GRAHAM CORPORATION

Red flags

• Gross margin fell to 23.5% from the prior year, with approximately $1.0 million of incremental tariff costs and lower-margin Defense sales contributing to pressure.
• Aftermarket sales fell 12% to $36.9 million, reversing record fiscal 2025 levels and weakening a potentially higher-quality recurring revenue stream.
• FlackTek represented 13% of consolidated assets and 26% of net assets, but was excluded from the fiscal 2026 internal-control assessment; integration of its controls is not expected to be complete until fiscal 2027.
• The FlackTek purchase price was $37.0 million, including $26.5 million cash and $5.7 million of Graham stock, with up to $25.0 million of additional performance-based cash earn-outs; $5.6 million was already recorded as a contingent earn-out liability.
• Debt increased to $13.0 million borrowed under the revolver, plus $6.1 million of letters of credit, while the company carries leverage and fixed-charge covenants of 3.50:1.00 and 1.20:1.00, respectively.