GRAHAM CORP

Previous wording

Our corporate headquarters is located with our production facilities in Batavia, NY, where surface condensers and ejectors are designed, engineered, and manufactured for the Defense and Energy & Process industries. Our wholly-owned subsidiary, Barber-Nichols, LLC ("BN"), based in Arvada, CO, designs, develops, manufactures, and sells specialty turbomachinery products for the Space, Aerospace, Cryogenic, Defense, and Energy markets. Our wholly-owned subsidiary, P3 Technologies, LLC ("P3"), located in Jupiter, FL is a custom turbomachinery engineering, product development, and manufacturing business that serves the Space, New Energy, Defense, and Medical industries. P3 is managed through BN and is highly complementary to BN's technology and enhances its turbomachinery solutions. We also have wholly-owned foreign subsidiaries, Graham Vacuum and Heat Transfer Technology Co., Ltd. ("GVHTT"), located in Suzhou, China and Graham India Private Limited ("GIPL"), located in Ahmedabad and Pune, India. GVHTT provides sales and engineering support for us throughout Southeast Asia. GIPL provides sales and engineering support for us in India and the Middle East.

Current wording

Our corporate headquarters is co-located with our production facilities in Batavia, NY, where surface condensers and ejectors are designed, engineered, and manufactured for the Defense and Energy & Process industries. Our wholly-owned subsidiary, Barber-Nichols, LLC ("BN"), based in Arvada, CO, designs, develops, manufactures, and sells specialty turbomachinery products for the Space, Aerospace, Cryogenic, Defense, and Energy markets. Our wholly-owned subsidiary, P3 Technologies, LLC ("P3"), located in Jupiter, FL, is a custom turbomachinery engineering, product development, and manufacturing business that serves the Space, New Energy, Defense, and Medical industries. P3 is managed through BN and is highly complementary to BN's technology and enhances its turbomachinery solutions. We also have wholly-owned foreign subsidiaries, Graham Vacuum and Heat Transfer Technology Co., Ltd. ("GVHTT"), located in Suzhou, China and Graham India Private Limited ("GIPL"), located in Ahmedabad and Pune, India. GVHTT provides sales and engineering support for us throughout Southeast Asia. GIPL provides sales and engineering support for us in India and the Middle East.

Previous wording

Net sales for the first quarter of fiscal 2026 were $55,487, up $5,536, or 11% compared with the first quarter of fiscal 2025 reflecting the strength of our diversified revenue base. The increase over the prior year was due to a $5,664 or 33% increase in sales to the Energy & Process industry due to the Chemical/Petrochemical and New Energy markets, as well as increased aftermarket sales. The increase in Chemical/Petrochemical sales was primarily due to a surface condenser order for a North American net-zero carbon emissions ethylene cracker received in June 2024, while the increase in New Energy sales was driven by increased sales to the hydrogen and SMR markets. Aftermarket sales to the Energy & Process and Defense markets of $10,410 remained strong and represented a 33% increase over the fiscal 2025 first quarter. Defense and Space sales remained strong and were relatively consistent with the prior year.

Current wording

Net sales for the second quarter of fiscal 2026 were $66,027, up $12,464, or 23% compared with the second quarter of fiscal 2025 reflecting the strength of our diversified revenue base. The increase was across all our principle markets including a $9,853 or 32% increase in sales to the defense industry, primarily due to the timing of project milestones (material receipts), as well as new programs and growth in existing programs. Net sales for the quarter for the Energy & Process markets increased $2,028 or 11%, driven by increased sales in China and larger capital projects, partially offset by lower sales in India, all due to project timing. Aftermarket sales to the Energy & Process and Defense markets of $9,820 were consistent with the prior year record levels.

Previous wording

Selling, general and administrative expenses ("SG&A"), including intangible amortization, for the first quarter of fiscal 2026 increased $559, or 6%, over the same period of fiscal 2025. This increase reflects the investments we are making in our operations, our employees, and our technology, as well as continued cost discipline as SG&A costs represented 17.7% of sales for the first quarter of fiscal 2026 compared to 18.6% in fiscal 2025. 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 can range between $2,000 to $4,000 per year (the "BN Performance Bonus"). During the first quarter of fiscal 2025 and 2026, we recorded $1,076 related to the BN Performance Bonus inclusive of applicable payroll taxes.

Current wording

Selling, general and administrative expenses ("SG&A"), including intangible amortization, for the second quarter of fiscal 2026 increased $1,066 over the same period of fiscal 2025 and reflects the investments we are making in our operations, our employees, and our technology, as well as higher performance-based compensation due to our increased profitability and increased bad debt reserves related to a non-U.S. customer. SG&A costs represented 15.5% of sales for the second quarter of fiscal 2026 compared to 17.1% in fiscal 2025. 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 can range between $2,000 to $4,000 per year (the "BN Performance Bonus).

Previous wording

Orders booked in the first quarter of fiscal 2026 were $125,898. As a result, backlog increased $70,525 during the quarter to $482,860 at June 30, 2025. Orders for the first quarter of fiscal 2026 included $86,500 of follow-on orders to support the U.S. Navy's Virginia Class Submarine program, and strong aftermarket orders for the Energy & Process and Defense markets, which increased 16% to $10,491 compared with the prior year. 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. For the first quarter of fiscal 2026, our book-to-bill ratio was 2.3x. For additional information on this key performance indicator see "Orders, Backlog, and Book-to-Bill Ratio" below.

Current wording

Orders booked in the second quarter of fiscal 2026 increased to $83,200 compared with $63,678 in the second quarter of fiscal 2025. As a result, backlog reached a record $500,072 at September 30, 2025, compared with $412,335 and $407,009 at March 31, 2025 and September 30, 2024, respectively. The increase in orders was across all our principle markets and included a $25,500 follow-on order to provide mission-critical hardware for the MK48 Mod 7 Heavyweight Torpedo, as well as orders for advanced turbomachinery and precision-engineered components from industry leading Space/Aerospace customers. Aftermarket orders for the Energy & Process and Defense markets for the second quarter of fiscal 2026 decreased 25% to $9,550 from the record levels of the prior year but still remain strong. 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. For the second quarter of fiscal 2026, our book-to-bill ratio was 1.3x above our annual goal of 1.1x. For more information on these key performance indicators see "Orders, Backlog, and Book-to-Bill Ratio" below.

Previous wording

Cash and cash equivalents at June 30, 2025 were $10,753, compared with $21,577 at March 31, 2025. This decrease, as expected, was primarily due to cash used by operating activities of $2,259 and $7,004 of capital expenditures as we continue to invest in process improvement and longer-term growth opportunities. Cash flow used by operations during the fiscal 2026 first quarter was primarily driven by the payment of fiscal 2025 bonuses during the quarter, including the BN Performance Bonus of $4,300, partially offset by cash net income.

Current wording

Cash and cash equivalents at September 30, 2025 were $20,579, compared with $21,577 at March 31, 2025. Cash provided by operating activities for the first six months of fiscal 2026 of $11,326 was offset by capital expenditures of $11,148 as we continue to invest in process improvement and longer-term growth opportunities. As of September 30, 2025 we had no debt outstanding. For more information see "Liquidity and Capital Resources" below.

Previous wording

Defense - Demand for our equipment and systems for the Defense industry is expected to remain strong and continue to expand, based on Defense budget plans, accelerated ship build schedules due to geopolitical tensions, the projected build schedule of submarines, aircraft carriers and undersea propulsion and power systems, and the solutions we provide. We also don't believe that changes made by the new U.S. presidential administration will materially impact our Defense business. In addition to U.S. Navy applications, we also provide specialty pumps, turbines, compressors, and controllers for various fluid and thermal management systems used in Department of Defense radar, laser, electronics, and power systems. We have built a leading position, and in most instances a sole source position, for certain systems and equipment for the Defense industry.

Current wording

Defense - Demand for our equipment and systems for the Defense industry is expected to remain strong and continue to expand, based on Defense budget plans, accelerated ship build schedules due to geopolitical tensions, and the projected build schedule of submarines, aircraft carriers and undersea propulsion and power systems that we provide solutions for. We also don't believe that changes made by the new U.S. presidential administration will materially impact our Defense business. In addition to U.S. Navy applications, we also provide specialty pumps, turbines, compressors, and controllers for various fluid and thermal management systems used in Department of Defense radar, laser, electronics, and power systems. We have built a leading position, and in most instances a sole source position, for certain systems and equipment for the Defense industry, which helps protect us from outside competition.

Previous wording

Energy & Process - Our traditional Energy markets are undergoing significant transition. While we expect that fossil fuels will continue to be an important component in the global Energy industry for many years to come, there are significant changes in the priorities for capital investments by our customers and the regions in which those investments are being made. We expect that the systemic changes in the Energy markets, which are influenced by the increasing use by consumers of alternative fuels and government policies to stimulate their usage, will likely lead to demand growth for fossil-based fuels that is less than the global growth rate. Accordingly, we believe that in the near term the quantity of projects available for us to compete for will remain low and that new project pricing will remain challenging. Additionally, we believe that the majority of new capital investment orders in our traditional Energy markets will be outside the U.S., such as India and the Middle-East. Finally, over the last few years we have experienced an increase in our Energy & Process aftermarket orders primarily from the domestic market as our customers continue to maintain and invest in the facilities they currently operate. Although these orders remained strong in the first quarter of fiscal 2026, the recent decrease in oil prices combined with the economic uncertainty caused by the increase in tariffs may impact future order volumes.

Current wording

Energy & Process - Our traditional Energy markets are undergoing significant transition. While we expect that fossil fuels will continue to be an important component in the global Energy industry for many years to come, there are significant changes in the priorities for capital investments by our customers and the regions in which those investments are being made. We expect that the systemic changes in the Energy markets, which are influenced by the increasing use by consumers of alternative fuels and government policies to stimulate their usage, will likely lead to demand growth for fossil-based fuels that is less than the global growth rate. Accordingly, we believe that in the near term the quantity of projects available for us to compete for will remain low and that new project pricing will remain challenging. Additionally, we believe that the majority of new capital investment orders in our traditional Energy markets will be outside the U.S., such as India and the Middle-East. Finally, over the last few years we have experienced an increase in our Energy & Process aftermarket orders primarily from the domestic market as our customers continue to maintain and invest in the facilities they currently operate.

Previous wording

The alternative and clean energy opportunities for our heat transfer, power production, and fluid transfer systems are expected to continue to grow. We assist in designing, developing, and producing equipment for hydrogen production, distribution and fueling systems, concentrated solar power and storage, lithium extraction, SMRs, bioenergy products, and geothermal power generation. As a result of increased energy demands driven by population growth, crypto-currency mining, and artificial intelligence ("AI") data centers, we have seen an increase in activity and orders related to SMRs which we expect to continue for the foreseeable future. We believe we are positioned to be a significant contributor as these markets continue to develop.

Current wording

The alternative and clean energy opportunities for our heat transfer, power production, and fluid transfer systems are expected to continue to grow. We assist in designing, developing, and producing equipment for hydrogen production, distribution and fueling systems, concentrated solar power and storage, lithium extraction, small modular reactors ("SMRs"), bio-energy products, and geothermal power generation. As a result of increased energy demands driven by population growth, crypto-currency mining, and artificial intelligence ("AI") data centers, we have seen an increase in activity and orders related to SMRs which we expect to continue for the foreseeable future. We believe we are positioned to be a significant contributor as these markets continue to develop.

Previous wording

Space - Our turbomachinery, pumps, and cryogenic products and market access provide revenue and growth potential in the commercial Space/Aerospace markets. The commercial Space market has grown and evolved rapidly, and we provide rocket engine turbopump systems and components to many of the launch providers for satellites. We expect that in the long-term, extended space exploration will become more prevalent, and we anticipate that our thermal/fluid management and environmental control and life support system turbomachinery will play important roles. We are also participating in future aerospace power and propulsion system development through supply of fluid and thermal management systems components. Small, power dense systems are imperative for these applications, and we believe our technology and expertise will enable us to achieve sales growth in this market. Sales and orders to the Space industry are variable in nature and many of our customers, who are key players in the industry, have yet to achieve profitability and may be unable to continue operations without additional funding. As a result, future revenue and growth in this market can be uncertain and may negatively impact our business.

Current wording

Space - Our turbomachinery, pumps, and cryogenic products and market access provide revenue and growth potential in the commercial Space/Aerospace markets. The commercial Space market has grown and evolved rapidly, and we provide full life-cycle support for rocket engine turbopump systems and components to many of the industry leading launch providers for satellites. We expect that in the long-term, extended space exploration will become more prevalent, and we anticipate that our thermal/fluid management and environmental control and life support system turbomachinery will play important roles. We are also participating in future aerospace power and propulsion system development through supply of fluid and thermal management systems components. Small, power dense systems are imperative for these applications, and we believe our technology and expertise will enable us to achieve sales growth in this market. Sales and orders to the Space industry are variable in nature and many of our customers, who are key players in the industry, have yet to achieve profitability and may be unable to continue operations without additional funding. As a result, future revenue and growth in this market can be uncertain and may negatively impact our business.

Previous wording

As illustrated below, we have succeeded over the last several years with our strategy to increase our participation in the Defense market, which comprised 87% of our total backlog at June 30, 2025.

Current wording

As illustrated below, we have succeeded over the last several years with our strategy to increase our participation in the defense market, which comprised 85% of our total backlog at September 30, 2025.

Previous wording

*Note: "FYE" refers to fiscal year ended March 31. For additional information on this key performance indicator see "Orders, Backlog, and Book-to-Bill Ratio" below.

Current wording

*Note: "FYE" refers to fiscal year ended March 31. For more information on these key performance indicators see "Orders, Backlog, and Book-to-Bill Ratio" below.

Previous wording

To better understand the significant factors that influenced our performance during the periods presented, the following discussion should be read in conjunction with our Unaudited Condensed Consolidated ("Condensed Consolidated") Financial Statements and the notes to our Condensed Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q.

Current wording

To better understand the significant factors that influenced our performance during the periods presented, the following discussion should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and the notes to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q.

Previous wording

Domestic sales as a percentage of net sales increased to 83% in the first quarter of fiscal 2026 compared with 82% in the first quarter of fiscal 2025. These sales were primarily to the U.S. Defense market, which represented 53% of net sales for the first quarter of fiscal 2026. Fluctuation in sales among markets, products and geographic locations varies, sometimes significantly, from quarter-to-quarter based on timing and magnitude of projects. See also "Current Market Conditions," above. For additional information on anticipated future sales and our markets, see "Orders, Backlog, and Book-to-Bill Ratio" below.

Current wording

Domestic sales as a percentage of aggregate sales were 83% for the first six months of fiscal 2026, comparable to the same period of fiscal 2025, reflecting our continued presence in the defense industry, which is U.S. based. Sales for the six months ended September 30, 2025 were 58% to the defense industry compared to 58% for the comparable period in fiscal 2025. Fluctuation in sales among markets, products and geographic locations varies, sometimes significantly, from quarter-to-quarter based on timing and magnitude of projects. See also "Current Market Conditions," above. For additional information on anticipated future sales and our markets, see "Orders and Backlog" below.

Previous wording

For the first quarter of fiscal 2026, the impact of tariffs was not material to our consolidated financial statements in comparison to the prior year. However, we still estimate the range of potential impact of increased tariffs for the full year to be between $2,000 to $5,000.

Current wording

Gross profit and margin for the second quarter of fiscal 2026 was $14,306 and 21.7%, respectively. Gross profit and margin for the first six months of fiscal 2026 was $29,027 and 23.9%, respectively. The increase in gross profit over the prior year periods was primarily due to the increase in net sales discussed above partially offset a by decline in gross profit margin. This decrease in gross profit margin reflects the mix of sales during the first six months of fiscal 2026, and in particular, an extraordinary high level of material receipts which carry a lower profit margin. For the first six months of fiscal 2026, we estimate the impact of tariffs on our consolidated financial statements to be approximately $1,000 compared to the prior year. We estimate the range of potential impact of increased tariffs for the full year to be between $2,000 and $4,000. Additionally, second quarter and the first six months of fiscal 2025 gross profit benefited $435 and $915, respectively, from a grant received in the prior year from the BlueForge Alliance to reimburse us for the cost of our defense welder training programs in Batavia, which did not repeat in the current year.

Previous wording

Changes in SG&A expense, including amortization expense, for the three months ending June 30, 2025 versus the comparable prior year period is as follows:

Current wording

Changes in SG&A expense, including amortization expense, for the three and six months ending September 30, 2025 versus the comparable prior year period is as follows:

Previous wording

The increase in SG&A expense reflects the investments we are making in our operations, our employees, and our technology, as well as continued cost discipline as SG&A costs represented 17.7% of sales for the first quarter of fiscal 2026 compared to 18.6% in fiscal 2025. 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 can range between $2,000 to $4,000 per year. During the first quarter of fiscal 2025 and 2026, we recorded $1,076 related to the BN Performance Bonus inclusive of applicable payroll taxes. ERP implementation costs related to the new ERP system at our Batavia facility, which is expected to go live in the third quarter of fiscal 2026.

Current wording

The increase in SG&A expense, including intangible amortization, reflects the investments we are making in our operations, our employees, and our technology, as well as higher performance-based compensation due to our increased profitability and increased bad debt reserves related to a non-U.S. customer. SG&A costs represented 16.5% of sales for the first six months of fiscal 2026 compared to 17.8% in the comparable period of fiscal 2025 as we continue to leverage our fixed overhead. 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 years 2024, 2025 and 2026, which can range between $2,000 and $4,000 per year. During the first six months of fiscal 2025 and 2026, we recorded $2,152 related to the BN Performance Bonus inclusive of applicable taxes.

Previous wording

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act ("OBBB"), enacting a broad range of tax reform provisions, including extending and modifying certain domestic and international Tax Cut & Jobs Act provisions and expanding certain Inflation Reduction Act incentives while accelerating the phase-out of others. Only certain provisions will have current-year financial reporting implications due to varying effective dates and discretionary elections. We are currently analyzing the OBBB but do not anticipate a material impact to our consolidated financial statements or effective tax rate.

Current wording

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act ("OBBB"), enacting a broad range of tax reform provisions, including extending and modifying certain domestic and international Tax Cut & Jobs Act provisions and expanding certain Inflation Reduction Act incentives while accelerating the phase-out of others. Only certain provisions will have current-year financial reporting implications due to varying effective dates and discretionary elections. The enactment of the OBBB in the second quarter of fiscal 2026 resulted in an increase to our expected effective tax rate for fiscal 2026 of approximately 200 basis points but is expected to result in approximately $8,000 in cash tax savings over the next two years due to the bonus depreciation provisions of the OBBB and changes to the research and development Section 174 rules. These cash tax savings are expected to more than offset the impact of the effective tax rate increase. For fiscal 2026, we still expect our effective tax rate to be between 20% and 22%, as the impact of higher than expected discrete tax items in the first quarter of fiscal 2026 offset the impact of the OBBB on our full year effective tax rate.

Previous wording

Our effective tax rate in the first quarter of fiscal 2026 was 8.3%, compared with 10.0% in the first quarter of fiscal 2025. This decrease was primarily due to a higher discrete tax benefit recognized in the first quarter of fiscal 2026 related to the vesting of restricted stock awards and the Company's improved stock price in comparison to the prior year. Our expected effective tax rate for fiscal 2026 is 20% to 22%, as the impact of these discrete tax items on our effective tax rate will lessen over the course of the year.

Current wording

Our effective tax rate for the second quarter of fiscal 2026 was 27%, compared with 24% in the second quarter of fiscal 2025. Our effective tax rate for the first six months of fiscal 2026 was 17%, compared with 18% for the first six months of fiscal 2025. Our effective tax rate can vary significantly from quarter to quarter depending on the level of projected pre-tax income, the amount of projected income derived from our higher tax rate foreign subsidiaries, changes in tax laws, as well as the timing of discrete tax items, primarily related to the vesting of restricted stock awards. The increase in our effective tax rate for the second quarter of fiscal 2026 was primarily due to the enactment of the OBBB discussed above. The decrease in our effective tax rate for the six month period of fiscal 2026 was primarily due to a higher discrete tax benefit recognized in the first quarter of fiscal 2026 related to the vesting of restricted stock awards and the Company's improved stock price over the last year.

Previous wording

The net result of the above is that net income and income per diluted share for the first quarter of fiscal 2026 were $4,595 and $0.42 per share, respectively, compared to $2,966 and $0.27 per share, respectively, for the first quarter of fiscal 2025. Adjusted net income and adjusted net income per diluted share for the first quarter of fiscal 2026 were $4,938 and $0.45 per share, respectively, compared with adjusted net income and adjusted net income per diluted share of $3,584 and $0.33 per share, respectively, for the first quarter of fiscal 2025, an increase of 38% and 36%, respectively. See "Non-GAAP Measures" below for a reconciliation of adjusted net income and adjusted net income per diluted share to the comparable GAAP amount.

Current wording

The result of the above is that net income and income per diluted share for the second quarter of fiscal 2026 were $3,090 and $0.28, respectively, compared with $3,281 and $0.30, respectively, for the second quarter of fiscal 2025. Adjusted net income and adjusted net income per diluted share for the second quarter of fiscal 2026 were $3,429 and $0.31, respectively, compared with adjusted net income and adjusted net income per diluted share of $3,414 and $0.31, respectively, for the second quarter of fiscal 2025. See "Non-GAAP Measures" below for a reconciliation of adjusted net income and adjusted net income per diluted share to the comparable GAAP amount.

Previous wording

Adjusted net income before interest (income) expense, income taxes, depreciation and amortization ("EBITDA"), adjusted net income, and adjusted net income per diluted share are provided for informational purposes only and are not measures of financial performance under the U.S.'s generally accepted accounting principles ("GAAP").

Current wording

Adjusted net income before interest (income) expense, income taxes, depreciation and amortization ("EBITDA"), adjusted net income, and adjusted net income per diluted share are provided for informational purposes only and are not measures of financial performance under accounting principles generally accepted in the U.S. ("GAAP").

Previous wording

Management believes the presentation of these financial measures reflecting non-GAAP adjustments provides important supplemental information to investors and other users of our financial statements in evaluating the operating results of the Company. In particular, we excluded those charges and credits that are not directly related to our operating performance, and are not reflective of our underlying business particularly in light of their unpredictable nature. These non-GAAP disclosures have limitations as analytical tools, should not be viewed as a substitute for net income or net income per diluted share determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. In addition, supplemental presentation should not be construed as an inference that our future results will be unaffected by similar adjustments to net income or net income per diluted share determined in accordance with GAAP. Adjusted EBITDA, adjusted net income and adjusted net income per diluted share are key metrics used by management and our board of directors to assess the Company’s financial and operating performance and adjusted EBITDA is a basis for a significant portion of management's performance-based compensation.

Current wording

Management believes the presentation of these financial measures reflecting non-GAAP adjustments provides important supplemental information to investors and other users of our financial statements in evaluating the operating results of the Company. In particular, we exclude those charges and credits that are not directly related to our operating performance, and are not reflective of our underlying business particularly in light of their unpredictable nature. These non-GAAP disclosures have limitations as analytical tools, should not be viewed as a substitute for net income or net income per diluted share determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. In addition, supplemental presentation should not be construed as an inference that our future results will be unaffected by similar adjustments to net income or net income per diluted share determined in accordance with GAAP. Adjusted EBITDA, adjusted net income and adjusted net income per diluted share are key metrics used by management and our board of directors to assess the Company’s financial and operating performance and adjusted EBITDA is a basis for a significant portion of management's performance-based compensation.

Previous wording

Acquisition and integration (income) expense, net are incremental costs that are directly related to and as a result of the P3 acquisition or the subsequent accounting for the contingent earn-out liability. These costs (income) may include, among other things, professional, consulting and other fees, system integration costs, and contingent consideration fair value adjustments. ERP implementation costs primarily relate to consulting costs (training, data conversion, project management) incurred in connection with the ERP system being implemented throughout our Batavia, NY facility in order to enhance efficiency and productivity and are not expected to recur once the project is completed.

Current wording

Acquisition and integration (income) costs, net are incremental costs that are directly related to and as a result of the P3 and Xdot acquisitions or the subsequent accounting for the related contingent earn-out liabilities. These costs (income) may include, among other things, professional, consulting and other fees, system integration costs, and contingent consideration fair value adjustments. ERP implementation costs primarily relate to consulting costs (training, data conversion, and project management) incurred in connection with the ERP system being implemented throughout our Batavia, New York facility in order to enhance efficiency and productivity and are not expected to recur once the project is completed.

Previous wording

The following discussion should be read in conjunction with our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows:

Current wording

The following discussion should be read in conjunction with our Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Statements of Cash Flows:

Previous wording

Capital expenditures for the first quarter of fiscal 2026 were $7,004 compared to $2,978 for the comparable period in fiscal 2025. Capital expenditures for the first quarter of fiscal 2026 relate to machinery and equipment, buildings, and leasehold improvements to support our growth and productivity improvement initiatives and were primarily related to the following:

Current wording

Capital expenditures for the first six months of fiscal 2025 was $11,148 compared to $6,464 for the comparable period in fiscal 2025. Capital expenditures for fiscal 2026 relate to machinery and equipment, as well as for buildings and leasehold improvements to support our growth and productivity improvement initiatives and were primarily related to the following:

Previous wording

Installation of new Radiographic Testing (“RT”) equipment to enhance and accelerate Defense production at our Batavia, NY facility, which is primarily being funded by a $2,200 strategic grant from one of our Defense customers. We intend to contribute an additional $1,400 towards this project for a total project cost of $3,600. This expansion is expected to be completed in the third quarter of fiscal 2026.

Current wording

Installation of advanced Radiographic Testing (“RT”) equipment to enhance and accelerate Defense production at our Batavia, NY facility, which is primarily being funded by a $2,200 strategic grant from one of our Defense customers. We intend to contribute an additional $1,400 towards this project for a total project cost of $3,600. This expansion is expected to be completed in the third quarter of fiscal 2026.

Previous wording

Cash and cash equivalents were $10,753 at June 30, 2025 compared with $21,577 at March 31, 2025, down $10,824 primarily due to cash used by operations and capital expenditures as discussed above. At June 30, 2025, approximately $3,844 of our cash and cash equivalents is used to secure our letters of credit and $4,370 of our cash is held by our China and India subsidiaries.

Current wording

Cash and cash equivalents were $20,579 at September 30, 2025 compared with $21,577 at March 31, 2025, a decrease of $998 primarily due to cash provided by operations of $11,326 which were used to fund capital expenditures of $11,148. At September 30, 2025, $3,267 of our cash and cash equivalents was used to secure our letters of credit and $3,706 of our cash was held by foreign subsidiaries.

Previous wording

On October 13, 2023, we entered into a five-year revolving credit facility with Wells Fargo that provides a $50,000 line of credit (the "Revolving Credit Facility"). As of June 30, 2025, there were no borrowings and $5,746 letters of credit outstanding on the Revolving Credit Facility and the amount available to borrow was $44,254, subject to interest and leverage covenants.

Current wording

On October 13, 2023, we entered into a five-year revolving credit facility with Wells Fargo that provides a $50,000 line of credit (the "Revolving Credit Facility"). As of September 30, 2025, there were no borrowings and $5,319 letters of credit outstanding on the Revolving Credit Facility and the amount available to borrow was $44,681, subject to interest and leverage covenants.

Previous wording

The Revolving Credit Facility contains customary terms and conditions, including representations and warranties and affirmative and negative covenants, as well as financial covenants for the benefit of Wells Fargo, which requires us to maintain (i) a consolidated total leverage ratio not to exceed 3.50:1.00 and (ii) a consolidated fixed charge coverage ratio of at least 1.20:1.00, in both cases computed in accordance with the definitions and requirements specified in the Revolving Credit Facility. As of June 30, 2025, we were in compliance with the financial covenants of the Revolving Credit Facility and our leverage ratio as calculated in accordance with the terms of the Revolving Credit Facility was 0.3x.

Current wording

The Revolving Credit Facility contains customary terms and conditions, including representations and warranties and affirmative and negative covenants, as well as financial covenants for the benefit of Wells Fargo, which require us to maintain (i) a consolidated total leverage ratio not to exceed 3.50:1.00 and (ii) a consolidated fixed charge coverage ratio of at least 1.20:1.00, in both cases computed in accordance with the definitions and requirements specified in the Revolving Credit Facility. As of September 30, 2025, we were in compliance with the financial covenants of the Revolving Credit Facility and our leverage ratio as calculated in accordance with the terms of the Revolving Credit Facility was 0.3x.

Previous wording

The Revolving Credit Facility contains terms that may, under certain circumstances as defined in the agreement, restrict our ability to declare or pay dividends. Any determination by our Board of Directors regarding dividends in the future will depend on a variety of factors, including our future financial performance, organic and inorganic growth opportunities, general economic conditions and financial, competitive, regulatory, and other factors, many of which are beyond our control. We did not pay any dividends during the three months ended June 30, 2025 or during fiscal 2025 and we currently have no intention to pay dividends for the foreseeable future. There can be no guarantee that we will pay dividends in the future.

Current wording

The Revolving Credit Facility contains terms that may, under certain circumstances as defined in the agreement, restrict our ability to declare or pay dividends. Any determination by our Board of Directors regarding dividends in the future will depend on a variety of factors, including our future financial performance, organic and inorganic growth opportunities, general economic conditions, and financial, competitive, regulatory, and other factors, many of which are beyond our control. We did not pay any dividends during the six months ended September 30, 2025, or during fiscal 2025 and currently have no intention to pay dividends for the foreseeable future. There can be no guarantee that we will pay dividends in the future.

Previous wording

In addition to the non-GAAP measures discussed above, management uses the following key performance metrics to analyze and measure the Company’s financial performance and results of operations: orders, backlog, and book-to-bill ratio. Management uses orders and backlog as measures of current and future business and financial performance and these may not be comparable with measures provided by other companies. Orders represent definitive agreements with customers to provide products and/or services. Backlog is defined as the total dollar value of orders received for which revenue has not yet been recognized. Total backlog can include both funded and unfunded orders under government contracts. Management believes tracking orders and backlog are useful as it often times is a leading indicator of future performance. In accordance with industry practice, contracts may include provisions for cancellation, termination, or suspension at the discretion of the customer.

Current wording

In addition to the non-GAAP measures discussed above, management uses the following key performance metrics to analyze and measure our financial performance and results of operations: orders, backlog, and book-to-bill ratio. Management uses orders and backlog as measures of current and future business and financial performance and these may not be comparable with measures provided by other companies. Orders represent definitive agreements with customers to provide products and/or services. Backlog is defined as the total dollar value of orders received for which revenue has not yet been recognized. Total backlog can include both funded and unfunded orders under government contracts. Management believes tracking orders and backlog are useful as it often times is a leading indicator of future performance. In accordance with industry practice, contracts may include provisions for cancellation, termination, or suspension at the discretion of the customer.

Previous wording

The book-to-bill ratio is an operational measure that management uses to track the growth prospects of the Company. The Company calculates the book-to-bill ratio for a given period as net orders divided by net sales. Over the long-term our goal is to have a book-to-bill ratio of 1.1x, which can vary significantly from quarter to quarter given the nature of our business.

Current wording

The book-to-bill ratio is an operational measure that management uses to track the growth prospects of the Company. The Company calculates the book-to-bill ratio for a given period as net orders divided by net sales. Over the long-term our goal is to have a book-to-bill ratio of 1.1x, which can vary significantly from quarter to quarter given the nature of our business. Since fiscal 2020, our annual book-to-bill ratio has ranged from 0.9x to 1.4x, however, our quarterly book-to-bill ratio over that same time period has ranged from 0.5x to 2.8x.

Previous wording

Orders booked in the first quarter of fiscal 2026 were $125,898 or 227% of net sales for the quarter. Orders for the first quarter of fiscal 2026 included $86,500 of follow-on orders to support the U.S. Navy's Virginia Class Submarine program, and strong aftermarket orders for the Energy & Process and Defense markets, which increased 16% to $10,491 compared with the prior year. Orders for the first quarter of fiscal 2025 benefited from follow-on orders for the second option year of alternators and regulators for the MK48 Mod 7 Heavyweight Torpedo program, as well as an order for three surface condenser systems for the world's first net-zero carbon emissions integrated ethylene cracker and derivatives site located in North America. 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. For the first quarter of fiscal 2026, our book-to-bill ratio was 2.3x.

Current wording

Orders booked in the second quarter of fiscal 2026 were $83,200 or 1.3x net sales for the quarter. Orders booked for the first six months of fiscal 2026 were $209,098 or 1.7x net sales for the period. As a result, backlog increased $17,212 (4%) during the quarter and $87,837 (21%) for the first six months of fiscal 2026 to $500,072 at September 30, 2025. The increase in orders during the quarter was across all our principle markets and included a $25,500 follow-on order to provide mission-critical hardware for the MK48 Mod 7 Heavyweight Torpedo, as well as orders for advanced turbomachinery and precision-engineered components from industry leading Space/Aerospace customers. Aftermarket orders for the Energy & Process and Defense markets for the second quarter of fiscal 2026 decreased 25% to $9,550 from the record levels of the prior year but still remain strong. In addition to the above, orders for the first six months of fiscal 2026 included $86,500 of follow-on orders to support the U.S. Navy's Virginia Class Submarine program, and strong aftermarket orders from the first quarter of fiscal 2026. Aftermarket orders for the Energy & Process and Defense markets for the first six months of fiscal 2026 decreased 8% in comparison to the prior year record levels.

Previous wording

Orders to the U.S. represented 97% of total orders for the first quarter of fiscal 2026 compared to 65% in the first quarter of the prior year. These orders were primarily to the defense market which represented 85% of orders and are U.S. based.

Current wording

Orders to the U.S. represented 97% of total orders for the first six months of fiscal 2026 compared to 74% for the prior year. These orders were primarily to the defense market which are U.S. based.

Previous wording

Backlog was $482,860 at June 30, 2025, a 22% increase over the prior year period. We expect to recognize revenue on approximately 35% to 40% of the backlog within one year, 25% to 30% in one to two years and the remaining beyond two years. The majority of the orders that are expected to convert beyond twenty-four months are for the defense industry, specifically the U.S. Navy that have a long conversion cycle (up to six years).

Current wording

Backlog was at $500,072 at September 30, 2025, a 23% increase over the prior year period. We expect to recognize revenue on approximately 35% to 40% of the backlog within one year, 25% to 30% in one to two years and the remaining beyond two years. The majority of the orders that are expected to convert beyond twenty-four months are for the defense industry, specifically the U.S. Navy that have a long conversion cycle (up to six years).

Previous wording

Our expectations for sales and profitability assume that we will be able to operate our production facilities at planned capacity, have access to our global supply chain including our subcontractors, do not experience any global disruptions, and experience no impact from any other unforeseen events.

Current wording

Our expectations for sales and profitability assume that we will be able to operate our production facilities at planned capacity, have access to our global supply chain including our subcontractors, do not experience any global disruptions, and experience no further impact from any other unforeseen events.