Graham Hits $561 Million Backlog Record as Defense Powers Q2

Graham Corporation (NYSE: GHM) grew fiscal second-quarter revenue 6% to $69.8 million from $66 million a year earlier, while net income jumped 50% to $4.6 million, or 39 cents per diluted share, from $3.1 million, or 28 cents. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) rose 64% to a record $10.3 million, with the margin expanding to 14.8% from 9.5%.

President and CEO Matt Malone attributed the result to improved execution, a more favorable mix of defense and space work, and the contribution of the recently acquired FlackTek business. Those gains offset continued weakness in energy and process markets. For finance teams tracking the quality of the beat, the margin story carries a caveat from management itself.

How Much of the Margin Gain Is Durable?

Gross profit increased 38% to $19.7 million, and gross margin widened to 28.2% from 21.7% — roughly the gap between a commodity fabricator and a specialized engineered-systems supplier. CFO Chris Thome said the improvement reflected operational changes, FlackTek, and a more favorable sales mix, helped by lower receipts of materials, which carry lower margins, than in the prior-year quarter.

Thome cautioned that the quarterly margin ran above the company's normal rate and said he expected margins to normalize as the year progresses. Graham still raised its full-year gross margin outlook by about half a percentage point at both ends, to a range of 25%–26%.

By segment, defense revenue climbed 12% and made up 66% of quarterly sales. Space revenue rose 59% on higher launch activity and the ramp-up of existing programs. Energy and process revenue fell 17%, as large capital projects stayed soft and international sales declined. FlackTek generated $9.5 million in quarterly revenue, up from $6.6 million in the first quarter, and Malone said the business is producing margins above the broader portfolio, with demand shifting toward larger machines and higher-value orders.

What Does the Record Backlog Signal?

Quarterly orders totaled $73.7 million, producing a book-to-bill ratio (orders divided by revenue) of 1.1. Backlog rose 12% year over year to a record $561 million — the seventh consecutive quarterly record. Defense accounts for roughly 83% of the total, and management said 85% of that defense backlog is funded.

Space orders reached $10.6 million, with space backlog more than doubling from a year earlier. Aftermarket orders across defense and energy and process surged 91% to $18.3 million, even as aftermarket sales slipped 3% to $8.6 million — a gap that points to future conversion rather than current softness.

Thome laid out the conversion timeline: 30%–35% of quarter-end backlog should turn into revenue within 12 months, another 20%–25% within one to two years, and the remainder beyond two years.

Where Is the Company Investing?

Graham broke ground on a 30,000-square-foot facility at its Arvada, Colorado, campus to support future turbomachinery demand. Malone said the company is not capacity constrained today but is building ahead of anticipated needs as backlog grows. Graham also completed its first customer test at a new cryogenic testing facility in Florida.

Does the Full-Year Guidance Hold?

Graham reaffirmed fiscal 2027 guidance of $285 million to $295 million in revenue and $35 million to $40 million in adjusted EBITDA. Thome noted the fiscal third quarter is typically the lowest-revenue quarter because of holidays and the company's reliance on direct labor.

For the first half, revenue rose 16% to $141 million and adjusted EBITDA increased 45% to $19.1 million. Operating cash flow reached $34.1 million, helped by the timing of receivable collections and customer deposits. The company ended the quarter with $71 million in cash and no outstanding debt.

Management reiterated its fiscal 2029 framework: 8%–10% annual organic revenue growth and a 14%–16% adjusted EBITDA margin. Malone said organic investment remains the first capital-allocation priority, followed by acquisitions, and described the acquisition pipeline as active.