Earnings call transcript: Graham Corporation Q2 2026 beats earnings expectations

Graham Corporation (GHM) reported stronger-than-expected earnings for Q2 2026, with earnings per share (EPS) of $0.31, surpassing the forecasted $0.29. Revenue for the quarter reached $66 million, exceeding expectations by 14.74%. Despite these positive results, the stock experienced a slight decline, closing at $62.14, down 1.67% from the previous day.

Key Takeaways

• Graham Corporation's Q2 earnings and revenue exceeded market expectations.
• The company reported a 23% year-over-year increase in revenue.
• The stock price fell by 1.67% despite strong financial performance.
• Graham maintained its full-year guidance, targeting significant revenue growth.

Company Performance

Graham Corporation demonstrated robust performance in Q2 2026, with a 23% increase in revenue compared to the same period last year. The company attributed this growth to its diversified portfolio and strategic investments in advanced manufacturing and technology. Notably, the defense market sales rose by 32%, while the energy and process market saw an 11% increase.

Financial Highlights

• Revenue: $66 million, up 23% year-over-year
• Earnings per share: $0.31, surpassing forecast by 6.9%
• Adjusted EBITDA: $6.3 million, a 12% increase year-over-year
• Adjusted EBITDA Margin: 10.8%, expanded by 40 basis points

Earnings vs. Forecast

Graham Corporation's EPS of $0.31 exceeded the forecasted $0.29, representing a 6.9% surprise. This performance marks a continuation of the company's trend of surpassing earnings expectations, reflecting its effective strategic initiatives and market positioning.

Market Reaction

Despite the positive earnings report, Graham's stock price fell 1.67%, closing at $62.14. This decline contrasts with the company's strong financial results and may reflect broader market trends or investor caution. The stock remains near its 52-week high of $64.66, indicating overall positive sentiment.

Outlook & Guidance

Graham Corporation maintained its full-year guidance, aiming for 8-10% organic revenue growth and low to mid-teen adjusted EBITDA margins by fiscal 2027. The company is focusing on a balanced revenue split between commercial and defense segments, with significant investments in advanced manufacturing technologies to support future growth.

Executive Commentary

CEO Matt Malone stated, "We delivered another strong quarter, continuing to execute our communicated strategy." CFO Chris Thome emphasized the company's focus on a balanced revenue split, saying, "We love the 50/50 target split between the commercial segment and the defense segment."

Risks and Challenges

• Market volatility could impact stock performance despite strong earnings.
• Supply chain disruptions may affect production timelines and costs.
• Economic uncertainties could influence demand in key markets.
• Technological advancements require continuous investment to maintain competitiveness.
• Regulatory changes in defense and energy sectors could pose challenges.

Q&A

During the earnings call, analysts inquired about the company's momentum in the space market, with $15 million in orders for Q2 and $7 million in Q3. Executives also addressed potential opportunities in new torpedo programs and the emerging small modular nuclear reactor market, indicating continued growth prospects in these areas.

Full transcript - Graham Corp (GHM) Q2 2026:

Carrie, Conference Call Operator: Greetings, and welcome to the Graham Corporation Second Quarter 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Tom Cook. Please go ahead.

Tom Cook, Investor Relations, Graham Corporation: Thank you, Carrie, and good morning, everyone. Welcome to Graham's Fiscal Second Quarter 2026 Earnings Call. With me on the call today are Matt Malone, President and CEO, and Chris Thome, Chief Financial Officer. This morning, we released our financial results. Our earnings release and accompanying presentation to today's call are available on our website at ir.grahamcorp.com. You should be aware that we may make forward-looking statements during the formal discussion as well as during the Q&A session. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release, as well as with other documents that are filed by the company with the Securities and Exchange Commission.

You can find these documents on our website or at sec.gov. During today's call, we will also discuss non-GAAP financial measures. We believe these will be useful in evaluating our performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the table that accompanied today's release and slides. We also use key performance indicators to help gauge the progress and performance of the company. These key performance metrics are ROIC, orders, backlog, and book-to-bill ratio. These are operational measures, and a quantitative reconciliation of each is not required or provided. You can find a disclaimer regarding our use of KPIs at the back of today's presentation.

If you'll please advance to slide three, I'll turn it over to Matt to begin. Matt.

Matt Malone, President and CEO, Graham Corporation: Thank you, Tom, and good morning, everyone. We appreciate you joining us to review our second quarter fiscal 2026 results. We delivered another strong quarter, continuing to execute our communicated strategy and demonstrating the resiliency and diversification of our business. Revenue grew 23% to $66 million, driven by solid performance across all of our end markets. The timing of these key project milestones, particularly material receipts in our defense business, as well as contributions from new programs and growth in existing platforms. Adjusted EBITDA increased 12% to $6.3 million. On a year-to-year basis, adjusted EBITDA margin expanded 40 basis points to 10.8%, underscoring our continued focus on operational execution and profitable growth. Bookings remained strong, resulting in a book-to-bill ratio of 1.3 times and driving backlog to a record $500.1 million, up 23% year over year.

Our backlog provides excellent visibility, with roughly 35%-40% expected to convert to revenue over the next 12 months. On the defense side, we continue to see strong momentum with our U.S. Navy programs. As a reminder, in July, we announced a $25.5 million follow-on order to produce mission-critical hardware for the MK 48 Mod 7 heavyweight torpedo program. More recently, I want to highlight an important milestone for our defense business and our long-standing partnership with the U.S. Navy. In October, we commemorated our new 30,000 sq ft advanced manufacturing facility in Batavia, New York, which represents a major investment in our capacity and capabilities to support key Navy programs. This purpose-built site is designed for efficiency, precision, and scale, and incorporates advanced technologies including automated welding, optimized product flow, and state-of-the-art machining.

We expect the facility to be fully operational by the end of fiscal 2026, and once online, it will meaningfully expand our throughput, enhance quality, and strengthen our ability to meet rising demand across multiple Navy programs. As part of this, we were honored to host Captain Heath Johnmyer, Commanding Officer of the future USNS District of Columbia, along with several strategic partners and customers during the event. Their participation underscores the Navy's confidence in Graham and the critical role our team and capabilities play in supporting fleet readiness, as the Navy celebrated its 250th anniversary. This engagement reflects our position as a trusted supplier to some of the most important defense platforms in the world. In addition to expanding capacity, we continue to invest in advanced inspection and manufacturing technologies, including our enhanced X-ray testing and automated welding systems that are beginning to come online.

These investments will further increase throughput, improve inspection precision, and support production scale as we execute the Navy's long-term modernization initiatives. Moving to energy and process. During the quarter, we saw increased sales of $2.0 million, or 11%, driven by the timing of large capital projects and continued strong aftermarket sales. Further, we are seeing meaningful momentum in small modular nuclear reactors and cryogenic applications, where customers' interest in our mission-critical equipment continues to expand as those markets slowly transition into commercial deploy. Defense demand fundamentals across all of our end markets remain healthy, though we are observing extended decision cycles on certain large global capital projects. Overall, our position remains strong, and we continue to execute well against opportunities in both mature and emerging applications. In space, as we announced earlier this morning, we continue to see meaningful momentum.

In the second quarter and first month of our fiscal 2026 third quarter, our Barber-Nichols subsidiary booked a series of new orders from six industry-leading customers in the commercial space launch market. These awards were for advanced turbomachinery and precision-engineered components supporting next-generation commercial launch in in-space systems and totaled $22 million. These orders are expected to convert into revenue over the next 12-24 months, further strengthening our visibility and reinforcing the value we bring to these mission-critical space applications. We are encouraged by the breadth of programs we are involved in and the growing activity across customers who are scaling production to meet increased launch cadence and orbital infrastructure needs. To support this demand, we are continuing to invest in capacity and capabilities at Barber-Nichols, including additional CNC machining centers, expanded testing infrastructure, and our new liquid nitrogen test stand.

These investments build on our previously announced cryogenic test facility in Florida, which remains on track to come online later this year. Together, these enhancements strengthen our ability to deliver with speed and precision as our customers move from development into higher-rate production. The momentum we are seeing in our space and markets reflects the strength of our technology, engineering expertise, and decades-long reputation for performance in high-speed rotating equipment. As the commercial and government space markets continue to expand, we believe Graham is well-positioned to support the industry's long-term growth and advance our strategy of building a diversified portfolio across high-growth, innovation-driven end markets. Finally, I want to touch on the recent acquisition announcement of X-Dot Bearing Technologies, an engineering-led firm with patented foil bearing technology and deep expertise in high-speed rotating machinery.

This is a highly strategic technology acquisition that strengthens our competitive position in an area where performance, reliability, and efficiency are becoming increasingly critical across aerospace, defense, energy transition, and industrial applications. X-Dot's proprietary foil bearing designs deliver superior performance while reducing development and production costs. When combined with Barber-Nichols' turbomachinery capabilities, this significantly expands our ability to engineer and deliver advanced high-speed pumps, compressors, and rotating systems. This acquisition not only broadens our product portfolio but also positions us to move into adjacent applications and emerging high-performance markets, where we are seeing growing customer interest. Importantly, this is a disciplined, strategically aligned investment that fits squarely within our capital allocation framework. X-Dot brings proven technology, a respected technical founder and team, and complementary customer relationships. We expect the acquisition to be slightly accretive to our fiscal 2026 results.

Overall, this acquisition underscores our commitment to investing in differentiated technology, expanding our engineered solution offerings, and creating durable competitive advantages across our growth platforms. More broadly, on the M&A front, we continue to see a strong pipeline of acquisition opportunities that align with our strategic objectives and remain focused on pursuing opportunities that offer risk-adjusted returns and can help us accelerate our product lifecycle strategy. In closing, our fiscal second quarter results demonstrate continued business momentum across our diversified portfolio. With our record backlog, strong market positioning, and progress on key growth initiatives, we're well-positioned to capitalize on the opportunities ahead. With that, I'll turn the call over to Chris for a detailed review of our financial results. Chris.

Chris Thome, Chief Financial Officer, Graham Corporation: Thanks, Matt. Good morning, everyone. I will begin my review of results on slide six. For the second quarter of fiscal 2026, sales were $66 million, an increase of 23% compared to the prior year period, reflecting broad-based strength across all our end markets. This performance demonstrates continued execution and healthy demand across defense, energy and process, and space, and is consistent with our full-year expectations. Sales to the defense market increased by $9.9 million, or 32%, primarily reflecting timing of project milestones and particularly material receipts, as well as growth across new and existing programs. Sales to the energy and process market increased by $2 million, primarily driven by the timing on larger capital projects.

Aftermarket sales to the energy and process and defense markets were $9.8 million for the quarter, slightly above the prior year period, but when combined with our first fiscal quarter, are up 15% year to date and continue to reflect resilient demand for aftermarket support across our global installed base. As a reminder, our fiscal third quarter is typically our seasonally lowest revenue period due to normal holiday-related production schedules. Turning to slide seven, gross profit increased 12% to $14.3 million, and gross margin was 21.7% for the quarter. The lower margin in the quarter reflects the sales mix in the period, including an unusually high level of material receipts that carry lower margins. We estimate that this higher-than-normal level of material receipts impacted our gross margin by approximately 180 basis points in the quarter.

As a reminder, the prior year period benefited from approximately $400,000 from the Blue Forge Alliance grant income that did not repeat this year. Finally, for the first six months of fiscal 2026, we estimate the impact of tariffs to be approximately $1 million compared to the prior year. As we look at the full year, we have narrowed our expected tariff impact range to $2-$4 million, reflecting continued sourcing discipline and contract language that protects us. On slide eight, you can see how this operating performance translated to the bottom line. Net income for the quarter was $0.28 per diluted share, and adjusted net income was $0.31 per diluted share. Adjusted EBITDA was $6.3 million, up 12% from the prior year, and adjusted EBITDA margin was 9.5%.

On a year-to-date basis, our adjusted EBITDA margin is 10.8%, up 40 basis points over the prior year and in line with our full-year guidance. As a reminder, the Barber-Nichols earn-out bonus will phase out by the end of fiscal 2026. Excluding this item, we remain confident in our ability to achieve our fiscal 2027 goal of low to mid-teen adjusted EBITDA margins. Moving to slide nine, it was another very strong quarter for orders, which totaled $83.2 million, driven by strong demand across defense, space, and energy and process. This included a $25.5 million follow-on contract for the MK 48 Mod 7 Heavyweight Torpedo program, as well as new orders from leading space and aerospace companies that Matt discussed and that we announced in our press release this morning. Aftermarket orders were $9.6 million, moderating from the record levels of last year but remaining strong on a historical basis.

The resulting book-to-bill ratio was 1.3 times, driving backlog to a record $500.1 million, up 23% year over year. Approximately 35-40% of this backlog is expected to convert to revenue over the next 12 months, and roughly 85% of the total backlog is attributable to the defense market. As a reminder, orders remain inherently lumpy given the multi-year nature of our defense programs and our large commercial contracts. To illustrate this point, since fiscal 2020, our annual book-to-bill ratio has ranged from 0.9 times to 1.4 times revenue. However, our quarterly book-to-bill ratio over the same time period has ranged from 0.5-2.8 times revenue. Over the long term, we target a book-to-bill ratio of 1.1 times each year in order to support our long-term growth goals of 8-10% per year. For the fiscal 2026 year-to-date period, our book-to-bill ratio is 1.7 times.

Turning to slide ten, we remain in a strong liquidity position. We ended the quarter with $20.6 million in cash and no debt, and $44.7 million available on our revolver, providing significant flexibility to support future growth investments. Operating cash flow was $13.6 million for the quarter, reflecting strong working capital conversion tied to milestone receipts and advanced payments, as well as strong cash profitability. Capital expenditures were $4.1 million in the quarter, focused on capacity expansion, automation, next-generation X-ray technology, and our new cryogenic testing facility in Florida, all of which Matt discussed earlier. All major projects remain on schedule and are expected to deliver returns above 20% ROIC. Turning to guidance on slide eleven, based on our performance through the first half of fiscal 2026 and our outlook for the balance of the year, we are reaffirming our full-year guidance for all key financial metrics.

The recently announced X-Dot technology acquisition does not materially affect our guidance for the year, as our annual revenue is only about $1 million per year. Again, we would like to remind everyone that our fiscal third quarter is typically our seasonally lowest revenue period due to normal holiday-related production schedules. Overall, with strong execution, robust end market demand, and a record backlog, we remain confident in our full-year outlook and our ability to continue delivering consistent performance. The 20%+ ROIC investments coming online in the next two quarters, along with the continued momentum that is building within our company, gives us confidence we are on track to achieving our fiscal 2027 targets of 8-10% organic revenue growth and low to mid-teen adjusted EBITDA margins. With that, we can now open the call for questions.

Carrie, Conference Call Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Bobby Brooks with Northland Capital Markets.

Hey, good morning, guys. Thank you for taking my question. Just wanted to get a little bit more clarity. It seemed like the $22 million in space and aerospace orders announced this morning. It seems like some of that was recognized in 2Q results, and some of it will be recognized in 3Q results. Am I thinking about it right? Could you parse that out for how much was in 2Q versus 3Q? Thanks.

Chris Thome, Chief Financial Officer, Graham Corporation: Yep. Nope. You're spot on there, Bobby. As you saw from the release today, we had $15 million of orders in Q2, and the other $7 million came in after quarter end, so they'll be in Q3.

Got it. Excellent results for revenue in the quarter, but guidance is maintained. I was just curious, could you discuss why maintaining the guidance made more sense than raising? Is it just simply some stuff was scheduled to go out maybe in the back half and got pulled forward and occurred in the second quarter, or maybe it is tied to some dynamic with the manufacturing footprint? Just hoping to get more insight there.

Yeah. It's just all timing, Bobby. The results for the first half of the year are consistent with our expectations. We're tracking right on plan, so we just maintain the guidance.

Got it. It's great to hear that the cryogenic facility is on track. I saw some updates from the Barber-Nichols LinkedIn intra-quarter, and I think I read somewhere that you're starting to book slots there. I was just curious to maybe hear an update there and how things are going.

Yeah. I'll answer two things. The first is we did successfully commission and execute testing at the Barber-Nichols location in Colorado with the liquid nitrogen stand, which is a smaller stand that supports a critical space program. In addition is the propellant test facility, which is obviously on a much larger basis down in Florida, which is what you're alluding to. We actually expect to get the occupancy here any day, at which point we'll be commissioning with our product. We'll be testing an internal product. Simultaneously, we do expect within this calendar year to start testing customer product. With that being said, yes, I'd say that the backlog and customer conversations are healthy. As we pivot from actually getting the test stand operational, we are shifting full focus to booking the customers into the backlog. It's coming along just as we expected.

Appreciate the color, guys. And congrats on the strong quarter. I'll return to the queue.

Thanks, Bobby.

Carrie, Conference Call Operator: Moving on to Russell Stanley with Beacon Securities.

Good morning and echo the congrats on the quarter. Maybe just on orders, surprisingly strong in the quarter given how strong Q1 was, understanding lumpiness going forward. Can you talk to, I guess, how much of the Q2 defense orders were Navy-related or specifically related to the seven carrier programs? Just wondering what kind of opportunities you're seeing outside of those core programs you're already on.

Chris Thome, Chief Financial Officer, Graham Corporation: Yeah. Russ, it's a great point. I think it's worth a little bit of expansion. Actually, the bookings primarily this last quarter were not in connection to the actual strategic platforms themselves, but in some way are connected to the larger defense scope. As mentioned, we saw the torpedo side. We saw some of the aftermarket pick up on the defense side. We saw the space bookings that were announced this morning. It was really a host of opportunities that we've been nurturing sort of in the background connected to the strategic programs without providing too much additional color that I really can't go into. Yeah, it was a nice diversified bookings, but very strong, as you alluded to.

Great. Congrats on that. Maybe I can ask, obviously, excellent order numbers. The customer advances look strong, but just heard from the major shipbuilders a few weeks back, wondering if you could talk to any sort of impacts you're seeing in your business around the government shutdown, be it in customer conversations or order flow looking a little further out. Thank you.

Yeah. Fortunately for us, as you follow this closely, the programs that we're involved with are extremely long-standing and have great confidence long-term. What we're seeing in terms of impact is pretty minimal, both in the near term and long-term. What we do feel, just to break it down to a very narrow window, is we obviously have quite a bit of components working their way through the factory. The support from government reviews and reviewing deviations and other things that are much more tactical are taking some additional time. Fortunately, a unit like this takes years. Days do not end up disrupting the outcome. I think we're really well positioned despite the shutdown. The other area that we're feeling some impact is just appropriations and then actually sending out the sort of defined POs for what are more development-like programs.

We have gotten all indications that everything's moving forward, but just some delay in actually issuing the work.

That's great. Maybe one last question just around the X-Dot transaction. I understand I think you were already doing business with them, but can you talk to, I guess, what kind of customer feedback you've received around the transaction, what they've said to you? Secondarily, I guess, the tech has applications, I think, across your main business lines, but wondering where the most significant impact might be. Thanks.

Yeah. It's another great question. Yes, we've been working with Barber-Nichols, specifically foil bearing technology, for decades at this point on what I'll say is very focused applications. We've also been working with X-Dot for extended periods of time. With that being said, we've developed a great relationship, and they have analytical capability that ourselves and others do not. In addition to this, the product portfolio, we get some additional capability. The customer conversations, our customers don't necessarily know that we're using X-Dot technology up to this point, but it's an enabling technology. I'll just say it has allowed us to enter into areas like small modular nuclear, which we're using foil bearing technology in, some other areas, like, for example, fuel cell blowers and such. Our customers don't necessarily know that connection and link.

What we are seeing is their bearing end user, which is essentially buying spare bearings today or production bearings, are now looking to have conversations with Barber-Nichols about potentially machine upgrades or future opportunities. I guess, Russ, that's the color I'd provide, but it really is around technology excellence.

That's great. Thanks for the color. Congrats again. I'll get back in the queue.

Thanks, Russ.

Carrie, Conference Call Operator: Our next question comes from Joe Gomez with Noble Capital.

Good morning. Congrats on the quarter. Thanks for taking my questions. Pardon me. On the announcement today on the space market, you did mention that orders, that you're making some investments. Maybe you could just give us a little more color on the size and timing of those investments.

Chris Thome, Chief Financial Officer, Graham Corporation: Yep. Nope. You got that right on, Joe. We are going to need to buy some additional lathes and mills. That's factored into the CapEx guidance for the year. As you saw, there was no change to our guidance. We'll spill over a little bit into fiscal year 2027. As we've always said, we're not going to make big capital investments unless we have the orders to support them. They all have to have a greater than 20% ROIC that we've discussed as well. We won't make those investments till we have that in hand. Yeah. One quick add, Joe, just for some additional insight. The orders really secure the investments that we've already been making. These orders really reaffirm a lot of our ROIC calculations that have been made in the past.

It is just really nice that it is sort of reaffirming our commitments in our budgeting process. Strategic direction, the assets like down in Florida, some of these orders impact that facility. The liquid nitrogen stand also is impacted. The assembly and test area at Barber-Nichols that just came online last quarter where this product is going through that facility. It is just a great marry of the current capability that we have already invested in as well. That is a great point, Matt. Said a little bit differently as well, the investments we made enable us to win these orders to a great extent.

Okay. Thanks for that color. Maybe the same, you talked about some momentum in the small modular reactors. Maybe you could just give us a little bit more color on what you're talking about there and momentum and timing as for that also.

Yeah. Yeah. Small modular reactors is a very interesting, we've seen ups and downs with nuclear over decades. We're clearly in a bullish position right now. Barber-Nichols is well positioned with background on rotating machine that support both cryogenics that directly applies to thermal regulation of a nuclear reactor. In this case, Joe, we're in the early phases of development on a number of, I'll say, scaling programs or the potential to scale. We've already disclosed, but you can sort of see that the ramp's not going to happen overnight. We are in the development phase. We're seeing some products that will go into the Idaho National Laboratory Dome in the next coming month/year and then have long-term potential for scale.

I'll state it as simple as we're in the early phases of that growth trajectory and is almost aligned with what the industry is feeling.

Okay. And then just on the defense, the increase, the $9.9 million growth in defense revenues, and you mentioned there was one was the timing of some project milestones, new programs, growth in existing programs. I don't know if you could kind of size those for us as to what % of that $10 million growth came from the milestones versus the new programs versus the growth in existing programs.

Yeah. So Joe, as you know, our revenue tends to be very lumpy. Part of what creates that lumpiness is when we receive materials on some of these programs, we're allowed to recognize revenue since we're on a percentage completion basis. We had, in our prepared remarks, an unusually high level of material receipts this past quarter, which was expected in this fiscal year. That ranged from about $8 million-$10 million. A large chunk of that increase was because of these material receipts, which also, as stated in the comments today, do carry with it a lower margin. As we stated, it impacted our gross margin by about 180 basis points. That's the bulk of what you're seeing there. We have material receipts every quarter. It's just not to this high level usually.

Right. Right. Okay. Great. Thanks for that. I'll get back in queue. Thank you.

Thanks, Joe.

Carrie, Conference Call Operator: As a reminder, if you'd like to ask a question, please press star one. We'll go next to Tony Bancroft with Gabelli.

Good morning, gentlemen, and great job on the quarter. As I'm looking at all your numbers here and your backlog and your balance sheet, it seems like everything's going high and right. A lot of orders, very sticky stuff, long-term secular stuff. In five years, you sort of have, it seems like, sort of three strong markets that you're in. As far as growth, in five years, how are you going to see yourself positioned? Are you going to be focusing on sort of the naval defense? You've got sort of a nice space business that's growing nicely. You obviously have the commercial SMR business. Your funnel, what are you seeing as the best opportunities? Maybe talk about the demand there, the pricing there, and sort of walk through that for me.

Chris Thome, Chief Financial Officer, Graham Corporation: Yeah. No, Tony, great question. I'm going to answer this a little bit higher level, and then we can go deeper if needed. We love the 50/50 target split between sort of the commercial segment and the defense segment. What that allows us to do is be speedy and nimble, I'll say, attuned to pricing and specifically optimizing pricing on the commercial side, and then bringing commerciality where possible and technology and speed to the defense market. We really act as that long-term provider, but also that sort of technology disruptor in the defense space. I'll just say fundamentally, that is our focus, is to keep that velocity in competitiveness from the commercial side and bring that to the defense side. In five years out, we see that same dynamic moving forward.

What I will also say is, yes, there will probably be ebbs and flows to what that split looks like based on opportunities that come in the door.

Yeah. That's really good. Thank you so much, gentlemen.

Yeah. Thank you.

Carrie, Conference Call Operator: We will go next to Gary Schwab with Valley Forge Capital Management.

Yeah. Thank you. Great quarter, guys. I just want to go a little further into the last caller's question, but I want to go into a different direction. You have a proven success record so far for the MK 48 torpedo program. This is for Matt. I've got a two-part question for you. Looking ahead for opportunities into 2027 on new torpedo programs, it has to do with the SCEPS, the solid chemical torpedo propulsion system being developed for two new torpedo platforms. It looks like those two new torpedoes will serve two distinctly different roles from the MK 48 program. I know we're already supplying a limited production run on this propulsion system. My first question is, can you add some insight into how the Navy plans to deploy these two new torpedo platforms and what gaps they're trying to fill?

Given X-Dot's superiority in its foil bearing technology, do you see an opportunity that would give us a key advantage possibly of winning a role on either the propulsion side or the guidance system sides of either of these torpedo platforms? Thanks.

Chris Thome, Chief Financial Officer, Graham Corporation: Yeah. Gary, thanks for the congrats. Yeah, there's a lot of momentum building. First, I'll start off with the torpedo topic. I'm going to decouple X-Dot, and I'll cover that sort of after. Independent of bearing technology, we're well positioned to be a key supplier on the platforms that you referenced. I'll just keep it high level and say we don't need that technology to be a key supplier. We're already engaged in doing work in that arena. Once again, I can't sort of speculate on the U.S. Navy's plans for these products. Certainly, it could be Army and other areas. What I will say is the gaps that they cover are all the gaps that you would expect with such capability. That's sort of range, longevity, reuse, all the things that would add additional value to the defense portfolio.

Yes, we are well positioned on those new technologies in the torpedo space. And we're working with primes and the government to develop those technologies.

Can I just ask, is that going to be a much bigger program? Because I know that the problem with going after drones now, one of the programs is for multiple torpedoes, small torpedoes to go after drones.

Once again, you'll have to sort of read in depth because I can't disclose too many details. I'll just say that there's a lot of practical uses for both the MK 48 torpedo as well as the new technologies. Yes, I think they're looking to sort of deploy such similar technology to adjacent capability within the naval platform.

Carrie, Conference Call Operator: This now concludes our question and answer session. I would like to turn the floor back over to CEO Matt Malone for closing comments.

Matt Malone, President and CEO, Graham Corporation: Thank you. We are pleased with our results through the first half of the fiscal year, which were in line with our expectations and guidance. We look forward to keeping you updated on our progress. As always, please reach out with any questions. Thank you, everyone, for joining us today and your interest in Graham.

Carrie, Conference Call Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

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