Thermon(US:THR)2025-11-06 17:36Revenue and Sales Performance - Revenue for YTD 2026 was generated approximately 44% from outside the United States, compared to 50% in YTD 2025[104] - Sales for the three months ended September 30, 2025, increased by 15% to $131.7 million compared to $114.6 million in 2024, driven by higher demand and contributions from acquisitions[121] - For the six months ended September 30, 2025, sales increased by 5% to $240.6 million compared to $229.8 million in 2024[135] - EMEA segment revenue doubled to $18.1 million, reflecting a 100% year-over-year increase, largely due to the F.A.T.I. acquisition[123] Profitability and Income - Gross profit rose by 20% to $61.1 million, with a gross margin improvement of 200 basis points to 46.4%[121] - Net income for the three months ended September 30, 2025, increased by 58% to $14.9 million, up from $9.5 million in 2024[121] - Gross profit for the six-month period rose by 8% to $109.1 million, with a gross margin improvement of 120 basis points to 45.3%[135] Costs and Expenses - Incremental direct tariff costs incurred were approximately $0.7 million for the three months and $1.6 million for the six months ended September 30, 2025[115] - Selling, general and administrative expenses increased by 14% to $35.5 million, but as a percentage of sales, it slightly decreased to 27.0% from 27.3%[121] - Interest expense decreased by 28% to $2.0 million due to a lower average outstanding principal balance and reduced interest rates[121] Cash Flow and Capital Expenditures - Free Cash Flow for YTD 2026 totaled $12.7 million, a decrease from $15.4 million in YTD 2025, primarily due to increased investments in working capital[162] - Operating cash flows decreased by $3.054 million in YTD 2026 compared to YTD 2025, attributed to higher investments in working capital[154] - The company expects capital expenditures to be approximately 2.5% to 3.0% of revenue in fiscal 2026[153] Financial Position and Debt - As of September 30, 2025, the company had $29.7 million in cash and cash equivalents and $99.4 million in available borrowing capacity under its Revolving Credit Facility[150] - The company had $125.0 million of outstanding principal under its Term Loan Facilities as of September 30, 2025, with a 1% change in interest rate impacting annual interest expense by $1.4 million[174] - In YTD 2026, the company had a net interest expense decrease due to a lower average debt balance of $139.3 million compared to $169.1 million in YTD 2025, and a reduced average interest rate of 5.79% versus 6.87%[145] Tax and Regulatory - The effective tax rate for the company was 24.1% in YTD 2026, down from 25.0% in YTD 2025, influenced by discrete tax items[147] Strategic Initiatives and Growth - The company aims to strategically pursue emerging growth opportunities, including acquisitions in diverse regions[98] - The company has a diversified product offering with over 250 products, software, and services across multiple brands[102] - The company entered into an amendment to its existing Credit Agreement on July 24, 2025, to align with long-term strategic initiatives[117] Risks and Challenges - The company is exposed to commodity price risks due to reliance on market prices for raw materials without long-term purchase commitments or hedging instruments[175] - Recent periods have seen shortages in certain raw materials and increased costs attributed to tariffs, alternative suppliers, higher freight costs, and increased lead times[175] - The company cannot guarantee the ability to mitigate temporary raw material shortages or pass cost increases to customers, which may adversely affect operational results[176] - A 10% appreciation of the U.S. dollar relative to the Canadian dollar would result in a net decrease in net income of $1.4 million for YTD 2026[170] Currency and Foreign Exchange - The company had approximately $14.6 million in notional forward contracts to mitigate foreign currency exchange rate fluctuations as of September 30, 2025[172] - The unrealized effects of foreign currency translations resulted in gains of $12.1 million in YTD 2026, compared to $1.7 million in YTD 2025[173]