Graham (GHM) TD Cowen 47th Annual Aerospace & Defense Conference summary

Business and Strategic Overview

• Operates as a global leader in mission-critical vacuum, heat transfer, turbomachinery, fluid, power, and advanced mixing solutions for defense, energy, process, and space sectors, with a diversified portfolio and a $1.7 billion defense backlog visibility.

• Defense now represents 58% of FY25 revenue, energy & process 35%, and space 7%, with a 50/50 defense-commercial split historically.

• Recent acquisitions, including FlackTek for $35 million and Xdot Bearing Technologies, expand into high-value mixing and turbomachinery technologies, supporting M&A strategy and platform growth.

• Focus on leveraging proprietary IP, operational excellence, and R&D to commercialize products and expand into new energy and space markets.

• Strategic facility expansions in Batavia, NY, Jupiter, FL, and Barber Nichols, and groundwork for a growth phase over the next 5–10 years.

Operational and Financial Performance

• Q3 revenue up 21% year-over-year, led by 31% growth in defense and double-digit gains in other segments.

• Adjusted EBITDA for the quarter was $6 million, up 50% year-over-year; TTM Q3 FY26 adjusted EBITDA margin reached 10.7–10.8%.

• Fiscal 2026 guidance: $233–$239 million revenue (12% growth), $24–$28 million adjusted EBITDA, and 24–25% gross margin.

• Record backlog of $515.6–$516 million, 85% defense-related, with a 1.3–1.6 book-to-bill ratio and 35–40% of backlog expected to convert to sales within 12 months.

• By fiscal 2027, targets low- to mid-teen EBITDA margins (13–15%), with a 200 bps margin boost expected as a supplemental earn-out expires.

Margin Dynamics and Growth Levers

• Gross margin slightly declined due to mix and tariffs, but new business and operational improvements are expected to lift margins.

• Defense contracts are often build-to-print with capped margins, while commercial and IP-driven products offer higher margin potential.

• Operational leverage achieved through investments in validation, automation, ERP systems, and digital transformation, reducing lead times and improving efficiency.

• Newer contracts and backlog have higher gross margins than legacy contracts, with legacy low-margin work gradually rolling off.

• SG&A leverage improving as scale increases, with shared services and IT consolidation.