Greetings, and welcome to the Thermon Group Holdings, Inc. 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, Ivonne Salem, Vice President, FPNA and IR. Thank you. You may begin.

Thank you. Good morning, and thank you for joining Thermon Group Holdings, Inc.'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 8-K, 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 web 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 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 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.

Thank you, Ivonne, 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've 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-bill. As a result, our backlog as of March 31st increased 29% from last year, with the organic backlog up 20%, driven by momentum in 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…

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 fourteen, 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 Fati. 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 in 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…

Thanks, Jan. Moving now to slide seventeen. 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 multipronged 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 2026 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…

Thank you. You can press star two 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 one 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.

Hey, good morning. Thanks for taking the question. Hey. 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?

Yeah, Chip. We've, you know, since the lift of the moratorium, in the January time frame, there was always a 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 that for our content. So we see some really nice tailwinds there in that sector.

Great. Appreciate that. And maybe just on FY 2026, you talked about I think, some margin headwinds maybe here in the first half. Before the pricing kicks in. Just and then you know, maybe growth being a little more challenging in the back half. Maybe just any more detail there on what you're thinking and directionally in Cadence. Thanks.

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 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 sixty-day window or lag before that is effective through our channel partners and with customers. 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, you know, we have pricing power. We've been able to pass price increases in the past, but, you know, I look back at COVID and the inflationary impact there. We're able to pass those on. My expectation's we moved fairly quickly here, and so we've should be see begin to see that flow through late in the second quarter and see that fully offset by any inflationary input cost we see in the first half. 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. 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 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 state your question.

Morning. Thanks for taking the questions. I just wanted to maybe first build on that last question. And Bruce, how are you thinking about the overtime category in your forecast for fiscal 2026? Is it, you know, obviously, is it, you know, down a lot in fiscal 2025? Are you forecasting that to be about the same, I guess, given the overall guidance?

Yes. Roughly. What the way we're thinking about this right now is that we actually saw really nice backlog build in overtime projects. In fact, our engineering workload is really at an all-time high. And that's related to these the return of capital projects that we've seen really building. We anticipated that coming into this year, and it really began to manifest in the fourth quarter. But, you know, we've had four consecutive quarters of positive book-to-bill. So this has been building. Our assumption at this point is that the order in the incoming order rates for these larger capital projects will be muted until we get more clarity on the 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 2026. The lower end of the range would assume an erosion in the overall trade negotiations and escalation in the trade conflicts.

Okay. Thanks. And I ask you to comment on, you know, how are you thinking about group at the midpoint of the range, how are you thinking about the OpEx spending or the, you know, the point in time segment.

The mix should be fairly consistent to what we saw in 2025. It should be fairly consistent.

Yeah. Okay. When you look at our guide at the midpoint. 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 in can you update us at all on if you're seeing any incremental demand from the data center opportunity that you mentioned last quarter.

Yes. So I'll start with just the overall demand environment. General industrial remains strong. It's one of our largest, it's one of our largest booking segments in the fourth quarter. It represented almost 32% of the bookings in the quarter. Petrochemical, we saw it almost the 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 up 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 working very actively in trying to develop and execute on that opportunity we see.

Okay. I'm gonna save my questions for later. I just want to make sure I have one 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 pulling guidance, you're just saying, we're gonna give a broad kind of a broad range. There's a lot of, you know, the consensus view is that there's gonna be a slowdown later this year, you know, overall macro. So you're taking all 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?

Yeah. I think that's a really good way of summarizing, 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 that would come through in fiscal 2026. 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.

Got it. Okay. Thanks for all the detail. Talk to you later.

Yes.

Thank you. And a reminder to ask a question, please state your question. Your next question comes from Justin Ages with 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?

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, you know, done in prior years with 2% to 3% CapEx, 2% to 3% of sales. And then probably with all of the technology investments that we have going in, that's about 1% 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, you know, opportunities to buy shares. We bought $14 million shares this last quarter, really, you know, taking advantage of some dips due to other macroeconomic things that were happening. But we, you know, 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 that's something that we're very focused on, and with $137 million of liquidity, we have a lot of, you know, tailwinds that are back really looking, you know, hoping to execute something in the near term on M&A.

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

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.

Okay. Thank you. And then last question. On Thermon, 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.

Yeah. So certainly, the higher input cost creates 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. And, you know, we had about 196 basis points, and so half of that was mixed. The other half a 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 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 a fixed cost basis. So those are the, really, the levers 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 cost and a lag of being able to push that through to the market.

Sure. I appreciate the answers. Thank you.

Thank you. Thank you.

And your next question comes from Jonathan Braatz with Kansas City Capital. Please state your question.

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

Yeah. So on a gross basis, we gave a range of $16 to $20 million.

Yeah. Sounds right. And we believe on a net impact, it's somewhere in the $4 to $6 million range within the current fiscal year.

And that'll be mostly in the first half. Correct?

Correct.

Correct. Okay. Okay. Alright. 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, you know, all this other stuff, in a better position or worse position? Any thoughts on the competitive landscape given the new tariff trade policies?

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 US, about 50% of our production from the US, we have a significant presence in Canada as well. We do a lot of for country in country, for country production. The acquisition of Fati increased our operating presence in Europe, a really a bright spot when we look at just the overall demand environment, therefore, for decarbonization and electrification solutions. And you know, 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 Fati that would give us a larger operating footprint in Asia. Just for these types of situations just to diversify our risk base. So we made a lot of progress since COVID. We've done a lot to build more resiliency into our supply chains. I think that really exposes, 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 do we are exposed in second and third-order effects with our supplier. And their supply chains, although, again, people have diversified from China and have multiple sources. So we'll just have to see how a lot of this flows through. But we factored all of that into our guide.

Yep. Okay. Alright, Bruce. Thank you very much. Appreciate it. Thank you.

Thank you. And the next question comes from Brian Drab with William Blair. Please state your question.

Hi. I'm back with just one clarification. On the one-time technology investment, I $5 million, you 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 seems like it's a you know, that would be about a hundred basis point headwind to operating margin and EBITDA margin. Is that right way to think about it?

No. This would be adjusted out of or on the adjusted EBITDA calculation. In EPS.

Okay. So you are okay. So I'm glad I clarified. So you're okay. So you're just calling it out that it is an adjustment. Okay. Now I just missed it. I just want to make sure. Okay. Okay. So there is a you are expecting a margin headwind, you know, excluding this situation. Okay. Alright. Thank you very much. It's not it's obviously not something that we do every year and don't plan to.

Right. Right. And well, that was my other question. If this goes away then, and you're expecting the $5 million to be the entire investment and for that to be a fiscal 2026 event. And fiscal 2027, it's the plan is for this not to be an expense line. Is that right? Or Yes. I mean, we will have some I think some very marginal investments going into 2027 for just some of the, you know, acquired entities that will roll into the new ERP system. But the majority will be in fiscal 2026. Yes.

Okay. Okay. Perfect. Thank you very much. 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.

Yeah. Thank you, Diego. And, you know, 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 Group Holdings, Inc. If we don't speak to you in the next coming quarter, we look forward to you joining us on our next earnings call. Thank you, and have a good day.

Thank you. All parties may now disconnect.