go execute. So I appreciate that perspective.

And Royce, for you, I mean, just a little bit of an overview of maybe a specific sort of example or whatever is on your mind.

Yes, absolutely. The word that comes to mind from me to Graham is continuity and stability. For instance, I'm still working with the same salesperson that I did when I started out working with Graham in 2004. So he's still an employee of Graham, still a trusted friend, trusted partner. When I started out my first design in 2004, I didn't know how to design vacuum systems and he literally taught me how to design things. And so from my -- for starting out, he educated me the customer on how to design vacuum units and then we've grown our partnerships since then. Now I echo what Tony says, he wasn't an arrogant supplier that just told me, that didn't speak down to me. We work together. We fostered a relationship, and that's grown over the years. So I echo everything Tony said.

Yes. Yes. So Craig, the gentleman he's talking about has been at Graham for over 50 years. He's one of our lead salespeople down in Houston. And when you talk about passion, if you want to talk 3 hours about a petrochemical facility or a refinery, just give Craig a call.

I hesitate to pick up the phone sometimes. I know it's going to be an hour talking to Craig. So...

So did Dan, but no, it's a really unique experience to have that critical connection when you need it most. Next up, I want to talk a little bit about customer experience and partnership. Could you just share sort of the most memorable moment?

Keep it clean, right? So many to choose from. So I'll just start with the Columbia program, submarine programs had good press, bad press. We got to get into the water for many, many strategic reasons. So we partnered with Graham, we being at the BPMI, we had an opportunity to accelerate the Columbia build. So we engaged Graham with, hey, we want to accelerate, give us your ideas from changing design, how you make it, how do you qualify people. So we partnered all these ideas. So we were successful with -- based on Graham's input, our assessment of it to basically come up with a solution to make design changes to implement new technologies from welding, machining technologies, lay out a process using manufacturing strategies with process mapping, process controls, buy it, install it, a mutual partnership on the funding to do that.

In a relatively short period of time, where I'm very proud, I'm sure you guys are tenfold more than me proud of showing positive metrics in quality, delivery and productivity. So just a snapshot of, hey, well, we have the expertise to help you. We'll take on this challenge. But by the way, everything else you're doing still has to be done, and we'll execute. So to me, that's really one of the examples that I think demonstrates what Graham has been presenting today.

Yes, it's a really good example. We're actually going to share that example later. And what you'll see there is folks are like, why are customers granting funding to Graham? And the reality is like there's a transparency and a partnership that forms. And then there's a good idea that forms. And then the idea is, well, we got to go do this idea because there's no way not to. So we sort of help create clarity on to what to go do. There's examples of that kind of across Graham. Actually, Mike is working on one right now in the Mark 48 program to refresh that TDP and there's other examples across the board.

But I think that it really goes into those -- you sort of get in a pinch. And then it's forced to get close and then all of a sudden, you come up with something transformational. For us, out of that was automated welding. And what I will tell you is we've learned that we still need our folks that are incredible welders. They're the backbone of Graham. But if we can augment them with a system for repeatable welds that moves us forward. So I appreciate that story.

Royce, any -- I mean, 25 years, you got to have one.

Yes, for sure. Actually, one of my most favorite or professional accomplishments was fixing a long-term problem at the Phillips 66 Lake Charles refinery. It was a Graham vacuum column that had some issues, mostly because the client had miss designed and missed -- gave some information that wasn't correct. And all the major process people from the industry, Norman Lieberman, PCS is another big company had all looked at the system and failed to fix it. They've done some tweaks and different things and never fixed it. And at the time, I worked for Phillips and I got reengaged Graham to try to fix the problem, worked closely with Craig, and we came up with our solution.

And even being at the company, it took over 9 years because of all the political issues and people at the plant and convincing them. And actually, Graham had actually sold the same -- we had to sell the same solution like 3 different times because they kept changing refinery managers. But very proudly, they finally did what we told them 9 years later, they installed it and fixed it. Everything was working great as a big profitability boost for their refinery. And a very proud moment. And I was able to see that before I left the company, but that was definitely most working with Graham.

Yes. Yes. Great example. And that's sort of what we're going through with the next-gen nozzle right now, which we'll talk later. The reality is that's a huge upgrade for some facilities. And actually, Royce has been one of the pioneers of that. What we have to do is we, of course, have to find a leader to be the testimonial, to be the one that takes the risk. Royce has enough experience and enough tool sets to help them sponsor that. And so we've installed that equipment in their facility and had great success. So it's neat to see when these sort of things can come to life.

Next up, barriers to entry, switching costs. I just want to -- really briefly, how important is a long-term supplier relationship in your industry? What does qualification process look like for a new supplier?

The short answer is years for all the reasons I just talked about, mission-critical from the ASME requirements, NNPP principal supplier requirements to material qualification, personnel qualifications, equipment qualifications to customer approval and oversight. No exaggeration. That infrastructure is necessary because of not just the executing the work, but the programs that oversee the work to ensure the things we talked about earlier operate the way they have to, otherwise, a catastrophic event.

So that being said, long-term partnership is essential. I mean, I've lived the ups and downs of nuclear industry. And thank goodness, I think today, we're embracing that form of energy, both commercially as well as nuclear, which has been constant throughout. The demand signals have an up and down. Supplier base had to adjust accordingly. Obviously, it's a for-profit industry. So partnerships have gone.

So to recreate a Graham right now, if someone want to enter the market, it will be very, very difficult to do. That's from a time frame standpoint and resource perspective, again, in addition to your daily work. But quite frankly, there's no guarantee for success. Or lastly, you'll be profitable. So this type of partnership that Graham has with their customer base that already has been proven, has the infrastructure, has the culture, has the drive innovation from an end user standpoint, those are the ones you want to partner with.

Appreciate that.

Yes. Similarly, for the vacuum ejectors. These are very specific geometry-driven large pieces of pipe that every vendor designs a little bit differently. So I would say that I've seen most refineries in the U.S., and I think I would conservatively say Graham probably has 85% to 90% installed base on all the major vacuum towers in the United States. And to change those to a different vendor, it would be extremely difficult just because of the geometry. Even if you could get the same performance, it wouldn't necessarily be the same length. And so if you're putting in a giant piece of pipe, you're not going to spend the money to change your downstream pipe and everything else. And on top of all the supplier qualifications, just even if you had a design that worked and you're already qualified, it would be extremely difficult just to be competitive and because of the cost of installation. And so it would -- virtually say you would -- it's not going to happen.

I told them I wouldn't ask any not preplanned questions, but you all know me. So we're going to do one. Throughout your career, what's been your most proud accomplishment? I mean you gentlemen are experts in your trade. You love what you do. Royce, you're still doing it after -- you'll continue to do it for the rest of your life. Tony, you're still doing it after retirement. What's your most proud moment in your career?

Quite frankly, there's many to choose from, professionally being able to interact on the submarine with the end users and visually experience what they're experiencing, granted, I'm on a shipyard, not under water. And then coming back to us and telling us how proud they are of us supporting them and our nation. So yes, we're here because of business, but it's great from my perspective that we can have a business but still do something so important to our country. And that is the proudest thing that I want to share with everyone was the opportunity to partner with people like Graham, but also do things from a national perspective.

So impactful.

I already talked a little bit about the revamp at Lake Charles. I was extremely proud of that. Just being here today is very proud just being recognized as an industry expert, very fulfilling. I appreciate the invite.

Last question, and then we'll wrap it up. So we're always thinking about the future. We mentioned the word planner. We mentioned the word we're thinking ahead. We're talking about small modular nuclear today. We think that, that's sort of 5 to 10 years out before it's a meaningful part of our program or our portfolio, but we're laying the groundwork today on critical programs. Actually, Jed, I think we talk pick and shovel, and I've used that theme with our team. But I think the key is interfacing with industry experts to ensure that we're headed in the right direction. So can you share with us what capabilities do you think will become increasingly important over the next decade?

Well, quite frankly, more of the same that you have today, just at a faster pace. Technology innovation, I think we just touched the surface. We are doing things faster from a life cycle standpoint. A quick side note, Matt, before I retired, we are being challenged by the Navy to do things faster, cheaper and more reliable, just like any other business we're talking about, but for the defense of our nation. So technology innovation and your culture of taking on those challenges, that's what we have to do at a pace that, quite frankly, we feel uncomfortable.

So if we feel uncomfortable, then we are pushing the envelopes. This field and industry has a legacy of burdensome, redundant. And quite frankly, there's some of that there, but we were challenged to play in that traditionally safe place, which makes some of us old-timers uncomfortable. But that's where we have to push those envelopes, push that technology, push the analysis tools we have, the data that we've been collecting to make real-time decisions that help us. And you sprinkle that all throughout your presentations today, and I'm just echoing that.

To me, the companies that I see out there that are embracing this type of work realize they have to do that. Now the ones that are being successful are ones that are doing it at a creative pace. How do I get the technology? Do I buy it? Do I partner? Do I invest in people? Yes. And that's where you and your team have to really push that envelope and then continue what you're doing, empower your people to implement that and incorporate that in a safe to fail environment.

Great perspective, yes. Royce?

Yes. Doing less with more -- sorry, doing more with less. They're not building any new refineries in the U.S. So my career has been focused on revamps, getting -- squeezing more barrels through the same tower, lifting more light material out of the same tower. And like this last project that I did with Graham, we actually took a competitor's old vacuum system, revamped it with Graham, actually using less steam. We -- using less energy input, was able to get about 25% more capacity going from a competitor to Graham using their new novel technology. And so that's kind of in the right direction.

Just revamp existing equipment, getting more out of it in the same footprint. I think that's really the direction of American refinery. We're not going to be building any new units. We're just going to be trying to optimize what we have, get better lift, better efficiencies out of what we have. And that's been the direction for at least the last 10 years.

Well, so much appreciate you guys being here today. For us, I just want to sort of recap. I mean, the first thing is I talked about how we win. And it's long-standing relationships. These are decades-plus relationships that have not only embraced how we got to where we are, but they also are helping us form where we're going based on lessons learned. Second of all, mission-critical. We're talking about sailors at sea and protection of the U.S. -- of the entire U.S. And speed, themes of just speed, density, do more with less, the conversation, I think, is sort of embedded in today.

So look, the nice thing is like this isn't staged. These are our customers. It's actually such an honor for us to stand up here today with you, too. So thank you for coming with us. We got to enjoy dinner together last night. We get to enjoy the parade outside. Really grateful for you guys coming to New York.

Thanks for the opportunity.

So we're going to go through one more section, then we'll do a break. At the break, I see the parade going on, and we actually have access to the balcony, so everyone can go watch. But let me get myself situated and then we'll keep going. Once again, gentlemen, thank you so much. Absolute honor to have you up here.

So we've talked a little bit about the business units. I think you now know what we do. I think a lot of people have been confused about what we do and what we're trying to do. But the reality is hearing it at once, Russ, you've been following the story for a long time, probably as succinct as you could get in one presentation so far this morning. What I want to talk to you, though is how this sort of wraps into a strategy. And look, I'm not going to be the one that denies that I have a pretty complex mind, and I think the team has a complex mind. So I want to try to break it down as simply as possible, but it's not the simplest strategy to understand. But our team understands it, and we're executing to it.

So the first thing I want you to take away is thematic decentralized corporate structure. What I mean by that is we don't want to be a system integrator or a prime. We don't want to just be a holdco that has no synergy between the business units. We want to be sort of right in the middle where we have, an ecosystem of products that can talk to one another, that can learn off one another that has similar customer base, but has very differentiated technology. And so I just urge you to sort of think in your mind about 5 to 7 business units, niche, world-class at what they do, $200 million business units that has a unique culture, a unique growth vector about each of them. And together, we're stronger than just the individual parts.

So that's the vision that I have for Graham, and I think the team is on board with as we move forward. With that, what we can do is we can leverage insights, we can leverage intelligence, we can lever thought leadership across the organization. And then we can get out of the business units' way and let them go do what they do best in the world at. So with that, today, we have 3 incredible platforms. We have Barber-Nichols, which truthfully is world-class at turbomachinery and has been since 1966. And people say, you have a long pedigree of success. But the reality is we still have, you can feel this innovation, this future look, you have a business that's founded in -- that has a strong foundation that's also looking forward.

Second, you have Graham, 90 years, 80% market share in the U.S. on vacuum systems. We're now using that same technology, and we're bringing back our N-stamp at the business to go pursue commercial nuclear in addition to our current business units. FlackTek, new business unit. I think the first time I met Matt, I think I told them I have a bigger vision for FlackTek than he himself does. And I will tell you, we're going to bring it to life. That technology, we have actually a thing called the FlackTek look. I will tell you, customers when they first see it, they go, oh my gosh, what am I going to do with this? Because it's so impactful, they have to revamp how they think about their process. And we have folks like Anduril and others, which we can't get into details that we see that look on a frequent basis.

What I don't want to limit is the conversation around we're going to do this both organically and inorganically. So as we talk about thermal management, we could see that being a business unit someday. When we talk about power electronics, we actually have an individual that's going to present later today that's spinning our power electronics and controller business out of Barber-Nichols into its own segment to bring that to the rest of the world. So what you're going to see is this continued growth within the business units organically. And we will bring some or some investments in like Xdot, where we brought in a really sophisticated bearing package to further enhance our capability. And we'll also do accretive value acquisitions on the new capability side.

So I think you get the theme that we want to be best-in-class at what we do with business units. With that, in each of the business units, super critical. We want them to be excellent across the entire life cycle. So when I say a customer comes and says, we want to do a revamp like Royce was just going through. We can say, we understand the revamp, let's think about the process. We can deliver all the way to the end hardware, and then we can support them in the aftermarket. So every single business unit that we're talking here, I want to be excellent from concept all the way through service.

Examples of that, that we'll use later, we think about the testing at Barber-Nichols for space. We couldn't test. We were pushing test on to our customer to say, please validate our systems. And tomorrow, we can go to them and say, we ensure that this is validated for your mission-critical application. The last thing is folks look at this and they say, wow, it sounds like a lot of pieces. The reality is it's not really that many pieces. They have similar physics, similar end customers. And so our job is to do is pick the right pieces for the right solution to ensure value for our customer.

With that, here's where the complexity comes. I could go through the entire strategy and just jump to the end, but I'm just going to walk you through it very succinctly. So number one, without incredibly prosperous and capable business units, nothing else matters. So the first is for Mike, for Will and for Matt Gross, they have to run outstanding business units in every aspect. Because without them, we have no free cash flow, we can't reinvest. We have no stable factor within the corporation. So we're doing that. And you can see the bubbles we're focused on both profitability growth as well as revenue growth within each business unit and within those business units end markets.

Second, we're going to continue to expand the life cycle in the business units and at the corporate level. So things like I mentioned, testing and system intel, we're going to continue to grow that portfolio. In addition to that, we made the Xdot Bearing acquisition. Barber-Nichols needed a very niche adjacent technology to then enable high-speed rotating machines for very precise applications like SMR. And so we're either going to homegrow it like motors or we're going to go pursue it externally like acquisition.

With that, we're a public company. We have a corporate team. It's growing. You're meeting everybody today before I remember telling a lot of you, we had a team of four. Well, today, it's growing, and we're starting to be able to support how do we grow our people through apprenticeship programs, through leadership development, et cetera. How do we bring playbooks and succession planning and commercialization and leverage them across the business units. And then all the way down to how do we deploy capital with a disciplined process. So we're going to continue to use the thematic decentralized corporate to enable not just support or oversee, we're going to enable the business units with that team.

Where that all comes together is number 4. And number 4 is where you have a portfolio of products that are thematic and leveraged amongst each other. And so I'm going to use a few very crisp examples. Right now, Graham Manufacturing stepped up to do all the N-stamp certification for P3, which is developing an SMR for a very critical application. P3 in return is doing computational fluid dynamics for the next-generation nozzle for Graham Manufacturing. Barber-Nichols on a very critical space program produced the equipment for P3 to accelerate that program by a year. So with that, you can't really see the synergies naturally, but we have -- we know the system intelligence, and we utilize that portfolio to our advantage as we move forward.

With that, 2 things I actually have not introduced to this audience in like very specific terms. because I, too, have been learning. So the first thing is efficiency. The second thing is SWaP. We've talked a lot about it today. Doing more, more efficiency, less size. And the reason why is I'm highly confident that electrification, power density, more energy, all these sort of things that require power dense solutions is the future of the world. And so Graham is positioning ourselves not only for the ground-based applications of these, but we're ensuring that we're ready for the mobility side of when this transfers from ground to every asset in the world.

With that, I added number 5. We actually presented this at our Board meeting. Number 5, we believe, is the multiplier. And what the multiplier is, is Mike talked, we have a pedigree of equipment. That equipment works today in space applications. It works on radar applications. We've proven it. We validated it. But what we've done to date is we've taken one solution to one customer. And we will never stop serving that one customer. They will be our #1 priority at all times, but we are going to start taking that solution that we have for that one end user, and we are going to start using it for other end users.

With that, a quick eye chart, but I'm not going to make you stare at the chart. What's important about this image is how this all links together. So when I talk about undersea platforms, you see a submarine, you see a torpedo. We actually didn't use to do any of this equipment. And what started to happen is we started to understand the ecosystem that this stuff operates in. Tony hit it best, mission-critical, survivability, must work every time. And so we had a quality system built around this capability. What happened is we won the condenser on one asset. Then we won the condenser on another asset. And then we said, oh, the similar technology can apply to the cooling system for the nuclear electronics. And then Barber-Nichols got the air turbine pump on Virginia-class. And then we said, oh, we can do the overhaul for the entire submarine portfolio.

And then we said, well, Mark 48 is restarting again. Maybe we can do the Mark 48 torpedo. And so the takeaway that I want you to have from this slide is we are starting to think at the ecosystem level of using the knowledge and the system intelligence that we've gained within that ecosystem to ensure that our solutions are married to where our customers are going. If you talk about space, everybody can read the newspaper. Well, in the 2000s, you'd read about Elon Musk using Barber-Nichols to design the first Falcon rocket engine turbo pumps. People say, oh my gosh, you're not doing that anymore. Correct. But what's more important than that relationship, we have used that technology to do it for every other launch provider, and we still have a relationship.

Second of all, lunar landers. Folks walking on the moon. Surface vision power. You look at all the applications in that ecosystem that have been brought to life because of that experience, and we have the knowledge to do this over and over again. So my takeaway for you is we have market-agnostic technology. We get super focused on understanding the ecosystem in which our products provide and then we ensure we bring the right product with the right team to the situation.

I already showed this slide, but I just wanted to rehash it because we're in the improved the growth phase. And what I mean by improved the growth is, first, in the improve, I don't want to look past the concept that we've made a lot of investments. Chris has been pretty gracious in saying and the Board to basically with the discipline we've had, yes to everything. We brought a lot of rigor to that process, but now it's time to ensure that those improvements result in P&L improvement at Graham. And that's profitability and continued growth on the top line.

While we're doing that, I mentioned before, we're not just going to do the improved phase. We're going to start making the investments in the growth phase. And Chris will talk about that later. But an example, this upcoming year, we're not just doing capital. We're actually going to start -- we're going to hire. We have opened the position for the aftermarket acceleration. We have opened the position for global sales. We're going to start bringing on the commercialization element. And so we're today going to start laying the foundation for our future scale.

With that, I'm not going to cover this slide extensively because you actually all in the audience have seen it, and our team has lived it. What's important here is we've really changed Graham. We've revitalized an incredible business, and we've done it through solid planning, incredible execution. And so what I mean by that is we today are a 60% defense business, long, stable backlog, 4x increase in backlog, and we see continued solid pipeline. Today, we've done that through extensive discipline on our capital allocation, and we will continue to do that as we move forward with 20% or greater ROIC.

Margins. With the exception of the 200 basis point lift with the Barber-Nichols acquisition, which I'm proud to, of course, announce that we were able to give back $12 million by hitting the max earn-out on every single year to our employees. And so to the Barber-Nichols ownership team that was gracious enough to do that, while it had to run through our P&L, and it's a tough 200-point basis hit, I'm incredibly proud to not just say that we care about our employees, but invest back in them. With that, our margin, no one in this room that's presenting today wakes up to be average. We're -- we have to get back to average because we started from a point of weakness. But as soon as we get there, we're going to continue on the journey to be top quartile in our peer group.

With that, we've mentioned a few times that we're planners. The reality is we're actually thinking 5 years out. So today, we're going to show you 3 years, but we're thinking 5. And what we've done is the last 5 years, we created a plan. And that plan, I can tell you, [ Matt Hays ] is like in the detail, so he can also tell you that list of things across the top started off all as dots. And today, every single thing, except for the Batavia ERP, which is coming online in August, has been implemented on time, on schedule and on budget. And right now, we're working to move that into realizing in our P&L, but things from a new Navy facility that have revolutionized Graham Manufacturing, things like the next-gen nozzle that we were able to bring additional value that a customer like Royce brought to his factory.

Things like the cryogenic test facility, which this week are getting ready to test the SCAMP pump for a very critical lunar lander program. IT infrastructure, with Keith will cover, we've revamped our entire IT across all the businesses to ensure not only is it -- that it can move us forward. With that, while we've been deploying the $42 million and running the business, growing top line. In this case, 19% CAGR, we've also been laying the foundation for growth. And so Dan has graciously continued to utilize his vision to help us win new opportunities, and we'll talk about those as we move forward.

So with that, across these markets, I want everyone to have this takeaway. Our technology is agnostic to end market. The competencies that we're building, automated welding, all of this is agnostic. We can use it wherever we'd like as we move forward because there will be tailwinds and there will be headwinds as we move through this journey. With that, I think everyone has seen this. These are the slides of implementation. The key takeaway for me on this is these are at the business units that we go to every day.

And today, every single one of these assets is being utilized for critical equipment and they're in operation, there is people there, there is a product there and they're starting to deliver for our customers. So with that, we're going to go through this slide and then we're going to take a small break. What we're going to cover after this is actually the growth enablement for Graham. So we're going to go into a little bit of detail, but I wanted to go through 1 slide before we get there.

So I've shown this slide before. But what's different is, before I just showed it, and now we're going to start doing it. And so I talked about business full product life cycle. And what I'm introducing here is a theme about corporate evolution towards full product life cycle. So Graham today, like I mentioned, is outstanding at single solution for single end user. Through that process, we've retained the majority of the IP and a lots of customer like the U.S. Navy needs to own the condenser, of course, designed for the naval submarine. With owning that IP, we're going to start a few growth vectors. The first one is we talked about ecosystem. We actually know it really well. But we're going to start going and interfacing with it in a business forward, business development mindset where we can couple our technology before the customer even reaches out to us. Second, we're going to talk through an example like a controller today. The controller started in R&D 3 years ago. Paul is going to cover it. It's in 2 active customers today, and we're going to go launch that to the rest of the customer world. Electrification, power dense, all these themes, it does exactly that.

Next, we're going to talk about global expansion. I think a lot of people have lost track of how important the process business is like Graham. 90 years of history, high profitability, there's a ton of international and domestic opportunity for this process business, and we're going to do that both domestically and internationally. And then lastly, the aftermarket, Will is going to touch on that.

So with that, really focused on creating multipliers within the corporation and then embedding them in the business units as if they make sense. So with that, we'll take a pause here, maybe 10 minutes. Fill out, enjoy the parade and then 11:15, we'll regroup and we'll go through the growth enablement. And then we will wrap up with good questions.

[Break]

The time has come. Paul, [indiscernible], back to earth. Okay. So the last part of our presentation before we get to Chris, which everyone is waiting for, of course. We're going to go through growth enablement. And I want to make sure -- are we back on? Rachel, are we back on for webcast? Yes. Okay.

So for growth enablement, I want to just frame it before we start. So what we're talking about today is 5 very discrete areas, actually 6 very discrete areas where we're making conscious commitment and we'll start making investment to support these growth vectors. And so in addition to running really solid, stable business units, this is going to be the conversation. And so we'll pass the mic though this portion. So Will is going to kick us off. Once again, who runs the Graham manufacturing business with operational excellence.

Thank you, Matt. So unfortunately, you guys get me again, but the cheers continue at this point. So I want to talk a little bit -- and first of all, when we think about growth enablement, I want to make sure that everybody thinks of the 7 topics, 6, 7 topics that we're going to talk about here as kind of a continuum versus individual topics and individual activities because they interweave with each other, they interrelate with each other and they support each other.

So let's start with the first one here, which is operational excellence. A lot of people talk about operational excellence. We think about it with 4 distinct pillars that are critical to the business: People; capital investment; process systems; and product R&D. And let me start with the people piece. I think there's a couple of things here that I really want to touch on as far as the people goes. The first is our workforce development. So a really good example of that is what we're doing in Batavia right now.

We actually have set up our own internal apprentice program for welding. Any of you that know our business cover the energy and process in the defense business up in Batavia know that welding is critical to our ability to be able to produce our product and stay at rate to support on-time delivery and quality. And one of the challenges we have is how do you get qualified welders fast enough with the growth trajectory that we've been on or that we plan on being on. And we've gone and actually worked with a couple of the local schools to put together an apprentice program, which they do the initial training and then we have a very tailored training program that we do on-site at our own welding school, and we develop the team that then is deployed out to the shop floor and produces our products. And we will continue to invest in that team as we grow and we will also continue to invest in other areas potentially like machining to be able to grow our own because we think it's critical, and we want to control our own destiny.

Second one I want to talk about is just lean operating culture. Again, this is another one where what we're trying to instill in the business and instill in the people is how do we process? How do we drive process changes? How do we solve problems? And how do we do it so that they don't come back again? And that is really the lean operating culture that we're going to be driving, and we're going to be investing in our folks with Yellow belt, Green Belt and Black Belt training. But it's also going to be how do we do that not only on the shop floor, which where a lot of the businesses really focus, but how do we do that in the business processes behind that because that's where a lot of the waste takes place in the business. So these improved productivity and employee engagement by bringing them in and making them a part of the solution.

Second one is capital investment. Matt already talked a little bit about this, but that example over there that both Tony and Matt talked about in separate parts of the discussion, is the investment that was made in phasing up that Navy building. So one of the issues that we had was how do we keep up with the capacity of the load decks coming in? How are we able to support what the order book was and how do we go and build the capability on site in Batavia? And the customer helped us with that. They saw that it was value added. And so we've stood up the Navy building, which is maybe building 14. That was commissioned about -- a little over a year ago. We have mechanized welding in there, which was talked about earlier.

Again, that's a game changer for us because it gives us the ability to do high-quality consistent welds in areas that are very difficult. Advanced machining centers. So we were able to vertically integrate very complex, large machine parts that we were sending outside and was taking a significant amount of time to process.

And then our x-ray. So this is upgraded and cutting-edge inspection technology, which has cut our inspection time by almost 90%. And when you take a look at all of that, 50% lead time reduction and about a 10% capacity gain. And I think we're actually going to see more than that as we continue to lean out the processes in that building.

Processes and systems, ERP modernization and AI-assisted workflows. So again, we've talked about the ERP modernization, and Keith is going to spend a little more time on that, talking about how he's driving that across the businesses. But for us, that's going to give our team the ability to have better access to information, more accurate information and make decisions every day crisper than they are today. And then AI-assisted workflows, and I'm going to spend time on that in the next slide when I talk aftermarket because we're using that for intelligence to drive speed in decision-making.

And then the last one is product R&D. So we're teaming with the team down at P3 allows us to go much faster from an iteration standpoint when we're going through R&D Instead of doing the old it works. It doesn't work and then I'm going to try something else. We're now able to predict what's going to happen before we actually build something and test it, and then we've added testing capability and testing speed. So that allows us to bring products to market faster. So again, these 4 pillars are going to be critical to the growth and they're going to be critical to the performance of all of our businesses as we move forward.

All right, aftermarket acceleration, one that's near and dear to my heart. I think this is an untapped opportunity for the business to be able to drive value and really be able to drive shareholder value into the business along with value for our customers. So 2 of our most important key stakeholders. We have a huge installed base out in the marketplace. Take a look at that map of the U.S. and Central America over there. Every one of those red dots -- and Roy's talked about it, every one of those red dot has Graham content in it, which means we have an opportunity that is unparalleled in the industry. If you take a look at the graph up there, I know you can't read it, but those big purplish red bars up there, that's the amount of spend in a percentage amount that's going to be spent on upgrades and maintenance in the refineries in North America to 85% of the capital budgets over the next 20 years are going to be spent on upgrades, which means aftermarket is going to be an absolute critical piece of what we're doing. And so in the past, we've been very reactive with our aftermarket. As I mentioned earlier, we wait for the phone to ring, we say, what do you need, and then we figure out how to go make it or how to support it. And instead, what we're going to be doing now, and we've already got this going on right now is we're developing AI-assisted tools along with proprietary data sets that we own internally at Graham to say, okay, where are the markets going to be in the next few years? Who's doing maintenance? What do they need based on the historical data that we've seen. And let's give them a call and say, "Hey, we're here for you." And by the way, we'll have it ready for you on your time to do your turnaround instead of reacting. And that's a huge opportunity for us. Along with that, I talked about the R&D piece, we have the NextGen Nozzle out there. So we can take an in-kind replacement with an upgraded technology and give them the opportunity, our customer the opportunity to gain more value out of their process. And what does that mean? It could be steam savings if they want it. It could be more products coming out in less hours or it could be a combination of both, which adds value for that. So again, we will be driving all of these. We are driving all of these as of today. Those are already installed in some applications around the world. And this is an opportunity that we feel is going to be a big growth driver for us from a profitability and a cash flow standpoint going forward.

Okay. And with that, I am going to hand it over to Dan, who's going to talk about the business development, commercialization.

Good morning, everyone. So happy you're here with us today. Gosh, we have never been able to go this deep on our business since I was the leader at Graham. And so this has been a special treat to be able to go this deep and tell you all the cool things that we're working on. So thanks for coming. For those online and that we'll watch later, this has been a blast even with the parade going on in the background. It's been a blast. So I'm Dan Thoren. I was former CEO of Barber-Nichols many years ago and then became the CEO of Graham Corporation and then Executive Chairman. And today, I'm working on business development for Matt. And I want to talk about business development. I'm also working quite a bit on leadership development with Rachel coaching with all of our leaders and just really -- it's funny, you kind of get to this point in your career, and you go, shoot, I know quite a bit. And if I could pass this on to people, it would be really useful to them. And so it's been awesome. I've really enjoyed the transition and where Matt and team are taking this company. It's really exciting.

So on this biz dev, you've heard quite a bit about how Graham, how Barber-Nichols has done business development in the past, and it's the ring method which worked really well, right, because if you've got some great capability and your customer needs a solution, they call you and you say, "Gosh, tell me all about your solution or tell me all about your problem and I'll come up with a solution." And it's worked out really well, but we're leaving a lot of cards on the table, right? If we could figure out how to commercialize this, go out and talk to customers to understand what is that they need to find common customers for a single solution, we can commercialize this and get quite a bit more value extraction out of this. So most of our long-term investors know Graham as an ETO, an engineer to order kind of a business. This ETO business is kind of based on decades of innovation, this proven critical equipment supplier and then the ability to really make sure that it works. And so that's really captured on the left side of the graphic there. So today, a customer comes to us, we learn about what they're trying to do. We come up with a solution, and it's a one to one, very much like Matt talked about before, 1 problem, 1 solution.

In the future, we're going to spend quite a bit more time with the customer up on the upper left and really trying to understand their needs, go out and talk to the second customer learn about their needs, the third customer talk about their needs and really try to develop a solution that can be used across multiple applications. And you start to get that multiplication effect that Matt has been talking about, where you can sell the same thing to multiple people.

The business development activities on the right-hand side have all started. The process is defined, the playbook has been developed. The teams have been formed and we're focusing on 3 particular areas. So commercial nuclear is the first one. So you're hearing a lot about commercial nuclear, and we're going to stand up, and we have stood up a team to go chase that business. The unmanned undersea vehicles, the Navy-related stuff and then motor controllers. We're on the road. We're visiting customers. We're understanding their challenges and then we're developing solutions for their problems. Ultimately, the commercialization is realized. When we combine this business development with this new product introduction kind of a framework. And we can provide solutions to a lot of different applications. When that happens, we'll see growth both organically, i.e., more volume. And because we're making the same thing over and over again, we'll see improved profitability.

To give you a sense of what this is going to look like, Paul Nistler is going to come up and talk you through motor controllers and what we're doing there.

I'm Paul Nistler, Graham's motor controller business unit leader. I recently came back to Graham. I had actually been the Electrical Engineering Manager previously at the Barber-Nichols subsidiary, took a detour going to a venture capital-backed start-up, I was able to successfully launch a number of product lines for them. And I'm coming back with that experience to apply it here with the team that I have worked with me in the past that I've enjoyed working with on a product that I'm excited about. So what I'm going to be doing right now is walking through an example of the process that Dan was talking about before, just as a case study to kind of show we can do.

As you said, we are planning to do this whether it's on additional electronic products or even on other product families such as the commercial nuclear that was discussed before. So as a little bit of history for Graham's motor controller products, we have been producing motor controllers for over 20 years. They've always been done on an individual project basis as talked about before. One customer comes in, we come up with a tailored solution, end of story. We started going down the process that Dan had outlined, then we said, okay, let's go out there, let's canvas all the customers, better understand what are all the requirements are in the landscape out there. We looked at inbound requests, past projects, we have executed one-on-one customer outreach and engagement and kind of created a landscape of all the requirements and what people are really looking for. We started then segmenting that market and really studying kind of what are they really looking for? Is there any product where we can get overlap and cover a lot of these requirements simultaneously. And it became apparent to us that there is a handful of electrical products that if we develop those, it would be able to serve all -- a wide variety of needs that we'd be able to switch from that one-to-one model to a one-to-many model.

So we kicked off that first initial design effort kind of said, okay, this is the first -- like I said, there's a handful of products out there we want to go after, but we said, okay, here's the first one. Let's just go and prove that model out. We set the engineers to work and they came back with a flexible and scalable architecture. Flexibility is key for all the customers. There's always something that they want to customize in the design. They want to have their fingerprint on it in some ways, shape or form. And maybe a different exterior coating on the outside, they want different paint color. They may have a different electrical connector on the outside as for how it interfaces with their system. There's always something that they want to be tweaking this a little bit. Maybe there from thermal management solutions. They're going to be using it in in a desert environment or high altitude. Someone else is going to be using it in an underwater submerged environment. There's tweaks like that. We built the flexibility into the design.

Scalability is also critical because the more that we can have a common design components and subassemblies underneath there, it's going to benefit both us and the customer because we're going to have -- it's going to be a more robust design. We have more heritage with that given component. It's going to be a lower cost design as we reduce the amount of engineering going into it, we were able to compress the schedule by reducing that engineering. We're going to get production volume discounts as we go through this particularly on electronic products, there is a steep learning curve on your pricing model. So we are able to bake that into the design as well. So we have a design. We kind of know what we are doing. We ended up switching that even though we are still working on an inbound [ call ] model. We have the sales team, they switched to starting to sell this product when that comes to baseline, this new proposal that goes out. And I'm happy to say that it's been working. We started off with that model that we had come up with that design. And to date now, we have been able to get 2 customers that are actually on contract, we have orders, we are delivering that product to them presently. We have additional ones that are in active discussions with where we started to a little bit more proactively engage. As you'll see up in the upper right-hand corner, I mean, the market for electrification and all the different areas we can go into is a huge market and there's multiple markets.

We're working on trying to segment that, understand the ideal beachhead that we really want to go after is our goal is that within 5 years, this will turn into a $30 million to $50 million business unit just on its own standing. So that's what we're trying to go for. And we're trying to start working on that more proactive customer engagement. Like I say, we've reached into some of these industries. We have been dialoguing, having discussions but we've still got to get to that final kind of -- make that final selection of the exact beachhead that we're going to be pursuing and just go at it and make it happen. We do want to be prioritized on that. So that's what we're working on presently through these customer discussions.

Lastly, the thing I'll close with is the part I'm actually most excited about on this slide is actually on the bottom right, the team. We have a fantastic team. We have -- whether it's ranging from some of our younger early career professionals, engineers working on things who are just overflowing with enthusiasm, eager to make the mark on the world to having seasoned industry veterans who have successfully launched products into these markets that we are considering. We've got a fantastic team and I think it says a lot when your team is excited and hungry. And we are all just engaged and aligned, know what we're going after, and I'm just proud to share their stories. So with that, thank you very much and I will pass it back to Dan to talk about global expansion.

So Will had talked about the Energy & Process business and $1 billion installed base around the world. we think that there's more. So the way that we're going to attack that is kind of shown here in the middle. We've been in China for a couple of decades. We've been in India for coming up on close to 10 years. And we've got some really good experience internationally, both good and bad. And frankly, the world is changing quite a bit right now. The nationalistic trends are a challenge in some areas. But if you look at it, you can kind of make hay with that, right? You just got to go join them. And so we think that the global unrest that we're seeing, the war in Ukraine, the war in Iran, has really kind of pushed this idea of energy security forward. The resilience for energy resilience is also really, really important. So it can't be reliant on just one form of energy, getting more and more sources of energy is really what people are looking for. That actually fits us pretty well for all the things that we're playing in. As I said, it's getting a little bit nationalistic, People want to build in country. You have to be there in country with them. And thankfully, Graham had the foresight many, many years ago, just to get into China and really start to understand that Asian market, to get into India, been a Middle East supplier for a long, long, long time.

And so we really do understand those markets. We're just going to have to build in those markets going forward. Now we have been building in China, we have been building in India, and we're going to have to continue to do that to continue to serve all of our international markets. We have to maintain control of our brand and our process and our quality in the meantime. You can lose it. And we've seen some of the challenges associated with operating in foreign countries where you can potentially lose all of that really important stuff going forward. We've learned those lessons and through active management, we're going to hold on to those. Those partnerships that we've developed in those different countries will give us cost advantage. So the United States used to pay, they would only accept U.S. produced equipment put into the refineries and the petrochemical plants, no more. So they're accepting a lot of foreign-made equipment to come into those plants today. Those relationships that we have in those countries are going to give us that advantage. Will talked about 85% of the spend is going to be on revamps and maintenance associated with these plants. We're going to be able to serve it in a cost-effective way using these international partners.

The other really cool thing about developing these relationships and this capability internationally is when some of these commercialization opportunities that we've just been discussing can go to high volume. We're going to have sources, whether we use them or not, of international fabrication manufacturing that can actually produce these cost effectively and really give Graham an advantage in the business going forward.

So Matt says, we're thinking 5 years out. We're thinking 10 years out. We're saying, where is this going to take us? And he and the team have really put together a really nice strategy that has us thinking that far out and we're saying, what if this happens, are we going to be ready? We are. Given the international experience that we have, we feel very confident that this is the right move that we're going to be able to win with this and get good return on invested capital. I'm excited about that.

Next area of growth is IT modernization. And Keith Oufnac

Is going to come in and tell us all about what he's been up to.

Dan, on -- I want to just cover on the international expansion. I wanted to like to realize it's not in our strategy, it's not U.S. or international. So I think that's the really key [indiscernible] here to continue fabricating [indiscernible] within the U.S., we are to continue to invest in these areas, [indiscernible] elsewhere. This is a multiplier strategy, not a longer view.

All right. Well, good morning. So my name is Keith Oufnac, I'm the Chief Information Officer for Graham Corporation. I want to briefly share my background because it directly shapes how we're going to approach Graham's transformation. Over the past 3 decades, I've built my career leading large-scale technology, cybersecurity and operational transformations in complex regulated environments. I served as a regional CIO at Marsh, where I led insurance agency acquisitions and integrations across multiple states, work that require disciplined execution, rapid standardization and the ability to bring newly acquired businesses onto common platforms without disrupting revenue. Following my work at Marsh, I transitioned to Vice President of IT at Bollinger Shipyards where I led a major ERP modernization effort and built the cybersecurity program capable of supporting Navy, Coast Guard and commercial shipbuilding operations. That included modernizing legacy OT environments, strengthening compliance and enabling throughput improvements in high-value manufacturing. I'm applying those same lessons at Graham, bringing experience from regulated industries, multisite operations and mission-critical manufacturing to accelerate our digital transformation, reduce operational risk and enable scalable growth.

For many years, Graham operated with reactive technology investments in a fragmented landscape of systems that [ constrain ] performance, what we've done over the past year is shifted digital and information systems from a constraint to a strategic enabler, improving throughput, strengthening cost controls and reducing operational risks in ways that directly support margin expansion.

Let me highlight 3 concrete examples. First, our ERP modernization effort across the manufacturing value chain. We're stabilizing production, planning, procurement, inventory and shop floor execution. This will materially reduce downtime, improve throughput and strengthen cost controls, directly supporting the margin and cycle time improvements you've heard throughout today.

Second, we're enabling cross-business unit collaboration through Office 365, by creating a real-time communication between engineering, operations, supply chain and quality. We're accelerating issue resolution and reducing cycle times. This is a foundational capability for multiplant, multi-market business operating with speed and precision.

Third is our progress towards CMMC compliance. It's not just a cybersecurity requirement, it's a competitive advantage. We are on track to be compliant by year-end, positioning Graham to win additional defense contracts in markets for trust, security and operational discipline or differentiators. These are just a few examples within a broader road map that also includes harmonizing our IT and OT systems, enabling cloud scalability for multi-plan operations and deploying AI, automation and analytics to improve operator efficiency and create unified production intelligence. These investments are laying the digital foundation for Graham's growth base, ensuring we are positioned to execute with pace, discipline and scale. As Chris will talk about in more detail, these initiatives are already reflected within our CapEx guidance, and we expect them to generate returns exceeding 20% ROI.

All right. And with that, we'll bring Rachel Jaakkola up here.

Hi, everyone. I'm Rachel Jaakkola again, chief Human Resource Officer at Graham Corporation. So the thing that I want to talk about is something that doesn't necessarily get a lot of airtime in these presentations and not the people and the employees that we have in our organization. So we talk about Graham's ability to deliver these really complex projects and programs, and we want to be doing it fast. But really, the honest thing is that, that doesn't happen without the people and our team is really our force multiplier. So I want to walk through some of the commitments that we have to our workforce and then show you how those commitments are translating into impactful outcomes for people. So our expertise really lies in the people and their judgment, their craftsmanship, their institutional knowledge and how they engineer those solutions to some of the most demanding specifications in the world. So we really do treat our workforce as a strategic asset.

One of the first things I want to touch on is shared success. So we do have an ESPP program, and we believe in that shared ownership with employees. So when Graham performs, we want employees to participate in that value creation. And we really feel that, that helps employees really believe in where the company is going and then also having kind of that skin in the game for that value creation for Graham. So 30% of our employees have chosen to invest their own dollars in Graham Corporation. So that really shows us that people really believe in what we're doing and that is higher than average. So this ESPP isn't just a benefit, but it's an alignment mechanism. So we really use this to have employees, think like owners and then they make decisions like owners. And then they're more deliberate about the quality. They're more invested in about efficiency, more attentive to the details. And then what separates a good quarter from a great quarter, employees are involved in that.

So second theme is then attracting top talent. So a signal that I personally pay close attention to is our employee referral program because to me, one of the strongest indicators of a healthy culture and being an employer of choice is the percentage of new employees who come to us through employee referrals. So a referral means that an existing employee is willing to put their own name on the line and they believe in a company that they work for and in this case, Graham Corporation. So they believe in our culture, our leadership, our opportunity and they're trying people to come work for us. So that's important to me and to the company. So you earn kind of this trust from employees by doing things right. We're developing them. We're listening to their feedback or making sure that they share in our success. Our referral rate is proof point that those investments are landing.

The other thing that I want to mention is engagement and continuous improvement. So something that connects our people strategy directly to our operational strategy is this employee-led continuous improvement. Our employees aren't just executing against a plan that someone else came up with and wrote. They're really identifying the problems, proposing the solutions and leading the improvements. So these people are raising their hands. They're bringing ideas and that culture of ownership and continuous improvement is competitive advantage for Graham Corporation. I'll close with this. So every commitment that we make on these financial slides really rests on the foundation of our workforce. The capacity that we're building, the quality we're delivering, the partnerships. We're growing the people is what makes those outcomes really possible. So we take that responsibility very seriously. We invest, listen, share value with them. And because of that, they choose us. And because of that, you can count on us to execute.

So thank you. And now I will pass it off to the person you've all been waiting for, Chris Thome.

What a great day, start off with the bell ringing. I can't believe 2 million people showed up for the Graham Investor Day. A little bit more than we expected, but a lot of great press. So thank you for those joining here in person for trudging through all the crowds and the crowded subways coming in from out of town and I pretty much met everyone here today in attendance. But for those of you that are on the webcast, my name is Chris Thome, I'm the Chief Financial Officer for Graham Corporation. And I would like to take the next few minutes just to walk you through how all the exciting opportunities you heard about today translate to our future financial performance.

From a financial perspective, there are a few key messages that I would like you to walk away with today. One, Graham has provided consistent performance over the last 4 years where we saw a steady improvement each year. And in short, we did what we said we were going to do. This improvement was driven by our get-better-everyday culture and steady reinvestment in projects with a greater than 20% ROIC. These projects along with an improved mix of higher-margin revenue, are expected to drive continued margin expansion for the next several years.

These initiatives, along with our $533 million, yes, $533 million of backlog give us confidence we'll be able to continue to drive 8% to 10% organic revenue growth over the next 3 years and additional adjusted EBITDA margin expansion to the 14% to 16% range by fiscal year 2029. And finally, as always, we will continue to follow our disciplined capital allocation philosophy that favors the highest return organic growth opportunities first and a disciplined strategic M&A strategy to accelerate profitable growth, but only for the right opportunities.

This slide illustrates the steady improvement I was just talking about. Over the past 4 years, we have transformed our financial performance, achieving 19% revenue compounded growth, 45% adjusted EBITDA compounded growth and 80% adjusted EPS annual growth. I should point out that nearly all of this was organic and puts us on track to hit the fiscal year 2027 targets we set 4 years ago. Again, we did what we said we were going to do.

Finally, with the improved financial performance came significant cash generation with nearly $90 million of cash flow from operations over the last 4 years. Note that fiscal year '26 cash flow was impacted by $4 million of transaction bonuses that were awarded by the former owners of FlackTek, but then were paid by Graham, but were a reduction of the cash purchase price paid.

So really, the $16 million of cash flow from operations for fiscal '26 was closer to $20 million. We took this strong cash generation and reinvested it back into our business. Approximately $50 million has been reinvested in Graham over the last 4 years with some of the projects that you've heard today, each with a greater than 20% ROIC and will enable our future growth and margin expansion.

One of the reasons for our improved performance is the relationship and trust we have developed with our customers, some of which you heard from today. Over the last several decades, we have established ourselves as a strategic supplier to our defense and commercial customers. Proof of this is in the growth of our backlog, which has increased at a 20% annualized compounded rate over the last 4 years.

This has come through winning both new content as well as growth in existing programs. Approximately 85% of our $533 million backlog is to the defense industry, which provides us tremendous visibility and stability. Approximately 35% to 40% of our backlog is expected to convert to revenue over the next year and another 20% to 25% in the following year.

This illustrates the long-term nature of our defense contracts and the visibility it brings to our business. Over the last 5 years, we have averaged a book-to-bill of 1.3x, illustrating the diversification, growth and momentum in our business and our markets. This has primarily been driven by an acceleration of our defense business, given all the geopolitical tensions as well as the confidence our customers have in our ability to execute.

Additionally, as of late, we've seen an acceleration in our space orders as programs begin to ramp as well as an increased activity in our new energy business such as SMRs and hydrogen that Will talked about earlier. During fiscal 2026, our space orders increased 76% over the prior year, while our new energy orders were up 185%.

Our annual goal is to achieve a book-to-bill ratio of 1.1x each year. This is in order to support our 8% to 10% organic revenue growth. With that said, our book-to-bill ratio can be very lumpy from quarter-to-quarter and year-to-year, ranging from 0.5x to 2.4x in any given quarter and reflects the long-term nature of our contracts, especially our defense contracts, which are larger in size and can span several years.

One other point I would like to make before leaving this slide is the diversification we have been able to achieve in our business over the last 5 years. As you can see from the pie charts, on the bottom of this slide, we are no longer a cyclical industrial company, subject to the ebbs and flows of the oil and gas market, but rather a stable, consistent, diversified industrial company.

Our long-term goal is to have a 50-50 split between defense and commercial in order to enjoy both the benefits of the stability that the defense business brings with it as well as the higher margins and growth rate of our commercial business. The heavier weight towards defense revenue as of late is primarily a result of our customers' desire to increase shipbuild schedules as well as the slowness we are seeing in the large capital projects in our Energy and Process business.

Over time, we expect this ratio to move closer to the 50-50 split, which will be assisted by the FlackTek acquisition, which had an 85% commercial portfolio. Our disciplined capital allocation strategy has not changed. First and foremost, we will always focus, number one, on organic growth, which is our lowest risk and highest return use of capital. We will maintain a disciplined approach and only pursue the opportunities with the highest return with a target of at least 20% ROIC.

Additionally, we will only invest in new buildings and equipment when we are confident that we will win the revenue to support the investment. With that said, we just announced that we are about to break ground on a new 30,000 square foot manufacturing facility on our Barber-Nichols campus in Arvada, Colorado on land that was purchased a few years ago.

This building will enable continued growth for years to come and has an over 20% ROIC associated with it. And is the main driver between the $18 million to $22 million of CapEx spend that we have guided to for fiscal year '27. The second priority with regards to capital allocation is debt repayment. With that said, I am pleased to report that as a result of the recent $50 million PIPE transaction completed in April, we are now debt-free as the proceeds from the transaction was used to repay the $13 million of debt outstanding at the end of March.

The excess proceeds from this transaction as well as the $80 million revolving credit facility we have in place provides us with over $100 million in liquidity and provides us significant flexibility to fund both our organic and our inorganic growth opportunities. As stated many times in the past, we intend to spend 7% to 10% of revenue on capital expenditures and we'll gradually begin to increase our R&D spend from the current 0.5% of revenue to the 1% to 2% of revenue level, but only with the proper returns and a large portion of which will be funded with the assistance of our customers, like Mike discussed earlier, the $29 million of supplier development funds that we've received to date.

And finally, our third priority with regards to capital allocation is M&A, which continues to be a part of our long-term strategic plan. This slide is one you've all seen many times before and outlines our M&A guidelines. The nice thing about having visibility to 8% to 10% organic revenue growth is that we don't need acquisitions to grow. We will continue to execute a disciplined acquisition strategy that pursues privately held companies that have deeply mooted technology that is differentiated and that have a high growth potential.

We do not intend to get into a bidding war that only raises the prices and are only looking for companies that fit the culture of Graham. Matt and Dan have done an amazing job mining these opportunities and the pipeline remains full. The Graham value proposition to private sellers is real, which oftentimes allows us to be an exclusive bidder and not overpay for a transaction, thus creating tremendous value for our shareholders.

And as this slide illustrates, we have been able to execute our M&A strategy effectively over the last 5 years with a strategic acquisition every 12 to 18 months and all of which meet the criteria that we have laid out. All our acquisitions were privately held, had strong cultures, strong product alignment and deeply mooted technology and all were purchased at a reasonable multiple, which reflects our disciplined approach. As I said before, M&A will continue to be a strategic priority for Graham.

This slide summarizes our guidance for fiscal '27, which we released 2 weeks ago. We expect revenue to be in the range of $285 million to $295 million, which represents an 18% increase at the midpoint and is supported by our record backlog, our strong demand environment and contributions from a full year of FlackTek as well as continued execution across our Defense, Space and Energy process businesses. We expect our gross margin to be between 24.5% to 25.5%, reflecting the benefits of our operational improvements, our automation, our productivity initiatives and the integration efforts and an improved mix versus fiscal 2026. SG&A expense is expected to be between 16.5% and 17.5% of revenue and includes the impact of approximately $2.5 million of incremental investments in people, technology and commercialization, which will run through the P&L.

This includes an increased level of R&D, costs incurred to pursue commercialization like Paul just walked through and Dan, as well as the many other projects that you've heard about today as well as to build out our leadership team, which is joining us here today in order to build our bench strength in order to support future organic and inorganic growth.

Based on these assumptions, we expect adjusted EBITDA to be between $35 million and $40 million, representing a 44%, representing 44% growth over fiscal 2026 at the midpoint and is in line with our long-term profitable objectives. I should point out that currently, FlackTek is a 10% adjusted EBITDA margin business, which is lower than the company average, but is expected to quickly improve to levels more in line with our business as revenue scales.

We remain very optimistic about this business. And now for the moment you've all been waiting for. Turning to our long-term guidance. It is more of the same. I hate to sound like a broken record, like Matt said. But when it's a good song, we just keep playing it, right? Based upon our significant backlog and our future outlook, we see organic revenue growth continuing at the 8% to 10% rate for the next several years and also expect our adjusted EBITDA margin to continue to expand to the 14% to 16% range by fiscal 2029.

This puts Graham at a $340 million to $350 million revenue company with approximately $50 million to $55 million of adjusted EBITDA by fiscal '29. This steady improvement is what we have come to expect from Graham with our ultimate goal to be a top quartile performer, which has adjusted EBITDA margins in the 17% to 18% range. This incremental margin improvement will be driven by higher volume, improved mix as we get closer to that 50-50 split and continued execution, leveraging the investments we've made over the last 4 years.

The executive team at Graham doesn't strive to be just average, and we will not stop getting better every day or be satisfied until we achieve this top quartile performance. In summary, Graham has provided consistent performance over the last 4 years, where we saw steady improvement each year. This was driven by our get better everyday culture.

The initiatives you have heard about today, along with our significant backlog gives us confidence we will be able to continue to drive 8% to 10% organic revenue growth over the next 3 years and adjusted EBITDA margin expansion to the 14% to 16% range by fiscal '29 with our sights set on top quartile performance after that.

We will continue to follow our disciplined capital allocation philosophy that favors the highest return organic growth opportunities first and disciplined M&A second in order to accelerate our growth. Thank you for your time today. And I'll now have Matt come back up to answer some of your questions.

All right. Let them roll.

Jed Dorsheimer from William Blair. I want to drill into backlog a little bit more. And in particular, I guess one of the challenges is having to say no to customers even when they are excited about the growth profile and in particular, hydrogen was one that kind of jumped out. So at GE, where I know you've spent a lot of time, Vernova's approach is to tend to take higher deposits and then milestone payments.

So are you following that approach in terms of the backlog to derisk where a customer may believe in the growth profile, but so you don't get stuck with stranded capacity exposed to a market that doesn't take off, even though the customer believed that it would.

Yes, it's a great question. We're taking the exact same strategy. I lived at GE. It was a great model there, and it's a model that I think FlackTek is starting to get used to this concept of get paid upfront.

So that business, we're even seeing the opportunity for down payments right upfront. With that, across the portfolio, we've been in a very unique position. The majority of the programs that we're winning on the defense side, they're actually providing as a bank the opportunity for the business to execute. And so working capital is really well leveraged and managed. With that, across the majority of our footprint, which is why we're constantly buying new property and building buildings is we have demand as we move forward.

So we're having to be highly selective of what opportunities we pursue. And I'll use Barber-Nichols as an example for that right now. We are ensuring that our customers are ready to sign on the dotted line and/or already have before we're making those investments, and we're using that as leverage with them, but also having them with transparency provide commitment back to us.

Examples, we're seeing space demand result in booking of orders. We're seeing potential expansion on the air turbine pump side, growing with spares and fleet support. And so across the entire corporation, the themes that I would give you is we're focused on early payment, contracts that we know are on strategic priorities within the end user base.

And then I'm not going to sort of miss this point. We still want to do things that are disruptive. And so we are taking some chances. And I say chances, they're strategically calculated, they're well planned, and we're making sure that the customer is ready to pay. And so if the risk portfolio on a new development for space is high risk, we're asking for more payment upfront. We're not putting any of our own capital typically in early. And so we're just changing how we start that relationship with the customer. And in some cases, we're actually asking them to overinvest in profitability.

Yes. The only thing I would add to that is that from the numbers we gave out and we've said many times, roughly 30% of our backlog isn't due until 2-plus years out, right? So it gives us time to get the long lead materials ordered, get them on our campus and planned in order to be able to execute those contracts. So we're not worried about the $533 million of backlog at all.

Russ Stanley from Beacon Securities. Just you talked a lot about being market agnostic and looking at FlackTek and the company has made or achieve penetration in end markets well beyond what Graham currently plays.

And I'm wondering how you're thinking about those opportunities, how you're thinking about nurturing them beyond -- given they represent a stretch beyond your current 3 segments?

Yes, it's a great question. Let's use FlackTek as that conversation. FlackTek comes to us, they're serving equipment to 5 SKUs essentially, 5 products to in today's 40 different end markets. What 40 end markets means is they have picked up the phone for 20 years and responded, which has not allowed them to focus in one given area, but it allows them to nurture their equipment to a broad community of end users.

So we're taking a strategy there that I would say is twofold. The first is you never stop picking up the phone. So we're going to continue picking up the phone with whoever we will call and we'll have that conversation. We're going to work on smaller type machines, smaller footprint machines in that business, getting to the point where the time to sell is not so long. So the touch point of the smaller type machines, let's make that more process efficient. The opportunities, though, then we're going to focus in on beachheads.

And what I mean by beachheads is I'm going to use [ Energet ] as an example or [ Energex ], how can we not, right? Battery chemistry, electrification, supercomputing, the thermal panels that go on the side of spacecraft, which I think you can sort of do the math as to what's happening there.

My point there being is we are going to focus in on beachheads where we know that there is differentiation and we know there is capital investment. And so when we get those beachheads, we're going to focus on a very specific outbound strategy where those people have already been hired. They work for that today, but recently, and we're going to go on the offensive. And so that's a very crisp return on investment. That's very crisp communication of how it will integrate into their factories and deliver results for them.

So Russ, I think you're going to see a theme of this. Dan actually hit it perfect. He did it at a much higher level. Commercial nuclear, controllers, and undersea, I'll just say, advanced propulsion systems are our 3 primary. I think you can get why. We're well positioned there, and they're all -- they're in the future. What I will say is FlackTek is just the fourth, right, but it happens to be a business unit.

And the thread that holds the Graham business together is the technology, right? We have highly engineered can't fail [indiscernible] technology that spans across many, many different markets. So we're not really focusing on a market, but rather the technology, which is the differentiator.

Yes. So -- and while you pass the microphone, our team of sales today is small. You look at Barber-Nichols, 250 employees, there are 7 sales folks. 7, Mike? 8, 5, okay. 5 to 7. Mike says 5, so it's 5%. At Graham, it's 2 handfuls.

The point there being is there's an opportunity to actually do this differently. And so we've been doing it that way. We will keep doing inbound sales, but we are going to go on the offensive with the commercialization strategy. The reason we've been talking CapEx to date. We've been talking about R&D at 0.5%, which, by the way, our customers actually invest a lot in us to do R&D that we end up owning.

But why I want to invest $2.5 million of P&L profitability back into the business is because if we don't grow this commercialization phase, we're just missing a huge opportunity. And that takes people and knowledge.

Bobby Brooks from Northland Capital Markets. A lot of exciting changes you guys -- changes occurring or planned that you guys -- in the business that you guys talked about today, like the outbound -- what you just were touching on like outbound sales process or the aftermarket piece and taking one solution for one customer and then applying it to multiple. It's really exciting stuff.

But what I was curious to hear and get a sense on, are those benefits from those changes baked into the long-term targets that you guys rolled out today? Or are those potentially as those play out, could those become rivers of upside to those targets?

So I would say the majority of that is baked in. Some of the projects you heard about today contributed about $10 million of revenue in fiscal '26, and we're expecting that to grow to north of $50 million by fiscal '29, but it doesn't include all of them.

Certainly, we just hired some of the people to come and have these take off, but we only included the ones where we felt fairly certain that we were going to get that revenue. So there potentially could be some upside there.

Yes. And let's say it like this, Paul is motivated to go sell motor controllers. My stance to him is like, here's your objective, go fast. So it comes down to how fast can Paul scale motor controllers, like yet to be proven, right? So we have 3 customers today. If it's 50, we're not going to stop there. So I think the reality is, is that we've taken a weighted approach to how we're factoring that in and we're putting the foot to the gas pedal.

For sure. And then you guys talked about the -- made the point today that the technology that you have is end market agnostic, right? I was just curious to hear maybe could you discuss what end markets you are in today where you could see yourself having a presence in the next 3 to 5 years?

So we've talked a lot about commercial nuclear, and I think we've missed a point. I'll talk about a few others as well. When we talk about commercial nuclear, I don't think, except for what Will mentioned, folks realize how real that is.

Graham has provided 150 solutions and has had an end stamp of that business before in actual hardware. And so that's an example where we're going to be using this capability. I mean we're talking fabrication, precision, all these sort of same capabilities and just moving into an industry that's really taking off. When we talk about FlackTek, the opportunities that we're seeing right now are endless.

And so we actually have to bound the opportunities. Examples, the thermal panels, like I mentioned, for an upper stage reentry vehicle, adherence. You then go into materials for roofing. Then you move to the next and you go to absolutely process-critical battery mixing for a company that you all would recognize driving the streets.

These applications are transformational in terms of the end markets. What's happened is you sort of stick to what you know best. And so aerospace and defense and then energy and process has been our core domain expertise. But we're seeing applications like for FlackTek and pharmacy and very custom mixtures of pharmaceuticals. We're seeing it in a lot of different places. With Barber-Nichols, cryogenics, I think it's untapped.

The reality is, is we used to talk about forced convection, which is basically air being blown across a thing to remove heat. Then we started talking about water. And where we're headed is we're going to be starting to talk more and more about cryogenics. And cryogenics, unlike air is hard. You don't just need a blower or a fan. You actually need a fluid plus a pump plus a really complex valving system.

And so I believe as things get smaller and more complex, we will see applications for cryogenics being used. An example of that. I like going kind of nerdy for a second.

So an example of that real life is when you think about ablation in medical, you have cryoablation that's used for both cancer treatment as well as for removing arrhythmia in the heart. Those 2 things actually use a cryogenic pump, and we're pursuing opportunities in that with the Scam pump down in Florida.

And so my point being is, I think we can talk about some vectors and some differentiation, but it could even be broader should we create the scale of what it could really look like. So I think we're going to limit ourselves in growth rather than the need for the technology. It's actually really cool to have our analysts actually in front of us asking questions and the dialogue.

Maybe just on the defense business and coming back to the slide, a staple in your deck around the opportunity on existing programs, I think $1.8 billion. Would you have a wet finger guess as to what that number would be, including your current capabilities if you won other content that you could currently support?

It's a great question, and it can get lost in today's day. The news that we shared is a big deal. What I mean by it being a big deal is we have content on Virginia, Columbia, Ford-class. You can sort of infer the criticality of the equipment that we've been providing, condensers, air turbine pumps, et cetera.

The air turbine pump that we're providing is on every asset. The condenser technology, we've referenced that it's not on every asset. With that, the content that we can provide insight to today is we're just touching the surface. We have to execute the product in front of us. So we're pretty confident in what's up there. We're also confident that it's a number north of what we presented. But what I'll say is we need to do it through execution. Today, we have 2 boats, which ends up being 4 condensers. And so we got to go execute. And so Russ, I'd love to give that forward-looking content. I think the reality is it's up to Will and his team to go make it happen.

And I think it's worth reiterating that, that $1.8 billion is at today's prices without any inflation or anything else taken into account. So that's at today's dollars.

This is Roger from Silvercrest. It seems like you guys could almost be spending more money because there's so much opportunity out in front of you to go get, especially if there's a lot of urgency from both the customer and you guys and suppliers to go capture what's right in front of you.

So I'm curious how you balance and kind of prioritize when I'm guessing you've got half a dozen or a dozen different things that could all be high-return projects. So maybe just walk through that process.

Yes. So first of all, I'm the gas. Chris is the break. I just want to remind you of that. And the Board is the parking break if we need one. So I think we have a really good dynamic between those 3 parties.

The reality is the business units I think that we will start losing our ability to deploy the capital successfully and disciplined to the plan that we have if we exceed that 10% number. What I also see happening is if there is something that has a greater than 20% ROIC, the answer is we're going to go do it. I think the challenge that we're inflecting into is it's not just going to be a CapEx conversation. You're starting to see the first instances where we put in the capital. We actually need to reinvest profitability through the P&L to start getting the people to go to the next level.

And so we're getting to the point where there's different terms for it. There's an article where they call them bridgers, there's X factors, but there's these folks like Paul and like the person that's going to lead aftermarket that become the folks that own or empowered to go take that to the next level. And so I don't believe that it's the playbook to go deploy capital. I don't think it's the ideas to go deploy. I literally think it is the capacity of the leadership team to go do.

And so that's why we have folks like we've added Keith in IT, gone super well since he's joined the team. Rachel, we're starting to stand up leadership development programs to both do internal and bring in external talent. So you're right. The answer is I don't actually like to drive fast, but the business.

I think the team knows that I want to go fast. So it's good to hear that feedback. I'm hearing sort of an encouragement to continue. I think there's confidence to go continue. Anything to add from you?

I'm just -- yes, I would just address that by saying that's why we've consciously decided to spend $2.5 million next year on adding to the bench strength in order to pursue those opportunities, quite frankly.

And we also thought it was a responsible number, right? My friends enduringly refer to me as the fund sponge, but sometimes it's a balanced approach, right? And I think we have a really good dynamic going on here, and it's a good problem to have, right? And we'll pursue it and not get over our skis.

Yes, Chris is actually walking home because the train was $3. So, no, I'm just kidding. Other questions? And I appreciate the engagement. I mean, for us, today is a huge day. I wanted everyone to get to experience the leadership team. This team is ready to go.

Every single one of us is committed. I think we're using the capital of the investors to the best capability that we have. Bobby?

I just wanted to ask on obviously, you have a great foothold with the U.S. Navy. Just wanted to maybe touch and you talked about expanding internationally and it's not an or, it's and, right? Could you maybe just double-click on expanding defense to non-U.S. Navy partners? Because it would seem like your solutions make sense for other folks. And maybe that ties into taking one solution for one customer and doing it to.

Let me decompose that just slightly. So the global strategy that we discussed today, we're already doing it today, but we're going to intend to take it to the next level. And so this idea of doubling down in areas that provide growth is really the focus.

The majority of that will be in the energy and process business. But someday, like you're seeing Korean shipbuilding is a talk, you're seeing other things. We want to ensure that we have fabrication capability globally. With that, if you then focus in on so the short summary of that is the globalization expansion strategy is most focused around energy and process. That's takeaway one.

Takeaway two, within defense, we are seeing opportunity to expand that footprint. So today, we mostly talk about the Navy. Mike actually went through several opportunities today that don't have to do with the Navy, some of them with the Army and other folks with radar platforms, directed energy, et cetera.

With that, as you then zoom into the defense, we are providing solutions today internationally. Air turbine pumps are actually being provided to our allies across the world, U.K., Australia, et cetera. Mark 48 torpedoes are shipped to foreign military. I can't get into the specifics of who and why and where. We're talking about AUKUS, which is an extension of the submarine building platform where they're actually talking about getting 2 in-service Virginia-class units. So I think we'll be a natural extension.

And what I will say is I also believe today we'll be a little bit reactive to that demand and be following our customers. So I don't want to sort of overextend. There's opportunity there. What we are seeing uniquely different, FlackTek, commercially available product, energetic focused. We're also seeing aerospace and defense focus, space focus. Well, it's an EAR99 product. And if its end use is disclosed within our capability, we can ship those assets wherever we want. Of course, we have to take it through the trades and ensure that it's compliant. But we're seeing a lot of global demand for that capability.

And then a question on FlackTek. I think it was mentioned that already saw a couple of near-term wins under the Graham umbrella since it joined.

I was just curious to hear maybe how were those wins accelerated being under your umbrella? And like if so, what were the drivers of them being underneath you seeing accelerated wins?

Yes. So I'm going to keep it pretty black and white. I'm just going to tell you all the specifics to just get it out there today. The first is we've hired the entire team. In the back, Ted Hollywood, he's going to be selling the mega. We hired a Global Sales Director that's Ted's right-hand person that's going to be ensuring that the team is executing with cadence and rhythm and ensuring that the rigor is there. We've hired an HR leader that was all outsourced so that we can actually recruit the folks that are going to build the brand with Matt. We've hired an outbound salesperson that is going to be taking the technology from a completely inbound to an outbound strategy.

He has experience, precision and knowledge of how to go do that. And so the first was we just had to build the team. The second thing and oh, by the way, that's not a win yet. That will be a win. The wins truthfully have come from twofold, just closing the deals that were in the pipeline, big opportunities I can't get into the exact specifics, but the ability to support the energetics portfolio and service, the ability to provide consumables and new machines for a launch asset that I've talked about a few times today.

These FlackTek, they might not be used on the rocket, but they're actually staged the entire way up the launch tower, and that's to be able to fill gaps on these sort of systems that are launching.

So I won't get into all the details, Bobby, but the short of it is, is a really capable team that's hungry to go do it that fits the culture of Graham. Two, I use this with Matt all the time. We've given him the business confidence to go do this. He's paid all of his vendors. He's got investment in critical activities to move forward in terms of people, processes and tools, and he secured some key opportunities that were in the pipeline for a while.

That's great to hear. And then kind of following up on that, I thought something that was interesting was that FlackTek started with the mega right is just rolling out, and that's more for production. And they've had a ton of customers right across 40 end markets that have used the smaller ones. So I was just curious of like, is that part of that outbound sales process of now reengaging those customers who might have been using FlackTek just on like a pilot small scale and then saying, "Hey, now we have this new one"?

Oh, yes. More of that. So we have what we're calling key account partners. And so key account partners are going into the folks that we established as sort of the, let's say, top 20. That's one. Two, the mega is a collaborative sale. You don't just pop this thing in a factory and hope it works.

Like you have to be integral to the process, you have to help them develop their process. You have to ensure it fits within their ecosystem to extract the value from that capability. And so what I would sort of have you as the takeaway is it's a pretty comprehensive approach to how we're looking at that. It's not a simple just go to play these assets.

And I want to keep saying it because once again, I'm as much reminding my team as telling the world, we are still going to be really good at what we do today. So small, medium and large, we sell a lot of them, and we're going to keep selling those as well.

But to your point, Bobby, it is a new technology. And what we have found is that, yes, someone will purchase a medium and they'll see how it works. And then they'll say, "Oh, this really does work. We refer to it as a FlackTek look. They don't necessarily believe it right out the gate, but then they'll buy a medium. And then now they're moving up upgrading to a large. And then the plan is to then, yes, get them to upgrade to a Meggitt someday.

And then I think maybe just for context, like those -- the mega ones aren't those like pretty pricey.

Well, in our boat, price is all relative, okay? So based on a return on investment, they're a seal. The reality is, yes, they go for a higher price that has improved margins.

But if you look from an ROI perspective, the reason why we're not talking price with these customers is because they're generating a tremendous amount of value. When you talk about the mega that's in Andrel's factory, it's running their entire [ Energetics ] factory. And I can't get into production, et cetera, type numbers, but you then just look at what it's enabling, the capital investment is not a huge deal.

For sure. It's a really exciting story.

So with that, thank you all for today. I know that it's been a hassle to get here. We're grateful for all of you being here. A lot of familiar faces for us. We're really, I would just say, energized and committed to the strategy. My #1 takeaway, you have 750 employees that own this company that are going to make the best extraction of this value over the next 3 years. So I appreciate you joining us today, and we'll get back to running the business. Thank you.

Good evening and welcome to Graham Corporation Fiscal 4Q '26 Earnings Call. [Operator Instructions].

It is now my pleasure to introduce your host, Tom Cook of Investor Relations. Thank you. You may begin.

Thank you, Shamali, and good morning, everyone. Welcome to Graham's Fiscal Fourth Quarter and Full Year 2026 Earnings Call. With me on the call today is Matt Malone, President and CEO, and Chris Thome, Chief Financial Officer.

This morning, we released our financial results. Our earnings release and accompanying presentation for 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 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 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 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 ROIC, orders, backlog, and book-to-bill ratio.

These are operational measures and a quantitative reconciliation of each is not required or provided. You can find a 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 Matt to begin. Matt.

Thank you, Tom, and good morning, everyone. We appreciate you joining us to review our fourth quarter and full fiscal 2026 results. The foundation is strong, momentum is building, and we are just getting started.

Fiscal 2026 was another year of strong execution and continued progress against the strategic objectives we have consistently communicated to investors. We delivered record annual revenue of $245 million, record orders of $359 million, and record backlog of $533 million and a book-to-bill of 1.5x. These results reflect the strength of our diversified business model and the long-term demand environment across our core markets with disciplined execution across our entire team.

We accomplished this while making substantial investments to strengthen Graham's long-term competitive moat. During the year, we advanced strategic growth initiatives across the company, expanded capacity and technical capabilities, implemented new automation and manufacturing technologies, enhanced our testing infrastructure, and completed the acquisitions of Xdot and FlackTek.

These investments, combined with our continued focus on talent, operational excellence, and scalable systems, further enable Graham to capture future growth opportunities and create enduring shareholder value.

Turning to our end markets and starting with Defense. Demand remains very strong as validated by the record backlog. Throughout fiscal 2026, we benefited from continued execution across key naval programs, growth in existing platforms, and contributions from new programs. The strategic investments we have made over the last several years are translating into tangible operating advantages.

Our newly opened Navy facility in Batavia is operational. Our automated welding systems have been commissioned and our vertically integrated X-ray capabilities are executing first inspections. These investments improve throughput, enhance quality, and position us to support increasing production requirements across critical Navy programs for many years to come.

The demand environment remains favorable. We continue to see strong activity across our core naval platforms, and we believe the long-term outlook remains supported by fleet modernization initiatives, submarine production requirements, and the strategic importance of these programs we support.

In addition to our naval defense programs, we are transitioning from development to production on several high-profile directed energy laser platforms, and radar programs, where we supply cooling pumps and motor controllers. Our modular, power-dense product offering enables our customers to optimize their system. Think more capability in a smaller footprint, enabling our customers complex mission critical systems to do more than ever before.

Importantly, many of these programs extend over multiple years, providing durable revenue visibility and helping drive our record backlog today.

Moving to Space. While revenue is consistent year over year, the underlying indicators within the space market continue to build momentum. Throughout fiscal 2026, we experienced significant growth in orders and backlog, reflecting strong customer demand and increasing activity across both commercial and government funded programs.

We continue to see customers transition from development and qualification phases to higher rate production. This trend supports demand for highly engineered turbomachinery, cryogenic systems, and precision components that Barber-Nichols provides.

To support this opportunity, we continued investing in our testing and manufacturing capabilities throughout the year. Our liquid nitrogen testing capability is operational, and our new cryogenic test facility in Florida is actively commissioning our internal product. These investments expand our ability to support customers as they scale production and strengthen Graham as a critical supplier across the growing space ecosystem.

The long-term fundamentals of this market remain attractive, and we believe our technology portfolio, engineering expertise, and customer relationships will drive future durable growth.

Turning to Energy and Process. We delivered a strong year despite continued uncertainty in this market and large capital project spending. Revenue increased 14% during fiscal 2026, supported by strong aftermarket activity, growth within new energy applications, and contributions from the recently acquired FlackTek. Customer demand remains healthy across our install base as aftermarket activities continues to demonstrate the value of Graham's mission-critical equipment and global service capabilities.

We also remain encouraged by the opportunities we see developing within new energy applications, including small modular nuclear reactors and cryogenic technologies. While customers remain cautious regarding large capital expenditures in global refining and petrochemical facilities, we believe our diversified exposure, growing install base, and increasing participation in emerging energy markets positions us well.

Turning now to FlackTek, which we acquired at the end of January. FlackTek establishes advanced mixing and materials processing as our third core platform alongside vacuum and heat transfer and turbomachinery. The business brings highly differentiated technology, a strong intellectual property portfolio, an attractive reoccurring revenue component, and exposure to several markets where we already have established customer relationships.

Strategically, FlackTek expands our ability to solve increasingly complex customer challenges and creates opportunities to provide more integrated solutions across Defense, Energy and Process, and Space. We are particularly excited about the long-term potential of the mega platform and the opportunity to commercialize advanced materials processing solution across the broader customer base.

Although we are still in the early integration process, significant progress has been made. The long-term commercialization strategy has been developed, teams are working well together, critical hires have been made, and customer engagement is strong.

Now more than ever, I remain excited about the future growth prospects of this business. We continue to believe FlackTek meets all the criteria we have outlined for strategic acquisitions and will create meaningful long-term value for shareholders.

Turning to operational excellence and investments, beginning on Slide 4. Over the last several years, we have made deliberate investments to improve our capabilities, increase capacity, enhance productivity, and product offerings to support our future growth. Many of those investments are now complete or entering their final phases of implementation.

Several examples. The Batavia Navy facility is occupied and flowing production. It's outfitted with automated welding systems, 3D inspection scanning, and high-power X-ray inspection capability to reduce cycle time. The Arvada assembly and overhaul facility and liquid nitrogen test facility are fully operational and actively shipping validated products to our end customers.

The Jupiter Cryogenic Facility is actively testing our cryogenic pump and motor controller that will be used for a critical lunar lander program. Lastly, the Batavia ERP implementation is nearing its final go-live milestones that will upgrade us from a legacy AS400 system.

Importantly, these investments, just to name a few, were made with a disciplined capital allocation framework and are expected to generate returns above our 20% ROIC hurdle rate. While these initiatives create some near-term pressure on profitability as we invest ahead of our growth, they will enable the business to achieve approved operating leverage and margin expansion over time.

Turning to orders, backlog and visibility. Fiscal 2026 represented another exceptional year from a bookings perspective. Orders reached a record $395 million (sic) [ $359 million ] resulting in a book-to-bill ratio of 1.5x.

Backlog increased 29% year-over-year to a record $533 million. This backlog reflects continued strength across both defense and space and provides substantial visibility into future revenue generation. Approximately 35% to 40% of backlog is expected to convert to revenue over the next 12 months, with the remainder extending over multiple years.

Importantly, the quality of our backlog remains strong. Many of our programs are long-cycle, mission-critical applications that support essential customer priorities and provide durable demand visibility. Combined with our active pipeline, continued momentum in our end markets and active customer engagement, we are well positioned for continued growth.

Finally, turning to fiscal 2027 and as Chris will cover in more detail shortly. Our guidance reflects another year of meaningful growth, with revenue expected to be between $285 million and $295 million and adjusted EBITDA expected to be between $35 million and $40 million, both in line with our long-term goals.

The outlook is supported by our record backlog, continued strength across defense, increasing space and new energy activity, contributions from FlackTek and the benefits of operational and capacity investments made over the last several years. We also expect profitability to improve as volume increases. Recent investments begin to contribute more fully, integration activities mature and operational initiatives continue to drive productivity improvements throughout the organization.

As we have discussed previously, our strategy remains straightforward. We will continue to invest in differentiated technologies, strengthen our operational capabilities, pursue disciplined organic and inorganic growth opportunities and maintain a relentless focus on execution as we get better every day. The foundation we have built over the last several years continues to strengthen. Our end markets remain attractive. Our backlog is at record levels. Our capabilities continue to expand, and our teams remain focused on creating long-term value for customers and shareholders.

With that, I'll turn the call over to Chris for a detailed review of our financial results. Chris?

Thanks, Matt, and good morning, everyone. Turning to our fourth quarter and full year results, starting on Slide 6. Fiscal 2026 was a record year for Graham as we delivered record revenue, record orders and record backlog, all while continuing to invest in capacity expansion, operational excellence, advanced manufacturing capabilities and many other strategic initiatives designed to support long-term profitable growth.

Starting with the fourth quarter, revenue increased 13% to a record $67.1 million. The growth was driven by continued strength in our defense market, building momentum across our space and new energy programs and contributions from the recently acquired FlackTek business.

Defense revenue benefited from strong execution, capability and capacity expansion and continued demand across key naval defense programs.

Space revenue increased 14% year-over-year as existing programs begin to ramp.

Within Energy and Process, revenue was consistent with the prior year period as strong aftermarket demand, continued activity in new energy applications, including small modular reactor opportunities and the recent acquisition of FlackTek, which contributed $2.8 million to sales during the quarter, helped offset continued softness in large capital project spending in global refining and petrochemical facilities.

For the full fiscal year, revenue increased 17% to a record $245 million. This increase was driven by 21% growth in Defense, which benefited from new program wins, capacity and capabilities expansion, growth on existing programs and a higher level of material receipts.

Energy and Process revenue increased 14% year-over-year, supported by strong aftermarket activity, new energy applications and the contributions from FlackTek.

Turning to Slide 7. Fourth quarter gross profit was $15.3 million, representing a gross margin of 22.7% compared with 27% in the prior year period. The year-over-year decline primarily reflects our change in sales mix, including a higher proportion of defense revenue that carries greater material content and lower margin characteristics as well as lower aftermarket sales compared with the prior year.

Additionally, FlackTek results for the quarter were burdened by purchase accounting amortization, which is expected to be lower going forward and the margin is expected to improve as volume increases. These factors were partially offset by continued improvements in operational execution and productivity initiatives.

For the full year, gross profit increased 9% to $57.8 million. Gross margin was 23.5% compared with 25.2% in fiscal 2025. While higher production volumes, pricing discipline and operational efficiencies continue to support profitability, margins were impacted by the higher mix of defense revenue and material receipts, incremental tariff impacts and the absence of the BlueForge Alliance welder training grant benefit that positively impacted fiscal 2025 results.

Moving to Slide 8. Selling, general and administrative expenses increased during the quarter and year-to-date periods, primarily due to acquisition and integration activities, incremental costs associated with FlackTek and continued investments in our people, processes, technologies and other strategic initiatives that will drive future growth.

Net income for the fourth quarter was $2 million or $0.18 per diluted share compared with $4.4 million or $0.40 per diluted share in the prior year period. Adjusted net income for the quarter was $3.7 million or $0.33 per diluted share, compared with $4.8 million or $0.43 per diluted share in the prior year.

For the full year, net income increased to $12.5 million or $1.12 per diluted share compared with $12.2 million or $1.11 per diluted share in fiscal 2025. Adjusted net income increased 14% to $15.6 million or $1.40 per diluted share, compared with $1.24 per diluted share last year.

Adjusted EBITDA for the fourth quarter was $6.8 million, representing a margin of 10.2% compared with $7.7 million and a margin of 12.9% in the prior year period. For the full year, adjusted EBITDA increased 16% to $26 million and was in line with our previously raised guidance for fiscal 2026.

Adjusted EBITDA margin was 10.6%, consistent with the prior year despite the mix-related pressures I discussed earlier and the investments we continue to make to support future growth. Overall, we believe these results demonstrate the resiliency of our business model and the effectiveness of our long-term strategy. We continue to successfully balance growth investments with profitability while positioning the company to capitalize on future opportunities.

Turning to Slide 9. Orders remained strong throughout the year and further reinforce the favorable demand environment across our core markets. Fourth quarter orders were $78.7 million, resulting in a book-to-bill ratio of 1.2x.

For the full fiscal year, orders reached a record $359 million, representing a book-to-bill ratio of 1.5x. These results reflect continued strength in defense and building momentum in space and new energy. As a result, backlog increased to a record $533 million at year-end, up 29% from the prior year. We expect approximately 35% to 40% of backlog to convert into revenue over the next 12 months, providing substantial visibility into our fiscal 2027 revenue and supporting our confidence in the outlook we are providing today.

Turning to Slide 10. Our balance sheet remains strong and provides the flexibility to continue executing our strategic priorities. Cash provided by operating activities during fiscal 2026 was $15.9 million and reflected strong earnings generation, partially offset by higher working capital balances associated with growth and program execution.

Additionally, fourth quarter fiscal 2026 cash flow from operations was negatively impacted by approximately $4 million of transaction bonuses assumed in the FlackTek acquisition that were awarded by the previous owners of FlackTek, but paid by the company and was a reduction to the cash purchase price at the time of close.

During the year, we continued to deploy capital towards strategic growth initiatives. Net capital expenditures totaled $15.8 million for fiscal 2026 and we were focused on capacity expansion, productivity improvements, automation, advanced manufacturing technologies and infrastructure investments designed to support future growth and margin expansion.

Additionally, $27 million of cash was deployed in connection with the Xdot and FlackTek acquisitions, which was funded by cash flow from operations and capacity under our $80 million revolving credit facility. Subsequent to year-end, we further strengthened our balance sheet through a $50 million strategic investment from accounts advised by T. Rowe Price and was based upon the 20-day average closing price of the company's stock on April 13, 2026.

We utilized approximately $13 million of the proceeds to repay our outstanding debt and expect to use the remaining proceeds to support future organic and inorganic growth initiatives. Combined with our revolving credit facility, we currently have over $100 million of available liquidity, providing significant flexibility to execute our strategic organic and inorganic growth plans.

Turning to our guidance on Slide 11. We expect revenue to be in the range of $285 million to $295 million for fiscal 2027, representing 18% growth at the midpoint and is supported by a record backlog, the strong demand environment and having a full year of $50 million strategic investment from accounts advised by FlackTek as well as continued execution across our businesses. We expect gross margin to be between 24.5% and 25.5%, reflecting the benefits of higher volume, operational and productivity initiatives and an improved mix versus fiscal 2026.

SG&A expense is expected to be between 16.5% and 17.5% of sales and includes the impact of approximately $2.5 million of incremental investments in people, technology and commercialization initiatives to enable our future growth. Additionally, embedded within our outlook are approximately $4 million to $5 million of equity-based compensation, acquisition and integration costs and ERP conversion costs included in SG&A as well as a higher level of SG&A as a result of the FlackTek acquisition. which is currently a 10% adjusted EBITDA margin business, but is expected to quickly improve to levels more in line with our businesses -- in line with our other businesses as revenue scales.

Based on these assumptions, we expect adjusted EBITDA to be between $35 million and $40 million, representing 44% growth over fiscal 2026 at the midpoint and is in line with our long-term profitability objectives. We also expect our effective tax rate to be between 18% and 20% and capital expenditures to be between $18 million and $22 million as we continue investing in strategic organic growth initiatives, operational capabilities and productivity-enhancing projects, including the construction of a new 30,000 square foot manufacturing facility on our Arvada, Colorado campus. Finally, we will provide an update to our long-term guidance at our upcoming Analyst and Investor Day on June 18.

Overall, we are pleased with our results and consistent performance. We are entering fiscal 2027 from a position of strength with record backlog, strong demand across our end markets, disciplined execution and a strong balance sheet, all of which provide us with confidence in our ability to deliver another year of profitable growth while continuing to invest in our long-term opportunities ahead of us.

With that, we are now ready for questions.

[Operator Instructions]. Our first question comes from the line of Russell Stanley with Beacon Securities.

My first is around orders, $79 million in the quarter. Congrats on that. I think it's your fifth straight quarter with orders better than $70 million. There seems to be less quarter-to-quarter volatility here than we saw in prior years. So I'm understanding we should still expect to see some variability going forward. But do you sense you're now into a new normal in terms of the steadiness of order flow?

Yes, Russ, I would still say that our business as a whole is susceptible to volatility and lumpiness with regards to orders. As you know, the contracts received could be anywhere from $75 million to $100 million. So although we wish we could book orders like that every quarter, it doesn't always necessarily happen.

But to your point, given the diversification of our businesses across the many markets, it is becoming more stabilized as we diversify our business. But no, I would still expect some lumpiness. And 2026 -- fiscal 2026 was a record year for us, but there still can be some lumpiness in the future.

I understood on the revenue mix. I guess following up on that, really strong order growth in both Defense and Space. And in the past, you've talked about where your ideal revenue mix would be, but I'm wondering if you might -- how you're thinking about your ideal revenue mix given the momentum, particularly in Space and Defense, might be able access guardrails or those -- that target mix and let those 2 segments, in particular, run as hard as they will over the next few years?

Yes, Russ, I appreciate that question. I think you hit it perfect right at the end. We do love the split between defense and commercial. And the reason being is they augment each other when one is up, the other one can be slightly sluggish. In this particular case, like discussed over time, our technology and core competencies are market agnostic. And so you hit it perfect.

What we're intending to do is follow the tail markets -- follow the tailwinds of the end markets and ensure that our capabilities and technology align to them. And then yes, we will shift that percentage mix as we move forward. So right now, we're seeing that in the Defense side as well as Space. And with the orders booked on the Space side, we do see that revenue ramping over the next years. And so -- but I don't want to lose sight of something really important.

Aftermarket on the Energy and Process side, we're going to continue to invest in. We've got the small modular nuclear footprint, which is in the early phases of development. And then we've got quite a bit of activity in just commercial nuclear more broadly that's coming online. And so we don't want to lose sight of that because it will have its time to really shine in Graham's future. So it's a balanced portfolio that has market-agnostic technology and competencies. But yes, we will follow the tailwinds of the end markets.

Got it. Maybe one more question for me, and I'll hop back in the queue, just around FlackTek. I guess what are the major milestones left in terms of integration before you would call it substantially complete? And I guess following up on that, until then, should we think about your acquisition activity perhaps being fairly limited until you complete FlackTek? Or are you still out there hunting, so to speak?

Yes. So first and foremost, FlackTek, it's going quite well. The strategic plan, we were -- that we closed the acquisition just in time to get a strategic plan laid and get it built into our budget for this year. With that, we made commitments to grow key areas within that business. And specifically, our primary focus is commercialization of that technology through market adoption. We're seeing that pay dividends even early on.

So Russ, I think at this point, integration is going exactly per plan, if not accelerated, and we just need to let it play out. So the corporate team continues to still support FlackTek, but I can feel it minimizing as we move forward. We've got a great leader there. We've got a great team there. And our focus right now is commercialization of the technology that they have in the portfolio.

The second question specific to M&A, the strategic placement of capital by T. Rowe, our continued revolver, we do have a healthy portfolio of businesses that we're looking at for our acquisition portfolio. And what I'll say is, while we need to make sure that we finish solid integration of the current businesses, that doesn't preclude us from continuing to ensure that we follow: one, a disciplined approach; two, a selective approach. And as always, because our organic pipeline is so strong, we want to make sure that it's accretive to the business.

Our next question comes from the line of Bobby Brooks with Northland Capital Markets.

You mentioned new program wins within Defense, and I was just curious to hear more on that. And if you could share what programs those were or just maybe some more context around that? And separately, could you discuss what drove those new program wins? Is it just the Navy suppliers being more comfortable with you, your expanded capabilities, tech or maybe a bit of all 3. Just curious to hear more there.

Yes, Bobby. Thanks for the question. They're not necessarily new programs. I want to characterize it slightly differently. These are programs that have been in development phase for a number of years with what I'll call smaller platforms. So think more power dense solutions.

And so one I can talk high level about is a radar platform that goes from single direction radar visibility to now 360 degrees on the battlefield. And that particular asset has to be able to do more cooling in actually a smaller package to accommodate that additional capability. And that's really where the Graham portfolio comes into play is for these very high-power, high-density applications, we have the ability to design end product solutions that come from our commercial pedigree that allow for improved system value. And so think more in a smaller package.

And so with that, these have been -- these programs have been under development for a number of years, and they're finally moving into the production lens. And so yes, we're seeing additional production volumes as a result of those programs. And just to expand one last topic. So these are on critical radar platforms as well as directed-energy laser platforms.

And the other one, Bobby, that just to add on to what Matt said that we've publicly disclosed last year was that we were awarded the air turbine pump for the Columbia class submarine, which was a competitively bid award that we did win, and that was new.

Got it. Very helpful there. Something I've been also really excited about just throughout this year is the testing facility that you stood up during your fiscal '26. So I wanted to hear, have those already led to new -- have those already led to you getting in conversations with new customers?

And then secondly, are they -- it seems like some of them, the cryogenic one is that you're doing internal testing. Just hoping for more sense on that.

Yes. So the first is I want to touch on the facilities at Barber-Nichols. Specifically, we right now have rig testing as well as the liquid nitrogen testing, where we are actively testing and shipping production programs.

And Bobby, why that's so important is now we can validate these designs that are quite complex for our customer. And instead of having them do the validation testing for us, we can do it for them and provide a fully ready for integration into their final asset product, and we are seeing great value from that.

The second that you mentioned, and I think the core of your question is around the cryogenic facility down in Jupiter. Great news with that facility. It's up and running. Number one, most important is safety. We have liquid oxygen and liquid hydrogen on that facility. So we needed to ensure that we followed all those safety protocols. We have successfully flowed both fluids through the test facility. And right now, we are actively integrating our internal pump, which is called SCAMP, and that is being used for a lunar lander program. We are now testing that in parallel with our customer testing on their final integrated engine solution.

And so Bobby, what we're seeing there is, yes, a mix of exciting pipeline conversations and proving our existing product portfolio. Just to characterize that more broadly, though, the primary reason for investing in that facility was to validate our internal solutions before they go to our customer, but we will use it as a service facility for our customers for programs that we see viable production opportunity longer term.

That's super helpful color. And then last one for me is space orders up this year, very impressive, 132% year-over-year. Just wanted to get some more context around that. Was it driven by new customer wins, current customers -- you have talked about customers expanding from more pilots to production phases. So maybe that's part of it, maybe some wallet share expansion mixed in there? Or maybe I'm just completely off base. So just wanted to hear a little bit more discussion on that order strength in space and maybe your outlook for it in '27.

Yes. Space is strong, and we've been alluding to that. What we're seeing is a few things. It is both new customers as well as existing. I want to focus in on new for a second. When we go with new customers, we are pretty selective on what end users we're providing equipment to. And the reason why is we want to make sure we take a disciplined approach to where we invest our resources.

With that, we're seeing strong demand, multiple launch providers, you can see scaling. Launch cadence is increasing across a number of large platform launch providers. All of this is transitioning to then getting to a healthy cadence of launch. And so we're seeing in Florida, in Texas, a whole bunch of different providers. There's a pretty limited number, I shouldn't say a whole bunch, but we have critical equipment on both of those -- on a lot of those assets.

And now the conversation, Bobby, is moving to what do we do in Space. And so we're seeing our backlog grow from 2 vectors. The first is launch and getting to a reliable cadence where we have either A asset or critical assets on several different providers. The second is now we have the ability to launch additional satellites astronaut backpacks, lunar landers, et cetera, et cetera, and we have content a lot of those end assets. So really, it's an ecosystem that's coming to life. It's not just a single end user or end application, if that makes sense.

The only other thing I would add to that is just to remind everybody that FlackTek did come with a 10% space business. So that will be driving space growth in fiscal '27 as well as our FlackTek business.

Congrats on a record breaking year. Very impressive.

Our next question comes from the line of Christopher Glynn with Oppenheimer & Company.

I had a question about the subs and carriers progression. What's been a more meaningful growth driver in the recent past and prospectively, when you look at build rates on the one hand, how those are moving versus new work and content scopes?

Yes. So great question. We continue to hear -- read about, I would say, headwinds on the final integration production side for naval nuclear and more specifically submarines. The government and specifically the Navy continues to claim that we will catch up to build rates.

With that being said, we are not seeing any impact on our robust pipeline converting. And so in most cases, the condenser that goes on board, the submarine or the aircraft carrier that we provide or the air turbine pump, a lot of these are some of the earliest assets that get integrated. And so as soon as the electric boats and Newport News get their contract awards, typically, it's slowing down to us.

With that, we continue to see opportunity as FlackTek comes on board and Barber-Nichols, on this munition replacement area, so torpedoes, as we look at energetics for missiles, a lot of these end uses stimulate those 2 businesses. So we're seeing the tailwinds on the long-cycle strategic programs like the submarines and carriers, but we're also now starting to have a portfolio element where more of the faster-moving munitions replenishment is part of Graham. And so it's no one simple answer or one simple commentary, but that's the general architecture.

Okay. And then I just wanted to check in on the -- some of the new products you talked about lately in terms of the aftermarket development. It sounds like you've got a constructive view on aftermarket resuming good growth in 27. But I think Heliflow, Heat Exchanger and the NextGen Nozzle Steam Ejectors were a couple of your highlight initiatives. So I just want to check in on those.

Yes. So aftermarket, we have a $1 billion installed base, and so never want to lose sight of ensuring that our customers are well supported, both with replenishment upgrades and as well as new capital.

Heliflow, NextGen continue to nurture into the ecosystem quite well. We're seeing a lot of opportunity as we start to talk about NextGen with our customers, both selling NextGen and then stimulating additional in-kind replacements, we're seeing that be a great conversation starter. So this modernization approach is working in that sense.

The other is I've continued over the years to have the conversation around moving from a reactive aftermarket, which what I mean by reactive is our customer today calls us, we are in this next year, and we'll talk about it more at the Investor Day, moving to what is a proactive aftermarket. Will we go on the offensive. We know where all of our installed base is, et cetera, et cetera. And once we get those established relationships, which we already have, we'll look to bring modernized equipment to that environment. And Heliflow, NextGen and other technology that we're working in R&D will be a part of that.

Great. And a bookkeeping one for Chris. Curious what we should be thinking about for D&A for fiscal '27 and the amortization component alone?

Yes. So -- no problem, Chris. As you saw, there was a higher level of amortization in the current quarter, and that's really because of the amortization in connection with the FlackTek acquisition. So that was in there for 2 months out of the year. So I would expect Q1 to be a little bit higher in amortization because of that, and then you can kind of annualize it from there.

Okay. So that doesn't get confused by the onetime inventory step-up at all, what the explanation you just gave?

Yes, there was a little bit of onetime. So those will probably offset each other a little bit. So you could just probably take the current quarter and annualize that and look to what it will be for next year.

Our next question comes from the line of Joe Gomes with NOBLE Capital.

Congrats on the quarter. So in the quarter, it was very strong. Was there anything there that didn't perform up to your expectations?

No. Joe, I continue to use the same conversation with our entire employee base and investor base. Right now, we're executing 250 drives down the middle of the fairway. And so we're not overextending at this point because we need to make sure that we have a healthy foundation that we can build off of as we move forward.

We did have a little bit additional material, as though Chris mentioned in his commentary, specifically around the Defense side that comes with slightly lower margin. And once again, I just want to characterize what that means. That material, we haven't done any work to it. So it's coming in essentially as raw material. And so the margins start to pick up as a result of us putting labor into that material.

So we can't control exactly what week it comes in. But Joe, I would say the only thing is specifically on the material side on the defense platform.

And then lastly, the only other commentary I could give is -- on the Energy and Process side, I'd specifically focus in on refining and petrochem on the process markets, some continued headwinds specifically on decision-making with the geopolitical tensions in the Middle East that we're all following closely as well as Russia, Ukraine. It's -- we know that we -- the world is in need and has demand, but just making commitments to build these new factories is -- remains somewhat in paralysis, but not unexpected for us.

Right, right. And when you talk about the material receipts, I know in the third quarter, you talked -- you thought it would be more in line, the more normalized, let's call it, rate for the fourth quarter, you're saying it was a little bit higher than initially anticipated. Just to clarify.

Yes, you could see -- and Chris, you can add commentary if you'd like, but high end of guidance or just over the high end on revenue. And so just I would say, slightly more favorable on revenue. And then not material in that sense.

Yes. And also to keep in mind, the fourth quarter of last year was the highest quarter gross margin percentage in the last 2 years, mainly because of the mix. As we stated in our commentary, the current quarter had a higher mix of lower-margin defense and a lower mix of aftermarket, which impacted the margins as well.

Okay. And then, Matt, just big picture here. I mean everything is going well, putting up some great numbers here. What keeps you up at night looking forward as to your biggest concerns?

Reaching our potential truthfully. We have laid the strategic framework and all the initiatives that we put in place. It's just not reaching the potential that we can. And I get excited about that because it's an opportunity. We've got the right leaders in place across all of the business units and the corporate team.

So it's really execution and just staying very focused on today while not losing the DNA and the fabric that's made us who we are. And that is continually improving in every area, people, tools, processes every day, and it comes down to every employee partaking. But truthfully, there's no one thing. It comes down to just waking up every day and every employee doing the best that they can to serve our customers.

Our next question comes from the line of Tate Sullivan with Maxim Group.

Thanks for your comments on investing for the growth and understand the meaningful opportunities in multiple parts of the industrial markets just -- and you gave the CapEx guidance for this coming fiscal year, but can you just touch on your cash flow -- free cash flow expectations? I mean with customer deposits decreasing quarter-to-quarter in the last quarter, can you comment on sort of should we forecast a little temporary cash outflow for fiscal year '27?

Yes, Tate, I can take that one. As you know, similar to the rest of our business, our cash flows can be very lumpy. The defense contracts that we have are very cash positive, but adds lumpiness to our cash flow. So it's really tough to talk about in terms of cash flow. We like to talk about it in terms of our EBITDA to get a better idea of a run rate.

The other thing, as I pointed out in my commentary today is that we did have $4 million of payments related to the FlackTek acquisition in the fourth quarter, which brought down our cash flow. So you're correct, we did guide $18 million to $22 million, which is 7% of revenue, which is right in line with our long-term guidance for capital spend, and we continue to expect that level of expenditure here. But I would look to our EBITDA for purposes of cash generation.

And then just following up on customer deposits going forward after the acquisitions, is most of that line item related to the U.S. Navy work still.

Correct. And that's what becomes very lumpy because someone -- a customer can literally place an order for $50 million of material receipts. As soon as we order that material, we get to invoice the customer for it. But then that material doesn't come in for another 9 to 12 months later. And then when it comes in, we have to pay for it. So that's what I'm referring to. And that's a good example of the lumpiness in our cash flows and why we don't typically guide to cash flow.

And we have reached the end of the question-and-answer session. And I would like to turn the floor back over to CEO, Matthew Malone, for closing remarks.

Thank you, Shamali. As you can see, fiscal 2026 was another year of strong execution and continued progress against the strategic objectives we have consistently communicated to investors. We see continued momentum into fiscal year 2027 and look forward to providing you with a more in-depth look into our businesses, our management team and strategic opportunities at our upcoming Analyst and Investor Day on June 18 in New York City. As always, please reach out with any questions. Thank you, everyone, for joining us today and your interest in Graham.

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

Greetings, and welcome to the Graham Corporation Third Quarter Fiscal Year 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is recorded. It is now my pleasure to introduce your host, Tom Cook, Investor Relations. Thank you, sir. You may begin.

Thank you, and good morning, everyone. Welcome to Graham's Fiscal Third Quarter 2026 Earnings Call. With me on the call today are Matt Malone, President and CEO; and Chris Film, Chief Financial 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.gramcorp.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 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 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 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 ROIC, orders, backlog and book-to-bill ratio.

These are operational measures and a quantitative reconciliation of each is not required or provided. You can find a disclaimer regarding our use of KPIs at the back of today's presentation. So with that, if you please advance to Slide 3, I'll turn the call over to Matt to begin. Matt?

Thank you, Tom, and good morning, everyone. We appreciate you joining us to review our third quarter fiscal 2026 results. We delivered another strong quarter, continuing to execute our strategy and demonstrate the resiliency and diversification of our business. Revenue increased 21% to $56.7 million, driven by solid performance across our end markets. Results were supported by the timing of key project milestones particularly within our defense business, along with contributions from our new programs and continued growth across existing platforms. Adjusted EBITDA increased 50% to $6 million with adjusted EBITDA margin of 10.7%.

The year-over-year improvement in profitability reflects disciplined execution, ongoing productivity initiatives and the scalability of our operating model as volumes continue to grow. Bookings remained strong during the quarter, resulting in a book-to-bill ratio of 1.3x and and driving backlog to a record 15 -- $515.6 million, up 34% year-over-year. Our backlog continues to provide excellent visibility with approximately 35% to 40% expected to convert to revenue over the next 12 months. Finally, during the quarter, we completed the technology purchase of [indiscernible] top bearing Technologies, an engineering-led firm with patented foil bearing technology and deep expertise in high-speed rotating machinery.

This acquisition strengthens our competitive position in an area where performance, reliability and efficiency are becoming increasingly critical across aerospace, defense, energy transition and industrial applications top's proprietary foil bearing designs deliver superior performance while reducing development and production costs. And when combined with Barber-Nichols turbomachinery capabilities, significantly expand our ability to engineer and deliver advanced high-speed pumps compressors and rotating machines. The integration of [indiscernible] into Barber-Nichols is going very well, and we are already leveraging their technology to win future opportunities.

Turning now to our recent acquisition of FlackTek on Slide 4. In late January, we completed the acquisition of FlackTek, a pioneer in advancing advanced mixing and materials processing solutions for a purchase price of $35 million, comprised of 85% cash and 15% equity Additionally, there is an opportunity for additional performance-based earnout of up to $25 million over the next 4 years. The transaction was structured to align incentives generate attractive returns and preserve balance sheet flexibility, while bringing a while bringing into Graham a highly differentiated and scalable engineered products business.

FlackTek adds leverage adds advanced materials and processing as a third core technology platform for Graham, alongside our existing strengths in vacuum, heat transfer and high-speed turbo machinery, the company is a recognized leader in high-performance bladeless centrifugal mixing, serving mission-critical applications across defense, space, energy and process and a broad range of advanced industrial markets. With approximately $30 million of annual revenue and more than 2,500 units installed globally and a deep portfolio of proprietary intellectual property FlackTek brings both scale and durability to our portfolio.

Additionally, FlackTek will bring our overall revenue mix closer to our long-term goal of 50% defense and 50% commercial as approximately 60% of their sales are in the energy and process market, 15% to defense and 10% to the space market. A key element of FlackTek's value proposition is its large and growing installed base. which drives predictable reoccurring demand for consumables, accessories and services. This creates enhanced revenue visibility, strong customer retention and attractive lifetime value economics while complementing Graham's existing engineered to order and project-based businesses.

Within the FlackTek portfolio, the MEGA product line stands out as a category-defining platform with the potential to meaningful meaningfully expand Graham's addressable market. Mega is the world's only production scale bladeless dual asymmetric centrifugal mixer capable of processing multi-hundred kilogram batches and in a 55-gallon drum format. It delivers a step change in manufacturing throughput, enabling customers to reduce mixing cycles from hours to minutes while maintaining exceptional precision, repeatability and quality consistency at scale.

The MEGA platform has been production validated mission-critical safety-sensitive applications and offers compelling customer economics through faster cycle times smaller footprints, improved capacity utilization and lower unit costs. Demand for this large-scale mixing platform is strong with multiple use cases across the value chain and significant expansion opportunities within FlackTek's existing customer base. Strategically, this acquisition significantly enhances Graham's ability to solve increasingly complex customer challenges that require integrated solutions across multiple disciplines.

FlackTek's technology fits naturally alongside Barbara-Nichols Turbomachinery and Graham manufacturing's vacuum and heat transfer systems, allowing us a more comprehensive, differentiated engineering solutions platform. Together, these capabilities span the full value chain from formulation and upstream processing through downstream production and quality control where precision, repeatability and performance are critical.

Most importantly, FlackTek aligns with our defined M&A criteria that we have outlined for a few years now. That is a moated engineered product portfolio, process critical applications a predominantly domestic customer base, strong leadership continuity and clear opportunities for long-term organic growth and margin expansion. We believe this acquisition meaningfully strengths Graham's competitive positioning, enhances the durability and visibility of our revenue base and support sustained value creation for shareholders long term. We are really excited to have the entire FlackTek team as part of Graham.

Turning to organic investments on Slide 8. We continue to make disciplined high-return investments across the business that are now translating into tangible operating capabilities for future growth. Importantly, many of the strategic expansion projects we have discussed over the past several quarters are now completed or entering the final stages of commissioning, positioning as well as demand across our end markets remain strong.

Starting with defense. We completed our new Navy manufacturing facility in Batavia, New York during the second quarter of fiscal 2026. This $17.6 million expansion supported by a $13.5 million customer grant significantly expands our capacity and capabilities to support critical U.S. Navy programs. The facility is purpose-built for efficiency, precision and scale and incorporates automated welding, optimized product flow and advanced manufacturing processes.

In addition, our automated welding machines are now fully installed and commissioned and our new X-ray inspection facility in Batavia, remains on track for completion later this fiscal year. Together, these investments materially enhance throughput, improve quality and strengthen our ability to execute against long-cycle Navy programs with increasing production requirements.

In energy and process, we completed the renovation of our assembly and test facility in Arvada, Colorado earlier this fiscal year. That site is now fully operational with both product and personnel in place. providing increased flexibility and improved execution for capital projects and aftermarket work. During the quarter, we also kicked off an aftermarket acceleration initiative, leveraging AI tools to improve responsiveness, pricing and service penetration. In parallel, we expanded and consolidated our engineering and service footprint in India, strengthening our global operating model and improving cost efficiency and scalability over time. From a market perspective, we are seeing some slowing as it relates to large CapEx purchases driven by lower oil prices, tariffs and uncertain macro environment.

Lastly, in space, we reached several important milestones. Our liquid nitrogen testing capability in Arvada was completed in the second quarter, with the first unit successfully tested and delivered to our end customer. More recently, during the forth quarter, we completed construction of our new cryogenic test facility in Jupiter, Florida. That facility is now entering commissioning, which will continue through the end of this fiscal year. These investments meaningfully expand our in-house testing capability and capacity, enabling us to support customers as programs transition from development into higher rate production.

As we step back, the common thread across everything we've discussed this morning is disciplined execution. We are delivering strong operating results today, while at the same time making deliberate organic and inorganic investments that expand our capabilities, deepen customer relationships and position Graham for long-term growth. Our record backlog provides meaningful visibility. Our balance sheet remains strong and flexible, and our investments are aligned where our customers' needs are headed. The acquisition of FlackTek meaningfully strengthens our technology platform and expands our ability to serve mission-critical applications across multiple end markets. While our organic investments are now coming online and enhance our throughput, quality and scalability across the entire business.

Together, these initiatives reinforce our confidence in Graham's ability to grow organically. Expand margins over time and continue to increase shareholder value. In short, we continue to do what we said we were going to do. Steady progress while getting better every day through continuous improvement. With that, I'll turn the call over to Chris for a detailed review of our financial results. Chris?

Thanks, Matt, and good morning, everyone. I will begin my review of our third quarter results on Slide 10. For the third quarter of fiscal 2026, revenue was $56.7 million, an increase of 21% compared to the prior year, reflecting continued strong execution across our diversified end markets. Sales to the defense market increased by $8.3 million driven by the timing of project milestones, contributions from new programs, better pricing and growth across existing programs.

Sales to the energy and process market increased $2.1 million or 13%, reflecting continued strength in aftermarket sales as well as momentum in our new energy markets and, in particular, SMRs. Aftermarket sales to the energy and process and defense market were $10.8 million, up 11% over the prior year period continuing to demonstrate demand across our global installed base. Turning to Slide 11. Gross profit increased 15% to $13.5 million, and gross margin was 23.8% for the quarter. The year-over-year margin decline of 100 basis points reflects sales mix, which included a higher level of material receipts, which carry lower margins.

In addition, the prior year period benefited $255,000 from the Blue Forge Alliance grant that did not repeat in this year's quarter. Finally, for the first 9 months of fiscal 2026, we estimate that tariffs have impacted results by approximately $1 million, with minimal impact in the third quarter. For the full year, we have narrowed our expected tariff impact to be between $1 million to $1.5 million, reflecting continued sourcing discipline, our established in-country partnerships, and contractual protections. Our teams have really done an excellent job navigating this uncertain environment.

On Slide 12, as you can see, this operating performance continues to translate into strong bottom line results. Net income for the quarter was $0.25 per diluted share and adjusted net income was $0.31 per diluted share. Adjusted EBITDA increased 50% to $6 million, and our adjusted EBITDA margin was 10.7%, reflecting improved operating leverage and disciplined cost control. On a year-to-date basis, adjusted EBITDA margin for fiscal year 2026 was 10.8%, up 100 basis points over the prior year period and in line with our updated full year guidance, which I will speak to in a few minutes.

As expected, SG&A increased year-over-year due to continued investments in our operations, our technology and our people as well as higher acquisition and integration costs related to the [indiscernible] and FlackTek acquisitions. However, as a percentage of sales, SG&A declined 200 basis points to 18.6%, which demonstrates our financial discipline and higher net sales throughout the fiscal year. Moving to Slide 13. Orders remained strong in the quarter, totaling $71.7 million. This strength was driven by strong demand in the defense and space markets. Energy and process orders were down slightly during the quarter as lower aftermarket orders and delay in large capital projects due to the macro environment were almost entirely offset by growth in new energy orders. Again, in particular, SMRs.

The resulting book-to-bill ratio was 1.3x, and backlog increased to a record $515.6 million, up 34% year-over-year. Roughly 85% of backlog is attributable to the defense market, which adds stability and predictability to our business. Approximately 35% to 40% of our backlog is expected to convert to revenue over the next 12 months with another 25% to 30% converting within 1 to 2 years, providing meaningful visibility into future revenue. As a reminder, our orders remain inherently lumpy due to the multiyear nature of many defense programs in large commercial projects. Over the long term, we target a book-to-bill ratio of approximately 1.1x to support our growth objective of 8% to 10% organic growth per year.

For fiscal 2026, our year-to-date book-to-bill ratio is 1.6x, well above this long-term goal, and I'm happy to report that our pipeline of opportunities remains full due to the tailwinds we are seeing in our markets. Turning to Slide 14. We ended the quarter with $22.3 million in cash, and we had another strong operating cash flow quarter of $4.8 million. Additionally, during the quarter, we continued to invest in our capacity expansion initiatives that Matt outlined, including productivity improvements and enhancing our overall capabilities as our capital expenditures totaled $2.8 million.

Despite this continued investment as well as our M&A activity, we still have ample liquidity to support our future growth initiatives as a result of our strong cash flow from operations and increased availability under our recently amended revolving credit facility, which was expanded to $80 million in January. As of today, only $20 million of debt is outstanding under this facility after the Flag Tech acquisition. Under the terms of the Fletch transaction, we acquired 100% of the equity of Flatek for a base purchase price of $35 million, comprised of 85% cash and 15% equity or 75,818 shares of Graham's common stock.

The transaction also included the potential to earn up to an additional $25 million in future performance-based cash earn-outs over 4 years beginning in fiscal 2027. The contingent upon achieving progressively higher adjusted EBITDA performance targets. The base purchase price represents approximately 12x FlackTek projected adjusted EBITDA for 2026. The acquisition was funded through a combination of cash on hand and borrowings under our revolving credit facility.

Turning to guidance on Slide 15. Based on our performance through the first 9 months of fiscal 2026, our outlook for the remainder of the year and inclusive of the FlackTek and [indiscernible] acquisitions. We are increasing our full year fiscal 2026 guidance for net sales and adjusted EBITDA. We now expect revenue to be in the range of $233 million to $239 million, and adjusted EBITDA to be between $24 million and $28 million. At the midpoint of the ranges, this represents increases of 12% and 16%, respectively.

Overall, with strong execution, robust demand across our core end markets and a record backlog, we remain confident in our ability to deliver continued performance and to achieve our long-term objectives of 8% to 10% organic revenue growth and low to mid-teen adjusted EBITDA margins by fiscal 2027.

And with that, we can now open the call for questions.

[Operator Instructions] Our first question comes from the line of Russell Stanley with Beacon Securities.

Thank you for the questions and congrats on the quarter. My first question, just around demand, specifically defense. We saw both the major shipbuilders announced plans for significant CapEx increases for the coming year, which obviously not terribly surprising. Just wondering if you're at all surprised by the magnitude of the increases you're contemplating and how you're thinking about allocating your CapEx spend going forward given those -- given their plans for CapEx expansion? Any color there would be helpful.

Yes, Ross, thanks for the question. As you mentioned, the defense platform, specifically on the strategic undersea programs remain healthy with a lot of demand. The fortunate thing for Graham is we've been making these investments for several years at this point. And we believe that we have opened up capacity through through sort of efficiency improvements by the equipment we've already implemented.

With that, based on the increasing backlog that we've continued to to be able to secure. We are also looking at future investments as we move forward. Like we've done in the past, we look to balance that between our own internal investments as well as offsetting that with what's potentially through the marine industrial base. So Russ, I think the simple answer to that is we'll look to continue to invest at that sort of 7% to 10% of revenue number that we've been over the years and specifically continuing down the path we've been. We don't see sort of a demand that's unproportional to our past investment portfolio.

That's great. And then maybe moving on to the M&A strategy, FlackTek was your largest buying some time and tends to wake up, I think, other potential sellers. I'm wondering you've described FlackTek as adding a third platform wondering if there are other platforms, so to speak, out there for you to add? Or should we think about additional M&A, focusing on the existing 3 that you now have?

Yes, great question. So to the point I've been making for quite some time, we've been nurturing these relationships for years at this point. We're looking for folks that want to have skin in the game and really grow with us. FlackTek does offer that third. We have a really strong first at gram manufacturing, which has been around for 90 years with vacuum and heat transfer. We continue to have a tremendous amount of opportunity within that business to further grow organically. Within Barbara-Nichols, we've done some small tuck-in acquisitions, both technology as well as capability.

FlackTek offers that third leg of the stool that's across all of the same end markets as well as some additional with opportunity for scale. I think as we move forward, we'll focus more heavily on continuing to invest in the platform focus areas. And then longer term, as we sort of move out of expansion within those 3 product platforms, maybe there will be additional. And those additional platforms in the future could come 1 as a spinout from existing business units or through an acquisition of a stand-alone platform.

That's great. Maybe I'll sneak in 1 last question, and I'll come back again to the Navy. Obviously, you're sole sourcing a lot of the work you do. I'm wondering how you're thinking about pursuing other work from the Navy other programs. Obviously, it's easier to get into the ground floor about what to hear whatever progress you can share on pursuing new work, not just the existing programs you have, but maybe perhaps other opportunities.

Yes. Great question. We're continuing to find that the capability that we have put in the back pocket of the corporation is absolutely needed by end users. Precision fabrication, which tends to be welding and advanced precision is a need that Ben spoke about in the United States for quite some time. So we're seeing that applicability of those core competencies really move in a nice direction and pursuing new opportunities. So I'll just say adjacencies of using existing capability.

If you look at the Barbara-Nichols footprint, high-speed rotating machines that allow for enhanced efficiency or smaller footprint. The world is moving to more power, higher compute speeds and that requires smaller assets that can do more. So Russ, I think the sort of simple story is our core competencies are absolutely able to leverage on new opportunities. What we're doing is we're really bolstering our commercialization strategy of technology so that we can go to our customers and offer the value to them in addition to our typical inbound strategy. So we're taking more of an outbound let's go tell them how we can -- how our technology and capability can differentiate and provide them value.

Our next question comes from the line of Bobby Brooks with Northland Capital Markets.

First 1 was just on -- you guys had called out growth in existing programs within defense. And I was just curious how that actually looks in reality. Like are you actively winning more wallet share on current projects? And if so, how? I guess I was just under the -- I have the understanding that these projects are pretty set in stone when the contracts were awarded.

Yes, great question. So the first part is it's both as always with us. We are continuing to see additional scope that's coming from our core capability and programs that we've been on. Examples of that, we're seeing additional solicitations for spare assets and others that we originally did not have in the lens. On the other side of that, we're successfully meeting our customers' and requirements, and that's both in time, speed, quality, everything. And so what's happening as a result of that, Bobby, is yes, we are seeing additional opportunities that are additive to our experience scope of supply. And that could be everything from undersea submarine platforms to laser and cooling -- our laser and radar cooling platforms for directed energy. So it's a combination of both.

Got it. That's helpful. And then Chris, I know you had mentioned like historically, you guys have talked about targeting a 1.1 book-to-bill and that was kind of reaffirmed early in the call. But after another outstanding quarter of orders, I'd assume that at the minimum, that outlook has changed for this year since you've already done $280 million in orders, which would be a 1.17 book-to-bill for the full year assuming the high end of your revenue guidance and 0 orders in the fourth quarter.

So I was just curious to get your sense on -- and you also mentioned the pipeline remains full. So I was just curious on the thinking of how landing at 1.1 book-to-bill long term is still the right way to look at it? And any color you could give maybe on how 4Q orders have progressed.

Yes, Bobby, that's a great question. The main reason for putting out the 1.1 book-to-bill long-term guidance is because when we took a look back at the last 5 to 10 years, that was our that was our book-to-bill ratio. As you know, our book-to-bill ratio can be very lumpy, ranging anywhere from 0.5x to 2.4x in any given quarter. But over the long term, we expect it and we want it to be 1.1. So that $1.1 billion wasn't meant to be guidance for fiscal 2026. .

As you pointed out, obviously, with the year-to-date book-to-bill ratio of 1.6, we expect to be over that 1.1 long-term target for the year. But again, over the long term, we want it to be 1.1 to support our 8% to 10% organic growth.

That's helpful. Congrats on the strong quarter. .

Thanks, Bobby. .

Our next question comes from the line of Tony Bancroft with Gabelli Funds.

Congratulations on the great numbers very well done. You were talking earlier about what would be potential -- I know you're working on these 3 strategies right now, the core pillars, and you're going to be building up those. But I guess I wasn't thinking about a company like Slate for you guys. You could maybe Matt could you give me like a 30-second pocket lecture on what -- where are these addressable markets that you -- or these adjacencies?

And sort of what's the scope of these adjacencies that you would gram 5 or 10 years from now, 5 years from now, would want to be? And maybe you could just sort of encapsulate talk about that.

Yes. So the first thing that folks don't necessarily hone in on is advanced mixing, specifically dual asymmetric mixing is the exact marry of turbomachinery and vacuum and heat transfer. It literally is the blend of those 2 core physics-based technologies. So mixing in itself is a really nice platform that couples with our engineering know-how.

The next item, Tony, that it offer and this is more broadly is -- we love the market agnostic, really differentiated moded technology. So in FlackTek, I'll use it as an example, you've got 5 product SKUs that range everywhere from lab scale to large production scale, and these really can offer a disruptive moat as we move forward. And so what we're seeing there is they play in our 3 end markets extremely favorably, but they also have a portfolio that expands beyond that for continued growth in medical, in personal care, in battery technology, et cetera, the list goes on.

The last 1 that I'd offer you is this -- you got to look forward in terms of where technology is moving. We're really -- we're talking about electrification of our turbo machinery. We're talking about advanced and intelligent control of our turbomachinery. We're talking about using technology like computational fluid dynamics and our new designs in the industrial business. Really, it's bringing a technology footprint to see where the markets are going. And in this case, the biggest competitor for FlackTek is a bucket and a stick, which is you're mixing this stuff by hand. And so as we move to a place of automation, efficiency, et cetera, where throughputs are increasing, it's a natural replacement for more advanced technologies.

So it's not 1 simple answer, but the core of it is engineered differentiated technology-driven solutions that have an agnostic market footprint.

a reminder, if you would like to ask a question, p [Operator Instructions] Our next question comes from the line of Gary Schwab with Valley Forge Capital Management.

You're juggling a lot of balls at the same time and you're handling are staying really well. Great job. A question is about FlackTek. You mentioned that they're involved in solid rocket motor mixing. Are there any restrictions from the FlackTek partnership by against selling Mega to the 2 major solar market motor competitors? .

So Gary, obviously, there was a large publication working between Angel and Flag tech. And what I'll say is it was developed by FlackTek for an end use at Andre -- we do absolutely view Angel as a key end user of the technology. And we'll be continued to ensure that they're successful in their endeavors. This is revolutionizing the mixing process for solid rocket motors, which will push the entire industry forward.

What we're seeing more broadly is, once you have 1 big win in a given area like Energetics you see a lot of folks start to come to the surface. And the short of it is, we have no restriction in the relationship on providing dual asymmetric mixing machines to others with the exception of specifically the Mega product line pending some level of purchase of equipment. So we'll respect that relationship? And what we're seeing is the large machine, the medium machines, the other footprint machines are more than adequate to supply the majority of other providers in this space, which is not prevented.

So as a result of the Angel partnership, we're seeing a lot of other opportunities that have brought the technology to the forefront. But yes, we'll continue to leverage this across energetics outside of the mega

Is do you expect the mega to be your leading product for FlackTek? And have you come up with an available market size for MEGA?

So we're quantifying that today. The answer is, as we move forward, our focus is going to be on production footprint machines, I'll say. But FlackTek has been in business for over 20 years, providing this critical equipment to everything from laboratories to production environments. So I will say there will be a shift in focus to production level machines, of course, MEGA being a portion of that. And the short of it is, I can't speak to the exact TAM on the call today. What I can say is we see applicability from mixing food to energetics to upstream the original constituents that go into epoxies, et cetera. So it's really market agnostic. We see sort of an unlimited footprint where this could impact.

Okay. Great. And if I could just ask 1 last quick one. the $30 million 2026 estimate for FlackTek, that's based on your year-end ending next month. Is that correct? .

That's the calendar year-end for '26. So that's the current run rate for calendar year '26. .

Okay, great.

Next question is a follow-up from Bobby Brooks with Northland Capital.

On the material receipts, so that was a drag on gross margin this quarter as well as last. And what I was hoping to get a better sense on was sort of the visibility of that going forward? Obviously, you're always going to have material receipts, right? But do you have a good sense of when those will be highest a few months out or maybe asked differently how far in advance do you know when that type of work is going to flow through revenue? .

Yes. So the material receipts are very lumpy in nature. They heavily impacted our Q2 results. They were still higher than normal in Q3. So for Q4 and then going forward, we would expect them to be at a more normalized level. However, again, those material receipts can be lumpy in nature in any given quarter. So we have visibility out for about the next year on that. .

Got it. And maybe just -- so is it essentially just ordering raw materials in anticipation of future work? And my understanding is that kind of the reason for it? Am I understanding that right?

It's not in anticipation of future work. We only placed the material orders when we receive the order from our customer. So therefore, it's basically material receipts to support orders that are already in our backlog. .

Got it. And then Matt, you did -- I really appreciate the 1 slide kind of going through some of the significant investments in facility enhancements done this year. But I know that you guys did some -- those were kind of focused on improvements made earlier in the quarter. And so I was just curious on anything to call out specifically that happened within the third quarter?

Yes, a lot. You can see from that list, yes, we delivered the first assets from the liquid nitrogen test facility in Arvada, in the third quarter. We have brought online, as mentioned, the assembly and test facility, which is now shipping product as well as the testing area in that facility. So across that entire platform, Bobby, we're seeing real-time impact in the third quarter from those assets coming online.

The only exception of that just for clarity, is the propellant test facility down in Florida, we just did the ribbon cutting. But in the third quarter, that has not started to impact the business.

Bobby, with regards to those capital investments, though, right, as we said, they're not going to have a material impact on our fiscal 2026 results. These investments are what's going to help us get to our fiscal 2027 guidance and goals that we put out there. But it's going to be a gradual increase in performance, right? You're not going to see a step change overnight. So it's just -- these are the investments that we're making to achieve the slow and steady growth that we're looking for and to achieve our fiscal 2027 targets. But it's not going to be a step change.

That's very helpful color there. Then last question for me is just on the testing facilities in Jupiter as well as Cooper, Florida as well as Colorado. I was curious to just maybe hear how the activity has gone thus far with booking up future slots for testing? And just also curious on have you seen are those folks who are taking the booking, testing slots? Are those more so customers you're already working with? Or have you started to see a steady stream of folks that you don't have commercial relationships with yet.

Yes. I'll break it down into 2. Good question. In the Arvada facility, which is where the liquid nitrogen is -- it is dedicated to a given production program today. And what I'll say is it's essentially booked for that program. As a result of execution, we continue to see further pipeline opportunities to continue that forward. Can we use it for other programs? The answer is absolutely yes, and we will. But today, it's focused on 1 -- so I would just call that pipeline healthy.

On the cryogenic facility side, look, most important for us is safety on that facility and sort of with the commissioning process. So today, we're having a number of conversations with potential end users, most of which are customers today. We are focusing on the commissioning around the product that is already in our backlog. And so we're prioritizing that not for a testing as a service today, but rather testing the product that we're shipping to our end customers contractually. So we'll ramp through testing our own products in the near term. But in short, Bobby, yes, the pipeline remains very active.

Mr. Malone, we have no further questions at this time. I'd like to turn the floor back over to you for closing comments.

Thank you. As you can see, we are pleased with our results and look forward to keeping you updated on our progress. As always, please reach out with any questions. Thank you, everyone, for joining us today and your interest in Graham. .

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day. .

Greetings, and welcome to the Graham Corporation Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Tom Cook. Please go ahead.

Thank you, Carrie, and good morning, everyone. Welcome to Graham's Fiscal Second Quarter 2026 Earnings Call. With me on the call today are Matt Malone, President and CEO; and Chris Thome, Chief Financial 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 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 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 have provided reconciliations of non-GAAP measures with complete -- with comparable GAAP measures in the table 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 ROIC, orders, backlog and book-to-bill ratio.

These are operational measures and a quantitative reconciliation of each is not required or provided. You can find a 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 Matt to begin. Matt?

Thank you, Tom, and good morning, everyone. We appreciate you joining us to review our second quarter fiscal 2026 results. We delivered another strong quarter, continuing to execute our communicated strategy and demonstrating the resiliency and diversification of our business. Revenue grew 23% to $66 million, driven by solid performance across all of our end markets. The timing of these key project milestones, particularly material receipts in our defense business as well as contributions from new programs and growth in existing platforms. Adjusted EBITDA increased 12% to $6.3 million. On a year-to-year basis, adjusted EBITDA margin expanded 40 basis points to 10.8%, underscoring our continued focus on operational execution and profitable growth. Bookings remained strong, resulting in a book-to-bill ratio of 1.3x and driving backlog to a record $500.1 million, up 23% year-over-year.

Our backlog provides excellent visibility with roughly 35% to 40% expected to convert to revenue over the next 12 months. On the defense side, we continue to see strong momentum with our U.S. Navy programs. As a reminder, in July, we announced a $25.5 million follow-on order to produce mission-critical hardware for the MK48 Mod 7 Heavyweight Torpedo program. More recently, I want to highlight an important milestone for our defense business and our long-standing partnership with the U.S. Navy. In October, we commemorated our new 30,000 square foot advanced manufacturing facility in Batavia, New York, which represents a major investment in our capacity and capabilities to support key Navy programs. This purpose-built site is designed for efficiency, precision and scale and incorporates advanced technologies, including automated welding, optimized product flow and state-of-the-art machining. We expect the facility to be fully operational by the end of fiscal 2026. And once online, it will be -- it will meaningfully expand our throughput, enhance quality and strengthen our ability to meet rising demand across multiple Navy programs.

As part of this, we were honored to host Captain Heath Johnmeyer, Commanding Officer of the Future [ USSS ] District of Columbia, along with several strategic partners and customers during the event. Their participation underscores the Navy's confidence in Graham and a critical role of our team and capabilities play in supporting fleet readiness as the Navy celebrated its 250th anniversary. This engagement reflects our position as a trusted supplier to some of the most important defense platforms in the world. In addition to expanding capacity, we continue to invest in advanced inspection and manufacturing technologies, including our enhanced x-ray testing and automated welding systems that are beginning to come online. These investments will further increase throughput, improve inspection precision and support production scale as we execute the Navy's long-term modernization initiatives.

Moving to Energy and Process. During the quarter, we saw increased sales of $2.0 million or 11%, driven by the timing of large capital projects and continued strong aftermarket sales. Further, we are seeing meaningful momentum in small modular nuclear reactors and cryogenic applications, where customers' interest in our mission-critical equipment continues to expand as those markets slowly transition into commercial deploy. Defense -- demand fundamentals across all of our end markets remains healthy, though we are observing extended decision cycles on certain large global capital projects. Overall, our position remains strong, and we continue to execute well against opportunities in both mature and emerging applications.

In space, as we have announced earlier this morning, we continue to see meaningful momentum. In the second quarter and first month of our fiscal 2026 third quarter, our Barber-Nichols subsidiary booked a series of new orders from 6 industry-leading customers in the commercial space launch market. These awards were for advanced turbomachinery and precision engineered components supporting next-generation commercial launch and in Space systems and totaled $22 million. These orders are expected to convert into revenue over the next 12 to 24 months, further strengthening our visibility and reinforcing the value we bring to these mission-critical space applications. We're encouraged by the breadth of programs we are involved in and the growing activity across customers who are scaling production to meet increased launch cadence and orbital infrastructure needs.

To support this demand, we are continuing to invest in capacity and capabilities at Barber-Nichols, including additional CNC machining centers, expanded testing infrastructure and our new liquid nitrogen test stand. These investments build on our previously announced cryogenic test facility in Florida, which remains on track to come online later this year. Together, these enhancements strengthen our ability to deliver with speed and precision as our customers move from development into higher rate production. The momentum we are seeing in our space end markets reflects the strength of our technology, engineering expertise and decades-long reputation for performance in high-speed rotating equipment. As the commercial and government space markets continue to expand, we believe Graham is well positioned to support the industry's long-term growth and advance our strategy of building a diversified portfolio across high-growth, innovation-driven end markets.

Finally, I want to touch on the recent acquisition announcement of Xdot Bearing Technologies, an engineering-led firm with patented foil bearing technology and deep expertise in high-speed rotating machinery. This is a highly strategic technology acquisition that strengthens our competitive position in an area where performance, reliability and efficiency are becoming increasingly critical across aerospace, defense, energy transition and industrial applications. Xdot's proprietary foil-bearing designs deliver superior performance while reducing development and production costs. And when combined with Barber-Nichols turbomachinery capabilities, significantly expand our ability to engineer and deliver advanced high-speed pumps, compressors and rotating systems. This acquisition not only broadens our product portfolio, but also positions us to move into adjacent applications and emerging high-performance markets, where we are seeing growing customer interest.

Importantly, this is a disciplined, strategically aligned investment that fits squarely within our capital allocation framework. Xdot brings proven technology, a respected technical founder and team and complementary customer relationships. We expect the acquisition to be slightly accretive to our fiscal 2026 results. Overall, this acquisition underscores our commitment to investing in differentiated technology, expanding our engineered solution offerings and creating durable competitive advantages across our growth platforms. More broadly, on the M&A front, we continue to see a strong pipeline of acquisition opportunities that align with our strategic objectives and remain focused on pursuing opportunities that offer risk-adjusted returns and can help us accelerate our product life cycle strategy.

In closing, our fiscal second quarter results demonstrate continued business momentum across our diversified portfolio. With our record backlog, strong market positioning and progress on key growth initiatives, we're well positioned to capitalize on the opportunities ahead. With that, I'll turn the call over to Chris for a detailed review of our financial results. Chris?

Thanks, Matt, and good morning, everyone. I will begin my review of results on Slide 6. For the second quarter of fiscal 2026, sales were $66 million, an increase of 23% compared to the prior year period, reflecting broad-based strength across all our end markets. This performance demonstrates continued execution and healthy demand across defense, energy and process and space and is consistent with our full year expectations. Sales to the defense market increased by $9.9 million or 32%, primarily reflecting timing of project milestones and particularly material receipts as well as growth across new and existing programs. Sales to the energy and process market increased by $2 million, primarily driven by the timing on larger capital projects. Aftermarket sales to the energy and process and defense markets were $9.8 million for the quarter, slightly above the prior year period, but when combined with our first fiscal quarter are up 15% year-to-date and continue to reflect resilient demand for aftermarket support across our global installed base.

As a reminder, our fiscal third quarter is typically our seasonally lowest revenue period due to normal holiday-related production schedules. Turning to Slide 7. Gross profit increased 12% to $14.3 million, and gross margin was 21.7% for the quarter. The lower margin in the quarter reflects the sales mix in the period, including an unusually high level of material receipts that carry lower margins. We estimate that this higher-than-normal level of material receipts impacted our gross margin by approximately 180 basis points in the quarter. As a reminder, the prior year period benefited from approximately $400,000 from the BlueForge Alliance grant income that did not repeat this year. Finally, for the first 6 months of fiscal 2026, we estimate the impact of tariffs to be approximately $1 million compared to the prior year.

As we look at the full year, we have narrowed our expected tariff impact range to $2 million to $4 million, reflecting continued sourcing discipline and contract language that protects us. On Slide 8, you can see how this operating performance translated to the bottom line. Net income for the quarter was $0.28 per diluted share and adjusted net income was $0.31 per diluted share. Adjusted EBITDA was $6.3 million, up 12% from the prior year, and adjusted EBITDA margin was 9.5%. On a year-to-date basis, our adjusted EBITDA margin is 10.8%, up 40 basis points over the prior year and in line with our full year guidance. As a reminder, the Barber-Nichols earnout bonus will phase out by the end of fiscal 2026. Excluding this item, we remain confident in our ability to achieve our fiscal 2027 goal of low to mid-teen adjusted EBITDA margin.

Moving to Slide 9. It was another very strong quarter for orders, which totaled $83.2 million, driven by strong demand across defense, space and energy and process. This included a $25.5 million follow-on contract for the MK48 Mod 7 Heavyweight Torpedo program as well as new orders from leading space and aerospace companies that Matt discussed and that we announced in our press release this morning. Aftermarket orders were $9.6 million, moderating from the record levels of last year, but remaining strong on a historical basis. The resulting book-to-bill ratio was 1.3x. driving backlog to a record $500.1 million, up 23% year-over-year. Approximately 35% to 40% of this backlog is expected to convert to revenue over the next 12 months and roughly 85% of the total backlog is attributable to the defense market.

As a reminder, orders remain inherently lumpy given the multiyear nature of our defense programs and our large commercial contracts. To illustrate this point, since fiscal 2020, our annual book-to-bill ratio has ranged from 0.9x to 1.4x revenue. However, our quarterly book-to-bill ratio over the same time period has ranged from 0.5 to 2.8x revenue. Over the long term, we target a book-to-bill ratio of 1.1x each year in order to support our long-term growth goals of 8% to 10% per year. For the fiscal 2026 year-to-date period, our book-to-bill ratio is 1.7x. Turning to Slide 10. We remain in a strong liquidity position. We ended the quarter with $20.6 million in cash and no debt and $44.7 million available on our revolver, providing significant flexibility to support future growth investments.

Operating cash flow was $13.6 million for the quarter, reflecting strong working capital conversion tied to milestone receipts and advanced payments as well as strong cash profitability. Capital expenditures were $4.1 million in the quarter, focused on capacity expansion, automation, next-generation X-ray technology and our new cryogenic testing facility in Florida, all of which Matt discussed earlier. All major projects remain on schedule and are expected to deliver returns above 20% ROIC. Turning to guidance on Slide 11. Based on our performance through the first half of fiscal 2026 and our outlook for the balance of the year, we are reaffirming our full year guidance for all key financial metrics.

The recently announced Xdot technology acquisition does not materially affect our guidance for the year as our annual revenue is only about $1 million per year. Again, we would like to remind everyone that our fiscal third quarter is typically our seasonally lowest revenue period due to normal holiday-related production schedules. Overall, with strong execution, robust end market demand and a record backlog, we remain confident in our full year outlook and our ability to continue delivering consistent performance. The 20% plus ROIC investments coming online in the next 2 quarters, along with the continued momentum that is building within our company gives us confidence we are on track to achieving our fiscal 2027 targets of 8% to 10% organic revenue growth and low to mid-teen adjusted EBITDA margin. With that, we can now open the call for questions.

[Operator Instructions] And our first question comes from Bobby Brooks with Northland Capital Markets.

Just wanted to get a little bit more clarity. It seems like the $22 million in space and aerospace orders announced this morning, it seems like some of that was recognized in 2Q results and some of it will be recognized in 3Q results. Just is that -- am I thinking about it right? And could you parse that out for how much was in 2Q versus 3Q?

Yes. No, you're spot on there, Bobby. As you saw from the release today, we had $15 million of orders in Q2 and the other $7 million came in after quarter end. So they'll be in Q3.

Got it. And then so excellent results for revenue in the quarter, but guidance is maintained. So I was just curious, could you discuss why maintaining the guidance made more sense in raising? Is it just simply some stuff was scheduled to go out maybe in the back half and got pulled forward and occurred in the second quarter? Or maybe it's tied to some dynamic with the manufacturing footprint? Just hoping to get more insight there.

Yes. It's just all timing, Bobby. The results for the first half of the year are consistent with our expectations. We're tracking right on plan. So we just maintain the guidance.

Got it. And then it's great to hear that the cryogenic facility is on track. I saw some updates from the Barber-Nichols [indiscernible] intra-quarter. And I think I've read somewhere that you're starting to book slots there. So just curious to maybe hear an update there and how things are going.

Yes. So I'll answer 2 things. The first is we did successfully commission and execute testing at the Barber-Nichols location in Colorado with the liquid nitrogen stand, which is a smaller stand that supports a critical space program. In addition is the propellant test facility, which is obviously on a much larger basis down in Florida, which is what you're alluding to. We actually expect to get the occupancy here any day, at which point we'll be commissioning with our product. So we'll be testing an internal product. Simultaneously, we do expect within this calendar year to start testing customer product.

With that being said, yes, I'd say that the backlog and customer conversations are healthy. And as we pivot from actually getting the test fan operational, we are shifting full focus to booking the customers into the backlog. So it's coming along just as we expected.

And moving on to Russell Stanley with Beacon Securities.

Congrats on the quarter. Maybe just on orders, surprisingly strong in the quarter, given how strong Q1 was, understanding the lumpiness going forward. But can you talk to, I guess, how much of the Q2 defense orders were Navy related or specifically related to the [indiscernible] carrier programs. Just wondering what kind of opportunities you're seeing outside of those core programs you're already on.

Yes. Ross, it's a great point. And I think it's worth a little bit of expansion. Actually, the bookings primarily this last quarter weren't in connection to the actual strategic platforms themselves, but in some way are connected to the larger defense scope. So as mentioned, we saw the torpedo side. We saw the -- some of the aftermarket pickup on the defense side. We saw the space bookings that were announced this morning. So it was really a host of opportunities that we've been nurturing sort of in the background connected to the strategic programs without providing too much additional color that I really can't go into. So yes, it was a nice diversified bookings, but very strong, as you alluded to.

Great. Congrats on that. Maybe I can ask, obviously, excellent order numbers. The customer advances look strong, but just heard from the major shipbuilders a few weeks back. Wondering if you could talk to any sort of impacts you're seeing in your business around the government shutdown, be it in customer conversations or order flow looking a little further out.

Yes. So fortunately, for us, as you followed us closely, the programs that we're involved with are extremely long-standing and have great confidence long term. So what we're seeing is in terms of impact it is pretty minimal, both in the near term and long term. What we do feel, just to break it down to a very narrow window is we obviously have quite a bit of components working their way through the factory. And so the support from government reviews and reviewing deviations and other things that are much more tactical we are taking some additional time. Fortunately, a unit like this takes years. And so days doesn't end up disrupting the outcome. So I think we're really well positioned despite the shutdown. The other area that we're feeling some impact is just appropriations and then actually sending out the sort of defined POs for what are more development-like programs. So we have gotten all indications that everything is moving forward, but just some delay in actually issuing the work.

That's great. Maybe one last question just around the Xdot transaction. I understand I think you're already doing business with them. But can you talk to, I guess, what kind of customer feedback you've received around the transaction, what they've said to you? And secondarily, I guess, the tech has applications, I think, across your main business lines, but wondering where the most significant impact might be.

Yes. It's another great question. So yes, we've been working with at Barber-Nichols, specifically foil-bearing technology for decades at this point on what I'll say is very focused applications. We've also been working with Xdot for extended periods of time. With that being said, we've developed a great relationship and they have analytical capability that ourselves and others do not. So in addition to this, the product portfolio, we get some additional capability. The customer conversations, our customers don't necessarily know that we're using Xdot technology up to this point, but it's an enabling technology. So I'll just say it has allowed us to enter into areas like small modular nuclear, which we're using foil-bearing technology in some other areas like, for example, fuel cell blowers and such, but our customers don't necessarily know that connection and link.

What we are seeing is their bearing end user, which is essentially buying spare bearings today or production bearings are now looking to have conversations with Barber-Nichols about potentially machine upgrades or future opportunities. So I guess, Russ, that's the color I'd provide, but it really is around technology excellence.

And our next question comes from Joe Gomes with NOBLE Capital.

Congrats on the quarter. On the announcement today on the space market, you did mention that orders that you're making some investments. Maybe you could just give us a little more color on the size and timing of those investments.

Yes. No, you got that right on, Joe. We are going to need to buy some additional [indiscernible]. That's factored into the CapEx guidance for the year. So as you saw, there was no change to our guidance and we'll spill over a little bit into fiscal year '27. But as we've always said, we're not going to make big capital investments unless we have the orders to support them, and they all have to have a greater than 20% ROIC that we've discussed as well. So -- and we won't make those investments until we have that in hand.

Yes. And one quick add, Joe, just for some additional insight. The orders really secure the investments that we've already been making. And so these orders really reaffirm a lot of our ROIC calculations that have been made in the past. So it's just really nice that it's sort of reaffirming our commitments in our budgeting process. So strategic direction, the assets like down in Florida, some of these orders impact that facility. The liquid nitrogen stand also has impacted the assembly and test area at Barber-Nichols that just came online last quarter, where this product is going through that facility. And so it's just a great [ marry ] of the current capability that we've already invested in as well.

That's a great point, Matt. And said a little bit differently as well, the investments we made enable us to win these orders to a great extent.

Okay. And maybe the same -- you talked about some momentum in the small modular reactors. Maybe you could just give us a little bit more color on what you're talking about there and momentum and timing for that also.

Yes. Yes. So small modular reactors is a very interesting -- we've seen ups and downs with nuclear over decades. We're clearly in a bullish position right now. Barber-Nichols is well positioned with background on rotating machine that support both cryogenics that directly applies to thermal regulation of a nuclear reactor. In this case, Joe, we're in the early phases of development on a number of, I'll say, scaling programs or the potential to scale. And so we've already disclosed, but you can sort of see that the ramp is not going to happen overnight. So we are in the development phase. We're seeing some products that will go into the Idaho National Lab dome in the next coming months/year and then have long-term potential for scale. So I'll just -- I'll state it as simple as we're in the early phases of that growth trajectory as almost aligned with what the industry is feeling.

Okay. And then just on the defense, the increase, the $9.9 million growth in defense revenues. And you mentioned there was -- one was the timing of some project milestones, new programs, growth in existing programs. I don't know if you could kind of size those for us as to what percent of that $10 million growth came from the milestones versus the new programs versus the growth in existing programs?

Yes. So Joe, as you know, our revenue tends to be very lumpy. And part of what creates that lumpiness is when we receive materials on some of these programs, we're allowed to recognize revenue since we're on a percentage completion basis. We had -- in our prepared remarks, we had an unusually high level of material receipts this past quarter, which was expected in this fiscal year. And that range from about $8 million to $10 million. So the biggest -- a large chunk of that increase was because of these material receipts, which also, as stated in the comments today, do carry with it a lower margin. As we stated, it impacted our gross margin by about 180 basis points. So that's the bulk of what you're seeing there. But we have material receipts every quarter. It's just not to this high level usually.

[Operator Instructions] And we'll go next to Tony Bancroft with Gabelli.

Great job on the quarter. As I'm looking at all your numbers here in your backlog and your balance sheet, it seems like you guys -- everything is going high and right, a lot of orders, very sticky stuff, long-term secular stuff. In 5 years, you sort of have -- it seems like sort of 3 strong markets that you're in. And as far as growth, how do you -- in 5 years, how are you going to see yourself positioned? Are you going to be focusing on the sort of the naval defense? You've got this sort of a nice space business that's growing nicely. And then you obviously have the commercial SMR business. Your funnel, what are you seeing as the best opportunities? And maybe talk about the demand there, the pricing there and sort of walk through that for me?

Yes. Tony, great question. I'm going to answer this a little bit higher level, and then we can go deeper if needed. We love the 50-50 target split between sort of the commercial segment and the defense segment. And what that allows us to do is be speedy and nimble, I'll say, attuned to pricing and specifically optimizing pricing on the commercial side and then bringing commerciality where possible in technology and speed to the defense market. So we really act as that long-term provider, but also that sort of technology disruptor in the defense space. So I'll just say, fundamentally, that is our focus, is to keep that velocity from the -- in competitiveness from the commercial side and bring that to the defense side. And 5 years out, we see that same dynamic moving forward.

What I will also say is, yes, there will probably be ebbs and flows to what that split looks like based on opportunities that come in the door.

And we'll go next to Gary Schwab with Valley Forge Capital Management.

Yes. Great quarter, guys. I just want to go a little further into the last caller's question on -- but I want to go into a different direction. You have a proven success record so far for the MK48 Torpedo program. This is for Matt. I've got a 2-part question for you. Looking ahead for opportunities into 2027 on new torpedo programs, it has to do with the [ SCEPS ], the solid chemical torpedo propulsion system being developed for 2 new torpedo platforms. And it looks like those 2 new torpedoes will serve 2 distinctly different roles from the MK48 program. I know we're already supplying a limited production run on this propulsion system. My first question is, can you add some insight into how the Navy plans to deploy these 2 new torpedo platforms and what gaps they're trying to fill? And then secondly, given Xdot's superiority in its foil-bearing technology, do you see an opportunity that would give us a key advantage possibly of winning a role on either the propulsion side or the guidance system side of either of these torpedo platforms?

Yes, Gary, and yes, there's a lot of momentum building. First, I'll start off with the torpedo topic. I'm going to decouple Xdot, and I'll cover that sort of after. Independent of bearing technology, we're well positioned to be a key supplier on the platforms that you referenced. So I'll just keep it high level and say we don't need that technology to be a key supplier. We're already engaged in doing work in that arena. Once again, I can't sort of speculate on the Navy's plans for these products. And certainly, it could be Army and other areas. But what I will say is the gaps that they cover, all the gaps that you would expect with such capability, and that's sort of range, longevity, reuse, all the things that would add additional value to the defense portfolio. So yes, we are well positioned on those new technologies in the torpedo space, and we're working with primes and the government to develop those technologies.

Can I just ask, is that going to be a much bigger program? Because I know that the problem with going after drones now, one of the programs is for multiple torpedoes, small torpedoes to go after drones.

So once again, you'll have to sort of read in depth because I can't disclose too many details. But I'll just say that there's a lot of practical uses for both the MK48 Torpedo as well as the new technologies. So yes, I think they're looking to sort of deploy such similar technology to adjacent capability within the naval platform.

And this now concludes our question-and-answer session. I would like to turn the floor back over to CEO, Matt Malone, for closing comments.

Thank you. We are pleased with our results through the first half of the fiscal year, which were in line with our expectations and guidance. We look forward to keeping you updated on our progress. As always, please reach out with any questions. Thank you, everyone, for joining us today and your interest in Graham.

And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.