Graham (NYSE:GHM) reported fiscal third-quarter 2026 results that management characterized as another “strong quarter,” pointing to double-digit revenue growth, higher profitability, and record backlog supported by continued defense demand and contributions across its end markets.
Quarterly results driven by defense milestones and diversified demand
Revenue rose 21% year over year to $56.7 million, which CEO Matt Malone said was supported by the timing of key project milestones, particularly in the defense business, along with contributions from new programs and growth across existing platforms. CFO Chris Thome added that defense sales increased $8.3 million versus the prior-year quarter, citing project milestone timing, contributions from new programs, better pricing, and growth across existing programs.
Profitability improves; tariffs and mix affected gross margin
Adjusted EBITDA increased 50% to $6.0 million, with an adjusted EBITDA margin of 10.7%. Net income for the quarter was $0.25 per diluted share, while adjusted net income was $0.31 per diluted share. On a year-to-date basis, adjusted EBITDA margin was 10.8%, which the company said was up 100 basis points from the prior-year period and in line with updated full-year guidance.
Gross profit rose 15% to $13.5 million, but gross margin declined 100 basis points year over year to 23.8%. Thome attributed the margin decline primarily to sales mix, including a higher level of lower-margin material receipts, and to a $255,000 benefit in the prior-year quarter from the Blue Forge Alliance grant that did not repeat this year.
Management also discussed tariff impacts. Thome said the company estimates tariffs have reduced results by approximately $1 million over the first nine months of fiscal 2026, with minimal impact in the third quarter. For the full fiscal year, the expected tariff impact was narrowed to $1.0 million to $1.5 million, which management said reflects sourcing discipline, established in-country partnerships, and contractual protections.
SG&A increased year over year due to investments in operations, technology, and personnel, along with higher acquisition and integration costs tied to recent deals. However, SG&A as a percentage of sales declined 200 basis points to 18.6%.
Orders remain strong; backlog reaches record level
Orders in the quarter were $71.7 million, resulting in a book-to-bill ratio of 1.3x. Management said the quarter’s order strength was driven by demand in defense and space. Energy and process orders were down slightly, which Thome attributed to lower aftermarket orders and delays in large capital projects amid macro uncertainty, lower oil prices, and tariffs—though those pressures were “almost entirely offset” by growth in new energy orders, including SMRs.
Backlog increased to a record $515.6 million, up 34% year over year. The company said roughly 85% of backlog is tied to defense. Management expects approximately 35% to 40% of backlog to convert to revenue over the next 12 months, with another 25% to 30% converting within one to two years.
In the Q&A session, management reiterated that orders can be “inherently lumpy” due to the multi-year nature of many defense programs and large commercial projects. Thome said the company’s long-term target book-to-bill ratio of roughly 1.1x is based on historical performance over five to 10 years and is intended as a long-term framework, not as fiscal 2026 guidance. Year to date, book-to-bill was 1.6x.
Acquisitions expand technology platforms, including FlackTek and XDot
During the quarter, Graham completed the technology purchase of XDot Bearing Technologies, which management described as an engineering-led firm with patented foil-bearing technology focused on high-speed rotating machinery. Malone said the acquisition is intended to strengthen Graham’s competitive position across aerospace, defense, energy transition, and industrial applications. He added that integration into Barber-Nichols was “going very well,” and the company is already leveraging the technology to pursue future opportunities.
In late January, Graham also completed the acquisition of FlackTek, which management described as a pioneer in advanced mixing and materials processing solutions. The base purchase price was $35 million, comprised of 85% cash and 15% equity, and includes the potential for an additional up to $25 million in performance-based cash earn-outs over four years beginning in fiscal 2027, contingent on adjusted EBITDA targets. Thome said the base purchase price represents approximately 12x FlackTek’s projected adjusted EBITDA for 2026, and the deal was funded with cash on hand and borrowings under the company’s revolving credit facility.
Management positioned FlackTek as a third core technology platform, alongside vacuum/heat transfer and high-speed turbomachinery. Malone said FlackTek has approximately $30 million in annual revenue and an installed base of “more than 1,200 or 2,500 units” globally, along with proprietary intellectual property. He also said FlackTek shifts Graham’s revenue mix toward its stated long-term goal of 50% defense and 50% commercial, noting FlackTek’s sales mix as approximately 60% energy and process, 15% defense, and 10% space.
Malone highlighted the FlackTek “Mega” platform, described as a production-scale bladeless dual asymmetric centrifugal mixer capable of processing multi-hundred kilogram batches in a 55-gallon drum format. Management said demand for the platform is strong and that it can reduce mixing cycles from hours to minutes while maintaining precision and repeatability.
Asked about FlackTek’s relationship with Anduril, Malone said Graham views Anduril as a key end user for the technology and indicated there is no restriction on providing dual asymmetric mixing machines to others, “with the exception of specifically the Mega product line,” subject to certain purchase-related conditions. He said other machines in the product portfolio are not prevented from being sold to other providers.
Capacity investments and balance sheet update; guidance raised
Management said several organic investment projects are now complete or nearing commissioning. Highlights included a new Navy manufacturing facility in Batavia, New York, a $17.6 million expansion supported by a $13.5 million customer grant; automated welding equipment that is now installed and commissioned; and an X-ray inspection facility expected to be completed later in fiscal 2026. In Colorado, Graham completed renovation of its assembly and test facility in Arvada, which management said is fully operational, and initiated an aftermarket acceleration effort using AI tools to improve responsiveness, pricing, and service penetration. The company also expanded and consolidated its engineering and service footprint in India.
In space-related work, management said its liquid nitrogen testing capability in Arvada was completed in the second quarter, with the first unit tested and delivered. It also completed construction of a new cryogenic test facility in Jupiter, Florida, which is entering commissioning through the end of the fiscal year. Management noted the Jupiter facility had not yet impacted results and said initial use will prioritize testing of products already in backlog rather than offering testing-as-a-service.
On capital allocation for defense-related demand, Malone said Graham has been investing for several years and believes it has opened capacity through efficiency improvements and equipment, while also evaluating future investments. He said the company expects to continue investing around 7% to 10% of revenue, consistent with prior years.
Graham ended the quarter with $22.3 million in cash and generated $4.8 million in operating cash flow. Capital expenditures were $2.8 million. The company’s revolving credit facility was expanded to $80 million in January, and Thome said $20 million of debt was outstanding after the FlackTek acquisition.
For fiscal 2026, the company raised guidance, now expecting revenue of $233 million to $239 million and adjusted EBITDA of $24 million to $28 million, inclusive of FlackTek and XDot. Management reiterated its longer-term objectives of 8% to 10% organic revenue growth and low- to mid-teen adjusted EBITDA margins by fiscal 2027.
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.
