# GRAHAM CORP (GHM) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from GRAHAM CORP's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/716314/000095017024070222/ghm-20240331.htm
Accession: 0000950170-24-070222
Filing date: 2024-06-07
Report date: 2024-03-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/GHM/
All MD&A years: /company/GHM/mda/
Previous year: /company/GHM/mda/fy2023/ (FY 2023)
Next year: /company/GHM/mda/fy2025/ (FY 2025)

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, space, energy and process 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 space industry, our equipment is used in propulsion, power and energy management systems, and for life support systems. We supply equipment for vacuum, heat transfer and fluid transfer applications used in energy and new energy markets including oil refining, cogeneration, and multiple alternative and clean power applications including hydrogen. For the chemical and petrochemical industries, our equipment is used in fertilizer, ammonia, ethylene, methanol, and downstream chemical facilities.

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

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

This management's discussion and analysis of financial condition and results of operations omits a comparative discussion regarding the fiscal year ended March 31, 2023 versus the fiscal year ended March 31, 2022. 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, 2023.

Our fiscal year ends on March 31 of each year. We refer to our fiscal year, which ended March 31, 2024, as fiscal 2024. Likewise, we refer to our fiscal years that will end or have ended March 31, 2025, March 31, 2023, and March 31, 2022, as fiscal 2025, fiscal 2023, and fiscal 2022, respectively.

Acquisition

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

The purchase price for P3 was $11,238 and was comprised of 125 shares of our common stock, representing a value of $1,930, and cash consideration of $7,098, 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.

Key Results

Key results for fiscal 2024 include the following:

•
Net sales of $185,533 for fiscal 2024 increased 18% over the prior year period. Approximately $2,206 of this increase was due to the acquisition of P3 in fiscal 2024 and was primarily related to the space industry. Excluding P3, organic growth was 17% over the prior year. This increase was primarily due to sales to the defense industry, which increased $34,166 versus the prior year period primarily due to improved pricing, increased capacity and direct labor, better execution, and the timing of material receipts. Partially

25

offsetting this increase was a $7,898 decline in space sales primarily due to the timing of projects, as well as the loss of Virgin Orbit Holding, Inc. ("Virgin Orbit") as a customer in April 2023 due to its Chapter 11 bankruptcy, partially offset by incremental revenue from P3. During fiscal 2023, approximately $5,300 of space revenue was related to Virgin Orbit. Net sales also benefited in fiscal 2024 from strong growth in aftermarket sales to the defense, refining, and petrochemical markets, which increased $12,935 in comparison to the prior year.

•
Gross profit margin for fiscal 2024 was 21.9%, 570 basis points higher than the comparable period of fiscal 2023. This increase reflected the increased leverage on fixed overhead costs due to the higher volume of sales discussed above, as well as an improved mix of sales related to higher margin defense and aftermarket sales, and better execution and pricing on defense contracts, partially offset by higher incentive compensation in comparison with the prior year. Additionally, during fiscal 2024 we submitted for the employee retention tax credit ("ERC") which benefited our gross profit by approximately $700.

•
During fiscal 2024, we completed and shipped the remaining two first article units related to the Columbia Class submarine and Ford Class carrier programs.

•
Selling, general and administrative expenses ("SG&A"), including intangible amortization, for fiscal 2024 increased $9,425 over fiscal 2023. In connection with the acquisition of BN, we entered into a Performance Bonus Agreement to provide employees of BN with a supplemental performance-based award based on the achievement of BN performance objectives for fiscal years ending March 31, 2024, 2025, and 2026 which can range between $2,000 to $4,000 per year (the "BN Performance Bonus"). During fiscal 2024, we recorded $4,258 related to the BN Performance Bonus which includes the applicable employer related payroll taxes. The remainder of this increase was primarily due to increased performance based compensation and professional fees, as well as costs associated with the acquisition of P3 and the implementation of a new ERP system at our Batavia location. Partially offsetting these increases was lower bad debt expense in connection with the Virgin Orbit bankruptcy of $1,154.

•
Net income and net income per diluted share for fiscal 2024 were $4,556 and $0.42 per share, respectively, compared with $367 and $0.03 per share, respectively, for fiscal 2023. Adjusted net income and adjusted net income per diluted share for fiscal 2024 were $6,796 and $0.63 per share, respectively, compared with $2,519 and $0.24 per share, respectively, for fiscal 2023. 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 2024 were $268,447 compared to $202,686 in fiscal 2023 and were 145% of sales during fiscal 2024. This increase was primarily due to a $60,696 increase in defense orders and was primarily from repeat orders in strategic U.S. Navy programs. Additionally, in fiscal 2024 we received a $13,500 strategic investment from a major defense customer to expand and enhance our Batavia, NY production capabilities, primarily for machinery and equipment, in order to support the U.S. Navy's shipbuilding schedule. We believe these repeat orders and investment validate the investments we made, our position as a key supplier to the defense industry, and our customer’s confidence in our execution. Fiscal 2024 orders also benefited from a higher level of capital investment projects in the refining, chemical and petrochemical markets, which are lumpy in nature, as well as newly awarded programs with several key commercial space customers. For fiscal 2024, space orders were $1.7 million, or 11%, higher than fiscal 2023 despite the loss of Virgin Orbit and includes orders generated by P3. For additional information see "Orders, Backlog and Book-to-Bill Ratio" below.

•
Backlog was $390,868 at March 31, 2024, compared with $301,734 at March 31, 2023. This 30% increase was primarily due to the growth in orders received during 2024 as discussed above. Approximately 84% of our backlog at March 31, 2024 was to the defense industry, which we believe provides stability and visibility to our business. Backlog acquired from our acquisition of P3 was $6,225. Excluding P3, organic backlog growth was 28% over the prior year. For additional information see "Orders, Backlog and Book-to-Bill Ratio" below.

•
Cash and cash equivalents at March 31, 2024 was $16,939, compared with $18,257 at March 31, 2023. This decrease was primarily due to net repayments of debt of $12,500, cash paid for P3 of $6,812, and $9,226 of capital expenditures as we began to invest in longer-term growth opportunities. These uses of cash were funded by cash flow from operating activities of $28,119 being driven by higher profitability and a reduction in working capital as a result of the change in payment terms related to large defense customers during fiscal 2024 and stronger financial discipline. Additionally, cash provided by operating activities benefited approximately $22,000 from net customer deposits received on long-term U.S. Navy defense contracts that will require cash expenditures over the next 12 to 24 months.

•
On October 13, 2023, we entered into a new, five-year $50,000 revolving credit facility with Wells Fargo Bank, National Association ("Wells Fargo") of which $35,000 is immediately available. We used the proceeds from the facility and cash on hand to pay down the remaining balance of our term loan. The new facility reduced current borrowing rates by approximately 25 basis

26

points to SOFR plus 1.25%, increased the maximum total leverage ratio of 3.5 to 1, and provides us greater financial flexibility to execute on our strategy for growth. For additional information see "Liquidity and Capital Resources" below.

Current Market Conditions

Demand for our equipment and systems for the defense industry is expected to remain strong and continue to expand, based on defense budget plans, accelerated ship build schedules due to geopolitical tensions, the projected build schedule of submarines, aircraft carriers and undersea propulsion and power systems and the solutions we provide. In addition to U.S. Navy applications, we also provide specialty pumps, turbines, compressors, and controllers for various fluid and thermal management systems used in 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.

Our traditional energy markets are undergoing significant transition. While we expect that fossil fuels will continue to be an important component in the global energy industry for many years to come, there are significant changes in the priorities for capital investments by our customers and the regions in which those investments are being made. We expect that the systemic changes in the energy markets, which are influenced by the increasing use by consumers of alternative fuels and government policies to stimulate their usage, will lead to demand growth for fossil-based fuels that is less than the global growth rate. The timing and catalyst for a recovery in this market remains uncertain. Accordingly, we believe that in the near term the quantity of projects available for us to compete for will remain low and that new project pricing will remain challenging. Additionally, we believe that the majority of orders in our traditional energy markets will be outside the United States.

Of note, over the last few years we have experienced an increase in our energy and chemical aftermarket orders primarily from the domestic market. Aftermarket orders have historically been a leading indicator of future capital investment by our customers in their facilities for upgrades and expansions. However, if a capital investment upturn were to occur, we do not expect the next cycle to be as robust as years past due to the factors discussed above and are expected to be stronger in our international markets such as China and India.

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.

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

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 as well. 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 similar to Virgin Orbit. Thus, future revenue and growth to this market can be uncertain and may negatively impact our business.

27

As illustrated below, we have succeeded over the last several years with our strategy to increase our participation in the defense market and diversify our revenue to not be as reliant on our legacy refining and petrochemical markets. The defense market comprised 84% of our total backlog at March 31, 2024.

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:

[[GREPCENT_TABLE]]
[["","","Year Ended March 31,","","","Change"],["","","2024","","","2023","","","$","","%"],["Net sales","","$","185,533","","","$","157,118","","","$","28,415","","","18","%"],["Gross profit","","$","40,585","","","$","25,408","","","$","15,177","","","60","%"],["Gross profit margin","","","21.9","%","","","16.2","%"],["SG&A expense (1)","","$","33,583","","","$","24,158","","","$","9,425","","","39","%"],["SG&A as a percent of sales","","","18.1","%","","","15.4","%"],["Net income (loss)","","$","4,556","","","$","367","","","$","4,189","","","1141","%"],["Diluted income (loss) per share","","$","0.42","","","$","0.03","","","$","0.39","","","1300","%"],["Total assets","","$","233,879","","","$","203,918","","","$","29,961","","","15","%"]]
[[/GREPCENT_TABLE]]

(1)
Selling, general and administrative expense is referred to as "SG&A."

28

Fiscal 2024 Compared with Fiscal 2023

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:

[[GREPCENT_TABLE]]
[["","Year Ended"],["","March 31,","","","Change"],["Market","2024","","%","","","2023","","%","","","$","","","%"],["Refining","$","29,087","","","16","%","","$","27,270","","","17","%","","$","1,817","","","","7","%"],["Chemical/Petrochemical","","20,893","","","11","%","","","21,950","","","14","%","","","(1,057",")","","","-5","%"],["Space","","13,282","","","7","%","","","21,180","","","13","%","","","(7,898",")","","","-37","%"],["Defense","","99,493","","","54","%","","","65,327","","","42","%","","","34,166","","","","52","%"],["Other","","22,778","","","12","%","","","21,391","","","14","%","","","1,387","","","","6","%"],["Net sales","$","185,533","","","100","%","","$","157,118","","","100","%","","$","28,415","","","","18","%"],["Geographic Region"],["United States","$","155,908","","","84","%","","$","127,519","","","81","%","","$","28,389","","","","22","%"],["International","","29,625","","","16","%","","","29,599","","","19","%","","","26","","","","0","%"],["Net sales","$","185,533","","","100","%","","$","157,118","","","100","%","","$","28,415","","","","18","%"]]
[[/GREPCENT_TABLE]]

Net sales of $185,533 for fiscal 2024 increased 18% over the prior year period. Approximately $2,206 of this increase was due to the acquisition of P3 in fiscal 2024 and was primarily attributable to the space industry. Excluding P3, organic growth was 17% over the prior year. This increase was primarily due to sales to the defense industry, which increased $34,166 versus the prior year period primarily due to an improved mix of higher margin defense projects, increased capacity and direct labor, better execution, and the timing of material receipts. Partially offsetting this increase was a $7,898 decline in space sales primarily due to the timing of projects, as well as the loss of Virgin Orbit as a customer in April 2023. During fiscal 2023, approximately $5,300 of space revenue related to Virgin Orbit. Net sales also benefited in fiscal 2024 from strong growth in aftermarket sales to the defense, refining, and petrochemical markets, which increased $12,935 in comparison to the prior year.

Our gross margin for fiscal 2024 was 21.9% compared with 16.2% for fiscal 2023. This increase reflected the increased leverage on fixed overhead costs due to the higher volume of sales discussed above, as well as an improved mix of sales related to higher margin defense and aftermarket sales, and better execution and pricing on defense contracts, partially offset by higher incentive compensation in comparison with the prior year. Additionally, during fiscal 2024 we submitted for the Employee Retention Credit which benefited our gross profit by approximately $700. In fiscal 2023, we completed four first article U.S. Navy projects. The remaining two first article projects were completed and shipped during fiscal 2024.

Changes in SG&A expense for fiscal year 2024 compared to fiscal year 2023 are as follows:

[[GREPCENT_TABLE]]
[["","","Change YTD FY24 vs. YTD FY23"],["BN Performance Bonus","","$","4,258"],["Performance-based compensation","","","2,227"],["Professional fees","","","2,183"],["Equity-based compensation","","","473"],["Acquisition costs","","","375"],["Amortization of intangibles","","","271"],["ERP implementation costs","","","241"],["P3 Technologies","","","213"],["Bad Debt expense","","","(1,154",")"],["All other","","","338"],["Total SG&A change","","$","9,425"]]
[[/GREPCENT_TABLE]]

In connection with the acquisition of BN, we entered into a Performance Bonus Agreement to provide employees of BN with a supplemental performance-based award based on the achievement of BN performance objectives for fiscal years ending March 31, 2024, 2025, and 2026, which can range between $2,000 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. The increase in performance-based compensation is primarily due to the improved performance in fiscal 2024 compared to fiscal 2023. The increase in professional fees over the prior year primarily relates to the increasing complexity in our business associated with our growth and international operations, including the investigation by the Audit Committee of our Board of Directors related to GIPL. See Note 17 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K and the "Commitments and Contingencies" section below.

29

The remainder of this increase was primarily due to costs associated with the acquisition of P3 and the implementation of a new ERP system at our Batavia location. Partially offsetting these increases was lower bad debt expense in connection with the Virgin Orbit bankruptcy.

Net interest expense for fiscal 2024 was $248 compared to $939 in fiscal 2023 primarily due to lower debt levels compared to the prior year partially offset by higher interest rates.

Our effective tax rate for fiscal 2024 was 18%, compared with 35% for fiscal 2023. This decrease was primarily due to higher tax credits recognized in fiscal 2024 due to higher income levels and increased investment in research and development, as well as discrete tax expense recognized in fiscal 2023 related to the vesting of restricted stock awards, and a higher mix of income in higher tax rate foreign jurisdictions in fiscal 2023 compared to fiscal 2024. Our expected effective tax rate for fiscal 2025 is approximately 20% to 22%.

The net result of the above is that net income and net income per diluted share for fiscal 2024 were $4,556 and $0.42 per share, respectively, compared with $367 and $0.03 per share, respectively, for fiscal 2023. Adjusted net income and adjusted net income per diluted share for fiscal 2024 were $6,796 and $0.63 per share, respectively, compared with $2,519 and $0.24 per share, respectively, for fiscal 2023. 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 net interest expense, income taxes, depreciation and amortization ("EBITDA"), adjusted net income, and adjusted net income per diluted share are provided for information purposes only and are not measures of financial performance under accounting principles generally accepted in the U.S. ("GAAP"). Management believes the presentation of these financial measures reflecting non-GAAP adjustments provides important supplemental information to investors and other users of our financial statements in evaluating the operating results of the Company. In particular, those charges and credits that are not directly related to our operating performance, and are not reflective of our underlying business particularly in light of their unpredictable nature. These non-GAAP disclosures have limitations as analytical tools, should not be viewed as a substitute for net income or net income per diluted share determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. In addition, supplemental presentation should not be construed as an inference that our future results will be unaffected by similar adjustments to net income or net income per diluted share determined in accordance with GAAP. Adjusted EBITDA, adjusted net income and adjusted net income per diluted share are key metrics used by management and our board of directors to assess the Company’s financial and operating performance and adjusted net income and adjusted EBITDA is a basis for a significant portion of management's performance-based compensation.

Adjusted EBITDA excludes charges for depreciation, amortization, interest expense, taxes, acquisition related expenses, equity-based compensation, debt amendment costs, ERP implementation costs, and other unusual/nonrecurring expenses. Adjusted net income and adjusted net income per diluted share exclude intangible amortization, acquisition related 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:

30

[[GREPCENT_TABLE]]
[["","Year Ended"],["","March 31,"],["","2024","","","2023"],["Net income","$","4,556","","","$","367"],["Acquisition & integration costs","","432","","","","54"],["Equity-based compensation","","1,279","","","","806"],["Debt amendment costs","","781","","","","194"],["Employee Retention Tax Credit","","(702",")","","","-"],["ERP Implementation costs","","241","","","","-"],["Net interest expense","","248","","","","939"],["Income taxes","","1,018","","","","194"],["Depreciation & amortization","","5,432","","","","5,987"],["Adjusted EBITDA(1)","$","13,285","","","$","8,541"],["Net Sales","","185,533","","","","157,118"],["Net income as a % of revenue","","2.5","%","","","0.2","%"],["Adjusted EBITDA as a % of revenue","","7.2","%","","","5.4","%"],["(1) Beginning in the fourth quarter of fiscal 2024, Adjusted EBITDA no longer excludes the BN Performance Bonus, but now excludes the impact of non-cash equity-based compensation expense in order to be more consistent with market practice. Prior period results have been adjusted to reflect these changes on a comparable basis. The BN Performance Bonus expense was $4.3 million for fiscal 2024 and $0 for fiscal 2023 and will continue through fiscal 2026."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Year Ended"],["","March 31,"],["","2024","","","2023"],["Net income","$","4,556","","","$","367"],["Acquisition & integration costs","","432","","","","54"],["Amortization of intangible assets","","2,157","","","","2,476"],["Debt amendment costs","","781","","","","194"],["Employee Retention Tax Credit","","(702",")","","","-"],["ERP Implementation costs","","241","","","","-"],["Tax impact of adjustments(1)","","(669",")","","","(572",")"],["Adjusted net income(2)","$","6,796","","","$","2,519"],["GAAP net income per diluted share","$","0.42","","","$","0.03"],["Adjusted net income per diluted share","$","0.63","","","$","0.24"],["Diluted weighted average common shares outstanding","","10,844","","","","10,654"],["(1) Applies a normalized tax rate to non-GAAP adjustments, which are pre-tax, based upon the statutory tax rate of 23%."],["(2) Beginning in the fourth quarter of fiscal 2024, Adjusted Net Income no longer excludes the BN Performance Bonus. The BN Performance Bonus expense, net-of-tax, was $3.3 million for fiscal 2024 and $0 for fiscal 2023 and will continue through fiscal 2026."]]
[[/GREPCENT_TABLE]]

Acquisition and integration costs are incremental costs that are directly related to the BN and P3 acquisitions. These costs may include, among other things, professional, consulting and other fees, system integration costs, and fair value adjustments relating to contingent consideration. Debt Amendment Costs consists 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 expected to be recovered due to COVID-19 relief programs and is not expected to recur in the future. ERP Implementation Costs relate to consulting costs incurred in connection with the ERP system being implemented throughout our Batavia, N.Y facility in order to enhance efficiency and productivity and are not expected to recur once the project is completed.

31

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:

[[GREPCENT_TABLE]]
[["","","March 31,"],["","","2024","","","2023"],["Cash and cash equivalents","","$","16,939","","","$","18,257"],["Working capital(1)","","","8,112","","","","23,904"],["Working capital ratio(2)","","","1.1","","","","1.3"]]
[[/GREPCENT_TABLE]]

(1)
Working capital equals current assets minus current liabilities.

(2)
Working capital ratio equals current assets divided by current liabilities.

Net cash provided by operating activities for fiscal 2024 was $28,119 compared with $13,914 for fiscal 2023. This increase was primarily due to higher profitability during fiscal 2024 and a reduction in working capital as a result of the change in payment terms related to large defense customers during fiscal 2024 and stronger financial discipline. Additionally, cash provided by operating activities benefited approximately $22,000 from net customer deposits received on long-term U.S. Navy defense contracts that will require cash expenditures over the next 12 to 24 months. Customer deposits, net of unbilled revenue was $43,972 at March 31, 2024 compared to $6,358 at March 31, 2023.

Capital expenditures for the fiscal 2024 were $9,226 versus $3,749 over the comparable period in fiscal 2023. Fiscal 2024 capital expenditures were primarily for machinery and equipment, as well as for buildings and leasehold improvements to fund our growth and productivity improvement initiatives and includes expenditures related to the expansion of production capabilities at our Batavia facility, which is primarily being funded by a $13,500 strategic investment from one of our defense customers. Capital expenditures for fiscal 2025 are expected to be between $10,000 to $15,000 of which approximately half is related to the Batavia facility defense expansion. The remaining capital expenditures for fiscal 2025 are discretionary. We estimate that our maintenance capital spend is approximately $2,000 per year.

Cash and cash equivalents were $16,939 at March 31, 2024 compared with $18,257 at March 31, 2023, as cash provided by operating activities was used to fund capital expenditures, the P3 acquisition, and repayment of debt. At March 31, 2024, approximately $6,552 of our cash and cash equivalents was used to secure our letters of credit and $1,992 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 $35,000 line of credit that automatically increases to $50,000 upon the Company satisfying specified covenants (the "New Revolving Credit Facility"). As of March 31, 2024, there were no borrowings and $1,890 letters of credit outstanding on the New Revolving Credit Facility and the amount available to borrow was $33,110, subject to interest and leverage covenants.

The New Revolving Credit Facility contains customary terms and conditions, including representations and warranties and affirmative and negative covenants, as well as financial covenants for the benefit of Wells Fargo, which require us to maintain (i) a consolidated total leverage ratio not to exceed 3.50:1.00 and (ii) a consolidated fixed charge coverage ratio of at least 1.20:1.00, in both cases computed in accordance with the definitions and requirements specified in the New Revolving Credit Facility. As of March 31, 2024, we were in compliance with the financial covenants of the New Revolving Credit Facility and our leverage ratio as calculated in accordance with the terms of the New Revolving Credit Facility was 0.5x.

Borrowings under the New Revolving Credit Facility bear interest at a rate equal to, at our option, either (i) a forward-looking term rate based on the secured overnight financing rate ("SOFR") for the applicable interest period, subject to a floor of 0.0% per annum or (ii) a base rate determined by reference to the highest of (a) the rate of interest per annum publicly announced by Wells Fargo as its prime rate, (b) the federal funds rate plus 0.50% per annum and (c) one-month term SOFR plus 1.00% per annum, subject to a floor of 1.00% per annum, plus, in each case, an applicable margin. The applicable margins range between (i) 1.25% per annum and 2.50% per annum in the case of any term SOFR loan and (ii) 0.25% per annum and 1.50% per annum in the case of any base rate loan, in each case based upon our then-current consolidated total leverage ratio; provided, however, for a period of one year following the closing date, the applicable margin shall be set at 1.25% per annum in the case of any term SOFR loan and 0.25% per annum in the case of any base rate loan. As of March 31, 2024, the SOFR rate was 5.34%.

Our revolving credit facility with Wells Fargo contains terms that 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 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 2024 and have no current intention to pay dividends in the future. There can be no guarantee that we will pay dividends in the future.

32

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. (See Note 9 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K).

We did not have any off-balance sheet arrangements as of March 31, 2024 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 our 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:

[[GREPCENT_TABLE]]
[["March 31, 2024","","","March 31, 2023"],["$","105,566","","","$","96,933"]]
[[/GREPCENT_TABLE]]

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 written communications received from customers requesting the Company to provide products and/or services. Backlog is defined as the total dollar value of net orders received for which revenue has not yet been recognized. Management believes tracking orders and backlog are useful as it often times is a leading indicator of future performance. In accordance with industry practice, contracts may include provisions for cancellation, termination, or suspension at the discretion of the customer.

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

Given that each of orders, backlog and book-to-bill ratio is an operational measure and that the Company's methodology for calculating orders, backlog and book-to-bill ratio does not meet the definition of a non-GAAP measure, as that term is defined by the U.S. Securities and Exchange Commission, 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:

[[GREPCENT_TABLE]]
[["","Year Ended"],["","March 31,","","","Change"],["Market","2024","","%","","","2023","","%","","","$","","","%"],["Refining","$","33,245","","","12","%","","$","29,276","","","14","%","","$","3,969","","","","14","%"],["Chemical/Petrochemical","","23,749","","","9","%","","","15,306","","","8","%","","","8,443","","","","55","%"],["Space","","16,825","","","6","%","","","15,160","","","7","%","","","1,665","","","","11","%"],["Defense","","177,410","","","66","%","","","116,714","","","58","%","","","60,696","","","","52","%"],["Other","","17,218","","","6","%","","","26,230","","","13","%","","","(9,012",")","","","-34","%"],["Total orders","$","268,447","","","100","%","","$","202,686","","","100","%","","$","65,761","","","","32","%"],["Geographic Region"],["United States","$","231,317","","","86","%","","$","167,984","","","83","%","","$","63,333","","","","38","%"],["International","","37,130","","","14","%","","","34,702","","","17","%","","","2,428","","","","7","%"],["Total orders","$","268,447","","","100","%","","$","202,686","","","100","%","","$","65,761","","","","32","%"]]
[[/GREPCENT_TABLE]]

Orders booked in fiscal 2024 were $268,447 compared to $202,686 in fiscal 2023. This increase was primarily driven by growth in defense, refining and petrochemical aftermarket, space, and new energy customers. Noteworthy orders during fiscal 2024 included the following:

•
Approximately $177,410 in defense orders which were primarily related to follow-on orders for critical U.S. Navy programs related to the Columbia Class submarine and Ford Class carrier programs. These defense orders are expected to be recognized in revenue through early fiscal 2030.

33

•
$22,000 of the defense orders related to a strategic investment and follow-on orders from a major defense customer. These orders include $13,500 to expand and enhance our Batavia, NY production capabilities, primarily for machinery and equipment, in order to support the U.S. Navy's shipbuilding schedule.

•
$9,100 for a vacuum distillation system for a refinery in India.

•
Approximately $35,000 of aftermarket orders to the refining and chemical/petrochemical markets.

•
$1,665 increase in space industry orders which is primarily due to continued growth in this business, as well as the acquisition of P3 partially offset by a decline due to the Virgin Orbit bankruptcy.

For fiscal 2024, our book-to-bill ratio was 1.4x. We believe the strategic investment and increased level of repeat U.S. Navy orders received during the fiscal year validates the investments we made, our position as a key supplier to the defense industry and our customer’s confidence in our execution. Additionally, we believe the strong aftermarket orders are relevant because they historically have been a leading indicator of a cyclical upturn in capital project orders in the refining and chemical/petrochemical markets. However, we do not expect the next cycle to be as robust as years past due to the factors discussed above under "Current Market Conditions."

Orders to the U.S. represented 86% of total orders for fiscal 2024 and is relatively consistent with the prior year. These orders were primarily to the defense and space markets, which represented 66% and 6% of orders, respectively, and are U.S. based.

The following table provides our backlog by market, including the percentage of total backlog, for each category and period presented:

[[GREPCENT_TABLE]]
[["","","March 31,","","","","","March 31,","","","","Change"],["Market","","2024","","%","","","2023","","%","","$","","","%"],["Refining","","$","29,526","","","8","%","","$","26,142","","","9","%","$","3,384","","","","13","%"],["Chemical/Petrochemical","","","11,276","","","3","%","","","7,842","","","3","%","","3,434","","","","44","%"],["Space","","","10,651","","","3","%","","","8,242","","","3","%","","2,409","","","","29","%"],["Defense","","","328,389","","","84","%","","","243,628","","","81","%","","84,761","","","","35","%"],["Other","","","11,026","","","3","%","","","15,880","","","5","%","","(4,854",")","","","-31","%"],["Total backlog","","$","390,868","","","100","%","","$","301,734","","","100","%","$","89,134","","","","30","%"]]
[[/GREPCENT_TABLE]]

Backlog was $390,868 at March 31, 2024, an increase of 30% compared with $301,734 at March 31, 2023. Approximately 35% to 40% of orders currently in our backlog are expected to be converted to sales within one year and 25% to 30% after one year but within two years. The majority of the orders that are expected to convert beyond twelve 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 2025 outlook:

[[GREPCENT_TABLE]]
[["Net Sales","","$200 million to $210 million"],["Gross Profit","","22% - 23% of sales"],["SG&A Expenses(1)","","16.5% - 17.5% of sales"],["Tax Rate","","20% to 22%"],["Adjusted EBITDA(2)","","$16.5 million to $19.5 million"],["Capital Expenditures","","$10.0 million to $15.0 million"],["(1) Includes approximately $6.5 million to $7.5 million of BN Performance Bonus, equity-based compensation, and ERP conversion costs included in SG&A expense."],["(2) Excludes net interest expense, income taxes, depreciation and amortization from net income, as well as approximately $2.0 million to $3.0 million of equity-based compensation and ERP conversion costs included in SG&A expense."]]
[[/GREPCENT_TABLE]]

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 in achieving our fiscal 2027 goals of 8% to 10% average annualized organic revenue growth and Adjusted EBITDA margins in the low to mid-teens.

34

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

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 both 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 and the U.S. Department of Justice and the Securities and Exchange Commission. 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, 2024, we are subject to the claims noted above, as well as other legal proceedings and potential claims that have arisen in the ordinary course of business. Although the outcome of the lawsuits, legal proceedings or potential claims to which we are or may become a party cannot be determined and an estimate of the reasonably possible loss or range of loss cannot be made for the majority of the claims, we do not believe that the outcomes, either individually or in the aggregate, will have a material adverse effect on our results of operations, financial position or cash flows. See Note 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 23% of revenue in fiscal 2024. Revenue from contracts that is recognized over time accounted for approximately 77% of revenue in fiscal 2024. 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

35

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.

Pension and Postretirement Benefits. Defined benefit pension and other postretirement benefit costs and obligations are dependent on actuarial assumptions used in calculating such amounts. These assumptions are reviewed annually and include the discount rate, long-term expected rate of return on plan assets, salary growth, healthcare cost trend rate and other economic and demographic factors. We base the discount rate assumption for our plans on the FTSE Pension Liability Above-Median AA-Index. The long-term expected rate of return on plan assets is based on the plan’s asset allocation, historical returns and expectations as to future returns that are expected to be realized over the estimated remaining life of the plan liabilities that will be funded with the plan assets. The salary growth assumptions are determined based on long-term actual experience and future and near-term outlook. The healthcare cost trend rate assumptions are based on historical cost and payment data, the near-term outlook, and an assessment of likely long-term trends.

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, accounting for business combinations and intangible assets, and accounting for pensions and other postretirement benefits.

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 2022, we completed the acquisition of BN for an aggregate purchase price of $72,014. We identified and assigned value to identifiable intangible assets of customer relationships, technology and technical know-how, backlog 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 discounted cash flow models, which include assumptions such as forecasted cash flows, customer attrition rates, discount rates, and royalty rates. The fair value estimates resulted in identifiable intangible assets, in the aggregate, of $32,500. The resulting goodwill, in the aggregate, from this acquisition was $23,523. 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.

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.

36

Accounting for pensions and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. To accomplish this, assumptions are made about inflation, investment returns, mortality, turnover, medical costs and discount rates. These assumptions are reviewed annually.

The discount rate used in accounting for pensions and other postretirement benefits expense (income) is determined in conjunction with our actuary by reference to a current yield curve and by considering the timing and amount of projected future benefit payments. The discount rate assumption for fiscal 2024 was 5.03% for our defined benefit pension plans and 4.76% for our other postretirement benefit plan. A reduction in the discount rate of 50 basis points, with all other assumptions held constant, would have increased fiscal 2024 net periodic benefit expense for our defined benefit pension plans and other postretirement benefit plan by approximately $211 and ($0.1), respectively.

The expected return on plan assets assumption of 5.75% used in accounting for our pension plan is determined by evaluating the mix of investments that comprise plan assets and external forecasts of future long-term investment returns. A reduction in the rate of return of 50 basis points, with other assumptions held constant, would have increased fiscal 2024 net periodic pension expense by approximately $161.

During fiscal 2024 and fiscal 2023, the pension plan extinguished liabilities for vested benefits of certain participants through the purchase of nonparticipating annuity contracts with a third-party insurance company. As a result of these transactions, in fiscal 2024 and fiscal 2023, the projected benefit obligation and plan assets each decreased $1,452 and $1,383, respectively.

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, consultants and actuaries. 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, pensions, other postretirement benefits 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.