Graham Corporation

Greetings. Welcome to the Graham Corporation Fiscal First Quarter 2027 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Tom Cook, Investor Relations. Thank you, Tom. You may begin.

Thank you, Dylan. Good morning, everyone. Welcome to Graham's first 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 first 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 first quarter fiscal 2027 results. I'm pleased with the start to fiscal year 2027. as we continue to execute on our strategic priorities and see significant momentum across the end markets we serve. Our first quarter results demonstrate the continued growth and durability of our platform. We delivered record first quarter revenue of $71.3 million, an increase of 29% with growth across each of our businesses. Adjusted EBITDA increased 28% to $8.8 million. totaling a total of 95.9 million and backlog increase to another record of $557 million. These results reflect the strength of our diversified business model, strong demand for our mission critical technologies and discipline execution across the organization. The benefits of these investments we have made over the last several years are beginning to bear fruit as well. We have expanded capacity strengthened our engineering and manufacturing capabilities, invested in automation and advanced testing infrastructure, modernized our systems, and broadened our technology portfolio through the acquisitions of FlacTech and xDOT. Many of these investments are now operational and beginning to support higher production volumes, new program opportunities, and improved operational performance. On our fourth quarter earnings call, and our investor day in June, we provided our guidance for fiscal 2027, calling for 18% revenue growth and 44% adjusted EBITDA growth. Our strong start to fiscal 2027 positions us well to achieve those targets. Additionally, we outlined how the investments are making combined with favorable demand environment and our record backlog. Position Graham for sustained profitable growth. We introduced a three-year financial framework targeting 8% to 10% organic revenue growth and adjusted EBITDA margins of 14% to 16% by fiscal year 2029. With our sights set on achieving top quartile performance over time, during the quarter we continued to make significant progress towards these goals. Turning to our end markets on slide four and starting with defense, demand remains very strong. Defense revenue increased 40% during the quarter, driven by timing of project milestones, new program activity, and continued growth across existing programs. Our performance reflects the strategic importance of the platforms we support, the durability of our customer relationships, and our ability to execute on highly complex mission-critical applications. Our naval business continues to benefit from increasing activity across the Columbia and Virginia-class submarine programs, as well as the MK-48 Mod 7 heavyweight torpedo program. During the first quarter, we received approximately $61.8 million of new and follow-on defense orders supporting these programs. Also, as we announced in our release last night, we secured a new contract to provide MK-19 Mod 2 air turbine pump assemblies supporting submarine fleet spares, which when combined with the Mark 48 award in the first quarter totaled approximately $43 million. These awards are a validation of the investments we have made to increase our capacity and technical capabilities. Our new Navy and X-ray facilities in Batavia are operational, our automated welding systems have been commissioned, and our assembly and test capabilities are increasingly supporting production. These investments improve throughput, enhance quality, and position us to meet increasing production requirements across critical Navy platforms for decades to come. Beyond our traditional Navy business, we continue to see attractive opportunities in next generation defense applications, including radar and directed energy systems. Our thermal management, cooling, power electronics, and turbo machinery technologies provide meaningful advantages in applications where customers require greater capability in increasingly compact systems. Several of these programs are transitioning from development to production and represent attractive multi-year growth opportunities. Moving to space, momentum continues to build. Space revenue increased 86% during the quarter, reflecting new programs, the continued ramp of existing programs, and contributions from Plaquetech. Orders totaled $14.4 million, representing a book-to-bill of 2.3 times. Customers across both commercial and government-funded programs continue to advance from development and qualification into production. That progression is increasing demand for our highly engineered turbo machinery, cryogenic systems, pumps, motor controllers, and precision components. Our investments in testing and manufacturing capabilities are strengthening our competitive position as these programs scale.

Ladies and gentlemen, please stay on the line. We are experiencing a technical difficulty.

Please remain on the line.

Hey Tom, can you hear us? Yes, we can. Okay, all right.

Where did we stop?

You said our investments in manufacturing. I don't think it ever cut off.

Okay, we'll continue.

Our investments in testing and manufacturing capabilities are strengthening our competitive position as these programs scale. Our liquid nitrogen testing capabilities are operational and actively supporting customer programs. While our cryogenic testing facility in Florida expands our ability to validate increasingly complex products before delivery. These capabilities allow us to provide customers with more fully tested and integration ready solutions, helping reduce program risk while deepening Graham's role as a critical technology partner. As launch cadence increases and commercial and government space infrastructure continues to mature, We believe Graham is well-positioned to participate across launch vehicles, satellites, lunar exploration systems, and other critical space platforms. Turning to energy and process, revenue increased 5% during the quarter. Continued strength in aftermarket activity and the addition of flak tech helped offset ongoing push-outs in large capital projects within the refining and petrochemical markets. Aftermarket revenue across energy and process and defense increased 20%, demonstrating the value of our installed base and the reoccurring demand associated with maintaining mission-critical equipment. With more than $1 billion of Graham's installed equipment around the world, we see a meaningful opportunity to expand lifecycle support, introduce new technologies into the install base, and deepen our customer relationships. Over time, growing our investment in aftermarket and reincurring revenue streams should also support a more balanced business mix and improve profitability. Within new energy, we continue to see increasing customer engagement across small modular nuclear reactors, cryogenic applications, and other emerging energy technologies. These markets remain relatively early in their commercialization, but activity continues to build. and our engineering expertise and mission-critical product portfolio position Graham to benefit as these technologies advance. Turning now to FlacTech, integration continues to progress extremely well. FlacTech established advanced materials processing as Graham's third core technology platform, alongside vacuum and heat transfer systems and turbo machineries. The business contributed $6.6 million of revenue and $13.3 million of orders during the quarter, representing a book-to-bill ratio of approximately two times. The strength of Flack Tech's first quarter bookings reflects healthy customer engagement and attractive growth characteristics of the business. Flack Tech brings differentiated intellectual property, reoccurring revenue, and exposure to several markets where Graham has already had deep relationships. We remain particularly excited about the commercialization potential of the mega platform and the opportunity to introduce FLACTECH's advanced materials processing solutions across our broader customer base. The teams are working well together and we continue to add capabilities required to support growth. FLACTECH remains an excellent example of our disciplined acquisition strategy, which is acquiring are differentiated, engineered-led businesses that expand our addressable markets, strengthen our technology portfolio, and create opportunities for long-term profitable growth. Turning to the operational excellence and investments beginning on slide five, our focus is increasingly moving from building capabilities to leveraging those capabilities. Over the last several years, we deliberately invested ahead of demand to expand capacity and capabilities, improve productivity, enhance quality, and broaden our product offerings. These investments include our Batavia Navy facility, automated welding, advanced x-ray systems, expanded assembly and testing capabilities in Colorado, cryogenic testing capabilities in Florida, and the modernization of our ERP systems. Many of these initiatives are now operational or approaching completion. and are beginning contribute to performance. Going forward, our focus is on increasing utilization, shortening production cycle times, improving throughput and driving greater operational leverage as volume increases. We are also continuing to invest in the next phase of growth, including a construction of a new 30,000 square foot manufacturing facility on our Arvada campus. This additional capacity will support increasing customer demand and further strengthen our ability to scale production across our growing portfolio of turbo machinery applications. Importantly, we evaluate these investments through a disciplined capital allocation framework and target returns above our 20% ROIC hurdle rate. We believe the combination of higher volumes, improved business mix, automation and continued operational execution provide the clear path to margin expansion outlined at our investor day. Graham's recent investments encompass manufacturing, testing, automation, and system modernization, which each evaluated against that return threshold. These investments are needed in order to fulfill our backlog, which totaled $557 million at the end of the quarter. Importantly, the quality of our backlog remains strong. Many of the programs we support are long cycle applications tied to critical customer priorities and extend over multiple years. Combined with our active pipeline, expanding capabilities, and continued momentum across our markets, this backlog gives us confidence in both our fiscal year 2027 outlook and the long-term framework which we presented in June. Beyond fiscal year 2027, our priorities remain clear. We will continue expanding our participation in attractive markets, commercializing our proprietary technologies, growing aftermarket and reoccurring revenue, investing in operational excellence, and pursuing disciplined acquisitions that complement our organic growth strategy. We believe Graham has entered an important new phase. The foundation has been built. Our backlog is at record levels. our capabilities are expanding and the investments we have made are beginning to contribute more meaningfully. With that, I'll turn the call over to Chris for a detailed review of our financial results.

Chris? Thanks, Matt, and good morning, everyone. Apologies for the slight technical difficulties earlier, but it appears we're back on track. I'll begin my formal remarks on slide six. We are off to a strong start for fiscal 2027. delivering record first quarter revenue while continuing to execute against our long-term growth strategy. Our results reflect broad-based demand across our diversified end markets, disciplined execution, and initial contributions from our strategic investments. First quarter revenue increased 29% to a record $71.3 million. on an organic basis, revenue was up an impressive 17%. This growth reflects the strength of our diversified revenue base, including continued momentum across our defense and space businesses, as well as contributions from FLAC Tech, which added 6.6 million of revenue during the quarter. Defense revenue increased 40% year over year, primarily driven by the timing of project milestones New Program Awards, and continued growth across existing programs. Space revenue increased 86% year-over-year, benefiting from new programs, the continued ramp of existing programs, and contributions from FLAC Tech. Within energy and process, revenue increased 5% from the prior year period, as continued strength in aftermarket demand and the addition of FLAC Tech helped offset ongoing pushouts in large capital project activity. Aftermarket sales across the energy and process and defense markets remain strong, increasing 20% year over year. Similar to our sales, our gross profit for the quarter increased 21% to $17.8 million. However, as a percentage of sales, our gross profit margin decreased to 25% compared with 26.5% in the prior year period. The year over year decline in gross margin primarily reflects the mix of sales during the quarter, which included a higher level of defense revenue and material receipts, which carry lower margin characteristics than many of our other businesses, and the tough comparable versus the prior year first quarter. It is noteworthy that versus the sequential fourth quarter of fiscal 2026, our gross margin percentage increased 230 basis points. Moving to slide eight. Selling general and administrative expenses increased 3.2 million during the quarter, primarily due to acquisition and integration activities, incremental costs associated with Slack Tech, and our continued investments in people, processes, and technology. Note that these incremental investments are being made in order to enable our future growth and accelerate the commercialization of Graham products and technologies and are expected to amount to approximately 2.5 million in fiscal 2027. These increases were partially offset by lower costs associated with the Barbara Nichols performance bonus which was no longer in effect during fiscal 2027. Net income for the first quarter was 3.9 million or 33 cents per diluted share. compared with 4.6 million or 42 cents per diluted share in the prior year period. However, on an adjusted basis, adjusted net income for the quarter increased to 5.7 million or 49 cents per diluted share compared with 4.9 million or 45 cents per diluted share in the prior year, up 16% and 9% respectively. Similarly, adjusted EBITDA for the first quarter increased 28% to $8.8 million, representing an adjusted EBITDA margin of 12.3%, which was consistent with the prior year period. Overall, we believe these results demonstrate the resiliency of our business model and the effectiveness of our long-term strategy. We continue to successfully balance investments for future growth while maintaining disciplined execution and positioning the company to capitalize on significant opportunities ahead. Moving to slide nine, orders remained strong during the quarter and continued to reinforce the favorable demand environment across our core markets. First quarter orders were 96 million, resulting in a book-to-bill ratio of 1.3 times. This demonstrates the continued momentum we are seeing in our end markets and builds upon the 1.5 times book-to-bill ratio for fiscal 2026. Order activity continued to reflect strong demand across our defense business, including 61.8 million of new and follow-on orders supporting the U.S. Navy's Columbia and Virginia-class submarine programs as well as the next option year for mission-critical hardware for the MK48 Mod 7 heavyweight torpedo. Space orders continued their strong momentum from the prior year, totaling $14.4 million for the quarter, representing a 2.3 times book-to-bill ratio, while FLACTECH generated $13.2 million of orders during the quarter, representing a 2 times book-to-bill ratio. As a result, backlog increased to another record 557 million, up 15% from the prior year period and is the sixth consecutive quarter of record backlog. We continue to expect approximately 35 to 40% of backlog to convert into revenue over the next 12 months and another 20% to 25% the following year, demonstrating the high visibility and stability of our business. Turning to slide 10, our balance sheet remains exceptionally strong and provides significant flexibility to continue executing our strategic priorities. During the quarter, we strengthened our balance sheet through the previously announced $50 million strategic investment from accounts advised by T. Rowe Price and utilized approximately $13 million of the proceeds to repay our outstanding debt. Net cash used by operating activities during the quarter was $12.7 million and primarily reflects the timing of billing and collections on accounts receivable, unbilled revenue, and customer deposits, and the payment of fiscal 2026 bonuses during the quarter, which included the Barbara Nichols performance bonus. Capital expenditures during the quarter totaled $2.6 million and remained focused on capacity expansion, expanding capabilities, and productivity improvements. As a result, we ended the quarter with $27 million of cash on hand, no outstanding debt, and approximately $75 million of available capacity under our revolving credit facility, which provides us significant flexibility to execute our strategic, organic and inorganic growth plans. Turning to guidance, slide 11 outlines are outlook for fiscal 2027, which remains unchanged from last quarter. We continue to expect revenue to be in the range of $285 million to $295 million, supported by our record backlog, favorable demand environment, a full year contribution from Flag Tech, and continued execution across our businesses. We continue to expect gross margin to be between 24.5% and 25.5% reflecting the benefits of operational improvements, automation investments, productivity initiatives, integration efforts, and an improved sales mix versus fiscal 2026. SG&A expenses expected to be between 16.5% and 17.5% of sales. And as mentioned earlier, includes approximately 2.5 million of incremental investments in people, processes, and technology to support our commercialization initiatives and future growth. Embedded within our outlook are approximately 5.5 million to 6.5 million of equity-based compensation, acquisition and integration costs, and ERP conversion costs. Based on these assumptions, we continue to expect adjusted EBITDA to be between $35 million and $40 million representing an increase of 44% at the midpoint of that range and unchanged from last quarter. We also continue to expect our capital expenditures to be between $18 million and $22 million as we continue investing in strategic growth initiatives, expanded operational capabilities, and productivity enhancing projects. including construction of a new 30,000 square foot manufacturing facility in Arvada. Before I conclude, I'd like to briefly revisit the long-term financial framework we introduced at our investor day in June, shown on slide 12. As we discussed then, our confidence in the outlook extends well beyond fiscal 2027, supported by our record backlog strong demand across our defense space and energy and process markets and the investments we have made over the past several years. We continue to expect organic revenue growth of approximately eight to 10% annually over the next several years. At the same time, we believe we have a clear path to continued margin expansion through a combination of higher production volumes, a more balanced business mix, ongoing operational improvement initiatives, and continued leverage from our manufacturing and automation investments. We expect adjusted EBITDA margins to expand into the 14% to 16% range by fiscal 2029. Importantly, we do not view fiscal 2029 as the finish line. Our objective remains to build a best-in-class industrial technology company capable of delivering top quartile financial performance over time. Overall, we are pleased with our strong start to fiscal 2027. A record backlog, healthy demand across our end markets, disciplined execution, and strong balance sheet position as well to deliver another year of profitable growth while continuing to invest in long-term opportunities ahead. With that, Operator, we are now ready for questions.

Thank you. We will now be conducting a question and answer session. If you'd 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'd 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 poll for questions. Our first question comes from Robert Brooks with Northland Capital. Please go ahead.

Hey, good morning team and thank you for taking my question. and just one of the things I wanted to unpack, the robust strength in the space segment sales up 86% year over year, orders even stronger, 2.3 booked a bill, I believe. So that would suggest to me that this is more than maybe just a timing benefit and something more structural occurring. Is my logic fair there? And just any color on specific drivers on the strength and expectations going forward?

Yeah, thanks, Bobby. You know, the structural change, you know, began last year and you could see it through the strong order volume last year, you know, as well as the first quarter this year. You know, our space business, just like our other businesses, the orders can be very lumpy. So, you know, we don't expect this level every quarter. But the current run rate of revenue for the quarter is the new norm. So you could expect that, you know, going forward.

that's great to hear and then just like specific projects or is it just as simple as like more things getting shot up into space that opens up more opportunities for you just what maybe end market wise is driving that higher floor going forward?

Yeah you know as we've said you know for the last several quarters it's just that you know some of the development programs that we've been on for the last have started to hit production volumes and are ramping up. So that's really just the continuation of those programs.

Got it. And one of my key takeaways from the investor day in June was was a much deeper appreciation for FlacTech's technology. And I even had the FlacTech face myself as Matt showed me the demonstration for me. So I just wanted to ask, eight months into your ownership, any specific wins you'd call out that came about from either you introducing a legacy Graham customer to FlacTech or just from broadly having the infrastructure benefit of being under a larger company like Graham? Just color there.

Yeah, I mean, you can see from our book to bill at Black Tech, they can feel the support of Graham. And what I'll say is the integration has gone extremely well. The leader of that business, Matt Gross, has done a great job. And the staff has really stepped up and become, you know, really engaged in the path forward. with that being said I can talk high level on a few examples they happen to be at Barbara Nichols as we speak right now because there's quite a few applications that are directly applicable but Bobby we're seeing a lot of opportunity on I'll say advanced space applications specifically you know adhesives for critical components that you know provide re-entry and other sort of examples the short of it is is they really are changing the game versus bladed mixing. So you got to see it in person at the investor day, I recall. And we're seeing that across a bunch of different end markets. I would say aerospace and defense and in space specifically are where we're seeing the most opportunity right now.

Appreciate the call and congrats on another terrific war.

Thanks. Thanks, Bobby. Our next question comes from Russell Stanley with Beacon Securities. Please go ahead.

Good morning and congrats on the quarter and another strong quarter for orders. You noted obviously the contributions from the submarine programs to orders in the quarter. Last week we saw the big awards go to General Dynamics and Huntington Ingalls. I'm just wondering to what extent those orders from last week were already in your backlog or what the implications are for those orders for the pipeline for additional orders out of those programs for you?

Yeah, so Russell, obviously it's a mix of all the above. Some of them in, some of them not. The reality for us is it's just more of a confirmation of how strategic these programs are in long term. We continue to feel the tailwinds and the desire to accelerate submarine production and we think we're well positioned so with that our investments to be put in place have been you know well received and we continue to see not only the need for us to execute our backlog but also the pipeline remains strong so keep it high level there.

Understood. Maybe if I could follow up on one of your remarks I think from the June call now you talked a bit about munitions we're seeing obviously a lot of headlines around shortages on that front. I'm wondering if you can talk about what you're seeing now and the opportunities out there and how much retail in that might be for Graham.

Yeah, missiles had not been a conventional market for Graham. Specifically torpedoes were the area that we played and you know we've seen that demand across the Mark 48 platform which of course we've just published yet another year-over-year follow-on order. So we're continuing to see opportunity in the torpedo space. FLACTECH really is the business that opened our eyes to the missile production side, and obviously there's been quite a bit of publicity about the MEGA being involved in some critical developments on the missile, specifically the solid rocket motors. What I will say is as we've learned that business through FLACTECH, we are seeing opportunities more broadly across Graham. I can't talk in too much detail, but most specifically around Barbara Nichols with rotating machines, et cetera. So I'll keep it kind of high level, but our early entry into missiles was through FLAC tech and we're seeing some broader opportunity.

That's great. Maybe one more for me and I'll get back in the queue on gross margins. You know, you talked about the year-over-year drivers, but on the quarter-over-quarter lift, 230 beats, was that scale economies on a strong top line, or can you talk to the other drivers behind that? Sorry if I missed it earlier, but I'd love to hear more color there.

Yeah, you know, as we mentioned on our fourth quarter call, Russ, we had some impacts from initial purchase accounting adjustments for FLAC tech in the fourth quarter. But largely, if you look at our margin quarter over quarter and all the variances, it directly correlates with the mix of defense. So we had about 58% of our revenue this quarter was in defense versus 60 in the fourth quarter, but versus 53% last year. So it really is directly correlated to the defense, as you know, which is a lower margin business versus our commercial portfolios, which is why we want to get closer to that 50-50 mix as time goes on.

Got it. That's great, Kohler. Thanks. I'll get back in the queue. Congrats again.

Thanks, Russ.

Once again, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Christopher Glynn with Oppenheimer & Co. Please go ahead.

Thanks. Good morning, everyone. curious about some of the mixed developments in defense orders. I think this year's orders included follow-ons with the subs, but also some new orders. I think some new design applications are indicated there. And the big chunk last year, I think, was all follow-on orders. So just curious about the idea of diversification and expansion of the revenue sources, or even the order sources, you know, relative to the main sub and torpedo programs.

Yeah, it's a good question. Still the lion's share, of course, is in the submarine platforms, most strategically, or most specifically the Virginia and Columbia class subs. We continue to see healthy demand there, and while there's tailwinds, obviously, we're going to continue to step up. I think one thing, a few things of note that I'll go into more detail. as it pertains specifically to aerospace and defense. The first is, you know, some of these solicitations are competitive and they allow for healthier margins. So we're winning not only the sole source opportunities, Chris, but we're also today winning opportunities where we did have competitive, we had competitors. With that more broadly, we continue to see programs like we mentioned at our investor day, specifically around radar and laser platforms where we're doing the thermal management or cooling solutions. We are seeing those programs move from into production and so we're seeing some diversification there. What's nice about a program like that is we bring the intellectual property to the table and that is a I'll say a commercially available product that we use in defense. So we're able to I'll just say charge market bearing prices on those programs rather than go through certified costs and pricing. So The diversification is coming in a few areas. Another area where we're feeling growth and feeling potential is around the torpedo space. I can't get into much detail there, but obviously we provide the Mark 48 and we're seeing opportunity for continued growth and diversification. So the lion's share is in the submarine and aircraft carrier. That's sole sourced and under TINA cost and pricing. and then the other up and comings we've seen the ability to differentiate and get higher margin.

Great. Thanks for that elaboration. And on the aftermarket, you know, nice growth there, healthy run rates I think above what it's averaged recently. So I'm curious if that's just kind of good concentration of activity in the period relative to the baseline or if you're starting to see a little, you know, bend upward in the traction of your strategic emphasis to build out the aftermarket?

You know, I would just really characterize it, Chris, as it continues to be strong. As you know, Graham has over a billion dollar installed base across the globe. And even though the, you know, the refiners and the OEMs aren't investing in large capital projects, they are investing in the facilities and maintaining them and running them at peak capacity. So we continue to see aftermarket strong. We expect it to continue. Our book to bill for aftermarket was 1.1 during the quarter, and it was up, as you saw, 20% year over year. A lot of that growth, though, was driven by our defense aftermarket, so we do still have some opportunity there as well on the defense side.

Yeah, and I just want to add one thing. I think it's important about 96% utilization in refineries in North America. So a typical what is 75% at 96%. And so these refineries are operating at capacity. And what you see when that happens is two things. One is they're only doing maintenance when they must. And so with Graham's install base, we're well positioned to serve that. The second is they're only willing to take any downtime when there's, you know, when there's pretty significant increases in either efficiency or utilization. And so some of the programs that we're seeking there and have been winning and executing have been around on revamps, which is us providing improved performance within existing facilities. So I would just characterize it as emergency aftermarket of our install base as well as improved efficiency. But these facilities today are, they're full speed ahead.

Thanks for that description, Matt. And last one for me, I think, for Chris. You know, Chris, anything, we start with a baseline of guidance. Curious if there's anything cadence-wise we should consider across 2Q to 4Q versus, say, you know, a prorating sort of thought through the quarters?

Yeah. as you know our business tends to be cyclical in our fiscal third quarter due to the two holidays in that quarter. We are a direct labor driven business so if direct if our direct labor is off during the holidays it it does impact our revenue for the quarter so between the three quarters that you know we typically or actually the four quarters of the year you know typically the third quarter is the lowest but outside of that there isn't much other cyclicality in our business.

Thanks.

Appreciate the update, guys.

Thanks, Chris.

Our next question is from Robert Brooks with Northland Capital. Please go ahead.

Hey, just wanted to jump back on. On the awards yesterday, kind of reading through it, it seems like they've are an expansion of WalletShare on the MK-48s and the MK-19s? Or just am I reading that right? Could you just help clarify my understanding there? Because it seems like you're expanding the WalletShare. Is that more of a follow-on? Just trying to help me understand that better.

Yep. So simply put, Mark 48 is a sole sourced award, and that is a follow-on. So it's another option here. So that is not additional scope. It's actually just the incremental year. On the other program that we announced, that was a competitive solicitation and it was a good win for the Barbara Nichols team. So I'll keep it as sort of high level as that. But it is an expansion of scope to support fleet maintenance and fleet spares.

got it. And maybe just sticking with the expansion of scope, are there any particular technologies that you're bringing to the table that you think can be, that can drive expansion of scopes on projects that you're currently serving? Just wanted, maybe a good place to end there. Thanks.

Yeah, so I'll start with the one that often gets overlooked. Just execution, period. taking in work with the critical capabilities and welding that we have as well as rotating machines. And we take in orders and we deliver on time and on quality. And when you do that, you get more work because as you read, the Navy does not have that currently with its supply chain. The other areas I mentioned, I'll just reiterate, we are seeing additional opportunity on the torpedo side and on the cooling for the radar and laser platforms.

Thank you very much.

We have reached the end of our question and answer session. I would now like to turn the floor back over to Matt Malone, CEO, for closing comments.

Thank you, Dylan. Overall, we are pleased with our strong start to fiscal year 2027. With that said, we recognize there is still significant work ahead, and we will always focus on continued improvement. Our first quarter fiscal our results represent another step forward for the objectives that we outlined at our investor day. We remain focused on discipline execution, profitable growth, and getting better every day as we work towards becoming a top quartile performer and creating enduring value for our customers and shareholders. As always, please reach out with any questions.

Thank you everyone for joining and your interest in Graham. This concludes today's teleconference you may disconnect your lines at this time.

Thank you for your participation.