Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

(Dollar and share amounts in thousands, except per share data)

Overview

We are a global leader in the design and manufacture of mission critical fluid, power, heat transfer, vacuum, and advanced mixing technologies for the Defense, Space, Energy & Process industries. For the Defense industry, our equipment is used in nuclear and non-nuclear propulsion, power, fluid transfer, thermal management, and advanced mixing systems. For the Space industry, our equipment is used in propulsion, power, thermal management, advanced mixing, and life support systems. For the Energy & Process industries we supply equipment for vacuum, heat transfer, advanced mixing, and fluid transfer applications used in oil refining, downstream chemical facilities, fertilizers, ethylene, methanol, edible oil, food & beverage, pulp & paper, medical, and multiple alternative energy applications such as hydrogen, small modular nuclear ("SMRs"), concentrated solar, lithium extraction, and geothermal processes.

Our brands are built upon engineering expertise and close customer collaboration to design, develop, and produce mission critical equipment and systems that enable our customers to meet their economic and operational objectives. Continual improvement of our processes and systems to ensure qualified and compliant equipment are hallmarks of our brand. Our early engagement with customers and support until the end of service life are values upon which our brands are built.

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

Our fiscal year ends on March 31 of each year. We refer to our fiscal year, which ends March 31, 2027, as fiscal 2027. Likewise, we refer to our fiscal year that ended March 31, 2026 and March 31, 2025 as fiscal 2026 and fiscal 2025, respectively.

Acquisition

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

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

See Note 2 to the Unaudited Condensed Consolidated ("Condensed Consolidated") Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q (this "Form 10-Q") for additional information.

Summary

Highlights for the three months ended September 30, 2026 include:

Cautionary Note Regarding Forward-Looking Statements

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," "likely," "plan," "goal," "predict," "project," "outlook," "potential," "will," "future," and similar words and expressions.

Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause our actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements including, but not limited to, those described in the "Risk Factors" section in Item 1A of our Annual Report on Form 10-K for fiscal 2026 and elsewhere in the reports we file with the SEC. Undue reliance should not be placed on our forward-looking statements. New risks and uncertainties arise from time to time, and we cannot predict these events or how they may affect us and cause actual results to differ materially from those expressed or implied by our forward-looking statements. Therefore, you should not rely on our forward-looking statements as predictions of future events. When considering these risks, uncertainties and assumptions, you should keep in mind the cautionary statements contained in this report and any documents incorporated herein by reference. You should read this document and the documents that we reference in this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

All forward-looking statements included in this Form 10-Q are made only as of the date indicated or as of the date of this Form 10-Q. Except as required by law, we undertake no obligation to update or announce any revisions to forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

Current Market Conditions

Defense - Demand for our equipment and systems for the Defense industry is expected to remain strong and continue to expand, based on Defense budget plans, accelerated ship build schedules due to geopolitical tensions, and the projected build schedule of submarines, aircraft carriers and undersea propulsion and power systems that we provide solutions for. In addition to U.S. Navy applications, we also provide specialty pumps, turbines, compressors, and controllers for various fluid and thermal management systems, radar, laser, electronics, and power systems, as well as advanced mixing systems for energetics. We have built a leading position, and in most instances a sole source position, for certain systems and equipment for the Defense industry, which helps protect us from outside competition. We believe that we have become a strategic supplier to the Defense industry through our ability to provide quality products and meet our customers accelerated delivery schedules, which in turn may lead to awards for components on new programs, as well as additional content on the programs we already supply.

Space - Our turbomachinery, pumps, and cryogenic products and market access provide revenue and growth potential in the commercial Space/Aerospace markets. The commercial Space market has grown and evolved rapidly, and we provide full life-cycle support for rocket engine turbopump systems and components, as well as advanced mixing systems, to many of the industry leading launch providers for satellites. We expect that in the long-term, extended space exploration will become more prevalent, and we anticipate that our thermal/fluid management and environmental control and life support system turbomachinery and advanced mixing systems will play important roles. We are also participating in future aerospace power and propulsion system development through supply of fluid and thermal management systems components. Small, power-dense systems are imperative for these applications, and we believe our technology and expertise will enable us to achieve sales growth in this market. Sales and orders to the Space industry are variable in nature and many of our customers, who are key players in the industry, have yet to achieve profitability and may be unable to continue operations without additional funding. As a result, future revenue and growth in this market can be uncertain due to high dependency on launch provider commercialization, timing, and success.

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. Accordingly, as of late we are seeing the timing of large capital project orders in our traditional Energy & Process markets being pushed out due to volatility in gas prices, tariffs, and geopolitical uncertainty, which has caused customers to delay capital investment. Accordingly, we believe that in the near term the quantity of projects available for us to compete for will remain low and that new project pricing will remain challenging. Additionally, we believe that the majority of new capital investment orders in our traditional Energy markets will be outside the U.S., such as India and the Middle East. Finally, over the last few years we have experienced an increase in our Energy & Process Aftermarket orders primarily from the domestic market as our customers continue to maintain and invest in the facilities they currently operate and we expect that trend to continue for the foreseeable future.

Over the long-term, we expect that population growth, an expanding global middle class, and an increasing desire for improved quality of life and access to consumer products will drive increased demand for industrial goods within the plastics and resins value chain along with fertilizers and related Process markets. As such, we expect investment in new global process capacity will improve and drive growth in demand for our products and services.

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, 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.

We intend to stay competitive in our traditional Energy & Process markets by investing in technology. One example 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 $50,000 over the next 5 to 10 years.

As illustrated below, we have succeeded over the last several years with our strategy to increase our participation in the Defense market, which comprised 83% of our total backlog at September 30, 2026.

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

Results of Operations

To better understand the significant factors that influenced our performance during the periods presented, the following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the notes to our Condensed Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q.

The following table summarizes our results of operations for the periods indicated:

The following tables provide our net sales by product line and geographic region including the percentage of total and change in comparison to the prior year for each category and period presented. Percentages may not sum to the total due to rounding:

Second Quarter and First Six Months of Fiscal 2027 Compared with Second Quarter and First Six Months of Fiscal 2026

Net sales for the second quarter of fiscal 2027 were $69,760, up $3,733, or 6% compared with the second quarter of fiscal 2026 reflecting the strength of our diversified revenue base, as well as the acquisition of FlackTek, which added $9,517 to net sales during the quarter, partially offset by decreases in our traditional Energy markets, particularly to customers outside of the U.S, and an extraordinarily high level of material receipts in the second quarter of fiscal 2026. The increase in net sales included a $5,077 or 12% increase in sales to the Defense industry, primarily due to the timing of project milestones, new programs, growth in existing programs and capacity, and the addition of FlackTek, partially offset by approximately $10,000 of lower material receipts in the second quarter of 2027 compared to the second quarter of 2026. Net sales to the Space industry increased 59%, or $2,374, primarily due to the impacts of commercialization and accelerated launch cadences, the ramp up of existing programs, as well as the FlackTek acquisition. Net sales for the quarter for the Energy & Process markets decreased $3,718 or 17%, driven by decreased sales in traditional Energy markets due to continued softness in investments in large capital projects caused by geopolitical uncertainties, partially offset by the addition of FlackTek and increased sales in New Energy such as SMRs. Aftermarket sales to the Energy & Process and Defense markets of $8,561 were down 3% compared with the second quarter of fiscal 2026 but remained at high levels.

Domestic sales as a percentage of aggregate sales were 93% in the second quarter of fiscal 2027 compared with 83% in the second quarter of fiscal 2026. These sales were primarily to the U.S. Defense market, which represented 66% of net sales for the second quarter of fiscal 2027 compared to 62% in the prior year period. Sales to customers outside of the U.S., which predominately are in the Energy & Process markets, of $4,949 were down $5,980 or 55% compared with the second quarter of fiscal 2026 and primarily related to decreases in our Asia markets.

Net sales for the first six months of fiscal 2027 increased $19,588, or 16%, from the first six months of fiscal 2026. The increase was across multiple markets, including a $16,925, or 24%, increase in sales in the Defense market, primarily due to timing of project milestones, as well as new programs, growth in existing programs, and the FlackTek acquisition. Sales to the Space market increased $5,283, or 72%, over the prior year period, due to new programs and the ramp up of existing programs, as well as the FlackTek acquisition. Sales to the Energy & Process markets decreased $2,620, or 6%, primarily due to push outs on large capital project activity, partially offset by growth in New Energy markets, which increased $2,232, or 150%, from the prior year period, as well as the FlackTek acquisition. Aftermarket sales to the Energy & Process and Defense markets of $18,232 increased 8% from the prior year period.

Domestic sales as a percentage of aggregate sales were 92% for the first six months of fiscal 2027 compared with 83% in the prior year period. These sales were primarily to the U.S. Defense market, which represented 62% of net sales for the first six months of fiscal 2027 compared to 58% in the prior year period. Sales to customers outside of the U.S., which predominately are in the Energy & Process markets, of $11,828 were down $8,266 or 41% compared with the first six months of fiscal 2026 and primarily related to decreases in our Asia markets. Fluctuation in sales among markets, products and geographic locations varies, sometimes significantly, from quarter-to-quarter based on timing and magnitude of projects. See also "Current Market Conditions," above. For additional information on anticipated future sales and our markets, see "Orders, Backlog, and Book-to-Bill Ratio" below.

Gross profit for the second quarter of fiscal 2027 was $19,673, up $5,367 or 38% compared with the second quarter of fiscal 2026 primarily due to an increase in gross profit margin to 28.2% for the quarter compared with 21.7% in the second quarter of fiscal 2026, as well as the increase in net sales discussed above. The increase in gross profit margin reflects the impacts of operational improvements on new and existing programs, the addition of FlackTek, and mix of sales during the second quarter of fiscal 2027, in particular, the composition of the current mix of programs in the Space and Defense markets, and an extraordinarily high level of material receipts, which carry a lower profit margin, in the second quarter of fiscal 2026. Gross profit and margin for the first six months of fiscal 2027 was $37,474 and 26.6%, respectively, compared with gross profit and margin for the first six months of fiscal 2026 of $29,027 and 23.9%, respectively. The increases to gross profit and margin in the first six months of fiscal 2027 compared to the first six months of fiscal 2026 are consistent with the increases in the second quarter of fiscal 2027 to the second quarter of fiscal 2026.

Changes in SG&A expense, including amortization expense, for the three and six months ending September 30, 2026 versus the comparable prior year periods are as follows:

The increase in SG&A expense, including intangible amortization, is primarily driven by the incremental SG&A from the acquisition of FlackTek, which accounted for $2,255 of the increase in the second quarter and $4,075 of the increase in the first six months of fiscal 2027 compared to the prior year periods. The remaining increases in SG&A expenses primarily reflect increases in acquisition and integration expenses, as well as investments we are making in our people, our processes, and our technology, which we expect to be approximately $2,500 of incremental costs for fiscal 2027, partially offset by a reduction to the BN Performance Bonus. 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 on the achievement of BN performance objectives for fiscal 2024, 2025, and 2026, which could range between $2,000 to $4,000 per year. The BN Performance Bonus is no longer in effect in fiscal 2027. During the three and six months ended September 30, 2025, we recorded $1,076 and $2,153, respectively, related to the BN Performance Bonus inclusive of applicable payroll taxes and no expense was recorded in the three and six months ended September 30, 2026.

Other operating expense (income) primarily represents the change in fair value of contingent earn-out liabilities and was an expense of $188 and $776 for the three and six month periods ended September 30, 2026, respectively, compared with income of $191 and $267 for comparable prior year periods of fiscal 2026. The change in fair value in the current year periods is predominately due to operating results and probabilities of achieving targets for recent acquisitions.

Net interest income for the second quarter and first six months of fiscal 2027 was $226 and $346, respectively, compared to net interest income of $68 and $245 for the comparable periods of fiscal 2026, respectively. This increase in net interest income was primarily due to higher average cash balances and interest rates compared to the prior year periods.

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act ("OBBB"), enacting a broad range of tax reform provisions, including extending and modifying certain domestic and international Tax Cut & Jobs Act provisions and expanding certain Inflation Reduction Act incentives while accelerating the phase-out of others. Only certain provisions had financial reporting implications at the time of enactment due to varying effective dates and discretionary elections. The enactment of the OBBB in the second quarter of fiscal 2026 resulted in an increase to our expected effective tax rate for fiscal 2026 of approximately 200 basis points but is expected to result in approximately $8,000 in cash tax savings over the next two years due to the bonus depreciation provisions of the OBBB and changes to the research and development Section 174 rules. These cash tax savings are expected to more than offset the impact of the effective tax rate increase.

Our effective tax rate for the second quarter of fiscal 2027 was 22%, compared with 27% in the second quarter of fiscal 2026. Our effective tax rate for the first six months of fiscal 2027 was 16%, compared with 17% for the first six months of fiscal 2026. Our effective tax rate can vary significantly from quarter to quarter depending on the level of projected pre-tax income, the amount of projected income derived from our higher tax rate foreign subsidiaries, changes in tax laws, as well as the timing of discrete tax items, primarily related to the vesting of restricted stock awards. The lower effective tax rates in the first six months of fiscal 2027 and fiscal 2026 in comparison to the statutory rate were primarily due to the discrete tax benefit recognized in those periods related to the vesting of restricted stock units and the Company's improved stock price in comparison to when those units were granted. The decrease in our effective tax rate for current year periods compared to the prior year periods is primarily due to the enactment of the OBBB discussed above.

The net result of the above is that net income and income per diluted share for the second quarter of fiscal 2027 were $4,637 and $0.39, respectively, compared with $3,090 and $0.28, respectively, for the second quarter of fiscal 2026. Adjusted net income and

adjusted net income per diluted share for the second quarter of fiscal 2027 were $6,170 and $0.52, respectively, compared with adjusted net income and adjusted net income per diluted share of $3,429 and $0.31, respectively, for the second quarter of fiscal 2026.

Net income and income per diluted share for the first six months of fiscal 2027 were $8,549 and $0.73, respectively, compared with net income of $7,685 and $0.69, respectively, for the first six months of fiscal 2026. Adjusted net income and adjusted net income per diluted share for the first six months of fiscal 2027 were $11,908 and $1.01, respectively, compared with adjusted net income of $8,367 and $0.75, respectively, for the first six months of fiscal 2026. 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) measure.

Non-GAAP Measures

Adjusted net income before interest (income) expense, income taxes, depreciation and amortization ("EBITDA"), adjusted net income, and adjusted net income per diluted share are provided for informational purposes only and are not measures of financial performance under accounting principles generally accepted in the U.S. ("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 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.

Adjusted EBITDA excludes charges for depreciation, amortization, interest (income) expense, income taxes, acquisition and integration expense (income), equity-based compensation, ERP implementation costs, and other unusual/nonrecurring items. Adjusted net income and adjusted net income per diluted share exclude intangible amortization, acquisition and integration expense (income), ERP implementation costs, other unusual/nonrecurring items, and the related tax impacts of those adjustments.

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

Acquisition and integration expense (income), net are incremental costs that are directly related to, and as a result of acquisition related activity and the subsequent accounting for contingent earn-out liabilities. These costs (income) may include, among other things, professional, consulting, travel expenses, and other fees, system integration costs, and contingent consideration fair value adjustments. ERP implementation costs primarily relate to consulting costs (training, data conversion, and project management) incurred in connection with the ERP system being implemented throughout our Batavia, New York facility in order to enhance efficiency and productivity and are not expected to recur once the project is completed.

Liquidity and Capital Resources

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

Net cash provided by operating activities for the first six months of fiscal 2027 was $34,070 compared with $11,324 for the first six months of fiscal 2026. This increase was primarily due to the timing of collection of accounts receivable and customer deposits, as well as increases in cash net income.

Capital expenditures for the first six months of fiscal 2027 was $4,855 compared to $11,148 for the comparable period in fiscal 2026. Capital expenditures for fiscal 2027 relate to machinery and equipment, as well as for buildings and leasehold improvements to support our growth and productivity improvement initiatives.

Capital expenditures for fiscal 2027 are expected to be between $15,000 and $20,000 and relate to the continued investing in automation, advanced manufacturing capacity and capabilities, our technology, and strategic growth initiatives intended to support long-term scalable growth and margin expansion, and are expected to generate returns on invested capital above 20%. During the second quarter of fiscal 2027 we began construction of a new 30,000 square foot manufacturing facility adjacent to our BN campus on land that was purchased several years ago and is expected to be completed in the second quarter of fiscal 2028. We estimate that our maintenance capital spend is approximately $2,500 per year. For the next several years we expect capital expenditures to be approximately 7% to 10% of sales each year as we continue to invest in our business in order to support our long-term organic growth goals.

On April 14, 2026, we entered into a Securities Purchase Agreement with certain accounts advised by T. Rowe Price Investment Management, Inc. pursuant to which we agreed to sell an aggregate of 600 shares of common stock, par value $0.10 per share for $83.36 per share, based upon the 20-day average closing price of the Company's common stock on the New York Stock Exchange on April 13,

2026, for aggregate proceeds of $50,000. We utilized $13,000 of the proceeds for debt repayment and are expected to utilize the remaining proceeds to help fund future investment in organic and inorganic growth opportunities.

Cash and cash equivalents were $71,427 at September 30, 2026 compared with $6,580 at March 31, 2026, an increase of $64,847 primarily due to cash provided by financing activities of $34,473 and cash provided by operations of $34,070. At September 30, 2026, approximately $343 of our cash and cash equivalents is used to secure our letters of credit and $4,804 of our cash is held by our China and India subsidiaries.

On October 13, 2023, we entered into a five-year revolving credit facility with Wells Fargo that provides a $50,000 line of credit (the "Revolving Credit Facility"). Simultaneous with the close of the acquisition of FlackTek on January 23, 2026, the Company amended the Revolving Credit Facility to increase the line of credit to $80,000. As of September 30, 2026, there were no borrowings and $5,264 letters of credit outstanding on the Revolving Credit Facility and the amount available to borrow was $74,736, subject to interest and leverage covenants.

The Revolving Credit Facility contains customary terms and conditions, including representations and warranties and affirmative and negative covenants, as well as financial covenants for the benefit of Wells Fargo, which requires us to maintain (i) a consolidated total leverage ratio not to exceed 3.50:1.00 and (ii) a consolidated fixed charge coverage ratio of at least 1.20:1.00, in both cases computed in accordance with the definitions and requirements specified in the Revolving Credit Facility. As of September 30, 2026, we were in compliance with the financial covenants of the Revolving Credit Facility and our leverage ratio as calculated in accordance with the terms of the Revolving Credit Facility was 0.3x.

The Revolving Credit Facility contains terms that may, under certain circumstances as defined in the agreement, restrict our ability to declare or pay dividends. Any determination by our Board of Directors regarding dividends in the future will depend on a variety of factors, including our future financial performance, organic and inorganic growth opportunities, general economic conditions, and financial, competitive, regulatory, and other factors, many of which are beyond our control. We did not pay any dividends during the six months ended September 30, 2026, or during fiscal 2026 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 did not have any off-balance sheet arrangements as of September 30, 2026 and March 31, 2026, other than letters of credit incurred in the ordinary course of business.

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

Our capital allocation strategy includes disciplined and selective acquisitions to supplement organic growth, expand our capabilities and extend our participation across our product lifecycle. We intend to allocate capital to acquisition opportunities that complement our existing businesses, strengthen our positions in targeted markets and support long-term profitable growth and shareholder value creation. Depending on the size and terms of a transaction, acquisition consideration may include a combination of cash, stock and contingent earnout payments. We evaluate these opportunities in the context of our liquidity, capital commitments, and borrowing capacity, with a focus on maintaining a strong balance sheet and financial flexibility.

Orders, Backlog, and Book-to-Bill Ratio

In addition to the non-GAAP measures discussed above, management uses the following key performance metrics to analyze and measure the Company's financial performance and results of operations: orders, backlog, and book-to-bill ratio. Management uses orders and backlog as measures of current and future business and financial performance and these may not be comparable with measures provided by other companies. Orders represent definitive agreements with customers to provide products and/or services. Backlog is defined as the total dollar value of orders received for which revenue has not yet been recognized. Total backlog can include both funded and unfunded orders under government contracts. Approximately 85% of our Defense backlog is funded. Management believes tracking orders and backlog are useful as it often times is a leading indicator of future performance. In accordance with industry practice, contracts may include provisions for cancellation, termination, or suspension at the discretion of the customer.

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.

Given that each of orders, backlog, and book-to-bill ratio is an operational measure and that the Company's methodology for calculating orders, backlog and book-to-bill ratio does not meet the definition of a non-GAAP measure, as that term is defined by the SEC, a quantitative reconciliation for each is not required or provided.

The following table provides our orders by market and geographic region including the percentage of total orders and change in comparison to the prior year for each category and period presented. Percentages may not sum to the total due to rounding:

Orders booked in the second quarter of fiscal 2027 were $73,701 or 1.1x net sales for the quarter. Orders booked for the first six months of fiscal 2027 were $169,551 or 1.2x net sales for the period. As a result, backlog increased $4,059, or 1% during the quarter and $28,639, or 5%, for the first six months of fiscal 2027 to $561,276 at September 30, 2026. Orders in the second quarter of fiscal 2027 decreased $9,499, or 11%, compared to the second quarter of fiscal 2026.

Orders for the first six months of fiscal 2027 decreased $39,547, or 19%, compared to the first six months of fiscal 2026. Aftermarket orders for the Energy & Process and Defense markets remained strong in the second quarter of fiscal 2027, and were $18,312, increasing 91%, or $8,708, compared to the second quarter of fiscal 2026. Space orders for the first six months of fiscal 2027 totaled $24,985, or 2.0x net Space sales for the period. Aftermarket orders for the Energy & Process and Defense markets for the first six months of fiscal 2027 were $29,211, increasing 46%, or $9,267, compared to the prior year period. Orders in the Energy & Process markets for the second quarter of fiscal 2027 increased $181, or 1%, compared to the second quarter of fiscal 2026, as orders for large capital projects for the Energy & Process market remained slow during the three and six month periods ended September 30, 2026, partially offsetting increases in Aftermarket orders in Energy & Process. Note that our orders tend to be lumpy given the nature of our business (i.e., large capital projects) and in particular, orders to the Defense industry, which span multiple years and can be significantly larger in size.

Orders to the U.S. represented 90% of total orders for the first six months of fiscal 2027 compared to 97% for the prior year. These orders were primarily to the Defense market which represented 61% of orders for the first six months of fiscal 2027 and are U.S. based. The increase in International orders during the second quarter of fiscal 2027 was primarily due to a large vacuum system order for an oil refinery in Venezuela.

The following table provides our backlog by market, including the percentage of total backlog, for each category and period presented. Percentages may not sum to the total due to rounding:

Backlog was at $561,276 at September 30, 2026, a 12% increase over the prior year period. We expect to recognize revenue on approximately 30% to 35% of the backlog within one year, 20% to 25% in one to two years and the remaining beyond two years. The majority of the orders that are expected to convert beyond twenty-four months are for the Defense industry, specifically the U.S. Navy that have a long conversion cycle (up to six years).

Outlook

Based upon the results for the second quarter of fiscal 2027, as well as our expectations for the remainder of the fiscal year, we are updating our full year fiscal 2027 guidance provided earlier this year as follows ($ in thousands):

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

Note that historically the third quarter of our fiscal year is our lowest revenue quarter due to the holidays and a higher level of vacation being taken by our direct labor force.

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

Our expectations for sales and profitability assume that we will be able to operate our production facilities at planned capacity, have access to our global supply chain including our subcontractors, do not experience any global disruptions, and experience no further impact from any other unforeseen events.

Contingencies and Commitments

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

During the third quarter of fiscal 2024, the Audit Committee of the Board of Directors, with the assistance of external counsel and forensic professionals, concluded an investigation into a whistleblower complaint received regarding GIPL. The investigation identified evidence supporting the complaint and other misconduct by employees. The other misconduct was over a period of four years, was not deemed to be material, and was isolated to a few employees. All involved employees have been terminated or are no longer with the Company and we have implemented remedial actions, including strengthening our compliance program and internal controls. As a result of the investigation, during the third quarter of fiscal 2024, the statutory auditor and bookkeeper of GIPL tendered their resignations and new firms were appointed. We have voluntarily reported the findings of our investigation to the appropriate authorities in India, the U.S. Department of Justice, and the SEC and will continue to cooperate with those authorities. Although the resolutions of these matters are inherently uncertain, we do not believe any remaining impact will be material to our overall consolidated results of operations, financial position, or cash flows.

As of September 30, 2026, we are subject to the claims noted above, as well as other legal proceedings and potential claims that have arisen in the ordinary course of business. Although the outcome of the lawsuits, legal proceedings or potential claims to which we are or may become a party cannot be determined and an estimate of the reasonably possible loss or range of loss cannot be made for the majority of the claims, we do not believe that the outcomes, either individually or in the aggregate, will have a material adverse effect on our results of operations, financial position or cash flows. See Note 10 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for additional information.

Critical Accounting Policies, Estimates, and Judgments

Our Condensed Consolidated Financial Statements are based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make significant assumptions. We believe that the most critical accounting estimates used in the preparation of our Condensed Consolidated Financial Statements relate to labor hour estimates, total cost, and establishment of operational milestones, which are used to recognize revenue over time, accounting for contingencies, under which we accrue a loss when it is probable that a liability has been incurred and the amount can be reasonably estimated, and accounting for business combinations and intangible assets. For further information, refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8 "Financial Statements and Supplementary Data" included in our Annual Report on Form 10-K for the year ended March 31, 2026.

New Accounting Pronouncements

In the normal course of business, management evaluates all new Accounting Standards Updates and other accounting pronouncements issued by the Financial Accounting Standards Board, SEC, or other authoritative accounting bodies to determine the potential impact they may have on the Company's Condensed Consolidated Financial Statements. Other than those discussed in the Condensed Consolidated Financial Statements, management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company's Condensed Consolidated Financial Statements. For discussion of the newly issued accounting pronouncements see Note 15 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for additional information.