Thermon Group Q3 2026 Earnings Call Transcript

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Provided by Quartr
February 5, 2026

Key Takeaways

  • Positive Sentiment: Achieved record Q3 results — revenue of $147.3M (+10% YoY), adjusted EBITDA of $35.6M (+12%) and an adjusted EBITDA margin of 24.2%, with orders up 14% and a book-to-bill of ~1.1.
  • Positive Sentiment: Management raised full-year fiscal 2026 guidance to revenue of $516M–$526M and adjusted EBITDA of $114M–$120M, citing sustained order momentum and project pipeline strength.
  • Positive Sentiment: Data center opportunity gaining traction — Thermon shipped initial liquid load bank units, doubled its quote log to $60M, and is expanding production with a planned significant ramp into FY27.
  • Positive Sentiment: Medium-voltage heater business is an early but sizable growth vector — management reports a pipeline of > $150M, a backlog above $11M, and technical barriers that support a competitive moat as they scale manufacturing.
  • Positive Sentiment: Strong financial position and cash generation — net debt of $96.3M (0.8x leverage), $141M total liquidity, $13.1M Q3 free cash flow, and $38.5M remaining share repurchase authorization to fund growth, M&A, or buybacks.
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Earnings Conference Call
Thermon Group Q3 2026
00:00 / 00:00

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Operator

Greetings and welcome to the Thermon Group Holdings third quarter fiscal 2026 results 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. As a reminder, this conference is being recorded. I will now turn the conference over to your host, Ivonne Salem, Vice President of FP&A and IR. Thank you, you may begin.

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

Good morning, and thank you for joining Thermon Group's third quarter fiscal 2026 results conference call. Leading the call today are CEO Bruce Thames, Chief Financial Officer Jan Schott, and Chief Operating Officer Tom Cerovski. Earlier this morning, we issued an earnings press release which has been filed with the SEC on Form 8-K, 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 Q3 2026. 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.

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

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 recent 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
SVP 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 Thames, who will provide a review of our recent business performance, including an update on our strategic initiatives.

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

Following Bruce, our Chief Operating Officer Tom Cerovski will share an update on our progress and opportunities in the data center market and medium voltage heaters, which are two key components of our organic growth plans going forward. After Tom, our CFO Jan Schott will provide a review of our third quarter financial results. 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
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 our third quarter highlights, which you can find on slide four. I'm exceptionally proud to announce that we achieved record-breaking results in the third quarter, delivering the highest revenue, profitability, and bookings in our company's history. These outstanding outcomes are a testament to our unwavering commitment to executing our strategic initiatives and to the dedication and excellence demonstrated by our entire Thermon team across the globe. Our strategic actions have positioned us well to capitalize on significant secular trends that are reshaping the industrial landscape, including the growth of data centers, increasing demand for power generation, the global shift towards decarbonization, and accelerating electrification.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

We believe that our recent booking strength and pipeline growth illustrate improving macro conditions coupled with renewed capital project momentum that are reinforced by strong customer relationships, all supporting a positive outlook for the remainder of the fiscal year with momentum continuing into 2027. Now, turning to our quarterly results in more detail. Our third quarter revenues were up 10% from last year, which combined with our solid margin execution resulted in a 12% increase in adjusted EBITDA. Our third quarter adjusted EBITDA margin was just over 24%, which brings our trailing 12 months adjusted EBITDA margin to nearly 23%, illustrating the strong earnings potential of our business. We remain committed to our Thermon Business System initiatives and our margin priorities, and we're very pleased by our recent profitability conversion.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

While I'm encouraged by our third quarter operating results, I'm most excited about the strong order trends and the building momentum we're now seeing in our business. Orders in the third quarter increased by 14% year-over-year, resulting in a book-to-bill ratio of approximately 1.1x, with our total bid pipeline up 8% at quarter end, with nearly 80% of these opportunities coming from our diversified end markets. Large project orders in the quarter were up approximately 60% year-over-year, driven by LNG project activity, midstream gas processing, and a large sustainable aviation fuels project in Asia. Much of this activity is tied to the value chain around natural gas for both power generation and LNG export facilities, as well as continued momentum in renewables in the Eastern Hemisphere.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

While these orders help grow our installed base, the execution timelines are more protracted than our flow business and will begin to convert in our fiscal 2027. The power sector is another area where we also believe Thermon is well positioned, with offerings ranging from emissions monitoring solutions with our tubing bundle products to temperature management with our Genesis heat tracing control systems to auxiliary boilers for conventional and nuclear power generation.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

While early in what appears to be a large CapEx cycle, our pipeline of opportunities in this sector has now grown to $180 million, up 58% year-over-year, with over 60% of these opportunities in the U.S. market. Another area of emerging growth in the U.S. is in the reshoring of manufacturing, where customers are restarting shuttered facilities or expanding production in existing facilities across pharmaceuticals, chemicals, steel, and other industries.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

Last quarter, I highlighted that we received our first order for our new Poseidon liquid load bank solution. I'm pleased to report that we delivered these first units during the third quarter, and more importantly, we continue to see bookings and extremely strong quoting activity for our data center products. Tom Cerovski, our COO, will provide a more detailed update on the data center market later on this call. Another important driver during the quarter was the continued rebound in our large project business for the second consecutive quarter. As we've discussed on recent calls, our large CapEx order rates were improving, which led us to ramp up our engineering capacity to handle the increased project workload, including the launch of our new global engineering center in Mexico earlier this year.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

The increase in our engineering team has enabled us to move through the design phase on several large projects, which has translated to improved financial results in our large project business, with a third quarter CapEx revenues up 37% versus the third quarter of last year. Based on our strong third quarter results, combined with the building momentum in new orders and backlog growth, we're once again raising our guidance for fiscal 2026, which I will detail in my closing remarks. I'd like to now turn the call over to Tom Cerovski, our Chief Operating Officer, who will provide a more detailed update on the data center market and medium voltage heaters. Tom?

Tom Cerovski
Tom Cerovski
COO at Thermon Group Holdings

Thank you, Bruce, and good morning to everyone. Moving on to slide six, I'd like to provide an update on our liquid load bank solutions for the data center market, which has quickly become a meaningful growth opportunity for Thermon. As we've discussed on prior calls, the recent shift to liquid-cooled data centers, driven by investment in artificial intelligence, or AI, has created a rapidly accelerating demand for liquid load banks to validate critical cooling systems and power infrastructure. Thermon has moved aggressively to position the company to benefit from this trend in both the short term and long term. As Bruce highlighted, we shipped the first 20 units of our newest designed liquid load bank solutions and also began installation and commissioning during the quarter, and the momentum for this product continues to grow.

Tom Cerovski
Tom Cerovski
COO at Thermon Group Holdings

It is important to note that we moved from initial development to shipping units in just six months, highlighting the ingenuity, responsiveness, and agility of our team. Quoting activity remains robust, as our quote log has doubled sequentially to $60 million. We continue to expect a significant ramp in orders for our liquid load bank solutions, and we are currently expanding production to support what we believe will be a multi-year growth opportunity. Another exciting opportunity for Thermon is our participation in the medium voltage heaters market. Medium voltage heaters are heaters that look like and function like traditional process heaters but operate at significantly higher voltages. This creates a large and growing market for these high-performance heaters that operate at higher efficiencies, higher power densities, a smaller footprint, have lower installation costs, and less auxiliary equipment.

Tom Cerovski
Tom Cerovski
COO at Thermon Group Holdings

Thermon's medium voltage heater pipeline has expanded to over $150 million, benefiting from our global electrification trends and the superior nature of our product. Our sales and marketing activities for these heaters are also an extension of the efforts of our current commercial teams in existing industries, with existing skill sets and with existing customers, allowing us to move quickly to capture market share. These heaters also benefit from the secular tailwinds and the macroeconomic trends regarding decarbonization and electrification in industrial heating.

Tom Cerovski
Tom Cerovski
COO at Thermon Group Holdings

Aside from the previously mentioned features and benefits, these electric heaters can perform at the highest levels of efficiency and have no emissions, where a combustion-based heater would operate at lower efficiencies and is not emissions-free. It is also worth noting that, from a competitive perspective, there are significant barriers to entry into the medium voltage heater market.

Tom Cerovski
Tom Cerovski
COO at Thermon Group Holdings

Although this is well within Thermon's strike zone of expertise in heat transfer and thermodynamics, this is a capability we have developed over a number of years with our deep and extensive engineering talent. These heaters come with international certifications and approvals that require exhaustive testing and compliance reviews. Quite frankly, these medium voltage heaters are difficult to engineer and even harder to manufacture. Thermon is a leader in this space, and we are on our front foot ahead of a very, very short list of competitors that have even attempted to participate in this space. We've secured our third medium voltage heater order, which increases our backlog for this product to over $11 million. We are currently quoting opportunities and selling manufacturing slots for these heaters into our FY 2027 and FY 2028 fiscal years.

Tom Cerovski
Tom Cerovski
COO at Thermon Group Holdings

Last, we are also scaling our manufacturing processes and leveraging our global manufacturing footprint to increase capacity for these heaters. This technology is well within our strengths and capabilities, and we are utilizing our global engineering and operations team to meet the growing customer demand for these products. With that update on the exciting products of liquid load banks and medium voltage heaters, I'll now turn it over to Jan for a detailed review of our third quarter results. Jan?

Jan Schott
Jan Schott
CFO at Thermon Group Holdings

Thank you, Tom, and good morning, everyone. I'll walk through our third quarter financial performance, followed by updates on working capital, cash flow, and our balance sheet and liquidity. Moving to slide seven, revenue for the quarter was $147.3 million, a year-over-year increase of 10%. The growth this quarter reflects more favorable spending patterns, including continued improvements in large project spending by customers, ongoing momentum in electrification and decarbonization in Europe, and benefits from pricing. With the FATI acquisition reaching its one-year anniversary this past October, all of the growth this quarter is now considered organic.

Jan Schott
Jan Schott
CFO at Thermon Group Holdings

Our OpEx revenues were $122 million during the third quarter, an increase of 5% compared to last year, driven by increased spending from our installed base and pricing. OpEx revenues represented 83% of total revenues for the quarter. Large project revenue was $25.4 million for the third quarter, up 37% from last year.

Jan Schott
Jan Schott
CFO at Thermon Group Holdings

As Bruce mentioned earlier, momentum in our major project markets is now flowing through to our results, with several projects progressing from engineering into execution this quarter. Our engineering teams remain fully utilized, and the active bid pipeline gives us confidence that this strength will continue into the new calendar year. Our gross profit was $68.7 million during the third quarter, an increase of 11% compared to last year. The increase in gross profit was the result of operating leverage from increased volumes, price, tariff mitigation, and productivity gains enabled by our Thermon Business System. As a result, gross margins were 46.6% for the third quarter, up from 46.2% last year. We were pleased to see our gross margin performance continue this quarter given the higher mix of large project revenue. We also saw this trend last quarter, which is encouraging.

Jan Schott
Jan Schott
CFO at Thermon Group Holdings

Adjusted EBITDA was $35.6 million for the quarter, up from $31.8 million last year, an increase of 12%. The increase was driven by our solid revenue growth, sustained gross margin improvement, and disciplined cost management, partially offset by continued investments in growth initiatives and higher performance-based compensation. Adjusted EBITDA margin was 24.2% during the third quarter, up 50 basis points from last year. GAAP earnings per share for the quarter was $0.55, up modestly from $0.54 in the prior year. Adjusted earnings per share was $0.66, up 18% from $0.56 last year. Third quarter orders grew 14% to $158.2 million compared to last year. As Bruce noted earlier, this included strong activity across LNG, midstream gas processing, and a major SAF project in Asia. Our book-to-bill ratio for the quarter was 1.1x, up from 1.0x a year ago.

Jan Schott
Jan Schott
CFO at Thermon Group Holdings

Backlog increased 10%, driven by a positive book-to-bill for the quarter and favorable project timing, even as we delivered record revenue this quarter. Turning to performance by geography, US-LAM delivered a solid 10% year-over-year increase, driven by sustained demand across large capital projects and continued pricing discipline. Canada posted a 1% revenue increase, supported by heightened project activity. In EMEA, activity remained robust, with revenue increasing 37%. This growth reflects strong execution across our legacy business, as well as rising demand tied to electrification and decarbonization trends in Europe. Meanwhile, APAC delivered 9% revenue growth, supported by continued momentum in project activity. Turning to slide eight for an update on our balance sheet and liquidity, working capital was $190 million at quarter end.

Jan Schott
Jan Schott
CFO at Thermon Group Holdings

Capital expenditures were $4.9 million for the quarter compared to $1.4 million last year, reflecting our investments to support growth initiatives, including our liquid load bank and medium voltage heater product lines. We generated $13.1 million of free cash flow in the third quarter, up from $8.4 million last year, reflecting healthy operating performance and moderated by growth-focused investments. Year-to-date free cash flows were $25.7 million, up from $23.9 million in the prior year period, highlighting continued discipline even as we invest to support growth. We did not repurchase shares in the third quarter. Cumulative repurchases since the beginning of fiscal 2025 stood at 36.04% of our shares outstanding. We still have $38.5 million remaining under our existing authorization. We ended the quarter with net debt of $96.3 million and a net leverage ratio of 0.8 times.

Jan Schott
Jan Schott
CFO at Thermon Group Holdings

In summary, we continued our financial discipline during the third quarter and remained focused on maintaining a strong balance sheet. We have $141 million in total cash and available liquidity as of quarter end, providing us ample financial flexibility to execute on our balanced capital allocation strategy, which remains focused on driving growth, both organically and through strategic acquisitions, while balancing opportunistic share repurchases and debt reduction. With that, I will turn the call back over to Bruce.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

Thanks, Jan. As we shared on this call, we were very pleased with our third quarter results and are encouraged by the continued momentum we're seeing across many of our end markets. This team has spent considerable time and energy over the past several years repositioning the business for growth, so it's very rewarding to see this hard work beginning to pay off. Based upon our strong results through the first three quarters of the year and the continued momentum in our business, we're raising our full-year 2026 financial guidance for revenue and Adjusted EBITDA. As we detail on slide nine, our fiscal 2026 financial guidance calls for revenue in a range of $516 million-$526 million, representing 5% growth over prior year at the midpoint. We're raising Adjusted EBITDA guidance to a range of $114 million-$120 million, representing 7% growth over prior year at the midpoint.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

Our guidance continues to assume that the current tariff structures remain in place and any future announcements do not have a notable positive or negative impact on input costs or customer sentiment, and the improved business trends we've seen are sustained. Turning now to slide 10, we believe we're strategically positioned to benefit from several powerful macroeconomic drivers, including reshoring, electrification, decarbonization, power, and data centers. We're in an extremely strong financial position with more than sufficient financial flexibility to continue pursuing our strategic priorities, including the disciplined allocation of capital, all with an ongoing focus on generating long-term value for our shareholders. That completes our prepared remarks. We're now ready for the question-and-answer portion of our call.

Operator

Thank you. At this time, we will conduct the 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 that 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. Your first question comes from Brian Drab with William Blair. Please state your question.

Brian Drab
Brian Drab
Co-Group Head of Industrials at William Blair

Congratulations on the great results. I've been covering the company for a long time, and I know a lot of people have been expecting Thermon to put up results like this. I usually don't take time to do this congratulating on the calls, but I think it's deserving, for sure.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

Thanks, Brian.

Brian Drab
Brian Drab
Co-Group Head of Industrials at William Blair

I was wondering, yeah, can you talk about the 46%+ gross margin, two quarters in a row, the sustainability of that? What has structurally changed, if it has? And you're doing that in the face of improving large project activity where you typically see somewhat lower gross margin.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

Yeah, that's a great point, Brian. The mix is shifting towards more large projects. There's a number of things that are really driving the improved gross margins. The Thermon Business System, we've been able to systematically drive productivity and efficiency gains that are translating into bottom-line results. I think that's something that's in place and will continue to drive going forward. Price has been another area where we've certainly gained some incremental margin in the marketplace. We also are seeing the benefit of operating leverage. And I would also note that when you look at the project mix we have today, it is largely design and supply with much less what we call turnkey or additional content around field labor, around installation, or third-party materials that we would have: conduit, wire, switches, breakers, relays, and the like. So that all helps improve the margin profile of these projects.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

As we look at our backlog going forward, we still have a very significant backlog building around large projects that are heavily weighted towards design and supply. So those margins, I think, would be sustained. I would go on to say that typically, our Q3 is always the highest gross margin just due to the mix around heating season and just operating leverage on the incremental volume. So having said that, when you look at our business on a seasonality basis, I think we can continue to drive similar margins going forward. The key here is understanding that Q3 is typically the peak, and it'll fall off somewhat in Q4 and Q1 and then begin to rebuild in Q2 and Q3 of next year. So that's just the normal cadence of the margin profile of our business.

Brian Drab
Brian Drab
Co-Group Head of Industrials at William Blair

Okay. And this shift to more design and supply versus projects with the significant labor content, is that something that was by design, by your design, or is that more a function of trends in the overall market?

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

It's a little of both. We've focused there particularly, but then there's also been a shift with some of the general contractors and also the EPCs to be able to bring more of that field labor and installation in-house. So it's been a bit of a mix of both.

Brian Drab
Brian Drab
Co-Group Head of Industrials at William Blair

Okay. On the data center side, just really good momentum there, clearly. Can you talk about how your conversations with the potential customers in the industry have evolved? Are you talking to the data center construction contractors, the HVAC contractors, the hyperscalers themselves, all the above?

Tom Cerovski
Tom Cerovski
COO at Thermon Group Holdings

Yeah. Hey, Brian. This is Tom. Thanks again for the congratulations. Look, the answer to your question is all of the above. We've formed some relationships through our discovery process and design thinking of developing these projects. We did a lot of customer research and feedback before we launched the project and launched the products. But we are forming relationships with, let's say, A, rental companies out there that specifically rent equipment into this market.

Tom Cerovski
Tom Cerovski
COO at Thermon Group Holdings

There's also a burgeoning group of companies that do nothing but commissioning of data centers and meet the testing around insurance and regulatory compliance. And then, as you said, we've also worked directly with end users. In some cases, they're installing these units and load banks permanently, and it'll become a fixture of their overall asset. So look, the answer is we've worked with all types of customers and have formed relationships through many different types of channels.

Brian Drab
Brian Drab
Co-Group Head of Industrials at William Blair

Okay. Perfect. I'll pass it on for now and talk to you later. Thank you.

Tom Cerovski
Tom Cerovski
COO at Thermon Group Holdings

Thanks, Brian.

Jan Schott
Jan Schott
CFO at Thermon Group Holdings

Thanks, Brian.

Operator

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

Justin Ages
Justin Ages
Director of Equity Research at CJS Securities

Hi. Morning, all.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

Good morning.

Jan Schott
Jan Schott
CFO at Thermon Group Holdings

Good morning.

Justin Ages
Justin Ages
Director of Equity Research at CJS Securities

Another question on the liquid load banks. In the past, you've mentioned the market size around $80 million-$90 million. Just wondering if your assumptions have changed there. And I know you gave some detail on the competitive landscape for the medium voltage heaters, but any detail you can give us on the competitive landscape for these liquid load banks would be helpful as well, please.

Tom Cerovski
Tom Cerovski
COO at Thermon Group Holdings

Hey, great question. We have not updated our management estimates of what we believe the market to be. I think we'll stay consistent for now with what we put in previous communications and what we've mentioned earlier. I will say the market is robust, but the most important thing is our quote log has actually doubled, I believe, sequentially, quarter-over-quarter. We're now at about $60 million. So we believe this will be both a short-term material impact on our potential FY 2027 results and then also a longer-term multi-year opportunity. I think data centers is something that many different companies out there that are selling electrical and other types of products we're still trying to get our arms around how big this growth cycle is and how long it will last. But it's clearly very large, and it's clearly multi-year.

Justin Ages
Justin Ages
Director of Equity Research at CJS Securities

That's helpful. Thanks. Then on the CapEx guidance, you said 2.5%-3% this year. This quarter was 3.3% ahead of sales. Just wondering if these investments in these two new growth platforms, as we look peek into 2027 and 2028, if it's going to be a bit higher as you guys are ramping for growth there.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

Yeah. That's a great question. We are making more if you think about Justin and I, over the last five years or more, our CapEx has probably averaged around 2.5%. We've got these two opportunities, which are significant organic growth opportunities, and we are making investments to scale manufacturing. And so we're in the process of finalizing our plans for next year. But we would expect CapEx to be in probably closer to that 3% range next year in just investing for growth in these two different platforms. And really, that's to build capacity both in the Western Hemisphere as well as in the Eastern Hemisphere to grow and scale these products.

Justin Ages
Justin Ages
Director of Equity Research at CJS Securities

That makes a lot of sense. All right. I appreciate you taking the question. Thank you.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

Thank you.

Operator

Your next question comes from Aaron Spychalla with Craig-Hallum Capital Group. Please state your question.

Aaron Spychalla
Aaron Spychalla
Senior Research Analyst at Craig-Hallum Capital Group

Yeah. Good morning, Bruce, Jan, and Tom. Thanks for taking the questions. Maybe first for me on the medium voltage opportunity, you talked about the pipeline and the backlog and scaling the manufacturing. Can you just kind of talk about how you see that progressing over the next couple of years given that pipeline and kind of how growth can look as you kind of scale manufacturing?

Tom Cerovski
Tom Cerovski
COO at Thermon Group Holdings

Yeah. No, thanks, Aaron. Great question. This is a very, very early stage of engagement with customers on the medium voltage. As I've said, we've taken three orders. We have worked down some of the backlog, but the existing backlog right now at the end of Q3 was $11 million. Again, just to repeat, quote pipeline on that is over $150 million. This is another opportunity for us that we believe is both large and multi-year.

Tom Cerovski
Tom Cerovski
COO at Thermon Group Holdings

We have begun the process of investment there both on the CapEx and OpEx side to increase capacity, again, both in the Eastern Hemisphere and then future in the West I'm sorry, in the Western Hemisphere and then future investment in the Eastern Hemisphere to be able to build these heaters and meet customer demand. This has been a tailwind for us. Again, the other thing to keep in mind, this has a very large competitive moat around it in terms of the capabilities to build these heaters. But it will certainly be something that is multi-year and have impact on not just FY 2027, but a material impact on years in the future.

Aaron Spychalla
Aaron Spychalla
Senior Research Analyst at Craig-Hallum Capital Group

All right. Appreciate that. Then you kind of called out LNG and midstream as nice growth drivers. Can you just talk a little bit more about how your offering fits in that market, where that business is today, and how you see that ramping moving forward?

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

Yeah. So yeah, LNG, midstream, kind of thinking through those, what we're seeing is certainly the LNG export facilities, particularly, we do quite a bit in LNG liquefaction. So in the first quarter of this year, we had secured about five projects for LNG, and those began to execute in our Q2 of this year and continued into our Q3. We also booked some additional LNG projects. When you think about our products, there's a number of different applications we have. Even the medium voltage heaters are used for natural gas regeneration, which and then our heat tracing products are used extensively just due to the colder temperatures and to freeze protect on a lot of different valves and piping. We also have immersion heater opportunities in various applications there, and then our tubing bundles are sold in there.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

It's really a broad swath of our products for LNG. Then we think about moving upstream to increase production in natural gas. One of the areas where we do a lot of work is in midstream gas processing, particularly in fractionators. So we've secured some orders in those areas as well with some nice projects emerging here, particularly in the U.S. around increased natural gas production and processing. All of that also ties to just the increased power demand and the shift towards combined cycle power generation with some of the legislative changes that are increasing demand for natural gas as well. All of those tie in pretty well and are demand drivers for our products and services.

Aaron Spychalla
Aaron Spychalla
Senior Research Analyst at Craig-Hallum Capital Group

That's great. Thanks for the call and for taking the questions. I'll turn it over.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

Thank you.

Operator

Thanks. Thank you. And a reminder to the audience, to ask a question, make sure you press star one on your telephone keypad. To withdraw your question, press star two. Once again, to ask a question, press star one on your phone's keypad. Your next question comes from John Braatz with Kansas City Capital. Please state your question.

John Braatz
Equity Analyst at Kansas City Capital

Good morning, everyone.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

Morning, John.

John Braatz
Equity Analyst at Kansas City Capital

Bruce, going back to gross margins, they've been very strong despite the higher CapEx revenues. You talked a little bit about the reasons. Independent of those reasons, given the strength of the market, are you just seeing better margins in that business than maybe you had seen years ago, initial margins?

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

Our project margins are healthy. I would say, John, as I reflect back, they are not necessarily above what we've seen in large CapEx cycles. The company historically, I mean, if you go back to the 2013 time frame, had enjoyed exceptional gross margins and project activity when there was just a super cycle in the oil sands. So I would say we're not at those levels. But on a relative basis, our project margin profile has improved, and the mix has had a big impact on that as well. So I think it's a little of both, the mix of design and supply as well as just the overall market conditions for pricing and the nature of the projects we're executing have both helped with price and gross margins.

John Braatz
Equity Analyst at Kansas City Capital

Okay. All right. Thank you. Second question. The FATI acquisition last year has been very successful. How do you see that going forward? What are you doing? What else are you doing to maybe improve the revenue outlook for that operation and the profitability? What's ahead for FATI in 2027?

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

Yes. Great question. That business has performed exceptionally well. A few things to note. One is we continue our commercial efforts there in Europe and the Eastern Hemisphere, which have been quite successful. A lot of the CapEx investments that we talked about, both Jan and the prepared remarks as well as just questions I answered earlier, are related to scaling capacity there in Milan. We are building capacity for our medium voltage heaters there and will begin to be completely vertically integrated and be able to produce those in Europe for Europe and the Eastern Hemisphere. And that's going to be a significant growth driver. In less than 18 months, we've essentially doubled that business. We expect that to be to double that business over the next two to three years.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

That would be really serving the increased demand for electrification as well as the market opportunity represented by medium voltage heaters. So that business, we would expect to continue to build and grow. And while as we look at that, our product portfolio, quite frankly, has historically had immersion heaters and the like, but having that manufacturing capacity there in Europe has really enabled and unlocked the next level of growth. So it's really been a great success story, really commercially and operationally.

John Braatz
Equity Analyst at Kansas City Capital

Okay. Thank you.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

Thank you.

Operator

Thank you. Ladies and gentlemen, final reminder, if you would like to ask a question, press star one on your phones now. We'll pause for a couple of moments while we poll for questions. Thank you. There are no additional requests for questions. At this time, I'll hand the floor back to Bruce Thames for closing remarks. Thank you.

Bruce Thames
Bruce Thames
CEO at Thermon Group Holdings

Thank you, Diego. Thank you all for joining on the call today. We appreciate your interest in Thermon. If we don't talk to you in the coming months, we look forward to providing an update on our full-year financial results in the May time frame. Thank you all for joining today.

Operator

Thank you. This concludes today's conference. All parties may disconnect.

Executives
    • Bruce Thames
      Bruce Thames
      CEO
    • Ivonne Salem
      Ivonne Salem
      SVP of FP&A and Investor Relations
    • Jan Schott
      Jan Schott
      CFO
    • Tom Cerovski
      Tom Cerovski
      COO
Analysts
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