Thermon Group Holdings, Inc.

Greetings and welcome to the Thurmond Group Holdings Third Quarter Fiscal Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to your host, Yvonne Salem. Vice President of FP&A and Investor Relations. Thank you. You may begin.

Thank you. Good morning, and thank you for joining Thermos Group's fiscal 2025 third quarter results conference call. Leading the call today are CEO Bruce Thames and Chief Financial Officer Jan Schoch. Earlier this morning, we issued an early press release, which has been filed with the SEC on Form 8K. and it's also available on the investor relations section of our website. Additionally, the slides for this conference call can be found in our IR website under News and Events IR Calendar Earnings Conference Call Q3 2025. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable gap measures in the tables at the end of the earnings press release. These non-GAAP measures should be considered in addition to and not a substitute for measures of financial performance reported in accordance with GAAP. I would like to remind you that during this call, we might make certain forward-looking statements regarding our company. Please refer to our annual report and most recent quarterly report filed with the SEC for more information regarding our forward-looking statements, including the risk and uncertainties that could impact our future results. Our actual results might differ materially from those contemplated by these forward-looking statements, and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, further developments, or other ones, except as might be required by law. Today's call will begin with remarks from our CEO, Bruce Thames, who will provide a review of our recent business performance, including an update on the progress we have made to our strategic investments, followed by a financial update and review from our CFO, Jan Schott. Bruce will then wrap up our prepared remarks with an update on our business outlook. At the conclusion of these prepared remarks, we will open the line for questions. With that, I'll turn the call over to Bruce.

Thank you, Yvonne, and good morning to everyone joining us on the call today. I'll begin my commentary with the third quarter highlights, which we detail on slide three of our presentation. The third quarter was another period of solid execution by our global team, which resulted in continued strength in our OPEX-related revenue, bookings momentum, strong margin capture, and efficient free cash flow convertions. Based on our discipline and execution against our strategic priorities, the cash flow generation of this business, and our strong balance sheet, we are strategically positioned to benefit from the improving demand drivers, which we expect will translate to an improved growth trajectory in the coming quarters. We continue to benefit from our strategic focus on diversifying our revenue base and increasing our exposure to short cycle projects in MRO-related recurring revenue. This has resulted in a revenue base that is both more stable and more profitable. We were also encouraged by the continual momentum in order trends during the third quarter and our strong backlog growth. Our orders increased 11 percent on a reported basis and grew up modestly organically on a constant currency basis. This resulted in another quarter with a positive hit to build. Importantly, our backlog increased nearly 48% on a reported basis and was up 9% organically. The strong backlog growth is being driven by the solid order trends as well as the slightly extended backlog conversion I discussed last quarter. While the slower backlog burn has been a bit of a headwind to our near-term revenue growth, The higher backlog and heavy workload in engineering gives us increased visibility and growing confidence in our growth trends moving forward. The more favorable business mix were the key drivers that enabled us to generate an adjusted EBITDA margin of nearly 24% during the third quarter, which came despite a modest margin drag from our recent acquisitions. While mixed with the key factor in the improvement We also benefited from the cost savings and productivity initiatives we've instituted across the business. We were very pleased with our margin capture during the quarter and believe our third quarter profitability highlights the overall margin potential for the business, providing confidence in the ability to achieve our long-term profitability targets. And finally, our strict financial discipline resulted in strong free cash flow conversion during the quarter. Through the first nine months of fiscal 2025, we generated $24 million in free cash flow, which is up $3 million from last year, despite slightly lower EBITDA. As a result, we paid down $12 million in debt during the third quarter, bringing our net leverage at quarter end down to just over one times. So with that, I'd like to turn to the third quarter results starting on slide four. Jan will cover the financials in more detail, but I want to highlight a few key items. While we are focused on growing our diversified end markets, oil and gas remains an important end market for our business, and we are seeing improving trends in the sector. As I already discussed, we continue to experience improved oil and gas technology during the third quarter, which was driven by broad market strength, including solid trends in chemical, petrochemical, transit, general industrial, in addition to a rebound in oil and gas. We're still seeing extended decision cycles on larger capital projects where we believe customer confidence is improving and we remain encouraged by the growing opportunities pipeline and strong quoting activity. The recent aggressive and broad approach to tariffs has, unfortunately, created additional uncertainty in the business. With the human nature of the trade talks underway, The final outcomes are in question, and we have not yet fully contemplated the potential impact on customer behaviors and the business. However, I would like to take a moment to reinforce Thurmond's manufacturing strategy. We like to be close to our customers with our people, our services, and our manufacturing operations. Our footprint in both the US and Canada allow us to produce in-country to be responsive to customer needs. Our acquisition of property was a further move in this direction. While improving our competitive position, this approach also serves as a natural hint to fluctuations in currency and import duties. We'll be monitoring these trade negotiations closely as the magnitude, breadth, and duration of tariffs becomes clearer. Jan will talk more about the potential exposure later in the call. Our reported revenues declined by 2% during the quarter driven by the ongoing pressure in large CapEx projects. However, our short cycle revenues remained resilient. Turning to slide five, our OpEx revenues increased 13% during the third quarter and were essentially flat organically despite the challenging CapEx spending environment in our business. On a trailer 12-month basis, our OPEX revenues represented 84 percent of our total revenues, up from the low 70 percent range just a few years ago. We do anticipate a rebound in large capital expenditures, which will have an impact on the mix. But the increased exposure to OPEX revenues should continue to provide a more predictable and profitable revenue stream going forward. In addition to improving our revenue stability, our evolving business mix is driving enhanced margin performance. Our 23.7% adjusted EBITDA margin during the quarter was our highest quarterly margin performance in two years and has enabled us to grow our third quarter EBITDA despite the modest revenue decline. Now turning to slide six in our strategic pillars. We continue to make important progress on our strategic priorities during the third quarter, as evidenced by our favorable off-ex revenue trends, margin expansion, and backlog growth. And a key aspect of our strategy has been our goal to reduce exposure to the oil and gas sector. As I discussed last quarter, we achieved our FY26 goal of generating at least 70% of revenues from diversifying in markets. While we remain committed to maintaining or further improving this metric, oil and gas is still an important end market for Thermon, so we have been encouraged by the recent momentum we've seen in this business. In particular, we've seen a pickup in our Canadian oil and gas business driven by increased maintenance activity and drilling programs to support LNG export and additional export capacity with the newly commissioned Trans Mountain Pipeline. I will discuss our in-market outlook in more detail later in my remarks, but we are encouraged by some of the pockets of strength we're seeing in oil and gas and expect we could see further momentum given the priorities of the new administration. We remain focused on our disciplined capital allocation strategy, which is based on a balanced approach between investments in organic growth, strategic M&A, maintaining financial flexibility, and opportunistic return of capital. We continue to successfully integrate the recently acquired VaporPower and Focke businesses. Focke generated solid financial results during our first quarter of owning the business. At VaporPower, we continue to see strong backlog trends and are focused on expanding capacity to convert the current backlog while building on the strong market momentum. We purchased 6.2 million of our shares thus far during fiscal 25, and have approximately $43 million remaining under our $50 million share repurchase program. We continue to see a robust M&A pipeline, and with our current leverage comfortably below our 1.5 to 2 times net leverage range, leaving us in a strong position to continue to execute on our capital allocation priorities. With that, I'll turn it over to Jan, who will provide a more detailed review of our third quarter results. before I wrap up with some remarks on our financial outlook. Jim?