GHM 10-K & 10-Q changes, risk factors and insider trading

While we may have only two customers that each represent over 10% of revenue in any onesingle year, a small number of customers have accounted for a substantial portion of our historical net sales. For example, sales to our top ten customers, who can vary each year, accounted for 60%, 57%60%, and 46%57% of consolidated net sales in fiscal 2025,2026, fiscal 2024,2025, and fiscal 2023,2024, respectively. We expect that a limited number of customers will continue to represent a substantial portion of our sales for the foreseeable future. The loss of any of our major customers, a decrease or delay in orders or anticipated spending by such customers, or a delay in the production of existing orders could materially adversely affect our revenues and results of operations.

Our business strategy calls for us to continue to pursue Defense-related projects as well as projects for end users in the alternative energy markets in the U.S. In recent years, the U.S. federal government has incurred large budget deficits. Additionally, the Department of Government Efficiency ("DOGE") has beguntaken taking stepsactions to reduce government spending which may include reduction in funding for government contractors. In the event that U.S. federal government Defense spending is reduced or alternative energy related incentives are reduced or eliminated in an effort to reduce federal budget deficits, projects related to Defense or alternative energy may decrease demand for our products. The impact of such reductions could have a material adverse effect on our business and results of operations, as well as our growth opportunities.

U.S. government contracts are subject to extensive regulations such as the Federal Acquisition Regulation ("FAR"), the Truth in Negotiations Act, the Cost Accounting Standards ("CAS"), the Service Contract Act and Department of War (also known as Department of Defense) security regulations. Failure to comply with any of these regulations and other government requirements may result in contract price adjustments, financial penalties or contract termination. Our U.S. government contracts are also subject to audits, cost reviews and investigations by U.S. government oversight agencies such as the U.S. Defense Contract Audit Agency (the "DCAA"). The DCAA reviews the adequacy of, and our compliance with, our internal controls and policies (including our labor, billing, accounting, purchasing, estimating, compensation and management information systems). The DCAA also has the ability to review how we have accounted for costs under the FAR and CAS. The DCAA presents its findings to the Defense Contract Management Agency ("DCMA"). Should the DCMA determine that we have not complied with the terms of our contract and applicable statutes and regulations, or if they believe that we have engaged in inappropriate accounting or other activities, payments to us may be disallowed or we could be required to refund previously collected payments. Additionally, we may be subject to criminal and civil penalties, suspension or debarment from future government contracts, and qui tam litigation brought by private individuals on behalf of the U.S. government under the False Claims Act, which could include claims for treble damages. These suits may remain under seal (and hence, be unknown to us) for some time while the government decides whether to intervene on behalf of the qui tam plaintiff. Our failure to comply with regulations applicable to government contracts could have a material adverse impact on our financial condition and operating results.

If we do not obtain all necessary import and export licenses required by applicable export and import regulations, including ITAR and EAR, or do business with sanctioned countries or individuals, we may be subject to fines, penalties and other regulatory action by governmental authorities, including, among other things, having our export or import privileges suspended. We recently self-reported to the Directorate of Defense Trade Controls ("DDTC") our potential unauthorized export of technical data in violation of ITAR, but do not believe these potential violations will be material to our business or operations and have taken steps to expand and strengthen our compliance program and internal controls. We have compliance policies and procedures in place to ensure compliance with ITAR and EAR, but even if our policies and procedures for exports, imports and sanction regulations comply, but our employees fail or neglect to follow them in all respects, we might incur similar liability.

Our Energy & Process revenue is derived from the sale of our products to companies in the chemical, petrochemical, and petroleum refining industries, or to firms that design and construct facilities for these industries. These industries are highly cyclical, and are subject to the prices of crude oil and natural gas. The prices of crude oil and natural gas have historically had periods when they have been very volatile, as evidenced by the extreme volatility in oil prices over the past few years, in part due to the Ukraine-Russia war, the Israel-Hamas war, the U.S. military’s intervention in Venezuela, the conflicts among the U.S., Israel and Iran, political uncertainty and agendas, and macroeconomic impacts. During times of significant volatility in the market for crude oil or natural gas, our customers often refrain from placing orders until the market stabilizes and future demand projections are clearer. If our customers refrain from placing orders with us, our revenue would decline and there could be a material adverse effect on our business and results of operations. Further, our commercial customers in these markets confront competing budget priorities and may have more limited resources for the types of products and services we provide. As a result, there may be fewer projects available for us to compete for and the pricing environment is anticipated to remain challenging. A sustained deterioration in any of the chemical, petrochemical, and petroleum refining industries we serve, would materially and adversely affect our business and operating results because our customers would not likely have the resources necessary to purchase our products, nor would they likely have the need to build additional facilities or improve existing facilities.

Global and regional energy supply comes from many sources, including oil, natural gas, coal, hydro, nuclear, solar, wind, geothermal and biomass, among others. A cost or supply shift among these sources could negatively impact our business opportunities. A demand shift, where technological advances or consumer preferences favor the utilization of one or a few sources of energy may also impact the demand for our products.products both positively and negatively. Changes in consumer demand, including some driven by governmental and political preferences, toward electric, compressed natural gas, nuclear, and hydrogen vehicles may impact our business. We have products which can support certain technologies, while other technologies will not require our equipment. 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, which may affect our business and financial results in a materially adverse way. In addition, governmental policy can affect the relative importance of various forms of energy sources. For example, non-fossil based sources may receive government tax incentives to foster investment. If these incentives become more prominent, our Energy business could be negatively impacted.

ManySome of our large international customers are nationalized or state-owned businesses. Any failure to comply with the FCPA could adversely impact our competitive position and subject us to penalties and other adverse consequences, which could harm our business and results of operations.

For fiscal 2025,2026, 19%15% of our revenue was from customers located outside of the U.S. Moreover, through our subsidiaries, we maintain a sales and engineering support officeoffices in China and a sales and engineering support office in India. We also service our foreign customers through the use of subcontract vendors that are located in those countries. We intend to continue to expand our international operations to the extent that suitable opportunities become available. Our foreign operations and sales could be adversely affected as a result of:

the global economic impact as a result of global health concerns;

Adverse economic or specific project conditions can lead to a project being placed on hold or cancelled by our customers. We had noone material projectsproject cancelled in fiscal 20252026, no material contracts cancelled in fiscal 2025, and one material contractproject cancelled in fiscal 2024 and one in fiscal 2023.2024. We had twoone material contractscontract on hold at March 31, 2025.2026.

Our growth is contingent upon expanding our manufacturing facilities in Arvada, COCO, Batavia, NY and Batavia,Louisville, NY.CO. If we are unable to expand our manufacturing facilities in ArvadaArvada, Batavia or BataviaLouisville our results of operations and financial condition may be adversely affected and/or we may not be able to meet our growth goals and objectives.

As a manufacturer, our ability to grow revenue is constrained by our ability to expand our manufacturing facilities. Our BN campus is landlocked and there are limited opportunities to expand our manufacturing footprint in Arvada, CO. Additionally, our Louisville, CO campus is landlocked and there are limited opportunities to expand our manufacturing footprint in Louisville, CO. If we are unable to expand in Arvada or Louisville our growth may be limited, we may be required to relocate our campuscampuses or we may have to incur substantial capital expenditures to redevelopmove our Arvadacampuses. campus.We Tocurrently helphave mitigate this risk, in fiscal 2025 we purchased a piece of land adjacentplans to theexpand BN campus inour Arvada, CO, which may be utilized for future expansion if we out grow our current facilities. Further, we are currently expanding our Batavia, NYCO campus by constructing a new 30,000 square foot manufacturing facility funded primarily from a strategic investment from one of our Defense customers.facility. If we are unable to timely complete the new manufacturing facility we may not be able to meet our planned production schedule for U.S. Navy projects, which could delay the completion of projects in our backlog or reduce the number of U.S. Navy projects we receive in the future, and could cause us to incur significant cost overruns. Any of these risks associated with our ability to grow our manufacturing facilities could adversely affect our results of operations and financial condition.

Historically, we have not maintained inventories of materials beyond what is needed for current work in progress. The raw materials that we source come from a wide variety of domestic and international suppliers. Global sourcing of many of the products we sell is an important factor in our financial results. Reliance on our suppliers for these products exposes us to volatility in the prices and availability of these materials. Specifically, the continuation of the war between Ukraine and Russia as well as the conflict related to Hamas/Israel and the situation in the Red Sea, including tensions with Iran, fuels uncertainty and risk to our supply chain through which we source many of the raw materials needed in our operations. Disruptions in our supply chain, especially for an extended period of time, could impact our ability to meet customer requirements and our financial performance could be materially and adversely impacted.

(Amounts in thousands, except per share and square footage data)

We are a global leader in the design and manufacture of mission critical fluid, power, heat transfertransfer, vacuum, and vacuumadvanced mixing 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, thermal management, and thermaladvanced managementmixing systems. For the Energy & Process industriesindustries, 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 solarsolar, lithium extraction, and geothermal processes. For the Space industryindustry, our equipment is used in propulsion, power andpower, thermal managementmanagement, systems,advanced mixing, and for life support systems.

AcquisitionAcquisitions

Gross profit and margin for fiscal 20252026 were $52,861$57,750 and 25.2%,23.5%, respectively. ThisThe 330170 basis point improvementdecline in gross profit margin overcompared to fiscal 20242025 reflected increased leverage on fixed overhead costs due toreflects the higher volumemix of sales discussedin above,fiscal as well as better execution,2026, and improvedin pricing,particular, partially offset bya higher incentivelevel compensation.of Defense sales and material receipts, which carry a lower profit margin. The impact of increased tariffs for fiscal 2026 was approximately an incremental $1,000 compared to fiscal 2025. Additionally, fiscal 2025 gross profit benefited $1,298 due to a grant received from the BlueForge Alliance to reimburse us for the cost of our Defense welder training programs in Batavia and related equipment.equipment, Wewhich currently dodid not expect to receive any additional welder training grantsrepeat in fiscal 2026. The BlueForge Alliance is a nonprofit, neutral integrator that supports the United States ("U.S.") Navy's Submarine Industrial Base Initiatives.

Selling, general and administrative expenses ("SG&A"), including intangible amortization, for fiscal 20252026 increased $5,305$4,466 over fiscal 20242025 and reflects the investments we are making in our people, our processes, and our technology. Incremental SG&A from the acquisition of P3 accounted for $776 of this increase. Additionally, SG&A increased $3,987$2,608 over the prior year due to increased staffing and performance-based compensation in connection with our growth and strategic initiatives,initiatives. Acquisition and $220integration expenses contributed $1,827 to the increase compared to the prior year primarily due to increasedthe investmentacquisitions of Xdot and FlackTek in researchthe andcurrent development.year. TheAdditionally, increase inincremental SG&A isfrom alsothe dueacquisition toof FlackTek accounted for $1,081 of this increase. Decreases in ERP implementation costs related to the implementation of a new enterprise resource planning ("ERP") system at our Batavia facility of $642,$669 and increased bad debt reserves related to non-U.S. and Space customersexpense of $299 over the prior year. These increases were$994 partially offset bythese lower professional fees of $336 and lower acquisition related expenses of $306.increases. In connection with the acquisition of BN, we entered into a Performance Bonus Agreement to provide employees of BN with a supplemental bonus based on the achievement of BN performance objectives for fiscal 2024, 2025, and 2026, which can range between $2,000 to $4,000 per year (the "BN Performance Bonus"). During fiscal 20252026 and fiscal 2024,2025, we recorded $4,258 related to the BN Performance Bonus, which includes the applicable employer related payroll taxes.

Cash and cash equivalents at March 31, 20252026 was $21,577,$6,580, compared with $16,939$21,577 at March 31, 2024.2025, a decrease of $14,997. This increasedecrease was primarily due to cash provided by operating activities of $24,316,$15,933 partiallyand cash provided by financing activities of $11,956, which were more than offset by capital expenditures of $18,957$16,054 and cash used to acquire Xdot and FlackTek, net of cash acquired, of $27,285. Capital expenditures were made as we continue to invest in process improvement and longer-term growth opportunities. Capital expenditures for fiscal 20252026 included costs for the construction of a new 30,000 square foot manufacturing facility onto enhance and expand Defense production capabilities at our Batavia, NY campus, and the purchase of production and automated welding equipment to be used in that facility, and was primarily funded by one of our larger Defense customers. Additionally, during fiscal 2025 we purchased a plot of land adjacent to our BN campus in Arvada, CO, in order to support organic growth, and began construction of a cryogenic (liquid hydrogen, oxygen, and methane)propellant testing facility near P3 in FL, expansion of our P3Radiographic subsidiaryTesting ("RT") facility to enhance and accelerate Defense production at our Batavia, NY facility, and investments in production capacity and capabilities andat allowour usArvada, CO facility, supporting infrastructure to provideincrease qualitythroughput assuranceand testingmeet foraccelerating ourDefense customers.and Space customer schedules.

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,systems andthat thewe provide solutions we provide. We also don't believe that changes made by the new U.S. presidential administration will materially impact our Defense business.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 War (also known as Department of Defense) radar, laser, electronics, and power systems. We have built a leading position, and in somemost instances a sole source position, for certain systems and equipment for the Defense industry.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.

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 fewseveral years we have experienced an increase in our Energy & Process aftermarketAftermarket orders primarily from the domestic market as our customers continue to maintain and invest in the facilities they currently operate.operate Althoughand thesewe ordersexpect remainedthat strongtrend into fiscalcontinue 2025,for the recentforeseeable decrease in oil prices combined with the economic uncertainty caused by the increase in tariffs may impact future order volumes.future.

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 nuclearreactors systems,("SMRs"), bioenergybio-energy products, and geothermal power generationgeneration. withAs lithiuma extraction.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 positioning the Companypositioned to be a more significant contributor as these markets continue to develop.

We intend to stay competitive in our traditional Energy & Process markets by investing in technologytechnology. suchOne asexample 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 million$50,000 over the next 5 to 10 years.

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 inover 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 due to high dependency on launch provider commercialization, timing, and may negatively impact our business.success.

The following tables providesprovide our net sales by product linemarket and geographic region including the percentage of total sales and change in comparison to the prior year for each category and period presented:

Domestic sales as a percentage of aggregate sales were 81%85% for fiscal 20252026 compared to 84%81% in fiscal 2024.2025. Sales to the Defense industry were 60% for fiscal 2026 compared to 58% for fiscal 2025 compared to 54% for fiscal 2024.2025. Fluctuation in sales among markets, products and geographic locations varies, sometimes significantly, from year to year based on timing and magnitude of projects. See also "Current Market Conditions," above. For additional information on anticipated future sales and our markets, see "OrdersOrders, Backlog and BacklogBook-to-Bill Ratio" below.

The increase in SG&A, including intangible amortization, for fiscal 2026 increased $4,466 over fiscal 2025 and reflects the investments we are making in our people, our processes, and our technology. Incremental SG&A from the acquisition of P3 accounted for $776 of this increase. Additionally, SG&A increased $2,608 over the prior year due to increased staffing and performance-based compensation in connection with our growth and strategic initiatives,initiatives. Acquisition and integration expenses contributed $1,827 to the increase compared to the prior year primarily due to increasedthe investmentacquisitions of Xdot and FlackTek in researchthe andcurrent development.year. TheAdditionally, increase inincremental SG&A isfrom alsothe dueacquisition toof FlackTek accounted for $1,081 of this increase. Decreases in ERP implementation costs related to the implementation of a new ERP system at our Batavia facility,$669 and increased bad debt reservesexpense relatedof to non-U.S. and Space customers over the prior year. These increases were$994 partially offset bythese lower professional fees and lower P3 acquisition related expenses.increases. In connection with the acquisition of BN, we entered into a Performance Bonus Agreement to provide employees of BN with a supplemental performance-based bonus based on the achievement of BN performance objectives for fiscal 2024, 2025, and 2026, which can range between $2,000 to $4,000 per yearyear. plus any applicable employer related taxes. This bonus is in addition to the normal employee bonus program at BN and will expire afterDuring fiscal 2026 and totaledfiscal 2025, we recorded $4,258 forrelated fiscalto 2025the andBN fiscalPerformance 2024Bonus, eachwhich yearincludes includingthe applicable employer related payroll taxes.

Other operating (income) expense, net primarily represents the change in fair value of the P3 contingent earn-out liabilityliabilities related to acquisitions and was income of $621 in fiscal 2026 compared to income of $1,215 in fiscal 2025 compared to expense of $80 in fiscal 2024.2025. The change in fair value was primarily due to delayed orders/projects that extended beyond the earnout period.

Net interest (income) expense for fiscal 20252026 was income of $583$257 compared to expenseincome of $248$583 in fiscal 2024.2025. This increasedecrease in net interest income was due to ourincreased stronginterest cashexpense positionin andfiscal lower2026 from debt levelsborrowings comparedfor toour theacquisition priorof year.FlackTek.

Our effective tax rate for fiscal 20252026 was 21%15% compared with 18%21% for fiscal 2024.2025. This increasedecrease was primarily due to higher pre-taxresearch incomeand in fiscal 2025, which diluted the impact ofdevelopment tax credits on our effective tax rate, partially offset byand higher discrete tax benefits recognized in fiscal 2025 related to the vesting of restricted stock units and awards compared to fiscal 2024.2025, partially offset by the impact of the enactment of the OBBB discussed above. Our effective tax rate for fiscal 20262027 is expected to be approximately 20%18% to 22%.20%.

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.

Acquisition & integration expense (income) expense are incremental costs that are directly related toto, and as a result of the P3of, acquisition related activity or the subsequent accounting for the contingent earn-out liability.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 relate primarily to consulting costs (training, data conversion, and project management) incurred in connection with the ERP system being implemented throughoutat our Batavia, NYNew York facility in order to enhance efficiency and productivity and are not expected to recur once the project is completed. Debt amendment costs consist of accelerated write-offs of unamortized deferred debt issuance costs and discounts, prepayment penalties, and attorney fees in connection with the amendment of our credit facility. The Employee Retention Tax Credit reflects payroll tax amounts recovered due to COVID-19 relief programs and is not expected to recur in the future.

The New 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 New Revolving Credit Facility. As of March 31, 2025,2026, we were in compliance with the financial covenants of the New Revolving Credit Facility and our leverage ratio as calculated in accordance with the terms of the New Revolving Credit Facility was 0.5x.0.8x.

The New Revolving Credit Facility contains terms that may, under certain circumstances 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 fiscal 2026 or 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.

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

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.

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, and SpaceProcess 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, 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.

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 Greenville, SCCO and have sales and engineering offices in Houston, TX, Suzhou, ChinaChina, and Ahmedabad and Pune, India.

AcquisitionsAcquisition

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’sFlackTek'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 reducedultimately heatcan transferachieve higher levels of product homogeneity when compared to traditional bladed methods. FlackTek’sFlackTek's systems are used by a global customer base that includes leading OEMs,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, from upstream to downstream production and quality control.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.

FlackTek will operateoperates 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’sour financial, compliance, and operational infrastructure. Under the terms of the transaction, the Companywe acquired 100% of the equity of FlackTek for a purchase price of $35,000,$36,205, which was paidcomprised 85% inof cash consideration of $24,889 and 15% using 76 shares of Graham’sour common stock, alongrepresenting witha 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.

Highlights for the three months ended DecemberJune 31,30, 20252026 include:

Net sales for the thirdfirst quarter of fiscal 20262027 were $56,701,$71,342, up 21%$15,855, or 29%, compared with the thirdfirst quarter of fiscal 2025,2026, reflecting the strength of our diversified revenue base.base, Thisas well as the acquisition of FlackTek, which added $6,551 to revenue during the quarter. The increase for the quarter was across multiple marketsmarkets, including aan 31%$11,848, or 40%, increase in sales to the Defense industry,market, primarily due to the timing of project milestones, as well as new programs and growth in existing programs. Sales to the Energy & ProcessSpace market increased $2,094$2,909, or 13%86%, over the prior year drivenfirst byquarter, Aftermarketdue sales,to new programs and the ramp up of existing programs, as well as continuedthe momentumFlackTek in our New Energy markets and in particular small modular reactors (“SMRs”).acquisition. Aftermarket sales to the Energy & Process and Defense markets totaledof $10,815$9,671 forremained thestrong, quarter,increasing 11%20% aboveover the prior year. Note that historically the third quarter of our fiscal year isfirst our lowest revenue quarter due to the holidays and a higher level of vacation being taken by our direct labor force.quarter.

Selling, general and administrative expenses ("SG&A"), including intangible amortization, for the thirdfirst quarter of fiscal 20262027 increased $868$3,228, or 33%, over the sameprior periodyear first quarter. Acquisition and integration expenses contributed $602 of fiscalthe 2025increase andcompared reflectsto 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 operations,people, our employees,processes, and our technology, higherwhich acquisitionwe andexpect integrationto be approximately $2,500 of incremental costs duefor tofiscal the Xdot and FlackTek acquisitions, as well as higher performance-based compensation due to our increased profitability, which was2027, partially offset by a reversalreduction of bad debt reserves as past due accounts were collected. SG&Ain costs representedrelated 18.6% of sales forto the thirdBN quarterPerformance ofBonus fiscal(defined 2026 compared to 20.6% in fiscal 2025 as we continue to leverage our fixed overhead.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 years 2024, 2025, and 2026, which cancould range between $2,000 to $4,000 per year (the "BN Performance Bonus"). Performance-basedThe compensationBN expensePerformance includedBonus is no longer in SG&Aeffect forin fiscal 2027. During the first quarter of fiscal 2026, we recorded $1,076 related to the BN Performance Bonus,Bonus includinginclusive of applicable taxes,payroll taxes and no expense was $1,076recorded in the thirdfirst quarter of fiscal 2026 and fiscal 2025.2027.

Net income and income per diluted share for the thirdfirst quarter of fiscal 20262027 were $2,845$3,912 and $0.25,$0.33 per share, respectively, compared withto net income and income per diluted share of $1,588$4,595 and $0.14,$0.42 per share, respectively, for the thirdfirst quarter of fiscal 2025.2026. Adjusted net income and adjusted net income per diluted share for the thirdfirst quarter of fiscal 20262027 were $3,514$5,738 and $0.31,$0.49 per share, respectively, compared with adjusted net income and adjusted net income per diluted share of $1,966$4,938 and $0.18,$0.45 per share, respectively, for the thirdfirst quarter of fiscal 2025.2026, an increase of 16% and 9%, respectively. Similarly, adjusted EBITDA (defined below) for the first quarter of fiscal 2027 was $8,750 compared to $6,838 for the same period of fiscal 2026, an increase of 28%. See "Non-GAAP Measures" below for a reconciliation of adjusted net income andincome, adjusted net income per diluted shareshare, and adjusted EBITDA to the comparable GAAP amount.

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.

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 Defensesystems, radar, laser, electronics, and power systems.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.

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,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 lowervolatility in gas prices, tariffs, and geopolitical uncertainty, which has causecaused themcustomers 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.operate and we expect that trend to continue for the foreseeable future.

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.

As illustrated below, we have succeeded over the last several years with our strategy to increase our participation in the defenseDefense market, which comprised 85%84% of our total backlog at DecemberJune 31,30, 2025.2026.

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

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.

The following tables provide our net sales by product linemarket 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:

Net sales for the first nine monthsquarter of fiscal 20262027 increasedwere $27,664,$71,342, up $15,855, or 18%,29% fromcompared with the first nine monthsquarter of fiscal 2025,2026, reflecting the strength of our diversified revenue base.base Thisas well as the acquisition of FlackTek, which added $6,551 to net sales in the quarter. The increase for the quarter was across multiple marketsmarkets, including aan $18,554$11,848, or 21%40%, increase in sales toin the Defense industry,market, primarily due to the timing of project milestones (material receipts),milestones, as well as new programs and growth in exitingexisting programs. NetSales sales forto the Space market increased $2,909, or 86%, over the prior year first ninequarter, monthsdue to new programs and the ramp up of fiscalexisting 2026programs, foras well as the FlackTek acquisition. Sales to the Energy & Process markets increased $9,786$1,098, or 19%,5%, drivenas byincreases increasedin Aftermarket sales in China and largercontributions capitalfrom projects,FlackTek were partially offset by lowerpush salesouts inon India,large all due tocapital project timing. Additionally,activity. Aftermarket sales to the Energy & Process and Defense markets of $28,757$9,671 forremained thestrong, firstincreasing nine20% months of fiscal 2026 were 3% lower than the record levels ofover the prior year.year first quarter.

Domestic sales as a percentage of aggregatenet sales increased to 90% in the first quarter of fiscal 2027 compared with 83% in the first quarter of fiscal 2026. These sales were 84%primarily to the U.S. Defense market, which represented 58% of net sales for the first nine monthsquarter of fiscal 2026,2027 comparablecompared to the 84% for the same period of fiscal 2025, reflecting our continued presence53% in the defenseprior industry,year 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.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, BacklogBacklog, and Book-to-Bill Ratio" below.

Changes in SG&A expense, including amortization expense, for the threefirst andquarter nineof monthsfiscal ending December 31, 20252027 versus the comparable prior year period isare as follows:

Selling,The generalincrease in SG&A is primarily driven by the incremental SG&A from the acquisition of FlackTek, which accounted for $1,820 of the increase, and administrativeacquisition and integration expenses, which contributed $602 of the increase compared to the prior year first quarter. The remaining increases in SG&A expenses ("SG&A"),primarily including intangible amortization, for the third quarter of fiscal 2026 increased $868 over the same period of fiscal 2025 and reflects thereflect investments we are making in our operations,people, our employees,processes, and our technology, higherwhich acquisitionwe andexpect integrationto be approximately $2,500 of incremental costs duefor tofiscal the Xdot and FlackTek acquisitions, as well as higher performance-based compensation due to our increased profitability, which was2027, partially offset by a reversalreduction of bad debt reserves as past due accounts were collected. SG&A costs represented 18.6% of sales forto the thirdBN quarterPerformance of fiscal 2026 compared to 20.6% in fiscal 2025 as we continue to leverage our fixed overhead.Bonus. In connection with the acquisition of BN,Barber-Nichols, LLC ("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 cancould range between $2,000 to $4,000 per year. Performance-based compensation expense included in SG&A for theThe BN Performance Bonus,Bonus includingis applicableno taxes, was $1,076longer in effect in fiscal 2027. During the thirdfirst quarter of fiscal 2026 and fiscal 2025. During the first nine months of fiscal 2026 and fiscal 20252026, we recorded $3,228$1,076 related to the BN Performance Bonus inclusive of applicable taxes.payroll taxes and no expense was recorded for the first quarter of fiscal 2027.

The net result of the above is that net income and income per diluted share for the thirdfirst quarter of fiscal 20262027 were $2,845$3,912 and $0.25,$0.33 per share, respectively, compared withto $1,588$4,595 and $0.14,$0.42 per share, respectively, for the thirdfirst quarter of fiscal 2025.2026. Adjusted net income and adjusted net income per diluted share for the thirdfirst quarter of fiscal 20252027 were $3,514$5,738 and $0.31,$0.49 per share, respectively, compared with adjusted net income and adjusted net income per diluted share of $1,966$4,938 and $0.18,$0.45 per share, respectively, for the thirdfirst quarter of fiscal 2025.2026, 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.

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 accountingthe principlesU.S.'s generally accepted inaccounting the U.S.principles ("GAAP").

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 excludeexcluded 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.

Adjusted EBITDA excludes charges for depreciation, amortization, net interest (income) expense, income taxes, acquisition & integration related expenses (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 & integration related expenses (income) expenses,, ERP implementation costs, other unusual/nonrecurring items, and the related tax impacts of those adjustments.

A reconciliation of adjusted EBITDA, adjusted net incomeincome, and adjusted net income per diluted share to net income in accordance with GAAP is as follows:

Acquisition and& integration expense (income) costs,, net are incremental costs that are directly related toto, and as a result ofof, theacquisition P3,related Xdot,activity and FlackTek acquisitions or the subsequent accounting for the related contingent earn-out liabilities. These costs (income) may include, among other things, professional, consultingconsulting, 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 throughoutat our Batavia, New York facility in order to enhance efficiency and productivity and are not expected to recur once the project is completed.

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

(1) Working capital equals current assets minus current liabilities.liabilities; Working capital ratio equals current assets divided by current liabilities.

Net capitalCapital expenditures for the first nine monthsquarter of fiscal 20262027 were $13,328$2,609 compared to $13,800$7,004 for the comparable period in fiscal 2025.2026 due to timing of major capital expenditure projects. Capital expenditures for the first quarter of fiscal 2026 primarily2027 relate to machinery and equipment, as well as for buildingsbuildings, and leasehold improvements to support our growth and productivity improvement initiatives and were primarily related to the following:initiatives.