THR earnings call analysis

NYSE:THR Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Conference Operator | Operator: and welcome to the Thurmond Group Holdings fourth quarter fiscal year 2025 earnings presentation. 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 this conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Yvonne Salem, Vice President, FP&A, and IR. Thank you. You may begin. Yvonne Salem | Vice President, FP&A and Investor Relations: Thank you. Good morning, and thank you for joining Thermos Group's fourth quarter and full year fiscal 2025 results conference call. Leading the call today are CEO Bruce Thames and Chief Financial Officer Jan Schott. Earlier this morning, we issued an earnings press release, which has been filed with the SEC on Form 8K, and is also available on the investor relations section of our website. Additionally, the slides for this conference call can be found in our IR website under News and Events, IR Calendar, Earnings Conference Call, Q4 2025. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comfortable GAAP measures in the tables at the end of the earnings press release. These non-GAAP measures should be considered in addition to and not as a substitute for measures of financial performance reported in accordance with GAAP. I would like to remind you that during this call, we might make certain forward-looking statements regarding our company. Please refer to our annual report and most recently quarterly report filed with the SEC for more information regarding our forward-looking statements, including the risks and uncertainties that could impact our future results. Our actual results might differ materially from those contemplated by these forward-looking statements and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments, or otherwise, except as might be required by law. Today's call will begin with remarks from our CEO, Bruce Thames, who will provide a review of our recent business performance, including an update on the progress we have made on our strategic initiatives. followed by a financial update and review from our CFO, Jan Schott. Bruce will then wrap up our prepared remarks with an update on our business outlook. At the conclusion of these prepared remarks, we will open the line for questions. With that, I'll turn the call over to Bruce. Bruce Thames | Chief Executive Officer: Thank you, Yvonne, and good morning to everyone joining us on the call today. I'll begin my commentary with the fourth quarter highlights, which we detail on slide three of our presentation. The fourth quarter was another period of solid execution by our team, which resulted in further strength in our OPEX recurring revenues, continued bookings momentum, and strong margin expansion. Over the past couple of quarters, We detailed how our team has remained focused on our key strategic priorities despite the difficult market conditions. While CapEx revenue trends in recent quarters were weaker than we would have liked, we remain confident that the positive order momentum in our business would translate to an improved growth trajectory. During the fourth quarter, our hard work and dedication paid off as we generated 3% organic growth during the quarter, the first in over a year. These order trends have improved across a range of verticals, most notably the LNG market. After the moratorium on LNG exports from the US was lifted earlier this year, activity has resumed and we're seeing increased bidding and project awards. The activity around natural gas is broad based with numerous projects underway in the Gulf Coast and the Middle East. We built a strong portfolio of products targeting the LNG market, have secured five major awards and are well positioned to capitalize on numerous other opportunities in our pipeline. This bookings momentum resulted in the fourth consecutive quarter with a positive book to build. As a result, our backlog as of March 31st increased 29% from last year, with the organic backlog up 20%, driven by momentum and diversified verticals, coupled with a rebound in certain oil and gas markets. We also made further progress on our operational excellence initiatives, which combined with our more favorable revenue mix, translated to an EBITDA margin of 22.7% during the fourth quarter, a 423 basis point improvement relative to Q4 of last year. These results underscore the strength of the Thermon business system and resilience of our business operating model. And finally, our strict financial discipline and improved operating profitability enabled us to finish fiscal 2025 in a strong financial position with net leverage of just under one times. Importantly, we were able to accomplish this while continuing to invest in our growth initiatives, while also making nearly $14.5 million in optional debt repayments and returning over $14 million and capital shareholders through our share repurchase program all in the fourth quarter. As a testament to our solid financial position, the board has approved refreshing our share repurchase authorization back to the initial $50 million, underscoring our optimism for the future. Turning now to reflect on fiscal 2025, I'm extremely pleased with our team's performance delivering another record year of revenue and adjusted EBITDA. despite what was a very challenging operating environment. On slide four, we provide a snapshot of our 2025 highlights. Our 498 million in revenue was up just 1% over prior year, despite a 37% decline in large capital projects. Our diverse revenue base, making up over 72% of our end market mix, along with growth in recurring revenues and strategic M&A, were instrumental in delivering this year's results. We generated an adjusted EBITDA margin of 22% during fiscal 2025, which was up 86 basis points from last year, reflecting our more favorable revenue mix and productivity gains through the implementation of the Thermon business system. Our earnings growth and solid gross margin expansion of 196 basis points delivered 53 million in free cash flow during the year. More importantly, we generated 536 million in bookings during the year with a book to bill of 1.08 times, demonstrating the favorable trends in our end markets, our strong competitive position, and the hard work and dedication of our team. Our 3D initiatives, which we'll discuss in more detail later on the call, contributed 93 million in revenue during the year. The R&D team also announced 28 new product and software releases during fiscal 25, advancing our solution set from digitization to diversification and decarbonization as well as in the core business. The advancement of our strategy positions us well as we enter our fiscal year with solid momentum, which we illustrate on slide five. The addition of vapor power has expanded our addressable market, increasing our sales pipeline by 25%, even though the business represents just 11% of total revenue today. The favorable book to build, underpinned by strong order trends in recent quarters, has resulted in backlog growth on a year-over-year basis. While there is broader macro uncertainty, we remain encouraged by the favorable trends in our key end markets, which is reflected in our strong bid pipeline, which is up 25% from the end of last year. As we anticipate the opportunities ahead in fiscal 2026, I would like to take a moment to reflect on the strides we've made in advancing our strategic initiatives during fiscal 2025. Now turning to slide six, where we highlight our key strategic pillars. First, growing our installed base. Second, decarbonization, digitization, and diversification. And third, disciplined capital allocation. These pillars underpinned by our dedication to operational excellence form the basis of our long-term value creation framework. I will begin on slide seven with growing the installed base. Over the past 70 years, we've cultivated a loyal customer base that is the foundation of this business and continues to drive meaningful results, even in challenging market conditions. During fiscal 2025, our organic revenues declined only 8%, despite a decline in large project revenues of nearly 40%. On a trailing 12 month basis, our OpEx revenues represented 85% of our total revenues up from the low 70% range just two years ago, providing a more stable and predictable base of revenues. As importantly, these OpEx revenues carry significantly higher gross margins, typically in the 40 to 65% range, well above the levels in our large project business. On slide eight, we underscore the critical components of our second strategic pillar, pursuing diversification, decarbonization, and digitization, otherwise known as our 3D initiatives, to achieve growth above and beyond GDP. By capitalizing on these transformative opportunities and expanding our presence in higher growth, diversified markets, we are positioning the company for sustained profitability and long-term competitive advantage. Diversification shown here on slide nine has been an area where we've exceeded our expectations. The goal of 70% of revenue from diverse end markets was achieved at the beginning of fiscal 25, almost two years early. One of the most significant insights from fiscal 2017 is the remarkable 220% revenue growth driven by diversification across multiple end markets, even as oil and gas revenues contracted. As we look forward, we remain committed to further diversifying our revenue base through new product introductions and expanding into new emerging markets, such as data centers and nuclear power. That said, our longstanding oil and gas customers remain an important part of the Thermon business at roughly 30% of our total revenues. We've been encouraged by the recent LNG project activity, which we view as a bridge fuel for years to come. These pockets of strength we're seeing contributed to our Q4 bookings with oil and gas up over 50% from last year. Based on the priorities of the newest administration, we're optimistic this momentum can continue. Turning now to slide 10. The decarbonization opportunity remains a critical aspect of our strategy as we look to leverage existing solutions and new product development to meet our customers' decarbonization and electrification needs. The electrification of industrial heating is still in its early stages, and we built both the technical competencies and breadth of solutions to enable this transition. The acquisition of vapor power in fiscal year 24 expanded our product portfolio while increasing our total addressable market for decarbonization and electrification opportunities with the pipeline growing 70% and revenues increasing 85% over fiscal year 24. During fiscal 2025, we took another important step to further advance our decarbonization strategy with the acquisition of FATI. This acquisition brought us a very well-respected brand of heating solutions that is highly complimentary to our legacy portfolio while expanding our global manufacturing footprint. Since acquiring the business, the FATI backlog has essentially doubled due to strong demand from Thermon legacy customers. In addition to our inorganic growth, we have built advanced software analytic tools to validate designs and launch several new products that reduce the total cost of ownership for our customers. While the policy shift in the U.S. has led to a slowdown in decarbonization conversion rates, Europe continues to invest in the energy transition. As outlined on slide 11, we remain highly encouraged by the significant strides we've made in advancing our digitization strategy. The continued investment in our Genesys control offerings reflects our unwavering commitment to delivering leading controls and monitoring solutions that empower our customers with real-time operational insights, enhancing safety, reliability, and efficiency. These solutions now constitute 12% of our total heat tracing revenue, a clear testament to its growing impact. Furthermore, fiscal 2025 saw remarkable growth in our Genesis network installed base, where circuit counts surged by nearly 90%, and we're projecting an additional 50% growth in fiscal 2026. This robust adoption underscores the differentiated value we bring to the market. By enabling our customers to digitize and optimize their maintenance operations, we are not only strengthening our competitive advantage, but also driving success in new capital projects while capturing recurring MRO revenues. This strategic focus positions us well for sustained growth and leadership in the market. Turning now to slide 12. I'm pleased to highlight the transformative impact of the Thermon business system. By streamlining our operations through initiatives such as rooftop consolidation and efficiency improvements, as well as the seamless integration of vapor power and FATI, we've strengthened our operational foundation. This system not only accelerates our progress towards achieving our profitability targets, but also enhances our agility and positions us to deliver a sustained competitive advantage in the marketplace. And finally, As it relates to our disciplined capital allocation strategy, we successfully executed our balance approach during fiscal 2025. As we continue to make important investments to advance our organic growth strategy, we deployed capital for strategic M&A through the acquisition of FATI, recurrent capital to shareholders through our share repurchase program, and made optional debt repayments throughout the year. As we move forward, our strategic focus remains on identifying and executing high value acquisitions that align with our mission to expand and diversify our portfolio of industry-leading industrial heating solutions. With that, I'll turn it over to Jan, who will provide a more detailed review of our fourth quarter results before I wrap up with some remarks on our financial outlook. Jan? Jan Schott | Chief Financial Officer: Thank you, Bruce, and good morning, everyone. I will review the financial results for the quarter, give an update on working capital and free cash flow, and conclude with comments on the balance sheet and liquidity. Moving to slide 14, I will start with our fourth quarter highlights. Revenue in the fourth quarter was $134.1 million, a year-over-year increase of 5%, driven by continued momentum in OPEX revenues, including solid growth at Vapor Power, and contribution from Fatih. Please note that vapor power is now included in organic results. Our strategic focus of diversifying our revenue base and increasing our exposure to short-cycle projects and MRO-related recurring revenue continues to benefit our business. This was partially offset by softness and large project revenue. As Bruce mentioned earlier, we are beginning to see improved booking momentum in our large project business. Large project revenue was $22.3 million during the fourth quarter, down 5% from last year. Compared to the previous quarter, however, we saw revenue increase 20%, another indicator of improved momentum in CapEx spending. Our OpEx revenues were $111.8 million during the fourth quarter, an increase of 7% compared to last year, highlighting the benefit of our strong and loyal installed base of customers and the stability of maintenance and repair spending. Excluding the contributions from FATI, OPEX revenues increased 4% from the same period last year. OPEX revenues represented 83% of total revenues for the quarter. Orders increased 19% on a reported basis and were up nearly 14% organically, with balanced strength across our diversified end markets, including strength in chemical, petrochemical, and rail and transit markets. We also saw a rebound in oil and gas, particularly LNG, as Bruce mentioned earlier. As a result, our fourth quarter book to bill was 1.04 times up from 1.03 times in the prior quarter. Looking at our results by geography, U.S. lamb sales increased 6% due to continued strength in OPEX revenue and improved large project trends. Revenue in EMEA was up 51% on a reported basis to 15 million and up 18% excluding the contribution from FATI. Canada sales of 40 million were down 6% from last year due to the general macroeconomic conditions in the country. Revenues in APAC were 9.2 million. Adjusted EBITDA was 30.5 million during the fourth quarter, up from 23.6 million last year, an increase of 29%. Solid revenue growth and strong operating performance were partially offset by continued investments in growth initiatives. Adjusted EBITDA margin was 22.7% during the fourth quarter, up from 18.5% last year due to a more favorable revenue mix, disciplined cost management, and productivity gains. Moving to slide 16 for an update on our balance sheet and liquidity, Working capital increased by 3% to $167.6 million at the end of the quarter due to timing of collections. CapEx was $3.1 million during the quarter, flat compared to last year. Free cash flow during fiscal 2025 was $52.9 million, down from $55 million last year. While we remained focused on working capital management and strong free cash flow conversion, the modest decline in free cash flow was driven by technology investments tied to our ERP implementation. We repurchased 14 million in shares during the fourth quarter, bringing our total share repurchases for 2025 to over 20 million. As Bruce mentioned earlier, After purchasing $24 million to date under our original share repurchase program, our board approved a refresh of the program back to $50 million. We paid down $14.5 million of net debt during the quarter, bringing our net debt balance to $99 million and are reporting net leverage at the end of the year of 0.9 times. we are currently working with our bank group to extend the maturity of our existing credit facility, which becomes current in September, 2025. In summary, the fourth quarter wrapped up a year of strong financial discipline for Thermon. We successfully executed our capital allocation priorities, including continued investments in organic growth, capital deployed for acquisition, and opportunistic return of capital through our share repurchase program. And we did all of this while still maintaining a strong balance sheet. Based on our total cash and available liquidity of $137 million, we remain well capitalized and have ample flexibility to support our capital allocation needs and will continue to balance investments in growth, debt pay down, and opportunistic share repurchases. With that, I will turn the call back over to Bruce. Bruce Thames | Chief Executive Officer: Thanks, Jan. Moving now to slide 17. As we enter fiscal year 2026, we remain focused on navigating a dynamic global trade environment with discipline and agility. Tariffs continue to present both direct and indirect challenges to our cost structure, particularly in the form of elevated input costs and near-term margin pressure. Our current assumptions include 25% tariffs on steel and aluminum, 30% on goods from China, 25% reciprocal tariffs from Canada and Mexico, and 10% for the rest of the world. Based upon these assumptions, we're expecting an annualized impact of roughly 16 to 20 million on a gross basis prior to mitigating actions, which are already underway. While our direct market exposure to China remains low, representing just 2% of total revenue, we're mindful of second and third order effects through our supplier and distributor networks. These ripple effects are being closely monitored and addressed through proactive supply chain management. To mitigate these impacts, we're executing a multi-pronged strategy. First, pricing actions. We've implemented targeting price increases to offset rising input costs while maintaining competitiveness and customer value. Second, USMCA compliance. We're committed to preserving our USMCA qualifications, which continue to provide a strategic advantage in North America. Third, global footprint optimization. With manufacturing operations in the US, Canada, India, and Europe, we are leveraging our global footprint to shift production and sourcing in ways that reduce tariff exposure. Fourth, supply chain reconfiguration. We are actively evaluating and reconfiguring our supply chain to minimize tariff related disruptions and enhance resilience. Despite these headwinds, we're entering fiscal year 26 with strong order momentum and a healthy backlog, which reinforces our confidence in the underlying demand for our products and the strength of our customer relationships. We remain calm, focused and confident in our ability to manage through these challenges while continuing to deliver long-term value for our shareholders. And now if you'll turn to slide 18, I'll discuss our outlook for fiscal 2026. Looking forward, The uncertainty created by the volatile and rapidly changing trade environment makes it very challenging to ascertain the second and third order impacts from tariffs, particularly as it relates to customer behaviors and the demand environment. Our guidance assumes the current tariff levels remain in place, resulting in margin headwinds in the first half of the year, offset by price increases in the back half of the year as mitigating actions take full effect. Given the uncertainty with tariffs and the overall global economy, the current guidance contemplates slowing growth in the second half of the fiscal year. Based upon these factors, we're providing fiscal 2026 financial guidance that calls for revenue in a range of $495 million to $535 million, representing 3.5% growth at the midpoint of the range. Adjusted EBITDA is in a range of $104 million to $114 million, essentially flat at the midpoint of the range. Our guidance assumes a modest decline in adjusted EBITDA margin, largely as a result of the expected lag before our tariff mitigation efforts in the first half will flow through to possibly impact results in the second half. Given the dynamic nature of tariffs, global trade and policy changes, we'll provide updates on the business and our mitigating actions throughout the year. Finally, as we conclude on slide 19, I want to express my deep appreciation for the efforts of the Thermon team throughout fiscal 2025. Their dedication and innovation have positioned us as a leader in industrial process heating with a resilient business model and efficient operational framework. While the ongoing tariff dynamics present challenges, we remain acutely focused on the things within our control. With a strong financial foundation and clear strategic priorities, we are confident in our ability to capitalize on opportunities, mitigate risks, and deliver sustained value for our shareholders. That completes our prepared remarks. We are now ready for the question and answer portion of our call. Conference Operator | Operator: Thank you. And if you would like to ask a question at this time, please press star 1 on your telephone keypad. A confirmation tone will indicate that the line is in the question queue. You can press star 2 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. Once again, to ask a question, press star 1 on your telephone keypad. We'll pause for a moment while we pull for questions. And our first question comes from Chip Moore with Roth Capital Partners. Please state your question. Chip Moore | Analyst, Roth Capital Partners: Hey, Morgan. Thanks for taking the question. Hey, Bruce, I wonder if you could elaborate on, you talked about LNG seeing a bit of a resurgence. Can you elaborate a bit on that, what you're seeing, how that might translate? Bruce Thames | Chief Executive Officer: Yeah, Chip. Since the lift of the moratorium in the January timeframe, there was always really a number of projects that were in the queue in our pipeline, and we've seen those move forward pretty quickly. And as I noted in the prepared remarks, the areas of strength we've seen have been along the US Gulf Coast, as well as in the Middle East. And some of those are field developments, as well as export facilities. As we look at our pipeline ahead, there's a number of opportunities that are still out there. We're tracking around $80 million in LNG opportunities for our content. So we see really some nice tailwinds there in that sector. Chip Moore | Analyst, Roth Capital Partners: Great. I appreciate that. And maybe just on... FY26, you talked about, I think, some margin headwinds maybe here in the first half before the pricing kicks in. And then maybe growth being a little more challenging in the back end. Maybe just any more detail there on what you're thinking and directionally and cadence. Thanks. Bruce Thames | Chief Executive Officer: Yeah, great question. So we've put together a task force. We're looking very closely at the inflationary impact of tariffs to our input costs. And while it's a moving target, we see there'll be a near-term impact to gross margins in the first half of the year. We've already moved on pricing in a number of areas to be able to offset that. As usual, our pricing, we have about a 60-day window or lag before that is effective through our channel partners and with customers. So there's a lag effect there. There's also work that's in backlog, particularly around project activity, some of which we don't have the opportunity to go and renegotiate. So we anticipate that will be a margin. Those will create some margin headwinds in the first half. However, we have pricing power. We've been able to pass price increases in the past. I look back at COVID and the inflationary impact there. We were able to pass those on. My expectations, we've moved fairly quickly here, and so we should begin to see that flow through late in the second quarter and see that fully offset any inflationary input cost we see in the first half. The looking more at the demand environment, certainly when you look at the leading indicators as we come into this fiscal year, there's nothing that would indicate that there's a big slowdown in the back half, but it's just a more cautious approach given the uncertainty. It's difficult, I think, for customers to parse through the data, particularly as it relates to deploying capital. And so it's our general belief that this could create a headwind in in the back half of the year although the leading indicators we track have not indicated that to be true yet fantastic appreciate it i'll hop back in queue thanks and your next question comes from brian drab with william blair please see your question good morning thanks for taking the questions Brian Drab | Analyst, William Blair: I just wanted to maybe first build on that last question. And first, how are you thinking about, you know, the overtime category in your forecast for fiscal 26? Is it, you know, obviously is it, you know, down a lot in fiscal 25? Are you forecasting that to be about the same, I guess, given the overall guidance? Bruce Thames | Chief Executive Officer: Yes, roughly. The way we're thinking about this right now is that we actually saw a really nice backlog build in overtime projects. In fact, our engineering workload is really at an all-time high, and that's related to the return of capital projects that we've seen really building. We anticipated that coming into this year, and it really began to manifest, particularly in the fourth quarter. But we've had four consecutive quarters of positive book to bill. So this has been building. Our assumption at this point is that the incoming order rates for these larger capital projects will be muted until we get more clarity on trade policy going forward, and we'll begin to burn through those through the second half of the year. So that's essentially the assumptions we have at the midpoint of our guide. If we look at our guide overall, the upper end of the range would be really what we would have maybe anticipated had we not had some of the trade disruptions and given the momentum we have seen in the market leading into our fiscal 26. The lower end of the range would assume an erosion in the overall trade negotiations and an escalation in the trade conflicts. Brian Drab | Analyst, William Blair: Okay, thanks. Can I ask you to comment on, you know, how you're thinking about at the midpoint of the range, how you're thinking about the, you know, the OPEX spending, you know, the point in time segment? Bruce Thames | Chief Executive Officer: The mix should be fairly consistent to what we saw in 25. It should be fairly consistent when you look at our guide at the midpoint. Brian Drab | Analyst, William Blair: Okay. Can you talk at all about, you know, other categories or, you know, other end markets where you're seeing some of the improvement in the CapEx spending? You talked about the LNG being a standout, but are there other areas? And can you update us at all on if you're seeing any incremental demand from the data center opportunity that you mentioned last quarter? Bruce Thames | Chief Executive Officer: Yes, so I'll start with just the overall demand environment. General industrial remains strong. It's one of our largest booking segments in the fourth quarter. It represented almost 32% of the bookings in the quarter. Chemical, petrochemical, we saw it almost 17.5%. in the quarter. So we've seen some strong demand there. As I noted earlier, oil and gas, which has been weak for quite some time, we've seen an uptick there, particularly as it relates to LNG. And when we look overall, renewables, we still see opportunities. And that was actually up, although it's a fairly small percent of revenue, but that was up fairly sharply in the fourth quarter as well. Rail and transit, we've seen some really strong bookings. Our backlog there has grown to about 36 million, of which we anticipate executing about 17 million of that in the coming year. The one thing To note here around data centers, we've done more work there, and that is a real opportunity around load banks, and we've got some work underway. We'll provide some more updates on that in upcoming calls, but that is a real opportunity in the market, and we're very active in trying to develop and execute on that opportunity we see. Brian Drab | Analyst, William Blair: Okay. I'm going to save my questions for later, but I just want to make sure I have one thing, high-level idea correct here. It seems like what I'm hearing from you today is that, you know, backlog's up 20% organically. You've got some momentum in some different end markets. The CapEx environment at the moment looks like it's improved materially, but, you know, just, you know, Instead of like a lot of companies are doing polling guidance, you're just saying we're going to give a broad kind of a broad range. There's a lot of, you know, the consensus view is that there's going to be a slowdown later this year, you know, overall macro. So you're taking all of this into account and just saying, let's be cautious. But it seems like the high end of the range, you know, it could be in play here. Is this a fair way to interpret everything that I'm hearing today? Bruce Thames | Chief Executive Officer: Yeah, I think that's a really good way of summarizing it, Brian. I think the high end of the range, as I said, if we see some real progress on some of these trade agreements, we get more clarity on the tariff environment going forward. I think customers can become more comfortable with deploying capital, which we've seen that momentum building, quite frankly, for at least the last three quarters. And we began to see it manifest in our Q4 with expectations that would come through in fiscal 26. So we're being more cautious in really the demand side of the equation, just given the uncertainty that we see and our customers are seeing in the trade environment. Brian Drab | Analyst, William Blair: Got it. Okay. Thanks for all the detail. Bruce Thames | Chief Executive Officer: We'll talk to you later. Yes. Conference Operator | Operator: Thank you. And a reminder to ask a question, press star one on your phone. Your next question comes from Justin Ages with CJS Securities. Please state your question. Justin Ages | Analyst, CJS Securities: Hi, thanks for taking the questions. Hey, Justin. With the debt pay down and the share buyback and then refresh, can you just give us a little more detail on your capital allocation priorities? Jan Schott | Chief Financial Officer: Yes. Hi, Justin. I'll take that one. You know, I guess first and foremost, you know, we have our capital investments for growth. And that's in the same range that we've done in prior years with two to three percent CapEx, two percent of sales. And then probably with all of the technology investments that we have going in, that's about one percent for next year. So that's first and foremost. You know, second, I would say we do. Obviously, with the refresh of the share repurchase program, we'll look for opportunistic opportunities to buy shares. We bought 14 million shares this last quarter, really taking advantage of some dips due to other macro economic things that were happening. But we think that that's really a path forward and we'll continue on that plan. And then the other aspect is also that we do have an active M&A pipeline. And in this environment, really, you know, just looking for buying opportunities, to be honest. But I think, you know, that's something that we're very focused on. And with $137 million of liquidity, we have a lot of, you know, tailwinds at our back really looking, you know, hoping to execute something in the near term and on M&A. Justin Ages | Analyst, CJS Securities: Okay, I appreciate that. And then you just mentioned that guidance includes this $5 million one-time tech investment. Can you just give us a little more color on what that entails? Jan Schott | Chief Financial Officer: That's mostly associated with our ERP implementation that we have ongoing. We'll be implementing kind of in stages across the globe, really over the next year and a half or so. And so we're actually looking forward to, you know, having more color on that, I guess, in future calls. But that's underway right now. Justin Ages | Analyst, CJS Securities: Okay. Thank you. And then last question. On Thurmond, you know, long-term initiatives, and particularly on the EBITDA margin target. Just wanted to know, you know, what steps are you taking to get there? Do they include some of these mitigation efforts that are now part of, you know, offsetting some of the tariff impact? Just any color on that. Bruce Thames | Chief Executive Officer: Yeah, so certainly the higher input costs create some headwinds in the near term, but I still feel confident that the same levers that we have to pull in the business exist on a go-forward basis to continue to drive EBITDA margin expansion. We saw some very nice Gross margin expansion in the year, about half of that was related to mix. We had about 196 basis points, and so half of that was mixed. The other half was the Thermon business system and the rooftop consolidation we did earlier in the year with consolidating operations into San Marcos, as well as the continuous improvement efforts that we've made going forward. So we continue to see that as a lever. to be able to drive gross margin expansion. And then certainly as we look forward, price is always an opportunity and we tend to be able to get price in the marketplace. New product introductions create opportunities as we work and implement the Thermon business system in our new acquisitions. Those were a headwind to our gross margin profile this year, but we're confident there's a path to get those more in line with the averages of the market the overall enterprise. And so those are opportunities for margin expansion. And then last but not least, as we drive growth and volume, we get operating leverage on the fixed cost basis. So those are really the levers that we see pulling on a go forward basis. We were able to improve 86 basis points this past year. I believe we can continue to drive those changes, although I do see Just a setback this year, given the impact of tariffs on input costs and a lag of being able to push that through to the market. Justin Ages | Analyst, CJS Securities: I appreciate the answers. Thank you. Conference Operator | Operator: Thank you. Thank you. And your next question comes from John Bratz with Kansas City Capital. Please state your question. John Bratz | Analyst, Kansas City Capital: Good morning, Bruce. Good morning. Maybe a little more clarity on the tariffs. You said the gross impact is $16 to $18 million. Obviously, you have some mitigation efforts, but when you think about the upcoming year, what might be the net impact for the full year, considering the mitigation efforts? Bruce Thames | Chief Executive Officer: Yeah, so on a gross basis, we gave a range of $16 to $20 million. Yes, that's right. And we believe on a net impact, it's somewhere in the $4 to $6 million range within the current fiscal year. John Bratz | Analyst, Kansas City Capital: And that'll be mostly in the first half, correct? Correct. Correct. Okay. Okay. All right. Good. Okay. And then secondly, when you look at the competitive landscape – Are any of your competitors in a better position regarding tariffs and trade policy and all this other stuff, in a better position or worse position? Any thoughts on the competitive landscape given the new trade policies? Bruce Thames | Chief Executive Officer: That's a difficult question, especially just given the complexity and interconnectedness of global supply chains today. But what I can say is about our position. And given our operating footprint in the U.S., about 50% of our production is from the U.S., we have a significant presence in Canada as well. We do a lot of in-country, four-country production. The acquisition of FATI increased our operating presence in the European continent and certainly has been really a bright spot when we look at just the overall demand environment there for FATI. for decarbonization and electrification solutions. And that business, we acquired it with about a $15 million backlog. It's almost doubled since that time. And our ability to serve that on the European continent is a real advantage. And then we do have operations in India that will begin to leverage to serve more of the Asian continent. And we certainly, as we look at our M&A opportunities, we're looking for potential acquisitions that would mirror a FATI that would give us a larger operating footprint in Asia, just for these types of situations, just to diversify our risk base. Yeah. We've made a lot of progress since COVID. We've done a lot to build more resiliency into our supply chains. I think that really exposed weaknesses, not only in us, but with others. We've never been heavily dependent upon China. So I think that's a real advantage. that we have over some others. The one thing I would note is that while we're not dependent, we are exposed in second and third order effects with our suppliers and their supply chains. Although again, people have diversified away from China and have multiple sources. So we'll just have to see how a lot of this flows through. But we've factored all of that into our guide. Conference Operator | Operator: Yep. Okay. All right, Bruce, thank you very much. Thank you. Thank you, and the next question comes from Brian Drab with William Blair. Please state your question. Brian Drab | Analyst, William Blair: Hi, I'm back with just one clarification. On the one-time technology investment, $5 million, this is not being adjusted out of, obviously, is what you're indicating. It's not being adjusted out of your guidance or EPS calculation, and it seems like you know, that would be about 100 basis point headwind to operating margin and EBITDA margin. Is that the right way to think about it? Jan Schott | Chief Financial Officer: No, this would be adjusted out of – or on the adjusted EBITDA calculation in APS. Brian Drab | Analyst, William Blair: Okay, so you are – okay, so I'm glad I clarified that. So you're saying – you're just calling it out that it is an adjustment. Okay. I just missed it. I just wanted to make sure. Okay. Okay, so there is a – you are expecting a margin headwind – you know, excluding this situation. Okay. All right. Thank you very much. Jan Schott | Chief Financial Officer: And it's not, it's, it's, you know, I think it's, it's obvious, it's obviously not something that we do every year and don't plan to. So. Brian Drab | Analyst, William Blair: Right. Right. And well, that was my other question is that this goes away then in that you're expecting to the 5 million to be the entire investment and for that to be a fiscal 26 event and fiscal 27, it's the plan is for this not to be an expense line. Is that right? Jan Schott | Chief Financial Officer: Yes. I mean, we will have some, I think, some very marginal investments going into 27 for just some of the, you know, acquired entities that will roll into the new ERP system. But the majority will be in fiscal 26, yes. Brian Drab | Analyst, William Blair: Okay. Okay. Perfect. Thanks very much. Conference Operator | Operator: Thank you. Thank you. Ladies and gentlemen, that's all the questions we have for today. I'll now hand the floor back to Bruce Thames for closing remarks. Bruce Thames | Chief Executive Officer: Yeah, thank you, Diego. And I'd like to, again, thank our Thermon employees around the globe for their contributions to a successful 2025. And thank you all for your interest in Thermon. If we don't speak to you in the coming quarter, we look forward to you joining us on our next earnings call. Thank you and have a good day. Conference Operator | Operator: Thank you. All parties may now disconnect. jsPDF 3.0.3 D:20260606090454-00'00'

NYSE:THR Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Greetings and welcome to the Thurmond Group Holdings Third Quarter Fiscal Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to your host, Yvonne Salem. Vice President of FP&A and Investor Relations. Thank you. You may begin. Yvonne Salem | Vice President of FP&A and Investor Relations: Thank you. Good morning, and thank you for joining Thermos Group's fiscal 2025 third quarter results conference call. Leading the call today are CEO Bruce Thames and Chief Financial Officer Jan Schoch. Earlier this morning, we issued an early press release, which has been filed with the SEC on Form 8K. and it's also available on the investor relations section of our website. Additionally, the slides for this conference call can be found in our IR website under News and Events IR Calendar Earnings Conference Call Q3 2025. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable gap measures in the tables at the end of the earnings press release. These non-GAAP measures should be considered in addition to and not a substitute for measures of financial performance reported in accordance with GAAP. I would like to remind you that during this call, we might make certain forward-looking statements regarding our company. Please refer to our annual report and most recent quarterly report filed with the SEC for more information regarding our forward-looking statements, including the risk and uncertainties that could impact our future results. Our actual results might differ materially from those contemplated by these forward-looking statements, and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, further developments, or other ones, except as might be required by law. Today's call will begin with remarks from our CEO, Bruce Thames, who will provide a review of our recent business performance, including an update on the progress we have made to our strategic investments, followed by a financial update and review from our CFO, Jan Schott. Bruce will then wrap up our prepared remarks with an update on our business outlook. At the conclusion of these prepared remarks, we will open the line for questions. With that, I'll turn the call over to Bruce. Bruce Thames | Chief Executive Officer: Thank you, Yvonne, and good morning to everyone joining us on the call today. I'll begin my commentary with the third quarter highlights, which we detail on slide three of our presentation. The third quarter was another period of solid execution by our global team, which resulted in continued strength in our OPEX-related revenue, bookings momentum, strong margin capture, and efficient free cash flow convertions. Based on our discipline and execution against our strategic priorities, the cash flow generation of this business, and our strong balance sheet, we are strategically positioned to benefit from the improving demand drivers, which we expect will translate to an improved growth trajectory in the coming quarters. We continue to benefit from our strategic focus on diversifying our revenue base and increasing our exposure to short cycle projects in MRO-related recurring revenue. This has resulted in a revenue base that is both more stable and more profitable. We were also encouraged by the continual momentum in order trends during the third quarter and our strong backlog growth. Our orders increased 11 percent on a reported basis and grew up modestly organically on a constant currency basis. This resulted in another quarter with a positive hit to build. Importantly, our backlog increased nearly 48% on a reported basis and was up 9% organically. The strong backlog growth is being driven by the solid order trends as well as the slightly extended backlog conversion I discussed last quarter. While the slower backlog burn has been a bit of a headwind to our near-term revenue growth, The higher backlog and heavy workload in engineering gives us increased visibility and growing confidence in our growth trends moving forward. The more favorable business mix were the key drivers that enabled us to generate an adjusted EBITDA margin of nearly 24% during the third quarter, which came despite a modest margin drag from our recent acquisitions. While mixed with the key factor in the improvement We also benefited from the cost savings and productivity initiatives we've instituted across the business. We were very pleased with our margin capture during the quarter and believe our third quarter profitability highlights the overall margin potential for the business, providing confidence in the ability to achieve our long-term profitability targets. And finally, our strict financial discipline resulted in strong free cash flow conversion during the quarter. Through the first nine months of fiscal 2025, we generated $24 million in free cash flow, which is up $3 million from last year, despite slightly lower EBITDA. As a result, we paid down $12 million in debt during the third quarter, bringing our net leverage at quarter end down to just over one times. So with that, I'd like to turn to the third quarter results starting on slide four. Jan will cover the financials in more detail, but I want to highlight a few key items. While we are focused on growing our diversified end markets, oil and gas remains an important end market for our business, and we are seeing improving trends in the sector. As I already discussed, we continue to experience improved oil and gas technology during the third quarter, which was driven by broad market strength, including solid trends in chemical, petrochemical, transit, general industrial, in addition to a rebound in oil and gas. We're still seeing extended decision cycles on larger capital projects where we believe customer confidence is improving and we remain encouraged by the growing opportunities pipeline and strong quoting activity. The recent aggressive and broad approach to tariffs has, unfortunately, created additional uncertainty in the business. With the human nature of the trade talks underway, The final outcomes are in question, and we have not yet fully contemplated the potential impact on customer behaviors and the business. However, I would like to take a moment to reinforce Thurmond's manufacturing strategy. We like to be close to our customers with our people, our services, and our manufacturing operations. Our footprint in both the US and Canada allow us to produce in-country to be responsive to customer needs. Our acquisition of property was a further move in this direction. While improving our competitive position, this approach also serves as a natural hint to fluctuations in currency and import duties. We'll be monitoring these trade negotiations closely as the magnitude, breadth, and duration of tariffs becomes clearer. Jan will talk more about the potential exposure later in the call. Our reported revenues declined by 2% during the quarter driven by the ongoing pressure in large CapEx projects. However, our short cycle revenues remained resilient. Turning to slide five, our OpEx revenues increased 13% during the third quarter and were essentially flat organically despite the challenging CapEx spending environment in our business. On a trailer 12-month basis, our OPEX revenues represented 84 percent of our total revenues, up from the low 70 percent range just a few years ago. We do anticipate a rebound in large capital expenditures, which will have an impact on the mix. But the increased exposure to OPEX revenues should continue to provide a more predictable and profitable revenue stream going forward. In addition to improving our revenue stability, our evolving business mix is driving enhanced margin performance. Our 23.7% adjusted EBITDA margin during the quarter was our highest quarterly margin performance in two years and has enabled us to grow our third quarter EBITDA despite the modest revenue decline. Now turning to slide six in our strategic pillars. We continue to make important progress on our strategic priorities during the third quarter, as evidenced by our favorable off-ex revenue trends, margin expansion, and backlog growth. And a key aspect of our strategy has been our goal to reduce exposure to the oil and gas sector. As I discussed last quarter, we achieved our FY26 goal of generating at least 70% of revenues from diversifying in markets. While we remain committed to maintaining or further improving this metric, oil and gas is still an important end market for Thermon, so we have been encouraged by the recent momentum we've seen in this business. In particular, we've seen a pickup in our Canadian oil and gas business driven by increased maintenance activity and drilling programs to support LNG export and additional export capacity with the newly commissioned Trans Mountain Pipeline. I will discuss our in-market outlook in more detail later in my remarks, but we are encouraged by some of the pockets of strength we're seeing in oil and gas and expect we could see further momentum given the priorities of the new administration. We remain focused on our disciplined capital allocation strategy, which is based on a balanced approach between investments in organic growth, strategic M&A, maintaining financial flexibility, and opportunistic return of capital. We continue to successfully integrate the recently acquired VaporPower and Focke businesses. Focke generated solid financial results during our first quarter of owning the business. At VaporPower, we continue to see strong backlog trends and are focused on expanding capacity to convert the current backlog while building on the strong market momentum. We purchased 6.2 million of our shares thus far during fiscal 25, and have approximately $43 million remaining under our $50 million share repurchase program. We continue to see a robust M&A pipeline, and with our current leverage comfortably below our 1.5 to 2 times net leverage range, leaving us in a strong position to continue to execute on our capital allocation priorities. With that, I'll turn it over to Jan, who will provide a more detailed review of our third quarter results. before I wrap up with some remarks on our financial outlook. Jim? Jan Schoch | Chief Financial Officer: Thank you, Bruce, and good morning, everyone. I will review financial results for the quarter, give an update on working capital and free cash flow, and conclude with comments on the balance sheet and liquidity. Moving now to slide seven, revenue in the third quarter was $134.4 million, a year-over-year decrease of 1.5%. BabelCower and FOTSE combined to contribute $13 million of revenue during the third quarter. Acquisition revenues coupled with continued resilience and OpEx revenues mitigated the impact of the ongoing headwinds in a large project business. Excluding BabelCower and FOTSE, third quarter organic sales decreased 11% versus record results last year, mostly from large project sales. large project revenue was $18.6 million during the third quarter, down 45% from last year, as customers continued to delay decisions on large capital projects. Geographically, this weakness was primarily in the U.S.-Latin American region and was fairly consistent across our various market verticals. Our office revenues were $115.8 million during the third quarter of an increase of 12.6% compared to last year, as our customers continue to prioritize maintenance and repair spending. Excluding the contributions from Vapor, Cower, and Saucy, our off-ex revenues were essentially flat in the quarter. We believe that the stable results in our off-ex revenues, despite the challenging capital spending environment, demonstrate the benefits of our long-term customer relationships, deep installed base, and the resilience of MRO spending by our customers. Demand in Canada remained favorable, with sales of 43.5 million, up 6% year over year. EMEA sales were at 13.8 million, up 11%. APAC sales of 9.8 million, declined 3%. And U.S. Latin America sales of 67.2 million, declined 8%. driven by the continued contraction in large project sales. As we are discussing our geographic exposure, I will take a quick minute to build on Bruce's comments regarding tariffs. At this point, the tariff situation is very fluid, and it is clearly too early to predict what the ultimate impact might be on the business. Importantly, as Bruce already highlighted, our manufacturing strategy to be close to our customer helps insulate us from any potential tariffs. Our total cost of goods sold exposed to U.S.-Canada tariffs is roughly 10%, and our products were not impacted by the initial countermeasures Canada had proposed. We believe that our Mexico and China exposure is limited given we have no manufacturing presence, and the combined markets represent roughly 5% of revenue. Adjusted EBITDA was $31.8 million during the third quarter, up from $30.7 million last year, an increase of 3% due to strength in our short cycle revenues and the contributions from VaporPower and FOTI. These were partially offset by declines in our project revenue and continued investments in growth initiatives. Adjusted EBITDA margin was 23.7 percent during the third quarter, up from 22.5 percent last year due to a more favorable revenue mix and productivity gains from operational excellence initiatives. Orders during the third quarter were 139 million compared to 124 million in the same period last year, an increase of 11.4 percent. We saw broad momentum in our order trend highlighted by notable strength in petrochem, transit, and oil and gas. Importantly, nearly 70% of our incoming orders in the quarter were once again from diverse end markets. As a result of the solid order momentum, backlog was $235.6 million at the end of the third quarter, up 48% compared to the third quarter last year. Excluding vapor power and FOTI, backlog increased 9%, on an organic basis only. Moving to slide eight for an update on our balance sheet and liquidity, working capital decreased seven by seven percent to $177.2 million at the end of the quarter as we continued the blockchain optimization efforts while improving lead times and on-time delivery to our customers. CapEx was $1.4 million during the third quarter of 25, down from 2.2 million last year. As a result of our strict financial discipline, free cash flow was 8.5 million in the quarter, bringing our year-to-date free cash flow to 24 million of 3 million, or 14 percent, from the same period last year. We believe our focus on working capital management and solid operating results will deliver another year of strong free cash flow conversion. We paid down $12 million in debt during the quarter, bringing our net debt balance to $115 million. Net leverage was 1.1 times at the end of the third quarter, down from 1.5 times last year. This past October, we completed the consolidation of our Denver facility and the sale of the property, which brought in net cash of $5.8 million and a gain of about $3 million and a quarter. In summary, we are pleased with our financial execution during the quarter as we made further progress on operational excellence initiatives and we generated strong free cash flow, which enabled us to reduce our leverage. Based on our total cash and available liquidity of $136 million, we remain well capitalized and have ample flexibility to continue to support our capital allocation needs, which will be a balance of investments and growth debt pay down, and opportunistic share repurchases. With that, I will turn the call back over to Bruce. Bruce Thames | Chief Executive Officer: Thanks, Jan. Before I wrap up with our financial outlook, I thought it might be helpful to provide some updated thoughts on what we're seeing in some of our key markets as we enter the new calendar year, particularly with the immune administration taking over. Over the last several quarters, the industry has faced headwinds due to the pause in large project capital spending, particularly in U.S. land. We believe that delayed investment decision timelines over the last year were due in large part to the uncertainty surrounding interest rates, the presidential election, and the overall economy. While the timing and magnitude of further Fed evening is yet to be determined, and the macroeconomic environment is still uncertain, customer confidence appears to be improving particularly with the election now behind us. While our order momentum in Q4 has remained robust, we haven't yet been able to assess how the threat of tariffs may impact customer behavior going forward. The improved order momentum and quoting activity we've witnessed over the last couple of quarters have been broad-based. I'd like to provide some color on some of the key areas of strength. First, while we are focused on growing our diversified end markets, Oil and gas remains an important end market for our business, and we're seeing improving trends in this sector. LNG project activity has notably increased following the lifting of the hold previously placed on new LNG export permits. Given our technical capabilities and customer relationships, we are well positioned to benefit as project activity resumes. We continue to see favorable trends in our power business doing large part to increasing demands on the grid driven by growth in population, data centers, and EVs. The current administration recently announced Project Stargate, which will provide up to $500 billion in funding for computing infrastructure in support of AI. This program has made $100 billion in funding available immediately, with 10 data centers already under construction in Texas. In slide nine, We see an example of an electric boiler being used as load banks in liquid data centers to simulate both the heat and electrical load of these facilities during the startup phase. These systems are also used for maintenance and testing throughout the life of the data center. While liquid cooled data centers represent only 10% of the market today, they have the distinct advantages of being more cost efficient and allowing higher server densities. It is estimated that liquid-cooled data centers represent as much as 40% to 50% of the new data centers planned for construction in 2025. Another area of strength has been the chemical and petrochemical markets. Both projections for the sector range from 5% to 6% through 2034, and our sales pipeline shows this as the largest sector, representing 16% of the total opportunities through FY27. Overall, we continue to be encouraged by the growing momentum in our business, particularly in some of the markets that have been facing headwinds over the last year, such as LNG and oil and gas. This improved momentum, combined with the favorable secular trends we are benefiting from, such as reshoring, electrification, and decarbonization, give us increased confidence in our growth trajectory, and we're beginning to see this in our improved cooling activity, oil rates, backlog growth. Before I discuss our FY2025 financial outlook, I want to provide some brief comments on the fiscal 2026 targets we provided at our 2023 investor day. We're currently developing our FY26 plan and will provide full year guidance when we report on our full core results in May. I do want to provide some additional color on our targets, which included $6 to $700 million in revenue, and adjusted EBITDA margins of approximately 24% and at least 70% of revenue to be derived from diversified markets. This team has made tremendous progress towards obtaining these objectives over the last four years, driving revenue growth, diversification, and EBITDA margin expansion. And while we remain confident in our ability to achieve these goals, there are two key factors outside of our control that will affect timing. First will be the overall macroeconomic backdrop, and second, the timing and magnitude of acquisitions in our M&A pipeline. Without strength in both, the timeline for achievement will likely push beyond the fiscal year 2026. And now I'll just turn to slide 10. I'd like to discuss our outlook for fiscal 2025. Based on everything we shared this morning, We're maintaining our full-year 2025 guidance that calls for revenue in the range of $495 million to $515 million, adjusted EBITDA in the range from $105 to $110 million, and adjusted EPS in the range of $1.77 to $1.89 per share. The potential impacts of tariffs have not been contemplated in this guidance. Finally, just to wrap things up on slide 11, We're optimistic in our business outlook and the opportunities ahead remain as strong as ever. We've made significant progress in developing a business that is more stable, profitable, and durable across cycles. We believe our large and growing installed base provides us with a resilient aftermarket franchise, which gives us access to a steady stream of predictable and highly profitable MRO revenues. We also remain well-positioned to benefit from several secular growth drivers, including the energy transition and decarbonization, onshoring in North America, and infrastructure spending. We remain confident in these trends, and we believe that the recent spending delays only serve to create pent-up demand when customer confidence improves. Lastly, we benefit from a high-margin, low-capital-intensity business significant cash flow. We continue to maintain strong financial discipline, and with leverage of just over one times, we have the flexibility to pursue our capital allocation priorities. We remain focused on following a disciplined approach to capital allocation, and we will balance these priorities all with a focus on creating long-term shareholder value. That completes our prepared remarks, and we're now ready for the question and answer portion of our call. Operator | Conference Operator: Thank you. And at this time, we'll conduct our 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. Once again, to ask a question, press star 1 on your telephone keypad. And our first question comes from Brian Drab with William Blair. Please state your question. Brian Drab | Analyst at William Blair: Hi. Good morning. Thanks for taking my questions. Good morning. The point in time revenue, $99 million, that was, I think, an all-time record. And I'm just wondering if you could, you know, talk about that number a little bit and the dynamics. I mean, I know it's obviously the heating season that drives, you know, this time of year to be strong. But is there anything else in there that was unusual in the quarter and, Are we reaching kind of a new baseline level? I mean, again, acknowledging that this is a seasonally strong period, but a new baseline level of point-in-time revenue going forward? Bruce Thames | Chief Executive Officer: Yeah, Ron, so a couple of things to note. First of all, we have seen a more normalized feeding season. And so that has certainly contributed, and we have been focusing on driving recurring revenues on the installed base. It's been a key piece of the strategy, and we're seeing success in those efforts. And then also we've had contributions from some of the acquisitions with point-in-time revenue generated through those as well. And so when you think about those things combined, yes, I think the point-in-time revenues as far as the volume levels were We're seeing really a step change in our business and something we'll continue to drive on a go-forward basis. Brian Drab | Analyst at William Blair: Okay, great. And by the way, I guess I should round up to $100 million. It was 99.6. And following on to that, I guess, Bruce, you can envision at some point, maybe it's a few quarters from now, where the overtime large revenue line, you know, has kicked back in and then you have this point in time, you know, foundation that's larger. I mean, it seems like, you know, once that overtime large kicks in, you know, that's where you're, that's your target, that's your expectation, right, a few quarters from now? Bruce Thames | Chief Executive Officer: Yes, Brian. And, you know, I think a couple of things to note. Our focus has been heavily on driving recurring revenues on the install base, but we really can't lose sight of the fact that growing that install base through overtime project activity is really how we continue to drive growth. So we are still very focused on the CapEx piece of our business as a means to grow that install base. Given the bookings momentum, given the backlog growth organically of 9%, Given the load that we currently have in our engineering organization and the overall quoting activity, it's pointing towards a return to capital spending and growth there. When we do see that, we would expect to see this revert back. I mean, we're at a very high mix of OpEx-related spending that would probably begin to move back towards the 75%, 80% range. whenever we do see this capex cycle improve and customers begin to release larger capex spending. Brian Drab | Analyst at William Blair: And can you talk a little bit about the potential for the release of some of that large capex spending? And specifically, you mentioned LNG projects. What are other types of projects? I know you've talked about hydrogen and biofuel projects. How about also combined cycle natural gas plants and what kind of big projects might we expect to hear you talking about in the next, call it four quarters, next year? Bruce Thames | Chief Executive Officer: One of the big things that we've seen is really since the new administration has been in place lifted the ban on LNG export permits is there's been a really a big surge of activity around LNG and so a lot of those projects largely along the Gulf Coast are moving forward and as I had noted in the prepared remarks. Our technical capabilities, the breadth of our solution set and our customer relationships position us well to take advantage of that. The other areas where we see the emphasis on Subsidies around wind, solar, EVs. We do expect to see a pickup in combined cycle natural gas fired plants. And that's really front and center for Our market is very well positioned to take advantage there. We also see a renewed interest in nuclear. And so we've seen some of those projects around refurbishments and expansions in North America. But one of the things we're really excited about, and it's a little further out, but we just won a very nice engineering award for small modular reactors for a customer in Europe, and so we're excited about that and being able to participate in the development of that technology for building some about 3 megawatts capacity in Central Europe. So those are some of the areas we've seen movement. Petrochem can remain strong. It's been a bright spot, general and industrial as well, and certainly we'll see what happens with tariffs, and that's very fluid. you know, that could drive more onshoring in the U.S. particularly, which would be a tailwind as well. Brian Drab | Analyst at William Blair: Okay. And then the last question for now, could you comment on gross margin, which was obviously a function of strong point-in-time revenue, but, you know, comment on I think what is, you know, it's got to be the highest gross margin that we've seen for many quarters, at least maybe a few years, but how should we expect gross margin to look in the fourth quarter and maybe beyond, if you could give us a sneak peek at next year? Bruce Thames | Chief Executive Officer: Yeah, so I think the assumption we've got in the fourth quarter is we are going to begin to see a stronger mix of projects in the fourth quarter. Now, I think one comment I would want to make is we've got to see the customer sentiment shift. If we don't see movement there, which we've seen some positive indications, if we don't see movement there, I think there could be some downside. We would probably land on the lower end of our revenue guidance, but gross margins would be quite strong and still put us in the midpoint of our EPS guidance. So I think that's an important point thing to note when I look at those margins mix is about half of the improvement year over here the other half is related to productivity and continuous improvement initiatives as well as price so it's pretty evenly balanced and I would go on to say that organically Those margins are quite strong. We've seen about 164 basis points dilution from the acquisitions, but we're very confident that we can bring those businesses up to a similar margin profile over, say, the next 18 to 24 months. Brian Drab | Analyst at William Blair: Okay. I am going to ask one more just because I think this is important to make sure that I and everyone has this clear. You're saying it's likely that you'd be for the full year closer to the end, closer to the low end of the revenue range, but gross margin, although maybe down a little sequentially solid, margin overall solid, putting you at the midpoint, closer to the midpoint of the EPS range for the full year. Bruce Thames | Chief Executive Officer: Is that right? Yes, the risk will be, Brian, is just on project execution in the quarter. Should that continue to drag, we would expect to be on the lower end of the revenue guide, but in the midpoint of the EPS guide given the margin profile of the business. Brian Drab | Analyst at William Blair: Yeah. Thanks very much. Bruce Thames | Chief Executive Officer: Thank you. Operator | Conference Operator: Your next question comes from Chip Moore with Roth Capital Partners. Please state your question. Chip Moore | Analyst at Roth Capital Partners: Good morning. Hey, thanks for taking the question. Bruce, you touched on some of this already, but hey, Bruce, you touched on some of this, but maybe you can provide a little more color on, I guess, just the current bid pipeline and makeup since the new administration took over in January. And then you talked about some of the puts and takes for fiscal 26th. You know, maybe talk about the biggest things you're watching there. Obviously, M&A is timing dependent, but any thoughts on 26? Bruce Thames | Chief Executive Officer: Yeah, so, you know, first of all, you know, we'll give full guidance at our night. earnings call for fiscal 2026, but I would say at this time, given just the quote volume and what we believe is improving customer sentiment and optimism, I'd say we're cautiously optimistic about growth in FY26, returning to that organic growth, and then certainly We'll have the contributions of the acquisitions in addition to that. So we're cautiously optimistic about an improving overall scenario, particularly as it relates to larger capital spending in the coming year. Since the new administration has been in place, we have seen a resurgence in quoting activity around a number of different projects. I would say oil and gas activity has picked up. In Canada, we've actually seen growth there year over year, which we've noted. And so that's been very positive. I think part of that is related just to a more normal winter, but also just MRO spending with our customer base. Chip Moore | Analyst at Roth Capital Partners: Very helpful. And I guess, you know, a follow-up on tariffs. I think you did a great job outlining, you know, how those could impact you. Is the risk maybe more, you know, indirect around some of that project capital spend? Is that, you know, that uncertainty, is that something you're concerned about? Bruce Thames | Chief Executive Officer: Yeah. You know, we understand, you know, roughly, I mean, it depends on, you know, the magnitude, the breadth, and the duration of any types of tariffs and the impact on the business. Our approach to business and our manufacturing philosophy really in country for country helps to insulate us from some of this. The real unknown is what impact might this have on customer sentiment? And so that gives us a little pause. We'd like to see where things land and really understand how customers may or may not react or respond. Chip Moore | Analyst at Roth Capital Partners: Helpful. Maybe I could ask one last one. Liquid cooling in the data center, very interesting. I hadn't thought about that as they're usually trying to get the heat out, so interesting opportunity for you. Is that a market you're, you know, still nascent, but is that a market you're active in already, or how are you thinking about that opportunity, and then maybe, you know, you play two sides of it as well? Bruce Thames | Chief Executive Officer: Yeah, so, yeah, that's a great question. So we've been trying to highlight where we play in some of these opportunities. This is very nascent, very new. But I'll tell you, we've won three orders that have totaled around $10 million, and we've identified a very large market opportunity, we believe, that we'll be developing on a go-forward basis. And so we're excited about the application, and it's one illustration of how we play. Certainly, when we think about... you know, demand growth for power. Much of that's driven by data centers, EVs, population growth. We're very well positioned to benefit from that, and especially any changes in environmental regs that will make natural gas-fired power plants more in favor. That's certainly going to be an area of benefit, but this is another area we've identified, and we've won some nice business just in the last two quarters. Chip Moore | Analyst at Roth Capital Partners: Very good call. Appreciate it. Operator | Conference Operator: Thank you, Bruce. Your next question comes from John Bratz with Kansas City Capital. Please state your question. John Bratz | Analyst at Kansas City Capital: Good morning, Bruce. Good morning, Jan. Good morning. Jan, just some commentary, if you could, on your SG&A spending. It continues to be pretty high. And I know you're investing on growth initiatives and so on, but as we look ahead, will that begin to ease a little bit and we begin to see some leverage on that line? Jan Schoch | Chief Financial Officer: I think on the near term, we would expect it to be relatively flat going forward. And that's, you know, really a function of just, you know, if you look historically, the M&A that we've added on was faulty and in vapor power. But I would say, you know, kind of where we were for the third quarter, probably staying flat for the near term going forward at that rate. John Bratz | Analyst at Kansas City Capital: At dollar rate or the ratio? Jan Schoch | Chief Financial Officer: The total rate. John Bratz | Analyst at Kansas City Capital: I'm sorry, what? Dollar. Jan Schoch | Chief Financial Officer: The dollar rate. John Bratz | Analyst at Kansas City Capital: Oh, okay. Okay. All right. Okay. And the acquisition, $13.3 million contribution in the quarter, I guess I was looking for a little bit more. Can you parse it out a little bit between VAPOR and the Italian acquisition? And is VAPOR continuing to perform in line with your expectations? Yes. Bruce Thames | Chief Executive Officer: Yeah, John, so a couple of things. One is revenues from acquisitions were below our expectations. FOSTI, in our first quarter of ownership, actually performed exceptionally well. Just as a reminder, there's about a 12 and a half million euro trailing 12 revenue business with a backlog of $15 million. So very strong backlog. The challenge there is really around growing capacity, and, in fact, this week we've got teams there doing Kaizen events, reorganizing the factory floor, and working to improve throughput. Vapor is a business that really fell short. We had a couple of major projects or major orders that were going through production and did not convert in the quarter, and so we fell fairly short. in revenue, and we expect to pick up some of that in the fourth quarter. But our big focus there is on increasing capacity both on the factory floor as well as in the supply chain in order to convert what is roughly a $45 million backlog in that business. And while we've seen really strong market momentum, we had another quarter of positive book to bill in that business. And so we're excited about the market potential for growth, but we've really got to work through some of the capacity constraints to take full advantage of it. Jan Schoch | Chief Financial Officer: And I will add just, you know, even with that, what Bruce said, you know, our measure for kind of evaluating our M&A on first-year accretive, we were about flat with paper power, and we expect that trend to kind of reverse out and be accretive going forward for the next quarter. John Bratz | Analyst at Kansas City Capital: Okay, thank you. And Bruce, on the LNG front, obviously there's a big opportunity there. And in December, the DOE came out with their LNG report, and it wasn't that flattering. And I know the Trump administration has to come up with a rebuttal, so to speak. And I guess I am concerned, and I don't know how concerned the industry is, that now that the pause has been lifted, if the rebuttal report, so to speak, isn't all that strong, are we just going to see some additional lawsuits filed and things just get further pushed to the right in the LNG area? And I guess, how is the industry thinking about that? Bruce Thames | Chief Executive Officer: Yeah, John, I'll tell you just from our customer engagement, it feels like they're very positive on the outlook of being able to secure permits on a go-forward basis. We've also seen a number of customers take existing permits and use those and expand the plans for the capacity for export. So we've seen some of that type of activity. And I'll be honest, I don't really have an opinion or any insight or information as to any litigation or legal actions that may happen. John Bratz | Analyst at Kansas City Capital: All right, Bruce, thank you very much. Jan Schoch | Chief Financial Officer: Thank you. Thank you. Operator | Conference Operator: Thank you, and there are no further questions at this time. I'll hand the floor back to management for closing remarks. Bruce Thames | Chief Executive Officer: All right. Thank you, Diego, and thank you all for joining on the call today. We appreciate it. We hope to speak to you between now and the May timeframe. We look forward to reporting out on our full year at the end of May. Operator | Conference Operator: Thank you. With that, we conclude today's call. All parties may disconnect. Have a good day. jsPDF 3.0.3 D:20260606090455-00'00'

NYSE:THR Q2 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Greetings and welcome to Thermon Group Holding Inc's earnings call for the second quarter 2025. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Yvonne Salem, Vice President, FP&A and IR, thank you. You may begin. Yvonne Salem | Vice President, FP&A and Investor Relations: Good morning, and thank you for joining Thermal Group's Fiscal 2025 Second Quarter Results Conference Call. Leading the call today are CEO Bruce Sainz and Chief Financial Officer Dan Schott. Earlier this morning, we issued an earnings press release, which has been filed with the SEC on Form 8K, and it's also available on the next relations section of our website. Additionally, the slides for this conference call can be found in our IR website under News and Events, IR Calendar, Earnings Conference Call, Q2 2025. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable gap measures in the tables at the end of the Earnings Press Release. These non-GAAP measures should be considered in addition to and not as a substitute of measures of financial performance reported in accordance with GAAP. I would like to remind you that during this call, we might make certain forward-looking statements regarding our company. Please refer to our annual report and most recently quarterly report filed with the SEC for more information regarding our forward-looking statements, including the risks and uncertainties that could impact our future results. Our actual results might differ materially from those contemplated by these forward-looking statements, and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments, or otherwise, except as might be required by law. Today's call will begin with remarks from our CEO, Bruce Baines, who will provide a review of our recent business performance. including an update on the progress we have made on our strategic initiatives, followed by a financial update and review of our CFO, John Schott. Bruce will then wrap up our prepared remarks with an update on our business outlook. At the conclusion of these prepared remarks, we will open the line for questions. With that, I'll turn the call over to Bruce. Bruce Sainz | Chief Executive Officer: Well, thank you, Yvonne, and good morning to everyone joining us on the call today. Before I begin my comments, I'd first like to start by welcoming our new Chief Financial Officer, Jan Schott. Jan is a proven public company finance executive who brings significant financial expertise and deep capital markets experience to Thermod. We're very excited and fortunate to have her joining our team. Jan, welcome aboard. I and the rest of the management team are looking forward to working with you. Turning now to slide three. During the second quarter, we remained laser focused on executing against our strategic priorities, highlighted by improved bookings momentum, further progress on our operational excellence initiatives, and another quarter of financial discipline leading to strong free cash flow generation. In addition, we executed against our stated capital allocation priorities with the acquisition of FOTI and the return of capital through our share repurchase program. I think it's important to highlight that while we continue to effectively manage costs to the current level of demand, we've not wavered on our capital allocation to advance strategic initiatives while augmenting our organic growth. Since the start of the calendar year, we've acquired vapor power, which increased our exposure to more diverse end markets and electrification. This integration is going well, and we're pleased with the strong level of market demand that we're seeing for these products. Just last month, we announced the acquisition of Fati, significantly expanding our geographic footprint in the Eastern Hemisphere. In spite of some short-term weakness in capital spending, we have continued to invest in our organic growth initiatives to further strengthen our competitive positioning over the long term. So with that, I'd like to turn to the second quarter, starting on slide four. We were very pleased with the improved order momentum we're experiencing during the second quarter, with orders up nearly 13% on a reported basis and 3% excluding the benefit from vapor power, resulting in an organic look-to-bill of almost 1.17 times. The strength was generally broad-based, and while we're still seeing extended decision cycles, and some uncertainty from customers, primarily on larger capital projects, we are encouraged by the growing opportunities pipeline and improved order momentum. As a result of the improved order trends, our quarter-ending backlog increased 29% on a reported basis and was up 3% organically. The timing of our backlog remains somewhat extended with many of the project wins currently in engineering with execution planned in fiscal 2026, which is a positive trend going forward. After generating 23% year-over-year organic growth in a record FY24Q2, our revenues declined by 7.4% year-over-year, which was in line with our expectations as the contribution from vapor power and stability from our materials revenue were offset by continued weakness in large project revenues and the timing of revenue recognition. Excluding vapor power, our revenues declined roughly 17% on an organic basis, driven by a 51% decline in our large project revenue during the quarter. Our short cycle OPEX revenues, which consist of our materials revenues and small project business, remained a stabilizing force during the second quarter, with revenues down only modestly as customers continue to focus on maintenance and repair spending. This balance in our model is a function of our focus on diversifying our in-market exposure and growing our installed base of customers. The result is a more resilient and stable revenue base through the cycle. As we detail on slide five, our materials and small project revenues represent over 80% of our revenues on a trailing 12-month basis, while our large project revenues were only 20% of the total. Our current mix provides a more stable and predictable revenue stream, as well as a more profitable mix, given our OPEX revenues consistently generate higher gross margins. Our OPEX revenues have grown nearly 11% on a TTM basis and have increased over 1% organically, while our large project revenue has declined 20%. The growth in our OpEx revenue, despite the uneven demand environment over the last several quarters, highlights the benefit of our deep installed base and recurring revenue exposure. Another key aspect of our strategy you've heard me discuss has been our goal to reduce exposure to the oil and gas sector. As I discussed last quarter, we have achieved our fiscal year 26 goal of generating at least 70 percent of revenues from diversified in markets. We remain committed to maintaining or further improving this metric, and while we did see a slight rebound in oil and gas bookings during our Q2, we still generated just over 70% of orders from diversified end markets during the period. It's important to note that we're not moving away from large projects, and large projects will always be an important driver of our business to enable growing the installed base. We have begun to see some signs of movement in large capital projects this quarter. In fact, we secured a large multi-year transit order in excess of $8 million driven by infrastructure investments and a large Canadian carbon capture polyethylene unit valued at over $8 million as well. Our pipeline of sales opportunities has now grown to over $1.2 billion and with roughly 320 million in decarbonization opportunities, and we believe that we are well-positioned to benefit as large project spending trends improve. We don't believe there are any longer-term factors driving the recent project weakness. With the elections behind us, we're optimistic that sales cycles will start to normalize as customers gain more clarity moving forward. Turning now to slide six and our strategic pillars. Since I've already given you some color on our installed base and our diversification efforts, I'd like to take a moment to update you on our most recent acquisition, followed by an example of a nice energy transition market opportunity we're seeing. Turning now to slide seven. On October 2nd, we completed the acquisition of FATI, an industrial heater business based in Milan, Italy. FATI has a 79-year history a list of loyal customers, and is a very well-respected brand for high-quality heaters and demanding industrial applications. Their certifications and customer approvals are key in accelerating our ability to serve growing markets for electrification and decarbonization in Europe and across the Eastern Hemisphere. Revenues on a trailing 12 basis were roughly $13 million. The business is also experiencing strong demand growth and they currently have a backlog in excess of 15 million with a robust pipeline of incoming opportunities. The purchase price of 12.5 million euro is roughly equivalent to one year of sales. We're excited to welcome the Fatih team to Thermont and are already engaged to drive operational improvements to increase capacity to grow the business while expanding operating margins. Turning now to slide eight. As various technologies compete to provide a more sustainable energy future and electrification and data centers are driving increased electricity demand, we're seeing nuclear reemerge as a key piece of the future low carbon energy mix. Historically, Thermon has supplied heaters and filtration systems to the nuclear market through our CalorieTech heater line and 3L filtration systems. Base loaded power generation stations are now required to operate more flexibly with frequent shutdowns and restarts on short notice. While new assets can start quickly, they require staying warm during downtime for rapid startup, often using auxiliary steam to maintain high temperatures and pressures. Here's an example where we're delivering an 8.2 megawatt precision electrode boiler that can quickly deliver high-pressure, high-temperature steam to enable rapid startup for a nuclear power plant. Other opportunities we see in this space are for refurbishment of existing facilities and small modular reactors known as SMRs. With that, I'd like to turn it over to our new CFO, Jan Schott, who will provide a more detailed review of our second quarter results before I wrap up with some remarks on our financial outlook. Jan? Jan Schott | Chief Financial Officer: Thank you, Bruce, and good morning, everyone. I'm very excited to be here with you all today. It has been less than a month since I joined Thermon, but it is already clear we have a strong finance team in place. I look forward to working with Bruce, the executive leadership team, and our finance organization as we continue to execute on our strategic plan and continue the tradition of strong execution and operational excellence at Thermon. I also look forward to meeting our analysts and investors and building strong relationships with the investment community. So with that, I will get into our financial review. During my discussion, I will provide some additional details on the quarter, give an update on our working capital and free cash flow, and conclude with a commentary on our balance sheet and liquidity. Moving now to slide nine and our second quarter performance. Revenue in the second quarter was $115 million, a year-over-year decrease of 7.4%, as continued headwinds in our large project business was partially offset by the contribution from VaporPower and stable performance in our OpEx revenue. VaporPower contributed $12.1 million of revenue during the second quarter. Excluding VaporPower, second quarter organic sales decreased 17%, versus a record 2024 quarter two. Large project revenue was 17.5 million during the second quarter, down 51% from the same period last year, as customers continue to delay decisions on large capital projects, as Bruce mentioned previously. This weakness was generally broad-based across our different market protocols. While large project spending was weak, Our OPEX revenues were $97.2 million during the second quarter, an increase of 10% compared to last year, as our customers continue to prioritize maintenance and repair spending given the market uncertainty. Excluding vapor power, our OPEX revenues decreased 3.5% in the quarter. While we are disappointed in this result, the modest year-over-year decline, despite the challenging capital spending environment, demonstrates the benefits of our long-term customer relationships, deep installed base, and resilient OPEX spending. From a geographic perspective, we saw sales decline in U.S. lamb, EMBA, and APAC, with a sales increase in Canada of 2%. We have seen the most pronounced decline in capital spending in U.S. lamb. Adjusted EBITDA was $23.8 million during the second quarter, down from $27.7 million last year due to declines in our project revenue and continued investments in growth initiatives, partially offset by the contribution from vapor power and the benefits of our cost rationalization efforts. Adjusted EBITDA margins was 20.8% during the second quarter, down from 22.4% in the same period last year, largely due to volume shortfalls year over year. Margins benefited from an increased mix of materials revenue during the quarter, which generally carries higher growth margins. However, this is offset by the investments we continue to make in our strategic initiatives and lower project margins versus last year. During the second quarter, we completed the previously discussed consolidation of our rail and transit production lines from Denver into our San Marcos facility. which is part of our manufacturing rooftop consolidation program. As a result, we are on track to achieve our targeted $5.7 million in annualized savings. We continue to expect just over $4 million in realized savings during fiscal 25. Orders during the second quarter were $131.1 million compared to $116.3 million in the same period last year, an increase of 13%. On an organic basis, orders increased 3%. We saw broad momentum in our order trends, highlighted by notable strength in Petrochem, transit, and oil and gas. Importantly, our decarbonization bookings increased 6% year over year, and over 70% of our incoming orders in the quarter were once again from diverse end markets. As a result of the solid order momentum, Backlog was 214.9 million at the end of the second quarter, up 29% compared to a backlog of 166.9 million as of the second quarter last year. Excluding backlog attributable to vapor power of 43.6 million, backlog increased 3% on an ordinary basis. Moving to slide 10, for an update on our balance sheet and liquidity, net working capital with 31.7% of sales during the quarter, down from 33.6% last year as we continue to optimize our supply chain while also improving lead times and on-time deliveries to our customers. CapEx was $1.8 million during the second quarter of 25, down from $2.8 million last year. As a result of our strict financial discipline, Free cash flow was $6.7 million in the quarter, an improvement of $6.1 million versus last year. Through the first half of the fiscal year, we have generated just over $15 million in free cash flow versus the cash usage of $1 million in the first half of last year. We expect our continued focus on working capital management, combined with our expectation of solid operating results, to deliver another year of strong free cash flow conversion. We paid down roughly $3 million of term debt during the quarter, bringing our net debt balance to $129 million. Net leverage was 1.3 times at the end of the second quarter. Net leverage is down from 1.5 times immediately following the acquisition of Safer Power. Based on our total cash and available liquidity, of $129.8 million, we remain well capitalized and have ample flexibility to continue to support our capital needs. Assuming no additional acquisitions, we expect to target incremental debt pay down of $20 to $30 million during fiscal 25, combined with opportunistic share repurchases. In summary, we are pleased with our financial execution during the quarter as we made further progress on operational excellence initiatives and we generated strong free cash flow based on our stable operating performance and continued strict financial discipline. With that, I will turn the call back over to Bruce. Bruce Sainz | Chief Executive Officer: Thanks, Jan. Now if you'll turn to slide 11, we'll wrap up with our outlook for fiscal 2025. We continue to execute at a high level and are making important progress on our key strategic initiatives. I'm encouraged by our improved order trends over the last two quarters and am optimistic we'll see further momentum as we move forward. The long-term secular trends that positively impact many of our important end markets remain favorable, and we're well positioned to benefit from these drivers going forward. However, we're not totally immune to the weakness we're experiencing in the large project market and the push out of project timing. While over the last two quarters we're seeing the improved order momentum that was needed to drive our second half results, execution timelines of projects in backlog extend beyond our current fiscal year. As a result of these factors, we're adjusting our full year 2025 guidance as follows. We expect revenue in the range of $495 million to $515 million, which includes expected revenue from recent acquisitions. Adjusted EBITDA is now expected to range from $105 to $110 million, and adjusted EPS in a range of $1.77 to $1.89 per share. We think it's important to highlight that we continue to focus on our operational excellence initiatives and are carefully managing costs to current revenue levels, enabling us to protect earnings. Finally, just to wrap up things on slide 12, we're optimistic as ever for our business and the opportunities ahead remain as strong as ever. Our recent results demonstrate the progress we've made in developing a business that is more stable, profitable, and durable across cycles. Our large and growing installed base of loyal customers provides us with a resilient aftermarket franchise, which gives us access to a steady stream of predictable and highly profitable MRO revenues. We also remain well positioned to benefit from several powerful secular growth drivers, and these trends have not changed despite recent macroeconomic uncertainty. These secular drivers include the energy transition and decarbonization, on-shoring in North America, and infrastructure spending. We remain confident that these trends are as powerful as ever, and we believe that the recent spending delays only serve to create pent-up demand when customer confidence improves. Lastly, we benefit from a high margin, low capital intensity business that yields significant cash flow. As Jan covered earlier, our free cash flow through the first half is up meaningfully from last year, and we continue to maintain a strong financial position. This provides us the flexibility to pursue our capital allocation priorities, and we've demonstrated this commitment to our strategy through the recent acquisitions of Vapor Power and FOTI, ongoing investments in organic growth initiatives, and execution under our share repurchase plan, all with a focus on creating long-term shareholder value. That completes our prepared remarks. We're now ready for the question and answer portion of our call. Operator | Conference Operator: Thank you. Ladies and gentlemen, the floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Again, that's star 1 to register a question. Today's first question is coming from Justin Ages of CGS Securities. Please go ahead. Justin Ages | Analyst, CGS Securities: Hi, good morning, and thanks for taking the questions. Hey, good morning, Justin. And I look forward to working with you, Jan. Jan Schott | Chief Financial Officer: Yes, absolutely. Nice to meet you on the phone. Justin Ages | Analyst, CGS Securities: Yeah. And first question I have, the sales guidance, in the past you've given the contribution from VaporPower. Can you give us any indication whether that's still tracking towards $55 million just kind of want to triangulate an organic growth for the sales guidance? Bruce Sainz | Chief Executive Officer: Yes. So, yes, we do believe that the vapor business is still tracking in that $55 to $57 million range, looking forward for the balance of the year. Our backlog there is quite strong, so the real challenge is growing capacity to – to ship, and should we be able to execute on that? We could possibly see some upside, but right now we're forecasting in that $55 to $57 million range, and that's included in the guidance. Okay. Justin Ages | Analyst, CGS Securities: That's helpful. Thanks. And the next, last question, if I could, you know, interesting to call out the presence in nuclear given the you know, data center demand. Can you give us any more color on this current size of what that end market is to your business or any other details? Bruce Sainz | Chief Executive Officer: Yeah, so as we look at just the pipeline of opportunities, in the pipelines roughly about 1.2 billion, we see the current nuclear opportunities roughly about 4% of that. We have some other very large opportunities that are not included in that number. One is a large expansion of an existing facility, and another is around small modular reactors. Those are about 100 million, but they've not necessarily – there's not plans yet to move forward. So we're seeing some growing opportunities in that space. Justin Ages | Analyst, CGS Securities: All right, thanks. I appreciate you taking the question. Bruce Sainz | Chief Executive Officer: Thank you, Justin. Operator | Conference Operator: Thank you. The next question is coming from Brian Drapp of William Blair. Please go ahead. Brian Drapp | Analyst, William Blair: Good morning. Thanks for taking my questions, Jan. Nice to meet you. Looking forward to working with you. Nice to meet you. Yep. I first just wanted to ask about the large project activity. I guess I'm wondering, now that we're past the election, does that affect the probability that some of these projects start to get released and or is that really not what was holding it up, and just what's the outlook for some of that activity coming back? Bruce Sainz | Chief Executive Officer: Yeah, Ryan, you know, I can't necessarily speak for customers, but, you know, they're certainly with the elections behind us. I think you get clarity moving forward, and certainly policy is going to drive pace, so I think that will be important, and I think there'll be more clarity moving forward. So, you know, we believe it's probably going to have a positive impact on overall activity. The good news is we continue to see that pipeline of opportunities grow and we actually began to see some of these projects move forward during the quarter. I noted a couple of them, one in a large carbon capture petrochemical project and the other a large multi-year rail and transit project that's tied to infrastructure spending. Those are a couple of examples of what we're seeing. And certainly as we look at the pipeline of opportunity in quotations, it would indicate that the opportunities ahead are growing, not contracting. So at some point we would expect customers to begin to move forward. Brian Drapp | Analyst, William Blair: Okay. And then the next question just on the weather and thinking back to last year and the unusually warm weather. whether we had in Canada in particular, what are you seeing as you're heading into the, you know, getting into the heating season now? And, you know, are you, you know, you have some very easy comps, obviously, with the weather. And I guess I'll just leave it there for a second, and then I have a follow-up on that. Bruce Sainz | Chief Executive Officer: Yeah, so I'm not a meteorologist, so I can't predict the weather, but we are seeing nice material sales, which we noted during the quarter, and that has continued into the beginning of this quarter, so we see that momentum. We also are just expectations as we're planning. We're planning for more of a normalized winter ahead. I mean, that's typically how we plan, and As we look at this, when we look at just the weakness in revenues, it's really on the large capital project side. And as I said, our backlog, our organic backlog is growing. So we had two positive book-to-bill quarters. This quarter, we actually saw year-over-year bookings growth. So we see that backlog growing. Right now, just the bulk of those projects, the time of execution is out into early 26. And right now, we're heavily involved in engineering and design in anticipation of material shipments and any field execution. Brian Drapp | Analyst, William Blair: Okay. And then I was just going to say, can you remind me, isn't some of that product that you ship into the Canadian region, I guess, I think it's some of the mineral insulated cable, if I remember correctly, is relatively high margin. And I'm just wondering, I'm trying to, you know, if there's a positive year over year comparison coming potentially if this, you know, there's a lot of talk about like a La Nina winter and who knows if, if, uh, again, we're not meteorologists obviously, but, um, trying to find, you know, opportunity here. Bruce Sainz | Chief Executive Officer: Well, I would, uh, I would make a couple of comments. First of all, if you recall last year, our Canadian business was quite weak. Uh, coming into this year, our Canadian business has actually is actually up year over year. So, We've seen that not only bottom out, but begin to improve. So I would just say that is more on the general business activity and overall economic conditions we're seeing. So I think that's certainly a positive sign. And then as you say, our Canadian operations, because of the harsh climates, they tend to have the very high temperature types of products, which tend to drive a higher margin profile. So, yes, stronger sales in Canada equals better gross margins, certainly. Brian Drapp | Analyst, William Blair: And then just the last question, can you repeat what you said about the decarbonization pipeline? I just missed the number that you said. What percentage of the 1.2 is that, and how did that grow? Bruce Sainz | Chief Executive Officer: It's grown to roughly 320 million of that 1.2 billion. Got it. Brian Drapp | Analyst, William Blair: Thank you very much. Bruce Sainz | Chief Executive Officer: Thank you. Operator | Conference Operator: Once again, ladies and gentlemen, that is Star 1. If you would like to ask a question. Our next question is coming from John Bratz of Oppenheimer. Please go ahead. John Bratz | Analyst, Oppenheimer & Co.: Good morning, everyone. And Jan, welcome aboard. Jan Schott | Chief Financial Officer: Thanks so much. Look forward to working with you. John Bratz | Analyst, Oppenheimer & Co.: Bruce, I don't know. Maybe I missed it, but the large projects that are being pushed out, are they in the your more traditional oil and gas markets, or are they elsewhere? Bruce Sainz | Chief Executive Officer: Right now, overall, our oil and gas activity, I would say, is down as we look at this and we look at the project opportunities and large capital projects. First and foremost, just our backlog of those opportunities are down, but then also we see some execution, and I would I would say we're seeing timing of some of these change. It's broad-based. There's some large projects in renewables that we're seeing being somewhat delayed due to some permitting issues. We've got things that are just typical project delays. Execution is lagging. Particularly, there's one large project in semiconductors that's lagging. We've got a large pharmaceutical project that we would expect to start to generate revenues later this year. It's in the engineering stages. So there's just, if you think about the project timing, a lot of the projects we have now are in engineering. And the large petrochemical project we just booked with carbon capture storage, that's going to be in engineering for the back half of this year, and revenues will start early in 26. So What we see is some nice momentum building into 26 as we grow the backlog, and we see order activity improve on larger capital projects. John Bratz | Analyst, Oppenheimer & Co.: Okay, okay. Bruce, in your conversations with your customers, clients, obviously we have a new administration coming in who sort of favors oil and gas, drill to baby drill, and do you get the sense that any of these alternative energy projects, decarbonization, things like those might be put more on a back burner and there's more of an emphasis on oil and gas. Do you think there's going to be any shift in the business opportunities that you're seeing currently? Bruce Sainz | Chief Executive Officer: You know, I think first and foremost, The reduction in uncertainty by having a known outcome I think is positive overall for business. I think the good news is that we stand to benefit no matter which direction policy takes us going forward. We have still 30% of our revenues are in the oil and gas sector and will benefit if those spending patterns improve and Conversely, we've got opportunities in the decarbonization space as well. It'll be interesting to see how policy evolves and impacts. I think if you look historically, there are certain areas that spending may be favored, particularly as you look at how the IRA dollars may be spent that will support certain technologies and maybe challenge others. So, you know, I think policy will drive pace and we'll see that evolve over the next, say, six to 12 months. John Bratz | Analyst, Oppenheimer & Co.: Okay. Okay. And, Jan, the SG&A spend maybe a little bit more than what I was looking for. You talk about spending on some of the initiatives to develop your business further. Would you see that spending rate continuing on for a while or is some of the heavier spending behind us now? Jan Schott | Chief Financial Officer: I think going forward we would expect that to trend downward. We did see an increase in SG&A for the vapor power acquisition this quarter, but our organic was actually 3% down. Okay. And that's consistent with our long-term strategy. John Bratz | Analyst, Oppenheimer & Co.: Okay. Thank you, Jen. Operator | Conference Operator: Thank you. Once again, that is star one for any final questions. At this time, I'd like to turn the floor back over to Mr. Thames for closing comments. Bruce Sainz | Chief Executive Officer: All right. Thank you, Donna. And again, I'd like to thank all of our Thermon employees around the globe that are serving our customers with excellence each and every day. So thank you for all that you do. And I'd also like to thank all of you for your time and your interest in Thermon. And if we don't speak during the quarter, I look forward to spending time with you on our next quarterly call. So thank you and have a good day. Operator | Conference Operator: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your line to log off the webcast at this time and enjoy the rest of your day. jsPDF 3.0.3 D:20260606090457-00'00'