Graham’s Defense Surge and Record Backlog Signal Strategic Shift

Date of Call: Feb 6, 2026

Financials Results

• Revenue: $56.7 million, up 21% YOY
• EPS: $0.31 per diluted share (adjusted net income), up from $0.25 per diluted share prior year
• Gross Margin: 23.8%, down 100 basis points YOY

Guidance:

• Revenue for FY2026 expected to be in the range of $233 million to $239 million, representing an increase of 12% at the midpoint.
• Adjusted EBITDA for FY2026 expected to be between $24 million and $28 million, representing an increase of 16% at the midpoint.
• The company remains confident in achieving long-term objectives of 8% to 10% organic revenue growth and low to mid-teen adjusted EBITDA margins by FY2027.

Business Commentary:

Revenue and Profitability Growth:

• Graham Corporation reported revenue of $56.7 million for Q3 FY2026, up 21% year-over-year. Adjusted EBITDA increased 50% to $6 million.
• The growth was driven by solid performance across end markets, particularly defense, and contributions from new programs.

Backlog and Bookings:

• The company's backlog reached a record $515.6 million, up 34% year-over-year, with a book-to-bill ratio of 1.3x.
• This increase was due to strong bookings, particularly in defense, and the visibility provided by the backlog, with approximately 35% to 40% expected to convert to revenue over the next 12 months.

Acquisitions and Strategic Investments:

• Graham completed the acquisition of FlackTek for $35 million, with additional earn-out potential of up to $25 million, and the technology purchase of Xdot Bearing Technologies.
• These moves were aimed at strengthening Graham's competitive position and expanding its technology platform across various end markets.

Defense Market Performance:

• Sales to the defense market increased by $8.3 million, driven by the timing of project milestones and contributions from new programs.
• The demand in strategic undersea programs and continued investment in capacity and capabilities supported this growth.

Energy and Process Market Trends:

• Sales to the energy and process market increased 13%, with aftermarket sales up 11% year-over-year.
• Growth was supported by strength in new energy markets, particularly SMRs, despite some slowing in large CapEx purchases due to macroeconomic factors.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 'another strong quarter,' 'record backlog,' and 'strong execution.' The tone was optimistic regarding growth, noting investments are 'positioning us well as demand remains strong' and expressing confidence in achieving long-term objectives. The acquisitions were described as strengthening competitive positioning and supporting 'sustained value creation.'

Q&A:

• Question from Russell Stanley (Beacon Securities Limited): Congrats on the quarter. My first question, just around demand, specifically in defense. We saw both the major shipbuilders announced plans for significant CapEx increases for the coming year... Just wondering if you're at all surprised by the magnitude of the increases... and how you're thinking about allocating your CapEx spend going forward given those plans?
  Response: No surprise; demand is healthy. Graham will continue to invest in its existing strategy, balancing internal investments with potential offsets from the marine industrial base, targeting 7% to 10% of revenue for CapEx.

• Question from Russell Stanley (Beacon Securities Limited): And then maybe moving on to the M&A strategy. FlackTek was your largest buy in some time... Wondering if there are other platforms, so to speak, out there for you to add? Or should we think about additional M&A focusing on the existing 3 that you now have?
  Response: Focus will remain on the three established platform areas (Graham Manufacturing, Barber-Nichols, FlackTek). Future expansions could come from spinouts or acquisitions of standalone platforms, but the immediate focus is on investing within the current three.

• Question from Russell Stanley (Beacon Securities Limited): Maybe I'll sneak in one last question, and I'll come back again to the Navy. Obviously, you're sole sourcing a lot of the work you do. I'm wondering how you're thinking about pursuing other work from the Navy, other programs... perhaps other opportunities.
  Response: The core competencies in precision fabrication and high-speed rotating machinery are being leveraged to pursue new opportunities. The company is shifting to a more outbound commercialization strategy to showcase its technology and capabilities to new customers.

• Question from Robert Brooks (Northland Capital Markets): First one was just on -- you guys had called out growth in existing programs within defense. And I was just curious how that actually looks in reality. Like are you actively winning more wallet share on current projects? And if so, how?
  Response: Yes, through meeting customer requirements in time, speed, and quality, and by providing additional scope like spare assets, Graham is seeing additive opportunities on current programs, including new areas like directed energy cooling platforms.

• Question from Robert Brooks (Northland Capital Markets): And then, Chris, I know you had mentioned like historically, you guys have talked about it targeting 1.1 book-to-bill... after another outstanding quarter of orders... I was just curious on the thinking of how landing at 1.1 book-to-bill long term is still the right way to look at it?
  Response: The 1.1 book-to-bill is a long-term target based on historical averages, not specific to FY2026. The year-to-date ratio of 1.6 indicates the company expects to exceed that target this year, but the long-term goal remains 1.1 to support 8-10% organic growth.

• Question from Tony Bancroft (Gabelli Funds): Could maybe -- Matt, could you give me like a 30-second pocket lecture on what -- where are these addressable markets that you or these adjacencies? And sort of what's the scope of these adjacencies that you would -- Graham 5 or 10 years from now, 5 years from now would want to be in.
  Response: The strategy focuses on engineered, differentiated technology-driven solutions that are market-agnostic. Key areas include advanced mixing (like FlackTek's dual asymmetric mixing), which combines turbomachinery and vacuum/heat transfer, and expanding into adjacencies like medical and battery technology, while also advancing electrification and intelligent control in turbomachinery.

• Question from Gary Schwab (Valley Forge Capital Management): You mentioned that they're involved in solid rocket motor mixing. Are there any restrictions from the FlackTek partnership by Anduril against selling MEGA to the 2 major solid rocket motor competitors?
  Response: No restrictions on selling other product lines. The Anduril partnership is respected, but the MEGA product line is specifically tied to that relationship. Other machines (like medium and large) can be sold to competitors, and the company is seeing increased opportunities in energetics due to this partnership.

• Question from Gary Schwab (Valley Forge Capital Management): Do you expect the Mega to be your leading product for FlackTek? And have you come up with an available market size for Mega?
  Response: Focus will shift to production-level machines, including MEGA, but the exact TAM was not disclosed on the call. The technology is seen as market-agnostic with applicability across food, energetics, and other industries, offering significant expansion potential.

• Question from Gary Schwab (Valley Forge Capital Management): The $30 million 2026 estimate for FlackTek, that's based on your year-end ending next month. Is that correct?
  Response: Yes, the $30 million run rate is for the calendar year 2026.

• Question from Robert Brooks (Northland Capital Markets): So on the material receipts, so that was a drag on gross margin this quarter as well as last. And what I was hoping to get a better sense on was sort of the visibility of that going forward... how far in advance do you know when that type of work is going to flow through revenue?
  Response: Material receipts are lumpy and impact quarters unevenly. For Q4 and beyond, they are expected to normalize, but visibility is only about a year out. They represent material for orders already in the backlog, not in anticipation of future work.

• Question from Robert Brooks (Northland Capital Markets): And maybe just -- so is it essentially just ordering raw materials in anticipation of future work? And am I understanding -- is that kind of the reason for it? Am I understanding that right?
  Response: No, material orders are placed only after receiving a customer order, so they support backlog, not future work.

• Question from Robert Brooks (Northland Capital Markets): But I know that you guys did some -- those are kind of focused on improvements made earlier in the quarter. And so I was just curious on anything to call out specifically that happened within the third quarter?
  Response: In Q3, the first assets from the liquid nitrogen test facility were delivered, and the assembly/test facility in Arvada was brought online and is shipping product. The cryogenic facility in Florida was not yet impacting results.

• Question from Robert Brooks (Northland Capital Markets): And then just...
  Response: The investments are aimed at achieving gradual, steady growth to reach FY2027 targets, not a step-change in performance.

• Question from Robert Brooks (Northland Capital Markets): Then last question for me is just on the testing facilities in Jupiter as well as Colorado, I was curious to just maybe hear how the activity has gone thus far with booking up future slots for testing? And just also curious on have you seen -- are those folks who are taking the booking testing slots, are those more so customers you're already working with? Or have you started to see a steady stream of folks that you don't have commercial relationships with yet?
  Response: The Arvada liquid nitrogen facility is dedicated to an existing program and is booked, but has pipeline for future use. The Jupiter cryogenic facility is currently in commissioning, prioritizing testing for backlog products, but is generating active conversations with both existing and potential new customers.

Contradiction Point 1

Progress and Utilization of New Testing Facilities

Contradiction on the operational status and customer usage of the new cryogenic test facilities.

Were there any notable facility improvements or events in Q3, other than the previously highlighted investments? - Robert Brooks (Northland Capital Markets)

2026Q3: The **cryogenic test facility in Florida** was ribbon-cut but commissioning hasn't started impacting business yet. - Matthew Malone(CEO)

What's the update on cryogenic test facility progress and customer booking activity? - Robert Brooks (Northland Capital Markets)

2026Q2: The larger propellant test facility in Florida is expected to receive occupancy approval 'any day,' with internal product testing to follow soon. **Customer product testing is expected to start within the current calendar year.** - Matthew Malone(CEO)

Contradiction Point 2

Strategic Focus and Growth Drivers for the SMR Business

Contradiction on the company's involvement and strategic positioning regarding the SMR market.

Explain Graham's strategy's addressable markets and adjacencies, especially FlackTek, and its potential position in 5-10 years? - Tony Bancroft (Gabelli Funds)

2026Q3: The company's strategy centers on **engineered, differentiated, technology-driven solutions that are market-agnostic**... Future focus includes **electrification and intelligent control** of turbomachinery. - Matthew Malone(CEO)

How much of the $9.9 million defense revenue growth comes from milestone receipts, new programs, and existing program growth? - Joseph Gomes (NOBLE Capital Markets, Inc.)

2026Q2: The company is in the 'early phases of development' on several scaling programs... The ramp is not immediate; near-term activity includes product deployment at Idaho National Lab, with long-term growth potential aligning with the industry's trajectory. - Matthew Malone(CEO)

Contradiction Point 3

Aftermarket Sales Contribution to Margins

Contradiction on whether aftermarket sales are a new, accelerating factor or a cyclical component.

What progress has been made on new Navy programs beyond existing contracts? - Russell Stanley (Beacon Securities Limited)

2026Q3: Graham's core capabilities... are highly applicable to new opportunities. The company is shifting to a more 'outbound' commercialization strategy... - Matthew Malone(CEO)

Is the current EBITDA margin sustainability impacted by strong aftermarket sales and fluid tariff effects as it approaches the fiscal '27 target? - Russell Stanley (Beacon Securities)

2026Q1: The high margin was driven by a favorable mix, especially a high mix of aftermarket sales (20% vs. 15% prior year). Margins are expected to normalize for the remainder of the year... - Matthew J. Malone(CEO)

Contradiction Point 4

Revenue Timeline for New Facilities

Contradiction on when the new cryogenic test facility will start generating revenue.

Other than the previously mentioned investments, were there any significant facility improvements or events in Q3? - Robert Brooks (Northland Capital Markets)

2026Q3: The **cryogenic test facility in Florida** was ribbon-cut but commissioning hasn't started impacting business yet. - Matthew Malone(CEO)

When will the new cryogenic propellant testing facility start generating revenue? - Joseph Anthony Gomes (NOBLE Capital Markets)

2026Q1: Revenue generation will be discussed next quarter. The process is: 1) Complete facility and ensure safety protocols, 2) Validate with internal product testing, then 3) Start filling backlog with customer conversations which are already active. - Matthew J. Malone(CEO)

Contradiction Point 5

Booking Progress for New Test Facilities

Contradiction on booking status and utilization for new cryogenic test facilities.

How is booking progressing for future test slots at the new Jupiter, Florida, and Colorado facilities, and are these bookings from new or existing customers? - Robert Brooks (Northland Capital Markets)

2026Q3: The Jupiter cryogenic facility is currently prioritized for **commissioning and testing products from Graham's own backlog**... It is not yet being used for 'testing as a service,' but the pipeline remains very active. - Matthew Malone(President, CEO & Director)

How is the booking process for the new cryogenic test facility progressing, and what utilization rate is expected once operational? - Joseph Gomes (NOBLE Capital Markets)

2025Q4: The facility is on an aggressive timeline and is expected to be online in the coming months. **There are currently no firm bookings**, but the company is receiving a high volume of inquiries. - Matthew Malone(President and COO)