GRAHAM Q4 FY26 earnings call GHM

Graham Corporation made significant investments in fiscal 2026 to bolster its capabilities and capacity. Key projects include the operational Batavia Navy facility, equipped with automated welding and X-ray inspection, and the fully functional Arvada assembly and liquid nitrogen test facilities. The Jupiter Cryogenic Facility is actively testing internal products for a lunar lander program, while the Batavia ERP implementation is nearing completion. These initiatives, made with a disciplined capital allocation framework, are expected to generate returns above the company's 20% ROIC hurdle rate and drive future operating leverage.

The defense market continues to exhibit strong demand, validated by record backlog. Graham benefited from ongoing execution across key naval programs, growth in existing platforms, and contributions from new programs transitioning from development to production. These include high-profile directed energy laser and radar platforms, where Graham supplies cooling pumps and motor controllers. The company's modular, power-dense product offerings enable optimized system performance for mission-critical applications, providing durable revenue visibility over multiple years.

While fiscal 2026 space revenue was consistent year-over-year, the market shows significant momentum with strong order and backlog growth. Customers are transitioning from development to higher-rate production, increasing demand for Graham's turbomachinery, cryogenic systems, and precision components. The company's investments in liquid nitrogen testing and a new cryogenic test facility in Florida support this scaling production. The growth is driven by both new and existing customers, increasing launch cadences, and content on in-space assets like satellites and lunar landers, creating a robust ecosystem.

The Energy & Process segment delivered a strong year, with revenue increasing 14% in fiscal 2026, despite continued uncertainty in large capital project spending. This growth was supported by robust aftermarket activity, expansion into new energy applications such as small modular nuclear reactors and cryogenic technologies, and contributions from the recently acquired FLAC Tech business. While customers remain cautious on large capital expenditures in refining and petrochemicals, Graham's diversified exposure and growing install base position it well for future opportunities.

The acquisition of FLAC Tech at the end of January establishes advanced mixing and materials processing as Graham's third core platform. This business brings differentiated technology, a strong intellectual property portfolio, recurring revenue, and exposure to existing markets. Integration is progressing well, with a long-term commercialization strategy developed, critical hires made, and strong customer engagement. The company is particularly excited about the potential to commercialize advanced materials processing solutions across its broader customer base and expects FLAC Tech to create meaningful long-term shareholder value.

Graham's balance sheet remains strong, providing flexibility for strategic priorities. Fiscal 2026 saw $15.9 million in cash from operations and $15.8 million in net capital expenditures. The company deployed $27 million for the XDOT and FLAC Tech acquisitions. Subsequent to year-end, a $50 million strategic investment from T. Rowe Price further strengthened the balance sheet, with $13 million used to repay debt. This leaves Graham with over $100 million in available liquidity to support future organic and inorganic growth initiatives.