Executive Summary

Q1 FY26 delivered solid execution: revenue grew 11% YoY to $55.5M with gross margin up 170 bps to 26.5% and adjusted EBITDA margin at 12.3% as aftermarket mix and pricing/execution improved .
Results vs consensus: EPS of $0.45 beat the Street’s $0.235*, while revenue of $55.5M came in modestly below the $56.6M* consensus; 4 estimates for both metrics (significant EPS beat, slight revenue miss). Values retrieved from S&P Global.*
Defense momentum and visibility remain key: orders were $125.9M, book-to-bill 2.3x, and backlog a record $482.9M (≈87% defense), with ~35–40% expected to convert in 12 months; torpedo order of $25.5M will hit Q2 orders .
Guidance maintained: FY26 outlook for revenue ($225–$235M), GM (24.5–25.5%), adj. EBITDA ($22–$28M), tax (20–22%), capex ($15–$18M) reiterated; management flagged more material receipts later in the year which typically carry lower margins .
Strategic investments remain on schedule (30k sq ft Batavia facility; automated welding; Florida cryogenic test facility), underpinning multi‑year margin expansion and growth targets into FY27 .

What Went Well and What Went Wrong

What Went Well
- Aftermarket strength and mix drove margin expansion: gross margin rose to 26.5% (+170 bps YoY) as aftermarket mix improved and pricing/execution contributed; adjusted EBITDA margin rose 200 bps YoY to 12.3% .
- Record defense-driven backlog and strong orders: Q1 orders were $125.9M (incl. $86.5M Virginia-class follow-on), book-to-bill 2.3x, backlog $482.9M with ~87% defense and 35–40% 12‑month conversion .
- Strategic capex on track: “completed the expansion of our Batavia defense facility,” 6 automated welding machines installed, and cryogenic testing facility “expected to be operational this quarter” .
What Went Wrong
- Revenue slightly below consensus: Q1 revenue was $55.487M vs $56.588M* consensus; a modest top‑line shortfall despite strong YoY growth. Values retrieved from S&P Global.*
- Gross margin likely normalizing lower in H2: CFO highlighted more material receipts (lower margin) expected later in FY26, implying GM normalization within guidance rather than sustaining Q1’s 26.5% .
- Space segment remained small and volatile: sales down YoY to $3.378M (6% of total) and flat sequentially, with management noting early‑stage programs and low-rate production pacing .

Financial Results

Metric	Q3 FY25	Q4 FY25	Q1 FY26
Revenue ($USD Millions)	$47.037	$59.345	$55.487
Gross Margin %	24.8%	27.0%	26.5%
Adjusted EBITDA ($M)	$4.027	$7.7	$6.838
Adjusted EBITDA Margin %	8.6%	12.9%	12.3%
GAAP Diluted EPS ($)	$0.14	$0.40	$0.42
Adjusted Diluted EPS ($)	$0.18	$0.43	$0.45

Segment sales mix and levels

Segment ($M, % of total)	Q3 FY25	Q4 FY25	Q1 FY26
Defense	$27.023 (57%)	$34.911 (59%)	$29.535 (53%)
Energy & Process	$16.193 (34%)	$20.934 (35%)	$22.574 (41%)
Space	$3.821 (8%)	$3.500 (6%)	$3.378 (6%)

Key performance indicators

KPI	Q3 FY25	Q4 FY25	Q1 FY26
Orders ($M)	$24.8	$86.9	$125.9
Book-to-Bill (x)	0.5	1.5	2.3
Backlog ($M)	$384.7	$412.3	$482.9
Aftermarket Sales ($M)	$9.7	$12.1	$10.4

Consensus vs actual (Q1 FY26)

Metric	Consensus	Actual	Notes
EPS	$0.235*	$0.45	Beat; 4 estimates*
Revenue ($M)	$56.588*	$55.487	Slight miss; 4 estimates*
Values retrieved from S&P Global.*

Non-GAAP adjustments: adjusted EPS adds back acquisition-related items and intangible amortization and applies a normalized tax rate; adjusted EBITDA excludes interest, taxes, D&A and certain ERP/equity comp costs (see reconciliations) .

Guidance Changes

Metric	Period	Previous Guidance (as of Jun 9, 2025)	Current Guidance (as of Aug 5, 2025)	Change
Net Sales	FY26	$225M–$235M	$225M–$235M	Maintained
Gross Margin %	FY26	24.5%–25.5%	24.5%–25.5%	Maintained
SG&A (incl. amort.) % of sales	FY26	17.5%–18.5%	17.5%–18.5%	Maintained
Adjusted EBITDA	FY26	$22M–$28M	$22M–$28M	Maintained
Effective Tax Rate	FY26	20%–22%	20%–22%	Maintained
Capital Expenditures	FY26	$15M–$18M	$15M–$18M	Maintained
Management reiterated tariff headwind estimate of ~$2–$5M embedded in the year’s outlook .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 FY25)	Previous Mentions (Q4 FY25)	Current Period (Q1 FY26)	Trend
Defense backlog & visibility	Defense sales growth; backlog majority defense; book-to-bill 1.0x YTD	$136.5M Virginia-class award; backlog $412M; multi-year visibility	Orders $125.9M incl. $86.5M Virginia; backlog $482.9M (~87% defense); $25.5M torpedo order will be in Q2	Strengthening/visibility up
Aftermarket momentum	$9.7M, strong across refining/chem/defense	$12.1M, +3% YoY	$10.4M, +33% YoY; margin accretive	Strong, margin-supportive
Tariffs/macro	Not highlighted	FY26 outlook includes $2–$5M tariff impact	Q1 impact “not material”; FY26 still $2–$5M; mitigations via contract terms and supply chain	Manageable headwind
Strategic capex (automation, ERP, cryo)	Capex focused on capacity/quality; on time/budget	Multiple projects to complete by end CY25	Batavia expansion completed; 6 automated welding machines installed; Florida cryo test facility operational this quarter	On track; near-term benefits
Space trajectory	Mixed orders; early stage	Pipeline strong; cryo test demand building	Launch momentum; low-rate production with long-term scale; growing interest in cryogenic testing	Early ramp, building
AI/digital initiatives	—	Digital/AI to speed aftermarket quoting and lifecycle efficiency	No incremental update highlighted	Early implementation

Management Commentary

“Revenue increased 11% to $55,500,000… driven by increased sales in our energy and process markets… along with strong aftermarket performance that was 33% higher than the prior year.”
“We… achieved a strong book to bill ratio of 2.3 times… driving our backlog to a company record of $482,900,000… with approximately 35% to 40% expected to convert to revenue over the next twelve months.”
“We received our certificate of occupancy in July for the 30,000 square foot Batavia manufacturing facility… six automated welding machines… Our new cryogenic propellant testing facility in Florida… expected to be operational this quarter.”
“Net income… was $4,600,000 or $0.42 per diluted share… Adjusted net income… $0.45… adjusted EBITDA… $6,800,000… 12.3%.”
“For the 2026, the impact of tariffs was not material… we estimate… increased tariffs for the full year to only be between $2,000,000 and 5,000,000.”
“We are reiterating our full year fiscal twenty twenty six outlook…”

Q&A Highlights

Margin sustainability: Higher aftermarket mix (20% of sales vs 15% YoY) and favorable mix drove Q1 margins; management expects normalization within guidance as more lower‑margin material receipts flow through later in the year .
Defense aftermarket opportunity: Overhaul and spares for fleet maintenance (e.g., torpedoes) are growing; Colorado overhaul facility is modernized and active .
Orders timing: The $25.5M MK-48 torpedo follow-on will be recorded fully in Q2 (post quarter-end) .
Space: Low-rate production across new launch providers and applications (e.g., oxygen fan, satellite cooling) with early but increasing pipeline interest; cryo testing facility seen as a differentiator .
Tariffs mitigation: Network of in‑country partners and favorable contract clauses reduce exposure; Q1 impact not material, but the $2–$5M full‑year range remains the working assumption .

Estimates Context

Q1 FY26 vs consensus (S&P Global): EPS $0.45 vs $0.235* (beat); revenue $55.487M vs $56.588M* (slight miss); 4 estimates for both metrics.* Values retrieved from S&P Global.
Outlook for estimates: Guidance unchanged; models may need to reflect management’s commentary that mix will normalize (more material receipts, lower margins) despite strong aftermarket contribution in Q1 , and incorporate the $25.5M torpedo order flowing into Q2 orders .

Key Takeaways for Investors

Execution remains solid with expanding margins on healthy aftermarket and disciplined pricing; adj. EBITDA margin at 12.3% supports the glidepath to low‑mid‑teens by FY27 if capex benefits land on time .
Backlog and defense awards (Virginia-class, torpedoes) provide multi‑year revenue visibility; ~35–40% 12‑month conversion underpins FY26 guide .
Near‑term catalyst: Q2 orders to include $25.5M torpedo award; continued Navy platform demand and overhaul/spares can support aftermarket and profitability .
Watch margin normalization: management cautioned more material receipts with lower margins later in FY26; do not extrapolate Q1 gross margin without adjustment .
Strategic investments (automated welding, cryo testing, ERP) are nearing operational readiness—potential 2026–27 efficiency and capacity unlocks .
Space and New Energy (SMRs/cryogenics) are early but building; pipeline interest in testing could open incremental revenue streams .
Guidance intact despite tariff overhang; company mitigates via contract terms and supply chain localization; current impact was not material in Q1 .

Appendix: Additional Detail

Cash, liquidity, and capex

Cash used in operations (-$2.3M) driven by FY25 bonus payments (incl. $4.3M Barber‑Nichols earnout); cash $10.8M; no debt; $44.3M availability on revolver; Q1 capex $7.0M .

Non-GAAP reconciliations

Adj. EBITDA reconciliation and adj. EPS normalization disclosed; adj. net income adds back amortization and ERP costs, applies normalized tax .

Webcast logistics

Call held Aug 5, 2025; replay and transcript available per IR site details .

GRAHAM CORP (GHM)·Q1 2026 Earnings Summary