Thermon Group Holdings, Inc. Q3 FY2025 earnings call

• Solid execution with continued strength in OpEx-related revenue, bookings momentum, strong margin capture, and efficient free cash flow conversion.
• Diversification strategy with focus on short-cycle projects and MRO-related recurring revenue, resulting in a more stable and profitable revenue base.
• Progress on strategic pillars including reducing oil and gas exposure, with oil and gas showing momentum in Canada due to maintenance and LNG activities.
• Integration of acquired businesses (ThoughtView and Vapor Power), with ThoughtView showing solid results and Vapor Power focusing on expanding capacity.
• Tariff situation discussed, with manufacturing close to customers helping insulate from tariffs, and limited exposure to Mexico and China.

In the third quarter, OpEx revenues increased 13% to $115.8 million, representing 84% of total revenues on a trailing twelve-month basis. Large project revenue was $18.6 million, down 45% due to delayed large capital project decisions. Adjusted EBITDA was $31.8 million, up 3% from the prior year, with an adjusted EBITDA margin of 23.7%, the highest in two years. Orders were $139 million, up 11.4%, and backlog was $235.6 million, up 48% from the prior year quarter.

• Maintained full-year 2025 guidance: revenues in the range of $495 million to $515 million, adjusted EBITDA in the range of $105 million to $110 million, and adjusted EPS in the range of $1.77 to $1.89 per share.
• Fiscal 2026 targets of 70%+ revenue from diverse markets, $600M-$700M revenue, and ~24% adjusted EBITDA margin still in progress, with macroeconomic backdrop and M&A timing affecting timeline.

• Tariffs creating uncertainty with fluid situation and unknown impact on customer behavior.
• Potential downside to revenue if customer sentiment doesn't shift as expected, affecting the upper end of revenue guidance.

Q: Brian Drab asked about point-in-time revenue, its drivers, and future baseline.

A: Normalized heating season, recurring revenue from installed base, and contributions from acquisitions are drivers, with expectation of CapEx cycle improvement shifting revenue mix back.

Q: Brian Drab asked about large CapEx project releases and specific projects.

A: LNG projects, combined cycle natural gas plants, nuclear refurbishments/expansions, and small modular reactors in Europe are areas of activity.

Q: Brian Drab asked about gross margin.

A: Fourth quarter expected to have stronger project mix, with mix and productivity contributing to margin, and potential downside if customer sentiment doesn't shift.

Q: Chip Moore asked about SG&A spending and acquisitions.

A: SG&A expected to be relatively flat near term; ThoughtView performed well but Vapor Power faced capacity constraints.

Q: Chip Moore asked about tariffs.

A: Tariffs create uncertainty, with manufacturing close to customers insulating but unknown impact on customer sentiment.

Q: Jonathan Braatz asked about SG&A and LNG.

A: SG&A expected flat near term; LNG activity picked up with new administration lifting permits, and positive Canada growth.