Graham Q4 Earnings Call Highlights

Key Points

• Graham reported record fiscal 2026 results, with revenue of $245 million, orders of $359 million, and backlog of $533 million. Fourth-quarter revenue also hit a record $67.1 million, driven by defense strength, improving space demand, and the FlackTek acquisition.
• Margins were pressured in the quarter by a higher mix of defense revenue, lower aftermarket sales, tariff impacts, and acquisition-related amortization. Even so, full-year adjusted EBITDA rose 16% to $26 million, and adjusted net income increased 14%.
• Management issued upbeat fiscal 2027 guidance, calling for revenue of $285 million to $295 million and adjusted EBITDA of $35 million to $40 million. The outlook is supported by strong backlog, continued defense and space demand, and a full year of FlackTek contribution.

Graham NYSE: GHM reported record fiscal 2026 revenue, orders and backlog, with management pointing to strong demand in defense, improving momentum in space and contributions from recent acquisitions as the company enters fiscal 2027.

On the company’s fiscal fourth-quarter earnings call, President and CEO Matt Malone said Graham delivered annual revenue of $245 million, record orders of $359 million and record backlog of $533 million. The company’s book-to-bill ratio for the year was 1.5 times.

“The foundation is strong, momentum is building, and we are just getting started,” Malone said. He added that the results reflected Graham’s diversified business model and long-term demand across its core markets.

Fourth-Quarter Revenue Reaches Record Level

Chief Financial Officer Chris Thome said fourth-quarter revenue rose 13% to a record $67.1 million. Growth was driven by continued strength in defense, building momentum in space and new energy programs, and a contribution from the recently acquired FlackTek business.

Defense revenue benefited from execution on key naval programs, capacity expansion and continued demand. Space revenue increased 14% year over year as existing programs began to ramp. Energy and process revenue was consistent with the year-earlier period, as aftermarket demand, new energy activity and $2.8 million in FlackTek sales offset softness in large capital projects in global refining and petrochemical markets.

For the full fiscal year, revenue rose 17% to $245 million. Thome said defense revenue increased 21%, supported by new program wins, growth on existing programs, expanded capabilities and a higher level of material receipts. Energy and process revenue increased 14% for the year.

Margins Pressured by Mix and Investments

Fourth-quarter gross profit was $15.3 million, representing a gross margin of 22.7%, down from 27% in the prior-year period. Thome attributed the decline primarily to a sales mix with a higher proportion of defense revenue, which carries greater material content and lower margin characteristics, as well as lower aftermarket sales compared with the prior year.

He also said FlackTek results were affected by purchase accounting amortization, which is expected to be lower going forward, with margins expected to improve as volume increases.

Full-year gross profit increased 9% to $57.8 million, while gross margin declined to 23.5% from 25.2% in fiscal 2025. Thome said margins were affected by a higher mix of defense revenue and material receipts, incremental tariff impacts and the absence of a BlueForge Alliance Welder Training Grant benefit that helped fiscal 2025 results.

Fourth-quarter net income was $2 million, or $0.18 per diluted share, compared with $4.4 million, or $0.40 per diluted share, in the prior-year period. Adjusted net income was $3.7 million, or $0.33 per diluted share, compared with $4.8 million, or $0.43 per diluted share, a year earlier.

For the full year, net income was $12.5 million, or $1.12 per diluted share, compared with $12.2 million, or $1.11 per diluted share, in fiscal 2025. Adjusted net income rose 14% to $15.6 million, or $1.40 per diluted share. Adjusted EBITDA increased 16% to $26 million, with an adjusted EBITDA margin of 10.6%, consistent with the prior year.

Defense and Space Drive Backlog Growth

Orders in the fourth quarter were $78.7 million, producing a book-to-bill ratio of 1.2 times. Full-year orders reached $359 million, and backlog rose 29% year over year to $533 million.

Management said defense demand remains strong, supported by naval programs, fleet modernization initiatives and submarine production requirements. Malone highlighted Graham’s new Navy facility in Batavia, New York, which is operational and includes automated welding systems and vertically integrated X-ray capabilities.

In response to an analyst question, Thome cautioned that orders can still be volatile because of the size and timing of contracts, though he said Graham’s diversification has made order flow more stable.

Malone also said Graham is seeing defense opportunities beyond naval programs, including directed energy laser platforms and radar systems where the company supplies cooling pumps and motor controllers. He said several programs that had been in development for years are moving toward production.

Space orders grew sharply during fiscal 2026, according to management. Malone said demand is coming from both new and existing customers, including launch providers and systems tied to satellites, astronaut equipment and lunar landers. Thome added that FlackTek brings a space business that is expected to support fiscal 2027 growth.

FlackTek Integration and Capital Spending Continue

Graham acquired FlackTek at the end of January. Malone said the acquisition establishes advanced mixing and materials processing as Graham’s third core platform, alongside vacuum and heat transfer and turbomachinery.

He said integration is progressing according to plan, with a focus on commercialization of FlackTek’s technology and broader market adoption. Malone said Graham remains active in reviewing potential acquisitions but will continue to take a disciplined and selective approach.

The company also completed the acquisition of Xdot during fiscal 2026. Thome said $27 million of cash was deployed for the Xdot and FlackTek acquisitions, funded by operating cash flow and borrowing capacity under the company’s $80 million revolving credit facility.

After year-end, Graham received a $50 million strategic investment from accounts advised by T. Rowe Price. Thome said the company used about $13 million of the proceeds to repay outstanding debt and expects to use the remainder for organic and inorganic growth initiatives. He said Graham currently has more than $100 million of available liquidity.

Fiscal 2027 Outlook Calls for Further Growth

For fiscal 2027, Graham expects revenue of $285 million to $295 million, representing 18% growth at the midpoint. The company guided for gross margin of 24.5% to 25.5% and adjusted EBITDA of $35 million to $40 million.

Thome said the outlook is supported by record backlog, strong demand, a full year of FlackTek and continued execution across the business. Graham expects about 35% to 40% of its backlog to convert to revenue over the next 12 months.

SG&A expense is expected to be 16.5% to 17.5% of sales, including approximately $2.5 million of incremental investments in people, technology and commercialization initiatives. Capital expenditures are projected at $18 million to $22 million, including construction of a new 30,000-square-foot manufacturing facility at the company’s Arvada, Colorado campus.

Malone said Graham plans to provide an updated long-term outlook at its Analyst and Investor Day on June 18 in New York City.

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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