Good day, and welcome to Graham Corporation First Quarter 2026 Financial Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Tom Cook, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to Graham's Fiscal First Quarter 2026 Earnings Call. With me on the call today are Matt Malone, President and Chief Executive Officer; 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. Good morning, everyone, and welcome to our first quarter fiscal year 2026 earnings call. I’m pleased with our strong results to kick off fiscal 2026, showcasing the strength of our diversified product portfolio and strategic positioning. Revenue grew by 11% to $55.5 million, reflecting ongoing success in our key markets. This growth was fueled by higher sales in our energy and process markets, especially in refining, petrochemical, and new energy, along with strong aftermarket performance that was 33% better than the previous year. Adjusted EBITDA rose by 33% year-over-year to $6.8 million, which represents a 12.3% margin relative to sales. These results highlight our persistent focus on operational excellence and our team’s exceptional commitment. We achieved a robust book-to-bill ratio of 2.3x, pushing our backlog to a record $482.9 million, a 22% increase from the previous year. This strong backlog gives us excellent visibility into our business, with approximately 35% to 40% expected to convert into revenue over the next year. In the defense sector, we are experiencing solid momentum with our U.S. Navy programs. Recently, we announced a $25.5 million follow-on order for mission-critical hardware for the MK48 Mod 7 heavyweight torpedo program. This follows a $136.5 million follow-on contract supporting the U.S. Navy's Virginia-class submarine program. These contracts reinforce our standing as a trusted supplier to the U.S. Navy and ensure stable recurring revenue streams, along with strong visibility for future revenue. I am also pleased to report our ongoing success in securing strategic partnerships and funding. In May, we announced a $2.2 million strategic investment from a key defense customer to enhance our critical weld evaluation capabilities for the Columbia and Virginia-class submarine programs. Along with Graham’s $1.4 million contribution, this totals a $3.6 million project investment. This recent funding adds to our impressive track record of partner investments, including a significant $13.5 million investment to support our capacity expansion efforts and a $2.1 million Blue Forge Alliance grant that has allowed us to enhance our welder training programs and equipment capabilities. These strategic partnerships reflect the confidence our customers and partners have in our technology and market position. In Energy and Process, we saw a favorable mix this quarter across our diversified product portfolio, with robust aftermarket sales and increased activity in our new energy business. We are experiencing a lot of momentum and opportunities in small modular nuclear reactors and cryogenics, reflecting rising interest in our mission-critical technologies. We are also making progress with innovations like our next-generation nozzle for vacuum distillation towers. Overall, the underlying demand remains strong, although the timing for larger global capital projects has become less certain. In our Space segment, we are seeing excellent progress. The launch market is gaining momentum, and our specialized applications are performing exceptionally well, highlighting the strong underlying demand in this area. We are currently executing several low-rate production programs that have long-term potential. Our full product life cycle approach, encompassing design, manufacturing, and testing is proving effective, with our space pipeline as strong as ever. We remain optimistic about our growth opportunities in this dynamic environment. Regarding our operational initiatives, I am pleased to report that our strategic capital investments are on schedule and within budget. We received our certificate of occupancy in July for the 30,000 square foot Batavia manufacturing facility to support the U.S. Navy. We expect it to be fully operational by the end of the third calendar quarter. This facility will feature enhanced capabilities through automated welding, optimized product flow, and advanced machining to boost throughput to meet rising demand across several Navy platforms. We have successfully installed our six automated welding machines, and calibration is finished. Our new cryogenic propellant testing facility in Florida is also progressing smoothly, with the liquid oxygen tank currently being installed and the facility expected to begin operations this quarter, generating returns this fiscal year. In terms of internal operations, our ERP system implementation in Batavia is ongoing, and we anticipate going live by the end of calendar year 2025. This system will provide immediate benefits by streamlining workflows, improving transactional efficiency, and standardizing communications across functions. These investments aim for returns on investment exceeding 20%, and several of these cross-functional and scalable initiatives, from automated welding to expanded R&D and workforce training, will position us for future growth in all our markets. Regarding M&A, we are seeing a strong pipeline of acquisition opportunities that align with our strategic initiatives. We remain focused on pursuing options that provide risk-adjusted returns and can help further our product lifecycle strategy. Our M&A growth criteria is outlined in our earnings deck, where we anticipate opportunistic acquisitions to complement our organic growth of 8% to 10%. In conclusion, our first fiscal quarter showcases robust results and ongoing business momentum across our diverse portfolio. With a record backlog, strategic investments coming online, and strong market positioning, we are well prepared to seize the opportunities ahead. The foundation we have built over the past several years is allowing us to deliver consistent results while positioning us for sustainable long-term growth and achieving our fiscal 2027 targets of 8% to 10% organic revenue growth annually and low to mid-teen adjusted EBITDA margins as we transition from our improvement phase to growth. I am incredibly proud of the team we have assembled and our dedicated focus on delivering unparalleled solutions for our customers in innovative ways. We are just getting started. With that, I’ll hand it over to Chris to review the financial results. Chris?

Thanks, Matt, and good morning, everyone. I will begin my review of results on Slide 5. For the first quarter of fiscal 2026, sales were $55.5 million, an increase of 11% compared to the prior year, reflecting strength across our diversified portfolio and was consistent with our expectations and guidance for the year. Sales to the energy and process market increased by $5.7 million, driven by commercial projects in chemical, petrochemical as well as momentum in new energy markets, including hydrogen and SMRs. Aftermarket sales to the energy and process and defense markets were $10.4 million, up 33% from the prior year, with demand in these areas remaining robust. Turning to Slide 6. Gross profit increased 19% to $14.7 million, with gross margin expanding 170 basis points to 26.5% compared to the prior year. This improvement was driven by higher volume and improved sales mix, which included a higher level of aftermarket work and better execution and pricing. For the first quarter of fiscal 2026, the impact of tariffs was not material to our consolidated financial statements. However, the situation remains fluid, and we continue to actively monitor the impact that tariffs will have on our business. Given our network of in-country subcontractors that we have established over the last decade as well as favorable contract terms that we have built into our contracts to protect ourselves, we estimate the range of potential impact of increased tariffs for the full year to only be between $2 million and $5 million. On Slide 7, you can see how the strong operational performance translated to the bottom line. Net income for the quarter was $4.6 million or $0.42 per diluted share, up 56% compared with the $0.27 per diluted share in the prior year. Adjusted net income was $4.9 million or $0.45 per diluted share, a 36% increase year-over-year. Similarly, adjusted EBITDA was $6.8 million for the quarter, up 33% from last year, with adjusted EBITDA margin improving 200 basis points to 12.3%. As a reminder, the Barber-Nichols earnout bonus will phase out by the end of fiscal 2026. With this program behind us, we remain confident in our ability to achieve our fiscal 2027 goal of low to mid-teen adjusted EBITDA margins. Moving to Slide 8. We saw record order demand this quarter. Orders totaled $126 million, primarily reflecting the remaining $86.5 million of a $136.5 million total contract value follow-on order for the Virginia-class submarine program that we announced in May. Additionally, aftermarket orders for the energy and process and defense markets remained strong, totaling $10.5 million in the quarter, up 16% over the prior year. The resulting book-to-bill ratio was 2.3x for the quarter, driving backlog to a record of $483 million, up 22% year-over-year. Approximately 87% of this backlog is for the defense industry, with 35% to 40% expected to convert to revenue over the next 12 months. I should point out that our orders tend to be lumpy given the nature of our business and in particular, orders to the defense industry, which span multiple years and can be significantly larger in size. Over the long term, our goal is to have a book-to-bill ratio of 1.1x, which can vary significantly from quarter to quarter given the nature of our business. Turning to Slide 9. You can see our balance sheet and liquidity position remains strong. We ended the quarter with $10.8 million in cash and no debt, with $44.3 million available on our revolver. As expected, cash used in operations was $2.3 million in the quarter, driven by fiscal 2025 bonus payments, which included the Barber-Nichols supplemental earn-out bonus of $4.3 million. Capital expenditures were $7 million in the quarter, focused on capacity expansion, radiographic testing, cryogenic testing and productivity enhancements. All major projects remain on time and are expected to generate returns above 20%. Turning to guidance on Slide 10. Based upon the strong results for the first quarter as well as our expectations for the remainder of the fiscal year, we are reiterating our full year fiscal 2026 outlook, which reflects continued momentum in our markets and early benefits from our high-return capital investments. The midpoint of that guidance implies 10% revenue growth and 12% adjusted EBITDA growth. All in all, the first quarter of fiscal 2026 was a strong quarter that was consistent with our expectations and guidance. Not only were we able to achieve strong revenue growth, order volume and record backlog, but we also made great progress on the numerous strategic investments we are making in our company. It is these investments, along with the continued momentum that is building within our company that gives us confidence we are on track to achieving our fiscal 2027 targets of 8% to 10% organic revenue growth per year and low to mid-teen adjusted EBITDA margins. With that, we can now open the call for questions.

The first question comes from Russell Stanley with Beacon Securities.

My first question is around the EBITDA margins. Excluding the Barber-Nichols bonus, looking at margins for the quarter, which were up over 14%, similar to the prior quarter, you are closing in on the high end of that target you set for fiscal '27. Understanding there will be some quarter-to-quarter variability, I'm just wondering, is there anything you'd call out in the quarter as being unsustainable? You've outlined a few items there. The aftermarket sales are particularly strong. Tariff impacts are still fluid. But just wondering, is there any other particular headwinds that you see in the way?

Yes. Thanks for the question, Russ. There was nothing unusual about the current quarter that we can exclude. But as you know, we reiterated our guidance and did not change it. We did have a very high mix of aftermarket, as you pointed out, with aftermarket sales being 20% in the quarter versus 15% last year. That drove our margins higher than the range that we provided, so we would expect to get to a more normalized level for the remainder of the year and be within our guidance that we set out at the beginning.

Great. And maybe just on the aftermarket sales and understanding, I guess traditionally that's been more of an energy and process business, but you called out defense contributing in the quarter. Just wondering what you can say as to the opportunity there in the aftermarket and the potential for growth.

Yes. Russ, that's a great question. We're seeing a lot of favorability and opportunity on the fleet maintenance side, so as you hear about Columbia and Virginia pushing out and not getting additional submarines to the fleet, we're seeing opportunities to repair existing assets that are in the field. We currently have, in the Colorado facility, a pretty extensive overhaul facility, which was just modernized and brought online to upgrade these assets to be like new and fit for service. So that's where you see the aftermarket opportunity. The other that I'll just briefly touch on is spare support on the torpedo programs. We're seeing quite a bit of opportunity where there's the need to keep these assets up and running. So we're getting a number of inquiries from the depots to provide spare parts in the aftermarket to the depots for overhaul.

Great. Maybe if I could sneak in one last question and get back in the queue. The order you announced last week to support the Torpedo program, I just wanted to clarify, did any of that land in orders for Q1? Or does all of that fall into Q2? I ask given the way the big order at the end of May was sped up.

Yes. No, Russ, that whole order will be in Q2. That was subsequent to quarter end. So it will be in the second quarter.

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

So you guys mentioned how you're seeing increasing momentum in small nuclear reactors. Could you maybe remind us what products you're providing to that space and maybe just expand a bit more to help sort of quantify that momentum?

Yes, Bobby, as you pointed out, the small modular nuclear sector is gaining momentum. It's still in the early stages of development. We are beginning to see Idaho National Labs restart the dome for testing related to some of the equipment being supplied by Graham, particularly Barber-Nichols and P3, which pertains to the helium circulator and molten salt pumps used in these small modular nuclear systems. In the long term, we also plan to provide the supercritical CO2 machine that converts the heat source into electricity in the latter part of the process. However, this will be a gradual increase over the coming years, and we are still very much in the development phase. Currently, it constitutes a small fraction of our business, but we recognize a substantial growth opportunity. We are noticing more inquiries from small companies entering this field, alongside the platform businesses we are currently collaborating with.

Awesome. Excellent color there. And then just circling back on gross margins. That was a key highlight for myself on the quarter with that being at 26.5%, being the highest level you guys have seen since taking over the business in 2021. Obviously, I feel like that's in part due to several different margin enhancement initiatives you have going on. But I was just curious if you could sort of rank order which initiatives were the largest benefit in the quarter? Or maybe I'm overthinking it, and it's just as simple as the higher aftermarket mix that you guys have called out.

Yes, Bobby, that would be the #1 factor—the higher percentage of aftermarket business. Additionally, we expect some higher level of material receipts for the remainder of the year, which typically carry a lower margin with them. So that could bring the margins down a little for the remainder of the year. Nevertheless, we still feel very comfortable about our guidance of 24.5% to 25.5% for the year.

Got it. I'm just following up on that. Your gross margins are unchanged, but are you anticipating any shift with less aftermarket sales going forward? I assume that's likely since you have several other margin enhancement initiatives scheduled for completion in fiscal year '26. Could you help me understand the reasoning behind not raising the gross margin guidance after these solid results?

Sure. Well, as you know, one quarter doesn't make a year, so we don't want to really move off guidance that we just gave a month ago. Aftermarket sales were up 33% in the quarter, so certainly, we wouldn't expect that level of growth year-over-year to continue. And as I mentioned, we do have some lower-margin work that's going to be coming through our P&L later in the year, which would bring that down a little bit.

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

On the quarter, I wanted to turn to the space segment for a minute, Matt, you talked about some excellent traction there and some programs that are low-rate that could potentially move to higher production levels. But if we look at the orders from that market and the backlog of the market, it's not showing, I guess, the level of excitement that seems to be coming across from you. Just wondering if you could walk us through a little bit more where you actually see that space market and when we could start to maybe see this really take off.

Yes. A few things to characterize with the space market just in context for the conversation. We've had a dominant player in the United States for launch for the last number of years. We're starting to see some additional competitive launch opportunities come into the market, and you can sort of look at who those players are. With those next-generation assets coming, the Barber-Nichols team and P3 team have critical assets that are on board those rockets. With that being said, the additional aspect is once you get reliable launch capability, then you have deploying assets into space like satellites and others. We're seeing the low-rate production materialize on some of the additional launch providers, which we have critical content on. So we're seeing some scale there, and I think we'll see it continue to nurture through the pipeline. As for what to do in space, we're seeing significant growth in oxygen fans for astronaut backpacks we're working on. That's in its low-rate infancy development phase, which is scaling. We're also seeing some satellite cooling systems scale. So we’re early in the competitive platforms coming online for launch and then launching assets that use rotating machines from Barber-Nichols and P3. So a little long-winded to say we're seeing scale, but it's still in the early phases.

Okay. And on the given where you are on the facility, the cryogenic facility, do you have any kind of sense of what that might start generating in revenue and when?

Yes. I think we'll start discussing that probably next quarter. First and foremost is ensuring that the facility gets completed and is, of course, executed safely. We're going through all the procedures now for safety, and then we'll start by testing one of our internal products that has already been validated through oxygen and hydrogen testing just to confirm consistent results. Once we deem it safe, we're actively in conversations with customers today about starting to fill that backlog in that facility. So we expect to disclose further in the next quarter.

Okay. And one last one for me. A lot of growth here with a lot of large award announcements, some of the details you provided today. Any kind of restrictions in terms of hiring of people that you're not finding the availability or the proper skills? Anything there that could limit growth in the near term?

Yes. Thanks, Joe. I sound like a broken record here quarter after quarter, but our HR teams continue to do a great job recruiting. As you know, we have the welder training program as well as other programs in place to bring people in. Our direct labor force was up 10% year-over-year. At this point, we see great supply of workers. I would say that the market for new employees has softened a little bit as well, which helps us.

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

Congratulations on the great quarter. Just in regards to the Wall Street Journal article this week, which I think you alluded to a little earlier in a question, you're seeing all these dry docks building up, and you talked about the extra work you're getting from that. How do you see this issue? I know the President has talked about an initiative, but playing out over the next 5 years. How is Graham going to compete in that space and maybe grow in that space? Or is there something transformative that Graham would want to do since we essentially have unconstrained secular demand?

Yes, Tony, thanks for the warm regards. This is a complicated one, but I'll talk to it in a bit of color. First, you have to execute on the programs that are in your backlog. If you can't execute, you can't talk about the future opportunities. We are doing that across the defense platform, which is essential for securing additional work. Second, we are showing internal investment to support these fleet modernization activities. We're thinking creatively. We’re not just delivering the same product but also upgrading where appropriate to enhance speed. Speed has been a key focus to get back to the fleet. By bringing on capacity and driving efficiency in operations, you have the opportunity to absorb additional work, and that's where the business development team comes in with the rest of the team. We're well down this path, but it starts with execution, then efficiency, and then filling capacity.

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

Just a follow-up question for the torpedo work. Can you talk about the potential length of the most recent torpedo order in terms of years? Does it accompany the length with work on Columbia class and Virginia-class submarines? Or is it much shorter, please?

Yes. I'll break it up. The $136.5 million order is specific to Virginia-class. It extends out through the mid-2030s. The program that was recently announced will be booked in Q2, which is the Mark 48 torpedo program. That is a single option year, which meets the demand of this year. We have 3 additional option years on that contract and then there's an opportunity for an additional block thereafter. So there's quite a bit of runway on those programs, and we're seeing heightened demand.

Okay. And then within the backlog of $418 million for defense, does the submarine-related work and the torpedo work take up the majority of that number? If not, what do you want to highlight some of the other orders in that backlog number?

No, Tony, that is the bulk of what's in there. We do have a little bit left on CVN 81, but the majority of that is related to the torpedoes and the submarine programs.

Next question comes from the line of John Bair with Ascend Wealth Advisors.

Having followed Graham for many years, and you allude almost every quarter about the lumpiness of order awards, sort of like a boa constrictor. So my question is, looking out there, what do you see as the potential award pipeline projects and so forth that you can bid on and potentially win to continue to maintain or increase your backlogs?

Yes. Thanks. It's a twofold answer. First, think of your large, lumpy programs, as mentioned. We are pursuing additional torpedo programs that are both restart and new production as examples. In parallel to those large programs, we are seeking to level out some of the commercial portion of the business. For example, I'm announcing that we're working on an aftermarket acceleration to make it more of a proactive process or pursuit for preventative maintenance instead of just waiting for the phone to ring. We will layer in recurring revenue at high margins. So we're looking at it twofold: large programs that tend to be lumpy and increasing our revenue extraction on more of the recurring revenue side.

Okay. And I know in the past, you also talked about looking at all the installed base that you've had in petrochemical refining areas and trying to be more proactive in reaching out to those markets. Where are you on that? And how has that been coming along?

Yes. We’re in the midst of it. Our sales team is actively crafting through that strategy. It's going quite well. We've engaged some of our legacy employees that have strong connections with our customer base for quite some time. They're leading initiatives on that connection and interfacing with the customers to provide new value. We have identified multiple customers approaching turnarounds that we could deploy new solutions to. In parallel with that, we're working on additional R&D scope to further enhance our portfolio. So we're actively engaged in that and, while we're not seeing immediate returns from that investment yet, we can see how it's planning out.

Next question comes from the line of Gary Schwab with Valley Forge Capital Management.

Can you just put a little more color on the tariffs and that $2 million to $5 million hit possibility? Is there any way to partially mitigate some of that tariff through price adjustments?

Yes, sure. A lot of that impact comes from our purchasing of raw materials overseas. It also comes from selling to some of our foreign customers from the U.S. But as I mentioned in my comments today, we have an extensive network of in-country manufacturing partners. To avoid some of those tariffs, we have them fulfill the more commoditized portions of the orders, while we maintain manufacturing of the more IP-oriented natures of our projects. We have included favorable Incoterms and equitable adjustment clauses into our contracts that help protect us from any impact of the tariffs. So as I mentioned, in today's comments, there was no material impact in the first quarter, but we continue to actively monitor the situation.

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

Just one follow-up for me. I just wanted to circle back. The business is growing excellently domestically, but I was just curious to hear about how you guys are thinking about growing the business internationally. It seems like that could be a really compelling opportunity. Maybe talk about what the strategy is now and possibly contrast that versus what it was two or three years ago.

Yes, great question. It's evolving quickly. I'll break it into a few segments. The first is, regarding China, we were very much focused on a larger portfolio several years ago. Today, we're essentially using China for China. This is a strategy we see moving forward. We have a large installed base in China, and we expect that to continue with incoming pipeline projects, but we'll supply from China for China. Where we see more opportunity is in India. We've had a long-standing footprint there, and we have an international director that's been in that business for about a year now, who’s done a fantastic job scaling the team and creating critical supply connections. We're looking to use India to serve a larger portion of the world with competitive pricing. We're proving out that strategy now. We’ve seen a lot of dormancy in orders, but we’re finally starting to see some big jobs globally gaining momentum, so we think we'll see those mature over the next quarter.

This concludes our question-and-answer session. I would like to turn the conference back over to Matthew Malone for closing remarks.

Okay. Thank you, Renju. We are pleased with our results today 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.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.