Graham Corporation Q3 FY2026 earnings call

• Acquisitions: Completed acquisition of Xdot Bearing Technologies, which strengthens competitive position in high-speed rotating machinery. Completed acquisition of FlackTek, a pioneer in advanced mixing and materials processing, adding a third core technology platform. FlackTek's MEGA product line is a category-defining platform with growth potential.
• Organic investments: Completed Navy manufacturing facility expansion in Batavia, New York; renovated Arvada, Colorado assembly and test facility; completed liquid nitrogen testing capability in Arvada and construction of cryogenic test facility in Jupiter, Florida, which is entering commissioning.

Revenue for the third quarter of fiscal 2026 was $56.7 million, a 21% increase. Defense sales rose by $8.3 million, energy and process sales increased by $2.1 million or 13%. Gross profit was $13.5 million, with a gross margin of 23.8%. Adjusted EBITDA was $6 million, with an adjusted EBITDA margin of 10.7%. Bookings were strong with a book-to-bill ratio of 1.3x, and backlog reached a record $515.6 million, up 34% year-over-year. Defense market accounts for approximately 85% of the backlog, and around 35%-40% of backlog is expected to convert to revenue in the next 12 months.

• Increased full-year fiscal 2026 guidance for net sales to $233 million to $239 million and adjusted EBITDA to $24 million to $28 million.
• Target 8%-10% organic revenue growth and low to mid-teen adjusted EBITDA margins by fiscal 2027.
• Year-to-date book-to-bill ratio is 1.6x, well above the long-term target of 1.1x.

• Material receipts impacted gross margin this quarter and previous quarters, though expected to be at more normalized levels in Q4 and going forward.
• Tariffs have impacted results, with an expected impact of $1 million to $1.5 million for the full year.
• Orders are inherently lumpy due to the multiyear nature of many defense programs and large commercial projects.

Q: Congrats on the quarter. Just around demand, specifically in defense. Wondering if you're at all surprised by the magnitude of the increases you're contemplating and how you're thinking about allocating your CapEx spend going forward given those -- given their plans for CapEx expansion?

A: Yes, the defense platform is healthy. We've been making investments for several years and will continue to invest at around 7%-10% of revenue, balancing internal investments and marine industrial base.

Q: You've described FlackTek as adding a third platform. Wondering if there are other platforms, so to speak, out there for you to add? Or should we think about additional M&A focusing on the existing 3 that you now have?

A: We'll focus more heavily on continuing to invest in the 3 platform focus areas (Graham Manufacturing, Barber-Nichols, FlackTek). Longer term, additional platforms could come from spinouts or acquisitions of stand-alone platforms.

Q: You guys had called out growth in existing programs within defense. And I was just curious how that actually looks in reality. Like are you actively winning more wallet share on current projects? And if so, how?

A: It's both. We're seeing additional scope from core capability and programs, including spare assets and meeting customer end requirements in areas like undersea submarine platforms and directed energy.

Q: You were talking earlier about what would be potential -- I know you're working on these 3 strategies right now, the core pillars, and you're going to be building up those. But I guess I wasn't thinking about a company like FlackTek for you guys. Could maybe -- Matt, could you give me like a 30-second pocket lecture on what -- where are these addressable markets that you or these adjacencies?

A: FlackTek's advanced mixing, specifically dual asymmetric mixing, couples with core physics-based technologies. It plays in 3 end markets and has a portfolio expanding to medical, personal care, battery technology, etc. It's engineered, differentiated technology-driven solutions with agnostic market footprint.

Q: You're juggling a lot of balls at the same time and you're handling everything really well. Great job. My question is about FlackTek. You mentioned that they're involved in solid rocket motor mixing. Are there any restrictions from the FlackTek partnership by Anduril against selling MEGA to the 2 major solid rocket motor competitors?

A: We have no restriction in the relationship on providing dual asymmetric mixing machines to others with the exception of specifically the MEGA product line pending some level of purchase of equipment. The large machine, medium machines, and other footprint machines are more than adequate to supply the majority of other providers in this space.

Q: The $30 million 2026 estimate for FlackTek, that's based on your year-end ending next month. Is that correct?

A: That's the calendar year-end for '26, representing the current run rate for calendar year '26.

Q: On the material receipts, so that was a drag on gross margin this quarter as well as last. And what I was hoping to get a better sense on was sort of the visibility of that going forward. Obviously, you're always going to have material receipts, right? But do you have a good sense of when those will be highest a few months out?

A: Material receipts are very lumpy in nature. They heavily impacted Q2 and Q3 results, but we would expect them to be at a more normalized level in Q4 and going forward. We have visibility out for about the next year on that.

Q: You did -- I really appreciate the slide kind of going through some of the significant investments and facility enhancements done this year. But I know that you guys did some -- those are kind of focused on improvements made earlier in the quarter. And so I was just curious on anything to call out specifically that happened within the third quarter?

A: We delivered the first assets from the liquid nitrogen test facility in Arvada in the third quarter.

Q: On the testing facilities in Jupiter as well as -- Jupiter, Florida as well as Colorado, I was curious to just maybe hear how the activity has gone thus far with booking up future slots for testing? And just also curious on have you seen -- are those folks who are taking the booking testing slots, are those more so customers you're already working with? Or have you started to see a steady stream of folks that you don't have commercial relationships with yet?

A: In the Arvada facility, it's dedicated to a given production program today but has a healthy pipeline. On the cryogenic facility side, we're focusing on commissioning and prioritizing testing of our own products for contractually shipped products. Most conversations are with potential end users who are customers today.