Thermon(US:THR)2025-08-07 16:00Financial Data and Key Metrics Changes - The company's first quarter revenue was $108.9 million, representing a year-over-year decrease of 5% [17] - Organic revenue, excluding contributions from the Fati acquisition, decreased by 11% [17] - Gross profit was $48 million, down 5% year-over-year, with a gross margin of 44.1%, up from 43.8% last year [19] - Adjusted EBITDA was $21.2 million, down 9% from the previous year, with an adjusted EBITDA margin of 19.5% [19] - GAAP earnings per share increased by 4% to $0.26, while adjusted earnings per share decreased by 5% to $0.36 [20] Business Line Data and Key Metrics Changes - OpEx revenues were $93.3 million, a decrease of 4% compared to last year, representing 86% of total revenues [18] - Large project revenue was $15.6 million, down 11% from last year, with many projects still in the engineering phase [18] - The backlog increased by 13% organically, supported by a positive book-to-bill ratio of 1.11 times [21] Market Data and Key Metrics Changes - Revenue in the U.S. and Canada declined by 17% due to delayed backlog conversion and reduced customer demand [22] - EMEA region saw strong growth, with revenue more than doubling, driven by organic business performance and contributions from the Fati acquisition [22] - APAC revenue decreased to $6.6 million from $9 million in the prior year, reflecting softer demand [22] Company Strategy and Development Direction - The company is focused on driving a higher quality, more profitable revenue mix and has implemented proactive tariff mitigation efforts [6] - Strategic initiatives include targeting growth in the data center market, rail and transit, and leveraging the Fati acquisition to capitalize on electrification opportunities in Europe [11][15] - The company aims to maintain a strong balance sheet while balancing capital allocation between share repurchases and growth investments [10] Management's Comments on Operating Environment and Future Outlook - Management noted that revenue declines were primarily due to temporary delays in backlog conversion and project execution timing, which are expected to translate into realized revenue in upcoming quarters [6] - The company remains confident in its strategic positioning to benefit from long-term growth drivers despite near-term unpredictability in the market [7] - Fiscal 2026 guidance remains unchanged, with expected revenue between $495 million and $535 million and adjusted EBITDA between $104 million and $114 million [29] Other Important Information - The company returned nearly $10 million in capital through its share repurchase program during the quarter [10] - The M&A pipeline remains active, with ongoing searches for opportunities to augment strategic growth initiatives [10][48] - The company ended the quarter with a net leverage ratio of 1.0 times and total cash and available liquidity of $130.8 million [25] Q&A Session Summary Question: What is the status of the capital improvement project that caused production delays? - The capital improvement project has been resolved and is now fully operational, with expected revenue conversion in Q2 and the balance of the year [32] Question: Can you elaborate on the liquid load bank opportunity in the data center market? - Liquid load banks are used to test cooling systems in liquid-cooled data centers, and the company expects to build a 20% to 25% market share in this growing opportunity [35][37] Question: What are the gross margin expectations for the next quarter? - There may be margin headwinds in Q2, but pricing adjustments are expected to offset tariff impacts in the latter half of the year [38] Question: What is the demand environment for the Fati acquisition? - The backlog for Fati has doubled since the acquisition, driven by strong demand in electrification opportunities in Europe and the Middle East [44] Question: What are the capital allocation priorities moving forward? - The M&A pipeline is active, and the company will continue share repurchases if no attractive growth opportunities arise [48]