Graham Q1 Earnings Call Highlights

Key Points

• Record first-quarter performance: Graham’s fiscal Q1 2027 revenue rose 29% year over year to $71.3 million, with organic growth of 17%, $96 million in orders and a record $557 million backlog. Management maintained its full-year revenue outlook of $285 million to $295 million and adjusted EBITDA outlook of $35 million to $40 million.
• Defense and space led growth: Defense revenue increased 40%, supported by approximately $61.8 million in submarine and torpedo-program orders, while space revenue surged 86% and achieved a 2.3-times book-to-bill ratio. New facilities and testing capabilities are being expanded to support rising production demand.
• FlackTek expands opportunities while margins remain pressured: The acquisition contributed $6.6 million in revenue and $13.3 million in orders, opening opportunities in aerospace, defense and space. Adjusted EBITDA rose 28% to $8.8 million, although gross margin fell to 25% because of sales mix and acquisition-related investments.

Graham NYSE: GHM reported record fiscal first-quarter 2027 revenue, rising 29% year over year to $71.3 million, as growth in its defense, space, energy and process businesses was supplemented by contributions from FlackTek. Organic revenue increased 17%, while first-quarter orders totaled $96 million and backlog reached a record $557 million.

“We are off to a strong start for fiscal 2027,” Chief Financial Officer Chris Thome said, citing broad-based demand, execution and contributions from strategic investments. The company maintained its full-year outlook, including revenue of $285 million to $295 million and adjusted EBITDA of $35 million to $40 million.

Defense and Space Drive Growth

Defense revenue increased 40% from the prior-year period, driven by the timing of project milestones, new program activity and growth in existing programs. The company received about $61.8 million in new and follow-on defense orders supporting the U.S. Navy’s Columbia-class and Virginia-class submarine programs, as well as the MK48 Mod 7 heavyweight torpedo program.

During the quarter, Graham also secured a contract for MK19 Mod 2 air turbine pump assemblies supporting submarine fleet spares. Chief Executive Officer Matt Malone said the MK48 award represented a follow-on option year, while the MK19 work was a competitively won expansion of scope supporting fleet maintenance and spares.

Malone said Graham’s newer Navy and X-ray facilities in Batavia are operational, automated welding systems have been commissioned, and assembly and testing capabilities are increasingly supporting production. He said the investments are intended to improve throughput and quality as production requirements rise for Navy platforms.

Space revenue rose 86% year over year, reflecting new programs, ramps in existing programs and FlackTek’s contribution. Space orders were $14.4 million, producing a 2.3-times book-to-bill ratio. Thome said the company does not expect that order level every quarter because space orders can be “very lumpy,” but characterized the quarter’s revenue run rate as “the new norm” going forward.

The company said development programs have begun moving into production volumes, increasing demand for turbomachinery, cryogenic systems, pumps, motor controllers and precision components. Graham’s liquid nitrogen testing capabilities are now operational, while a cryogenic testing facility in Florida expands its ability to validate more complex products before delivery.

FlackTek Adds Revenue and New Market Opportunities

FlackTek, acquired by Graham, contributed $6.6 million in first-quarter revenue and approximately $13.3 million in orders, equating to a book-to-bill ratio of about 2 times. Malone said integration of the advanced materials processing business has progressed well and that FlackTek establishes a third core technology platform alongside Graham’s vacuum and heat-transfer systems and turbomachinery operations.

Management pointed to opportunities for FlackTek’s MEGA platform in aerospace, defense and space applications, including adhesives used in critical components. Malone said the business initially broadened Graham’s view of opportunities related to missile production, particularly solid rocket motors, and has also led to broader potential applications across the company.

Graham said it continues to evaluate investments and acquisitions under a capital-allocation framework targeting returns above a 20% return-on-invested-capital hurdle rate. The company is also constructing a new 30,000-square-foot manufacturing facility at its Arvada campus to support demand across its turbomachinery portfolio.

Margins, Cash Position and Outlook

First-quarter gross profit rose 21% to $17.8 million, though gross margin declined to 25% from 26.5% a year earlier. Thome said the year-over-year decline reflected sales mix, including a higher proportion of lower-margin defense revenue and material receipts, as well as a difficult comparison with the prior-year first quarter. Gross margin improved 230 basis points from the fiscal fourth quarter.

Selling, general and administrative expense increased $3.2 million, primarily due to acquisition and integration activity, FlackTek-related costs and investments in people, processes and technology. The company expects incremental commercialization and growth-support investments to total about $2.5 million during fiscal 2027.

Net income was $3.9 million, or $0.33 per diluted share, compared with $4.6 million, or $0.42 per diluted share, in the prior-year quarter. Adjusted net income increased to $5.7 million, or $0.49 per diluted share, from $4.9 million, or $0.45 per diluted share. Adjusted EBITDA climbed 28% to $8.8 million, with a 12.3% adjusted EBITDA margin, unchanged from a year earlier.

Aftermarket sales across the energy and process and defense markets increased 20%. Management said the company has more than $1 billion of installed equipment globally and sees potential to expand lifecycle support and recurring revenue. Energy and process revenue rose 5%, with aftermarket demand and FlackTek helping offset continued delays in larger refining and petrochemical capital projects.

Graham ended the quarter with $27 million in cash, no outstanding debt and roughly $75 million of available capacity under its revolving credit facility. During the quarter, the company received a previously announced $50 million strategic investment from accounts advised by T. Rowe Price and used about $13 million of the proceeds to repay debt.

For fiscal 2027, Graham continues to project gross margin of 24.5% to 25.5%, SG&A expense of 16.5% to 17.5% of sales, and capital expenditures of $18 million to $22 million. The company also reiterated its longer-term framework for organic annual revenue growth of approximately 8% to 10% and adjusted EBITDA margins of 14% to 16% by fiscal 2029.

About Graham (NYSE:GHM)

Graham Corporation NYSE: GHM is a U.S.-based industrial engineering company that designs, manufactures and services vacuum and heat transfer equipment. Its core offerings include liquid ring vacuum pumps, surface condensers, heat exchangers and custom-engineered vacuum systems. These products play a critical role in energy-intensive industries, where reliable removal of non-condensable gases and efficient heat exchange are vital to process performance.

The company's technologies find application across a range of end markets, including power generation, petrochemical, oil and gas, LNG, and semiconductor manufacturing.

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