Graham - Q3 2026

Transcript

Operator (participant)

Greetings, and welcome to the Graham Corporation third quarter fiscal year 2026 financial results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Cook, Investor Relations. Thank you, sir. You may begin.

Tom Cook (Head of Investor Relations)

Thank you, and good morning, everyone. Welcome to Graham's fiscal third quarter 2026 earnings call. With me on the call today are Matt Malone, President and CEO, and Chris Thome, Chief Financial Officer. This morning, we released our financial results. Our earnings release and accompanying presentation to today's call are available on our website at ir.grahamcorp.com. You should be aware that we may make forward-looking statements during the formal discussion as well as during the Q&A session. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release, as well as with other documents that are filed by the company with the Securities and Exchange Commission.

You can find these documents on our website or at sec.gov. During today's call, we will also discuss non-GAAP financial measures. We believe these will be useful in evaluating our performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides. We also use key performance indicators to help gauge the progress and performance of the company. These key performance metrics are ROIC, orders, backlog, and book-to-bill ratio. These are operational measures, and a quantitative reconciliation of each is not required or provided. You can find a disclaimer regarding our use of KPIs at the back of today's presentation.

So with that, if you'll please advance to slide three, I'll turn the call over to Matt to begin. Matt?

Matt Malone (President and CEO)

Thank you, Tom, and good morning, everyone. We appreciate you joining us to review our third quarter fiscal 2026 results. We delivered another strong quarter, continuing to execute our strategy and demonstrate the resiliency and diversification of our business. Revenue increased 21% to $56.7 million, driven by solid performance across our end markets. Results were supported by the timing of key project milestones, particularly within our defense business, along with contributions from our new programs and continued growth across existing platforms. Adjusted EBITDA increased 50% to $6 million, with adjusted EBITDA margin of 10.7%. The year-over-year improvement in profitability reflects disciplined execution, ongoing productivity initiatives, and the scalability of our operating model as volumes continue to grow.

Bookings remained strong during the quarter, resulting in a book-to-bill ratio of 1.3x and driving backlog to a record $515.6 million, up 34% year-over-year. Our backlog continues to provide excellent visibility, with approximately 35%-40% expected to convert to revenue over the next 12 months. Finally, during the quarter, we completed the technology purchase of XDot Bearing Technologies, an engineering-led firm with patented foil-bearing technology and deep expertise in high-speed rotating machinery. This acquisition strengthens our competitive position in an area where performance, reliability, and efficiency are becoming increasingly critical across aerospace, defense, energy transition, and industrial applications. XDot's proprietary foil bearing designs deliver superior performance while reducing development and production costs, and when combined with Barber-Nichols turbomachinery capabilities, significantly expand our ability to engineer and deliver advanced high-speed pumps, compressors, and rotating machines.

The integration of XDot into Barber-Nichols is going very well, and we are already leveraging their technology to win future opportunities. Turning now to our recent acquisition of FlackTek on slide four. In late January, we completed the acquisition of FlackTek, a pioneer in advanced mixing and materials processing solutions, for a purchase price of $35 million, comprised of 85% cash and 15% equity. Additionally, there is an opportunity for additional performance-based earn-out of up to $25 million over the next four years. The transaction was structured to align incentives, generate attractive returns, and preserve balance sheet flexibility while bringing into Graham a highly differentiated and scalable engineered products business. FlackTek adds advanced materials and processing as a third core technology platform for Graham, alongside our existing strengths in vacuum, heat transfer, and high-speed turbomachinery.

The company is a recognized leader in high-performance, bladeless centrifugal mixing, serving mission-critical applications across defense, space, energy, and process in a broad range of advanced industrial markets. With approximately $30 million of annual revenue and more than 1,200 or 2,500 units installed globally and a deep portfolio of proprietary intellectual property, FlackTek brings both scale and durability to our portfolio. Additionally, FlackTek will bring our overall revenue mix closer to our long-term goal of 50% defense and 50% commercial, as approximately 60% of their sales are into the energy and process market, 15% to defense, and 10% to the space market. A key element of FlackTek's value proposition is its large and growing installed base, which drives predictable, recurring demand for consumables, accessories, and services.

This creates enhanced revenue visibility, strong customer retention, and attractive lifetime value economics, while complementing Graham's existing engineered-to-order and project-based businesses. Within the FlackTek portfolio, the Mega product line stands out as a category-defining platform with the potential to meaningful, meaningfully expand Graham's addressable market. Mega is the world's only production-scale, bladeless, dual asymmetric centrifugal mixer, capable of processing multi-hundred kilogram batches and in a 55-gallon drum format. It delivers a step change in manufacturing throughput, enabling customers to reduce mixing cycles from hours to minutes, while maintaining exceptional precision, repeatability, and quality consistency at scale. The Mega platform has been production-validated in mission-critical, safety-sensitive applications and offers compelling customer economics through faster cycle times, smaller footprints, improved capacity utilization, and lower unit costs.

Demand for this large-scale mixing platform is strong, with multiple use cases across the value chain and significant expansion opportunities within FlackTek's existing customer base. Strategically, this acquisition significantly enhances Graham's ability to solve increasingly complex customer challenges that require integrated solutions across multiple disciplines. FlackTek's technology fits naturally alongside Barber-Nichols turbomachinery and Graham Manufacturing's vacuum and heat transfer systems, allowing us a more comprehensive, differentiated engineering solutions platform. Together, these capabilities span the full value chain, from formulation and upstream processing through downstream production and quality control, where precision, repeatability, and performance are critical. Most importantly, FlackTek aligns with our defined M&A criteria that we have outlined for a few years now. That is, a moated engineered product portfolio, process-critical applications, a predominantly domestic customer base, strong leadership continuity, and clear opportunities for long-term organic growth and margin expansion.

We believe this acquisition meaningfully strengthens Graham's competitive positioning, enhances the durability and visibility of our revenue base, and supports sustained value creation for shareholders long term. We are really excited to have the entire FlackTek team as part of Graham. Turning to organic investments on Slide 8. We continue to make disciplined, high-return investments across the business that are now translating into tangible operating capabilities for future growth. Importantly, many of the strategic expansion projects we have discussed over the past several quarters are now completed or entering the final stages of commissioning. Positioning as well as demand across our end markets remains strong. Starting with defense, we completed our new Navy manufacturing facility in Batavia, New York, during the second quarter of fiscal 2026.

This $17.6 million expansion, supported by a $13.5 million customer grant, significantly expands our capacity and capabilities to support critical U.S. Navy programs. The facility is purpose-built for efficiency, precision, and scale and incorporates automated welding, optimized product flow, and advanced manufacturing processes. In addition, our automated welding machines are now fully installed and commissioned, and our new X-ray inspection facility in Batavia remains on track for completion later this fiscal year. Together, these investments materially enhance throughput, improve quality, and strengthen our ability to execute against long-cycle Navy programs with increasing production requirements. In energy and process, we completed the renovation of our assembly and test facility in Arvada, Colorado, earlier this fiscal year. That site is now fully operational, with both product and personnel in place, providing increased flexibility and improved execution for capital projects and aftermarket work.

During the quarter, we also kicked off an aftermarket acceleration initiative, leveraging AI tools to improve responsiveness, pricing, and service penetration. In parallel, we expanded and consolidated our engineering and service presence footprint in India, strengthening our global operating model and improving cost efficiency and scalability over time. From a market perspective, we are seeing some slowing as it relates to large CapEx purchases, driven by lower oil prices, tariffs, and uncertain like macro environment. Lastly, in space, we reached several important milestones. Our liquid nitrogen testing capability in Arvada was completed in the second quarter, with the first unit successfully tested and delivered to our end customer. More recently, during the fourth quarter, we completed construction of our new cryogenic test facility in Jupiter, Florida. That facility is now entering commissioning, which will continue through the end of this fiscal year.

These investments meaningfully expand our in-house testing capability and capacity, enabling us to support customers as programs transition from development into higher rate production. As we step back, the common thread across everything we've discussed this morning is disciplined execution. We are delivering strong operating results today, while at the same time making deliberate, organic, and inorganic investments that expand our capabilities, deepen customer relationships, and position Graham for long-term growth. Our record backlog means provides meaningful visibility, our balance sheet remains strong and flexible, and our investments are aligned where our customers' needs are headed. The acquisition of FlackTek meaningfully strengthens our technology platform and expands our ability to serve mission-critical applications across multiple end markets. While our organic investments are now coming online and enhance our throughput, quality, and scalability across the entire business.

Together, these initiatives reinforce our confidence in Graham's ability to grow organically, expand margins over time, and continue to increase shareholder value. In short, we continue to do what we said we were going to do: steady progress while getting better every day through continuous improvement. With that, I'll turn the call over to Chris for a detailed review of our financial results. Chris?

Chris Thome (CFO)

Thanks, Matt, and good morning, everyone. I will begin my review of our third quarter results on slide 10. For the third quarter of fiscal 2026, revenue was $56.7 million, an increase of 21% compared to the prior year, reflecting continued strong execution across our diversified end markets. Sales to the defense market increased by $8.3 million, driven by the timing of project milestones, contributions from new programs, better pricing, and growth across existing programs. Sales to the energy and process market increased $2.1 million, or 13%, reflecting continued strength in aftermarket sales, as well as momentum in our new energy markets, and in particular, SMRs.

Aftermarket sales to the energy and process and defense market were $10.8 million, up 11% over the prior year period, continuing to demonstrate demand across our global installed base. Turning to slide 11, gross profit increased 15% to $13.5 million, and gross margin was 23.8% for the quarter. The year-over-year margin decline of 100 basis points reflects sales mix, which included a higher level of material receipts, which carry lower margins. In addition, the prior year period benefited $255,000 from the Blue Forge Alliance grant that did not repeat in this year's quarter. Finally, for the first nine months of fiscal 2026, we estimate that tariffs have impacted results by approximately $1 million, with minimal impact in the third quarter.

For the full year, we have narrowed our expected tariff impact to be between $1 million-$1.5 million, reflecting continued sourcing discipline, our established in-country partnerships, and contractual protections. Our teams have really done an excellent job navigating this uncertain environment. On slide 12, as you can see, this operating performance continues to translate into strong bottom line results. Net income for the quarter was $0.25 per diluted share, and adjusted net income was $0.31 per diluted share. Adjusted EBITDA increased 50% to $6 million, and our adjusted EBITDA margin was 10.7%, reflecting improved operating leverage and disciplined cost control.

On a year-to-date basis, adjusted EBITDA margin for fiscal year 2026 was 10.8%, up 100 basis points over the prior year period and in line with our updated full year guidance, which I will speak to in a few minutes. As expected, SG&A increased year-over-year due to continuing investments in our operations, our technology, and our people, as well as higher acquisition and integration costs related to the XDot and FlackTek acquisitions. However, as a percentage of sales, SG&A declined 200 basis points to 18.6%, which demonstrates our financial discipline and higher net sales throughout the fiscal year. Moving to slide 13, orders remained strong in the quarter, totaling $71.7 million. This strength was driven by strong demand in the defense and space markets.

Energy and process orders were down slightly during the quarter, as lower aftermarket orders and delay in large capital projects due to the macro environment were almost entirely offset by growth in new energy orders. Again, in particular, SMRs. The resulting book-to-bill ratio was 1.3x, and backlog increased to a record $515.6 million, up 34% year-over-year. Roughly 85% of backlog is attributable to the defense market, which adds stability and predictability to our business. Approximately 35%-40% of our backlog is expected to convert to revenue over the next 12 months, with another 25%-30% converting within one to two years, providing meaningful visibility into future revenue. As a reminder, our orders remain inherently lumpy due to the multi-year nature of many defense programs and large commercial projects.

Over the long term, we target a book-to-bill ratio of approximately 1.1x to support our growth objective of 8%-10% organic growth per year. For fiscal 2026, our year-to-date book-to-bill ratio is 1.6x, well above this long-term goal, and I'm happy to report that our pipeline of opportunities remains full due to the tailwinds we are seeing in our markets. Turning to slide 14, we ended the quarter with $22.3 million in cash, and we had another strong operating cash flow quarter of $4.8 million. Additionally, during the quarter, we continued to invest in our capacity expansion initiatives that Matt outlined, including productivity improvements and enhancing our overall capabilities, as our capital expenditures totaled $2.8 million.

Despite this continued investment, as well as our M&A activity, we still have ample liquidity to support our future growth initiatives as a result of our strong cash flow from operations and increased availability under our recently amended revolving credit facility, which was expanded to $80 million in January. As of today, only $20 million of debt is outstanding under this facility after the FlackTek acquisition. Under the terms of the FlackTek transaction, we acquired 100% of the equity of FlackTek for a base purchase price of $35 million, comprised of 85% cash and 15% equity, or 75,818 shares of Graham's common stock.

The transaction also included the potential to earn up to an additional $25 million in future performance-based cash earn outs over four years, beginning in fiscal 2027, contingent upon achieving progressively higher adjusted EBITDA performance targets. The base purchase price represents approximately 12x FlackTek's projected adjusted EBITDA for 2026. The acquisition was funded through a combination of cash on hand and borrowings under our revolving credit facility. Turning to guidance on slide 15. Based on our performance through the first nine months of fiscal 2026, our outlook for the remainder of the year, and inclusive of the FlackTek and XDot acquisitions, we are increasing our full-year fiscal 2026 guidance for net sales and adjusted EBITDA.

We now expect revenue to be in the range of $233 million-$239 million, and adjusted EBITDA to be between $24 million and $28 million. At the midpoint of the ranges, this represents increases of 12% and 16%, respectively. Overall, with strong execution, robust demand across our core end markets, and a record backlog, we remain confident in our ability to deliver continued performance and to achieve our long-term objectives of 8%-10% organic revenue growth and low to mid-teen adjusted EBITDA margins by fiscal 2027. With that, we can now open the call for questions.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Russell Stanley with Beacon Securities. Please proceed with your question.

Russell Stanley (MD of Equity Research)

Good morning, and thank you for the questions, and congrats on the quarter. My first question, just around demand, specifically in defense. We saw both the major shipbuilders announce plans for significant CapEx increases for the coming year, which obviously not terribly surprising. Just wondering if you're at all surprised by the magnitude of the increases you're contemplating and how you're thinking about allocating your CapEx spend going forward, given their plans for CapEx expansion. Any color there would be helpful. Thank you.

Chris Thome (CFO)

Yeah, Russ, thanks for the question. As you mentioned, the defense platform, specifically on these strategic undersea programs, remain healthy with a lot of demand. The fortunate thing for Graham is, you know, we've been making these investments for several years at this point, and, you know, we believe that we have opened up capacity through sort of efficiency improvements by the equipment we've already implemented. With that, based on, you know, the increasing backlog that we've continued to be able to secure, we are also looking at future investments as we move forward. Like we've done in the past, we look to balance that between our own internal investments as well as offsetting that with what's potentially through the marine industrial base.

So, Russ, I think the simple answer to that is we'll look to continue to invest at that sort of 7%-10%.

... of revenue number that we've been over the years, and specifically continuing down the path we've been. We don't see sort of a demand that's disproportional to our past investment portfolio.

Russell Stanley (MD of Equity Research)

That's great. Thanks for that. And then maybe moving on to the M&A strategy, FlackTek was your largest buy in some time, and that tends to wake up, I think, other potential sellers. I'm wondering, you've described FlackTek as adding a third platform. 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 three that you now have?

Matt Malone (President and CEO)

Yeah, great question. So to the point I've been making for quite some time, we've, you know, we've been nurturing these relationships for, you know, years at this point. We're looking for folks that wanna have skin in the game and really grow with us. FlackTek does offer that third. We have a really strong first at Graham Manufacturing, which has been, you know, around for 90 years with vacuum and heat transfer. We continue to have a tremendous amount of opportunity within that business to further grow organically. Within Barber-Nichols, you know, we've done some small tuck-in acquisitions, both technology as well as capability. FlackTek offers that third leg of the stool that's across all of the same end markets, as well as some additional wealth of opportunity for scale.

I think as we move forward, what we'll focus more heavily on continuing to invest in these three platform focus areas. And then, you know, longer term, as we sort of move out of expansion within those three product platforms, you know, maybe there will be additional. And those additional platforms in the future could come, one, as a spin-out from existing business units or, you know, through an acquisition of a standalone platform.

Russell Stanley (MD of Equity Research)

That's great. 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, you know, how you're thinking about pursuing other work from the Navy, other programs. Obviously, it's easier to get in on the ground floor, but I'd love to hear whatever progress you can share on pursuing new work, not just the existing programs you have, but maybe, perhaps, other opportunities. Thanks.

Matt Malone (President and CEO)

Yeah, great question. We're continuing to find that the capability that we have put in the back pocket of the corporation is absolutely needed by end users. You know, precision fabrication, which tends to be welding and advanced, you know, precision, is a need that's been spoke about in the United States for quite some time. So we're seeing that applicability of those core competencies really, you know, move in a nice direction in pursuing new opportunities. So I'll just say adjacencies of using existing capability. If you look at the Barber-Nichols footprint, you know, high-speed rotating machines that allow for enhanced efficiency or smaller footprint, the world's moving to more power, higher compute speeds, and that requires smaller assets that can do more. So Russ, I think the sort of simple story is our core competencies are absolutely able to leverage on new opportunities.

What we're doing is we're really bolstering our commercialization strategy of technology so that we can, you know, go to, go to our customers and offer the value to them in addition to our typical inbound strategy. So we're taking more of an outbound, let's go tell them how our technology and capability can differentiate and provide them value.

Russell Stanley (MD of Equity Research)

That's great. Thanks for the color. Congrats again. I'll get back in the queue.

Operator (participant)

Our next question comes from the line of Bobby Brooks with Northland Capital Markets. Please proceed with your question.

Bobby Brooks (Senior Equity Research Analyst)

Hey, good morning, guys. Thank you for taking my question. 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? I guess I was just under the... I had the understanding that these projects are pretty set in stone when the contracts were awarded.

Matt Malone (President and CEO)

Yeah. Yeah, great question. So the first part is, it's both, as always, with us. We're continuing to see additional scope that's coming from our core capability and programs that we've been on. Examples of that, you know, we're seeing additional solicitations for spare assets and others that we originally did not have in the lens. On the other side of that, you know, we're successfully meeting our customer's end requirements, and that's both in time, speed, quality, you know, everything. And so what's happening as a result of that, Bobby, is, yes, we are seeing additional opportunities that are additive to our current scope of supply, and that could be everything from undersea submarine platforms to, you know, laser and cooling, or laser and radar cooling platforms for directed energy.

It's a combination of both.

Bobby Brooks (Senior Equity Research Analyst)

Got it. That's helpful. And then, Chris, I know you had mentioned, like or historically, you guys have talked about targeting 1.1 book to bill, and that was kind of reaffirmed earlier in the call. But after another outstanding quarter of orders, I'd assume that at the minimum, that outlook has changed for this year, since you've already done $280 million in orders, which would be a 1.17 book to bill for the full year, assuming the high end of your revenue guidance and zero orders in the fourth quarter. So I was just curious to get your sense on, and you also mentioned the pipeline remains full.

So 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, and any color you could give maybe on how 4Q orders have progressed.

Chris Thome (CFO)

Yeah, Bobby, that's a great question. You know, the main reason for putting out the 1.1 book-to-bill, long-term guidance is because, you know, when we took a look back at the last five to 10 years, that was our, you know, that was our book-to-bill ratio. As you know, you know, our book-to-bill ratio can be very lumpy, you know, ranging anywhere on a, you know, from 0.5x-2.4x in any given quarter. But over the long term, we expect it, and we want it to be 1.1. So that 1.1 wasn't meant to be guidance for fiscal 2026.

As you pointed out, obviously, with the year-to-date book-to-bill ratio of 1.6, we expect to be over that 1.1 long-term target for the year. But again, over the long term, we want it to be 1.1 to support our 8%-10% organic growth.

Bobby Brooks (Senior Equity Research Analyst)

Yeah, that's helpful. I'll, I'll return to the queue. Thank you, guys, and congrats on the strong quarter.

Chris Thome (CFO)

Thanks, Bobby.

Operator (participant)

Our next question comes from the line of Tony Bancroft with Gabelli Funds. Please proceed with your question.

Tony Bancroft (Portfolio Manager)

Good morning, gentlemen, and, congratulations on the great numbers. Very well done. You know, you were talking earlier about, what, what would be potential... You know, I know you're working on these three strategies right now, core, the core pillars, and you're gonna be building up those. But, you know, I guess I wasn't, I wasn't thinking about a company like FlackTek, for you guys. Could, could maybe, you know, Matt, could you give me, like, a 30-second hip-pocket lecture on what- where are these, addressable markets that you or these adjacencies and then sort of what's the scope of these adjacencies that you would, you know, Graham, five or 10 years from now, five years from now, would want to be, would want to be in? Maybe you could just sort of encapsulate or, you know, talk about that.

Matt Malone (President and CEO)

Yeah. Yeah, so the first thing that folks don't necessarily hone in on is advanced mixing, specifically dual asymmetric mixing, is the exact marry of turbomachinery and vacuum and heat transfer. It literally is the blend of those two core physics-based technologies. So mixing in itself is a really nice platform that couples with our engineering know-how. The next item, Tony, that it offer, and this is more broadly, is we love the market agnostic, really differentiated, moated technology. So in FlackTek, I'll use as an example, you've got, you know, five product SKUs that range everywhere from lab scale to, you know, large production scale, and these really can offer a disruptive moat as we move forward.

And so what we're seeing there is they play in our three end markets extremely favorably, but they also have a portfolio that expands beyond that for continued growth in medical, in personal care, in, you know, battery technology, et cetera. The list goes on. The last one that I'd offer you is this... You gotta look forward in terms of where technology's moving. We're really, you know, we're talking about electrification of our turbomachinery. We're talking about advanced and intelligent control of our turbomachinery. We're talking about using technology like computational fluid dynamics in our new designs in the industrial business. Really, it's bringing a technology footprint to see where the markets are going.

In this case, you know, the, the biggest competitor for FlackTek is a bucket and a stick, which is, you're mixing this stuff by hand. So as we move to a place of automation, efficiency, et cetera, where throughputs are increasing, it's a natural replacement for more advanced technology. So it's not one simple answer, but the core of it is engineered, differentiated, technology-driven solutions that have an agnostic market footprint.

Tony Bancroft (Portfolio Manager)

Perfect. Thanks so much. Great job.

Operator (participant)

As a reminder, if you would like to ask a question, press star one on your telephone keypad. Our next question comes from the line of Gary Schwab with Valley Forge Capital Management. Please proceed with your question.

Gary Schwab (President)

Hi, guys. Boy, you're juggling a lot of balls at the same time, and you're handling everything really well. Great job. My question is about the FlackTek. 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 two major solid rocket motor competitors?

Matt Malone (President and CEO)

So, Gary, yeah, obviously there was a large publication, you know, working between Anduril and FlackTek. And what I'll say is, you know, it was developed by FlackTek for an end use at Anduril. You know, we do absolutely view Anduril as a key end user of the technology, and we'll continue to ensure that they're successful in their endeavors. You know, this is revolutionizing the mixing process for solid rocket motors, which will push the entire industry forward. What we're seeing more broadly is, you know, once you have one big win in a given area, like energetics, you see a lot of folks start to, you know, come to the surface.

And the short of it is, we have, you know, no restriction in the relationship on providing dual asymmetric mixing machines to others, with the exception of specifically the meta- mega product line, you know, pending some level of purchase of equipment. So we'll respect that relationship. And what we're seeing is the large machines, the medium machines, the other footprint machines, are more than adequate to supply the majority of other providers in this space, which is not, which is not prevented. So, as a result of the Anduril partnership, we're seeing a lot of other opportunities that have brought the technology to the forefront. But yeah, we'll continue to leverage this across energetics outside of the Mega.

Gary Schwab (President)

And do you expect the Mega to be your leading product for FlackTek? And have you come up with an available market size for Mega?

Matt Malone (President and CEO)

So we're quantifying that today. The answer is, as we move forward, you know, our focus is going to be on production footprint machines, I'll say. But FlackTek's been in business for over 20 years, providing this critical equipment to everything from laboratories to production environments. So I will say there will be a shift in focus to production-level machines, of course, Mega being a portion of that. And the short of it is, I can't speak to the exact TAM on the call today. What I can say is, we see applicability from mixing food to energetics to, you know, upstream, the original constituents that go into epoxies, et cetera. So it's really market-agnostic. We see sort of an unlimited footprint where this could impact.

Gary Schwab (President)

Okay, great. And if I could just ask one last quick one. The $30 million 2026 estimate for FlackTek, that's based on your year-end, ending next month. Is that correct?

Chris Thome (CFO)

That's, that's the calendar year-end for 2026. So that's the current run rate for calendar year 2026.

Gary Schwab (President)

Okay, great. Thanks, Chris.

Chris Thome (CFO)

Sure.

Matt Malone (President and CEO)

Thanks, Gary.

Operator (participant)

Our next question is a follow-up from Bobby Brooks with Northland Capital Markets. Please proceed with your question.

Bobby Brooks (Senior Equity Research Analyst)

Hey, so on the material receipts, so that was a drag on the, on gross margin this quarter and as, as well as last. And what I was hoping to get a better sense on was sort of the visibility of that going forward. Obviously, you're always gonna have material receipts, right? But do you have a good sense of when those will be highest, a few months out, or maybe asked differently, how far in advance do you know when that type of work is gonna flow through revenue?

Chris Thome (CFO)

Yeah. So the material receipts are very lumpy in nature. They heavily impacted our Q2 results. They were still higher than normal in Q3. So for Q4 and then going forward, we would expect them to be at a more normalized level. However, again, those material receipts can be lumpy in nature in any given quarter. So we have visibility out for about the next year on that.

Bobby Brooks (Senior Equity Research Analyst)

Got it. And maybe just so is it essentially just ordering raw materials in anticipation of future work? And my understanding is that kind of the reason for it? Am I understanding that right?

Chris Thome (CFO)

It's not in anticipation of future work. We only place the material orders when we receive the order from our customer. So therefore, it's basically material receipts to support orders that are already in our backlog.

Bobby Brooks (Senior Equity Research Analyst)

Got it. And then, Matt, I really appreciate the one slide kind of going through some of the significant investments and facility enhancements done this year, but I know that you guys did some. Those were 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.

Matt Malone (President and CEO)

Yeah. A lot. You know, you could see from that list, yes, we delivered the first assets from the liquid nitrogen test facility in Arvada, in the third quarter. We have brought online, as mentioned, the assembly and test facility, which is now shipping product, as well as the testing area in that facility. So across that entire platform, Bobby, you know, we're seeing real-time impact in the third quarter from those assets coming online.

Bobby Brooks (Senior Equity Research Analyst)

Got it. And then just lastly for me-

Matt Malone (President and CEO)

The only exception to that, just for clarity, is the propellant test facility down in Florida. You know, we just did the ribbon cutting, but in the third quarter, that has not started to impact the business.

Bobby Brooks (Senior Equity Research Analyst)

Got it. Thank you for that.

Chris Thome (CFO)

Bobby, with regards to those capital investments, though, right? As we said, they're not gonna have a material impact on our fiscal 2026 results. These investments are what's gonna help us get to our fiscal 2027 guidance and goals that we put out there, but it's gonna be a gradual increase in performance, right? You're not gonna see a step change overnight. So it's just... These are the investments that we're making to achieve the slow and steady growth.

Matt Malone (President and CEO)

... that we're looking for and to achieve our fiscal 2027 targets, but it's not gonna be a step change.

Bobby Brooks (Senior Equity Research Analyst)

Thank you. That's, that's very helpful, color there. Then last question for me is just on the testing facilities in Jupiter, as well as, Jupiter, Florida, as well as Colorado. 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, 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?

Matt Malone (President and CEO)

Yeah. I'll break it down into two. Good question. In the Arvada facility, which is where the liquid nitrogen is, it is dedicated to a given production program today, and what I'll say is it's essentially booked for that program. As a result of execution, we continue to see, you know, further pipeline opportunities to continue that forward. Can we use it for other programs? The answer is absolutely yes, and we will, but today it's focused on one. So I would just call that pipeline healthy. On the cryogenic facility side, look, most important for us is safety on that facility and sort of, you know, with the commissioning process. So, today we're having, you know, number of conversations with potential end users, most of which are customers today.

We are focusing on the commissioning around the product that is already in our backlog, and so we're prioritizing that not for a testing as a service today, but rather testing the product that we're shipping to our end customer contractually. So we'll, we'll ramp through testing our own products in the near term. But in short, Bobby, yes, the pipeline remains very active.

Bobby Brooks (Senior Equity Research Analyst)

That's great to hear. Thank you, guys, for the color. I'll return to the queue.

Operator (participant)

Mr. Malone, we have no further questions at this time. I'd like to turn the floor back over to you for closing comments.

Matt Malone (President and CEO)

Thank you. As you can see, we are pleased with our results and look forward to keeping you updated on our progress. As always, please reach out with any questions. Thank you, everyone, for joining us today and your interest in Graham.

Operator (participant)

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.