Graham Corporation Q4 FY2026 earnings call

Acquisitions and Technology Expansion

• Completed the technology purchase of X-DOT Bearing Technologies during the quarter, gaining patented foil-bearing technology for high-speed rotating machinery, with integration proceeding well and already contributing to new opportunity wins
• Completed the $35 million base acquisition of FLACTECH, a pioneer in advanced bladeless centrifugal mixing and materials processing, adding a third core technology platform alongside existing vacuum/heat transfer and high-speed turbomachinery capabilities. The deal includes up to $25 million in performance-based earnouts over four years, brings a 2,500+ unit global install base and predictable recurring consumables/service revenue, and moves Graham closer to its long-term 50% defense / 50% commercial revenue mix target
• FLACTECH's industry-exclusive Mega large-scale mixing platform offers significant market expansion opportunities, with proven production validation and strong customer demand across multiple end markets

Organic Capacity and Capability Investments

• Completed the $17.6 million new U.S. Navy manufacturing facility in Batavia, New York (supported by a $13.5 million customer grant) in Q2 FY2026, expanding capacity for critical Navy programs; automated welding equipment is fully commissioned, and the new X-ray inspection facility remains on track for completion later in FY2026
• Completed renovation of the Arvada, Colorado assembly and test facility for energy and process programs earlier in FY2026, which is now fully operational; launched an aftermarket acceleration initiative leveraging AI to improve responsiveness, pricing, and service penetration during the quarter; expanded and consolidated engineering and service operations in India to improve global cost efficiency and scalability
• Completed liquid nitrogen testing capability in Arvada in Q2 FY2026, with the first unit successfully tested and delivered during Q3; completed construction of the new cryogenic test facility in Jupiter, Florida, which is now in commissioning through the end of FY2026, expanding in-house testing capacity to support growing production of space programs

Overall Operational Performance

• Achieved a 1.3x book-to-bill ratio for the quarter, driving total backlog to a record $515.6 million, up 34% year-over-year, with 35-40% of backlog expected to convert to revenue over the next 12 months, providing strong revenue visibility
• Ended the quarter with $22.3 million in cash, generated $4.8 million in operating cash flow, with $2.8 million in capital expenditures; the revolving credit facility was expanded to $80 million in January 2026, with only $20 million in debt outstanding after the FLACTECH acquisition, leaving ample liquidity for future growth

Graham Corporation reported total third quarter fiscal 2026 revenue of $56.7 million, a 21% year-over-year increase. Defense market sales increased by $8.3 million, driven by project milestone timing, contributions from new programs, improved pricing, and growth across existing programs, representing roughly 68% of total quarterly revenue. Energy and process market sales increased $2.1 million (13% year-over-year), supported by strong aftermarket sales and momentum in new energy markets, particularly small modular reactors (SMRs), representing approximately 25% of total quarterly revenue. Aftermarket sales across energy/process and defense markets totaled $10.8 million, an 11% year-over-year increase. Newly acquired FLACTECH, which closed in late January 2026, has an expected annual run rate revenue of $30 million, with 60% of revenue from energy and process, 15% from defense, and 10% from space markets. Total orders for the quarter were $71.7 million, with 85% of the $515.6 million record backlog attributable to the defense market. Gross profit increased 15% year-over-year to $13.5 million, with a gross margin of 23.8%. Adjusted EBITDA increased 50% to $6 million, for an adjusted EBITDA margin of 10.7%. SG&A as a percentage of sales declined 200 basis points year-over-year to 18.6%.

• Management increased full-year fiscal 2026 guidance, now expecting net revenue in the range of $233 million to $239 million and adjusted EBITDA between $24 million and $28 million, representing 12% and 16% increases at the midpoint respectively, inclusive of the X-DOT and FLACTECH acquisitions
• The full-year expected impact of tariffs on 2026 results was narrowed to $1 million to $1.5 million, reflecting improved sourcing discipline and existing contractual protections
• Graham reaffirmed its long-term targets of 8% to 10% annual organic revenue growth and low to mid-teen adjusted EBITDA margins by fiscal 2027
• Long-term, Graham maintains a target book-to-bill ratio of 1.1x to support sustained organic growth; year-to-date FY2026 book-to-bill is 1.6x, well above the long-term target, and the opportunity pipeline remains full

• Large capital project purchases in the energy and process market are seeing slowing demand driven by lower oil prices, tariffs, and an uncertain macroeconomic environment, leading to delayed large projects and lower orders in the segment during the quarter
• Order flow is inherently lumpy due to the multi-year nature of most defense programs and large commercial projects, creating variability in quarterly book-to-bill ratios
• Material receipts, which carry lower margins, were higher than normal in both Q2 and Q3 FY2026, contributing to a 100 basis point year-over-year gross margin decline in Q3; while they are expected to return to normalized levels in Q4, they remain lumpy and can create unexpected margin pressure in future quarters
• All forward-looking results are subject to general market and macroeconomic uncertainties that could cause actual outcomes to differ materially from management projections, as outlined in Graham's SEC filings

Q: Given major U.S. shipbuilders' announced large capex increases for defense programs, how is Graham adjusting CapEx allocation to meet this demand, and are you pursuing new Navy programs beyond existing contracts?

A: Graham has been investing in defense capacity for several years, and already has opened up sufficient capacity via prior efficiency and equipment investments. The company will continue investing at its historical rate of 7% to 10% of revenue, balancing internal investment and support from the U.S. marine industrial base. Graham is leveraging its existing core precision fabrication and high-speed turbomachinery capabilities to pursue adjacent new Navy opportunities, shifting to a more outbound commercialization strategy to demonstrate its differentiated technology value to new customers beyond its traditional inbound business.

Q: After adding FLACTECH as a third core platform, will future M&A focus on expanding these three existing platforms or add new platforms? What is the long-term scope of potential adjacencies Graham will target?

A: Going forward, M&A and investment will focus primarily on expanding the three existing core platforms: Graham Manufacturing's vacuum and heat transfer, Barber-Nichols' turbomachinery, and the new FLACTECH advanced mixing platform, all of which already have significant organic growth potential. Any future new platforms would likely spin out of existing business units or come from standalone acquisitions of differentiated, moated engineered technology that fits Graham's engineering expertise. FLACTECH's mixing technology is a natural blend of Graham's two existing core physics-based capabilities, and can expand into adjacencies including medical, personal care, and battery technology beyond Graham's existing end markets, driven by automation and efficiency trends.

Q: How are you gaining growth on existing defense programs, when contracts are typically set when awarded? Does the 1.1x long-term book-to-bill target still hold after such a strong year of order intake?

A: Growth on existing programs comes from both incremental new scope (such as spare parts not originally included in the base contract) and additional opportunities from new solicitations, earned by meeting all customer quality and delivery requirements consistently. The 1.1x book-to-bill target is a long-term average to support 8-10% annual organic growth, based on Graham's 5-10 year historical performance. Quarterly and annual book-to-bill can be very lumpy, and it is expected that FY2026 will come in well above 1.1x, which does not change the long-term target.

Q: Regarding the Anduril partnership for FLACTECH's Mega solid rocket motor mixing platform, are there restrictions on selling Mega to solid rocket motor competitors, and what is the TAM for Mega?

A: There are only limited restrictions for the specific Mega product line pending Anduril's equipment purchases, and no restrictions on selling FLACTECH's smaller medium mixing machines to other industry participants, and the Anduril partnership has brought significant new industry interest to the technology. Graham is still quantifying the total addressable market for Mega; it will be a key focus of FLACTECH's production-level growth strategy, and the platform has market-agnostic applicability across many sectors from food to energetics to industrial materials, with very broad expansion potential.