Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
(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, Energy & Process, and Space industries. We design and manufacture custom-engineered vacuum, heat transfer, cryogenic pump and turbomachinery technologies. For the Defense industry, our equipment is used in nuclear and non-nuclear propulsion, power, fluid transfer, and thermal management systems. For the Energy & Process industries we supply equipment for vacuum, heat transfer, and fluid transfer applications used in oil refining, downstream chemical facilities, fertilizers, ethylene, methanol, edible oil, food & beverage, pulp & paper, and multiple alternative energy applications such as hydrogen, small modular nuclear, concentrated solar and geothermal processes. For the Space industry our equipment is used in propulsion, power and thermal management systems, and for life support systems.
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, NY, where surface condensers and ejectors are designed, engineered, and manufactured for the Defense and Energy & Process industries. Our wholly-owned subsidiary, Barber-Nichols, LLC ("BN"), based in Arvada, CO, designs, develops, manufactures, and sells specialty turbomachinery products for the Space, Aerospace, Cryogenic, Defense and New Energy markets. In November 2023, we acquired P3 Technologies, LLC ("P3"), located in Jupiter, FL (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 and Pune, 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.
This management's discussion and analysis of financial condition and results of operations omits a comparative discussion regarding the fiscal year ended March 31, 2024 versus the fiscal year ended March 31, 2023. Such information is located in Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024.
Our fiscal year ends on March 31 of each year. We refer to our fiscal year, which ended March 31, 2025, as fiscal 2025. Likewise, we refer to our fiscal years that will end or have ended March 31, 2026, March 31, 2024, and March 31, 2023, as fiscal 2026, fiscal 2024, and fiscal 2023, respectively.
We have updated our end market disclosures to better align with how management evaluates the business and product portfolio. As part of this change, revenue previously classified as Refining, Chemical/Petrochemical, and Other, which included New Energy product sales, will now be consolidated into one market, which has been renamed “Energy & Process.” The Defense and Space end market classifications remain unchanged. Prior period amounts have been updated to reflect this change.
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, FL 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 is 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, subject to certain potential adjustments, including a customary working capital adjustment. 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 Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional information.
Key Results
Key results for fiscal 2025 include the following:
Net sales for fiscal 2025 were $209,896, up $24,363, or 13% over the prior year. Incremental revenue from the acquisition of P3 accounted for $2,778 of this increase. The remainder of this increase was primarily due to sales to the Defense industry, which increased $22,432 versus the prior year primarily due to growth in existing programs, better execution, improved pricing, and the timing of key project milestones. Additionally, net sales to the Space industry for fiscal 2025 increased 11% over the prior year primarily due to the addition of P3. Finally, net sales to the Energy & Process industry for fiscal 2025 was consistent with the prior year as increased sales to Asia and the Middle-East were offset by a $2,661 decline in aftermarket sales from the record levels of fiscal 2024, but which remain strong.
Gross profit and margin for fiscal 2025 were $52,861 and 25.2%, respectively. This 330 basis point improvement in gross profit margin over fiscal 2024 reflected increased leverage on fixed overhead costs due to the higher volume of sales discussed above, as well as better execution, and improved pricing, partially offset by higher incentive compensation. Additionally, fiscal 2025 gross profit benefited $1,298 due to a grant received from the BlueForge Alliance to reimburse us for the cost of our Defense welder training programs in Batavia and related equipment. We currently do not expect to receive any additional welder training grants in fiscal 2026. 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 fiscal 2025 increased $5,305 over fiscal 2024 and reflects the investments we are making in our people, our processes, and our technology. Incremental SG&A from the acquisition of P3 accounted for $776 of this increase. Additionally, SG&A increased $3,987 over the prior year due to increased staffing and performance-based compensation in connection with our growth and strategic initiatives, and $220 due to increased investment in research and development. The increase in SG&A is also due to costs related to the implementation of a new enterprise resource planning ("ERP") system at our Batavia facility of $642, and increased bad debt reserves related to non-U.S. and Space customers of $299 over the prior year. These increases were partially offset by lower professional fees of $336 and lower acquisition related expenses of $306. In connection with the acquisition of BN, we entered into a Performance Bonus Agreement to provide employees of BN with a supplemental bonus based on the achievement of BN performance objectives for fiscal 2024, 2025, and 2026, which can range between $2,000 to $4,000 per year (the "BN Performance Bonus"). During fiscal 2025 and fiscal 2024, we recorded $4,258 related to the BN Performance Bonus, which includes the applicable employer related payroll taxes.
Net income and net income per diluted share for fiscal 2025 were $12,230 and $1.11 per share, respectively, compared with $4,556 and $0.42 per share, respectively, for fiscal 2024. Adjusted net income and adjusted net income per diluted share for fiscal 2025 were $13,716 and $1.24 per share, respectively, compared with $6,796 and $0.63 per share, respectively, for fiscal 2024. See "Non-GAAP Measures" below for important information about these measures and a reconciliation of adjusted net income and adjusted net income per diluted share to the comparable GAAP amount.
Orders booked in fiscal 2025 were $231,112 compared to $268,447 in fiscal 2024. This decrease was primarily due to a record level of orders in fiscal 2024 as a result of follow-on orders for critical U.S. Navy programs related to the Columbia Class submarine and Ford Class carrier programs. Fiscal 2025 orders included $50,000, of a $136,500 total contract value, to procure long-lead time materials for follow-on contracts to support the U.S. Navy's Virginia Class Submarine program, and aftermarket orders for the Energy & Process and Defense markets which increased 8% to $46,582 compared with the prior year. Note that our orders tend to be lumpy given the nature of our business (i.e. large capital projects) and in particular, orders to the Defense industry, which span multiple years and can be significantly larger in size. For fiscal 2025, our book-to-bill ratio was 1.1x. For additional information on this key performance indicator see "Orders, Backlog" below.
Backlog was $412,335 at March 31, 2025, compared with $390,868 at March 31, 2024. This 5% increase was primarily due to the growth in orders received during fiscal 2025 as discussed above. Approximately 83% of our backlog at March 31, 2025 was to the Defense industry, which we believe provides stability and visibility to our business. For additional information on this key performance indicator see "Orders, Backlog" below.
Cash and cash equivalents at March 31, 2025 was $21,577, compared with $16,939 at March 31, 2024. This increase was primarily due to cash provided by operating activities of $24,316, partially offset by capital expenditures of $18,957 as we continue to invest in process improvement and longer-term growth opportunities. Capital expenditures for fiscal 2025 included costs for the construction of a new 30,000 square foot manufacturing facility on our Batavia, NY campus, and the purchase of production and automated welding equipment to be used in that facility, and was primarily funded by one of our larger Defense customers. Additionally, during fiscal 2025 we purchased a plot of land adjacent to our BN campus in Arvada, CO, in order to support organic
growth, and began construction of a cryogenic (liquid hydrogen, oxygen, and methane) testing facility near our P3 subsidiary to enhance our capabilities and allow us to provide quality assurance testing for our customers.
As previously announced on February 6, 2025, we began a planned management transition aligned with our succession strategy. Effective June 10, 2025, Chief Executive Officer ("CEO") Daniel J. Thoren will transition to Executive Chairman and Strategic Advisor. Matt Malone, currently President and Chief Operating Officer, will succeed him as CEO. Jonathan W. Painter, Chairman of the Board, will transition to Lead Independent Director. Additionally, Michael E. Dixon, promoted to General Manager of BN in February 2025, will assume the role of Vice President of Graham Corporation and General Manager of BN.
Current Market Conditions
We have updated our end market disclosures to better align with how management evaluates the business and product portfolio. As part of this change, revenue previously classified as Refining, Chemical/Petrochemical, and Other, which included New Energy product sales, will now be consolidated into one market, which has been renamed “Energy & Process.” The Defense and Space end market classifications remain unchanged. Prior period amounts have been updated to reflect this change.
Defense - 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 due to geopolitical tensions, the projected build schedule of submarines, aircraft carriers and undersea propulsion and power systems, and the solutions we provide. We also don't believe that changes made by the new U.S. presidential administration will materially impact our Defense business. 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 Department of Defense radar, laser, electronics, and power systems. We have built a leading position, and in some instances a sole source position, for certain systems and equipment for the Defense industry.
Energy & Process - 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. 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 & Process aftermarket orders primarily from the domestic market as our customers continue to maintain and invest in the facilities they currently operate. Although these orders remained strong in fiscal 2025, the recent decrease in oil prices combined with the economic uncertainty caused by the increase in tariffs may impact future order volumes.
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 Process markets. As such, we expect investment in new global process capacity will improve and drive growth in demand for our products and services.
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.
We intend to stay competitive in our traditional Energy & Process 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.
Space - 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 in this market can be uncertain and may negatively impact our business.
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 March 31, 2025.
Results of Operations
For an understanding of the significant factors that influenced our performance, the following discussion should be read in conjunction with our consolidated financial statements and the notes to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K.
The following table summarizes our results of operations for the periods indicated:
Year Ended March 31,
Change
Net sales
Gross profit
Gross profit margin
SG&A expense
SG&A as a percent of sales
Net income
Diluted income per share
Total assets
Fiscal 2025 Compared with Fiscal 2024
The following tables provides our net sales by product line and geographic region including the percentage of total sales and change in comparison to the prior year for each category and period presented:
Year Ended
March 31,
Change
Market
Defense
Energy & Process
Space
Net sales
Geographic Region
United States
International
Net sales
Net sales for fiscal 2025 were $209,896, up $24,363, or 13% over the prior year. Incremental revenue from the acquisition of P3 accounted for $2,778 of this increase. The remainder of this increase was primarily due to sales to the Defense industry, which increased $22,432 versus the prior year primarily due to growth in existing programs, better execution, improved pricing, and the timing of key project milestones. Additionally, net sales to the Space industry for fiscal 2025 increased 11% over the prior year primarily due to the addition of P3. Finally, net sales to the Energy & Process industry for fiscal 2025 were consistent with the prior year as increased sales to Asia and the Middle-East were offset by a $2,661 decline in aftermarket sales from the record levels of fiscal 2024, but which remain strong.
Domestic sales as a percentage of aggregate sales were 81% for fiscal 2025 compared to 84% in fiscal 2024. Sales to the Defense industry were 58% for fiscal 2025 compared to 54% for fiscal 2024. Fluctuation in sales among markets, products and geographic locations varies, sometimes significantly, from year to year 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.
Our gross margin for fiscal 2025 was 25.2% compared with 21.9% for fiscal 2024. This 330 basis point improvement in gross profit margin over fiscal 2024 reflected increased leverage on fixed overhead costs due to the higher volume of sales discussed above, as well as better execution and improved pricing, partially offset by higher incentive compensation. Additionally, fiscal 2025 gross profit benefited $1,298 due to a grant received from the BlueForge Alliance to reimburse us for the cost of our Defense welder training programs in Batavia and related equipment. We currently do not expect to receive any additional welder training grants in fiscal 2026. During fiscal 2024 we submitted for the Employee Retention Tax Credit which benefited our gross profit by approximately $700. In fiscal 2024, we completed the last two of six first article U.S. Navy projects, which had impacted our gross margins over the last several years.
Changes in SG&A expense for fiscal 2025 compared to fiscal 2024 are as follows:
Change
Personnel costs
Equity based compensation
ERP implementation costs
P3 Technologies
Amortization of intangibles
Bad debt expense
Research & development
Performance-based compensation
Acquisition expense
Professional fees
All other
Total SG&A change
The increase in SG&A, including intangible amortization, for fiscal 2025 reflects the investments we are making in our people, our processes, and our technology. Incremental SG&A from the acquisition of P3 accounted for $776 of this increase. Additionally, SG&A increased over the prior year due to increased staffing in connection with our growth and strategic initiatives, and due to increased investment in research and development. The increase in SG&A is also due to costs related to the implementation of a new ERP system at our Batavia facility, and increased bad debt reserves related to non-U.S. and Space customers over the prior year. These increases were partially offset by lower professional fees and lower P3 acquisition related expenses. In connection with the acquisition of BN, we entered into a Performance Bonus Agreement to provide employees of BN with a supplemental performance-based bonus based on the achievement of BN performance objectives for fiscal 2024, 2025, and 2026, which can range between $2,000 to $4,000 per year plus any applicable employer related taxes. This bonus is in addition to the normal employee bonus program at BN and will expire after fiscal 2026 and totaled $4,258 for fiscal 2025 and fiscal 2024 each year including applicable employer related payroll taxes.
Other operating (income) expense, net represents the change in fair value of the P3 contingent earn-out liability and was income of $1,215 in fiscal 2025 compared to expense of $80 in fiscal 2024. The change in fair value was due to delayed orders/projects that extended beyond the earnout period.
Net interest (income) expense for fiscal 2025 was income of $583 compared to expense of $248 in fiscal 2024. This increase in net interest income was due to our strong cash position and lower debt levels compared to the prior year.
Our effective tax rate for fiscal 2025 was 21% compared with 18% for fiscal 2024. This increase was primarily due to higher pre-tax income in fiscal 2025, which diluted the impact of tax credits on our effective tax rate, partially offset by higher discrete tax benefits recognized in fiscal 2025 related to the vesting of restricted stock awards compared to fiscal 2024. Our effective tax rate for fiscal 2026 is expected to be approximately 20% to 22%.
The net result of the above is that net income and net income per diluted share for fiscal 2025 were $12,230 and $1.11 per share, respectively, compared with $4,556 and $0.42 per share, respectively, for fiscal 2024. Adjusted net income and adjusted net income per diluted share for fiscal 2025 were $13,716 and $1.24 per share, respectively, compared with $6,796 and $0.63 per share, respectively, for fiscal 2024. See "Non-GAAP Measures" below for important information about these measures and 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 the U.S.'s generally accepted accounting principles ("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 expenses. Adjusted net income and adjusted net income per diluted share exclude intangible amortization, acquisition related (income) expenses, other unusual/nonrecurring expenses 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:
Year Ended
March 31,
Net income
Acquisition & integration (income) expense
Equity-based compensation
ERP implementation costs
Debt amendment costs
Employee Retention Tax Credit, net
Net interest (income) expense
Income tax expense
Depreciation & amortization
Adjusted EBITDA
Net Sales
Net income as a % of revenue
Adjusted EBITDA as a % of revenue
Year Ended
March 31,
Net income
Acquisition & integration (income) expense
Amortization of intangible assets
ERP implementation costs
Debt amendment costs
Employee Retention Tax Credit
Normalized tax rate (1)
Adjusted net income
GAAP net income per diluted share
Adjusted net income per diluted share
Diluted weighted average common shares outstanding
(1) Applies a normalized tax rate to non-GAAP adjustments, which are pre-tax, based upon the statutory tax rate.
Acquisition & integration (income) expense are incremental costs that are directly related to and as a result of the P3 acquisition or the subsequent accounting for the contingent earn-out liability. 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 relate primarily to consulting costs (training, data conversion, and project management) incurred in connection with the ERP system being implemented throughout our Batavia, NY facility in order to enhance efficiency and productivity and are not expected to recur once the project is completed. Debt amendment costs consist of accelerated write-offs of unamortized deferred debt issuance costs and discounts, prepayment penalties, and attorney fees in connection with the amendment of our credit facility. The Employee Retention Tax Credit reflects payroll tax amounts recovered due to COVID-19 relief programs and is not expected to recur in the future.
Liquidity and Capital Resources
The following discussion should be read in conjunction with our consolidated statements of cash flows and consolidated balance sheets appearing in Item 8 of Part II of this Annual Report on Form 10-K:
March 31,
Cash and cash equivalents
Working capital (1)
Working capital ratio (2)
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 fiscal 2025 was $24,316 compared with $28,120 for fiscal 2024. This decrease was primarily due to lower cash provided by billed and unbilled accounts receivable, net of customer deposits of $7,209 and higher cash taxes paid of $3,557 during fiscal 2025 compared to fiscal 2024, which benefited from a change in contract payment terms on U.S. Navy contracts and the utilization of net operating loss tax carryforwards, respectively. These decreases were partially offset by higher cash net income of $9,324 in fiscal 2025 compared to fiscal 2024. Customer deposits, net of unbilled revenue was $45,568 at March 31, 2025 compared to $43,972 at March 31, 2024 and represents future outflows of cash related to projects in process.
Capital expenditures for fiscal 2025 were $18,957 versus $9,226 in fiscal 2024. Capital expenditures for fiscal 2025 were primarily for machinery and equipment, land, buildings, and leasehold improvements to support our growth and productivity improvement initiatives and included expenditures related to the construction of a new 30,000 square foot manufacturing facility to enhance and expand Defense production capabilities at our Batavia, NY facility, which is primarily being funded by a $13,500 strategic grant from one of our Defense customers. Additionally, during fiscal 2025 we began construction of a cryogenic propellant (LH2, LOX, LCH4) testing facility near P3 in Florida and made an opportunistic land purchase near the BN campus in Colorado to support future growth. Capital expenditures for fiscal 2026 are expected to be between $15,000 and $18,000 of which approximately half is related to the completion of the Batavia Defense expansion and cryogenic testing facility. Additionally, during fiscal 2025, we received a $2,200 strategic investment from a major Defense customer to support the implementation of new Radiographic Testing (“RT”) equipment at our Batavia, NY facility. We intend to contribute an additional $1,400 towards this project for a total project cost of $3,600. This expansion is expected to be completed in the third quarter of fiscal 2026. The remaining capital expenditures for fiscal 2026 are discretionary. 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 each year as we continue to invest in our business in order to support our long-term organic growth goals.
At March 31, 2025, approximately $4,659 of our $21,577 cash and cash equivalents was used to secure our letters of credit and $4,607 of our cash was held by our subsidiaries in China and India.
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 $50,000 line of credit (the "New Revolving Credit Facility"). As of March 31, 2025, there were no borrowings and $5,295 letters of credit outstanding on the New Revolving Credit Facility and the amount available to borrow was $44,705, subject to interest and leverage covenants.
On July 15, 2024, the Company and Wells Fargo entered into an amendment to the New Revolving Credit Facility, which increased the maximum aggregate principle amount of indebtedness of Foreign Subsidiaries and Non-Guarantor Subsidiaries, as defined in the New Revolving Credit Facility, allowed under the New Revolving Credit Facility from $2,000 to $3,500.
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 March 31, 2025, 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 0.5x.
The New Revolving Credit Facility contains terms that may, under certain circumstances 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 fiscal 2025 and currently have no intention to pay dividends for the foreseeable future.
In connection with the termination of the old revolving credit facility and term loan with Bank of America, the Company paid $752 in exit costs and recognized an extinguishment charge of $726 during fiscal 2024. (See Note 9 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional information).
We did not have any off-balance sheet arrangements as of March 31, 2025 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 available financing capacity under the New Revolving Credit Facility, will be adequate to meet our cash needs for the immediate future.
Stockholders' Equity
The following discussion should be read in conjunction with our consolidated statements of changes in stockholders' equity that can be found in Item 8 of Part II of this Annual Report on Form 10-K. The following table shows the balance of stockholders' equity on the dates indicated:
March 31, 2025
March 31, 2024
Orders, Backlog and Book-to-Bill Ratio
In addition to the non-GAAP measures discussed above, management uses the following key performance metrics to analyze and measure the Company’s 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 definitive agreements with customers to provide products and/or services. Backlog is defined as the total dollar value of orders received for which revenue has not yet been recognized. Total backlog can include both funded and unfunded orders under government contracts. 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 table 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:
Year Ended
March 31,
Change
Market
Defense
Energy & Process
Space
Total orders
Geographic Region
United States
International
Total orders
Orders booked in fiscal 2025 were $231,112 compared to $268,447 in fiscal 2024. This decrease was primarily due to a record level of orders during fiscal 2024 as a result of follow-on orders for critical U.S. Navy programs related to the Columbia Class submarine and Ford Class carrier programs, a $9,100 vacuum distillation system for a refinery in India, and $22,000 related to a strategic investment by one of our larger Defense customers, and the follow-on orders. Significant orders for fiscal 2025 included the following:
Q1 - follow-on order for the second option year of alternators and regulators for the U.S. Navy MK48 Torpedo program;
Q1 - an order for a three surface condenser system for the world's first net-zero carbon emissions integrated ethylene cracker and derivatives site located in North America;
Q2 - a contract to provide cryogenic pumps for a space launch vehicle;
Q2 - a contract to provide the MK19 Air Turbine Pump for the U.S. Navy Columbia-class submarine, which is a new program for the Company;
Q4 - $50,000, of a $136,500 total contract value, to procure long-lead time materials for follow-on contracts to support the U.S. Navy's Virginia Class Submarine program;
Q4 - $2,200 strategic investment from a major Defense customer to support the implementation of new RT equipment at our Batavia, NY facility; and
Aftermarket orders for the Energy & Process and Defense markets increased 8% to $46,582 compared with fiscal 2024.
For fiscal 2025, our book-to-bill ratio was 1.1x. Note that our orders tend to be lumpy given the nature of our business (i.e., large capital projects) and in particular, orders to the Defense industry, which span multiple years and can be significantly larger in size.
Orders to the U.S. represented 82% of total orders for fiscal 2025 compared to 86% for the prior year. These orders were primarily to the Defense market, which are U.S. based, and tend to be lumpy given their large size and are long-term in nature.
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:
March 31,
March 31,
Change
Market
Defense
Energy & Process
Space
Total backlog
Backlog was $412,335 at March 31, 2025, an increase of 5% compared with $390,868 at March 31, 2024. We expect to recognize revenue on approximately 45% of the backlog within one year, 25% to 30% in one to two years and the remaining beyond two years. The majority of the orders that are expected to convert beyond twenty-four months are for the Defense industry, specifically the U.S. Navy that have a long conversion cycle (up to six years).
Outlook
We are providing the following fiscal 2026 outlook ($ in thousands):
Net Sales
Gross Profit (1)
24.5% - 25.5% of sales
SG&A Expenses (Including Amortization) (2)
17.5% - 18.5% of sales
Tax Rate
Adjusted EBITDA (1)(3)
Capital Expenditures
(1) Includes the estimated impact of increased tariffs over the prior year of approximately $2,000 to $5,000.
(2) Includes approximately $6,000 to $7,000 of BN Performance Bonus, equity-based compensation, and ERP conversion costs included in SG&A expense.
(3) Excludes net interest (income) 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, net.
See "Cautionary Note Regarding Forward-Looking Statements" 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 we believe puts us on schedule to achieve 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 any global disruptions, and experience no 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 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 totaled $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, the U.S. Department of Justice, and the SEC and will continue to cooperate with those authorities. 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 March 31, 2025, 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 17 to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional information.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon the consolidated financial statements and the notes to consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K, which have been prepared in accordance with GAAP.
Critical accounting policies are defined as those that reflect significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions.
Revenue Recognition. The Company accounts for revenue in accordance with Accounting Standard Codification 606, "Revenue from Contracts with Customers" ("ASC 606").
We recognize revenue on all contracts when control of the product is transferred to the customer. Control is generally transferred when products are shipped, title is transferred, significant risks of ownership have transferred, we have rights to payment, and rewards of ownership pass to the customer. Customer acceptance may also be a factor in determining whether control of the product has transferred. Although revenue on the majority of our contracts, as measured by number of contracts, is recognized upon shipment to the customer, revenue on larger contracts, which are fewer in number but generally represent the majority of revenue, is recognized over time as these contracts meet specific criteria in ASC 606. Revenue from contracts that is recognized upon shipment accounted for approximately 20% of revenue in fiscal 2025. Revenue from contracts that is recognized over time accounted for approximately 80% of revenue in fiscal 2025. We recognize revenue over time when contract performance results in the creation of a product for which we do not have an alternative use and the contract includes an enforceable right to payment in an amount that corresponds directly with the value of the performance completed. To measure progress towards completion on performance obligations for which revenue is recognized over time the Company utilizes an input method based upon a ratio of direct labor hours incurred to date to management’s estimate of the total labor hours to be incurred on each contract, or cost incurred to date to management's estimate of the total cost to be incurred on each contract, or an output method based upon completion of operational milestones, depending upon the nature of the contract.
Business Combinations and Intangible Assets. Assets and liabilities acquired in a business combination are recorded at their estimated fair values at the acquisition date. The fair value of identifiable intangible assets is based upon detailed valuations that use various assumptions made by management. Goodwill is recorded when the purchase price exceeds the estimated fair value of the net identifiable tangible and intangible assets acquired. Definite lived intangible assets are amortized over their estimated useful lives and are assessed for impairment if certain indicators are present. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to impairment testing annually or earlier if an event or change in circumstances indicates that the fair value of a reporting unit or the indefinite lived asset may have been reduced below its carrying value.
Critical Accounting Estimates and Judgments
We have evaluated the accounting policies used in the preparation of the consolidated financial statements and the notes to consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K and believe those policies to be reasonable and appropriate.
We believe that the most critical accounting estimates used in the preparation of our 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, and accounting for business combinations and intangible assets.
As discussed above under the heading "Critical Accounting Policies", we recognize a majority of our revenue using an over-time recognition method. The key estimate for the over-time recognition model is total labor, total cost and operational milestones to be incurred on each contract and to the extent that these estimates change, it may significantly impact revenue recognized in each period.
Contingencies, by their nature, relate to uncertainties that require us to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss. For more information on these matters, see the notes to consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K.
As discussed above under the heading "Critical Accounting Policies", we allocate the purchase price of an acquired company, including when applicable, the acquisition date fair value of contingent consideration between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values, with the residual of the purchase price recorded as goodwill. Third party appraisal firms and other consultants are engaged to assist management in determining the fair values of certain assets acquired and liabilities assumed. Estimating fair values requires significant judgments, estimates and assumptions, including but not limited to discount rates, future cash flows and the economic lives of trade names, technology, customer relationships, and property, plant and equipment. These estimates are based on historical experience and information obtained from the management of the acquired company and are inherently uncertain.
During fiscal 2024, we completed the acquisition of P3 for an aggregate purchase price of $11,238. We identified and assigned value to identifiable intangible assets of customer relationships, technology and technical know-how and trade name, and estimated the useful lives over which these intangible assets would be amortized. The estimates of fair values of these identifiable intangible assets were based upon the Multi Period Excess Earnings method, which incorporates assumptions regarding retention rate, new customer growth and customer related costs, as well as a Relief from Royalty method, which develops a market based royalty rate used to reflect the after tax royalty savings attributable to owning the intangible asset. The fair value estimates resulted in identifiable intangible assets, in the aggregate, of $7,200. The resulting goodwill, in the aggregate, from this acquisition was $1,997. For more information on these matters, see the notes to consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K.
As part of our ongoing financial reporting process, a collaborative effort is undertaken involving our managers with functional responsibilities for financial, credit, tax, engineering, manufacturing and benefit matters, and outside advisors such as lawyers, and consultants. We believe that the results of this effort provide management with the necessary information on which to base their judgments and to develop the estimates and assumptions used to prepare the financial statements.
We believe that the amounts recorded in the consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K related to revenue, contingencies, business combinations and intangible assets, and other matters requiring the use of estimates and judgments are reasonable, although actual outcomes could differ materially from our estimates.
New Accounting Pronouncements
In the normal course of business, management evaluates all new Accounting Standards Updates (“ASU”) and other accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”), SEC, or other authoritative accounting bodies to determine the potential impact they may have on the Company’s Consolidated Financial Statements. Other than those discussed in the 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 Consolidated Financial Statements. For discussion of the newly issued accounting pronouncements see ''Accounting and reporting changes'' in Note 1 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional information.
Item 7A . Quantitative and Qualitative Disclosures About Market Risk
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 fiscal 2025 were 19% 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 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 fiscal 2025, foreign currency exchange rate fluctuations reduced our cash balances by $30 primarily due to the strengthening of the U.S. dollar relative to the Chinese RMB and India INR.
We have limited exposure to foreign currency purchases. In fiscal 2025, our purchases in foreign currencies represented approximately 5% of the cost of products sold. At certain times, we may enter into forward foreign currency exchange 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 contracts were not used in fiscal 2025 and as of March 31, 2025, 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, such as lower tariffs. 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, tariffs, 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 on-going Russia and Ukraine war, the Israel-Hamas conflict, and recent trade-related actions, may further contribute to increased supply chain costs due to shortages in raw materials, increased costs for transportation and energy, disruptions in supply chains, increased tariffs, and heightened inflation. Further escalation of tariffs or 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. We estimate that the impact of increased tariffs over the prior year will be approximately $2,000 to $5,000 in fiscal 2026.
Interest Rate Risk
In order to fund our strategic growth objectives, including acquisitions, we borrow funds under our revolving credit facility through Wells Fargo 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 March 31, 2025, we had no variable rate debt outstanding on our revolving credit facility and no interest rate derivatives outstanding. See "Debt" in Note 9 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for more information on our debt arrangement.
