GRAHAM CORP

Previous wording

We are a global leader in the design and manufacture of mission critical fluid, power, heat transfer and vacuum technologies for the Defense, Energy & Process, and Space industries. We design and manufacture custom-engineered vacuum, heat transfer, cryogenic pump and turbomachinery technologies. For the Defense industry, our equipment is used in nuclear and non-nuclear propulsion, power, fluid transfer, and thermal management systems. For the Energy & Process industries we supply equipment for vacuum, heat transfer and fluid transfer applications used in oil refining, downstream chemical facilities, fertilizers, ethylene, methanol, edible oil, food & beverage, pulp & paper, 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 and thermal management systems, and for life support systems.

Current wording

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.

Previous wording

On October 20, 2025, we announced the acquisition of certain specified assets of Xdot Bearing Technologies (“Xdot”), a specialized consulting, design, and engineering firm focused on foil bearing technology. Xdot will be integrated into the BN business, reinforcing its leadership in engineered solutions that support critical missions and the energy transition. By combining Xdot’s foil bearing technology with BN’s turbomachinery expertise, we expect to 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 is expected to be slightly accretive to our fiscal year 2026 GAAP net income. The purchase price for the acquisition, including potential earnout payments, was $1,500.

Current wording

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 will be 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 is expected to be slightly accretive to our fiscal 2026 net income. The purchase price of this transaction was $900, 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.

Previous wording

Note that historically the third quarter of our fiscal year is our lowest revenue quarter due to the holidays and a higher level of vacation being taken by our direct labor force.

Current wording

Net sales for the third quarter of fiscal 2026 were $56,701, up 21% compared with the third quarter of fiscal 2025, reflecting the strength of our diversified revenue base. This increase was across multiple markets including a 31% increase in sales to the Defense industry, 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 $2,094 or 13% over the prior year driven by Aftermarket sales, as well as continued momentum in our New Energy markets and in particular small modular reactors (“SMRs”). Aftermarket sales to the Energy & Process and Defense markets totaled $10,815 for the quarter, 11% above the prior year. Note that historically the third quarter of our fiscal year is our lowest revenue quarter due to the holidays and a higher level of vacation being taken by our direct labor force.

Previous wording

Gross profit for the second quarter of fiscal 2026 was 14,306, up $1,507 or 12% compared with the second quarter of fiscal 2025 primarily due to the increase in net sales discussed above partially offset by a 220 basis point decline in gross profit margin to 21.7%. This decrease in gross profit margin reflects the mix of sales during the second quarter 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 will 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.

Current wording

Gross profit for the third quarter of fiscal 2026 was $13,469, up $1,783 or 15% compared with the third quarter of fiscal 2025, primarily due to the increase in net sales discussed above, partially offset by a 100 basis point decline in gross profit margin to 23.8%. The decrease in gross profit margin reflects the mix of sales during the third quarter of fiscal 2026, and in particular, a high level of material receipts which carry a lower profit margin. For the first nine 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 will be between an incremental $1,000 to $1,500 compared to the prior year. Additionally, the third quarter and the first nine months of fiscal 2025 gross profit benefited $255 and $1,460, respectively, from a grant received 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

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).

Current wording

Selling, general and administrative expenses ("SG&A"), including intangible amortization, for the third quarter of fiscal 2026 increased $868 over the same period of fiscal 2025 and reflects the investments we are making in our operations, our employees, and our technology, higher acquisition and integration costs due to the Xdot and FlackTek acquisitions, as well as higher performance-based compensation due to our increased profitability, which was partially offset by a reversal of bad debt reserves as past due accounts were collected. SG&A costs represented 18.6% of sales for the third quarter of fiscal 2026 compared to 20.6% in 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 to $4,000 per year (the "BN Performance Bonus). Performance-based compensation expense included in SG&A for the BN Performance Bonus, including applicable taxes, was $1,076 in the third quarter of fiscal 2026 and fiscal 2025.

Previous wording

Net income and income per diluted share for the second quarter of fiscal 2026 were $3,090 and $0.28, respectively, compared with net income and income per diluted share of $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.

Current wording

Net income and income per diluted share for the third quarter of fiscal 2026 were $2,845 and $0.25, respectively, compared with net income and income per diluted share of $1,588 and $0.14, respectively, for the third quarter of fiscal 2025. Adjusted net income and adjusted net income per diluted share for the third quarter of fiscal 2026 were $3,514 and $0.31, respectively, compared with adjusted net income and adjusted net income per diluted share of $1,966 and $0.18, respectively, for the third 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

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.

Current wording

Orders booked in the third quarter of fiscal 2026 increased to $71,671 compared with $24,786 in the third quarter of fiscal 2025. As a result, backlog reached a record $515,633 at December 31,2025, compared with $412,335 and $384,701 at March 31, 2025 and December 31, 2024, respectively. Xdot added $509 to backlog, primarily in the Defense and Space markets. The increase in orders was primarily in the Defense and Space markets, which continue to exhibit strong tail-winds. Energy & Process orders were consistent with prior year levels, as strong demand in New Energy offset weaker Aftermarket orders. Total Aftermarket orders for the third quarter of fiscal 2026 decreased $5,151 to $7,963 from the record levels of 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 are larger in size. As of late we are seeing momentum in the small modular nuclear and cryogenics space, however the timing of large capital project orders in our traditional Energy & Process markets has pushed out due to lower gas prices and geopolitical uncertainty. For the third 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 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.

Current wording

Cash and cash equivalents at December 31, 2025 were $22,254, compared with $21,577 at March 31, 2025. Cash provided by operating activities for the first nine months of fiscal 2026 of $16,084 was partially offset by net capital expenditures of $13,328 as we continue to invest in process improvement and longer-term growth opportunities. As of December 31, 2025 we had no debt outstanding. For more information see "Liquidity and Capital Resources" below.

Previous wording

We have updated our end market disclosures to better align with how management evaluates the business and product portfolio. As part of this change, revenue previously classified as Refining, Chemical/Petrochemical, and Other, which included New Energy product sales, will now be consolidated into one market, which has been renamed “Energy & Process.” The Defense and Space end market classifications remain unchanged. Prior period amounts have been updated to reflect this change.

Current wording

We have updated our end market disclosures to better align with how management evaluates our business and product portfolio. As part of this change, revenue previously classified as Refining, Chemical/Petrochemical, and Other, which included New Energy product sales, will now be consolidated into one market, which has been renamed “Energy & Process.” The Defense and Space end market classifications remain unchanged. Prior period amounts have been updated to reflect this change.

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, 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.

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. 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. We believe that we have become a strategic supplier to the Defense industry through our ability to provide quality products and meet our customers accelerated delivery schedules, which in turn may lead to awards for components on new programs, as well as additional content on the programs we already supply.

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.

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. Additionally, as of late we are seeing the timing of large capital project orders in our traditional Energy & Process markets being pushed out due to lower gas prices, tariffs, and geopolitical uncertainty, which has cause them to delay capital investment. 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

We intend to stay competitive in our traditional Energy & Process markets by investing in technology such as our NextGen™ steam ejector nozzle, which has been engineered to reduce steam consumption, lower operating costs, and increase system capacity, allowing refineries and process plants to enhance throughput while minimizing their carbon footprint. We estimate that the total market opportunity for our NextGen™ nozzle exceeds $50,000 over the next 5 to 10 years.

Current wording

We intend to stay competitive in our traditional Energy & Process markets by investing in technology. One example of this is our NextGen™ steam ejector nozzle, which has been engineered to reduce steam consumption, lower operating costs, and increase system capacity, allowing refineries and process plants to enhance throughput while minimizing their carbon footprint. We estimate that the total market opportunity for our NextGen™ nozzle exceeds $50,000 over the next 5 to 10 years.

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 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.

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 over 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 the space market can be uncertain due to high dependency on launch provider commercialization, timing, and success.

Previous wording

Domestic sales as a percentage of aggregate sales were 83% in the second quarter of fiscal 2026, comparable to the 85% in the second quarter of fiscal 2025, reflecting our continued presence in the defense industry, which is U.S. based. Sales for the three months ended September 30, 2025 were 62% to the Defense industry compared to 58% for the comparable quarter in fiscal 2025.

Current wording

Domestic sales as a percentage of aggregate sales were 85% in the third quarter of fiscal 2026, comparable to the 84% in the third quarter of fiscal 2025, consistent with our increased Defense revenue, which is U.S. based. Sales for the three months ended December 31, 2025 were 62% to the defense industry compared to 57% for the comparable quarter in fiscal 2025.

Previous 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.

Current wording

Domestic sales as a percentage of aggregate sales were 84% for the first nine months of fiscal 2026, comparable to the 84% for the same period of fiscal 2025, reflecting our continued presence in the defense industry, which is U.S. based. Sales for the nine months ended December 31, 2025 were 59% to the defense industry compared to 58% for the comparable quarter 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, Backlog and Book-to-Bill Ratio" below.

Previous 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.

Current wording

Gross profit for the third quarter of fiscal 2026 was $13,469, up $1,783 or 15% compared with the third quarter of fiscal 2025, primarily due to the increase in net sales discussed above partially offset by a 100 basis point decline in gross profit margin to 23.8%. Gross profit for the first nine months of fiscal 2026 was $42,496, up $5,643 or 15% compared with the same period of fiscal 2025, primarily due to the increase in net sales discussed above partially offset by a 70 basis point decline in gross profit margin to 23.8%. The decrease in gross profit margin reflects the mix of sales during the fiscal 2026 periods, and in particular, a high level of material receipts which carry a lower profit margin. For the first nine 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 will be between an incremental $1,000 to $1,500 compared to the prior year. Additionally, the third quarter and the first nine months of fiscal 2025 gross profit benefited $255 and $1,460, respectively, from a grant received 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 and six months ending September 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 nine months ending December 31, 2025 versus the comparable prior year period is as follows:

Previous 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.

Current wording

Selling, general and administrative expenses ("SG&A"), including intangible amortization, for the third quarter of fiscal 2026 increased $868 over the same period of fiscal 2025 and reflects the investments we are making in our operations, our employees, and our technology, higher acquisition and integration costs due to the Xdot and FlackTek acquisitions, as well as higher performance-based compensation due to our increased profitability, which was partially offset by a reversal of bad debt reserves as past due accounts were collected. SG&A costs represented 18.6% of sales for the third quarter of fiscal 2026 compared to 20.6% in 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 to $4,000 per year. Performance-based compensation expense included in SG&A for the BN Performance Bonus, including applicable taxes, was $1,076 in the third quarter of fiscal 2026 and fiscal 2025. During the first nine months of fiscal 2026 and fiscal 2025 we recorded $3,228 related to the BN Performance Bonus inclusive of applicable taxes.

Previous wording

Other operating income represents the change in fair value of the P3 contingent earn-out liability and was $191 and $267 for the three and six month periods ended September 30, 2025, respectively, versus $596 and $726 for the comparable prior year periods of fiscal 2025. The change in fair value was due to delayed orders/projects that extended beyond the earnout period.

Current wording

Other operating income represents the change in fair value of the P3 Technologies, LLC ("P3") and Xdot contingent earn-out liabilities and was $219 and $486 for the three and nine month periods ended December 31, 2025, respectively, versus $220 and $946 for the comparable prior year periods of fiscal 2025. The change in fair value for P3 was due to delayed orders/projects that extended beyond the earnout period.

Previous wording

Net interest income for the second quarter and first six months of fiscal 2026 was $68 and $245, respectively, compared to net interest income of $153 and $314 for the comparable periods of fiscal 2025, respectively. This decrease in net interest income was primarily due to lower cash balances and interest rates in comparison to the prior year.

Current wording

Net interest income for the third quarter and first nine months of fiscal 2026 was $169 and $414, respectively, compared to $128 and $442 for the comparable periods of fiscal 2025, respectively. This net interest income reflects our strong cash position and low debt levels.

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. 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.

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 expect our effective tax rate to be between 16% and 18%, as the impact of higher than expected discrete tax items in fiscal 2026 offset the impact of the OBBB on our full year effective tax rate.

Previous 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.

Current wording

Our effective tax rate for the third quarter of fiscal 2026 was 11%, compared with 29% in the third quarter of fiscal 2025. Our effective tax rate for the first nine months of fiscal 2025 was 15%, compared with 20% for the first nine 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. The decrease in our effective tax rate for the third quarter of fiscal 2026 was primarily due to higher than expected research and development tax credits. The decrease in our effective tax rate for the nine 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 and the higher than expected research and development tax credits recognized in the third quarter of fiscal 2026, partially offset by the impact of the enactment of the OBBB discussed above.

Previous 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.

Current wording

The net result of the above is that net income and income per diluted share for the third quarter of fiscal 2026 were $2,845 and $0.25, respectively, compared with $1,588 and $0.14, respectively, for the third quarter of fiscal 2025. Adjusted net income and adjusted net income per diluted share for the third quarter of fiscal 2025 were $3,514 and $0.31, respectively, compared with adjusted net income and adjusted net income per diluted share of $1,966 and $0.18, respectively, for the third 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 accounting principles generally accepted in the U.S. ("GAAP").

Current wording

Adjusted net income before net 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

Adjusted EBITDA excludes charges for depreciation, amortization, interest (income) expense, income taxes, acquisition related (income) expenses, equity-based compensation, ERP implementation costs, and other unusual/nonrecurring items. Adjusted net income and adjusted net income per diluted share exclude intangible amortization, acquisition related (income) expenses, ERP implementation costs, other unusual/nonrecurring items, and the related tax impacts of those adjustments.

Current wording

Adjusted EBITDA excludes charges for depreciation, amortization, net interest (income) expense, income taxes, acquisition related (income) expenses, equity-based compensation, ERP implementation costs, and other unusual/nonrecurring items. Adjusted net income and adjusted net income per diluted share exclude intangible amortization, acquisition related (income) expenses, ERP implementation costs, other unusual/nonrecurring items, and the related tax impacts of those adjustments.

Previous 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.

Current wording

Acquisition and integration (income) costs, net are incremental costs that are directly related to and as a result of the P3, Xdot, and FlackTek 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

Net cash provided by operating activities for the first six months of fiscal 2026 was $11,326 compared with $22,649 for the first six months of fiscal 2025. This decrease was a result of an increase in working capital, primarily due to the timing of collection of accounts receivable, partially offset by higher cash net income.

Current wording

Net cash provided by operating activities for the first nine months of fiscal 2026 was $16,084 compared with $27,873 for the first nine months of fiscal 2025. This decrease was a result of an increase in working capital, primarily due to the timing of collection of accounts receivable and customer deposits, partially offset by higher cash net income.

Previous 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:

Current wording

Net capital expenditures for the first nine months of fiscal 2026 were $13,328 compared to $13,800 for the comparable period in fiscal 2025. Capital expenditures for fiscal 2026 primarily 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

Construction of a cryogenic propellant (LH2, LOX, LCH4) testing facility near P3 in Florida to support our customers and enhance our capabilities. Construction is expected to be completed in the third quarter of fiscal 2026.

Current wording

Construction of a cryogenic propellant (LH2, LOX, LCH4) testing facility near P3 in Florida to support our customers and enhance our capabilities. Construction was completed in February 2026.

Previous 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.

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 fourth quarter of fiscal 2026.

Previous 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.

Current wording

Cash and cash equivalents were $22,254 at December 31, 2025 compared with $21,577 at March 31, 2025, up $677 primarily due to cash provided by operations, offset by capital expenditures. At December 31, 2025, $1,714 of our cash and cash equivalents was used to secure our letters of credit and $4,082 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 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.

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 December 31, 2025, there were no borrowings and $6,971 letters of credit outstanding on the Revolving Credit Facility and the amount available to borrow was $43,029, 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 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.

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 December 31, 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 0.4x.

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 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.

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 first nine months of fiscal 2026 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

We believe that cash generated from operations combined with the liquidity provided by available financing capacity under the Revolving Credit Facility, will be adequate to meet our cash needs for the immediate future.

Current wording

We believe that cash generated from operations combined with the liquidity provided by our Revolving Credit Facility will be adequate to meet our cash needs for the immediate future.

Previous 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.

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 net 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 following table provides our orders by market and geographic region including the percentage of total orders and change in comparison to the prior year for each category and period presented. Percentages may not sum to the total due to rounding:

Current wording

The following tables provide our orders by market and geographic region including the percentage of total orders and change in comparison to the prior year for each category and period presented. Percentages may not sum to the total due to rounding:

Previous 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.

Current wording

Orders booked in the third quarter of fiscal 2026 were $71,671 or 1.3x net sales for the quarter. Orders booked for the first nine months of fiscal 2026 were $280,769 or 1.6x net sales for the period. As a result, backlog increased $15,561 (3%) during the quarter and $103,298 (25%) for the first nine months of fiscal 2026 to $515,633 at December 31, 2025. Backlog acquired from Xdot totaled $509 during the quarter. The increase in orders during the quarter were in the Defense and Space markets, which continue to exhibit strong tail-winds. Energy & Process orders were consistent with prior year levels, as strong demand in New Energy offset weaker Aftermarket orders. Total Aftermarket orders for the third quarter of fiscal 2026 decreased $5,151 to $7,963 from the record levels of the prior year. In addition to the above, orders for the first nine months of fiscal 2026 included $86,500 of follow-on orders to support the U.S. Navy's Virginia Class Submarine program recorded in the first quarter, and a $25,500 follow-on order to provide mission-critical hardware for the MK48 Mod 7 Heavyweight Torpedo recorded in the second quarter of fiscal 2026. Aftermarket orders for the Energy & Process and Defense markets for the first nine months of fiscal 2026 decreased 23% in comparison to the prior year record levels.

Previous 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.

Current wording

Orders to the U.S. represented 97% of total orders for the first nine months of fiscal 2025 compared to 76% for the prior year. These orders were primarily to the Defense market, which are U.S. based.

Previous 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).

Current wording

Backlog was $515,633 at December 31, 2025, a 34% 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).