# Graham Corp: Form 10-Q for the period ended Sep 30, 2024

- Company: [Graham Corp](/companies/ghm.md) (CIK 716314)
- Form: 10-Q
- Filed: 2024-11-08
- Accepted by EDGAR: Nov 8, 2024, 08:30 ET
- Period: 2024-09-30
- Accession: 0000950170-24-123710
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/716314/000095017024123710/ghm-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/716314/000095017024123710/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $53.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-04-01 to 2024-09-30 | $103.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $40.8m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2024-04-01 to 2024-09-30 | $78.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $12.8m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-04-01 to 2024-09-30 | $25.2m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $8.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2024-04-01 to 2024-09-30 | $17.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $4.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-04-01 to 2024-09-30 | $7.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $1.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-04-01 to 2024-09-30 | $1.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $3.3m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-04-01 to 2024-09-30 | $6.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.30 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-04-01 to 2024-09-30 | $0.57 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.30 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-04-01 to 2024-09-30 | $0.57 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 11,024,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-04-01 to 2024-09-30 | 10,995,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-04-01 to 2024-09-30 | $22.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-04-01 to 2024-09-30 | $6.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2024-04-01 to 2024-09-30 | $854.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-30 | $32.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $138.2m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $249.5m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $127.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $137.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $112.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,000 characters.

(Dollar and share amounts in thousands, except per share data)

### Overview

We are a global leader in the design and manufacture of mission critical fluid, power, heat transfer and vacuum technologies for the defense, space, energy and process industries. For the defense industry, our equipment is used in nuclear and non-nuclear propulsion, power, fluid transfer, and thermal management systems. For the space industry, our equipment is used in propulsion, power and energy management systems and for life support systems. We supply equipment for vacuum, heat transfer and fluid transfer applications used in energy and new energy markets including oil refining, cogeneration, and multiple alternative and clean power applications including hydrogen. For the chemical and petrochemical industries, our equipment is used in fertilizer, ammonia, ethylene, methanol and downstream chemical facilities.

Our brands are built upon engineering expertise and close customer collaboration to design, develop, and produce mission critical equipment and systems that enable our customers to meet their economic and operational objectives. Continual improvement of our processes and systems to ensure qualified and compliant equipment are hallmarks of our brand. Our early engagement with customers and support until the end of service life are values upon which our brands are built.

Our corporate headquarters is located with our production facilities in Batavia, New York, where surface condensers and ejectors are designed, engineered, and manufactured for the defense, energy, and petrochemical industries. Our wholly-owned subsidiary, Barber-Nichols, LLC ("BN"), based in Arvada, Colorado, designs, develops, manufactures and sells specialty turbomachinery products for the space, aerospace, cryogenic, defense, and energy markets. In November 2023, we acquired P3 Technologies, LLC ("P3"), located in Jupiter, Florida (See "Acquisition" below). We also have wholly-owned foreign subsidiaries, Graham Vacuum and Heat Transfer Technology Co., Ltd. ("GVHTT"), located in Suzhou, China and Graham India Private Limited ("GIPL"), located in Ahmedabad, India. GVHTT provides sales and engineering support for us throughout Southeast Asia. GIPL provides sales and engineering support for us in India and the Middle East.

Our fiscal year ends on March 31 of each year. We refer to our fiscal year, which ends March 31, 2025, as fiscal 2025. Likewise, we refer to our fiscal year that ended March 31, 2024 and March 31, 2023 as fiscal 2024 and fiscal 2023, respectively.

### Acquisition

On November 9, 2023, we completed our acquisition of P3, a privately-owned custom turbomachinery engineering, product development, and manufacturing business located in Jupiter, Florida that serves the space, new energy, defense, and medical industries. We believe this acquisition advances our growth strategy, further diversifies our market and product offerings, and broadens our turbomachinery solutions. P3 will be managed through BN and is highly complementary to BN's technology and enhances its turbomachinery solutions.

The purchase price for P3 was $11,238 and was comprised of 125 shares of our common stock, representing a value of $1,930, and cash consideration of $7,268. The cash consideration was funded through borrowings on our line of credit. The purchase agreement included a contingent earn-out dependent upon certain financial measures of P3 post-acquisition, in which the sellers are eligible to receive up to $3,000 in additional cash consideration. See Note 2 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the second quarter ended September 30, 2024 (the "Form 10-Q") for additional information.

### Summary

Highlights for the three months ended September 30, 2024 include:

- Net sales for the second quarter of fiscal 2025 were $53,563, up $8,487, or 19% compared with $45,076 for the second quarter of fiscal 2024. Incremental revenue from the acquisition of P3 accounted for $859 of this increase. The remainder of this increase was spread across our markets including a $5,779 or 23% increase in sales to the defense industry, primarily due to new programs, growth in existing programs, and timing. Net sales for the quarter for the refining and chemical/petrochemical markets increased 15% and 24%, respectively, driven by increased sales in India and the timing of larger capital projects, partially offset by lower aftermarket sales and sales in China. Aftermarket sales to the refining, chemical/petrochemical, and defense markets of $9.8 million remained strong but were $1.5 million lower than the prior year record levels.
- Gross profit and margin for the second quarter of fiscal 2025 was 12,799 and 23.9%, respectively. The 790 basis point improvement in gross profit margin over the comparable period of fiscal 2024 reflected increased leverage on fixed overhead costs due to the higher volume of sales discussed above, as well as an improved mix of sales related to higher margin projects, better execution, and improved pricing. Additionally, second quarter fiscal 2025 gross profit benefited $435 due to a $2,100 grant received from the BlueForge Alliance to reimburse us for the cost of our defense welder training programs

in Batavia and related equipment. To date we have received $1,098 of funding under this grant. The BlueForge Alliance is a nonprofit, neutral integrator that supports the United States ("U.S.") Navy's Submarine Industrial Base Initiatives.

- Selling, general and administrative expenses ("SG&A"), including intangible amortization, for the second quarter of fiscal 2025 increased $2,772 over the same period of fiscal 2024 and reflects the investments we are making in our operations, our employees, and our technology. In connection with the acquisition of BN, we entered into a Performance Bonus Agreement to provide employees of BN with a supplemental performance-based award based on the achievement of BN performance objectives for the fiscal years ending March 31, 2024, 2025, and 2026, which can range between $2,000 to $4,000 per year (the "BN Performance Bonus). During the second quarter of fiscal 2025, we recorded $1,076 related to the BN Performance Bonus, a $274 increase over the prior year. The remainder of the increase in SG&A is primarily due to costs related to the implementation of a new enterprise resource planning ("ERP") system at our Batavia facility and additional costs related to P3, as well as increased professional services fees, research and development investment, and personnel costs in connection with our growth and strategic initiatives.
- Net income and income per diluted share for the second quarter of fiscal 2025 were $3,281 and $0.30, respectively, compared with net income and income per diluted share of $411 and $0.04, respectively, for the second quarter of fiscal 2024. Adjusted net income and adjusted net income per diluted share for the second quarter of fiscal 2025 were $3,414 and $0.31, respectively, compared with adjusted net income and adjusted net income per diluted share of $754 and $0.07, respectively, for the second quarter of fiscal 2024. See "Non-GAAP Measures" below for a reconciliation of adjusted net income and adjusted net income per diluted share to the comparable GAAP amount.
- Orders booked in the second quarter of fiscal 2025 increased to $63,678 compared with $36,464 in the second quarter of fiscal 2024. This increase was primarily in the defense and space markets and included an order received to provide the cryogenic pumps for a space launch vehicle and contract to provide the MK19 Air Turbine Pump for the U.S. Navy Columbia-class submarine, which is a new program for the Company. Additionally, after-market orders for the refining and petrochemical markets for the second quarter of fiscal 2025 increase 11% to $12,741 compared with the prior-year period. For more information on this key performance indicator see "Orders and Backlog" below.
- Backlog was $407,009 at September 30, 2024, compared with $390,868 and $313,343 at March 31, 2024 and September 30, 2023, respectively. This increase was primarily driven by growth in our chemical/petrochemical and space markets. For more information on this key performance indicator see "Orders and Backlog" below.
- Cash and cash equivalents at September 30, 2024 were $32,318, compared with $16,939 at March 31, 2024. This increase was primarily due to cash provided by operating activities of $22,649, partially offset by capital expenditures of $6,464 as we continue to invest in process improvement and longer-term growth opportunities. Cash flow from operations during the quarter was primarily driven by cash net income and a reduction in working capital as a result of strong cash management and favorable contract terms.

### Cautionary Note Regarding Forward-Looking Statements

This Form 10-Q and other documents we file with the Securities and Exchange Commission ("SEC") include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements for purposes of this Form 10-Q. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results implied by the forward-looking statements. Forward-looking statements are indicated by words such as "anticipate," "believe," "continue," "could," "estimate," "can," "may," "intend," "expect," "plan," "goal," "predict," "project," "outlook," "potential," "will," and similar words and expressions.

Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause our actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements including, but not limited to, those described in the "Risk Factors" section in Item 1A of our Annual Report on Form 10-K for fiscal 2024 and elsewhere in the reports we file with the SEC. Undue reliance should not be placed on our forward-looking statements. New risks and uncertainties arise from time to time and we cannot predict these events or how they may affect us and cause actual results to differ materially from those expressed or implied by our forward-looking statements. Therefore, you should not rely on our forward-looking statements as predictions of future events. When considering these risks, uncertainties and assumptions, you should keep in mind the cautionary statements contained in this report and any documents incorporated herein by reference. You should read this document and the documents that we reference in this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

All forward-looking statements included in this Form 10-Q are made only as of the date indicated or as of the date of this Form 10-Q. Except as required by law, we undertake no obligation to update or announce any revisions to forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

### Current Market Conditions

Demand for our equipment and systems for the defense industry is expected to remain strong and continue to expand, based on defense budget plans, accelerated ship build schedules, increased geopolitical tensions, the projected build schedule of submarines, aircraft carriers and undersea propulsion and power systems and the solutions we provide. In addition to U.S. Navy applications, we also provide specialty pumps, turbines, compressors, and controllers for various fluid and thermal management systems used in U.S. Department of Defense radar, laser, electronics, and power systems. We have built a leading position, and in most instances a sole source position, for certain systems and equipment for the defense industry.

Our traditional energy markets are undergoing significant transition. While we expect that fossil fuels will continue to be an important component in the global energy industry for many years to come, there are significant changes in the priorities for capital investments by our customers and the regions in which those investments are being made. We expect that the systemic changes in the energy markets, which are influenced by the increasing use by consumers of alternative fuels and government policies to stimulate their usage, will lead to demand growth for fossil-based fuels that is less than the global growth rate. The timing and catalyst for a recovery in this market remain uncertain. Accordingly, we believe that in the near term the quantity of projects available for us to compete for will remain low and that new project pricing will remain challenging. Additionally, we believe that the majority of new capital investment orders in our traditional energy markets will be outside the U.S. such as India and the Middle-East. Finally, over the last few years we have experienced an increase in our energy and chemical aftermarket orders primarily from the domestic market as our customers continue to maintain and invest in the facilities they currently operate. We expect this trend to continue for the foreseeable future.

Over the long-term, we expect that population growth, an expanding global middle class, and an increasing desire for improved quality of life and access to consumer products will drive increased demand for industrial goods within the plastics and resins value chain along with fertilizers and related products. As such, we expect investment in new global chemical and petrochemical capacity will improve and drive growth in demand for our products and services.

We intend to stay competitive in our traditional energy and chemical/petrochemical markets by investing in technology such as our NextGen steam ejector nozzle, which has been engineered to reduce steam consumption, lower operating costs, and increase system capacity, allowing refineries and process plants to enhance throughput while minimizing their carbon footprint. We estimate that the total market opportunity for our NextGen nozzle exceeds $50 million over the next 5 to 10 years.

Our turbomachinery, pumps, and cryogenic products and market access provide revenue and growth potential in the commercial space/aerospace markets. The commercial space market has grown and evolved rapidly, and we provide rocket engine turbopump systems and components to many of the launch providers for satellites. We expect that in the long-term, extended space exploration will become more prevalent, and we anticipate that our thermal/fluid management and environmental control and life support system turbomachinery will play important roles. We are also participating in future aerospace power and propulsion system development through supply of fluid and thermal management systems components. Small power dense systems are imperative for these applications, and we believe our technology and expertise will enable us to achieve sales growth in this market. Sales and orders to the space industry are variable in nature and many of our customers, who are key players in the industry, have yet to achieve profitability and may be unable to continue operations without additional funding. As a result, future revenue and growth to this market can be uncertain and may negatively impact our business.

The alternative and clean energy opportunities for our heat transfer, power production and fluid transfer systems are expected to continue to grow. We assist in designing, developing and producing equipment for hydrogen production, distribution and fueling systems, concentrated solar power and storage, small modular nuclear systems, bioenergy products, and geothermal power generation with lithium extraction. We are positioning the Company to be a more significant contributor as these markets continue to develop.

As illustrated below, we have succeeded over the last several years with our strategy to increase our participation in the defense market, which comprised 83% of our total backlog at September 30, 2024.

\*Note: "FYE" refers to fiscal year ended March 31

### Results of Operations

To better understand the significant factors that influenced our performance during the periods presented, the following discussion should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and the notes to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q.

The following table summarizes our results of operations for the periods indicated:

|  | Three Months Ended September 30, 2024 | 2023 | Six Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $53,563 | $45,076 | $103,514 | $92,645 |
| Gross profit | $12,799 | $7,191 | $25,167 | $18,168 |
| Gross profit margin | 24% | 16% | 24% | 20% |
| SG&A expenses | $9,160 | $6,388 | $18,434 | $13,681 |
| SG&A as a percent of sales | 17% | 14% | 18% | 15% |
| Net income | $3,281 | $411 | $6,247 | $3,051 |
| Income per diluted share | $0.30 | $0.04 | $0.57 | $0.28 |

The following tables provide our net sales by product line and geographic region including the percentage of total and change in comparison to the prior year for each category and period presented. Percentages may not sum to the total due to rounding:

### Second Quarter and First Six Months of Fiscal 2025 Compared with Second Quarter and First Six Months of Fiscal 2024

Net sales for the second quarter of fiscal 2025 increased $8,487, or 19%, compared with the second quarter of fiscal 2024. Incremental revenue from the acquisition of P3 accounted for $859 of this increase. The remainder of this increase was spread across our markets including a $5,779, or 23%, increase in sales to the defense industry, primarily due to new programs, growth in existing programs, and timing. Net sales for the quarter for the refining and chemical/petrochemical markets increased 15% and 24%, respectively, driven by increased sales in India and the timing of larger capital projects, partially offset by lower aftermarket sales and sales in China. Aftermarket sales to the refining, chemical/petrochemical, and defense markets of $9.8 million remained strong but were $1.5 million lower than the prior year record levels.

Domestic sales as a percentage of aggregate sales were 85% in the second quarter of fiscal 2025, comparable to the 86% in the second quarter of fiscal 2024, reflecting our continued presence in the defense industry, which is U.S. based. Sales for the three months ended September 30, 2024 were 58% to the defense industry compared to 56% for the comparable quarter in fiscal 2024.

Net sales for the first six months of fiscal 2025 increased $10,869, or 12%, from the first six months of fiscal 2024. Approximately $2,437 of this increase was due to the acquisition of P3. Additionally, the increase over the prior year was due to a $12,056, or 28%, increase in sales to the defense industry, primarily due to better execution, improved pricing, new programs, growth in existing programs, and increased direct labor. Net sales for the first six months of fiscal 2025 to the refining market increased 18%, driven by increased sales in India and the timing of larger capital projects, partially offset by lower aftermarket sales and sales in China. Aftermarket sales to the refining, chemical/petrochemical, and defense markets of $17,610 remained strong but were $4,553 lower than the prior year record levels. These increases were partially offset by a $3,254 decrease in "Other" sales due to project timing across multiple markets and customers.

Domestic sales as a percentage of aggregate sales were 83% for the first six months of fiscal 2025, comparable to the same period of fiscal 2024, reflecting our continued presence in the defense industry, which is U.S. based. Sales for the six months ended September 30, 2024 were 58% to the defense industry compared to 52% for the comparable quarter in fiscal 2024. Fluctuation in sales among markets, products and geographic locations varies, sometimes significantly, from quarter-to-quarter based on timing and magnitude of projects. See also "Current Market Conditions," above. For additional information on anticipated future sales and our markets, see "Orders and Backlog" below.

Gross profit and margin for the second quarter of fiscal 2025 was $12,799 and 23.9%, respectively. Gross profit and margin for the first six months of fiscal 2025 was $25,167 and 24.3%, respectively. These 790 and 470 basis point improvements in gross profit margin over the comparable quarter and year-to-date periods of fiscal 2024, respectively, reflected increased leverage on fixed overhead costs due to the higher volume of sales discussed above, as well as an improved mix of sales related to higher margin projects, better execution, and improved pricing, partially offset by higher incentive compensation in comparison with the prior year. Additionally, second quarter and the first six months of fiscal 2025 gross profit benefited $435 and $915, respectively, from a $2,100 grant received from the BlueForge Alliance to reimburse us for the cost of our defense welder training programs in Batavia and related equipment. To date we have received $1,098 of funding under this grant.

Changes in SG&A expense, including amortization expense, for the three and six months ending September 30, 2024 versus the comparable prior year period is as follows:

|  | Change Q2 FY25 vs. Q2 FY24 | Change YTD Q2 FY25 vs. YTD Q2 FY24 |
| --- | ---: | ---: |
| BN Performance Bonus | $274 | $583 |
| Amortization of intangibles | 164 | 326 |
| P3 Technologies | 207 | 394 |
| ERP implementation costs | 205 | 547 |
| Equity based compensation | 204 | 260 |
| Performance-based compensation | 236 | 112 |
| Professional fees | 154 | 373 |
| Research & development | 176 | 530 |
| Personnel costs | 469 | 901 |
| All other | 683 | 727 |
| Total SG&A change | $2,772 | $4,753 |

In connection with the acquisition of BN, we entered into a Performance Bonus Agreement to provide employees of BN with a supplemental performance-based award based on the achievement of BN performance objectives for fiscal years ending March 31, 2024, 2025 and 2026, which can range between $2,000 and $4,000 per year. The increase in research and development costs reflects the increased level of investment we are making in our products and technology. The increase in ERP implementation costs related to the new ERP system at our Batavia facility. In addition to the above, P3 added $371 and $720 to SG&A expense for the quarter and first six months of fiscal 2025 versus the prior year, respectively, which includes amortization of customer relationship and tradename intangibles. Other increases to SG&A include increases due to normal merit increases as well as increased staffing to support our growth.

Other operating income represents the change in fair value of the P3 contingent earn-out liability and was $596 and $726 for the three and six month periods ended September 30, 2024, respectively, versus $0 for the comparable prior year periods of fiscal 2024.

Net interest income for the second quarter and first six months of fiscal 2025 was $153 and $314, respectively, compared to net interest expense of $55 and $240 for the comparable periods of fiscal 2024, respectively. This increase in interest income was due to our strong cash position and lower debt levels versus fiscal 2024.

Our effective tax rate for the second quarter of fiscal 2025 was 24%, compared with 37% in the second quarter of fiscal 2024. Our effective tax rate for the first six months of fiscal 2025 was 18%, compared with 25% for the first six months of fiscal 2024. Our effective tax rate can vary significantly from quarter to quarter depending on the level of projected pre-tax income, the amount of projected income derived from our higher tax rate foreign subsidiaries, as well as the timing of discrete tax items, primarily related to the vesting of restricted stock awards. The decrease in our effective tax rate was primarily due to a discrete benefit recognized in the first quarter of fiscal 2025 related to the vesting of restricted stock awards and the Company's improved stock price over the last year. Additionally, the first six months of fiscal 2025 effective tax rate benefited from a higher mix of income in lower tax rate jurisdictions in fiscal 2025 compared to fiscal 2024. For fiscal 2025, we expect our effective tax rate to be between 20% and 22%, as the impact of these discrete tax items on our full year effective tax rate lessens over the course of the year.

The result of the above is that net income and income per diluted share for the second quarter of fiscal 2025 were $3,281 and $0.30, respectively, compared with $411 and $0.04, respectively, for the second quarter of fiscal 2024. Adjusted net income and adjusted net income per diluted share for the second quarter of fiscal 2025 were $3,414 and $0.31, respectively, compared with net income of $754 and $0.07, respectively, for the second quarter of fiscal 2024. See "Non-GAAP Measures" below for a reconciliation of adjusted net income and adjusted net income per diluted share to the comparable GAAP amount.

Net income and income per diluted share for the first six months of fiscal 2025 were $6,247 and $0.57, respectively, compared with net income of $3,051 and $0.28, respectively, for the first six months of fiscal 2024. Adjusted net income and adjusted net income per diluted share for the first six months of fiscal 2025 were $6,999 and $0.64, respectively, compared with net income of $3,737 and $0.35, respectively, for the first six months of fiscal 2024. See "Non-GAAP Measures" below for a reconciliation of adjusted net income and adjusted net income per diluted share to the comparable GAAP amount.

### Non-GAAP Measures

Adjusted net income before interest (income) expense, income taxes, depreciation and amortization ("EBITDA"), adjusted net income, and adjusted net income per diluted share are provided for informational purposes only and are not measures of financial performance under accounting principles generally accepted in the U.S. ("GAAP").

Management believes the presentation of these financial measures reflecting non-GAAP adjustments provides important supplemental information to investors and other users of our financial statements in evaluating the operating results of the Company. In particular, those charges and credits that are not directly related to our operating performance, and are not reflective of our underlying business particularly in light of their unpredictable nature. These non-GAAP disclosures have limitations as analytical tools, should not be viewed as a substitute for net income or net income per diluted share determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. In addition, supplemental presentation should not be construed as an inference that our future results will be unaffected by similar adjustments to net income or net income per diluted share determined in accordance with GAAP. Adjusted EBITDA, adjusted net income and adjusted net income per diluted share are key metrics used by management and our board of directors to assess the Company’s financial and operating performance and adjusted EBITDA is a basis for a significant portion of management's performance-based compensation.

Adjusted EBITDA excludes charges for depreciation, amortization, interest (income) expense, income taxes, acquisition related (income) expenses, equity-based compensation, ERP implementation costs, and other unusual/nonrecurring items. Adjusted net income and adjusted net income per diluted share exclude intangible amortization, acquisition related (income) expenses, other unusual/nonrecurring items, and the related tax impacts of those adjustments.

A reconciliation of adjusted EBITDA, adjusted net income and adjusted net income per diluted share to net income in accordance with GAAP is as follows:

|  | Three Months Ended September 30, 2024 | 2023 | Six Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| **Net income** | **$3,281** | **$411** | **$6,247** | **$3,051** |
| Acquisition & integration income | (587) | - | (680) | - |
| Equity-based compensation | 434 | 332 | 778 | 625 |
| ERP implementation costs | 205 | - | 547 | - |
| Net interest (income) expense | (153) | 55 | (314) | 240 |
| Income tax expense | 1,016 | 243 | 1,344 | 1,009 |
| Depreciation & amortization | 1,419 | 1,201 | 2,830 | 2,440 |
| **Adjusted EBITDA(1)** | **$5,615** | **$2,242** | **$10,752** | **$7,365** |
| **Net Sales** | **$53,563** | **$45,076** | **$103,514** | **$92,645** |
| Net income as a % of revenue | 6.1% | 0.9% | 6.0% | 3.3% |
| Adjusted EBITDA as a % of revenue | 10.5% | 5.0% | 10.4% | 7.9% |
| (1) Beginning in the fourth quarter of fiscal 2024, adjusted EBITDA no longer excludes the BN Performance Bonus, but now excludes the impact of non-cash equity-based compensation expense in order to be more consistent with market practice. Prior period results have been adjusted to reflect these changes on a comparable basis. The BN Performance Bonus expense was $1,076 and $2,152 for the second quarter and first six months of fiscal 2025, respectively, and $802 and $1,569 for the second quarter and first six months of fiscal 2024, respectively, and will be completed at the end of fiscal year 2026. |  |  |  |  |

|  | Three Months Ended September 30, 2024 | 2023 | Six Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| **Net income** | **$3,281** | **$411** | **$6,247** | **$3,051** |
| Acquisition & integration income | (587) | - | (680) | - |
| Amortization of intangible assets | 555 | 445 | 1,109 | 891 |
| ERP implementation costs | 205 | - | 547 | - |
| Normalized tax rate(1) | (40) | (102) | (224) | (205) |
| **Adjusted net income(2)** | **$3,414** | **$754** | **$6,999** | **$3,737** |
| **GAAP net income per diluted share** | **$0.30** | **$0.04** | **$0.57** | **$0.28** |
| **Adjusted net income per diluted share** | **$0.31** | **$0.07** | **$0.64** | **$0.35** |
| Diluted weighted average common shares outstanding | 11,024 | 10,810 | 10,995 | 10,761 |
| (1) Applies a normalized tax rate to non-GAAP adjustments, which are pre-tax, based upon the statutory tax rate. |  |  |  |  |
| (2) Beginning in the fourth quarter of fiscal 2024, adjusted net income no longer excludes the BN Performance Bonus. Prior period results have been adjusted to reflect this change on a comparable basis. The BN Performance Bonus expense, net-of-tax, was $829 and $1,657 for the second quarter and first six months of fiscal 2025, respectively, and $618 and $1,208 for the second quarter and first six months of fiscal 2024, respectively, and will be completed at the end of fiscal year 2026. |  |  |  |  |

Acquisition and integration (income) costs are incremental costs that are directly related to and as a result of the P3 acquisition. These costs (income) may include, among other things, professional, consulting and other fees, system integration costs, and contingent consideration fair value adjustments. ERP implementation costs primarily relate to consulting costs (training, data conversion, and project management) incurred in connection with the ERP system being implemented throughout our Batavia, New York facility in order to enhance efficiency and productivity and are not expected to recur once the project is completed.

### Liquidity and Capital Resources

The following discussion should be read in conjunction with our Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Statements of Cash Flows:

|  | September 30, 2024 | March 31, 2024 |
| --- | ---: | ---: |
| Cash and cash equivalents | $32,318 | $16,939 |
| Working capital (1) | 10,397 | 8,112 |
| Working capital ratio(1) | 1.1 | 1.1 |

(1) Working capital equals current assets minus current liabilities. Working capital ratio equals current assets divided by current liabilities.

Net cash provided by operating activities for the first six months of fiscal 2025 was $22,649 compared with $11,898 for the first six months of fiscal 2024. This increase was primarily a result of higher cash net income and a reduction in working capital. Over the last year, cash flow from operations benefited approximately $21,000 from customer deposits, net of unbilled revenue, primarily from long-term U.S. Navy defense contracts/projects, that will require cash expenditures over the next 12 to 24 months, which could reduce cash flows from operations.

Capital expenditures for the first six months of fiscal 2025 was $6,464 compared to $3,312 for the comparable period in fiscal 2024. Capital expenditures for fiscal 2025 were primarily for machinery and equipment, as well as for buildings and leasehold improvements to support our growth and productivity improvement initiatives and included expenditures related to the expansion of defense production capabilities at our Batavia facility, which is primarily being funded by a $13,500 strategic grant from one of our defense customers. We have increased our expected fiscal 2025 capital expenditures to be in the range of $13,000 to $18,000 from our previous expectations of $10,000 to $15,000 due to a land purchase in Arvada, Colorado and plans to build a cryogenic propellant (LH2, LOX, LCH4) testing facility in Florida to support future growth and customer needs. Approximately half of our planned capital expenditures for fiscal 2025 are discretionary, with the other half being related to the Batavia facility defense expansion. We estimate that our maintenance capital spend is approximately $2,000 per year. However, for the next several years we expect capital expenditures to be approximately 7% to 10% of sales as we continue to invest in our business in order to support our long-term organic growth goals.

Cash and cash equivalents were $32,318 at September 30, 2024 compared with $16,939 at March 31, 2024, up $15,379 primarily due to cash provided by operations, offset by capital expenditures. At September 30, 2024, $4,890 of our cash and cash equivalents was used to secure our letters of credit and $3,816 of our cash was held by foreign subsidiaries.

On October 13, 2023, we terminated our revolving credit facility and repaid our term loan with Bank of America, and entered into a new five-year revolving credit facility with Wells Fargo that provides a $35,000 line of credit that automatically increases to $50,000 upon the Company satisfying specified covenants, which were satisfied during the second quarter of fiscal 2025 (the "New Revolving Credit Facility"). As of September 30, 2024, there were no borrowings and $6,847 letters of credit outstanding on the New Revolving Credit Facility and the amount available to borrow was $43,152, subject to interest and leverage covenants.

The New Revolving Credit Facility contains customary terms and conditions, including representations and warranties and affirmative and negative covenants, as well as financial covenants for the benefit of Wells Fargo, which require us to maintain (i) a consolidated total leverage ratio not to exceed 3.50:1.00 and (ii) a consolidated fixed charge coverage ratio of at least 1.20:1.00, in both cases computed in accordance with the definitions and requirements specified in the New Revolving Credit Facility. As of September 30, 2024, we were in compliance with the financial covenants of the New Revolving Credit Facility and our leverage ratio as calculated in accordance with the terms of the New Revolving Credit Facility was 0.6x.

The New Revolving Credit Facility contains terms that may, under certain circumstances as defined in the agreement, restrict our ability to declare or pay dividends. Any determination by our Board of Directors regarding dividends in the future will depend on a variety of factors, including our future financial performance, organic and inorganic growth opportunities, general economic conditions, and financial, competitive, regulatory, and other factors, many of which are beyond our control. We did not pay any dividends during the six months ended September 30, 2024, or during fiscal 2024 and currently have no intention to pay dividends for the foreseeable future.

We did not have any off-balance sheet arrangements as of September 30, 2024 and 2023, other than letters of credit incurred in the ordinary course of business.

We believe that cash generated from operations combined with the liquidity provided by our New Revolving Credit Facility, will be adequate to meet our cash needs for the immediate future.

### Orders and Backlog

In addition to the non-GAAP measures discussed above, management uses the following key performance metrics to analyze and measure our financial performance and results of operations: orders, backlog, and book-to-bill ratio. Management uses orders and backlog as measures of current and future business and financial performance and these may not be comparable with measures provided by other companies. Orders represent written communications received from customers requesting us to provide products and/or services. Backlog is defined as the total dollar value of net orders received for which revenue has not yet been recognized. Management believes tracking orders and backlog are useful as it often times is a leading indicator of future performance. In accordance with industry practice, contracts may include provisions for cancellation, termination, or suspension at the discretion of the customer.

The book-to-bill ratio is an operational measure that management uses to track the growth prospects of the Company. The Company calculates the book-to-bill ratio for a given period as net orders divided by net sales.

Given that each of orders, backlog, and book-to-bill ratio is an operational measure and that the Company's methodology for calculating orders, backlog and book-to-bill ratio does not meet the definition of a non-GAAP measure, as that term is defined by the SEC, a quantitative reconciliation for each is not required or provided.

The following tables provides our orders by market and geographic region including the percentage of total orders and change in comparison to the prior year for each category and period presented. Percentages may not sum to the total due to rounding:

Orders booked in the second quarter of fiscal 2025 were $63,678 or 1.2x net sales for the quarter. Orders booked for the six-month were $119,445 or 1.2x net sales for the period. As a result, backlog increased $10,234 (3%) during the quarter and $16,141 (4%) for the first six month of fiscal 2025 to $407,009 at September 30, 2024. Orders for the second quarter of fiscal 2025 benefited from a contract to provide the cryogenic pumps for a space launch vehicle and contract to provide the MK19 Air Turbine Pump for the U.S. Navy Columbia-class submarine, which is a new program for the Company. In addition to the above, orders for the first six months of fiscal 2025 included follow-on orders for the second option year of alternators and regulators for the U.S. Navy MK48 Torpedo program, as well as an order for three surface condenser systems for the world's first net-zero carbon emissions integrated ethylene cracker and derivatives site located in North America. Additionally, after-market orders for the refining and petrochemical markets for the second quarter and first six months of fiscal 2025 were approximately $12,741 and $20,953, respectively, representing an 11% and 8% increase over the prior-year, respectively. Orders for the first six months of fiscal 2024 included $22,000 related to a strategic investment and follow-on orders from a major defense customer and $9,100 for a vacuum distillation system for a refinery in India.

Orders to the U.S. represented 74% of total orders for the first six months of fiscal 2025 compared to 81% for the prior year. These orders were primarily to the defense market which are U.S. based.

The following table provides our backlog by market, including the percentage of total backlog, for each category and period presented. Percentages may not sum to the total due to rounding:

|  | September 30, | September 30, | Change |
| --- | ---: | ---: | ---: |
| Market | **2024%** | **2023%** | **$%** |
| Refining | $30,653 8% | $29,116 9% | $1,537 5% |
| Chemical/Petrochemical | 21,633 5% | 13,705 4% | 7,928 58% |
| Space | 18,180 4% | 7,263 2% | 10,917 150% |
| Defense | 327,438 80% | 250,732 80% | 76,706 31% |
| Other | 9,105 2% | 12,527 4% | (3,422) -27% |
| Total backlog | $407,009 100% | $313,343 100% | $93,666 30% |

We expect to recognize revenue on approximately 35% to 45% of the backlog within one year, 30% to 40% in one to two years and the remaining beyond two years. The majority of the orders that are expected to convert beyond twenty-four months are for the defense industry, specifically the U.S. Navy that have a long conversion cycle (up to six years).

### Outlook

We are providing the following updated fiscal 2025 outlook ($ in thousands):

|  | New Guidance | Previous Guidance |
| --- | --- | --- |
| Net Sales | $200,000 to $210,000 | $200,000 to $210,000 |
| Gross Profit | 23% - 24% of sales | 22% - 23% of sales |
| SG&A Expenses (Including Amortization)(1) | 17% - 18% of sales | 16.5% - 17.5% of sales |
| Tax Rate | 20% to 22% | 20% to 22% |
| Adjusted EBITDA(2) | $18,000 to $21,000 | $16,500 to $19,500 |
| Capital Expenditures | $13,000 to $18,000 | $10,000 to $15,000 |
| (1) Includes approximately $6,500 to $7,500 of BN Performance Bonus, equity-based compensation, and ERP conversion costs included in SG&A expense. |  |  |
| (2) Excludes net interest expense, income taxes, depreciation and amortization from net income, as well as approximately $2,000 to $3,000 of equity-based compensation and ERP conversion costs included in SG&A expense and approximately $700 of acquisition & integration income, net. |  |  |

See "Cautionary Note Regarding Forward-Looking Statement" and "Non-GAAP Measures" above for additional information about forward-looking statements and non-GAAP measures. We have not reconciled non-GAAP forward-looking adjusted EBITDA to its most directly comparable GAAP measure, as permitted by Item 10(e)(1)(i)(B) of Regulation S-K. Such reconciliation would require unreasonable efforts to estimate and quantify various necessary GAAP components largely because forecasting or predicting our future operating results is subject to many factors out of our control or not readily predictable.

We have made significant progress with the advancements in our business, which puts us on schedule in achieving our fiscal 2027 goals of 8% to 10% average annualized organic revenue growth and adjusted EBITDA margins in the low to mid-teens.

Our expectations for sales and profitability assume that we will be able to operate our production facilities at planned capacity, have access to our global supply chain including our subcontractors, do not experience significant global health related disruptions, and assumes no further impact from any other unforeseen events.

### Contingencies and Commitments

We have been named as a defendant in lawsuits alleging personal injury from exposure to asbestos allegedly contained in or accompanying our products or from exposure to asbestos at the Company's facilities. We are a co-defendant with numerous other defendants in these lawsuits and intend to vigorously defend ourselves against these claims. The claims in most of our current lawsuits are similar to those made in previous asbestos lawsuits that named us as a defendant. Such previous lawsuits either were dismissed when it was shown that we had not supplied products to the plaintiffs’ places of work, or were settled by us for immaterial amounts. We believe that the resolution of these asbestos-related lawsuits will not have a material adverse effect on our financial position or results of operations. However, legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of these asbestos-related lawsuits could have a material adverse impact on our financial position and results of operations.

During the third quarter of fiscal 2024, the Audit Committee of the Board of Directors, with the assistance of external counsel and forensic professionals, concluded an investigation into a whistleblower complaint received regarding GIPL. The investigation identified evidence supporting the complaint and other misconduct by employees. The other misconduct total $150 over a period of four years and was isolated to GIPL. All involved employees have been terminated and we have implemented remedial actions, including strengthening our compliance program and internal controls. As a result of the investigation, during the third quarter of fiscal 2024, the statutory auditor and bookkeeper of GIPL tendered their resignations and new firms were appointed. We have voluntarily reported the findings of our investigation to the appropriate authorities in India and the U.S. Department of Justice and the SEC. Although the resolutions of these matters are inherently uncertain, we do not believe any remaining impact will be material to our overall consolidated results of operations, financial position, or cash flows.

As of September 30, 2024, we are subject to the claims noted above, as well as other legal proceedings and potential claims that have arisen in the ordinary course of business. Although the outcome of the lawsuits, legal proceedings or potential claims to which we are or may become a party cannot be determined and an estimate of the reasonably possible loss or range of loss cannot be made for the majority of the claims, we do not believe that the outcomes, either individually or in the aggregate, will have a material adverse effect on our results of operations, financial position or cash flows. See Note 10 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for additional information.

### Critical Accounting Policies, Estimates, and Judgments

Our Unaudited Condensed Consolidated Financial Statements are based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make significant assumptions. We believe that the most critical accounting estimates used in the preparation of our Unaudited Condensed Consolidated Financial Statements relate to labor hour estimates, total cost, and establishment of operational milestones which are used to recognize revenue over time, accounting for contingencies, under which we accrue a loss when it is probable that a liability has been incurred and the amount can be reasonably estimated, accounting for business combinations and intangible assets, and accounting for pensions and other postretirement benefits. There have been no material changes to the aforementioned critical accounting policies and estimates. For further information, refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8 "Financial Statements and Supplementary Data" included in our Annual Report on Form 10-K for the year ended March 31, 2024.

### New Accounting Pronouncements

In the normal course of business, management evaluates all new Accounting Standards Updates and other accounting pronouncements issued by the Financial Accounting Standards Board, SEC, or other authoritative accounting bodies to determine the potential impact they may have on the Company's Unaudited Condensed Consolidated Financial Statements. Other than those discussed in the Unaudited Condensed Consolidated Financial Statements, management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company's Unaudited Condensed Consolidated Financial Statements. For discussion of the newly issued accounting pronouncements see Note 14 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for additional information.

## Market risk

As filed, 4,627 characters.

The principal market risks (i.e., the risk of loss arising from market changes) to which we are exposed are foreign currency exchange rates, price risk, and interest rate risk.

The assumptions applied in preparing the following qualitative and quantitative disclosures regarding foreign currency exchange rate, price risk and interest rate risk are based upon volatility ranges experienced by us in relevant historical periods, our current knowledge of the marketplace, and our judgment of the probability of future volatility based upon the historical trends and economic conditions of the markets in which we operate.

### Foreign Currency

International consolidated sales for the first six months of fiscal 2025 were 18% of total sales. Operating in markets throughout the world exposes us to movements in currency exchange rates. Currency movements can affect sales in several ways, the foremost being our ability to compete for orders against foreign competitors that base their prices on relatively weaker currencies. Business lost due to competition for orders against competitors using a relatively weaker currency cannot be quantified. In addition, cash can be adversely impacted by the conversion of sales made by us in a foreign currency to U.S. dollars. In the first six months of fiscal 2025, substantially all sales by us and our wholly-owned subsidiaries, for which we were paid, were denominated in the local currency of the respective subsidiary (U.S. dollars, Chinese RMB or India INR). For the first six months of fiscal 2025, foreign currency exchange rate fluctuations increased our cash balances by $41 primarily due to the weakening of the U.S. dollar.

We have limited exposure to foreign currency purchases. In the first six months of fiscal 2025, our purchases in foreign currencies represented approximately 6% of the cost of products sold. At certain times, we may enter into forward foreign currency exchange rate agreements to hedge our exposure against potential unfavorable changes in foreign currency values on significant sales and purchase contracts negotiated in foreign currencies. Forward foreign currency exchange rate contracts were not used in the periods being reported in this Form 10-Q and as of September 30, 2024 and March 31, 2024, we held no forward foreign currency contracts.

### Price Risk

Operating in a global market place requires us to compete with other global manufacturers which, in some instances, benefit from lower production costs and more favorable economic conditions. Although we believe that our customers differentiate our products on the basis of our manufacturing quality, engineering experience, and customer service, among other things, such lower production costs and more favorable economic conditions mean that our competitors are able to offer products similar to ours at lower prices. In extreme market downturns, we typically see depressed price levels. Additionally, we have faced, and may continue to face, significant cost inflation, specifically in labor costs, raw materials, and other supply chain costs due to increased demand for raw materials and resources caused by the broad disruption of the global supply chain. International conflicts or other geopolitical events, including the 2022 Russian invasion of Ukraine and the Israel-Hamas war, may further contribute to increased supply chain costs due to shortages in raw materials, increased costs for transportation and energy, disruptions in supply chains, and heightened inflation. Further escalation of geopolitical tensions may also lead to changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain, and consequently our results of operations. While there could ultimately be a material impact on our operations and liquidity, at the time of this report, the impact could not be determined.

### Interest Rate Risk

In order to fund our strategic growth objectives, including acquisitions, from time to time we may borrow funds under our New Revolving Credit Facility that bears interest at a variable rate. As part of our risk management activities, we evaluate the use of interest rate derivatives to add stability to interest expense and to manage our exposure to interest rate movements. As of September 30, 2024, we had no variable rate debt outstanding on our New Revolving Credit Facility and no interest rate derivatives outstanding. See "Debt" in Note 13 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for additional information about our outstanding debt.

## Controls and procedures

As filed, 2,234 characters.

#### Conclusion regarding the effectiveness of disclosure controls and procedures

Our President and Chief Executive Officer (our principal executive officer) and Vice President - Finance and Chief Financial Officer (our principal financial officer) each have evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Form 10-Q. Based on such evaluation, and as of such date, our President and Chief Executive Officer and Vice President - Finance and Chief Financial Officer concluded that our disclosure controls and procedures were effective in all material respects.

#### Changes in internal control over financial reporting

Other than the events discussed under the section entitled "P3 Technologies, LLC Acquisition" below, there has been no change to our internal control over financial reporting during the quarter covered by this Form 10-Q that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

#### P3 Technologies, LLC Acquisition

On November 9, 2023, we acquired P3, a privately-owned custom turbomachinery engineering, product development, and manufacturing business that serves the space, new energy, defense, and medical industries. For additional information regarding the acquisition, refer to Note 2 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 in this Form 10-Q and Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part I, Item 2 in this Form 10-Q. Based on the recent completion of this acquisition and, pursuant to the SEC's guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment for a period not to exceed one year from the date of acquisition, the scope of our assessment of the effectiveness of internal control over financial reporting as of the end of the period covered by this report does not include P3.

We are in the process of implementing our internal control structure over P3 and we expect that this effort will be completed during the fiscal year ending March 31, 2025.

## Risk factors

As filed, 167 characters.

There have been no material changes from the risk factors previously disclosed in Part 1 – Item 1A of the Company’s Form 10-K for the fiscal year ended March 31, 2024.

Filed Nov 8, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-123710. Last ingested by Listed: Oct 27, 2026, 09:59 ET. No prices; not investment advice.