What Graham (GHM) Said on Its Q2 Earnings Call

Key Points

• Fiscal Q2 2027 revenue rose 6% to $69.8 million, while net income increased 50% to $4.6 million and adjusted EBITDA climbed 64% to a record $10.3 million. Gross margin expanded to 28.2%, though management expects it to normalize as the year progresses.
• Defense revenue grew 12% and space revenue surged 59%, helped by favorable program mix and FlackTek, which contributed $9.5 million in sales. Energy and process revenue fell 17% amid continued softness in large projects.
• Backlog reached a seventh consecutive record of $561 million, up 12% year over year. Graham reaffirmed its fiscal 2027 revenue outlook of $285 million–$295 million and adjusted EBITDA outlook of $35 million–$40 million, while raising its gross margin guidance.

Graham NYSE: GHM reported higher revenue and profitability for its fiscal second quarter of 2027, as growth in defense and space and contributions from its FlackTek business helped offset weakness in energy and process markets.

Revenue rose 6% to $69.8 million from $66 million a year earlier. Net income increased 50% to $4.6 million, or 39 cents per diluted share, from $3.1 million, or 28 cents per share. Adjusted EBITDA rose 64% to a record $10.3 million, with the margin expanding to 14.8% from 9.5%.

President and CEO Matt Malone said improved execution, a more favorable mix of defense and space work, and FlackTek’s contribution supported results. The company reaffirmed its full-year revenue and adjusted EBITDA outlook and raised its gross margin guidance.

Margins Expand as Defense and Space Grow

Gross profit increased 38% to $19.7 million, and gross margin widened to 28.2% from 21.7% a year earlier. CFO Chris Thome said the improvement reflected operational changes, FlackTek and a more favorable sales mix. The comparison also benefited from lower receipts of materials, which carry lower margins, than in the prior-year quarter.

Thome cautioned that the quarterly margin was higher than the company’s normal run rate and said he expected margins to normalize as the year progresses. Graham raised its full-year gross margin outlook by approximately half a percentage point at both ends, to 25%–26%.

Defense revenue increased 12% and accounted for 66% of quarterly sales. Growth from project milestones, new and existing programs, and FlackTek was partially offset by approximately $10 million in lower material receipts compared with the year-ago quarter.

Space revenue rose 59%, reflecting higher launch activity, the ramp-up of existing programs and FlackTek’s contribution. Energy and process revenue fell 17% as large capital projects remained soft and sales outside the United States declined, partially offset by new energy growth and FlackTek.

FlackTek generated $9.5 million in quarterly revenue, up from $6.6 million in the first quarter. Malone said the business was contributing margins above those of the broader portfolio and seeing increased demand for larger machines and higher-value orders.

Backlog Reaches Seventh Straight Record

Quarterly orders totaled $73.7 million, producing a book-to-bill ratio of 1.1. Backlog rose 12% year over year to a record $561 million, its seventh consecutive quarterly record. Defense represented approximately 83% of the total backlog, and management said 85% of the defense backlog was funded.

Space orders were $10.6 million, and space backlog more than doubled from a year earlier. Aftermarket orders across defense and energy and process increased 91% to $18.3 million, while aftermarket sales declined 3% year over year to $8.6 million.

Thome said Graham expects 30%–35% of its quarter-end backlog to convert to revenue within 12 months, another 20%–25% within one to two years, and the remainder beyond two years.

The company broke ground on a 30,000-square-foot facility at its Arvada, Colorado, campus to support future turbomachinery demand. Malone said Graham is not capacity constrained today but is building ahead of anticipated needs as backlog grows. The company also completed its first customer test at a new cryogenic testing facility in Florida.

Full-Year Outlook Reaffirmed

Graham continues to expect fiscal 2027 revenue of $285 million to $295 million and adjusted EBITDA of $35 million to $40 million. Thome noted that the fiscal third quarter is typically the company’s lowest-revenue quarter because of holidays and its reliance on direct labor.

For the first half, revenue rose 16% to $141 million and adjusted EBITDA increased 45% to $19.1 million. Operating cash flow was $34.1 million, helped by the timing of receivable collections and customer deposits. Graham ended the quarter with $71 million in cash and no outstanding debt.

Management reiterated its fiscal 2029 framework, targeting annual organic revenue growth of 8%–10% and an adjusted EBITDA margin of 14%–16%. Malone said organic investment remains the company’s first capital allocation priority, followed by acquisitions, and described the acquisition pipeline as active.

About Graham (NYSE:GHM)

Graham Corporation NYSE: GHM is a U.S.-based designer and manufacturer of engineered equipment and systems for the defense, space, and commercial markets. The company develops thermal-management, fluid-handling, vacuum, and power-generation technologies used in demanding industrial and government applications.

Graham supplies equipment for naval vessels, including surface ships and submarines, as well as systems supporting aerospace and space programs. Its products and capabilities include condensers, heat exchangers, vacuum equipment, steam and gas ejectors, cryogenic systems, and integrated propulsion and power solutions.

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