GRAHAM CORP Annual Report - How They Did This Year

I’m putting together a simple guide to help you understand how Graham Corp (GHM) performed this year. Think of this as a "cheat sheet" to help you decide if this company fits your portfolio, without the confusing Wall Street jargon.

1. What does this company do?

Graham Corp designs and builds essential equipment for energy and fluid systems, including steam condensers, vacuum systems, and specialized pumps. These parts are vital for U.S. Navy nuclear ships, oil refineries, and power plants.

They are also expanding into space exploration and advanced materials. Their recent acquisition of FlackTek adds high-speed mixing technology for chemicals, adhesives, and electronics to their portfolio.

2. Financial performance (The "Scorecard")

• Market Value: As of September 30, 2025, the company was valued at approximately $568.7 million.
• Revenue: They generated $245.3 million this year, a 17% increase over the previous year, driven by strong demand in the Defense and Space sectors.
• Profit: The company earned $12.5 million ($1.12 per share). When excluding one-time costs, adjusted profit reached $15.6 million ($1.40 per share).
• Backlog: As of March 31, 2026, their backlog reached a record $532.6 million, up from $412.3 million last year. This committed work provides a clear roadmap for future revenue.

3. Major wins and strategic shifts

• The Defense Pivot: Defense sales now account for 60% of total revenue, reducing the company's reliance on the cyclical energy market.
• Acquisitions: The $37 million purchase of FlackTek adds a steady stream of income from service parts and consumables, diversifying the business beyond large, one-time projects.
• Book-to-Bill Ratio: The company maintained a 1.5x ratio, meaning for every $1.00 of product shipped, they secured $1.50 in new orders, signaling strong ongoing demand.

4. Financial health and operations

• Cash Position: Cash reserves moved to $6.6 million from $21.6 million, reflecting capital deployed for the Xdot and FlackTek acquisitions and facility upgrades.
• Debt: The company maintains a very strong balance sheet with only $13,000 in debt.
• Margins: Profit margins shifted to 23.5% from 25.2%, influenced by a higher mix of Defense contracts and increased costs for labor and materials.

5. Key risks to watch

• Facility Constraints: Upgrades in New York and Florida are underway to increase capacity. Any delays in these projects could impact the company's ability to fulfill its record backlog on schedule.
• Government Dependency: A significant portion of revenue is tied to U.S. Navy contracts. Changes in government budgets or shifting priorities could affect future orders. Additionally, the company may occasionally prioritize Navy work over commercial orders, which carries potential penalty risks.
• Takeover Defenses: A 75% "supermajority" vote is required for major corporate changes, such as electing directors or approving a sale, which may limit shareholder influence or buyout opportunities.

6. Competitive positioning

Graham utilizes a "design-in" strategy, working with customers during the early engineering phases of complex projects. Because their components are integrated into critical systems like submarines, they become a "sticky" partner. Replacing a Graham component is often too costly or technically difficult for the customer, providing a competitive advantage.

7. Leadership and Future Outlook

Management is currently focused on integrating recent acquisitions and scaling production to clear their $532.6 million backlog. The primary goal for 2027 is to continue growing the Defense and Space segments while improving operational efficiency to drive profit margins higher.

Investor Takeaway: Graham Corp is currently in a growth phase, backed by a record-high backlog and a strong shift toward stable, long-term Defense contracts. With almost no debt, they have the financial flexibility to execute their strategy, though investors should keep an eye on how effectively they manage their facility upgrades and the inherent risks of government-heavy revenue streams.