Thermon Group Holdings, Inc. Q1 FY2026 earnings call

• Resilient performance in Q1 despite complex market landscape. Gross margin improved 30bps y-o-y due to strategic shift to higher-margin OpEx revenues and tariff mitigation. - Strategic initiatives include emerging data center market (liquid load banks launch), rail and transit growth due to Infrastructure Investment and Jobs Act, and F.A.T.I. acquisition driving EMEA growth. - Strong balance sheet with net leverage 1.0x, $10 million capital returned via share repurchase, and active M&A pipeline. - F.A.T.I. backlog doubled since October 2025, rail and transit backlog doubled in 12 months, and data center liquid load bank pipeline building.

In the first quarter, revenue was $108.9 million, a year-over-year decrease of 5%. Excluding F.A.T.I. contributions, organic revenue decreased 11%. OpEx revenues were $93.3 million, 86% of total revenues, down 4% y-o-y (11% organic decline). Large project revenue was $15.6 million, down 11% y-o-y. Gross profit was $48 million, a decrease of 5% y-o-y, but gross margin was 44.1%, up from 43.8% last year. Adjusted EBITDA was $21.2 million, down 9% y-o-y. Orders decreased 5% reported and 19% organically. Backlog increased 13% organically. Geographically, U.S.-LAM and Canada sales declined 17% and 8% respectively, EMEA revenue more than doubled driven by F.A.T.I. acquisition, and APAC revenue was down.

Fiscal 2026 guidance remains unchanged with revenue in the range of $495 million to $535 million and adjusted EBITDA in the range of $104 million to $114 million. While margin risk exists in the back half due to tariffs, pricing is expected to offset costs. Recovery in order trends is sustained, and the outlook is based on continued execution of strategic initiatives.

• Temporary delays in backlog conversion and project execution timing affecting Q1 revenue. - Soft incoming order rates post-Liberation Day. - Global trade unpredictability impacting near-term results. - Margin risk in the back half of the year due to full impact of tariffs and uncertainty around recent tariff announcements.

Q: Did the capital improvement project leading to production delays resolve, and what's the revenue impact?

A: The capital improvement project is fully operational, and the $10 million in delayed revenue is due to 60% from supply chain disruptions and capital project, and the rest from project execution timing.

Q: Can you elaborate on the liquid load bank opportunity in data center?

A: Liquid load banks are used for thermal and electrical load testing in liquid cooled data centers. Pipeline is building, products launched recently, aiming for 20%-25% market share over time.

Q: Talk about strong demand at F.A.T.I.?

A: Backlog at F.A.T.I. doubled since October 2025, bookings over $17 million in Q1, driven by electrification opportunities in Europe and Middle East for reducing Scope 1 emissions.

Q: Thoughts on gross margin expectations for the rest of the year?

A: Expect margin headwinds in Q2, but pricing should offset costs in back half, with trailing 12-month gross margins around 44.8% trending higher by year-end.

Q: Details on data center load bank go-to-market and timing?

A: Used in commissioning phase, go-to-market is direct globally with potential partners in rental and technology space, expecting revenues in back half of 2026.