Thermon’s Earnings Call: Strategic Growth Amid Challenges

Thermon ((THR)) has held its Q1 earnings call. Read on for the main highlights of the call.

Thermon’s recent earnings call presented a mixed sentiment, balancing strategic growth opportunities and financial improvements against challenges such as revenue declines and global trade uncertainties. The company highlighted its strong backlog growth and gross margin improvements, yet acknowledged the impact of delayed backlog conversion and softness in order rates.

Strong Gross Margin Performance

Thermon reported a commendable improvement in gross margins, achieving a 30 basis points increase from the previous year. This was accomplished despite facing volume declines and the impacts of tariffs, showcasing the company’s effective cost management strategies.

Robust Backlog Growth

The company experienced a significant 27% increase in its backlog compared to the previous year. This growth positions Thermon favorably for future revenue recognition, indicating a strong pipeline of upcoming projects.

Data Center Market Opportunity

Thermon is targeting the burgeoning data center market with the launch of its Pontus and Poseidon load banks. The market is projected to grow from $84 million in 2024 to $386 million in 2032, representing a 21% compound annual growth rate (CAGR).

Rail and Transit Market Growth

The rail and transit sector showed strong order momentum, with the backlog doubling over the past year. This growth is partly driven by the Infrastructure Investment and Jobs Act, highlighting Thermon’s strategic positioning in this expanding market.

F.A.T.I. Acquisition Success

The acquisition of F.A.T.I. has been a success, contributing significantly to Thermon’s growth. The backlog has doubled in the last six months, driven by the electrification market’s expansion in Europe and the Middle East.

Strong Financial Position

Thermon maintains a robust financial position with a leverage ratio of 1x and available liquidity of $130.8 million. This financial strength provides the company with the flexibility to pursue growth strategies and return value to shareholders.

Revenue Decline

The company faced a 5% year-over-year revenue decline, primarily due to temporary delays in backlog conversion and project execution timing. This highlights the challenges Thermon faces in aligning project timelines with revenue recognition.

Soft Incoming Order Rates

Thermon experienced a 5% decline in bookings due to softness in incoming order rates, influenced by global trade uncertainties and tariff impacts. This reflects broader market challenges affecting order inflows.

APAC Revenue Decline

Revenue from the APAC region decreased to $6.6 million from $9 million in the previous year, indicating softer demand in this market. This decline underscores regional challenges that Thermon needs to address.

Delayed Revenue Conversion

Approximately $10 million in backlog conversion was delayed due to supply chain challenges and production delays from a capital improvement project. This delay impacts the company’s short-term revenue realization.

Forward-Looking Guidance

Looking ahead, Thermon reiterated its fiscal 2026 guidance, anticipating revenue between $495 million and $535 million and adjusted EBITDA between $104 million and $114 million. The company remains focused on emerging opportunities in the data center market, rail and transit, and strategic gross margin enhancements.

In summary, Thermon’s earnings call reflected a balanced outlook, with strong strategic growth initiatives and financial improvements countered by revenue challenges and global uncertainties. The company’s commitment to long-term growth and market expansion remains evident, positioning it well for future success.