Graham Corporation — Second Quarter Fiscal 2027 Earnings Summary

Financial Performance:

• Net sales reached $69.8 million for the quarter, a 6% increase year-over-year (YoY), driven by a diversified revenue base and the addition of FlackTek which contributed $9.5 million.
• Gross profit increased 38% YoY to $19.7 million, with gross margin expanding 650 basis points to 28.2%.
• Net income rose 50% YoY to $4.6 million, resulting in net income per diluted share of $0.39, a 39% increase.
• Adjusted net income per diluted share was $0.52, up 68% YoY.
• Adjusted EBITDA increased 64% YoY to $10.3 million, with an adjusted EBITDA margin of 14.8%, up 530 basis points.
• Operating income grew 37% YoY to $5.8 million, with an operating margin of 8.4%.
• Cash provided by operating activities was $46.7 million for the quarter.
• Cash and cash equivalents totaled $71.4 million at quarter-end, with no outstanding debt.
• $74.7 million remained available under the revolving credit facility.

Guidance and Future Outlook:

• Reaffirmed full-year fiscal 2027 net sales guidance of $285 million to $295 million.
• Reaffirmed full-year fiscal 2027 adjusted EBITDA guidance of $35 million to $40 million.
• Updated full-year fiscal 2027 gross margin guidance to 25.0% to 26.0% of sales (previously 24.5% to 25.5%).
• Updated full-year fiscal 2027 SG&A expense guidance to 17.5% to 18.5% of sales (previously 16.5% to 17.5%), reflecting higher acquisition and integration costs.
• Updated full-year fiscal 2027 capital expenditures guidance to $15.0 million to $20.0 million (previously $18.0 million to $22.0 million).
• Management expects 30% to 35% of backlog to convert to sales within the next twelve months.

Business Segments and Product Lines:

• Defense sales increased $5.1 million (12%) YoY, representing 66% of net sales, driven by project milestones, new programs, and the FlackTek acquisition.
• Space market sales increased $2.4 million (59%) YoY, driven by commercialization, accelerated launch cadences, and the FlackTek acquisition.
• Energy & Process market sales decreased $3.7 million (17%) YoY due to softness in large capital project investments and geopolitical uncertainties, partially offset by growth in New Energy markets and FlackTek.
• Aftermarket sales to Energy & Process and Defense markets totaled $8.6 million, a 3% decrease YoY.
• FlackTek integration is progressing, with the successful completion of the first customer test at a new cryogenic testing facility and groundbreaking for a new facility in Arvada.
• Orders for the quarter were $73.7 million, with Defense orders at $41.8 million and Space orders at $10.6 million.
• Total Aftermarket orders for Energy & Process and Defense markets increased 91% to $18.3 million.

Market and Competitive Landscape:

• Backlog reached a record $561.3 million, a 12% increase YoY, marking the seventh consecutive quarter of record quarterly backlog.
• Defense backlog increased 10% and Space backlog increased 108% YoY.
• Approximately 83% of the backlog is attributed to the Defense market.
• Book-to-bill ratio was 1.1x for the quarter and 1.2x for the first six months, exceeding the annual target of 1.1x.
• The company serves the Defense, Space, and Energy & Process industries with mission-critical fluid, power, heat transfer, vacuum, and advanced mixing technologies.

Risks and Challenges:

• Geopolitical uncertainties have caused softness in investments on large capital project activity within the Energy & Process market.
• Orders can be lumpy due to the nature of large capital projects and multi-year Defense orders.
• Forward-looking statements are subject to risks including changes in market conditions, customer behavior, and economic recovery forecasts.

Management Commentary and Tone:

• CEO Matthew J. Malone stated results reflect strong execution, highlighting growth in Defense and Space, significant margin expansion, and continued momentum.
• Malone expressed confidence in long-term opportunities, citing the record backlog and progress on strategic initiatives like the FlackTek integration and new facility investments.
• CFO Christopher J. Thome noted continued improvement in profitability and significant financial flexibility to support organic and inorganic growth.
• Management emphasized maintaining financial discipline and driving operational improvements.

Other Key Points:

• The acquisition of FlackTek contributed $9.5 million in revenue for the quarter.
• SG&A expenses increased 34% YoY, with $0.7 million attributed to acquisition and integration expenses and $2.3 million to incremental FlackTek SG&A.
• The Barber-Nichols Performance Bonus, which cost $1.1 million in the prior year quarter, ended in fiscal 2026.
• Capital expenditures were $2.2 million for the quarter and $4.9 million for the first six months.
• The company issued common stock generating $50.5 million in proceeds during the first six months of fiscal 2027.
• Long-term debt of $13.0 million was repaid during the first six months of fiscal 2027.