GRAHAM CORP (GHM)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollar and share amounts in thousands, except per share data)

Overview

We are a global leader in the design and manufacture of mission critical fluid, power, heat transfer, vacuum, and advanced mixing technologies for the Defense, Space, Energy & Process industries. For the Defense industry, our equipment is used in nuclear and non-nuclear propulsion, power, fluid transfer, thermal management, and advanced mixing systems. For the Space industry, our equipment is used in propulsion, power, thermal management, advanced mixing, and for life support systems. For the Energy & Process industries we supply equipment for vacuum, heat transfer, advanced mixing, and fluid transfer applications used in oil refining, downstream chemical facilities, fertilizers, ethylene, methanol, edible oil, food & beverage, pulp & paper, medical, and multiple alternative energy applications such as hydrogen, small modular nuclear, concentrated solar, lithium extraction, and geothermal processes.

Our brands are built upon engineering expertise and close customer collaboration to design, develop, and produce mission critical equipment and systems that enable our customers to meet their economic and operational objectives. Continual improvement of our processes and systems to ensure qualified and compliant equipment are hallmarks of our brand. Our early engagement with customers and support until the end of service life are values upon which our brands are built.

Our corporate headquarters is co-located with our production facilities in Batavia, NY, and we have wholly-owned subsidiaries in Arvada, CO, Greenville, SC, Jupiter, FL, and Louisville, CO and have sales and engineering offices in Houston, TX, Suzhou, China, and Ahmedabad and Pune, India.

Our fiscal year ends on March 31 of each year. We refer to our fiscal year, which ends March 31, 2027, as fiscal 2027. Likewise, we refer to our fiscal year that ended March 31, 2026 and March 31, 2025 as fiscal 2026 and fiscal 2025, respectively.

Acquisition

On January 23, 2026, we acquired FlackTek Manufacturing, LLC and FlackTek Sales, LLC (collectively, "FlackTek"), a provider of advanced mixing and material processing solutions. FlackTek's patented technology platform delivers highly repeatable, precision mixing with faster cycle times, minimal entrained air, reduced downtime between batches, consistency in production, and ultimately can achieve higher levels of product homogeneity when compared to traditional bladed methods. FlackTek's systems are used by a global customer base that includes leading original equipment manufacturers ("OEMs"), research and development centers, defense laboratories, and industrial manufacturers serving adhesives, sealants, functional coatings, composites, electronics, and other advanced materials markets. FlackTek adds a proven product portfolio with a shared customer base and an installed footprint that extends across the full value chain. Its mixing systems are process-critical and market-agnostic, serving defense, energetics, oil & gas, food, battery, aerospace and space, medical, and other industrial applications where precision, repeatability, and consistency drive value. With approximately $30,000 in annualized revenue, FlackTek has built a growing installed base that generates recurring demand for consumables, accessories, and services, enhancing revenue visibility and durability.

FlackTek operates as a wholly owned subsidiary of Graham Corporation, maintaining its headquarters in Louisville, CO with a satellite location in Greenville, SC, and will be integrated into our financial, compliance, and operational infrastructure. Under the terms of the transaction, we acquired 100% of the equity of FlackTek for a purchase price of $36,205, which was comprised of cash consideration of $24,889 and 76 shares of our common stock, representing a value of $5,678 at a price of $74.89 per share. The purchase agreement includes the potential to earn an additional $25,000 in future performance-based cash earnouts over four years beginning with fiscal 2027, based upon achieving progressively increasing adjusted EBITDA performance targets each year. At the acquisition date, a liability of $5,638 was recorded for the contingent earn-out.

See Note 2 to the Unaudited Condensed Consolidated ("Condensed Consolidated") Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q (this "Form 10-Q") for additional information.

Summary

Highlights for the three months ended June 30, 2026 include:

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Net sales for the first quarter of fiscal 2027 were $71,342, up $15,855, or 29%, compared with the first quarter of fiscal 2026, reflecting the strength of our diversified revenue base, as well as the acquisition of FlackTek, which added $6,551 to revenue during the quarter. The increase for the quarter was across multiple markets, including an $11,848, or 40%, increase in sales to the Defense market, primarily due to the timing of project milestones, as well as new programs and growth in existing programs. Sales to the Space market increased $2,909, or 86%, over the prior year first quarter, due to new programs and

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the ramp up of existing programs, as well as the FlackTek acquisition. Aftermarket sales to the Energy & Process and Defense markets of $9,671 remained strong, increasing 20% over the prior year first quarter.

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Gross profit and gross profit margin for the first quarter of fiscal 2027 were $17,801 and 25.0%, respectively. The 150 basis point decline in gross profit margin compared to the first quarter of fiscal 2026 reflects the mix of sales in the first quarter of fiscal 2027, and in particular, a higher level of Defense sales and material receipts, which carry a lower profit margin.

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Selling, general and administrative expenses ("SG&A"), including intangible amortization, for the first quarter of fiscal 2027 increased $3,228, or 33%, over the prior year first quarter. Acquisition and integration expenses contributed $602 of the increase compared to the prior year first quarter. Additionally, incremental SG&A from the acquisition of FlackTek accounted for $1,820 of the increase. The remaining increases primarily reflect investments we are making in our people, our processes, and our technology, which we expect to be approximately $2,500 of incremental costs for fiscal 2027, partially offset by a reduction in costs related to the BN Performance Bonus (defined below). In connection with the acquisition of BN, we entered into a Performance Bonus Agreement to provide employees of BN with a supplemental performance-based award based on the achievement of BN performance objectives for fiscal 2024, 2025, and 2026, which could range between $2,000 to $4,000 per year (the "BN Performance Bonus"). The BN Performance Bonus is no longer in effect in fiscal 2027. During the first quarter of fiscal 2026, we recorded $1,076 related to the BN Performance Bonus inclusive of applicable payroll taxes and no expense was recorded in the first quarter of fiscal 2027.

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Net income and income per diluted share for the first quarter of fiscal 2027 were $3,912 and $0.33 per share, respectively, compared to net income and income per diluted share of $4,595 and $0.42 per share, respectively, for the first quarter of fiscal 2026. Adjusted net income and adjusted net income per diluted share for the first quarter of fiscal 2027 were $5,738 and $0.49 per share, respectively, compared with adjusted net income and adjusted net income per diluted share of $4,938 and $0.45 per share, respectively, for the first quarter of fiscal 2026, an increase of 16% and 9%, respectively. Similarly, adjusted EBITDA (defined below) for the first quarter of fiscal 2027 was $8,750 compared to $6,838 for the same period of fiscal 2026, an increase of 28%. See "Non-GAAP Measures" below for a reconciliation of adjusted net income, adjusted net income per diluted share, and adjusted EBITDA to the comparable GAAP amount.

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Orders in the first quarter of fiscal 2027 were $95,850 or 1.3x net sales. These orders drove backlog to a record $557,217 as of June 30, 2026. Orders for the first quarter of fiscal 2027 included $61,828 of new and follow-on orders to the Defense market to support the U.S. Navy's Columbia and Virginia Class Submarine programs, as well as to provide mission-critical hardware for the MK48 Mod 7 Heavyweight Torpedo. We believe this order activity supports our position as a trusted supplier to the U.S. Navy and allied defense programs. For additional information on these key performance indicators see "Orders, Backlog, and Book-to-Bill Ratio" below.

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Space orders for the first quarter of fiscal 2027 totaled $14,366 or 2.3x net Space sales for the quarter. Aftermarket orders for the Energy & Process and Defense markets remained strong in the first quarter of fiscal 2027, increasing 5% to $10,899. Orders for large capital projects for the Energy & Process market remained slow during the quarter. FlackTek contributed $13,150 to orders during the quarter or 2.0x net FlackTek sales and was across all our markets. Note that our orders tend to be lumpy given the nature of our business (i.e. large capital projects) and in particular, orders to the Defense industry, which span multiple years and can be significantly larger in size. First quarter of fiscal 2026 orders included $86,500 of follow-on orders to support the U.S. Navy's Virginia Class Submarine program. For additional information on this key performance indicator see "Orders, Backlog, and Book-to-Bill Ratio" below.

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On April 14, 2026, we entered into a Securities Purchase Agreement with certain accounts advised by T. Rowe Price Investment Management, Inc. pursuant to which we agreed to sell an aggregate of 600 shares of common stock, par value of $0.10 per share for $83.36 per share, based upon the 20-day average closing price of the Company's common stock on the New York Stock Exchange on April 13, 2026, for aggregate gross proceeds of $50,000. We utilized $13,000 of the proceeds for debt repayment and are expected to utilize the remaining proceeds to help fund future investment in organic and inorganic growth opportunities. As a result, Cash and cash equivalents at June 30, 2026 were $26,953, compared with $6,580 at March 31, 2026. Net cash used by operating activities was $12,650 during the first quarter of fiscal 2027, primarily due to the timing of billing and collection of accounts receivable and unbilled revenue and customer deposits, as well as the payment of fiscal 2026 bonuses during the quarter, including the BN Performance Bonus of $4,300, partially offset by cash net income.

Cautionary Note Regarding Forward-Looking Statements

This Form 10-Q and other documents we file with the Securities and Exchange Commission ("SEC") include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements for purposes of this Form 10-Q. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results implied by the forward-looking statements. Forward-looking statements are indicated by

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words such as "anticipate," "believe," "continue," "could," "estimate," "can," "may," "intend," "expect," "plan," "goal," "predict," "project," "outlook," "potential," "will," "future," and similar words and expressions.

Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause our actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking stateme

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share and square footage data)

Overview

We are a global leader in the design and manufacture of mission critical fluid, power, heat transfer, vacuum, and advanced mixing technologies for the Defense, Energy & Process, and Space industries. For the Defense industry, our equipment is used in nuclear and non-nuclear propulsion, power, fluid transfer, thermal management, and advanced mixing systems. For the Energy & Process industries, we supply equipment for vacuum, heat transfer, advanced mixing, and fluid transfer applications used in oil refining, downstream chemical facilities, fertilizers, ethylene, methanol, energetics, edible oil, food & beverage, pulp & paper, medical, and multiple alternative energy applications such as hydrogen, small modular nuclear, concentrated solar, lithium extraction, and geothermal processes. For the Space industry, our equipment is used in propulsion, power, thermal management, advanced mixing, and life support systems.

Our brands are built upon engineering expertise and close customer collaboration to design, develop, and produce mission critical equipment and systems that enable our customers to meet their economic and operational objectives. Continual improvement of our processes and systems to ensure qualified and compliant equipment are hallmarks of our brand. Our early engagement with customers and support until the end of service life are values upon which our brands are built.

Our corporate headquarters is co-located with our production facilities in Batavia, NY, and we have wholly-owned subsidiaries in Arvada, CO, Greenville, SC, Jupiter, FL, and Louisville, CO and have sales and engineering offices in Houston, TX, Suzhou, China and Ahmedabad and Pune, India.

This management's discussion and analysis of financial condition and results of operations omits a comparative discussion regarding the fiscal year ended March 31, 2025 versus the fiscal year ended March 31, 2024. Such information is located in Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended March 31, 2025.

Our fiscal year ends on March 31 of each year. We refer to our fiscal year, which ended March 31, 2026, as fiscal 2026. Likewise, we refer to our fiscal years that will end or have ended March 31, 2027, March 31, 2025, and March 31, 2024, as fiscal 2027, fiscal 2025, and fiscal 2024, respectively.

Acquisitions

On October 20, 2025, we completed our acquisition of Xdot Bearing Technologies ("Xdot"), a specialized consulting, design, and engineering firm focused on foil bearing technology. Xdot has been integrated into Barber-Nichols, LLC ("BN"). We believe that combining Xdot's foil bearing technology with BN's turbomachinery expertise will significantly expand our ability to design and deliver high-speed rotating machines into new markets and applications. Xdot has annual sales of approximately $1,000 and was slightly accretive to our fiscal 2026 net income. The purchase price for this transaction consisted of cash consideration of $900 at close, subject to certain potential adjustments including a customary working capital adjustment, and was funded with cash on hand. The purchase agreement included two potential cash contingent earn-outs to be paid on the first and second anniversary of the transaction dependent upon the achievement of certain qualitative milestones totaling $600.

On January 23, 2026, we acquired FlackTek Manufacturing, LLC and FlackTek Sales, LLC (collectively, "FlackTek"), a provider of advanced mixing and material processing solutions. FlackTek's patented technology platform delivers highly repeatable, precision mixing with faster cycle times, minimal entrained air, reduced downtime between batches, consistency in production, and ultimately can achieve higher levels of product homogeneity when compared to traditional bladed methods. FlackTek's systems are used by a global customer base that includes leading original equipment manufacturers ("OEMs"), research and development centers, defense laboratories, and industrial manufacturers serving adhesives, sealants, functional coatings, composites, electronics, and other advanced materials markets. FlackTek adds a proven product portfolio with a shared customer base and an installed footprint that extends across the full value chain, from upstream to downstream production and quality control. Its mixing systems are process-critical and market-agnostic, serving defense, energetics, oil & gas, food, battery, aerospace and space, medical, and other industrial applications where precision, repeatability, and consistency drive value. With approximately $30,000 in annualized revenue, FlackTek has built a growing installed base that generates recurring demand for consumables, accessories, and services, enhancing revenue visibility and durability.

FlackTek operates as a wholly owned subsidiary of Graham Corporation, maintaining its headquarters in Louisville, CO with a satellite location in Greenville, SC, and will be integrated into Graham's financial, compliance, and operational infrastructure. Under the terms of the transaction, the Company acquired 100% of the equity of FlackTek for a purchase price of $37,022, which was comprised of cash consideration of $26,456 and 76 shares of Graham's common stock, representing a value of $5,678 at a price of $74.89 per share.

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The purchase price is subject to certain potential adjustments, including a customary working capital adjustment. The purchase agreement includes the potential to earn an additional $25,000 in future performance-based cash earnouts over four years beginning with fiscal 2027, based upon achieving progressively increasing adjusted EBITDA performance targets each year. At the acquisition date, a liability of $5,638 was recorded for the contingent earn-out.

See Note 2 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional information.

Key Results

Key results for fiscal 2026 include the following:

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Net sales for fiscal 2026 were $245,293, up $35,397, or 17% over the prior year, reflecting the strength of our diversified revenue base. This increase was across multiple markets, including a $25,520, or 21%, increase in sales to the Defense market, primarily due to the timing of project milestones, as well as new programs and growth in existing programs. Sales to the Energy & Process market increased $10,056, or 14%, over the prior year driven by continued momentum in New Energy markets, in particular small modular reactors ("SMRs"). Additionally, incremental revenue from the acquisition of FlackTek accounted for $2,767 of the overall net sales increase compared to the prior year and was primarily to the Energy & Process market. Aftermarket sales to the Energy & Process and Defense markets totaled $36,924 for the year, down 12% from the record levels of fiscal 2025.

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Gross profit and margin for fiscal 2026 were $57,750 and 23.5%, respectively. The 170 basis point decline in gross profit margin compared to fiscal 2025 reflects the mix of sales in fiscal 2026, and in particular, a higher level of Defense sales and material receipts, which carry a lower profit margin. The impact of increased tariffs for fiscal 2026 was approximately an incremental $1,000 compared to fiscal 2025. Additionally, fiscal 2025 gross profit benefited $1,298 due to a grant received from the BlueForge Alliance to reimburse us for the cost of our Defense welder training programs in Batavia and related equipment, which did not repeat in fiscal 2026.

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Selling, general and administrative expenses ("SG&A"), including intangible amortization, for fiscal 2026 increased $4,466 over fiscal 2025 and reflects the investments we are making in our people, our processes, and our technology. SG&A increased $2,608 over the prior year due to increased staffing and performance-based compensation in connection with our growth and strategic initiatives. Acquisition and integration expenses contributed $1,827 to the increase compared to the prior year primarily due to the acquisitions of Xdot and FlackTek in the current year. Additionally, incremental SG&A from the acquisition of FlackTek accounted for $1,081 of this increase. Decreases in ERP implementation costs of $669 and bad debt expense of $994 partially offset these increases. In connection with the acquisition of BN, we entered into a Performance Bonus Agreement to provide employees of BN with a supplemental bonus based on the achievement of BN performance objectives for fiscal 2024, 2025, and 2026, which can range between $2,000 to $4,000 per year (the "BN Performance Bonus"). During fiscal 2026 and fiscal 2025, we recorded $4,258 related to the BN Performance Bonus, which includes the applicable employer related payroll taxes.

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Net income and net income per diluted share for fiscal 2026 were $12,500 and $1.12 per share, respectively, compared with $12,230 and $1.11 per share, respectively, for fiscal 2025. Adjusted net income and adjusted net income per diluted share for fiscal 2026 were $15,598 and $1.40 per share, respectively, compared with $13,716 and $1.24 per share, respectively, for fiscal 2025. See "Non-GAAP Measures" below for important information about these measures and a reconciliation of adjusted net income and adjusted net income per diluted share to the comparable GAAP amount.

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Orders booked in fiscal 2026 were $359,442 compared to $231,112 in fiscal 2025, an increase of $128,330, or 56%. As a result, backlog reached a record $532,637 at March 31, 2026, compared with $412,235 at March 31, 2025. Approximately 85% of our backlog at March 31, 2026 was to the Defense industry, which we believe provides stability and visibility to our business. The increase in orders was primarily in the Defense and Space markets, as programs continue to ramp and those markets continue to exhibit strong tail-winds. Energy & Process orders were down 6% compared with prior year levels, as strong demand in New Energy offset continued delays in large capital projects and slower Aftermarket orders. Total Aftermarket orders for fiscal 2026 were $36,572 compared to $48,462 in fiscal 2025. Incremental orders from FlackTek contributed $3,530 to the overall increase. Note that our orders tend to be lumpy given the nature of our business (i.e. large capital projects) and in particular, orders to the Defense industry, which span multiple years and can be significantly larger in size. As of late we are seeing momentum in the Defense, small modular nuclear and cryogenics markets, however the timing of large capital project orders in our traditional Energy & Process markets has pushed out due to geopolitical uncertainty. For fiscal 2026, our book-to-bill ratio was 1.5x. For additional information on this key performance indicator see "Orders, Backlog and Book-to-Bill Ratio" below.

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Cash and cash equivalents at March 31, 2026 was $6,580, compared with $21,577 at March 31, 2025, a decrease of $14,997. This decrease was primarily due to cash provided by operating activities of $15,933 and cash provided by financing activities of $11,956, which were more than offset by capital expenditures of $16,054 and cash used to acquire Xdot and FlackTek, net of cash acquired, of $27,285. Capital expenditures were made as we continue to invest in process improvement and longer-term growth opportunities. Capital expenditures for fiscal 2026 included costs for the construction of a new 30,000 square foot manufacturing facility to enhance and expand Defense production capabilities at our Batavia, NY campus, construction of a cryogenic propellant testing facility near P3 in FL, expansion of our Radiographic Testing ("RT") facility to enhance and accelerate De

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