Thermon Group Holdings, Inc. Q4 FY2025 earnings call

Fourth Quarter Highlights: - 3% organic growth in the quarter, first in over a year. - Book-to-bill positive for fourth consecutive quarter. - Backlog as of March 31st increased 29% from last year, organic backlog up 20%. - EBITDA margin 22.7% in Q4, a 423 basis point improvement from Q4 last year. - Fiscal 2025: Revenue $498 million, up 1% year-over-year. Adjusted EBITDA margin 22%, up 86 basis points. Bookings $536 million, book-to-bill 1.08 times. 3D initiatives contributed $93 million in revenue. R&D team announced 28 new product and software releases. ### Strategic Pillars: - Growing Installed Base: OpEx revenues represented 85% of trailing twelve-month revenues, carrying higher gross margins (40%-65%). - Diversification: Achieved 70% revenue from diverse end markets two years early. Oil & gas remains ~30% of total revenue, with LNG project activity rebounding. - Decarbonization: Acquisition of Vapor Power and Fati expanded product portfolio. Fati backlog doubled since acquisition. Europe continues to invest in energy transition. - Digitization: Genesys control offerings now 12% of heat tracing revenue. Genesys network installed base circuit counts surged nearly 90% in fiscal 2025, projecting 50% growth in fiscal 2026. ### Operational Excellence: Streamlined operations through initiatives like rooftop consolidation and integration of Vapor Power and Fati, strengthening operational foundation and agility.

In the fourth quarter, revenue was $134.1 million, up 5% year-over-year. Large project revenue was $22.3 million, down 5% from last year but up 20% from the previous quarter. OpEx revenues were $111.8 million, up 7% year-over-year, representing 83% of total revenues. Orders increased 19% reported and nearly 14% organically. Vapor Power represents 11% of total revenue. Diversified end markets like general industrial (32% of Q4 bookings), petrochemical (17.5% of Q4 bookings), oil & gas (especially LNG), rail & transit, and renewables showed varying strengths. OpEx recurring revenues were strong, and the LNG market saw increased bidding and project awards with $80 million in related opportunities in the pipeline.

Fiscal 2026 Guidance: - Revenue range $495 million to $535 million (3.5% growth midpoint). - Adjusted EBITDA range $104 million to $114 million (essentially flat midpoint). - Margin headwinds in first half due to tariffs, offset by price increases in back half. - Assumes current tariff levels remain, with modest decline in adjusted EBITDA margin due to lag in tariff mitigation effects. - Strong order momentum and healthy backlog entering fiscal 2026, but uncertainty in global trade creates cautious outlook.

Risks: - Tariffs presenting challenges to cost structure, including elevated input costs and near-term margin pressure. Assumes 25% tariffs on steel/aluminum, 30% on goods from China, etc., with annualized gross impact of $16-$20 million prior to mitigation. - Second and third-order effects through supplier and distributor networks from tariffs, requiring proactive supply chain management. - Global trade uncertainty impacting customer behaviors and demand environment, creating challenges in forecasting and capital deployment.

Q: Could you elaborate on the resurgence in the LNG market?

A: Since the lift of the moratorium, projects in the US Gulf Coast and Middle East have moved forward quickly. There are around $80 million in LNG opportunities in our pipeline.

Q: How are you thinking about overtime in fiscal 2026 forecast?

A: Engineering workload is at an all-time high due to backlog build in overtime projects. Order rates for larger capital projects are muted until trade policy clarity, with assumptions factoring in potential burn through of backlog in the second half.

Q: Can you give more color on the $5 million one-time tech investment?

A: Mostly associated with ERP implementation ongoing, to be implemented in stages across the globe over the next year and a half.

Q: Any thoughts on the competitive landscape regarding tariffs?

A: Our operating footprint in US, Canada, Europe, and India provides advantages. Acquisition of Fati increased European presence. We're looking for M&A to diversify risk in Asia. Not heavily dependent on China but exposed to second and third-order effects with suppliers.