Thermon Group Q4 2025 Earnings Call Transcript

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Provided by Quartr
May 22, 2025
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Operator

Greetings, and welcome to the Thermon Group Holdings Fourth Quarter Fiscal Year twenty twenty five Earnings Presentation. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded. I will now turn the conference over to our host, Yvonne Salem, Vice President, FP and A and IR. Thank you. You may begin.

Ivonne Salem
Ivonne Salem
Vice President of FP&A and Investor Relations at Thermon Group Holdings

Thank you. Good morning, and thank you for joining Thermo's Group fourth quarter and full year fiscal twenty twenty five 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 eight ks 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 twenty twenty five.

Ivonne Salem
Ivonne Salem
Vice President of FP&A and Investor Relations at Thermon Group Holdings

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 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.

Ivonne Salem
Ivonne Salem
Vice President of FP&A and Investor Relations at Thermon Group Holdings

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 Themes, 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
Bruce Thames
President & CEO at Thermon Group Holdings

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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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 U. S. Was lifted earlier this year, activity has resumed and we're seeing increased bidding and project awards.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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 bill. As a result, our backlog as of March 31 increased 29% from last year with the organic backlog up 20%, driven by momentum in 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 four twenty three basis point improvement relative to Q4 of last year.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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 twenty twenty five 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 $14,500,000 in optional debt repayments and returning over $14,000,000 in capital to 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 $50,000,000 underscoring our optimism for the future. Turning now to reflect on fiscal twenty twenty five.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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 $498,000,000 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 and A were instrumental in delivering this year's results. We generated an adjusted EBITDA margin of 22% during fiscal twenty twenty five, 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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

Our earnings growth and solid gross margin expansion of 196 basis points delivered $53,000,000 in free cash flow during the year. More importantly, we generated $536,000,000 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 three d initiatives, which we'll discuss in more detail later on the call, contributed $93,000,000 in revenue during the year. The R and D team also announced 28 new product and software releases during fiscal twenty five, 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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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 bill 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 twenty twenty six, I would like to take a moment to reflect on the strides we've made in advancing our strategic initiatives during fiscal twenty twenty five. Now turning to slide six, where we highlight our key strategic pillars.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

Over the past seventy 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 twenty twenty five, our organic revenues declined only eight percent despite a decline in large project revenues of nearly 40%. On a trailing twelve 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 three d initiatives to achieve growth above and beyond GDP.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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 diversity in markets was achieved at the beginning of fiscal twenty five, almost two years early. One of the most significant insights from fiscal twenty seventeen 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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

That said, our long standing 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 new administration, we're optimistic this momentum can continue. Turning now to Slide 10.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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 twenty four 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 twenty four. During fiscal twenty twenty five, we took another important step to further advance our decarbonization strategy with the acquisition of Fatih. This acquisition brought us a very well respected brand of heating solutions that is highly complementary to our legacy portfolio while expanding our global manufacturing footprint.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

Since acquiring the business, the Fatih 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 launched 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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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 Genesis 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 twenty twenty five saw remarkable growth in our Genesis network installed base where circuit count surged by nearly 90% and we're projecting an additional 50% growth in fiscal twenty twenty six. This robust adoption underscores the differentiated value we bring to the market.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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 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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

And finally, as it relates to our disciplined capital allocation strategy, we successfully executed on our balanced approach during fiscal twenty twenty five. As we continue to make important investments to advance our organic growth strategy, we deployed capital for strategic M and A through the acquisition of Fati, recurring 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
Jan Schott
SVP & CFO at Thermon Group Holdings

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 134,100,000.0, a year over year increase of 5% driven by continued momentum and OpEx revenues, including solid growth at vapor power and contribution from 40.

Jan Schott
Jan Schott
SVP & CFO at Thermon Group Holdings

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 22,300,000.0 during the fourth quarter, down 5% from last year, compared to compared to the previous quarter, however, we saw revenue increase 20%.

Jan Schott
Jan Schott
SVP & CFO at Thermon Group Holdings

Another indicator of improved momentum in CapEx spending. Our OpEx revenues were 111,800,000.0 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 Foti, 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.

Jan Schott
Jan Schott
SVP & CFO at Thermon Group Holdings

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, US 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 15,000,000 and up 18% excluding the contribution from 40. Canada sales of 40,000,000 were down 6% from last year, due to the general macroeconomic conditions in the country.

Jan Schott
Jan Schott
SVP & CFO at Thermon Group Holdings

Revenues in APAC were 9,200,000.0. Adjusted EBITDA was 30,500,000.0 during the fourth quarter, up from 23,600,000.0 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.

Jan Schott
Jan Schott
SVP & CFO at Thermon Group Holdings

Working capital increased by 3% to 167,600,000.0 at the end of the quarter, due to timing of collections. CapEx was 3,100,000 during the quarter, flat compared to last year. Free cash flow during fiscal twenty twenty five was 52,900,000.0 down from 55,000,000 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 14,000,000 in shares during the fourth quarter, bringing our total share repurchases for 2025 to over 20,000,000.

Jan Schott
Jan Schott
SVP & CFO at Thermon Group Holdings

As Bruce mentioned earlier, after purchasing 24,000,000 to date under our original share repurchase program, our board approved a refresh of the program back to $50,000,000 We paid down 14,500,000.0 of net debt during the quarter, bringing our net debt balance to 99,000,000 and a 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.

Jan Schott
Jan Schott
SVP & CFO at Thermon Group Holdings

Based on our total cash and available liquidity of 137,000,000. We remain well capitalized and have ample flexibility to support our capital allocation needs, and we'll 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
Bruce Thames
President & CEO at Thermon Group Holdings

Thanks, Jan. Moving now to Slide 17. As we enter fiscal year twenty twenty six, 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, Twenty Five Percent reciprocal tariffs from Canada and Mexico, and 10% for the rest of the world.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

Based upon these assumptions, we're expecting an annualized impact of roughly 16,000,000 to 20 million dollars 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 multipronged strategy. First, pricing actions.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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 U.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

S, 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 twenty twenty six 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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

And now if you'll turn to Slide 18, I'll discuss our outlook for fiscal twenty twenty six. 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 in 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 twenty twenty six financial guidance that calls for revenue in a range of four ninety five million dollars to $535,000,000 representing 3.5% growth at the midpoint of the range.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

Adjusted EBITDA is in a range of $104,000,000 to $114,000,000 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 positively 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 twenty twenty five. Their dedication and innovation have positioned us as a leader in industrial process heating with a resilient business model and efficient operational framework.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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.

Operator

Thank And our first question comes from Chip Moore with ROTH Capital Partners. Please state your question.

Chip Moore
Managing Director & Senior Research Analyst at Roth Capital Partners, LLC

Hey, good morning. Thanks for taking the question. 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
Bruce Thames
President & CEO at Thermon Group Holdings

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 U. S. Gulf Coast as well as in The Middle East.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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 tracking around $80,000,000 in LNG opportunities that for our content. So we see some really some nice tailwinds there in that sector.

Chip Moore
Managing Director & Senior Research Analyst at Roth Capital Partners, LLC

Great. Appreciate that. And maybe just on FY 2026, 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 half. Maybe just any more detail there on what you're thinking directionally and cadence? Thanks.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

As usual, pricing, we have about a sixty 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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

We've been able to pass price increases in the past. Look back at COVID and the inflationary impact there, we're able to pass those on. My expectation is 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 costs 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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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 the back half of the year, although the leading indicators we track have not indicated that to be true yet.

Chip Moore
Managing Director & Senior Research Analyst at Roth Capital Partners, LLC

Fantastic. Appreciate it. I'll hop back in queue. Thanks.

Operator

And your next question comes from Brian Drab with William Blair. Please state your question.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

Good morning. Thanks for taking the questions. Just wanted to maybe first build on that last question. And Bruce, how are you thinking about the overtime category in your forecast for fiscal 'twenty six? Is it obviously, is it down a lot in fiscal 'twenty five?

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

Are you forecasting that to be about the same, I guess, given the overall guidance?

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

Yes, roughly. What are the way we're thinking about this right now is that we actually saw really nice backlog build in overtime projects. In fact, our engineering workload is really at an all time high and that's related to these, 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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

Our assumption at this point is that the order in the incoming order rates for these larger capital projects will be muted until we get more clarity on the 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 had we have seen in the market leading into our fiscal twenty twenty six. The lower end of the range would assume an erosion in the overall trade negotiations and an escalation in the trade conflicts.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

Okay, thanks. And can I ask you to comment on how are you thinking about at the midpoint of the range, how are you thinking about the OpEx spending of the point in time segment?

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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. Okay.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

Can you talk at all about other categories or 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
Bruce Thames
President & CEO at Thermon Group Holdings

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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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, 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 we've seen some really strong bookings.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

Our backlog there has grown to about $36,000,000 of which we anticipate executing about $17,000,000 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 working we're very active in trying to develop and execute on that opportunity we see.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

Okay. I'm going to save my questions for later. 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 backlog is up 20% organically. You've got some momentum in some different end markets.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

The CapEx environment at the moment looks like it's improved materially. But just instead of like a lot of companies are doing pulling guidance, you're just saying we're going to give a broad kind of a broad range. There's a lot of the consensus view is that there's going be a slowdown later this 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, it could be in play here.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

Is this a fair way to interpret everything that I'm hearing today?

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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 twenty twenty six. 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
Equity Research Analyst at William Blair & Company, L.L.C

Got it. Okay. Thanks for all the detail. I'll talk to you Yes.

Operator

Thank you. Your next question comes from Justin Ages with CJS Securities. Please state your question.

Justin Ages
Director - Equity Research at CJS Securities

Hi, thanks for taking the questions.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

Hey, Justin.

Justin Ages
Director - Equity Research at CJS Securities

With the debt pay down and share buyback and then refresh, can you just give us a little more detail on your capital allocation priorities?

Jan Schott
Jan Schott
SVP & CFO at Thermon Group Holdings

Yes. Hi, Justin, I'll take that one. I guess first and foremost, we have our capital investments for growth. And that's in the same range that we've done in prior years with 2% to 3% CapEx 23% of sales. And then probably with all of the technology investments that we have going in, that's about 1% for next year.

Jan Schott
Jan Schott
SVP & CFO at Thermon Group Holdings

So that's first and foremost. 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 14,000,000 shares this last quarter, really taking advantage of some dips due to other macroeconomic 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 and A pipeline.

Jan Schott
Jan Schott
SVP & CFO at Thermon Group Holdings

And in this environment, really, just looking for buying opportunities, to be honest. But I think that's something that we're very focused on. With 137,000,000 of liquidity, we have a lot of tailwinds that are back really looking hoping to execute something in the near term and on M and A.

Justin Ages
Director - Equity Research at CJS Securities

Okay, appreciate that. And then you just mentioned that guidance includes this $5,000,000 1 time tech investment. Can you just give us a little more color on what that entails?

Jan Schott
Jan Schott
SVP & CFO at Thermon Group Holdings

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 having more color on that, I guess, in future calls, but that's underway right now.

Justin Ages
Director - Equity Research at CJS Securities

Okay, thank you. And then last question on Thurman long term initiatives and particularly on the EBITDA margin target. Just wanted to 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 any color on on that.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

Yes. 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 mix.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

But we're confident there's a path to get those more in line with the averages of 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 a 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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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
Director - Equity Research at CJS Securities

Sure. I appreciate the answers. Thank you.

Jan Schott
Jan Schott
SVP & CFO at Thermon Group Holdings

Thank you. Thank you.

Operator

And your next question comes from Jon Braatz with Kansas City Capital. Please state your question.

Jonathan Braatz
Partner at Kansas City Capital Associates

Good morning, Bruce. James, a little more clarity on the tariffs. You said the gross impact is 16,000,000 to $18,000,000 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 mitigation efforts?

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

Yes. So on a gross basis, we gave a range of 16,000,000 to $20,000,000

Jonathan Braatz
Partner at Kansas City Capital Associates

Yes, I'm And we believe on a net impact, it's somewhere in the $4,000,000 to $6,000,000 range within the current fiscal year. And that'll be mostly in the first half, correct?

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

Correct. Correct.

Jonathan Braatz
Partner at Kansas City Capital Associates

Okay. Okay. All right. Good. Okay.

Jonathan Braatz
Partner at Kansas City Capital Associates

And then secondly, when you look at the competitive landscape, are your 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
Bruce Thames
President & CEO at Thermon Group Holdings

That's 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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

We do a lot of for country in country for country production. The acquisition of Fati increased our operating presence in the European continent, certainly has been really a bright spot when we look at just the overall demand environment there for decarbonization and electrification solutions. And that business, we acquired it with about a $15,000,000 backlog. It's almost doubled since that time. And our ability to serve that on the European continent is a real advantage.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

And then we do have operations in India that we'll begin to leverage to serve more of the Asian continent. And we certainly, as we look at our M and A opportunities, we're looking for potential acquisitions that would mirror Afati that would give us a larger operating footprint in Asia just for these types of situations, to diversify our risk base. So we 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.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

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 do 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 where we've factored all of that into our guide.

Jonathan Braatz
Partner at Kansas City Capital Associates

Yes. Okay. All right, Bruce, thank you very much.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

Appreciate it.

Operator

Thank you. And the next question comes from Brian Drab with William Blair. Please state your question.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

Hi, I'm back with just one clarification. On the one time technology investment, $5,000,000 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 seems like it's a 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
Jan Schott
SVP & CFO at Thermon Group Holdings

No, this would be adjusted out of or on the adjusted EBITDA calculation and EPS.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

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.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

I just missed I just want to make sure. Okay. Okay. So there is a you are expecting a margin headwind excluding All right. Thank you very much.

Jan Schott
Jan Schott
SVP & CFO at Thermon Group Holdings

And it's not I think it's obviously not something that we do every year and don't plan to.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

Right, right. And well, was my other question is that this goes away then that you're expecting the 5,000,000 to be the entire investment and for that to be a fiscal twenty six event and fiscal twenty seven. It's the plan is for this not to be an expense line. Is that right?

Jan Schott
Jan Schott
SVP & CFO at Thermon Group Holdings

Yes, I mean, will have some, I think some very marginal investments going into '27 for just some of the acquired entities that will roll into the new ERP system. The majority will be in fiscal twenty six. Yes.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

Okay. Okay, perfect. Thanks very much.

Bruce Thames
Bruce Thames
President & CEO at Thermon Group Holdings

Thank you. Thank you.

Operator

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
Bruce Thames
President & CEO at Thermon Group Holdings

Yes. 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.

Operator

Thank you. All parties may now disconnect.

Executives
    • Ivonne Salem
      Ivonne Salem
      Vice President of FP&A and Investor Relations
    • Bruce Thames
      Bruce Thames
      President & CEO
    • Jan Schott
      Jan Schott
      SVP & CFO
Analysts
    • Chip Moore
      Managing Director & Senior Research Analyst at Roth Capital Partners, LLC
    • Brian Drab
      Equity Research Analyst at William Blair & Company, L.L.C
    • Justin Ages
      Director - Equity Research at CJS Securities
    • Jonathan Braatz
      Partner at Kansas City Capital Associates
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Key Takeaways

  • Q4 organic growth resumes: Thermon delivered 3% organic revenue growth in Q4—the first in over a year—with a positive book-to-bill for the fourth consecutive quarter and a 29% year-over-year backlog increase.
  • Margin expansion and strong cash flow: Adjusted EBITDA margin rose to 22.7% in Q4 (up 423 bps year-over-year), free cash flow hit $53 million for FY 25, net leverage fell below 1×, and the company repaid $14.5 million of debt while returning over $14 million to shareholders.
  • Record annual performance: Fiscal 25 revenue reached $498 million (up 1% despite a 37% large-project decline) and adjusted EBITDA margins expanded by 86 bps, supported by $536 million in bookings and a book-to-bill of 1.08×.
  • Progress on “3D” strategy: Thermon hit its 70% diversification target nearly two years early, bolstered decarbonization offerings via the Vapor Power and Fati acquisitions, and saw Genesis digital controls grow to 12% of heat-tracing revenue with circuit count up nearly 90%.
  • Cautious FY 26 outlook amid tariffs: Guidance calls for $495–535 million in revenue (3.5% growth at midpoint) and $104–114 million in adjusted EBITDA, factoring in $16–20 million of tariff headwinds (net $4–6 million after mitigation) and expected first-half margin pressure.
AI Generated. May Contain Errors.
Earnings Conference Call
Thermon Group Q4 2025
00:00 / 00:00

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