Thermon Group Holdings, Inc. Q4 FY2024 earnings call

• Strategic pillars focus on profitably growing installed base, decarbonization, digitization, diversification, and disciplined capital allocation. - Completed acquisition of Vapor Power in Q3 2024, diversifying end markets and electrification opportunities. - Genesis network adoption grew over 200% in fiscal 2024, enhancing operational awareness. - Record Q4 cash flow of $35.1 million enabled debt paydown of $41 million, with net debt to adjusted EBITDA ratio at 1.2 times. - Consolidated Denver facility into San Marcos and rail/transit business into sand markets facility to optimize manufacturing footprint, with $5.7 million annualized savings expected.

In the fourth quarter of 2024, revenue was $128 million, a 4% year-over-year increase. Fiscal 2024 revenue reached a record $495 million, up approximately 12% year-over-year. Diversified end markets accounted for 68% of revenue in fiscal 2024, with growth in power (up over 170%), food and beverage (up nearly 120%), and commercial (up almost 20%) end markets year-over-year. Vapor Power contributed $10.9 million in Q4 revenue with 20% EBITDA. Large CapEx spending contracted 12% in Q4, while short-cycle business tied to customer OpEx spending was up 8% year-over-year, inclusive of Vapor Power. Organic sales decreased nearly 5% primarily due to a decline in large CapEx projects and weaker sales in Canada during the quarter.

Fiscal 2025 revenue guidance is $527 million to $553 million, midpoint ~9% growth over fiscal 2024. Vapor Power is expected to contribute $46 million midpoint organic growth. Adjusted EBITDA guidance is $112 million to $120 million, midpoint 11% growth. GAAP EPS is expected $1.57 to $1.73 per share, midpoint 9% growth. Adjusted EPS is projected $1.90 to $2.06 per share, midpoint 8% growth. Anticipate optional debt paydown of $20 million to $40 million during the year.

• Near-term macroeconomic uncertainty causing delays in large CapEx spending and impacting organic growth in the first half of fiscal 2025. - Timing of execution for large capital projects in diverse end markets may lag, affecting revenue recognition. - Challenges in implementing restructuring measures to optimize manufacturing footprint and realize cost savings as planned.

Q: Provide details on the restructuring effort, decision drivers, and financial impact.

A: Rationale includes consolidating Denver into San Marcos and rail/transit into sand markets for focused factories. $5.7 million annualized savings, with $4.3 million realized in fiscal 2025, and savings back-end loaded.

Q: Breakdown of the backlog by segment.

A: Backlog is largely from large CapEx projects (>80%), with point-in-time business (short-cycle, <30 days) being a small portion.

Q: Guidance for fiscal 2025 and impact of large project CapEx delays.

A: Organic growth expected to moderate, first half impacted by CapEx delays, Vapor Power performing well, midpoint revenue growth ~9%.

Q: Margin trajectory and impact of MRO/small project work.

A: Weaker CapEx spending expected to improve gross margin, as MRO/small projects are more margin-friendly.

Q: Impact of Trans Mountain pipeline completion on business.

A: Expected to increase drilling activity in Canada, benefiting oil and gas-related revenues, with impact seen in fiscal 2025.

Q: Quoting activity and pipeline conversion.

A: CRM pipeline >$1 billion, heavily loaded over next 24 months, conversion to orders expected in next few quarters, revenue recognition lagging 12-15 months.