THR earnings call analysis

NYSE:THR Q2 2026 Earnings Call Transcript Generated on 10/9/2026 Operator | Conference Operator: Greetings and welcome to the Thermon Earnings Conference Call, Fiscal Year 2026, Quarter 2. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. And it is now my pleasure to introduce to you Yvonne Salem, Vice President of FPA and Investor Relations. Thank you, Yvonne.

You may begin. Yvonne Salem | Vice President of FP&A and Investor Relations

Good morning, and thank you for joining Thermon Group's second quarter fiscal 2026 results conference call. Leading the call today are CEO Bruce Thames, Chief Financial Officer Jan Schott, and Chief Operating Officer Tom Swarovski. Earlier this morning, we issued an earnings press release, which has been filed with the SEC on form 8K. And it's 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, Q2, 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. 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 recently 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. 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. Following Bruce, our Chief Operating Officer, Tom Sarofsky, will share an update on our progress and opportunities in the data center market, which is a key component of our business diversification strategy. After Tom, our CFO, Jan Schott, will provide a financial update and review. 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 it over to Bruce.

Bruce Thames | Chief Executive Officer

Thank you, Yvonne, and good morning to everyone joining us on the call today. I'll begin my commentary with our second quarter highlights, which you can find on slide four. As we committed in our Q1 call, the Thermon team delivered exceptional second quarter results with solid incoming orders, strong revenue conversion, and robust profit capture that exceeded expectations across the board. Our reported revenues were up 15% from last year, which combined with our strong margin execution and operating leverage resulted in a 29% increase in adjusted EBITDA. These second quarter results, combined with a backlog that is up 17% year over year and improved visibility, position us well for the balance of the year. On a trailing 12-month basis, our revenues and adjusted EBITDA have reached records of $509 million and $114.1 million, respectively. We believe our performance reflects the strength of our strategy, the resilience of our business model, and the outstanding execution by our global team, despite a volatile macroeconomic backdrop. I'm incredibly proud of our team's ongoing efforts to execute our margin improvement initiatives, including tariff mitigation measures, demonstrating steady progress towards our longer term EBITDA margin objectives. Together, These actions enabled us to generate 23.2% adjusted EBITDA margins in the second quarter, with adjusted EBITDA margins growing to 22.4% on a trailing 12-month basis. While we've been pleased with the steady progress, additional opportunities to drive further EBITDA margin expansion remain. This quarter is illustrative of the earnings power of our business, and we remain committed to driving EBITDA margin expansion over the longer term. Our unwavering commitment to our strategic growth initiatives has us well positioned to benefit from a strengthening macro backdrop and several favorable secular demand trends, including reshoring, electrification, decarbonization, and rising power demand. This is evident when looking at our total bid pipeline, which was up 11% at quarter end, with nearly 80% of the opportunities coming from our diversified end markets, including power generation, renewables, commercial, and data centers. I'm also very excited to report that this update will include details of our first order for the new Poseidon Liquid Load Bank. We're seeing extremely strong quoting activity for our data center solutions and expect order activity to accelerate in the coming quarters. Tom Swarovski, our chief operating officer, will provide a more detailed update on the data center market later on this call. The team continued to demonstrate disciplined financial management during the second quarter, and we ended the period with net leverage at one times with total liquidity of 129 million. Our M&A pipeline remains active and we're excited by our strong capital position, which provides us with the capacity and flexibility to act decisively on opportunities to deploy capital in alignment with our strategic priorities. We're encouraged by the strengthening trends in our business and anticipate this momentum continuing into the third quarter. During the first half, we've established a new global engineering center in Mexico to handle the increased project workload driven by the backlog growth we experienced coming into this fiscal year. During the second quarter, we saw a 41% increase in large CapEx revenues driven by two large North American LNG projects as these moved through the design phase into execution. Based upon these factors, we are well positioned to deliver strong second half results and are pleased to raise our full year 2026 financial guidance, which I will cover in more detail in my closing remarks. Before I turn it over to Tom, I'd like to take some time to provide an update on our strategic growth initiatives, which are centered around our 3D strategy of decarbonization, digitization, and diversification shown here on slide five. We believe our focused commitments to our strategic pillars has us well positioned to benefit from several strong secular drivers to generate sustained organic growth moving forward. Turning now to slide six, I will begin with an update on our digitization opportunity. Since launching the Genesis Network, we've received extremely positive customer feedback with over 86,000 installed circuits, up from 58,000 at the end of fiscal 25. We're now beginning to leverage our digital technology capabilities across a broad spectrum of Thermon solutions, including commercial heat tracing, rail and transit, and data center product offering. Our customers need real-time operational awareness and analytics to more effectively manage their business and provide actionable insights to help unlock predictive maintenance, enhance performance, and energy efficiency. This differentiated hardware and software platform helps create value for customers, which drives growth and improves retention while delivering enhanced returns. Turning now to slide seven. I'd like to provide an update on an exciting area of growth in the decarbonization space represented by medium voltage heaters. The electrification megatrend is driving momentum to replace hydrocarbon-fired heating systems with electrical solutions, especially in Europe. Medium voltage heaters offer a compelling alternative with higher efficiency, zero emissions, lower initial capital costs, and lower maintenance expenses, all while providing a higher level of control. Our quantum medium voltage heater product line was launched in 2024, offering voltages from 3,600 volts to 7,200 volts. Our first two orders, totaling nearly 10 million, are now being produced for customers in the U.S. and the Middle East. This market is estimated to be growing at a 17% compounded annual growth rate to 263 million in 2030 with a very short list of competitors. Given Thermon's differentiated capabilities in heat transfer analysis and design, we are leveraging legacy customer relationships in the chemical, general industrial, oil and gas, and food and beverage in markets to grow share. We're seeing strong order momentum with a solid pipeline of high probability opportunities as we work to scale capacity in both North America and Europe. I would now like to turn the call over to Tom Swarovski, our newly appointed chief operating officer, who will provide an update on diversification into the data center market. Tom?

Tom Swarovski | Chief Operating Officer

Thank you, Bruce, and good morning to everyone. Moving on to slide eight, I'm excited to share updates on a key end market that is now central to our overall business diversification strategy. As we've discussed on prior calls, the unprecedented investments in data centers driven by AI adoption represent a significant and long-term growth opportunity for Thermon. The recent shift to liquid-cooled data centers has created a rapidly accelerated demand for liquid load banks to validate critical cooling systems and power infrastructure. Thermon is uniquely positioned to capture this opportunity, leveraging our legacy solutions. Given the pace of this market, we are proud of how quickly our team has executed. In just four months from project kickoff, we completed prototype builds for our Poseidon and Pontus liquid load bank solutions, and customer demonstrations are already underway. The response has been outstanding. Our quote log now totals roughly $30 million and continues to grow, and we've secured our first order for 20 Poseidon units. Based on management estimates, the liquid load bank market is projected to grow at a 21% CAGR from $84 million in 2024 to $386 million by 2032. We are targeting a 20% to 25% market share within the next 24 to 36 months, and this early traction gives us confidence in achieving that goal. Customers are excited about our differentiated design, which offers clear advantages over our competitors, including compliance with the ASME pressure vessel code, Canada registration or CRN number for Canadian customers, an industry-leading power density or kilowatt to weight ratio, and our pursuit of UL and CUL product certification. combination of these features and benefits position Thermon well to emerge as the trusted partner for mission-critical data center applications. Beyond liquid load banks, remember that Thermon also has significant pull-through opportunities for our traditional product solutions in data center applications, including electric heat tracing, environmental heaters, immersion heaters, tubing bundles, and removable heat blankets. As data center growth accelerates, our commercial team is actively developing channels with owners and operators, HVAC contractors, commissioning firms, and rental houses to ensure Thermon is top of mind for these data center projects. Capitalizing on these opportunities in the data center market is a great example of our strategy in action, creating value for customers and shareholders through innovation and disciplined execution. We look forward to sharing more updates on this exciting growth opportunity in the quarters ahead. With that update, I'll turn it over to Jan for a detailed review of our second quarter results. Jan?

Jan Schott | Chief Financial Officer

Thank you, Tom, and good morning, everyone. I will review financial results for the quarter, give an update on working capital and free cash flow, and conclude with comments on the balance sheet and liquidity. Moving to slide nine, Revenue for the quarter was $131.7 million, a year-over-year increase of 15%. The growth this quarter reflects more favorable spending patterns following tariff uncertainty, improved trends in large project revenues, and continued momentum from FATI. As expected, we also benefited from backlog conversion in the quarter stemming from previous supply chain disruptions and delayed projects. Excluding FATI, organic revenue grew 9% year over year. Our OPEX revenues were $107 million during the second quarter, an increase of 10% compared to last year. Excluding the contributions from FATI, OpEx revenues increased 3% from last year. OpEx revenues represented 81% of total revenues for the quarter. Large project revenue was $24.7 million during the second quarter, up 41% from last year. As we highlighted in last quarter's call, we saw several CapEx projects move from engineering to execution early in the second quarter. We expect this momentum to continue through the balance of the year. Our gross profit was $61 million during the second quarter, an increase of 20% compared to last year. Revenue growth, benefiting from pricing, combined with efficient execution and tariff mitigation measures contribute to the increase in gross profit. As a result, gross margin was 46% for the second quarter, up from 44% last year. The gross margin improvement was notable, given the higher mix of large project revenue for the quarter. Adjusted EBITDA was $30.6 million for the quarter, up from $23.8 million last year, an increase of 29%. Volume growth gross margin improvement, and disciplined cost management partially offset continued investments in growth initiatives. Adjusted EBITDA margin was 23.2% during the second quarter, up from 20.8% last year. Gap earnings per share for the quarter was 45 cents, up 61% from 28 cents in the prior year. Adjusted earnings per share was 55 cents, up 45% from $0.38 last year. Second quarter orders were flat compared to the same period last year. On an organic basis, bookings declined 4% year over year, primarily driven by rail and transit following last year's significant surge. Momentum from FATI, where we continue to benefit from broader decarbonization trends, helped offset the organic decline. our overall book-to-bill ratio for the quarter was 1.0 times, down modestly from the prior year, consistent with timing variability in project awards. Backlog increased 17 percent on a reported basis and was up 4 percent organically due to the positive book-to-bill in the quarter combined with project timing. Turning to performance by geography, Year-over-year sales in U.S. lamb were up 8% compared to the prior year, driven by the ramp in several large CapEx projects. Revenue in Canada increased by 10%. Trends in EMEA remained strong, with revenue doubling, driven by solid performance in our organic business and contributions from FATI. In contrast, APAC experienced a 4% decline primarily due to ongoing uncertainty surrounding global trade policies with China. Moving to slide 10, for an update on our balance sheet and liquidity, working capital increased by 10% to $172 million at the end of the quarter, driven by FATI, higher inventory in preparation for fall heating season, and materials purchased in advance of tariffs. CapEx was 3.1 million during the quarter, compared to 1.9 million last year, which includes capital investments to support growth initiatives. Free cash flow during the quarter was 4.4 million, down from 6.7 million last year, as we invested working capital in inventory build, increased project activity, and the timing of shipments. We repurchased 6 million in shares during the second quarter, bringing our total shares repurchased since the start of fiscal 25 to 36 million. We currently have 39 million remaining under our current authorization as of the end of the quarter. We ended the quarter with net debt of 110 million and a net leverage ratio of 1.0 times. In summary, we continued our financial discipline during the second quarter and remain focused on maintaining a strong balance sheet. We have $129 million in total cash and available liquidity as of quarter end, providing us with 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 | Chief Executive Officer

Thanks, Jan. We're obviously very encouraged by our second quarter results and the accelerating momentum across our markets, particularly the move of several large projects from engineering to execution. I'm proud of our team's disciplined execution on margin initiatives, including swift and effective actions to mitigate the impact of tariffs, combined with meaningful progress on our margin expansion efforts. With this momentum continuing into our fiscal third quarter, we're on track to deliver a strong second half to our fiscal year. Based upon the improving visibility in our business, we are pleased to raise our full year 2026 financial guidance for both revenue and adjusted EBITDA. As we detail on slide 11, our revised fiscal 2026 financial guidance calls for revenue in a range of 506 million to 527 million, representing 4% growth at the midpoint. We are raising adjusted EBITDA guidance to a range of 112 million to 119 million, representing 6% growth at the midpoint. 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. As I've outlined in the past, we remain highly focused on effectively managing the factors within our control. As you can see here on slide 12, we've made significant progress in our 3D growth strategy over the last five years, driving double-digit top-line growth with adjusted EBITDA growing at two times the rate, despite the contraction in large capex spending we experienced in fiscal 25. Turning now to slide 13. We believe we are strategically positioned to benefit from several powerful secular 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 discipline allocation of capital, all with an ongoing focus on generating long-term value for our shareholders. That completes our prepared remarks. We are now ready for the question and answer portion of our call.

Operator | Conference Operator

Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And the first question comes from the line of Justin Agis with CJS Securities. Please proceed with your question.

Justin Agis | Analyst, CJS Securities

Hi, morning, all. Good morning, Justin. I wanted to... You know, start on the large CapEx side, which was a nice surprise there. You know, in the prepared marks, you mentioned a couple LNG projects in North America and some momentum. Are you expecting more in the same business, more in LNG there? Or is there some other large CapEx projects that are kind of coming into focus?

Bruce Thames | Chief Executive Officer

You know, yeah, Justin, last quarter we spoke about five projects we'd won in LNG, and certainly that's an area where we're seeing growth. And so we really focused when we came in the year on about – our backlog was up about 29% year over year. We really were – had a big backlog of work in engineering. Since we've established a global engineering center in Mexico and have staffed that up and that team has become productive. And what we're seeing there is those projects move from the design phase into execution. And we saw a couple of those move forward in the second quarter of this year, which led to our large CapEx revenues being up 41% year over year. So we do expect that flow to continue through the back half of the year. And as we look forward, our LNG pipeline is up 140% year over year when we look at those opportunities. So we are seeing some robust activity in the LNG market.

Justin Agis | Analyst, CJS Securities

That's very helpful. Thank you. And then shifting to the digitization, you know, Nice update. You guys hit that 50% growth that you laid out from the $58,000. Can you just give us a little more detail on what drives those efforts? Is it additional sales? Is it really the tip of the spear that differentiates your product from competitors?

Bruce Thames | Chief Executive Officer

Yeah, so I think it's actually a few things. One is... It is the tip of the spear and it really helps differentiate us from the competition and improves our win rates so that we can grow the installed base. It also increases really the customer engagement throughout the lifecycle of the asset, which really helps us to capture those recurring revenues over time. So that's one of the big benefits that we see from the digitization effort. And the things we highlighted this quarter is we built this platform of both software and hardware, and we're now leveraging that across a wide range of Thermon solutions in the marketplace. So thus far, we've really introduced it into the industrial heat tracing in markets and product lines. It's also now being offered in our commercial line of heat tracing products, which We just launched in the last year with the Evo controller. And then we're also moving that into rail and transit for switch heating, particularly around our Hellfire units. And then our most recent launch of the Pontus and Poseidon load banks include these software and hardware tools in these units as well. So we really see this as being an enabler across all Operator | Conference Operator: a wide range of our solutions in the marketplace i appreciate the color thanks for taking the questions and the next question comes from the line of brian drab with william blair please proceed with your question hi good morning thanks for taking the questions um you know morning um Brian Drab | Analyst, William Blair: gross margin is really solid in the quarter, obviously. But that was also, you know, in a quarter where you had the, you know, some of the CapEx projects stepping up. Can you talk about the, you know, that dynamic, maybe the margins in some of the bigger projects that are coming through and I mean, is everything else that you're doing offsetting maybe some lower margins of big projects, or do these projects have really good margins?

Jan Schott | Chief Financial Officer

Hey, Brian, this is Jan. I'll take that question. Yeah, you're actually spot on. We did have, I guess, large projects, as you know, typically don't have As good a margins as our rest of our projects. And so we did have an unfavorable impact from those. But offsetting that this quarter were just we had increased volumes. So operating leverage from that. We also had, you know, our thermal on business systems productivity gains that we continue to see really help our margins, you know, really be solid. We had pricing that we saw flow through in the quarter. So we did see a benefit from that. Our tariff mitigation efforts are absolutely helping. And obviously those work in tandem with price and then new product introduction. And so I think, you know, you'll you know, you'll continue to see, you know, we're very focused on, I would say, the adjusted EBITDA margin. not so much the gross margin. As you saw, I think on slide three, our trailing 12 months gross margin is at 45%. And we did see, you know, higher this quarter, and it was really due to all those contributing factors. But we'll continue to, you know, push for continued expansion in our margins. And I think, you know, our aspirational goal is to get to 24%. The midpoint of our revised guidance is at 22.4%.

Brian Drab | Analyst, William Blair

Got it. Okay. So in terms, I know you said to focus on EBITDA margin, but can I ask, you know, for the second half of the year, directionally, how to think about gross margin? And I guess the 22.4%, you know, it looks like for EBITDA margin, that means kind of sustaining this, at least sustaining this 23% level is probably the goal for the second half of the fiscal year?

Jan Schott | Chief Financial Officer

Yeah, absolutely. I think that would be the goal. For gross margins, I think we'll continue to see strong margins. If you look at that historical rate, I think that should be instructive for what we would expect for the balance of the year.

Brian Drab | Analyst, William Blair

Got it. And then maybe I'll just ask one more for now. It's great to see these larger projects releasing or moving to execution in the LNG industry. I think you said two moved to execution, but there's five in the pipeline. What is the potential timing for the other three to move to execution? And then secondly, are there other large projects in the funnel that might release outside of LNG?

Bruce Thames | Chief Executive Officer

Yeah, Brian, I don't want to over-index on LNG. Those were the two larger projects we saw move forward this quarter. But if you look, and I would say more broadly, you know, our business was up about 15% year over year. Our diversity in markets were up roughly a 15% equivalent to an oil and gas was up similarly. So this is not an outsized move in oil and gas. And so I'd like to make sure we don't over index on that. So yes, there are a much broader range of projects that are beginning to move through execution and they include A whole host of other end markets, whether that's we do have some in the chemical petrochemical. We have some also in in power, certainly in other areas around, you know, our other end markets as well. So we are seeing it's more broad based move. And when we looked at last year, we did see a contraction in capex spending, and that was not in any given sector. It was fairly broad-based. And so the shift we're seeing now is also fairly broad-based when we see these projects coming back and moving to execution in the back half of the year.

Brian Drab | Analyst, William Blair

Okay. Just really quickly, the data center opportunity and the medium voltage center opportunity are really new and buildings, how much of that impact the second quarter results, or is that, that's really more just, you know, coming in the next few quarters, really?

Bruce Thames | Chief Executive Officer

Right, that's a great question. There's zero impact in the second quarter, and these projects, this, we're just beginning to book orders, which Tom had noted in the prepared remarks, so we want our, secured our first order, which we're excited about. We've got a growing quote log that we feel we've got some high probability opportunities there. And then with media voltage, we've secured our first two orders. Those are being built as we speak. And we're working to scale capacity in both North America as well as in Europe. so we can grow that business going into our fiscal 27. So we're excited about both of those areas for growth and we're really well positioned with a differentiated product offering and a fairly narrow range of competitive, when we look at the competitive landscape, we're really well positioned.

Brian Drab | Analyst, William Blair

All right, congratulations on the great results.

Jan Schott | Chief Financial Officer

Thanks, Brian. One clarifying thing I just want to point out is obviously the gross margin going forward will be dependent upon the mix. So that's kind of the, you know, if there were any headwinds, that would be it.

Brian Drab | Analyst, William Blair

Understood.

Understood. Not surprising. Thanks. Yep. Operator | Conference Operator

And the final question comes from the line of Chip Moore with Roth. Please proceed with your question.

Chip Moore | Analyst, Roth

Good morning. Thanks for taking the question, and congrats as well. Bruce, I guess, you know, I think we've addressed most of the key items. I guess for me, just maybe following up on your last comments around scaling capacity for medium-volt cheaters and the opportunity in data center, just how it seems like you have a lot of organic opportunity in front of you. How are you thinking about organic investments versus inorganic? And, you know, are you still tracking bolt-ons and just what are your priorities here?

Thanks. Bruce Thames | Chief Executive Officer

Well, you know, Chip, great question. First and foremost, you know, our priority is investment in organic growth initiatives, and that has not and will not change. But we are fully funding that really through additions in our SG&A to be able to support the growth in that business, as well as through CapEx spending to enable that growth by scaling off capacity in our factories. So that is all embedded in our guidance and underway. As Janet noted in her prepared remarks, our balance sheet is in really great position, and we have a strong pipeline of opportunities that we are very focused on really looking for that next inorganic growth opportunity that will augment our 3D strategy going forward. And so we're very focused on really moving forward and looking at those inorganic growth opportunities. So really thinking about the business, driving that organic growth, which we've identified these couple of key areas, but also really the inorganic piece is going to be important to continue to drive growth in the business going forward.

Chip Moore | Analyst, Roth

Great. And maybe one last one that just popped in my head, Bruce. you know, the government shutdowns out there? Is there any, you know, risk of delays at all on projects or anything like that?

Bruce Thames | Chief Executive Officer

Yeah, we really don't have any exposure to government contracts, so it's really a non-event for us. So it's really not a problem.

Chip Moore | Analyst, Roth

Great. Thank you very much.

Thank you. Operator | Conference Operator

And ladies and gentlemen, that does conclude the question and answer session. I would like to turn the floor back over to Bruce Thames for any closing remarks.

Bruce Thames | Chief Executive Officer

Thank you all for joining us here today. We appreciate your interest in Thermon and looking forward to giving you an update for our third quarter in the January, February timeframe.

Thank you. Operator | Conference Operator

thank you that does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time. jsPDF 3.0.3 D:20261009125535-00'00'

NYSE:THR Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Greetings and welcome to the Fairmont Earnings Conference Call Q1 Fiscal Year 2026. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Yvonne Salem, Vice President, FP&A, and IR. Thank you, Yvonne.

You may begin. Yvonne Salem | Vice President, FP&A and Investor Relations

Good morning, and thank you for joining Thurmond Group's first quarter fiscal 2026 results conference call. Leading the call today are CEO Bruce Thames and Chief Financial Officer Jan Schott. Earlier this morning, we issued an earnings press release, which has been filed with the SEC on Form 8K, 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, Q1, 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 gap measures in the tables at the end of the earnings press release. 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 recently quarterly report file with the SEC for more information regarding our forward-looking statements. including the risks and uncertainties that could impact our future results. 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 it 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, followed by a financial update and review from our CFO, Jan Schott. 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 will turn the call over to Bruce.

Bruce Thames | Chief Executive Officer

Well, thank you, Yvonne, and good morning to everyone joining us on the call today. At a high level, I'm pleased to report that the team delivered resilient performance in the first quarter as they navigated a complex and rapidly evolving market landscape. The outcomes we achieve underscore the strength of our long-term vision and strategic initiatives, which are intentionally focused on driving a higher quality, more profitable revenue mix. Combined with proactive tariff mitigation efforts, these actions enabled us to achieve gross margin improvement over prior year, affirming the effectiveness of our operational framework and the agility of our organization. However, the strength in our margin performance was offset by year-over-year decline in revenues that was largely attributable to temporary delays in backlog conversion and project execution timing. Factors we fully expect will translate into realized revenue in the upcoming quarters. Additionally, we experienced some softness in our incoming order rates following Liberation Day, which we anticipated as a risk coming into our fiscal year and factored into our full year guidance. As we tracked our bookings trends through the quarter, we saw a sharp decline in the daily order rate in late April through May, followed by a notable recovery to more normalized levels in June. On a positive note, order momentum has continued to build through the end of July. While the current market dynamics, particularly surrounding global trade, presents near-term unpredictability, Our strategic focus and operational discipline have us well equipped to harness renewed momentum as conditions stabilize. We remain confident in our strategic positioning to benefit from several very long-term secular growth drivers. This positioning, when combined with our robust approach to gross margin enhancement, sets a strong foundation for sustained growth and value creation for our stakeholders. With that as a backdrop, I'll begin my commentary with the first quarter highlights. As I just discussed, our first quarter revenues were impacted by roughly $10 million in delayed backlog conversion, which contributed to the 5% decline from prior year. These delays, which stem from short-term supply chain challenges and an unanticipated production delay caused by a capital improvement project, are not indicative of lost revenue opportunities. They're simply a matter of timing. Our robust backlog, which continues to grow, positions us well to recognize these revenues in the quarters ahead. While our bookings during the first quarter were down 5% versus last year, we remain confident in our growth outlook. Our strength in bookings over the prior several quarters, the backlog at quarter end up 27% from last year, the delayed revenues in Q1 and strong order trends at FATI all combined to provide a clear path to achieve our revenue plan for the year. Additionally, our total bid pipeline was up 43% at quarter end, boosted by the vapor power acquisition, and driven by activity across several key end markets, including chemical, petrochemical, power and nuclear, LNG, and renewables. Based on these factors, we remain confident that we're well-positioned to generate solid long-term organic growth. As noted, I was very pleased with the team's execution to deliver strong gross margin performance during the quarter, which was up 30 basis points from last year, despite the volume declines and impact of tariffs. The gross margin improvement was a direct function of our strategic shift toward higher margin OPEX revenues across diverse end markets, as well as our tariff mitigation measures, which included actions like pre-buying of materials, shifting of sourcing and production, and price increases, which began to take effect very late in Q1. And finally, our disciplined financial management enabled us to maintain our strong balance sheet with leverage of just one times at quarter end, which provides us the flexibility to execute on our growth strategy, both organic and inorganic, while opportunistically returning capital to our shareholders. Our M&A pipeline remains active, and we continue to search for opportunities to deploy capital to augment our strategic growth initiatives. During the quarter, we returned nearly 10 million in capital through our share repurchase program, and we will continue balancing capital allocation between opportunistic share repurchases and growth investments, with a focus on driving returns for our shareholders. Before I turn it over to Jan, I'd like to take some time to discuss several strategic initiatives that we're very excited about and expect will be key contributors to our growth in the coming quarters and years. These include an emerging opportunity in the data center market, rail and transit, and our most recent acquisition, FATI. Turning now to slide six, we believe unprecedented investments in the data center market represent an emerging growth opportunity for Thermon. According to an independent study, the global load bank market was roughly 280 million in 2024, with growth projections to 445 million in 2032, representing a 4.8% compounded annual growth rate. With the advent of AI and liquid-cooled data centers, the demand for liquid load banks to provide both thermal and electrical loads to test critical cooling systems and power infrastructure has rapidly grown. Based upon management estimates, we believe the current market opportunity for liquid load banks will grow from an estimated $84 million in 2024 to 386 million in 2032, which represents a compounded annual growth rate of 21%. To serve this growing market, Thermon launched the new Pontus and Poseidon load banks on July 28th of this year. As data centers shift from air to liquid cooling, we believe that the opportunity for Thermon legacy solutions like heat tracing, environmental heaters, immersion heaters, tubing bundles, and removable heating blankets grows accordingly. It's early, but we're already seeing a growing pipeline of project activity with new prospective customers that we anticipate will translate into meaningful growth in this segment for years to come. Turning now to slide seven, the rail and transit market is another vertical that we're extremely excited about. The Infrastructure Investment and Jobs Act, representing the largest federal investment in public transportation in U.S. history, has provided a very favorable demand environment with higher levels of government funding to modernize public transit and passenger rail systems. We're seeing strong order momentum with rail and transit backlog doubling over the last 12 months. Based on these strong order trends and the longer-term opportunity in this market segment, We're deploying capital and resources to rapidly expand capacity to support this growing opportunity. And finally, the FATI acquisition in October of last year has quickly become our fastest growing acquisition, and we continue to be very excited by the opportunity set for this business. Bati strategically positions us to take advantage of the growing electrification market across Europe. While we've seen a shift in US policy that has stalled investment, the electrification market in Europe is experiencing solid growth. We're seeing strong order momentum with our backlog doubling in just the last six months with a solid pipeline of high probability opportunities going forward. We're extremely encouraged by these opportunities which highlight the strength of our diversification strategy. Looking ahead, our ability to leverage our technologies across high-growth verticals, such as data centers, transit systems, and electrification, positions us to capitalize on dynamic market trends and deliver sustainable shareholder value. This highlights the ingenuity and dedication of our team whose relentless pursuit of excellence allows us to consistently deliver safe, reliable, and innovative thermal solutions for our customers. The successes we see today underscore our differentiated position in the industry and reinforce our confidence in the path forward. With that, I'll turn it over to Jan. who will provide a more detailed review of our first quarter results before I wrap up with some remarks on our financial outlook. Jen?

Jan Schott | Chief Financial Officer

Thank you, Bruce, and good morning, everyone. I will review the financial results for the quarter, give an update on working capital and free cash flow, and conclude with comments on the balance sheet and liquidity. Moving now to slide eight, I will start with our first quarter operating highlights. Revenue in the first quarter was 108.9 million, a year-over-year decrease of 5%. Excluding revenue contributed from FATI, first quarter organic revenue decreased 11%. Our OPEX revenues were 93.3 million during the first quarter, a decrease of 4% compared to last year. Excluding the contributions from FATI, OPEX revenues decreased 11% from the same period last year, due to the delayed backlog conversion, as well as the impact of the tariff uncertainty. OPEC's revenues represented 86 percent of total revenues for the quarter. Large project revenue was 15.6 million during the first quarter, down 11 percent from last year. While we noted some improvement in large project bookings last quarter, many of these remain in the engineering phase and we continue to see project schedules shift to the right. Based upon the current schedules, we anticipate that execution will begin in quarter two, carrying through the balance of the year. Our gross profit was $48 million during the first quarter, a decrease of 5% compared to the first quarter last year, as the revenue decline was partially offset by a more favorable revenue mix and tariff mitigation measures. including pricing benefits. As a result, gross margin was 44.1% during the first quarter, up from 43.8% last year, owing to improved profitability in OpEx sales, price, and productivity enhancements. Adjusted EBITDA was $21.2 million during the first quarter, down from $23.2 million last year. a decrease of 9% due to the revenue decline combined with continued investments in growth initiatives. Adjusted EBITDA margin was 19.5% during the first quarter, down from 20.1% last year, as the improved gross margins were offset by lower volumes and a modest increase in SG&A due in part to the FATI acquisitions. Gap earnings per share for the quarter was 26 cents, up 4% from 25 cents in the prior year. Adjusted earnings per share was 36 cents, down 5% from 38 cents last year. The decline was primarily driven by lower sales volumes and increased SG&A expenses, partially offset by improved gross margins and reduced interest expense. Orders decreased 5% on a reported basis and were down 19% organically. Orders were down across each geography, particularly in APAC, due to . While bookings were generally weaker across the board, we did see some pockets of strength in commercial, LNG, and as Bruce already discussed, rail and transit. Our first quarter book to bill was 1.11 times which was flat from the prior year. Backlog increased 13% organically due to the positive book to bill in the quarter combined with project execution timing. Turning to performance by geography, year over year sales in US lamb in Canada declined by 17% and 8% respectively, primarily due to delayed backlog conversion and reduced customer demand amid ongoing market uncertainty related to tariffs. In contrast, EMEA delivered strong growth with revenue more than doubling, driven by solid performance in our organic business and a $6.8 million contribution from the FATI acquisition. APAC revenue was $6.6 million, down from $9 million in the prior year period reflecting softer demand in the region. Moving to slide nine for an update on our balance sheet and liquidity. Working capital increased by 9% to $172 million at the end of the quarter, primarily driven by the FATI acquisition and higher inventory as we built stock for the fall heating season and purchased materials in advance of tariffs. CapEx was 2.4 million during the quarter, compared to 3.9 million last year, which included capital investments to support growth initiatives in the prior year. Free cash flow during the first quarter was 8.3 million, down modestly from 8.7 million last year. We repurchased 9.8 million in shares during the first quarter, bringing our total shares repurchased since the start of fiscal 2025 to $30 million. As a reminder, in May, we refreshed our repurchase authorization back to $50 million, so we currently have $44.5 million remaining under our current authorization. We ended the quarter with net debt of $102.8 million and a net leverage ratio of 1.0 times. We recently closed our $240 million credit facility, which extends the maturity to July 2030. In summary, we maintained our strong financial discipline during the first quarter and continued to execute our balanced capital allocation strategy. We remained focused on maintaining a strong balance sheet and ended the quarter with total cash and available liquidity of $130.8 million. This liquidity provides us with ample flexibility to support our capital allocation needs, and we will continue to prioritize investments in organic and inorganic growth while balancing opportunistic share repurchases and debt reduction. With that, I will turn the call over to Bruce.

Bruce Thames | Chief Executive Officer

Well, thank you, Jan. And now if you'll all turn to slide 10. We remain focused on navigating a dynamic global trade environment with discipline and agility. We're very pleased with our results during the first quarter as our tariff mitigation efforts were a key factor enabling us to drive gross margin improvement despite the revenue weakness and tariff headwinds. With the announcements on August 1st and questions regarding the details about how these new tariffs will be applied, we're currently assessing the impact to our business. As we gain clarity, I'm confident in our team's ability to quickly respond and minimize and mitigate any impacts going forward. As you can see here, our outlook for fiscal 2026 remains unchanged from our initial expectations. We continue to operate in an uncertain market created by the volatile and rapidly changing trade environment, which makes it very challenging to predict the second and third order impacts from the tariffs, particularly as it relates to customer behaviors impacting demand. Our guidance continues to assume the most recent and any future announcements do not have a notable positive or negative impact on input costs or customer sentiment and the recovery we've seen in order trends is sustained. While we were able to mitigate the impact of tariffs during the first quarter, we continue to see some margin risk for the balance of the year as the full impact of the tariffs is felt and we gain clarity on the most recent announcements. Based on these factors, we're reiterating our fiscal 2026 financial guidance that calls for a revenue in a range of $495 million to 535 million and adjusted EBITDA in a range of 104 million to 114 million. While ongoing global trade dynamics present challenges, we remain highly focused on effectively managing the factors within our control. We've made significant progress in our diversification growth strategy in recent years and are now strategically positioned to benefit from several powerful secular growth drivers, including reshoring, electrification, decarbonization, and 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 discipline allocation of capital, all with an ongoing focus on generating a long-term value for our shareholders. That completes our prepared remarks, and we're now ready for the question and answer portion of our call.

Operator | Conference Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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. One moment, please, while we poll for questions. Thank you. First question comes from the line of Brian Drab with William Blair.

Please proceed. Brian Drab | Analyst, William Blair

Hi, good morning. Thanks for taking my questions. Good morning, Brian. Morning. I just wanted to ask, I think you said there was a capital improvement or productivity improvement project that led to some production delays. Did you say, is that in the past now or the timing of getting that resolved and then the orders that were delayed when those would ship?

Bruce Thames | Chief Executive Officer

Yes. Yeah, Brian, we did have a capital improvement project that took one of our value streams down about twice. As long as we had anticipated in the first quarter, it's now up and fully operational and it's back to running at historical throughput levels. And again, we would expect those revenues to convert in Q2 in the balance of the year. We also did have some chain disruption that impacted another value stream, and those have been fully resolved as well.

Okay. Brian Drab | Analyst, William Blair

Got it. So I know you talked about $10 million in delayed revenue. Is that a different issue, or what's the amount of revenue that is associated with that capital improvement delay?

Bruce Thames | Chief Executive Officer

The supply chain improvement in the capital – Excuse me, the supply chain disruptions in the capital project are roughly 60% of that 10 million. The balance is more in project execution and timing in the quarter.

Brian Drab | Analyst, William Blair

Got it. Okay, perfect. Thank you. And can we talk a little bit about the liquid load bank opportunity in data center? I guess... Maybe just at the moment, could you spend a little time just describing what the product is that you're shipping? I know you had a press release on this recently, but maybe it'd be worth just explaining briefly what the product is. I don't think it's super intuitive for everybody. And what is your order book looking like or pipeline looking like for that type of activity? Like going in a year from now, like what's sort of the revenue opportunity for that business line?

Bruce Thames | Chief Executive Officer

Yeah, great question. So first and foremost, liquid load banks are actually, they're actually, they're based on boiler technology, but essentially they are used to provide both thermal and electrical loads to test the effectiveness of the cooling systems in these new liquid cooled data centers. They also provide an electrical load so that our customers can test the electrical power distribution systems in those data centers. So historically, They had largely just used inductive and resistive load banks. Our technology allows them to test not only the electrical load, but the thermal loads on those systems as well. And the move from air cooled to liquid cooled has created the demand for these systems. As we look forward, the pipeline of opportunity is building. We're just now have just launched these products only a couple of weeks ago, so it's still very early, but we're building that pipeline of opportunities. We're out talking to customers and different types of end users and channels in the market, but we would expect over time to be able to build a 20 to 25% market share in this growing opportunity. And those numbers I covered in the prepared remarks and are outlined in the slide we had in the investor materials.

Brian Drab | Analyst, William Blair

Okay. Thanks very much. And then maybe just one more question. Can you comment, you know, more specifically on gross margin expectations for the next quarter and the balance of the year?

Bruce Thames | Chief Executive Officer

Yeah, so first of all, as I said earlier, we're pleased with the results in the first quarter. Our outlook had been a little more pessimistic given the impact we anticipated in tariffs. We do expect there to be some margin headwinds in Q2 and beyond. The good news is we're beginning to see pricing come through. By the end of the second quarter, our new prices should be in full effect. And we feel like those are adequate to position us well to fully offset the impact of tariffs as we know it today in the back half of the year. So overall, our view of performance in Q1 is positive. We do see there could be some potential headwinds in Q2. And our expectations are that pricing will offset costs in the back half of the year. On a trailing 12 basis, I think we're sitting at about 44.8% gross margins. I would think by the end of the year, we should be trending in that same direction.

Brian Drab | Analyst, William Blair

Oh, okay. All right. That's very helpful. Thanks, Bruce.

Thank you. Operator | Conference Operator

Thank you. Our next question comes to the line of Justin Age with CGS Securities.

Please proceed. Justin Age | Analyst, CGS Securities

I appreciate the color on the data centers. Can you elaborate on the strong demand that you're seeing at Sati and what has changed since the fiscal fourth quarter, the last report?

Bruce Thames | Chief Executive Officer

Yeah, Justin. So first of all, we did in the fourth quarter, we talked about just the strong demand environment. We've seen that continue. As we noted in prepared remarks, the backlog there has literally doubled since we closed that deal on October 2nd of last year. They had a very good first quarter in shipments and bookings were quite strong north of 17 million in the first quarter. So, you know, we're seeing very strong demand. The pipeline of opportunities there is quite strong as well. The bulk of this is really related to electrification opportunities in Europe and the Middle East. The way their regulations there are moving forward, we are seeing significant investments in electrification to be able to convert historical heating sources that have been hydrocarbon-based to electric to reduce scope one emissions. So that has been a very positive trend on the European continent, and we're seeing the same in the Middle East. And a couple of these opportunities that they've secured have been related to LNG export, liquefaction and export facilities as well, very large heaters for those applications. So again, we're seeing quite strong demand due to a couple of different market drivers there for Foddy. I think the big impact has been taking that business, plugging it into Thermon's global sales network and being able to effectively develop and close opportunities through Thermon sales channels to really build that backlog over the last seven or eight months.

Justin Age | Analyst, CGS Securities

That's helpful. Thanks, Bruce. And then, Jan, maybe you could elaborate on the capital allocation priorities. I know you touched on it in the prepared remarks, but just hoping to see you know, an update on if there's anything in the M&A funnel or how you're approaching share buybacks. Any more color there would be helpful, please.

Jan Schott | Chief Financial Officer

Sure. Thanks, Justin. The M&A pipeline is still very active. And, you know, as we've stated before, we'll continue to look for opportunities that complement our strategy. You know, besides, I think, you know, that'll be something that we're focused on. I think we have done some uh, organic investments. So looking more for inorganic investments, um, we'll also continue with our share repurchase program. Um, you know, that would be if we, uh, if we don't have opportunities to prioritize growth. Um, so, you know, that's always something that, uh, you know, we've done when we can buy back shares at attractive levels, if there's nothing, um, or we don't have anything that, you know, really that's attractive in the MNA pipeline or that we think we can, uh, execute on. So we think we have lots of flexibility there. And then I think we're in a good spot with our debt. So the last part of that would just be debt reduction. But at 1.0 times, it's really hard to allocate any free cash flow there.

Justin Age | Analyst, CGS Securities

Thank you, Jen.

I appreciate it. Operator | Conference Operator

Thank you. As a reminder, to ask a question, please press star one. Our next question comes from the line of Chip Moore with Ross MKM.

Please proceed. Chip Moore | Analyst, Ross MKM

Hi, thanks for taking the question. Apologies, I hopped on a few minutes late, so I'm not sure if you addressed it. Just was wondering, on the heat trace side, pipeline on large projects, Bruce Thames | Chief Executive Officer: what you're seeing you know there's been some big FIDs out there and and just just any uh any color there yeah Chip good morning yeah so on the pipeline of opportunities as I noted uh you know we've seen some nice growth year over the year it's about about 43 percent um some of the large project bookings were weaker in the quarter but as we talked about the cadence of bookings has improved and We're seeing some very positive awards that we've received here in early in Q2. And the pipeline of opportunities, again, looks to be robust. We have secured some orders in rail and transit in Q1. There's been some key LNG wins that have been larger projects in scope and certainly We've had some opportunities in downstream oil, which we've secured in the first quarter as well. I think the key thing to note is as our backlog is up 27% year-over-year and 13% organically, we've seen a big increase in just the engineering load today, and we're staffing up to be able to respond and get those projects designed and be able to convert that to bills of material and ultimately drive revenue. So that has contributed to the revenue delays in Q1. We've seen that those projects begin to translate to revenue in Q2, and we would expect that through Q3 and Q4 in the back half of the year. I think coming in, we had made some assumptions around tariffs and demand and the like and timing of projects. We were thinking the year might be more front end loaded based on what we're seeing today. It looks to be a more typical revenue distribution we would expect with roughly 44 to 45 percent of revenues in H1. and 55% to 56% of revenues in H2. And that's actually roughly around the five-year average for the business.

Chip Moore | Analyst, Ross MKM

Appreciate the call, Bruce. And maybe if I could sneak in one more on data center. You know, obviously those growth numbers up there, we all know those are huge. So interesting to see the opportunity. I'm just wondering, I guess one on the load bank, I assume this comes on later, you know, in construction when these facilities are coming online? And then any thoughts on go-to-market? Do you need a partner there or, you know, some proof points or how are you thinking about working more aggressively?

Thanks. Bruce Thames | Chief Executive Officer

Yeah, so first of all, you're right. These are used, these are really used in two ways. One is they can be installed permanently. in the facilities and they're used not only for startup and commissioning testing, but they're used throughout the life cycle of the asset as they do maintenance on their HVAC or the cooling systems. And also as they expand those facilities, as new technologies come in, all of those are opportunities or requirements for additional testing. So you can see part of this could be earlier in the construction phase. And then there's a lot of these that are used temporarily in the commissioning phase. And we see that through rental houses as well as other big hyperscalers, they'll have their own fleets of this equipment. So it is later in the commissioning phase where we see these, really it's used predominantly. So later in the build cycle. For the channels to market, we're going direct globally, but we do have potential for new partners in both the rental and technology space that we're working on developing those relationships today.

Chip Moore | Analyst, Ross MKM

Great. Appreciate the color.

Thanks very much. Thank you. Operator | Conference Operator

Thank you. Our next question comes from the line of John Bratz with Kansas City Capital.

Please proceed. John Bratz | Analyst, Kansas City Capital

Good morning, Bruce. Jan. Good morning. A couple more questions on the data center market. And I think you maybe answered it. I'm not quite sure. But would the customer be maybe the data center or the manufacturer of the cooling system, would you work in potentially in conjunction with the cooling provider?

Bruce Thames | Chief Executive Officer

Yes. So it's really both. And it depends on the specific project. In some cases, it could be some of the hyperscalers. In other cases, it's the HVAC contractor that's responsible for the cooling system. And then in some cases, We're actually going through a rental channel to provide these assets on site for the startup and commissioning phase. So there's really different channels to market, and it depends on really whether this is being installed permanently in the facility or being used just during the startup and commissioning phase to test the asset.

John Bratz | Analyst, Kansas City Capital

Okay. You know, if they continue to use it during the life of the data center, is it one unit per data center, or does data centers need multiple units?

Hundreds. Bruce Thames | Chief Executive Officer

These are hundreds of units.

John Bratz | Analyst, Kansas City Capital

Okay, okay. So what's out there now? How are the data centers – you know, using, what are they using now? What's the sort of the competitive landscape in this product area?

Bruce Thames | Chief Executive Officer

So this is an emerging opportunity. It's nascent, and there are a few competitors out there globally for these liquid load banks. More traditionally, there have been resistive and inductive load banks, which are more strictly focused for power distribution testing. This is actually for thermal load testing as well as power testing. And this is really emerged with the advent of liquid cooled data centers. So this is fairly new to the market.

John Bratz | Analyst, Kansas City Capital

Okay. Okay. Okay, good. And I think you addressed this earlier, but, you know, in a best case scenario, How quickly do you think we would begin seeing some meaningful revenues from this new product? Are we six months away, nine months? Any indication from you?

Bruce Thames | Chief Executive Officer

Yes. So our goals are to begin to generate revenues from this in the back half of the year and begin to build a backlog going into fiscal 27.

Okay. John Bratz | Analyst, Kansas City Capital

Okay. Okay. Will you separately note some of those numbers?

We will. Okay. Bruce Thames | Chief Executive Officer

We will as we begin to develop the pipeline, close orders, and begin to ship. We'll highlight that on a go-forward basis.

John Bratz | Analyst, Kansas City Capital

Okay, Bruce. Thank you very much.

Thank you. Operator | Conference Operator

Thank you. There are no further questions at this time. I'd like to pass the call back over to Bruce for any closing remarks.

Bruce Thames | Chief Executive Officer

Thank you, Alicia, and thank you all for joining today. We appreciate your interest in Thermon, and we look forward to speaking with you if we don't talk to you before the next call. So thank you all, and enjoy the rest of your day.

Operator | Conference Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. jsPDF 3.0.3 D:20260606090453-00'00'

NYSE:THR Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Conference Operator | Operator: and welcome to the Thurmond Group Holdings fourth quarter fiscal year 2025 earnings presentation. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during this conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Yvonne Salem, Vice President, FP&A, and IR. Thank you.

You may begin. Yvonne Salem | Vice President, FP&A and Investor Relations

Thank you. Good morning, and thank you for joining Thermos Group's fourth quarter and full year fiscal 2025 results conference call. Leading the call today are CEO Bruce Thames and Chief Financial Officer Jan Schott. Earlier this morning, we issued an earnings press release, which has been filed with the SEC on Form 8K, 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, Q4 2025. 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 comfortable GAAP measures in the tables at the end of the earnings press release. 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 recently 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. 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 the progress we have made on our strategic initiatives. followed by a financial update and review from our CFO, Jan Schott. 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 | Chief Executive Officer

Thank you, Yvonne, and good morning to everyone joining us on the call today. I'll begin my commentary with the fourth quarter highlights, which we detail on slide three of our presentation. The fourth quarter was another period of solid execution by our team, which resulted in further strength in our OPEX recurring revenues, continued bookings momentum, and strong margin expansion. Over the past couple of quarters, We detailed how our team has remained focused on our key strategic priorities despite the difficult market conditions. While CapEx revenue trends in recent quarters were weaker than we would have liked, we remain confident that the positive order momentum in our business would translate to an improved growth trajectory. During the fourth quarter, our hard work and dedication paid off as we generated 3% organic growth during the quarter, the first in over a year. These order trends have improved across a range of verticals, most notably the LNG market. After the moratorium on LNG exports from the US was lifted earlier this year, activity has resumed and we're seeing increased bidding and project awards. The activity around natural gas is broad based with numerous projects underway in the Gulf Coast and the Middle East. We built a strong portfolio of products targeting the LNG market, have secured five major awards and are well positioned to capitalize on numerous other opportunities in our pipeline. This bookings momentum resulted in the fourth consecutive quarter with a positive book to build. As a result, our backlog as of March 31st increased 29% from last year, with the organic backlog up 20%, driven by momentum and diversified verticals, coupled with a rebound in certain oil and gas markets. We also made further progress on our operational excellence initiatives, which combined with our more favorable revenue mix, translated to an EBITDA margin of 22.7% during the fourth quarter, a 423 basis point improvement relative to Q4 of last year. These results underscore the strength of the Thermon business system and resilience of our business operating model. And finally, our strict financial discipline and improved operating profitability enabled us to finish fiscal 2025 in a strong financial position with net leverage of just under one times. Importantly, we were able to accomplish this while continuing to invest in our growth initiatives, while also making nearly $14.5 million in optional debt repayments and returning over $14 million and capital shareholders through our share repurchase program all in the fourth quarter. As a testament to our solid financial position, the board has approved refreshing our share repurchase authorization back to the initial $50 million, underscoring our optimism for the future. Turning now to reflect on fiscal 2025, I'm extremely pleased with our team's performance delivering another record year of revenue and adjusted EBITDA. despite what was a very challenging operating environment. On slide four, we provide a snapshot of our 2025 highlights. Our 498 million in revenue was up just 1% over prior year, despite a 37% decline in large capital projects. Our diverse revenue base, making up over 72% of our end market mix, along with growth in recurring revenues and strategic M&A, were instrumental in delivering this year's results. We generated an adjusted EBITDA margin of 22% during fiscal 2025, which was up 86 basis points from last year, reflecting our more favorable revenue mix and productivity gains through the implementation of the Thermon business system. Our earnings growth and solid gross margin expansion of 196 basis points delivered 53 million in free cash flow during the year. More importantly, we generated 536 million in bookings during the year with a book to bill of 1.08 times, demonstrating the favorable trends in our end markets, our strong competitive position, and the hard work and dedication of our team. Our 3D initiatives, which we'll discuss in more detail later on the call, contributed 93 million in revenue during the year. The R&D team also announced 28 new product and software releases during fiscal 25, advancing our solution set from digitization to diversification and decarbonization as well as in the core business. The advancement of our strategy positions us well as we enter our fiscal year with solid momentum, which we illustrate on slide five. The addition of vapor power has expanded our addressable market, increasing our sales pipeline by 25%, even though the business represents just 11% of total revenue today. The favorable book to build, underpinned by strong order trends in recent quarters, has resulted in backlog growth on a year-over-year basis. While there is broader macro uncertainty, we remain encouraged by the favorable trends in our key end markets, which is reflected in our strong bid pipeline, which is up 25% from the end of last year. As we anticipate the opportunities ahead in fiscal 2026, I would like to take a moment to reflect on the strides we've made in advancing our strategic initiatives during fiscal 2025. Now turning to slide six, where we highlight our key strategic pillars. First, growing our installed base. Second, decarbonization, digitization, and diversification. And third, disciplined capital allocation. These pillars underpinned by our dedication to operational excellence form the basis of our long-term value creation framework. I will begin on slide seven with growing the installed base. Over the past 70 years, we've cultivated a loyal customer base that is the foundation of this business and continues to drive meaningful results, even in challenging market conditions. During fiscal 2025, our organic revenues declined only 8%, despite a decline in large project revenues of nearly 40%. On a trailing 12 month basis, our OpEx revenues represented 85% of our total revenues up from the low 70% range just two years ago, providing a more stable and predictable base of revenues. As importantly, these OpEx revenues carry significantly higher gross margins, typically in the 40 to 65% range, well above the levels in our large project business. On slide eight, we underscore the critical components of our second strategic pillar, pursuing diversification, decarbonization, and digitization, otherwise known as our 3D initiatives, to achieve growth above and beyond GDP. By capitalizing on these transformative opportunities and expanding our presence in higher growth, diversified markets, we are positioning the company for sustained profitability and long-term competitive advantage. Diversification shown here on slide nine has been an area where we've exceeded our expectations. The goal of 70% of revenue from diverse end markets was achieved at the beginning of fiscal 25, almost two years early. One of the most significant insights from fiscal 2017 is the remarkable 220% revenue growth driven by diversification across multiple end markets, even as oil and gas revenues contracted. As we look forward, we remain committed to further diversifying our revenue base through new product introductions and expanding into new emerging markets, such as data centers and nuclear power. That said, our longstanding oil and gas customers remain an important part of the Thermon business at roughly 30% of our total revenues. We've been encouraged by the recent LNG project activity, which we view as a bridge fuel for years to come. These pockets of strength we're seeing contributed to our Q4 bookings with oil and gas up over 50% from last year. Based on the priorities of the newest administration, we're optimistic this momentum can continue. Turning now to slide 10. The decarbonization opportunity remains a critical aspect of our strategy as we look to leverage existing solutions and new product development to meet our customers' decarbonization and electrification needs. The electrification of industrial heating is still in its early stages, and we built both the technical competencies and breadth of solutions to enable this transition. The acquisition of vapor power in fiscal year 24 expanded our product portfolio while increasing our total addressable market for decarbonization and electrification opportunities with the pipeline growing 70% and revenues increasing 85% over fiscal year 24. During fiscal 2025, we took another important step to further advance our decarbonization strategy with the acquisition of FATI. This acquisition brought us a very well-respected brand of heating solutions that is highly complimentary to our legacy portfolio while expanding our global manufacturing footprint. Since acquiring the business, the FATI backlog has essentially doubled due to strong demand from Thermon legacy customers. In addition to our inorganic growth, we have built advanced software analytic tools to validate designs and launch several new products that reduce the total cost of ownership for our customers. While the policy shift in the U.S. has led to a slowdown in decarbonization conversion rates, Europe continues to invest in the energy transition. As outlined on slide 11, we remain highly encouraged by the significant strides we've made in advancing our digitization strategy. The continued investment in our Genesys control offerings reflects our unwavering commitment to delivering leading controls and monitoring solutions that empower our customers with real-time operational insights, enhancing safety, reliability, and efficiency. These solutions now constitute 12% of our total heat tracing revenue, a clear testament to its growing impact. Furthermore, fiscal 2025 saw remarkable growth in our Genesis network installed base, where circuit counts surged by nearly 90%, and we're projecting an additional 50% growth in fiscal 2026. This robust adoption underscores the differentiated value we bring to the market. By enabling our customers to digitize and optimize their maintenance operations, we are not only strengthening our competitive advantage, but also driving success in new capital projects while capturing recurring MRO revenues. This strategic focus positions us well for sustained growth and leadership in the market. Turning now to slide 12. I'm pleased to highlight the transformative impact of the Thermon business system. By streamlining our operations through initiatives such as rooftop consolidation and efficiency improvements, as well as the seamless integration of vapor power and FATI, we've strengthened our operational foundation. This system not only accelerates our progress towards achieving our profitability targets, but also enhances our agility and positions us to deliver a sustained competitive advantage in the marketplace. And finally, As it relates to our disciplined capital allocation strategy, we successfully executed our balance approach during fiscal 2025. As we continue to make important investments to advance our organic growth strategy, we deployed capital for strategic M&A through the acquisition of FATI, recurrent capital to shareholders through our share repurchase program, and made optional debt repayments throughout the year. As we move forward, our strategic focus remains on identifying and executing high value acquisitions that align with our mission to expand and diversify our portfolio of industry-leading industrial heating solutions. With that, I'll turn it over to Jan, who will provide a more detailed review of our fourth quarter results before I wrap up with some remarks on our financial outlook. Jan?

Jan Schott | Chief Financial Officer

Thank you, Bruce, and good morning, everyone. I will review the financial results for the quarter, give an update on working capital and free cash flow, and conclude with comments on the balance sheet and liquidity. Moving to slide 14, I will start with our fourth quarter highlights. Revenue in the fourth quarter was $134.1 million, a year-over-year increase of 5%, driven by continued momentum in OPEX revenues, including solid growth at Vapor Power, and contribution from Fatih. Please note that vapor power is now included in organic results. Our strategic focus of diversifying our revenue base and increasing our exposure to short-cycle projects and MRO-related recurring revenue continues to benefit our business. This was partially offset by softness and large project revenue. As Bruce mentioned earlier, we are beginning to see improved booking momentum in our large project business. Large project revenue was $22.3 million during the fourth quarter, down 5% from last year. Compared to the previous quarter, however, we saw revenue increase 20%, another indicator of improved momentum in CapEx spending. Our OpEx revenues were $111.8 million during the fourth quarter, an increase of 7% compared to last year, highlighting the benefit of our strong and loyal installed base of customers and the stability of maintenance and repair spending. Excluding the contributions from FATI, OPEX revenues increased 4% from the same period last year. OPEX revenues represented 83% of total revenues for the quarter. Orders increased 19% on a reported basis and were up nearly 14% organically, with balanced strength across our diversified end markets, including strength in chemical, petrochemical, and rail and transit markets. We also saw a rebound in oil and gas, particularly LNG, as Bruce mentioned earlier. As a result, our fourth quarter book to bill was 1.04 times up from 1.03 times in the prior quarter. Looking at our results by geography, U.S. lamb sales increased 6% due to continued strength in OPEX revenue and improved large project trends. Revenue in EMEA was up 51% on a reported basis to 15 million and up 18% excluding the contribution from FATI. Canada sales of 40 million were down 6% from last year due to the general macroeconomic conditions in the country. Revenues in APAC were 9.2 million. Adjusted EBITDA was 30.5 million during the fourth quarter, up from 23.6 million last year, an increase of 29%. Solid revenue growth and strong operating performance were partially offset by continued investments in growth initiatives. Adjusted EBITDA margin was 22.7% during the fourth quarter, up from 18.5% last year due to a more favorable revenue mix, disciplined cost management, and productivity gains. Moving to slide 16 for an update on our balance sheet and liquidity, Working capital increased by 3% to $167.6 million at the end of the quarter due to timing of collections. CapEx was $3.1 million during the quarter, flat compared to last year. Free cash flow during fiscal 2025 was $52.9 million, down from $55 million last year. While we remained focused on working capital management and strong free cash flow conversion, the modest decline in free cash flow was driven by technology investments tied to our ERP implementation. We repurchased 14 million in shares during the fourth quarter, bringing our total share repurchases for 2025 to over 20 million. As Bruce mentioned earlier, After purchasing $24 million to date under our original share repurchase program, our board approved a refresh of the program back to $50 million. We paid down $14.5 million of net debt during the quarter, bringing our net debt balance to $99 million and are reporting net leverage at the end of the year of 0.9 times. we are currently working with our bank group to extend the maturity of our existing credit facility, which becomes current in September, 2025. In summary, the fourth quarter wrapped up a year of strong financial discipline for Thermon. We successfully executed our capital allocation priorities, including continued investments in organic growth, capital deployed for acquisition, and opportunistic return of capital through our share repurchase program. And we did all of this while still maintaining a strong balance sheet. Based on our total cash and available liquidity of $137 million, we remain well capitalized and have ample flexibility to support our capital allocation needs and will continue to balance investments in growth, debt pay down, and opportunistic share repurchases. With that, I will turn the call back over to Bruce.

Bruce Thames | Chief Executive Officer

Thanks, Jan. Moving now to slide 17. As we enter fiscal year 2026, we remain focused on navigating a dynamic global trade environment with discipline and agility. Tariffs continue to present both direct and indirect challenges to our cost structure, particularly in the form of elevated input costs and near-term margin pressure. Our current assumptions include 25% tariffs on steel and aluminum, 30% on goods from China, 25% reciprocal tariffs from Canada and Mexico, and 10% for the rest of the world. Based upon these assumptions, we're expecting an annualized impact of roughly 16 to 20 million on a gross basis prior to mitigating actions, which are already underway. While our direct market exposure to China remains low, representing just 2% of total revenue, we're mindful of second and third order effects through our supplier and distributor networks. These ripple effects are being closely monitored and addressed through proactive supply chain management. To mitigate these impacts, we're executing a multi-pronged strategy. First, pricing actions. We've implemented targeting price increases to offset rising input costs while maintaining competitiveness and customer value. Second, USMCA compliance. We're committed to preserving our USMCA qualifications, which continue to provide a strategic advantage in North America. Third, global footprint optimization. With manufacturing operations in the US, Canada, India, and Europe, we are leveraging our global footprint to shift production and sourcing in ways that reduce tariff exposure. Fourth, supply chain reconfiguration. We are actively evaluating and reconfiguring our supply chain to minimize tariff related disruptions and enhance resilience. Despite these headwinds, we're entering fiscal year 26 with strong order momentum and a healthy backlog, which reinforces our confidence in the underlying demand for our products and the strength of our customer relationships. We remain calm, focused and confident in our ability to manage through these challenges while continuing to deliver long-term value for our shareholders. And now if you'll turn to slide 18, I'll discuss our outlook for fiscal 2026. Looking forward, The uncertainty created by the volatile and rapidly changing trade environment makes it very challenging to ascertain the second and third order impacts from tariffs, particularly as it relates to customer behaviors and the demand environment. Our guidance assumes the current tariff levels remain in place, resulting in margin headwinds in the first half of the year, offset by price increases in the back half of the year as mitigating actions take full effect. Given the uncertainty with tariffs and the overall global economy, the current guidance contemplates slowing growth in the second half of the fiscal year. Based upon these factors, we're providing fiscal 2026 financial guidance that calls for revenue in a range of $495 million to $535 million, representing 3.5% growth at the midpoint of the range. Adjusted EBITDA is in a range of $104 million to $114 million, essentially flat at the midpoint of the range. Our guidance assumes a modest decline in adjusted EBITDA margin, largely as a result of the expected lag before our tariff mitigation efforts in the first half will flow through to possibly impact results in the second half. Given the dynamic nature of tariffs, global trade and policy changes, we'll provide updates on the business and our mitigating actions throughout the year. Finally, as we conclude on slide 19, I want to express my deep appreciation for the efforts of the Thermon team throughout fiscal 2025. Their dedication and innovation have positioned us as a leader in industrial process heating with a resilient business model and efficient operational framework. While the ongoing tariff dynamics present challenges, we remain acutely focused on the things within our control. With a strong financial foundation and clear strategic priorities, we are confident in our ability to capitalize on opportunities, mitigate risks, and deliver sustained value for our shareholders. That completes our prepared remarks. We are now ready for the question and answer portion of our call.

Conference Operator | Operator

Thank you. And if you would like to ask a question at this time, please press star 1 on your telephone keypad. A confirmation tone will indicate that the line is in the question queue. You can press star 2 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. Once again, to ask a question, press star 1 on your telephone keypad. We'll pause for a moment while we pull for questions. And our first question comes from Chip Moore with Roth Capital Partners.

Please state your question. Chip Moore | Analyst, Roth Capital Partners

Hey, Morgan. Thanks for taking the question. Hey, Bruce, I wonder if you could elaborate on, you talked about LNG seeing a bit of a resurgence. Can you elaborate a bit on that, what you're seeing, how that might translate?

Bruce Thames | Chief Executive Officer

Yeah, Chip. Since the lift of the moratorium in the January timeframe, there was always really a number of projects that were in the queue in our pipeline, and we've seen those move forward pretty quickly. And as I noted in the prepared remarks, the areas of strength we've seen have been along the US Gulf Coast, as well as in the Middle East. And some of those are field developments, as well as export facilities. As we look at our pipeline ahead, there's a number of opportunities that are still out there. We're tracking around $80 million in LNG opportunities for our content. So we see really some nice tailwinds there in that sector.

Chip Moore | Analyst, Roth Capital Partners

Great. I appreciate that. And maybe just on... FY26, you talked about, I think, some margin headwinds maybe here in the first half before the pricing kicks in. And then maybe growth being a little more challenging in the back end. Maybe just any more detail there on what you're thinking and directionally and cadence.

Thanks. Bruce Thames | Chief Executive Officer

Yeah, great question. So we've put together a task force. We're looking very closely at the inflationary impact of tariffs to our input costs. And while it's a moving target, we see there'll be a near-term impact to gross margins in the first half of the year. We've already moved on pricing in a number of areas to be able to offset that. As usual, our pricing, we have about a 60-day window or lag before that is effective through our channel partners and with customers. So there's a lag effect there. There's also work that's in backlog, particularly around project activity, some of which we don't have the opportunity to go and renegotiate. So we anticipate that will be a margin. Those will create some margin headwinds in the first half. However, we have pricing power. We've been able to pass price increases in the past. I look back at COVID and the inflationary impact there. We were able to pass those on. My expectations, we've moved fairly quickly here, and so we should begin to see that flow through late in the second quarter and see that fully offset any inflationary input cost we see in the first half. The looking more at the demand environment, certainly when you look at the leading indicators as we come into this fiscal year, there's nothing that would indicate that there's a big slowdown in the back half, but it's just a more cautious approach given the uncertainty. It's difficult, I think, for customers to parse through the data, particularly as it relates to deploying capital. And so it's our general belief that this could create a headwind in in the back half of the year although the leading indicators we track have not indicated that to be true yet fantastic appreciate it i'll hop back in queue thanks and your next question comes from brian drab with william blair please see your question good morning thanks for taking the questions Brian Drab | Analyst, William Blair: I just wanted to maybe first build on that last question. And first, how are you thinking about, you know, the overtime category in your forecast for fiscal 26? Is it, you know, obviously is it, you know, down a lot in fiscal 25? Are you forecasting that to be about the same, I guess, given the overall guidance?

Bruce Thames | Chief Executive Officer

Yes, roughly. The way we're thinking about this right now is that we actually saw a really nice backlog build in overtime projects. In fact, our engineering workload is really at an all-time high, and that's related to the return of capital projects that we've seen really building. We anticipated that coming into this year, and it really began to manifest, particularly in the fourth quarter. But we've had four consecutive quarters of positive book to bill. So this has been building. Our assumption at this point is that the incoming order rates for these larger capital projects will be muted until we get more clarity on trade policy going forward, and we'll begin to burn through those through the second half of the year. So that's essentially the assumptions we have at the midpoint of our guide. If we look at our guide overall, the upper end of the range would be really what we would have maybe anticipated had we not had some of the trade disruptions and given the momentum we have seen in the market leading into our fiscal 26. The lower end of the range would assume an erosion in the overall trade negotiations and an escalation in the trade conflicts.

Brian Drab | Analyst, William Blair

Okay, thanks. Can I ask you to comment on, you know, how you're thinking about at the midpoint of the range, how you're thinking about the, you know, the OPEX spending, you know, the point in time segment?

Bruce Thames | Chief Executive Officer

The mix should be fairly consistent to what we saw in 25. It should be fairly consistent when you look at our guide at the midpoint.

Brian Drab | Analyst, William Blair

Okay. Can you talk at all about, you know, other categories or, you know, other end markets where you're seeing some of the improvement in the CapEx spending? You talked about the LNG being a standout, but are there other areas? And can you update us at all on if you're seeing any incremental demand from the data center opportunity that you mentioned last quarter?

Bruce Thames | Chief Executive Officer

Yes, so I'll start with just the overall demand environment. General industrial remains strong. It's one of our largest booking segments in the fourth quarter. It represented almost 32% of the bookings in the quarter. Chemical, petrochemical, we saw it almost 17.5%. in the quarter. So we've seen some strong demand there. As I noted earlier, oil and gas, which has been weak for quite some time, we've seen an uptick there, particularly as it relates to LNG. And when we look overall, renewables, we still see opportunities. And that was actually up, although it's a fairly small percent of revenue, but that was up fairly sharply in the fourth quarter as well. Rail and transit, we've seen some really strong bookings. Our backlog there has grown to about 36 million, of which we anticipate executing about 17 million of that in the coming year. The one thing To note here around data centers, we've done more work there, and that is a real opportunity around load banks, and we've got some work underway. We'll provide some more updates on that in upcoming calls, but that is a real opportunity in the market, and we're very active in trying to develop and execute on that opportunity we see.

Brian Drab | Analyst, William Blair

Okay. I'm going to save my questions for later, but I just want to make sure I have one thing, high-level idea correct here. It seems like what I'm hearing from you today is that, you know, backlog's up 20% organically. You've got some momentum in some different end markets. The CapEx environment at the moment looks like it's improved materially, but, you know, just, you know, Instead of like a lot of companies are doing polling guidance, you're just saying we're going to give a broad kind of a broad range. There's a lot of, you know, the consensus view is that there's going to be a slowdown later this year, you know, overall macro. So you're taking all of this into account and just saying, let's be cautious. But it seems like the high end of the range, you know, it could be in play here. Is this a fair way to interpret everything that I'm hearing today?

Bruce Thames | Chief Executive Officer

Yeah, I think that's a really good way of summarizing it, Brian. I think the high end of the range, as I said, if we see some real progress on some of these trade agreements, we get more clarity on the tariff environment going forward. I think customers can become more comfortable with deploying capital, which we've seen that momentum building, quite frankly, for at least the last three quarters. And we began to see it manifest in our Q4 with expectations that would come through in fiscal 26. So we're being more cautious in really the demand side of the equation, just given the uncertainty that we see and our customers are seeing in the trade environment.

Brian Drab | Analyst, William Blair

Got it. Okay. Thanks for all the detail.

Bruce Thames | Chief Executive Officer

We'll talk to you later.

Yes. Conference Operator | Operator

Thank you. And a reminder to ask a question, press star one on your phone. Your next question comes from Justin Ages with CJS Securities.

Please state your question. Justin Ages | Analyst, CJS Securities

Hi, thanks for taking the questions. Hey, Justin. With the debt pay down and the share buyback and then refresh, can you just give us a little more detail on your capital allocation priorities?

Jan Schott | Chief Financial Officer

Yes. Hi, Justin. I'll take that one. You know, I guess first and foremost, you know, we have our capital investments for growth. And that's in the same range that we've done in prior years with two to three percent CapEx, two percent of sales. And then probably with all of the technology investments that we have going in, that's about one percent for next year. So that's first and foremost. You know, second, I would say we do. Obviously, with the refresh of the share repurchase program, we'll look for opportunistic opportunities to buy shares. We bought 14 million shares this last quarter, really taking advantage of some dips due to other macro economic things that were happening. But we think that that's really a path forward and we'll continue on that plan. And then the other aspect is also that we do have an active M&A pipeline. And in this environment, really, you know, just looking for buying opportunities, to be honest. But I think, you know, that's something that we're very focused on. And with $137 million of liquidity, we have a lot of, you know, tailwinds at our back really looking, you know, hoping to execute something in the near term and on M&A.

Justin Ages | Analyst, CJS Securities

Okay, I appreciate that. And then you just mentioned that guidance includes this $5 million one-time tech investment. Can you just give us a little more color on what that entails?

Jan Schott | Chief Financial Officer

That's mostly associated with our ERP implementation that we have ongoing. We'll be implementing kind of in stages across the globe, really over the next year and a half or so. And so we're actually looking forward to, you know, having more color on that, I guess, in future calls. But that's underway right now.

Justin Ages | Analyst, CJS Securities

Okay. Thank you. And then last question. On Thurmond, you know, long-term initiatives, and particularly on the EBITDA margin target. Just wanted to know, you know, what steps are you taking to get there? Do they include some of these mitigation efforts that are now part of, you know, offsetting some of the tariff impact? Just any color on that.

Bruce Thames | Chief Executive Officer

Yeah, so certainly the higher input costs create some headwinds in the near term, but I still feel confident that the same levers that we have to pull in the business exist on a go-forward basis to continue to drive EBITDA margin expansion. We saw some very nice Gross margin expansion in the year, about half of that was related to mix. We had about 196 basis points, and so half of that was mixed. The other half was the Thermon business system and the rooftop consolidation we did earlier in the year with consolidating operations into San Marcos, as well as the continuous improvement efforts that we've made going forward. So we continue to see that as a lever. to be able to drive gross margin expansion. And then certainly as we look forward, price is always an opportunity and we tend to be able to get price in the marketplace. New product introductions create opportunities as we work and implement the Thermon business system in our new acquisitions. Those were a headwind to our gross margin profile this year, but we're confident there's a path to get those more in line with the averages of the market the overall enterprise. And so those are opportunities for margin expansion. And then last but not least, as we drive growth and volume, we get operating leverage on the fixed cost basis. So those are really the levers that we see pulling on a go forward basis. We were able to improve 86 basis points this past year. I believe we can continue to drive those changes, although I do see Just a setback this year, given the impact of tariffs on input costs and a lag of being able to push that through to the market.

Justin Ages | Analyst, CJS Securities

I appreciate the answers.

Thank you. Conference Operator | Operator

Thank you. Thank you. And your next question comes from John Bratz with Kansas City Capital.

Please state your question. John Bratz | Analyst, Kansas City Capital

Good morning, Bruce. Good morning. Maybe a little more clarity on the tariffs. You said the gross impact is $16 to $18 million. Obviously, you have some mitigation efforts, but when you think about the upcoming year, what might be the net impact for the full year, considering the mitigation efforts?

Bruce Thames | Chief Executive Officer

Yeah, so on a gross basis, we gave a range of $16 to $20 million. Yes, that's right. And we believe on a net impact, it's somewhere in the $4 to $6 million range within the current fiscal year.

John Bratz | Analyst, Kansas City Capital

And that'll be mostly in the first half, correct? Correct. Correct. Okay. Okay. All right. Good. Okay. And then secondly, when you look at the competitive landscape – Are any of your competitors in a better position regarding tariffs and trade policy and all this other stuff, in a better position or worse position? Any thoughts on the competitive landscape given the new trade policies?

Bruce Thames | Chief Executive Officer

That's a difficult question, especially just given the complexity and interconnectedness of global supply chains today. But what I can say is about our position. And given our operating footprint in the U.S., about 50% of our production is from the U.S., we have a significant presence in Canada as well. We do a lot of in-country, four-country production. The acquisition of FATI increased our operating presence in the European continent and certainly has been really a bright spot when we look at just the overall demand environment there for FATI. for decarbonization and electrification solutions. And that business, we acquired it with about a $15 million backlog. It's almost doubled since that time. And our ability to serve that on the European continent is a real advantage. And then we do have operations in India that will begin to leverage to serve more of the Asian continent. And we certainly, as we look at our M&A opportunities, we're looking for potential acquisitions that would mirror a FATI that would give us a larger operating footprint in Asia, just for these types of situations, just to diversify our risk base. Yeah. We've made a lot of progress since COVID. We've done a lot to build more resiliency into our supply chains. I think that really exposed weaknesses, not only in us, but with others. We've never been heavily dependent upon China. So I think that's a real advantage. that we have over some others. The one thing I would note is that while we're not dependent, we are exposed in second and third order effects with our suppliers and their supply chains. Although again, people have diversified away from China and have multiple sources. So we'll just have to see how a lot of this flows through. But we've factored all of that into our guide.

Conference Operator | Operator

Yep. Okay. All right, Bruce, thank you very much. Thank you. Thank you, and the next question comes from Brian Drab with William Blair.

Please state your question. Brian Drab | Analyst, William Blair

Hi, I'm back with just one clarification. On the one-time technology investment, $5 million, this is not being adjusted out of, obviously, is what you're indicating. It's not being adjusted out of your guidance or EPS calculation, and it seems like you know, that would be about 100 basis point headwind to operating margin and EBITDA margin. Is that the right way to think about it?

Jan Schott | Chief Financial Officer

No, this would be adjusted out of – or on the adjusted EBITDA calculation in APS.

Brian Drab | Analyst, William Blair

Okay, so you are – okay, so I'm glad I clarified that. So you're saying – you're just calling it out that it is an adjustment. Okay. I just missed it. I just wanted to make sure. Okay. Okay, so there is a – you are expecting a margin headwind – you know, excluding this situation. Okay. All right.

Thank you very much. Jan Schott | Chief Financial Officer

And it's not, it's, it's, you know, I think it's, it's obvious, it's obviously not something that we do every year and don't plan to.

So. Brian Drab | Analyst, William Blair

Right. Right. And well, that was my other question is that this goes away then in that you're expecting to the 5 million to be the entire investment and for that to be a fiscal 26 event and fiscal 27, it's the plan is for this not to be an expense line. Is that right?

Jan Schott | Chief Financial Officer

Yes. I mean, we will have some, I think, some very marginal investments going into 27 for just some of the, you know, acquired entities that will roll into the new ERP system. But the majority will be in fiscal 26, yes.

Brian Drab | Analyst, William Blair

Okay. Okay.

Perfect. Thanks very much. Conference Operator | Operator

Thank you. Thank you. Ladies and gentlemen, that's all the questions we have for today. I'll now hand the floor back to Bruce Thames for closing remarks.

Bruce Thames | Chief Executive Officer

Yeah, thank you, Diego. And I'd like to, again, thank our Thermon employees around the globe for their contributions to a successful 2025. And thank you all for your interest in Thermon. If we don't speak to you in the coming quarter, we look forward to you joining us on our next earnings call. Thank you and have a good day.

Conference Operator | Operator

Thank you. All parties may now disconnect. jsPDF 3.0.3 D:20260606090454-00'00'