Thermon’s Mixed Earnings Call: Growth Amid Challenges

Thermon ((THR)) has held its Q3 earnings call. Read on for the main highlights of the call.

During Thermon’s latest earnings call, the sentiment expressed was a blend of optimism and caution. The company showcased impressive achievements such as growth in backlog, improvements in EBITDA margins, and successful diversification efforts. However, challenges in large project revenue and uncertainties due to tariffs were significant points of concern. While the strategic focus on diverse markets and operational efficiency was commendable, ongoing pressures in large CapEx projects and integration of acquisitions remained potential hurdles.

Strong Backlog Growth

Thermon reported a remarkable increase in its backlog by nearly 48% on a reported basis and 9% organically. This growth was driven by solid order trends and extended backlog conversion, indicating a robust pipeline of future business.

Improved EBITDA Margin

A significant highlight was the achievement of an adjusted EBITDA margin of nearly 24% during the third quarter, marking the highest quarterly margin performance in two years. This underscores the company’s operational efficiency and cost management.

Free Cash Flow and Debt Reduction

Thermon generated $23 million in free cash flow, representing a $3 million increase from the previous year. Additionally, the company paid down $12 million in debt, successfully reducing its net leverage to just over one times, reflecting its commitment to financial health.

Diversification Success

The company has achieved its FY26 goal of generating at least 70% of revenues from diverse markets, effectively reducing its reliance on the oil and gas sector. This strategic diversification is a positive step towards mitigating sector-specific risks.

Solid Order Momentum

Orders during the third quarter reached $139 million, an 11.4% increase year-over-year, with 70% originating from diverse end markets. This indicates strong demand across various sectors, supporting the company’s growth trajectory.

Decline in Large Project Revenue

Revenue from large projects fell to $18.6 million, down 45% from the previous year, primarily due to prolonged delays in customer decisions regarding large capital projects. This decline highlights a key challenge for the company.

Revenue Decline

The third quarter saw a revenue decline of 1.5% to $134.4 million, mainly due to ongoing pressure in large CapEx projects. This decrease underscores the need for strategic adjustments to counteract such factors.

Tariff Uncertainty

Thermon faces uncertainty from aggressive and broad tariff approaches, which could potentially impact customer behavior and business operations. This remains a point of concern for the company moving forward.

Acquisition Revenue Below Expectations

Revenues from acquisitions, particularly from Vapor Power, fell short of expectations due to capacity constraints and delayed project conversions. This shortfall indicates challenges in integrating new business units effectively.

Forward-Looking Guidance

Thermon provided its guidance for the full year 2025, forecasting revenues between $495 million to $515 million and an adjusted EBITDA of $105 million to $110 million. The company aims to maintain robust margin capture and a positive growth outlook despite external uncertainties like tariffs. Additionally, adjusted EPS is anticipated to range from $1.77 to $1.89, reflecting confidence in its strategic direction.

In conclusion, Thermon’s earnings call presented a balanced view with both achievements and challenges. While the company has made significant strides in backlog growth, EBITDA margin improvement, and diversification, issues such as large project revenue decline and tariff uncertainty require attention. The forward-looking guidance remains optimistic, with a focus on maintaining financial discipline and exploring diverse market opportunities.