Thermon Group Holdings, Inc. (THR) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A reveal strong financial performance, optimistic guidance, and strategic growth initiatives. The company reported record revenue, improved margins, and increased backlog, indicating robust business momentum. Positive developments include raised revenue and EBITDA guidance, strong market positioning in data centers and medium voltage heaters, and healthy cash flow. The Q&A section highlights management's transparency and strategic focus on growth, with no negative surprises. Given the company's small-cap status, these positive factors are likely to result in a stock price increase of 2% to 8% over the next two weeks.
Key Financial Performance
Revenue Revenue for the quarter was $147.3 million, a year-over-year increase of 10%. The growth reflects more favorable spending patterns, including continued improvements in large project spending by customers, ongoing momentum in electrification and decarbonization in Europe, and benefits from pricing.
Adjusted EBITDA Adjusted EBITDA was $35.6 million for the quarter, up from $31.8 million last year, an increase of 12%. The increase was driven by solid revenue growth, sustained gross margin improvement, and disciplined cost management, partially offset by continued investments in growth initiatives and higher performance-based compensation.
Adjusted EBITDA Margin Adjusted EBITDA margin was 24.2% during the third quarter, up 50 basis points from last year. This improvement was due to revenue growth, gross margin improvement, and cost management.
Gross Profit Gross profit was $68.7 million during the third quarter, an increase of 11% compared to last year. The increase was due to operating leverage from increased volumes, price, tariff mitigation, and productivity gains enabled by Thermon business systems. Gross margins were 46.6%, up from 46.2% last year.
Orders Orders in the third quarter grew 14% to $158.2 million compared to last year. This included strong activity across LNG, midstream gas processing, and a major SAF project in Asia. The book-to-bill ratio for the quarter was 1.1x, up from 1.0x a year ago.
Large Project Revenue Large project revenue was $25.4 million for the third quarter, up 37% from last year. This growth was driven by momentum in major project markets, with several projects progressing from engineering into execution.
Operating Expenses (OpEx) Revenue OpEx revenues were $122 million during the third quarter, an increase of 5% compared to last year. This was driven by increased spending from the installed base and pricing.
Backlog Backlog increased 10%, driven by a positive book-to-bill for the quarter and favorable project timing, even as record revenue was delivered this quarter.
Free Cash Flow Free cash flow for the third quarter was $13.1 million, up from $8.4 million last year. This reflects healthy operating performance and growth-focused investments.
Net Debt Net debt was $96.3 million at the end of the quarter, with a net leverage ratio of 0.8x. This reflects disciplined financial management and a strong balance sheet.
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Operating Highlights
Poseidon Liquid Load Bank solution: First units delivered during the third quarter, with strong bookings and quoting activity for data center products.
Medium voltage heaters: Secured third order, backlog over $11 million, and pipeline expanded to over $150 million. Scaling manufacturing processes to meet demand.
Data center market: Rapidly growing due to AI-driven shift to liquid-cooled data centers. Quoting activity for liquid load banks doubled sequentially to $60 million.
Power sector: Pipeline of opportunities grew to $180 million, up 58% year-over-year, with over 60% in the U.S. market.
Reshoring of manufacturing: Growth in U.S. as customers restart or expand facilities in pharmaceuticals, chemicals, steel, and other industries.
Revenue growth: Third quarter revenues up 10% year-over-year, driven by large project spending and pricing.
Adjusted EBITDA: Increased 12% year-over-year, with a margin of 24.2%.
Large project revenue: Up 37% year-over-year, supported by increased engineering capacity and a new global engineering center in Mexico.
Strategic positioning: Focused on macroeconomic drivers like reshoring, electrification, decarbonization, power, and data centers.
Global engineering center: Launched in Mexico to handle increased project workload.
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Risk or Challenges
Market Conditions: The company is experiencing protracted execution timelines for large project orders, which could delay revenue realization into fiscal '27.
Competitive Pressures: The medium voltage heater market has significant barriers to entry, but competition could intensify as the market grows.
Regulatory Hurdles: The company’s guidance assumes current tariff structures remain unchanged, and any changes could impact input costs or customer sentiment.
Supply Chain Disruptions: No explicit mention of supply chain disruptions was made in the transcript.
Economic Uncertainties: The company’s growth is tied to macroeconomic drivers like reshoring, electrification, and decarbonization, which could be impacted by broader economic conditions.
Strategic Execution Risks: The company is investing heavily in growth initiatives like liquid load banks and medium voltage heaters, which require scaling manufacturing processes and leveraging global operations. Any misstep in execution could impact financial performance.
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Guidance & Outlook
Data Center Market: Thermon is capitalizing on the shift to liquid-cooled data centers driven by AI investments. The company shipped its first 20 units of liquid load bank solutions and expects a significant ramp in orders, with quoting activity doubling sequentially to $60 million. Production is being expanded to support this multi-year growth opportunity.
Medium Voltage Heaters: Thermon is leveraging global electrification trends with its medium voltage heaters, which offer higher efficiencies and no emissions. The pipeline for these heaters has expanded to over $150 million, with backlog exceeding $11 million. The company is scaling manufacturing processes to meet demand, with opportunities extending into FY '27 and FY '28.
Large Project Business: Momentum in large project orders continues, with a 60% year-over-year increase driven by LNG projects, midstream gas processing, and sustainable aviation fuels projects. CapEx revenues for Q3 were up 37% year-over-year, and the company has ramped up engineering capacity to handle increased workloads.
Fiscal 2026 Financial Guidance: Thermon raised its full-year revenue guidance to $516 million-$526 million, representing 5% growth at the midpoint. Adjusted EBITDA guidance was also raised to $114 million-$120 million, representing 7% growth at the midpoint.
Power Sector Opportunities: The pipeline of opportunities in the power sector has grown to $180 million, up 58% year-over-year, with over 60% of these opportunities in the U.S. market. This includes offerings for emissions monitoring, temperature management, and auxiliary boilers for power generation.
Reshoring of Manufacturing: Thermon is benefiting from the reshoring of manufacturing in the U.S., with customers restarting or expanding facilities across industries like pharmaceuticals, chemicals, and steel.
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Shareholder Return Plan
Share Repurchase Program: We did not repurchase shares in the third quarter. Cumulative repurchases since the beginning of fiscal 2025 stood at $36 million, 4% of our shares outstanding. We still have $38.5 million remaining under our existing authorization.
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Key Q&A
Q:Can you talk about the 46% plus gross margin for two quarters in a row and its sustainability?
A:The improved gross margins are driven by the Thermon Business System, which enhances productivity and efficiency, price gains, and operating leverage. The project mix has shifted towards design and supply, which has less field labor and third-party materials, improving margins. While Q3 typically has the highest gross margin due to heating season, similar margins are expected going forward, with some seasonality in Q4 and Q1.
Q:Is the shift to more design and supply versus projects with significant labor content by design or due to market trends?
A:It is a mix of both. Thermon has focused on this shift, and there has also been a trend among general contractors and EPCs to bring more field labor and installation in-house.
Q:Can you talk about your conversations with potential customers in the data center industry?
A:Thermon has formed relationships with various stakeholders, including data center construction contractors, HVAC contractors, hyperscalers, rental companies, and companies specializing in commissioning data centers. These relationships were developed through customer research and feedback before launching products.
Q:Have your assumptions about the market size for liquid load banks changed? What is the competitive landscape for these products?
A:The market size estimate remains consistent at $80-$90 million. The market is robust, with the quote log doubling quarter-over-quarter to $60 million. This represents both a short-term impact on FY '27 results and a longer-term multiyear opportunity. The competitive landscape is still being assessed, but the growth cycle is large and multiyear.
Q:Will CapEx guidance increase as you ramp for growth in the two new platforms?
A:CapEx is expected to increase to around 3% next year, up from the historical average of 2.5%, to scale manufacturing for the two growth platforms. Investments will focus on building capacity in both the Western and Eastern Hemispheres.
Q:How do you see the medium voltage opportunity progressing over the next few years?
A:The medium voltage opportunity is in its early stages, with a current backlog of $11 million and a quote pipeline of over $150 million. Investments are being made to increase capacity in both hemispheres. This opportunity is expected to have a multiyear impact, including material contributions to FY '27 and beyond.
Q:Can you elaborate on your offerings in the LNG and midstream markets and their growth potential?
A:Thermon's products, including medium voltage heaters, heat tracing products, immersion heaters, and tubing bundles, are used extensively in LNG liquefaction and midstream gas processing. Growth is driven by LNG export facilities, increased natural gas production, and combined cycle power generation. Several projects have been secured in these areas, contributing to demand.
Q:Are you seeing better margins in the CapEx business compared to previous years?
A:Project margins are healthy but not above levels seen in previous large CapEx cycles, such as in 2013. However, the mix of design and supply projects and favorable market conditions have improved the overall margin profile.
Q:What is the outlook for the F.A.T.I. acquisition and its growth potential?
A:The F.A.T.I. business has performed exceptionally well, doubling in less than 18 months. Investments are being made to scale capacity in Milan for medium voltage heaters, which will drive significant growth. The business is expected to double again in the next 2-3 years, driven by demand for electrification and medium voltage heaters.
Q:Review of Unclear Management Responses
A:None of the questions were avoided or lacked clarity. All responses provided sufficient detail and addressed the questions directly.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CEO Thames
Cerovski
Chief Officer
Conference
FY
Slide update
bank solution
bank voltage
bill ratio
building momentum
capability
capacity
center market
decarbonization electrification
efficiency emission
electrification decarbonization
facility
footprint
gas processing
heater efficiency
heater market
increase margin
increase spending
installation
liquid load
manufacturing
market voltage
midstream gas
order backlog
power generation
project Asia
project momentum
result project
team
unit
update center
voltage heater
THR Transcript
Thermon Group Holdings, Inc. (THR) Q3 2026 Earnings Call Transcript
Positive2-5
The earnings call summary and Q&A reveal strong financial performance, optimistic guidance, and strategic growth initiatives. The company reported record revenue, improved margins, and increased backlog, indicating robust business momentum. Positive developments include raised revenue and EBITDA guidance, strong market positioning in data centers and medium voltage heaters, and healthy cash flow. The Q&A section highlights management's transparency and strategic focus on growth, with no negative surprises. Given the company's small-cap status, these positive factors are likely to result in a stock price increase of 2% to 8% over the next two weeks.
Thermon Group Holdings, Inc. (THR) Q2 2026 Earnings Call Transcript
Positive11-6
Thermon's earnings call highlights strong financial performance with a 15% revenue increase, improved margins, and robust backlog growth. The company is capitalizing on emerging markets like data centers and LNG, with a 41% increase in large project revenue. The share repurchase plan further boosts shareholder confidence. Although there's some uncertainty in project timing, the overall outlook is positive, supported by strategic growth initiatives and financial flexibility. Given Thermon's small-cap status, the stock is likely to react positively, with a predicted movement of 2% to 8% over the next two weeks.
Thermon Group Holdings, Inc. (THR) Q1 2026 Earnings Call Transcript
Unknown8-8
The earnings call presents a mixed picture. Financial performance shows some strengths like a strong balance sheet and increased backlog, but orders are down. Guidance indicates modest growth but declining margins due to tariffs. The Q&A reveals resolved production delays and potential in new products, yet lacks specifics on timelines, causing uncertainty. The market cap suggests moderate volatility. Overall, the sentiment is neutral, with no strong catalysts for significant short-term stock price movement.
Thermon Group Holdings, Inc. (NYSE:THR) Q4 2025 Earnings Call Transcript
Positive5-23
The earnings call revealed strong financial performance with EPS and revenue beating expectations, a significant backlog increase, and a positive book-to-bill ratio. Despite challenges such as tariff impacts and a decline in large capital projects, the company maintained optimistic guidance. The share repurchase program and debt repayments further bolster shareholder confidence. While some uncertainties remain, particularly regarding tariffs, the overall sentiment is positive. Considering the small-cap market cap, a positive stock price movement of 2% to 8% is anticipated.
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