8-K: Graham Corp. Posts Strong Q2, Record Backlog Fuels Outlook

Graham Corporation reported a 23% revenue increase and a record $500.1 million backlog for its second fiscal quarter, reaffirming full-year guidance.

Summary

• Revenue for the second quarter of fiscal 2026 increased 23% to $66.0 million, up from $53.563 million in the prior-year period.
• Gross profit rose 12% to $14.3 million, though gross profit margin decreased 220 basis points to 21.7%.
• Net income per diluted share was $0.28, a 7% decrease from $0.30 in the prior year, while adjusted net income per diluted share remained flat at $0.31.
• Adjusted EBITDA increased 12% to $6.3 million, with an Adjusted EBITDA margin of 9.5%, down 100 basis points.
• Orders for the quarter totaled $83.2 million, resulting in a book-to-bill ratio of 1.3x and a record backlog of $500.1 million, a 23% increase year-over-year.
• The company secured a $25.5 million follow-on order for the MK48 Torpedo program and approximately $14.8 million in new Space orders.
• Graham Corporation maintains a strong balance sheet with no debt and $20.6 million in cash, with $44.7 million available under its revolving credit facility.
• Full-year fiscal 2026 guidance for revenue ($225 million to $235 million) and Adjusted EBITDA ($22 million to $28 million) has been reiterated.
• The estimated tariff impact for fiscal 2026 has been narrowed to $2.0 million to $4.0 million, down from the previous $2.0 million to $5.0 million.
• Strategic investments in automation, advanced testing, and new technical capabilities are underway, with expected returns above 20%.

Sentiment

Score: 8

Explanation: The sentiment is highly positive due to strong revenue growth, a record backlog providing significant future revenue visibility, and reaffirmed full-year guidance. Strategic investments with high expected returns further bolster confidence, despite a slight dip in GAAP net income and gross margins for the quarter, which were attributed to sales mix and material receipts.

Positives

• Revenue increased 23% to $66.0 million in Q2 FY26, demonstrating strong top-line growth.
• Record backlog reached $500.1 million, a 23% increase over the prior-year period, providing significant revenue visibility.
• Book-to-Bill ratio of 1.3x indicates strong demand and future growth potential.
• Adjusted EBITDA increased 12% to $6.3 million, reflecting improved operational performance.
• Strong balance sheet with no debt and $20.6 million in cash, providing financial flexibility.
• Reiterated full-year fiscal 2026 guidance for revenue and Adjusted EBITDA, signaling confidence in future performance.
• Strategic investments in high-return initiatives (automation, advanced testing, new cryogenic facility) are expected to deliver returns above 20% and improve margins.
• Significant orders secured, including a $25.5 million follow-on order for the MK48 Torpedo program and $14.8 million in new Space orders.
• Approximately 85% of the backlog is tied to the stable Defense industry, offering business stability.
• Reduced the high end of the estimated fiscal 2026 tariff impact by $1.0 million.

Negatives

• Gross profit margin decreased 220 basis points to 21.7% in Q2 FY26, primarily due to sales mix and extraordinarily high material receipts with lower profit margins.
• Net income per diluted share decreased 7% to $0.28 in Q2 FY26.
• Adjusted EBITDA margin decreased 100 basis points to 9.5% in Q2 FY26.
• Cash and cash equivalents decreased to $20.6 million as of September 30, 2025, from $32.3 million in the prior year.
• After-market orders for Energy & Process and Defense markets decreased $3.2 million to $9.6 million from record levels in the prior year.

Risks

• Profitability of future projects and the business may vary.
• Ability to deliver to plan and secure future projects and applications is subject to uncertainties.
• Expected expansion and growth opportunities may not materialize as anticipated.
• Anticipated sales, revenues, adjusted EBITDA, adjusted EBITDA margins, capital expenditures, and SG&A expenses are subject to important risk factors.
• The timing of conversion of backlog to sales can be uncertain.
• Changes in market conditions, general economic conditions, and customer behavior in the industries in which the company operates.
• Forecasts regarding the timing and scope of economic recovery in its markets may be inaccurate.
• The success of its acquisition and growth strategy is not guaranteed.
• Ability to operate production facilities at planned capacity, maintain access to global supply chain and subcontractors, and avoid significant global disruptions.
• The company may be materially affected by unforeseen events.

Future Outlook

Graham Corporation is reiterating its full-year fiscal 2026 guidance for net sales of $225 million to $235 million and Adjusted EBITDA of $22 million to $28 million, reflecting confidence in continued strong demand. The company also narrowed its estimated tariff impact for fiscal 2026 to $2.0 million to $4.0 million. Management remains on track to achieve its strategic goal of 8% to 10% annual organic revenue growth and low to mid-teen Adjusted EBITDA margins by fiscal 2027, supported by ongoing high-return investments in operations and technology.

Management Comments

• "I am pleased with our performance through the first half of the fiscal year. Our team continues to execute well across all business lines, driving broad-based growth supported by a record $500.1 million backlog. Demand across our end markets remains healthy as our Defense and Space markets continue to experience robust activity, and the Energy & Process market remains resilient." Matthew J. Malone, President and CEO.
• "As we look to the second half of the year, we remain focused on advancing high-return initiatives that strengthen Grahams competitive position and drive sustainable value creation. Across our operations, we are investing in automation, advanced testing, and new technical capabilities designed to enhance productivity, efficiency, and profitability. Each of these projects is expected to deliver returns above 20%, improve margins, and create meaningful opportunities for growth in both defense and commercial markets." Matthew J. Malone, President and CEO.
• "Given the continued strength in demand, we are reaffirming our full-year guidance. As a reminder, our third quarter typically represents our seasonally lowest revenue period, reflecting normal holiday impacts on production schedules." Christopher J. Thome, CFO.
• "Additionally, we are narrowing our full-year estimated tariff impact range to $2.0 million to $4.0 million, down from the prior $2.0 million to $5.0 million. With a record backlog and solid order momentum, we remain confident in our full-year outlook and our ability to deliver consistent performance throughout the fiscal year." Christopher J. Thome, CFO.

Industry Context

Graham Corporation operates in critical sectors including Defense, Energy & Process, and Space. The robust activity in Defense and Space markets, coupled with resilience in Energy & Process, aligns with broader trends of increased government spending on defense and space exploration, as well as ongoing global energy infrastructure projects. The company's focus on mission-critical technologies positions it well within these high-barrier-to-entry industries, where specialized expertise and reliable performance are paramount. Investments in automation and advanced testing reflect an industry-wide push for efficiency and technological superiority.

Comparison to Industry Standards

• NA

Stakeholder Impact

• Shareholders: Positive impact due to strong revenue growth, record backlog, reaffirmed guidance, and strategic investments aimed at long-term value creation.
• Employees: Potential positive impact from investments in operations and technology, which could lead to enhanced productivity and skill development. Higher performance-based compensation reflects increased profitability.
• Customers: Continued focus on mission-critical technologies and capacity expansion ensures reliable supply and advanced solutions, reinforcing Graham's position as a trusted partner.
• Suppliers: The company's ability to maintain access to its global supply chain and subcontractors is crucial for ongoing operations and project delivery.

Next Steps

• Continue advancing high-return initiatives, including investments in automated welding systems, advanced radiographic testing technologies, NextGenTM steam ejector Nozzle, and a new cryogenic testing facility in Florida.
• Host a conference call and live webcast on November 7, 2025, at 11:00 a.m. ET to review financial results, strategy, and outlook.
• Work towards achieving strategic goals of 8% to 10% annual organic revenue growth and low to mid-teen Adjusted EBITDA margins by fiscal 2027.

Key Dates

Recommendation

Graham Corporation demonstrates strong underlying business momentum with a 23% revenue increase and a record $500.1 million backlog, 85% of which is in the stable Defense sector. The reaffirmation of full-year guidance, coupled with strategic high-return investments in operational efficiency and new capabilities, signals robust future growth and margin expansion potential. While Q2 GAAP net income and gross margins saw a slight dip, adjusted metrics remained strong, and the company provided clear explanations for the margin compression. The Xdot acquisition and continued demand in critical end markets further strengthen its competitive position. This filing suggests a company executing well on its strategy, making it an attractive long-term investment.

Keywords

Graham Corporation, GHM, Q2 Fiscal 2026, Earnings, Revenue, Backlog, Defense Industry, Space Industry, Energy & Process, Adjusted EBITDA, Financial Results, SEC Filing, Manufacturing, Fluid Technologies, Heat Transfer, Vacuum Technologies