GRAHAM CORP

Previous 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.

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, Space, Energy & Process 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 Space industry, our equipment is used in propulsion, power, thermal management, advanced mixing, and for life support 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, 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.

Previous wording

Our corporate headquarters is co-located with our production facilities in Batavia, NY, and we have wholly-owned subsidiaries in Arvada, CO, Jupiter, FL, Louisville, CO, and Greenville, SC and have sales and engineering offices in Houston, TX, Suzhou, China and Ahmedabad and Pune, India.

Current wording

Our corporate headquarters is co-located with our production facilities in Batavia, NY, and we have wholly-owned subsidiaries in Arvada, CO, Greenville, SC, Jupiter, FL, and Louisville, CO and have sales and engineering offices in Houston, TX, Suzhou, China, and Ahmedabad and Pune, India.

Previous wording

On January 23, 2026, we acquired FlackTek Manufacturing, LLC and FlackTek Sales, LLC (collectively, “FlackTek”), a provider of advanced mixing and material processing solutions. FlackTek’s patented technology platform delivers highly repeatable, precision mixing with significantly faster cycle times, minimal entrained air, reduced downtime between batches, consistency in production, and reduced heat transfer compared to traditional bladed methods. FlackTek’s systems are used by a global customer base that includes leading OEMs, research and development centers, defense laboratories, and industrial manufacturers serving adhesives, sealants, functional coatings, composites, electronics, and other advanced materials markets. FlackTek adds a proven product portfolio with a shared customer base and an installed footprint that extends across the full value chain, from upstream to downstream production and quality control. Its mixing systems are process-critical and market-agnostic, serving defense, energetics, oil & gas, food, battery, aerospace and space, medical, and other industrial applications where precision, repeatability, and consistency drive value. With approximately $30,000 in annualized revenue, FlackTek has built a growing installed base that generates recurring demand for consumables, accessories, and services, enhancing revenue visibility and durability.

Current wording

On January 23, 2026, we acquired FlackTek Manufacturing, LLC and FlackTek Sales, LLC (collectively, "FlackTek"), a provider of advanced mixing and material processing solutions. FlackTek's patented technology platform delivers highly repeatable, precision mixing with faster cycle times, minimal entrained air, reduced downtime between batches, consistency in production, and ultimately can achieve higher levels of product homogeneity when compared to traditional bladed methods. FlackTek's systems are used by a global customer base that includes leading original equipment manufacturers ("OEMs"), research and development centers, defense laboratories, and industrial manufacturers serving adhesives, sealants, functional coatings, composites, electronics, and other advanced materials markets. FlackTek adds a proven product portfolio with a shared customer base and an installed footprint that extends across the full value chain. Its mixing systems are process-critical and market-agnostic, serving defense, energetics, oil & gas, food, battery, aerospace and space, medical, and other industrial applications where precision, repeatability, and consistency drive value. With approximately $30,000 in annualized revenue, FlackTek has built a growing installed base that generates recurring demand for consumables, accessories, and services, enhancing revenue visibility and durability.

Previous wording

FlackTek will operate as a wholly owned subsidiary of Graham Corporation, maintaining its headquarters in Louisville, CO with a satellite location in Greenville, SC, and will be integrated into Graham’s financial, compliance, and operational infrastructure. Under the terms of the transaction, the Company acquired 100% of the equity of FlackTek for a purchase price of $35,000, which was paid 85% in cash and 15% using 76 shares of Graham’s common stock, along with the potential to earn an additional $25,000 in future performance-based cash earnouts over four years beginning with fiscal 2027, based upon achieving progressively increasing adjusted EBITDA performance targets each year.

Current wording

FlackTek operates as a wholly owned subsidiary of Graham Corporation, maintaining its headquarters in Louisville, CO with a satellite location in Greenville, SC, and will be integrated into our financial, compliance, and operational infrastructure. Under the terms of the transaction, we acquired 100% of the equity of FlackTek for a purchase price of $36,205, which was comprised of cash consideration of $24,889 and 76 shares of our common stock, representing a value of $5,678 at a price of $74.89 per share. The purchase agreement includes the potential to earn an additional $25,000 in future performance-based cash earnouts over four years beginning with fiscal 2027, based upon achieving progressively increasing adjusted EBITDA performance targets each year. At the acquisition date, a liability of $5,638 was recorded for the contingent earn-out.

Previous 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.

Current wording

Gross profit and gross profit margin for the first quarter of fiscal 2027 were $17,801 and 25.0%, respectively. The 150 basis point decline in gross profit margin compared to the first quarter of fiscal 2026 reflects the mix of sales in the first quarter of fiscal 2027, and in particular, a higher level of Defense sales and material receipts, which carry a lower profit margin.

Previous 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.

Current wording

Selling, general and administrative expenses ("SG&A"), including intangible amortization, for the first quarter of fiscal 2027 increased $3,228, or 33%, over the prior year first quarter. Acquisition and integration expenses contributed $602 of the increase compared to the prior year first quarter. Additionally, incremental SG&A from the acquisition of FlackTek accounted for $1,820 of the increase. The remaining increases primarily reflect investments we are making in our people, our processes, and our technology, which we expect to be approximately $2,500 of incremental costs for fiscal 2027, partially offset by a reduction in costs related to the BN Performance Bonus (defined below). 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 could range between $2,000 to $4,000 per year (the "BN Performance Bonus"). The BN Performance Bonus is no longer in effect in fiscal 2027. During the first quarter of fiscal 2026, we recorded $1,076 related to the BN Performance Bonus inclusive of applicable payroll taxes and no expense was recorded in the first quarter of fiscal 2027.

Previous wording

This Form 10-Q and other documents we file with the Securities and Exchange Commission ("SEC") include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements for purposes of this Form 10-Q. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results implied by the forward-looking statements. Forward-looking statements are indicated by words such as "anticipate," "believe," "continue," "could," "estimate," "can," "may," "intend," "expect," "plan," "goal," "predict," "project," "outlook," "potential," "will," and similar words and expressions.

Current wording

This Form 10-Q and other documents we file with the Securities and Exchange Commission ("SEC") include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements for purposes of this Form 10-Q. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results implied by the forward-looking statements. Forward-looking statements are indicated by words such as "anticipate," "believe," "continue," "could," "estimate," "can," "may," "intend," "expect," "plan," "goal," "predict," "project," "outlook," "potential," "will," "future," and similar words and expressions.

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. 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.

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, radar, laser, electronics, and power systems, as well as advanced mixing systems for energetics. 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

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.

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, as well as advanced mixing systems to many of the industry leading launch providers and 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 and advanced mixing systems 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 due to high dependency on launch provider commercialization, timing, and success.

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. 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.

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 lead to demand growth for fossil-based fuels that is less than the global growth rate. Accordingly, as of late we are seeing the timing of large capital project orders in our traditional Energy & Process markets being pushed out due to volatility in gas prices, tariffs, and geopolitical uncertainty, which has caused customers 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 and we expect that trend to continue for the foreseeable future.

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, 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.

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, 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

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 December 31, 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 84% of our total backlog at June 30, 2026.

Previous 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.

Current 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.

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 Financial Statements and the notes to our Unaudited 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 Condensed Consolidated Financial Statements and the notes to our Condensed Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q.

Previous wording

The following tables provide our net sales by product line and geographic region including the percentage of total 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 net sales by market and geographic region including the percentage of total 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

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.

Current wording

Domestic sales as a percentage of net sales increased to 90% in the first quarter of fiscal 2027 compared with 83% in the first quarter of fiscal 2026. These sales were primarily to the U.S. Defense market, which represented 58% of net sales for the first quarter of fiscal 2027 compared to 53% in the prior year period. 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

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:

Current wording

Changes in SG&A expense, including amortization expense, for the first quarter of fiscal 2027 versus the comparable prior year period are as follows:

Previous 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.

Current wording

The net result of the above is that net income and income per diluted share for the first quarter of fiscal 2027 were $3,912 and $0.33 per share, respectively, compared to $4,595 and $0.42 per share, respectively, for the first quarter of fiscal 2026. Adjusted net income and adjusted net income per diluted share for the first quarter of fiscal 2027 were $5,738 and $0.49 per share, respectively, compared with adjusted net income and adjusted net income per diluted share of $4,938 and $0.45 per share, respectively, for the first quarter of fiscal 2026, an increase of 16% and 9%, respectively. See "Non-GAAP Measures" below for a reconciliation of adjusted net income and adjusted net income per diluted share to the comparable GAAP (defined below) amount.

Previous 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").

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 the U.S.'s generally accepted accounting principles ("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 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.

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 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.

Previous 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.

Current wording

Adjusted EBITDA excludes charges for depreciation, amortization, interest (income) expense, income taxes, acquisition & integration related expenses (income), 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 & integration related expenses (income), 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, 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.

Current wording

Acquisition & integration expense (income), net are incremental costs that are directly related to, and as a result of, acquisition related activity and the subsequent accounting for the contingent earn-out liabilities. These costs (income) may include, among other things, professional, consulting, travel expenses, 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 at 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 Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Statements of Cash Flows:

Current wording

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

Previous 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:

Current wording

Capital expenditures for the first quarter of fiscal 2027 were $2,609 compared to $7,004 for the comparable period in fiscal 2026 due to timing of major capital expenditure projects. Capital expenditures for the first quarter of fiscal 2027 relate to machinery and equipment, buildings, and leasehold improvements to support our growth and productivity improvement initiatives.

Previous wording

Capital expenditures for fiscal 2026 are expected to be between $15,000 and $18,000 of which approximately two-thirds is related to the completion of the initiatives discussed above. The remaining capital expenditures for fiscal 2026 are discretionary. We estimate that our maintenance capital spend is approximately $2,000 per year. However, for the next several years we expect capital expenditures to be approximately 7% to 10% of sales each year as we continue to invest in our business in order to support our long-term organic growth goals.

Current wording

Capital expenditures for fiscal 2027 are expected to be between $18,000 and $22,000 and relate to continued investing in automation, advanced manufacturing capacity and capabilities, our technology, and strategic growth initiatives intended to support long-term scalable growth and margin expansion, and are expected to generate returns on invested capital above 20%. We estimate that our maintenance capital spend is approximately $2,500 per year. For the next several years we expect capital expenditures to be approximately 7% to 10% of sales each year as we continue to invest in our business in order to support our long-term organic growth goals.

Previous 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.

Current wording

Cash and cash equivalents were $26,953 at June 30, 2026 compared with $6,580 at March 31, 2026, up $20,373 primarily due to cash provided by financing activities, partially offset by cash used by operations as discussed above. At June 30, 2026, approximately $394 of our cash and cash equivalents is used to secure our letters of credit and $5,862 of our cash is held by our China and India 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 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.

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"). Simultaneous with the close of the FlackTek acquisition on January 23, 2026, we amended our Revolving Credit Facility to increase the limit to $80,000. As of June 30, 2026, there were no borrowings and $5,520 letters of credit outstanding on the Revolving Credit Facility and the amount available to borrow was $74,480, 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 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.

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 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, 2026, 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 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.

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 three months ended June 30, 2026 or during fiscal 2026 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.

Previous 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.

Current 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.

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 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.

Current 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.

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. 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.

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 1.5x.

Previous 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:

Current 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:

Previous 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.

Current wording

Orders to the U.S. represented 96% of total orders for the first quarter of fiscal 2027 compared to 97% in the first quarter of fiscal 2026. These orders were primarily to the defense market which represented 65% of orders for the first quarter of fiscal 2027 and are U.S. based.

Previous 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).

Current wording

Backlog was $557,217 at June 30, 2026, a 15% increase over the prior year period. We expect to recognize revenue on approximately 35% to 40% of the backlog within one year, 20% to 25% 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

See "Cautionary Note Regarding Forward-Looking Statement" and "Non-GAAP Measures" above for additional information about forward-looking statements and non-GAAP measures. We have not reconciled non-GAAP forward-looking adjusted EBITDA to its most directly comparable GAAP measure, as permitted by Item 10(e)(1)(i)(B) of Regulation S-K. Such reconciliation would require unreasonable efforts to estimate and quantify various necessary GAAP components largely because forecasting or predicting our future operating results is subject to many factors out of our control or not readily predictable.

Current wording

See "Cautionary Note Regarding Forward-Looking Statements" and "Non-GAAP Measures" above for additional information about forward-looking statements and non-GAAP measures. We have not reconciled non-GAAP forward-looking adjusted EBITDA to its most directly comparable GAAP measure, as permitted by Item 10(e)(1)(i)(B) of Regulation S-K. Such reconciliation would require unreasonable efforts to estimate and quantify various necessary GAAP components largely because forecasting or predicting our future operating results is subject to many factors out of our control or not readily predictable.

Previous wording

We have made significant progress with the advancements in our business, which puts us on track to achieve our fiscal 2027 goals of 8% to 10% average annualized organic revenue growth and adjusted EBITDA margins in the low to mid-teens.

Current wording

We have made significant progress with the advancements in our business, which we believe puts us on schedule in achieving our fiscal 2029 goals of 8% to 10% average annualized organic revenue growth and adjusted EBITDA margins of 14% to 16%.

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 significant global health related disruptions, and assumes no further 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 impact from any other unforeseen events.

Previous wording

We have been named as a defendant in lawsuits alleging personal injury from exposure to asbestos allegedly contained in or accompanying our products or from exposure to asbestos at the Company's facilities. We are a co-defendant with numerous other defendants in these lawsuits and intend to vigorously defend ourselves against these claims. The claims in our current lawsuits are similar to those made in previous asbestos lawsuits that named us as a defendant. Such previous lawsuits either were dismissed when it was shown that we had not supplied products to the plaintiffs’ places of work, or were settled by us for immaterial amounts. We believe that the resolution of these asbestos-related lawsuits will not have a material adverse effect on our financial position or results of operations. However, legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of these asbestos-related lawsuits could have a material adverse impact on our financial position and results of operations.

Current wording

We have been named as a defendant in lawsuits alleging personal injury from exposure to asbestos allegedly contained in or accompanying our products. We are a co-defendant with numerous other defendants in these lawsuits and intend to vigorously defend ourselves against these claims. The claims in our current lawsuits are similar to those made in previous asbestos lawsuits that named us as a defendant. Such previous lawsuits either were dismissed when it was shown that we had not supplied products to the plaintiffs’ places of work, or were settled by us for immaterial amounts. We believe that the resolution of these asbestos-related lawsuits will not have a material adverse effect on our financial position or results of operations. However, legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of these asbestos-related lawsuits could have a material adverse impact on our financial position and results of operations.