Graham (GHM) Q4 2025: Backlog Hits $412M, Defense Mix Anchors Multi-Year Growth Path
Graham’s record $412 million backlog and 60% defense revenue mix signal a strategic inflection, with multi-year Navy contracts and targeted automation investments driving visibility and margin lift into fiscal 2027. The handoff to new CEO Matt Malone comes as the company pivots from stabilization to a high-ROIC growth phase, underpinned by disciplined capital deployment and cross-market technology leverage.
Summary
- Backlog Expansion Secures Revenue Visibility: Defense contracts and book-to-bill above 1.0 anchor multi-year growth trajectory.
- Operational Leverage Fuels Margin Gains: Automation, process rigor, and pricing power drive profitability improvements.
- Leadership Transition Catalyzes Strategic Shift: New CEO to accelerate product lifecycle and digital initiatives beyond core markets.
Performance Analysis
Graham delivered a robust Q4, with revenue up 21% and full-year sales reaching $210 million, reflecting sustained momentum in both defense and energy/process markets. Defense sales grew 28% in the quarter and now constitute 60% of the revenue mix, a notable shift from 25% three years ago. The company’s adjusted EBITDA margin expanded to 12.9% in Q4 and 10.7% for the year, supported by execution improvements, higher volumes, and better pricing discipline. Gross margin gains were amplified by operational efficiencies and a one-time welder training grant, though management cautions this benefit will not repeat in fiscal 2026.
Backlog reached a record $412 million, with 83% tied to defense, and the book-to-bill ratio remained above 1.0 for the fifth consecutive year. Aftermarket sales and orders, particularly in energy/process and defense, continued to trend upward, offsetting typical order lumpiness in the business. Capital expenditures of $19 million were directed toward capacity expansion, automation, and new testing facilities, all exceeding a 20% return on invested capital (ROIC) hurdle.
- Defense-Weighted Backlog: Approximately 83% of backlog now defense-related, providing multi-year revenue visibility through 2034.
- Aftermarket and Energy/Process Mix: Aftermarket orders rose 8% YoY, and energy/process revenue saw steady demand, supporting portfolio balance.
- CapEx and R&D Investment: CapEx at 7-10% of sales planned for coming years, with R&D spend to gradually reach 1-2% of revenue.
Cash flow from operations remained strong, enabling both organic and inorganic growth investments. Management’s focus on high-ROIC capital projects and disciplined cost management positions Graham to absorb tariff headwinds and SG&A increases tied to ERP and technology upgrades.
Executive Commentary
"These multi-year programs provide Graham with stable recurring revenue, as well as strong visibility into our future revenue for years to come... Our investments in automation, facility expansion, and new technologies are creating a strong foundation for future growth."
Dan Thorne, Chief Executive Officer
"We executed our dozen organic capital projects each exceeding our 20% ROIC hurdle... Backlog tripled from $138 million to $412 million, enhancing visibility and supporting disciplined capital deployment."
Matt Malone, President and Chief Operating Officer
Strategic Positioning
1. Defense as Core Growth Engine
Graham’s transformation into a defense-centric supplier is anchored by multi-year U.S. Navy contracts, including a recent $136.5 million Virginia-class submarine award. The company’s Barbara Nichols division, with a legacy in submarine programs, continues to secure recurring, long-cycle work that underpins revenue stability and backlog growth. Clauses protecting against commodity volatility and early procurement of high-risk materials further de-risk these contracts.
2. Automation and Technology Leverage
Capital is being deployed to automated welding, advanced X-ray inspection, and cryogenic testing, raising throughput, quality, and cross-market applicability. The new Batavia Navy-focused facility and expanded R&D investments are designed to scale both defense and energy/process businesses, while digital upgrades (ERP, AI in aftermarket) aim to drive efficiency and repeatability.
3. Product Lifecycle and Commercialization
The strategic shift moves Graham from bespoke engineering to scalable, repeatable solutions, with a focus on value identification (early market needs), value creation (custom solutions), and value extraction (aftermarket, upgrades). Commercializing proprietary technologies like the NextGen nozzle and leveraging P3’s rapid prototyping capabilities are expected to unlock incremental revenue and margins.
4. M&A and Global Reach
A robust M&A pipeline targets niche, founder-led businesses that integrate into Graham’s product lifecycle strategy, offering outsized impact for the company’s scale. International expansion and aftermarket penetration into a $1 billion installed base are also strategic priorities, with management citing favorable acquisition valuations and integration synergies.
Key Considerations
This quarter marks a structural pivot for Graham, as the company transitions from stabilization to a disciplined, high-return growth strategy leveraging defense visibility, automation, and digital transformation.
Key Considerations:
- Defense Mix Drives Predictability: Multi-year Navy contracts provide revenue stability and backlog depth, reducing cyclicality.
- High-ROIC Capital Deployment: All major projects exceed 20% ROIC, with automation and facility expansion set to unlock future margin and capacity.
- Aftermarket and Cross-Market Synergies: Technology developed for defense (e.g., advanced X-ray) is being leveraged in energy/process markets, amplifying returns.
- Leadership Continuity and Succession: Internal promotion to CEO and bench strength in operations signal a smooth handoff and strategic continuity.
- Tariff and Cost Pressure Management: Tariff headwinds ($2-5 million) and SG&A investments are being offset by process improvements and pricing discipline.
Risks
Tariff volatility and loss of one-time grant benefits will pressure gross margins in fiscal 2026, even as process improvements aim to offset these headwinds. Order lumpiness, especially in defense, is inherent to the business model. Execution risk remains around scaling new facilities, integrating acquisitions, and maintaining labor supply for specialized welding. Any disruption in U.S. Navy funding or project delays could impact backlog conversion and revenue visibility.
Forward Outlook
For fiscal 2026, Graham guided to:
- Revenue of $225 to $235 million (midpoint +10% YoY)
- Gross margin of 24.5% to 25.5%
- Adjusted EBITDA of $22 to $28 million
For full-year 2026, management maintained strategic goals:
- 8-10% organic revenue growth per year through fiscal 2027
- Low to mid-teens adjusted EBITDA margins by fiscal 2027
Management highlighted:
- Tariff impact of $2-5 million expected in FY26
- No repeat of $1.3 million welder training grant benefit
- Major capital projects to come online by end of calendar 2025, with ramp in 2027
Takeaways
Graham’s backlog and defense orientation provide a multi-year growth runway, with operational and capital discipline supporting a credible path to margin expansion and cash generation.
- Defense Book-to-Bill Anchors Growth: Sustained book-to-bill above 1.0 and $412 million backlog de-risk near-term revenue and support long-cycle planning.
- Automation and R&D Investments Underpin Margin Expansion: High-return projects and digital upgrades will drive future throughput, quality, and cross-market leverage.
- Leadership and Strategy Continuity: The CEO transition is set against a backdrop of operational stability and a clear, actionable growth roadmap.
Conclusion
Graham exits fiscal 2025 with structural tailwinds from defense, a record backlog, and a disciplined capital allocation framework. The company’s next phase is defined by automation, technology leverage, and global reach, with management’s confidence underpinned by recurring revenue visibility and a robust strategic plan.
Industry Read-Through
Graham’s results reinforce the defense-industrial complex’s outsized role in driving long-cycle revenue visibility and margin stability, especially for specialized suppliers embedded in multi-year Navy programs. The company’s cross-market technology adoption—such as automated welding and advanced inspection—signals a broader trend of defense innovation bleeding into energy and process industries. For peers and adjacent players, the ability to secure recurring defense contracts, invest in automation, and leverage proprietary technology across verticals will be decisive for sustainable growth and margin resilience as macro volatility persists.