Graham Q2 Margin Expands as Backlog Reaches Record $561.3 Million

Graham Corporation (GHM) reported stronger fiscal second-quarter profitability as a favorable mix of space and defense work, the addition of FlackTek and improved execution lifted gross margin by 650 basis points. The company also raised its fiscal 2027 gross-margin guidance while reaffirming its sales and adjusted EBITDA outlook, supported by a record $561.3 million backlog.

Revenue for the fiscal 2027 second quarter increased 6% year over year to $69.8 million from $66.0 million. Gross profit rose 38% to $19.7 million, while gross margin expanded to 28.2% from 21.7%. Graham attributed the improvement to a greater contribution from higher-margin space and defense programs, FlackTek, operational improvements and unusually high receipts of lower-margin materials in the prior-year quarter.

GAAP net income increased 50% to $4.6 million, or $0.39 per diluted share, from $3.1 million, or $0.28 per share. Adjusted net income was $6.2 million, or $0.52 per diluted share, compared with $3.4 million, or $0.31 per share, a year earlier.

Adjusted EBITDA rose 64% to $10.3 million from $6.3 million. Adjusted EBITDA margin reached 14.8%, up from 9.5% in the prior-year period.

Space and defense support growth

Space revenue increased 59% from a year earlier, while defense revenue rose 12%. The quarter benefited from project milestone timing, new programs, growth in existing programs and additional capacity. FlackTek contributed $9.5 million of revenue.

Those gains were partly offset by weaker energy and process activity. Energy and process revenue declined 17%, reflecting lower sales in Asia and reduced activity involving large capital projects. Aftermarket revenue decreased 3%.

For the first half of fiscal 2027, defense represented 62% of Graham’s revenue exposure, followed by energy and process new capital at 14%, energy and process aftermarket at 12%, space at 9%, and new energy at 3%.

The company said long-term demand is supported by defense spending, space commercialization and the energy transition. It described capital-equipment demand as steady and aftermarket activity as strong, although new energy and process capital projects remain sluggish amid geopolitical tensions, Middle East conflicts and the tariff environment.

Backlog reaches record level

Second-quarter orders totaled $73.7 million, producing a book-to-bill ratio of 1.1. Year-to-date book-to-bill was 1.2, including 2.0 for space and 1.3 for FlackTek. Defense and energy and process aftermarket orders increased 91% year over year.

Backlog rose to a record $561.3 million from $500.1 million in the prior-year quarter. Defense accounted for 83% of the total, with space representing 9% and energy and process 8%.

Graham expects approximately 30% to 35% of backlog to convert into sales over the next 12 months and another 20% to 25% to convert within one to two years. The company cautioned that backlog can be affected by contract provisions allowing customers to cancel, terminate or suspend work.

Fiscal 2027 sales and adjusted EBITDA outlook maintained

Graham reaffirmed fiscal 2027 net-sales guidance of $285 million to $295 million and adjusted EBITDA guidance of $35 million to $40 million. At the midpoint, those ranges imply revenue growth of 18%, adjusted EBITDA growth of 44% and an adjusted EBITDA margin of 13%.

The company raised its gross-margin forecast by 50 basis points to 25.0% to 26.0% of sales, citing improved mix and execution. It also increased expected SG&A expense, including amortization, by 100 basis points to 17.5% to 18.5% of sales because of higher acquisition and integration costs and spending to support organic growth.

Capital-expenditure guidance was reduced to $15 million to $20 million from $18 million to $22 million, reflecting the timing of major projects. Graham continues to expect an effective tax rate of 18% to 20%.

The outlook includes about $2.5 million of incremental spending on people, processes and technology intended to support future growth and accelerate product commercialization. Graham’s three-year plan for fiscal 2027 through fiscal 2029 targets annual organic revenue growth of 8% to 10% and a longer-term adjusted EBITDA margin of 14% to 16%.

Graham ended the quarter with $71.4 million of cash and cash equivalents and no outstanding debt. Cash provided by operating activities was $46.7 million, largely reflecting the timing of accounts-receivable collections and customer deposits, as well as higher cash net income.

The company said its fiscal 2027 expectations assume its production facilities operate at planned capacity, its global supply chain and subcontractors remain available, and no global disruptions or other unforeseen events materially affect operations.