[Management View]
Thermon Group Holdings, Inc. reported a strong Q4 FY2025 with revenue growth driven by recurring revenues and acquisitions. Key strategic priorities include diversification, digitization, and decarbonization, with significant progress in expanding the backlog and order momentum in LNG, rail and transit, petrochemical, and general industrial sectors.

[Outlook]
For FY2026, Thermon expects revenue between $495 million and $535 million, with adjusted EBITDA projected to range from $104 million to $114 million. Management anticipates margin headwinds in the first half due to tariffs, with price increases expected to offset these pressures in the second half.

[Financial Performance]
- Revenue: $134.1 million in Q4 FY2025, up 5% YoY.
- Organic Growth: 3% in Q4 FY2025.
- OpEx Revenue: $111.8 million, up 7% YoY.
- Large Project Revenue: $22.3 million, down 5% YoY but up 20% QoQ.
- Orders and Bookings: Orders increased 19% YoY; book-to-bill ratio of 1.04x.
- Backlog: Total backlog up 29% YoY.
- Adjusted EBITDA: $30.5 million, up 29% YoY; margin expanded to 22.7%.
- Free Cash Flow: $52.9 million, down from $55 million in FY2024.
- Share Repurchases: $14 million in Q4 FY2025; authorization refreshed to $50 million.
- Net Debt: Reduced to $99 million; net leverage at 0.9x.

[Q&A Highlights]
Question 1: Can you elaborate on the resurgence in LNG and how it might translate?
Answer: Since the lift of the moratorium, projects in the US Gulf Coast and the Middle East have moved forward quickly. Thermon has secured five major awards and sees around $80 million in LNG opportunities, indicating strong tailwinds in this sector.

Question 2: Regarding FY2026, can you provide more detail on margin headwinds and growth challenges?
Answer: A task force is addressing the inflationary impact of tariffs on input costs. Price increases have been implemented but will take about 60 days to become effective. Margin headwinds are expected in the first half, with improvements anticipated by late Q2. The demand environment remains cautious due to trade uncertainties.

Question 3: How are you thinking about the overtime category in your FY2026 forecast?
Answer: Backlog build in overtime projects is strong, with engineering workload at an all-time high. The assumption is that incoming order rates for large projects will be muted until trade policy clarity improves, with backlog burn expected in the second half.

Question 4: Can you discuss other end markets showing improvement in CapEx spending?
Answer: General industrial, petrochemical, oil and gas (particularly LNG), renewables, and rail and transit are showing strong demand. Data centers present a real opportunity, particularly around load banks.

Question 5: Can you detail your capital allocation priorities?
Answer: Priorities include capital investments for growth (2%-3% of sales), opportunistic share repurchases, and an active M&A pipeline. With $137 million in liquidity, Thermon is well-positioned for strategic acquisitions.

Question 6: What does the $5 million one-time tech investment entail?
Answer: The investment is primarily for ERP implementation, which will be staged globally over the next year and a half.

Question 7: What steps are being taken to achieve long-term EBITDA margin targets?
Answer: Efforts include driving gross margin expansion through the Thermon business system, new product introductions, and leveraging operating leverage on fixed costs. Despite near-term tariff impacts, the company remains confident in its ability to drive margin improvements.

Question 8: What is the net impact of tariffs for FY2026 after mitigation efforts?
Answer: The gross impact is estimated at $16-$20 million, with a net impact of $4-$6 million, primarily in the first half.

Question 9: How does Thermon’s competitive position regarding tariffs compare to others?
Answer: Thermon’s diversified global footprint and minimal dependence on China provide a competitive advantage. The company is leveraging its operations in the US, Canada, Europe, and India to mitigate tariff impacts.

[Sentiment Analysis]
Analysts and management maintained a cautious but optimistic tone. Analysts focused on the impact of tariffs and the potential for growth in various end markets. Management emphasized strategic initiatives and resilience in navigating trade uncertainties.

[Quarterly Comparison]
| Metric | Q4 FY2025 | Q4 FY2024 |
|-------------------------|-----------|-----------|
| Revenue | $134.1M | $127.7M |
| Organic Growth | 3% | - |
| OpEx Revenue | $111.8M | $104.5M |
| Large Project Revenue | $22.3M | $23.5M |
| Orders Increase | 19% | - |
| Backlog Increase | 29% | - |
| Adjusted EBITDA | $30.5M | $23.6M |
| Adjusted EBITDA Margin | 22.7% | 18.5% |
| Free Cash Flow | $52.9M | $55M |
| Share Repurchases | $14M | - |
| Net Debt | $99M | - |

[Risks and Concerns]
- Tariffs: Expected gross impact of $16-$20 million in FY2026, with net impact of $4-$6 million after mitigation.
- Trade Uncertainties: Potential for second and third-order effects through supplier and distributor networks.
- Macroeconomic Conditions: General economic conditions in Canada and other regions may impact sales.

[Final Takeaway]
Thermon Group Holdings, Inc. demonstrated strong performance in Q4 FY2025, driven by strategic diversification and robust backlog growth. While tariffs and trade uncertainties present challenges, the company’s proactive mitigation strategies and diversified global footprint position it well for sustained growth. Management’s focus on operational excellence and disciplined capital allocation supports a positive long-term outlook.