Thermon's Backlog Rises on LNG Growth

Core Insights - Thermon Group reported a 5% year-over-year revenue growth to $134.1 million for fiscal 2025's fourth quarter, with an adjusted EBITDA margin of 22.7% and record annual free cash flow of $53 million [1] - The company experienced a 29% year-over-year increase in backlog as of March 31, driven by strategic expansion into high-growth markets and a rebound in oil and gas activity [2][3] Financial Performance - Revenue for fiscal 2025's fourth quarter was $134.1 million, reflecting a 5% increase from the previous year [1] - Adjusted EBITDA margin stood at 22.7%, indicating strong operational efficiency [1] - Annual free cash flow reached a record $53 million, showcasing robust cash generation capabilities [1] Backlog and Market Dynamics - The backlog increased by 29% year-over-year, with organic backlog growth of 20%, indicating sustained order strength despite a 37% annual decrease in revenue from large capital projects [2] - The book-to-bill ratio has remained above 1.0 for four consecutive quarters, supported by increased activity in the oil and natural gas sectors [2] Strategic Initiatives - The lifting of the U.S. moratorium on new LNG export project permits led to increased project bidding, with Thermon securing five major awards [3] - The acquisition of Vapor Power in January 2024 expanded the sales pipeline by 25%, while the acquisition of Fati later in fiscal 2025 doubled Fati's backlog due to demand from Thermon's legacy customers [3][4] Tariff Impact and Mitigation - Management anticipates an annualized gross tariff headwind of $16 million to $20 million, with a net impact of $4 million to $6 million after mitigation efforts [5][6] - The company is implementing price increases, supply chain reconfigurations, and production shifts to offset cost inflation from new import taxes [5] Future Outlook - For fiscal 2026, management projects revenue between $495 million and $535 million, representing a 3.5% growth at the midpoint, and adjusted EBITDA of $104 million to $114 million [7] - A brief margin dip is expected in the first half of fiscal 2026 due to tariff impacts, but margins are anticipated to recover in the second half as pricing actions take effect [7] - Management remains neutral to cautious on demand expectations due to macroeconomic and trade policy risks, while emphasizing aggressive capital allocation for M&A, share repurchases, and organic growth investments [7]