Thermon(THR) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported revenue of $115 million for Q1 2025, an 8% year-over-year increase, primarily driven by the Vapor Power acquisition, which contributed $13.9 million [13] - Organic sales decreased by 5% year-over-year, mainly due to a 34% decline in large project revenue [14] - Adjusted EBITDA was $23.2 million, up from $22.1 million last year, with an adjusted EBITDA margin of 20.2%, slightly down from 20.7% [15] Business Line Data and Key Metrics Changes - Large project revenue was $18 million, down 34% year-over-year, while OpEx revenues increased to $98 million, a growth of over 20% compared to last year [14] - OpEx revenues represented nearly 85% of total revenues, indicating a shift towards maintenance and repair spending [8] - Excluding Vapor Power, OpEx revenue increased 4% organically, demonstrating the benefits of a balanced revenue model [14] Market Data and Key Metrics Changes - The Canadian business grew by 9% year-over-year, while the U.S.-LAM segment, excluding Vapor Power, declined by 14% and EMEA region sales declined by 19% [15] - The company achieved a backlog of $198.5 million, a 10% decline on an organic basis when excluding Vapor Power [17] Company Strategy and Development Direction - The company aims to diversify its end market exposure, targeting at least 70% of total revenue from diversified markets, which has been achieved on a trailing 12-month basis [9] - The strategic focus includes growing the installed base and capitalizing on decarbonization opportunities, with a sales pipeline of over $320 million [12] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding large project spending recovery in the second half of the fiscal year, contingent on macroeconomic clarity [11] - The company maintains its full-year 2025 guidance for revenue between $527 million and $553 million, with expectations for a more back-end weighted revenue distribution [21] Other Important Information - The company reported a net leverage ratio of 1.1x, below the targeted range of 1.5 to 2x, indicating a strong financial position [12] - Free cash flow for the quarter was $8.8 million, an improvement of nearly $11 million compared to the previous year [18] Q&A Session Summary Question: Visibility on project revenue recovery - Management noted a pipeline of over $1 billion in revenue opportunities, with quoting activity up 12% to 13% year-over-year, indicating positive trends [24] Question: Reconciling backlog with current numbers - Backlog was down 10% year-over-year but up 5% sequentially, with a shift towards more OpEx spending making backlog less relevant [26] Question: Trends in diversified end markets - Significant activity noted in petrochemical and power sectors, with opportunities in infrastructure and decarbonization [30] Question: Update on M&A market - A healthy pipeline of M&A opportunities is expected to be actionable within the next 12 to 18 months [33] Question: Impact of CapEx budgets on operating expenses - Operating expenditures are viewed as stable and less susceptible to economic cycles, with no significant cuts in CapEx budgets reported [35]