In‐Depth Review: Graham Corporation’s FY2025 10‐K

In its 2025 Form 10‐K, Graham Corporation (NYSE: GHM) underscores its position as a global leader in mission-critical fluid, power, heat-transfer, and vacuum technologies. This review highlights the most important elements of the report, financial performance, strategic direction, and the risks that investors should keep in mind.

Warren.AI 💰 7.2 / 10

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1. Company Overview & Markets

Business Profile

• Graham Corporation designs and manufactures custom engineered equipment: surface condensers, ejectors, cryogenic pumps, turbomachinery, and related systems.
• Headquarters and primary production in Batavia, NY, with major subsidiary Barber-Nichols, LLC (BN) in Arvada, CO, and newly acquired P3 Technologies (Jupiter, FL). Sales/engineering support offices in China and India.

End Markets

• Defense (58% of FY25 sales): Nuclear & non-nuclear propulsion, power, thermal systems for the U.S. Navy (submarines, carriers, torpedoes).
• Energy & Process (35%): Vacuum and heat-transfer systems for oil & gas, refining, petrochemicals, hydrogen, small modular nuclear, geothermal, solar, biofuels.
• Space (7%): Rocket turbopumps, cryogenic fluid systems, thermal management, life-support and space simulation chambers.

Customers

• Tier-1 system integrators, naval shipyards, engineering-procurement-construction firms, satellite launch providers, major energy producers and refiners.

Backlog & Orders

• Funded and unfunded backlog rose 5% to $412 million at FY2025 year-end, with 83% Defense exposure.
• Orders for FY25 totaled $231 million (book-to-bill of 1.1x), driven by naval and aftermarket work.

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2. Acquisition & Diversification

P3 Technologies Acquisition (Nov 2023)

• Purchase price $11.2 million: $7.3 million cash, $1.9 million stock, up to a $3 million earn-out.
• Added turbomachinery diffuser and magnetic pump IP, strengthening BN’s space and cryogenic portfolio.
• Acquisition synergies driving 8–10% organic growth target and EBITDA margins in the low-to-mid teens by FY2027.

Strategic Investments & Capacity Expansion

• Batavia expansion: 30,000 sq ft manufacturing hall (funded by a major Defense grant of $13.5 million).
• P3 cryogenic test lab in Florida, BN land purchase in Colorado for future growth.
• Planned Radiographic Testing (RT) equipment in Batavia (total cost $3.6 million, partially grant funded).

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3. Financial Highlights (FY2025 vs. FY2024)

Top‐Line Growth

• Net sales: $209.9 million, +13% year-over-year. Organic growth in Defense programs (+23%) and Space (+11%), offsetting flat Energy & Process sector.

Profitability

• Gross profit margin: 25.2% vs. 21.9%. Leverage on fixed overhead, execution gains, pricing discipline, partially offset by incentive compensation. FY25 benefited from a $1.3 million Defense welder-training grant.
• SG&A (incl. amortization): $38.9 million vs. $33.6 million, up 16%. Investments in people, ERP implementation ($0.9 million), R&D, BD, and acquisition integration.

Bottom Line

• Net income: $12.2 million ($1.11/share diluted) vs. $4.6 million ($0.42/share).
• Adjusted EBITDA: $22.4 million (10.7% of sales) vs. $13.3 million (7.2%).

Cash & Liquidity

• Operating cash flow: +$24.3 million vs. +$28.1 million. Strong working capital management, progress billings on Defense contracts.
• CapEx: $19.0 million vs. $9.2 million—capacity build-outs and new plant construction.
• Cash balance: $21.6 million vs. $16.9 million. Undrawn credit line of $44.7 million (Wells Fargo).

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4. Strategy & Outlook

Strategic Priorities

1. Targeted Markets: High-barrier, mission-critical segments—Defense, Space, Hydrogen, nuclear, geothermal.
2. Operational Excellence: ERP upgrade, lean manufacturing, supplier diversification.
3. Stakeholder Engagement: Talent development, corporate culture, compliance.
4. Disciplined Capital Allocation: Organic growth investments, technology grants, strategic M&A.

FY2026 Guidance

• Sales: $225–235 million.
• Gross margin: 24.5–25.5%.
• SG&A: 17.5–18.5% of sales (incl. ERP & bonus).
• Adjusted EBITDA: $22–28 million.
• CapEx: $15–18 million (Batavia lab, cryo test, RT equipment).
• Tax rate: 20–22%.

Mid‐Term (FY2027) Targets

• 8–10% average annual organic growth.
• Adjusted EBITDA margin in the low-to-mid teens.
• Diversified revenue mix with ~50% Defense exposure, ~35% Energy & Process, ~15% Space/Clean Energy.

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5. Key Risks & Mitigations

Defense Concentration & Funding Risks

• 58% of sales Defense; ~84% of FY25 orders U.S. Navy.
• Annual U.S. budget and appropriations cycles; program timing uncertainties.
• Re-prioritized ship-building schedules, Inflation Reduction Act spending, DOGE cost-cutting.
• Mitigation: broadening aftermarket, civil Space and Energy & Process work, dual-source supplier strategies.

Energy Cyclicality & Pricing

• 35% of revenue Energy & Process (refining, petrochem, clean energy).
• Cyclical project spending tied to oil & gas prices, capex deferrals.
• Mitigation: locked-in material orders, hydrogen and nuclear markets, aftermarket services.

Supply Chain & Inflation

• Higher steel, raw materials, electronics costs, logistics, tariffs.
• 19% international sales; foreign-currency exposure (CNY, INR) affects competitiveness.
• Mitigation: advance material ordering, in-country manufacturing, localized content.

Technology & Competition

• Intellectual property enforcement in China, India.
• Global competitors with lower cost base.
• Mitigation: proprietary nozzle tech (NextGen), MCD, SCAMP, welder-training grants, brand Jurisdiction expertise.

Geopolitics & Health Crises

• Russia-Ukraine, Israel-Hamas impacting logistics, raw materials.
• COVID-19, other health risks disrupting production and shipping.
• Mitigation: diversified facilities, remote engineering, strong balance sheet.

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6. Final Takeaways & Investment Perspective

Strengths

• Engineering differentiation: Early engagement, customer intimacy, complex custom solutions.
• Skilled workforce: Weld school, apprenticeships, leadership development.
• Market position: Sole or primary source on key U.S. Navy platforms; growing in Space turbomachinery.

Considerations

• Defense funding concentration (58% sales, 83% backlog).
• Energy & Process cyclical headwinds; clean energy transition still nascent.
• Margin expansion supported by backlog funding but sensitive to material inflation.

Outlook

• Confident FY26 growth and profitability improvement.
• High-visibility backlog supports multi-year revenue, margins.
• M&A optionality to fill technology gaps and accelerate entry into adjacent new markets.

Investment Score: 7.2 / 10

• Solid financial momentum, market leadership in Defense & turbomachinery.
• Key risks from funding cycles, cyclicality, geopolitical tensions.
• Execution on investments and diversification will be critical for sustained returns.

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This review is provided for informational purposes and does not constitute investment advice. Always conduct your own analysis or consult a professional before making investment decisions.