Graham Corp (GHM) Q2 2027 Earnings Call Transcript

And welcome to the Graham Corporation Fiscal Second Quarter 2027 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. 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 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'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 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 FlacTech 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 Flactech, 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 FlacTech 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. Flactech's integration is translating into stronger results, and 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 four 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 BlackTech, partially offset by the approximately $10 million lower in 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 submarine fleet spares. These positions give us exposure to both new production and the reoccurring 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 war is reshaped by 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 our 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 United States. 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, and the ramp of existing programs and contributions from FLACTEK. Orders were $10.6 million, representing a book-to-bill ratio of 1.7 times. For the first half, space orders totaled $25 million, or two times sales, and the space backlog was up 108% from a year ago. As customers advance their programs, demand is growing for turbomachinery, triogenic systems, pumps, and related technologies that we provide. Flactech 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 prior year quarter. Large capital projects remained soft amid global uncertainty, and sales to customers outside the United States were lower. Growth in the new energy and contributions from Flactech partially offset those pressures, and we continue to manage the business with that large project environment in mind. Aftermarket remains strong and important opportunity across energy and process and defense. Combined, aftermarket sales were 8.6 million, down 3% from prior quarter, while orders increased 91% to 18.3 million. Sales remained a high level, and the strength in our booking supports future activity. With a more than $1 billion install 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 life cycle 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 Flactech, which I want to highlight and I 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 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 BlackTech's advanced materials processing technologies to the world. BlackTech 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 five, our focus continues to move from not only building capabilities, but to getting more out of those capabilities as well. The Navy 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, shorten cycle times, and improve 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 of 1.2 times, together with our active pipeline, 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 defense and 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 meaningful 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 six, we delivered another solid quarter with continued growth in defense and space Meaningful Gross Margin Expansion and Strong Cash Generation. Our results reflect the benefits of operational execution, the investments we have made to support our long-term growth strategy, and the acquisition of FLACTEK. Second quarter revenue increased 6% to $69.8 million, compared with $66 million in the prior year period. FlacTech 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 FlacTech. 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. Base revenue increased 59% year-over-year and reflects the commercialization, accelerated launch cadences, and the ramp of existing programs, as well as the addition of Flactech. 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 United States, partially offset by growth in new energy and flak tech. Aftermarket sales across energy and process and defense We're $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 FLACTECH, 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 E. 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 Flactech, 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 Barbara 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 Paired 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 percent from 9.5 percent a year ago. For the first half of fiscal 2027, revenue increased 16 percent to $141 million and adjusted EBITDA increased 45 percent to $19.1 million, representing an adjusted EBITDA margin of 13.5 percent. 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 1.1 times. For the first six months of fiscal 2027, our book-to-bill ratio was 1.2 times, and our pipeline of opportunities remains 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 1.7 times for the quarter. For the first half of Fiscal 27, space orders totaled $25 million, or two times, sales. Aftermarket orders across defense and energy and process increased 91% to $18.3 million. And finally, our FlacTech business continues to build momentum, as book-to-bill was 1.3 times 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, and another 20% to 25% within one to two years, and the remainder beyond two 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 continued to invest in growth and productivity improvement. 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 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 to $350 million in revenue and $50 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. A 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.

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. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. The first question is from Russell Stanley from Beacon Securities. Please go ahead.

Good morning, and thanks for the question. Maybe just starting with defense orders, not sure what you can share on this front, but we generally assume, I think, that subs and carriers drive the vast majority of that. Remember, 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.

Yeah, thanks, Russ. So, again, another great quarter of orders, 1.1 book-to-bill, 1.2 for the full year. So, that's... You know, that's impressive given that last year's book-to-bill ratio is 1.5, so we continue to see very good momentum in our backlog and our orders. You know, as mentioned, you know, on the call today, you know, our aftermarket orders were up 91% for the year. Our orders in space. We're up very, you know, very significantly as well. So, we're just seeing health growth across all the portfolios. You know, we did mention we did have some larger Navy orders that are within defense. But as you know, those can be very, you know, lumpy in nature.

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

Yeah, 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. I mean, to not have to drive an asset and then go through 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, and 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 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 in opportunity for potential growth and need for growth on this campus as we move forward in the defense sector. Moving to the Colorado facility, Yeah, that 30,000-square-foot facility, we have great confidence. You know, 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. So, look, we've already got plans for it, and the team's working out laying out the facility. It utilizes the majority of new equipment, so we don't have to relocate from an existing building. So, it really, it's coming along nicely, grounds being moved, and concrete should be poured here in the next few weeks.

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

Yeah. 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, you know, continued interest from the folks that are going to replace that smaller fleet of launch. So, I would say that it's tailwind at this point, which is what's being reflected in our order pipeline, or our orders and pipeline.

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

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

Hi. Good morning, everyone.

Hi, Tomo.

Thanks for having us. Maybe just on gross margins, which improved significantly to 28.2%, 650 basis point, while your first-year full-year guidance is 25% to 26%, Could you unpack a little bit about more the... You know, margin expansions behind by several factors, and how should we think about the margins going forward into a back half to stay at the high level? Thank you.

Yeah, thanks for the question. You know, margins were a little bit higher than our normal run rate, you know, for the quarter, and that really was a function of Mix as well as higher, you know, higher volumes. But primarily, you know, 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. We have a little bit Higher than normal margin in the current quarter. So we would expect that to more 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.

Yeah, and what we're seeing there is we're seeing improved execution. We're seeing more favorable pricing, you know, start to come out of the backlog. So, you know, we had talked before about 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 though Chris mentioned, and then it's a little bit of just mix versus material receipts.

You know, and more specifically on the mix, right, space obviously is a lot higher in the current year, which carries with it higher margins, as you know. Additionally, you know, FlacTech was higher this quarter versus the prior year and versus the sequential quarter, and they have a higher margin business as well. So, and then, you know, one thing that may not be intuitive, you know, 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 time of the receivable collections and customer deposits, but what level of cash generation should we expect in the future quarters? And also, just related to that, any comments on M&A pipelines in any areas or, you know, comments? Appreciate it. Thank you.

Yeah, sure. Yeah, we had an exceptionally strong cash flow quarter. The teams did a great job on receivables, collections. You know, as you know, our business is very cash flow positive. As many of our contracts were able to bill for the materials ahead of time before we actually have to pay for them. With that said, it's all, they can also be very lumpy. We had some. You know, receivables push out from the first quarter to the second quarter, which is why the second quarter was so high. You know, 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 a $10 million payment that ships 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?

Yeah, when we look at what we're gonna, you know, what we're... I'll just say 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 is M&A, or it would be debt, but we don't have any. So the third in line is M&A. And I'll just say, you know, 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 yeah, the pipeline remains full. Conversations are active, and we're excited about, you know, potential opportunities on the horizon.

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

Thanks, Salma. Thank you. As a reminder, to ask a question, please press star 1. The next question is from Robert Brooks from Northland Capital Markets. Please go ahead.

Hey. Good morning, Dean. Thank you for taking my question. As we think of the increasing needs for more powerbends, items, and high-stress environment, 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 in year-to-date for your fiscal 27 that exemplify that thesis in action?

Yeah. Something that just gets me jazzed. So, Bobby, you know, I'll talk to a few examples at a high level. The first... Specifically, I want to hone in on even a subsector of nuclear. If you look at micro-reactors, so I'm talking containerized reactors that could be deployed at a hyperscale level and look like it's not going to happen overnight, but we do still feel optimistic. Barbara Nichols does design some of the most and produce some of the most power-dense rotating machines on the market, and with the micro-reactor, power density matters. You've 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, Barbara 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. Launch vehicles, as well as satellite systems, as well as astronaut backpacks. So some of that's, you know, been a long conversation. Some of it's converted more recently. So I would just say it's an area that 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, like, maybe step back or expand the view, obviously you have a really strong position within, like, 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 business with American allied naval programs, or is that something that's not really on the table and you kind of focus on there's better opportunities domestic?

No, it's a great question. We do it today. The nice thing is 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. Use 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, you know, we do supply spare parts for different submarine solutions. 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 the capacity, like, so it seems like you're not, you're not necessarily capacity constrained today, but then the Arvada expansion is more about 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 discipline 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.