Good morning, and thank you for joining us today at TD Cowen's 46th Annual Aerospace and Defense Conference. Presenting next, we have Graham Corporation, 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. Presenting on behalf of Graham, it's my pleasure to introduce Dan Thoren, President and CEO, Chris Thome, CFO, and Matt Malone, COO.
Good morning, everyone. There's a familiar face there. Matt, Chris, and I are very excited to tell you about Graham Corporation. This is our first time at TD Cowen, so thanks for the invite. Very happy to be here. Before I get started, I wanted to point out that we may make some forward-looking statements during this presentation and in the following Q&A and one-on-ones. As you know, those statements are covered under the safe harbor that is provided on this slide.
We'll also reference some non-GAAP financial metrics, and we have reconciled those metrics to GAAP metrics in the appendix of our presentation. Graham is a mission-critical equipment supplier for a bunch of different industries: defense, space, energy, process industries. We are building better companies to deliver superior performance. We do that with people that are engaged and invested. Our culture is really built around continual improvement, bordering on disruptive kind of approaches.
Structure is a very small corporate entity that provides best practices, shared services to help our businesses, and then processes both organic and inorganic. Some of the Graham specifics are shown in the table below. We have locations: Batavia, New York, Arvada, Colorado, Jupiter, Florida, and then sales and project management offices in India and China for some of our commercial products. You see products: condensers, ejectors, heat exchangers, pumps, and alternators/regulators types of things. About 615 employees. The last four years have been an amazing journey. So Graham historically has been an energy company involved in refinery petrochem types of equipment. They rode the energy cycle, and it was really tough on the company to ride that energy cycle, making a bunch of money, holding on to it, trying to get through the bottom, and then back up to the top again.
So in the 2010s, Graham started to look for ways to diversify their business. They went after some Navy business, bought into some Navy business, which is ultimately really tough to do also because you don't make money on those kind of long-term projects, at least the first one. But they still had money on the balance sheet, and so in 2021, they acquired Barber-Nichols as a way to diversify. So prior to the acquisition, you see revenue just a little bit short of $100 million in our fiscal year 2021, and you see refining and petrochem kind of being two-thirds of the business. Fast forward four years later and much more diversified, a lot heavier on defense, and basically doubling the size of the company. When Chris and I started at Graham, we started basically in 2021, early 2022. It was kind of a tough time.
We were behind on Navy contracts and really not performing all that well. We put out a five-year plan that looked like this. We said by 2027, we're going to be upwards of $200 million in revenue, and we're going to get to low to mid-teen EBITDA. Not shown fiscal year 2022, we actually lost money, lost $8 million as we tried to get back up to schedule on some of the Navy programs. But since then, we've really been able to put a nice string of years together. So fiscal 2023, we had a 5% EBITDA. You see in 2024, 7%. Our fiscal 2025 guidance at the midpoint is 9.5% EBITDA. So we're well on our way to low to mid-teens EBITDA.
There's a 200 basis point adjustment that Chris can tell you all about that rolls off in fiscal 2026 that will bump up our EBITDA margin by 200 basis points for 2027, so that basically was an earn-out that turned into a bonus went against our P&L that rolls off at the end of 2026. So if we didn't have that bonus program associated with the acquisition of Barber- Nichols, we'd be at 11.5% EBITDA midpoint guidance this year, so we're very, very well on our way. We just announced a leadership transition here in the last week, actually last week, so when the board asked me to become CEO right after the acquisition, I said I have four years. Two years into it, they said, "Still four years?" and I said, "Yep," so two years ago, we started a development program.
Matt rose to the top, and we've been working pretty hard to develop Matt to be able to take on the CEO role, so the first phase of this, Matt becomes the president and chief operating officer, and then in June, I will move from CEO to executive chairman. Matt will become the CEO of Graham Corporation in June. I'm going to be sticking around to do a lot more of the biz dev side, both organic and inorganic, and really work to set up Graham for the next 10 years, so we look at it as a really strengthening of our executive team.
We're a small corporate group right now, and being able to look further out, understand what opportunities are out there is something that we need for the next phase of our business. So I'm really happy to be playing that part in the future. I'd like to introduce Matt Malone next. He'll talk through some of our products and markets and give you a sense of where we're going and where we've been. So Matt.
Pleasure. Nice to meet you all. Matt Malone, as mentioned, President and COO at Graham. I wanted to start by walking through the majority of our backlog and some of our key programs on the naval nuclear side. As you can see here, the defense represents the majority of that backlog. The equipment that we're providing is the condensers, the air turbine pumps, and torpedoes that support these programs, and we're involved in sole source capacity on the majority of these programs. What you can see on the slide, the build plan is on the far left column, and these are very set build plans for years to come. The build timeline down the middle, and then the future revenue potential, all accumulating to about $1 million or $1 billion of opportunity. Graham's extremely well positioned here.
As we continue to build on this pipeline, we see opportunities, and as we execute to further this mentality, and so we're actually taking the naval nuclear portfolio and model and extrapolating that to others like torpedo business, as I mentioned, as well as laser and radar cooling systems. With that being said, Dan had mentioned there's the incumbent beating out the incumbent part of the process, which is where you have to really understand and execute these first article jobs, and that's a really daunting process. These are condensers that are quite large and have a lot of sophistication in terms of welding and fabrication, and through that process, Graham built a lot of respect and very, very proven capability with the key suppliers within the U.S. Navy portfolio.
As a result of that, we've secured a number of contracts which give incredible long-term visibility and allow for very strategic capital implementation. We've had the customer actually now make strategic investments in the business that we've, of course, put our own dollars in as well on the magnitude of, as mentioned here, $13.5 million on a new facility and $2.5 million on investment in our people. And what we see is that's a vote of confidence in our continued path forward on this. With 80% of our business in this environment being sole sourced, we are a very critical supplier to these strategic programs. The thing that I'm most excited about, though, is the future. And the future is twofold. One is continuing to excel on these programs and gain efficiency within our business from these investments.
But the second is being involved with the technology and the engineered product on the new portfolio that's coming forward. And so what I mean by that is if you have the SSN(X) program, which is the next generation, we're starting to use our intellectual property that we've developed and learned on the heat exchanger side and actually work on developing the next-gen technology for the U.S. nuclear. Next up is space. So obviously, we have a diverse portfolio. Barber- Nichols has an extensive background in space and our proven track record of getting product to space, which is, for anyone that doesn't know, a pretty small number of folks that have successfully brought missions to space. And Barber- Nichols is actually quite plentiful. In addition, we have quite a bit of cryogenic knowledge.
Combining these two together, we're seeing excessive opportunity and no market limitation across the launch market, satellites, power and propulsion, exploration, and also life support. So a very diverse portfolio, most of which is in the development phase, but we're starting to see the first scale of the production. So we're in the very early phases of that scale. We are limiting our focus in terms of the saturated launch market, in terms of LEO-type launch market. The reason why is it's pretty saturated, number one. Number two is it's consolidating. And we're really focused on these more mission-critical environments that are at MEO and GEO, which have a lot larger payloads and more critical payloads. The acquisition of P3, as mentioned, so that's a business that now reports into Barber- Nichols. It's roughly 10-15 folks down in Jupiter, Florida.
And they brought a tremendous amount of experience in the space domain. And actually, one of the things that I'd like to share with the group is we're starting to utilize these more innovative businesses to reaccelerate our existing petrochemical refining chemical business that's been the legacy of Graham. So an example of that, you're starting to see new technologies come to life, like we're using computational fluid dynamics to reinvent the future of the conventional vacuum and heat exchanger business. And we're seeing tremendous opportunity. One of the examples of that is a next-gen nozzle, which I'll talk about in future slides. So we're seeing a lot of opportunities in space. We're very focused on those opportunities of where we want to play. And this is rotating machines that are providing life support. So we actually have the oxygen fan and the next-gen backpack for astronauts.
We have cryogenic pumps that are going in the lunar landers. We have quite a few satellite cooling pumps, as shown down there. And then lastly, still involved in the fuel delivery systems for rocket systems. Similar, but quite a bit different is on the new energy side. We use a lot of the technology that we've developed in the space sector on the new energy side. But I'd like to just say energy is a balanced portfolio for us. So we've got the legacy, which is your sort of conventional oil and gas and chemicals business. And the focus there is we have a $1 billion-dollar installed base that we're extracting value through the aftermarket. And the other thing that we're doing is we're bringing new technology. So like mentioned, we just launched a next-gen steam ejector nozzle, which can do one of two things.
It can either reduce the amount of motive steam that you use, or it can increase the actual production of the facility when you put in this new nozzle, and what we're seeing is we're reinventing ourselves through technology. That market has been very stagnant for quite some time in new technology, and so we're actually seeing a substantial competitive differentiator both in the aftermarket, in the domestic market here in the U.S., and certainly internationally, where steam is very, very expensive. The other thing that we're doing is we're using similar technologies, so whether it's cryogenics or advanced thermodynamic-type modeling to reinvigorate and pursue new markets in the advanced energy space, so examples of that are small modular nuclear, hydrogen transportation, and many others that fit into that portfolio.
So for example, on small modular nuclear, we're designing and fabricating a lot of the helium circulators and supercritical CO2 machines that, one, control the temperature within the reactor, and two, extract the power on the back end of the unit. And so we've got a lot of programs and a lot of pipeline that is really stimulating that side of the business. So we've got a balanced portfolio on the energy side, which is legacy, your very conventional energy sector, as well as really pursuing the next generation of diversified energy supply. When you look at Graham Corporation, you can see it's a diverse portfolio, but one of the things that we've been very focused on, on the Y-axis, you have growth in terms of revenue, and on the X-axis, you have differentiation and margin enhancement.
As we've extracted and broken down these businesses, we've actually taken a very pragmatic approach to improving both margin and revenue on each of the segments in which we pursue. We're not looking at it as a consolidated portfolio, but we're actually looking to extract max value in any one of the segments at any time. An example of that is in the energy and chemical business. We're focused on competitive pricing through international supply, as well as bringing new technology like next-generation nozzle to it to boost both margin and revenue growth. On the defense side, we're actually bringing in automated welding and establishing a very robust portfolio to further that to extract margin. Many examples, but we see a lot of opportunity to further expand our margin and continue to grow the business on the communicated path.
On the M&A side, so we've been focused in our fiscal year 2027 aspirational goals are built on mostly organic growth, but we are focused and we are prioritizing a playbook on M&A. We're in active conversations with potential targets, and so I just wanted to walk through the portfolio that really defines what we're looking for in criteria. Company, we'd like to pursue a U.S.-based target that's privately held, and there's reasons for that. The biggest reason is we would like someone or a business that would like to carry forward with the Graham brand, just like Barber- Nichols and P3. An example of that means cash plus stock. They have investment in the business, and there's an earnout for continued prosperity. Industry focus, we'd like to have synergies within, ideally product and technology complement and market agnostic.
So an example of what I mean by that is a potential business that has power and fluid management that serves the medical market would be very attractive. Management and culture, it's a huge part of the success over the last number of years. And the idea is that we want to continue to promote continuous improvement. We want to get better every single day. We also want to bring innovation to existing markets. And so having a team that comes in ready to do that and do it successfully is very important.
And then the last engineered product, we are an engineered product business. We want differentiation through technology and IP. We don't want our moat to just be because we've done it before. And so we're very focused on businesses that have that engineered-to-order DNA. With that, for financial criteria, I'll turn it over to Chris, our CFO. Thank you.
Thanks, Matt. And thanks to everyone for weathering the storm here to come listen to us today, although in Western New York, this is just a dusting. So anyway, so the nice thing about having 8%-10% organic revenue growth is that we don't have to do acquisitions just to do acquisitions. We can grow without them. But as Matt said and described, they are part of our long-term strategic plan. So with that said, we're not going to overpay for an acquisition. We're generally looking for something that's less than 10 times EBITDA. We're not looking at this point in anything transformational. We're looking in the $20 million-$80 million purchase price range. So certainly not going to over-leverage the company. We'd like to keep the leverage ratio of the company less than three.
As I'll show in a few slides, we have plenty of dry powder to fund both our organic as well as our inorganic opportunities. So now I'll just spend a few minutes just going over quarterly results that we just issued last week. We issued our third quarter results. We are on March 31st, year-end. We are having a really good year. Third quarter results were in line with our expectations. We maintained our revenue and Adjusted EBITDA guidance that we set and raised last quarter. Historically, our third quarter is typically our lowest quarter for the year just because of seasonality with holidays and PTOs in there. We are a direct labor-driven business. So with the holidays, we always see a seasonal decline in the third quarter. But the quarter was in line with our expectations.
Revenue was $47 million, which was a 7% increase over the prior year. But what's nice to see is that the growth came across our markets, with defense being our largest market that was able to still grow 11%. And we're also seeing continued strength in our energy and chemical aftermarket, which is being bolstered by such things as the next-gen nozzle that Matt just walked you through. This slide shows how our increased revenue is translating to gross profit. Along with the higher revenue, we are seeing higher gross profit margins as we leveraged our fixed overhead. But we're also seeing substantially better execution and better pricing on the contracts that we're working on. As a result, our gross margin was up 20% quarter- over- quarter. But more importantly, the margin expanded 260 basis points to 24.8%.
And that's really being driven by not only the better execution and pricing, but also in the investments we're making in such things as automated welding equipment and new machining equipment and things like that, as well as the investments in our people and our processes. So quite nice expansion that we're seeing there. And again, consistent with revenue, the gross profit dipped just because of the seasonality in the business. This slide shows how that increase in gross profit is flowing down to our bottom line. The charts on the left are on a quarterly basis. The charts on the right are on an annual basis. So you can see that our business does tend to be quite lumpy, with the third quarter being the lowest. For the quarter, Adjusted EPS was $0.18 a share, a 38% increase over the prior year.
Similarly, our Adjusted EBITDA margin increased 36%, and the margin increased 180 basis points to 8.6%. As Dan mentioned earlier, that is being weighed down by the supplemental Barber- Nichols earnout bonus from the acquisition, which was about a 230 basis point decrement to our margins during the quarter. That will go away after fiscal year 2026. Basically, you can see the consistent improvement that we've made, and we're proud of the accomplishments we've made today, but we're not done. Our mantra and our culture is to get better every day as we drive to hit our 2027 targets of low- to mid-teen EBITDA margins. We're going to get there by making the steady improvements in our business and our people. This slide shows the strength of our balance sheet as of the end of the quarter.
With the improved performance, we've been able to pay down all our debt. So as of the end of December, we didn't have any debt on our balance sheet. We have strong cash flows as we were able to negotiate some longer-term defense contracts. And we also have access to a $50 million line of credit. So plenty of dry powder to fund our organic and our inorganic opportunities. We did increase our guidance for CapEx spend for the year to be $15 million-$19 million.
We've said that over the next several years, we want to invest approximately 7%-10% of our revenue in CapEx as we continue to invest in our business and things such as a new cryogenic propellant testing facility that we announced, the expansion of our defense business at our Batavia operations, which, as Matt pointed out, the majority of which is being funded by one of our customers, as well as we made an opportunistic land purchase at our Arvada, Colorado facility, which is currently landlocked and will probably begin construction on that in calendar year 2026. The cryogenic testing facility, as well as the Navy expansion, the 30,000 sq ft facility that we're building, are all scheduled to go live in June, mid-calendar year this year, and all are on budget and on time.
All of these major capital investment projects that we're working on all have a greater than 20% ROI associated with them. This slide shows the detail of our orders and backlog. During this past quarter, we did have a book-to-bill ratio of only 0.5 times, but that's really because our orders are very lumpy in nature. As we stated on the call, our pipeline of opportunities remains very robust. For the year, we do have a book-to-bill ratio of one. Given that 50% of our business is to the defense industry, those contracts are long-term and very large in size. They can range anywhere from $10 million to $100 million. As you can see, in the third quarter of last year, we booked $123 million worth of orders, which is going to take and generate and provide revenue for two to three years.
So very long-term in nature, very, very lumpy. But as expected, orders did come down in the quarter, but we're not concerned. The nice thing about the defense business is that it brings a tremendous amount of visibility and stability to our business. We do have $385 million of backlog, which is almost two years' worth of revenue. One other positive note for the quarter is that our aftermarket orders were up 50%, which is our highest margin business. And that is going to be even bolstered further in the future by the next-gen nozzle that Matt talked about. During the quarter, as I mentioned earlier, we did reiterate our revenue and our Adjusted EBITDA guidance. Our revenue for this year that we've guided to is $200 million-$210 million, which would be an 11% increase at the midpoint of that range.
We've guided Adjusted EBITDA to be $18-$21 million, which would be a 47% increase at the midpoint of that range, and would also equate to a 9.5% EBITDA margin. And once again, that's being weighed down by about 200 basis points due to the Barber- Nichols earnout bonus. So in summary, we're very proud of the accomplishments we've been able to accomplish and achieve to date. But we still have a lot of work that's in front of us to hit our fiscal year 2027 targets. Our fiscal year 2027 goals is to grow revenue 8%-10% organically per year, which would put us, based upon the fiscal year 2025 guidance, that would put us at about $240-$250 million of revenue.
To achieve that low to mid-teen EBITDA margins, which, based upon the midpoint of the revenue, would be about $35 million of EBITDA. So quite substantial growth from $19.5 million of the midpoint of this year to approximately $35 million in fiscal year 2027, which, as you know, three quarters of our fiscal year 2027 is in calendar year 2026. So just two short years away. And we're going to achieve that just through consistently reinvesting in the business, continuous slow and steady improvement every day. And we're very confident that we have the people, the strategy, and now under Matt's leadership, we have the people in place to do it. So with that, we'll be happy to take any questions.
I've got a couple here. Graham has a long history of innovation in energy and defense sectors. What's your long-term vision for the company, though, over the next five to 10 years?
Yeah. So as you mentioned, there's a long history of innovation, but the future is really bright. So the best example is a diversified approach to that. And what I mean by that is we see a lot of opportunity to take knowledge that exists, say, on the commercial side of the Barber-Nichols and bring it to the commercial side of the Graham business. So a legacy business that has $1 billion installed base and is fighting for orders today based on price and others can be differentiated by advanced technology. And that advanced technology we're starting to see comes from, let's say, the space market, which seems very unrealistic. But an example of that is using our supersonic nozzle knowledge to actually improve the efficiency of the vacuum systems on the petrochemical side.
The other aspect of it is we'll continue to see a large amount of innovation go into even these Navy nuclear programs. Yes, we will be executing for many years, potentially decades, on the platforms that exist today. But in parallel with that is the nurturing of the next foundational programs. So examples of that is you have the SSN(X) program, which is sounding like it's going to be a modernization of the Virginia-class submarine. You have torpedo platforms, which today the Barber- Nichols portfolio really focuses in on the Mark 48 torpedo, which is a piston-driven Otto fuel engine. And in today's landscape, we're starting to look at SCEPS, which is a lithium boiler-type propulsion application. And so we're going to start to see more and more technology be utilized across the different markets. And that's the thing that I think gives the most opportunity for Graham.
As you start to see electrification occur, we will, at Barber-Nichols, we have a very deep portfolio and bench and capability on motor-driven systems and power electronics that support those motor-driven systems. And so I think we'll continue to see more and more of that technology flourish. With that being said, we expect to continue to reinvest in our businesses 7%-10% in CapEx, as well as 2%-3% in our R&Ds. And so we have a robust pipeline both on the CapEx side and in the new technology platforms to continue this growth going.
I guess, what do you attribute to be the largest impact or part of your growth in the defense sector? What makes your solutions better than others? What does the competitive landscape look like?
Yeah. So it's evolving. When it first started, it was really the idea that there was only one, and there was a desire for diversification within the government sector. So an example of that is there was an incumbent that had been providing the condensers for quite some time, and that's been disrupted. What's starting to happen now is the ability to reinvent and deploy capital to improve efficiency and delivery times. So on the Graham side, there's a lot of velocity that's come out in terms of automated welding equipment deployed. We've actually been able to grow through a very successful Arc and Flame program our welding population by 10 to 20 folks a year, whereas the Navy is struggling to do that on an annual basis. And so we're putting in programs that really are allowing us to accelerate.
With that being said, we're combining in the advanced computational fluid dynamics, as mentioned, which is allowing us to do advanced analytics that had never been able to be done on these condenser systems. On the other side of the house, so the torpedo side and the propulsion side, there's a lot of advanced technology in power plant propulsion for torpedoes. There's very few people that understand that discreetly. The one that obviously has been the root of it for a long time is Penn State Applied Research Lab, who we have worked for many decades on, and what we're starting to see is opportunities to reinvent that power plant altogether, and then secondarily, on the propulsion side, we're starting, as Graham, sort of a small nimble tugboat able to disrupt the big players.
And so our overheads are very reduced compared to some of these incumbents that have had this business for a long time. So flexibility in overhead, firm fixed pricing, very quick through our processes, innovation on the torpedo power plant side, and continued innovation. And then on the other side of the house, it really has come down to improved efficiency to provide better lead times.