• Revenue: $134.4 million, a year-over-year decrease of 1.5%.
• Adjusted EBITDA: $31.8 million, up 3% from last year.
• Adjusted EBITDA Margin: 23.7%, up from 22.5% last year.
• Free Cash Flow: $8.5 million for the quarter, $24 million year-to-date.
• Net Leverage: 1.1 times at the end of the third quarter.
• Orders: $139 million, an increase of 11.4% from last year.
• Backlog: $235.6 million, up 48% compared to last year.
• OpEx Revenues: $115.8 million, an increase of 12.6% compared to last year.
• Large Project Revenue: $18.6 million, down 45% from last year.
• Debt Reduction: Paid down $12 million in debt during the quarter.

• Warning! GuruFocus has detected 9 Warning Sign with AVB.

Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Thermon Group Holdings Inc (NYSE:THR) reported strong margin capture with an adjusted EBITDA margin of nearly 24% during the third quarter.
• The company experienced a significant increase in backlog, up nearly 38% on a reported basis and 9% organically.
• Thermon Group Holdings Inc (NYSE:THR) generated $24 million in free cash flow in the first nine months of fiscal 2025, up $3 million from the previous year.
• The company successfully integrated recent acquisitions, contributing to its revenue and backlog growth.
• Thermon Group Holdings Inc (NYSE:THR) maintained a strong balance sheet, reducing net leverage to just over 1 times by the end of the third quarter.

Negative Points

• Reported revenues declined by 2% during the quarter, driven by ongoing pressure in large CapEx projects.
• The company faced challenges with extended decision cycles on larger capital projects, impacting near-term revenue growth.
• Thermon Group Holdings Inc (NYSE:THR) experienced a modest margin drag from recent acquisitions.
• The aggressive and broad approach to tariffs has created additional uncertainty in the business environment.
• Revenues from acquisitions were below expectations, particularly with Vapor Power falling short due to project delays.

Q & A Highlights

Q: Can you discuss the record point-in-time revenue of $99 million and whether this represents a new baseline level? A: Bruce Thames, CEO: The record revenue was driven by a more normalized heating season and our focus on recurring revenues from the installed base. Contributions from recent acquisitions also played a role. We believe this represents a step change in our business, and we aim to maintain this level going forward.

Q: With the current backlog and bookings momentum, when do you expect large CapEx spending to resume? A: Bruce Thames, CEO: We anticipate a return to capital spending in the coming quarters, driven by backlog growth and increased quoting activity. We expect the mix of OpEx-related spending to shift back to 75%-80% as CapEx spending resumes.

Q: What types of large projects might we expect to see in the next year, particularly in LNG and other sectors? A: Bruce Thames, CEO: We see significant activity in LNG projects, especially along the Gulf Coast, due to lifted export permit bans. We also expect growth in combined cycle natural gas plants, nuclear refurbishments, and petrochemical projects.

Q: How do you expect gross margins to trend in the fourth quarter and beyond? A: Bruce Thames, CEO: We anticipate a stronger mix of projects in Q4, which could impact gross margins. However, productivity improvements and pricing initiatives should maintain strong margins. We expect to bring acquisition margins up to our standard over the next 18-24 months.

Q: Can you provide more detail on the impact of tariffs and how they might affect your business? A: Bruce Thames, CEO: Our manufacturing strategy of producing in-country helps insulate us from tariffs. The main concern is the potential impact on customer sentiment, which remains uncertain. We are monitoring the situation closely.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.