Q4 2024 Thermon Group Holdings Inc Earnings Call
Operator: Good morning, and welcome to the Thermon Group Holdings fourth quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Ivonne Salem, Vice President, FP&A, and Investor Relations. Thank you. You may begin.
Good morning, and welcome to the Sermon Group Holdings fourth quarter 2024 earnings Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded I would now like to turn the call over to Yvonne Curl, Vice President F P&I and Investor Relations.
Ivonne Salem: You may begin.
Ivonne Salem: Thank you, Dara. Good morning, and thank you for joining today's Fiscal 2024 Fourth Quarter Conference. Earlier this morning, we issued an earnings call for three, which has been filed with the FTC on form, and it's also available on the event relations section of our website. Additionally, the slides for this conference call can be found on our IR website under News & Events, IR Calendar, Earnings Conference Call Q4 2024. During the call, we will discuss some items that do not conform to generally accepted accounting principles.
Ivonne Salem: Thank you Dara good morning, and thank you for joining today's fiscal 'twenty thing for fourth quarter Conference call.
Speaker Change: This morning, we issued an earnings press release, which has been filed with the SEC.
Speaker Change: And it's also available on the Investor Relations section.
Speaker Change: Additionally, the slides for this conference call can be found in our IR website under news and events I heard calendar earnings conference call Q4 'twenty.
Speaker Change: During the call.
Speaker Change: This caused some items at the noncompliance of generally accepted accounting principles.
Speaker Change: We have reconciled those items to the most comparable GAAP measure.
Speaker Change: At the end of the earnings.
Speaker Change: These non-GAAP measures should be considered in addition to none.
It's for measures of financial performance reported in accordance with GAAP.
Ivonne Salem: We have reconciled those items to the most comfortable gap measures in the tables at the end of the earnings. These non-GAAP measures should be considered in addition to and not as 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 risks and uncertainties that could impact our future results, and our actual results might differ materially from those contemplated by these forward-looking statements.
Speaker Change: I would like to remind you that during this call we might make certain forward looking statements regarding our company we used to refer to our annual report and most of the reason why don't even report filed with the SEC for more information regarding our forward looking statements.
Speaker Change: And there are risks and.
That could impact the.
Speaker Change: Yes.
Speaker Change: 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.
Speaker Change: Future developments or otherwise, except as may be required by law now I'd like to introduce boosting our president and Chief Executive Officer for his opening remarks.
Ivonne Salem: And we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments, or otherwise, except as might be required by law. Now, I would like to introduce Bruce Thames, our President and Chief Executive Officer, for his opening remarks.
Speaker Change: <unk>.
Bruce A. Thames: Well, thank you, Ivonne, and good morning, everyone, and thank you for joining us today. I'd like to start today by thanking our global Thermon team for delivering another record year in fiscal 2024. Your dedication to advancing our strategy, serving our customers with excellence, and creating value for our shareholders is greatly appreciated. I'd also like to thank our employees for their unwavering commitment to safety.
Speaker Change: Well, thank you Bob and good morning, everyone and thank you for joining us today.
Speaker Change: I'd like to start today by thanking our global team for delivering another record year for fiscal 'twenty 'twenty four.
Speaker Change: Your dedication to advancing our strategy, serving our customers with excellence and creating value for our shareholders is greatly appreciate it.
Speaker Change: I'd also like to thank our employees for their unwavering commitment to safety.
Bruce A. Thames: In recognition of these efforts, Thermon received the award for Canada's safest manufacturing employer of the year in 2023. Turning now to the results, we ended the fiscal year with growth across a wide range of financial metrics, including revenue, gross margin, adjusted EPS, and free cash flow compared to fiscal 2023. Throughout the year, we continue to see revenue growth on our installed base from OPEX activity associated with recurring maintenance. And, as I'll cover in more detail shortly, we continue to diversify our end markets, with 68% of our revenue now coming from end markets other than oil and gas.
Speaker Change: Ignition of these efforts along with Safety Award.
Speaker Change: The safest manufacturing for year over year.
Speaker Change: In 2023.
Speaker Change: Turning now to the results we ended the fiscal year with growth across a wide range of potential.
Speaker Change: Including revenue gross margin adjusted EPS and free cash flow compared to fiscal 2023.
Speaker Change: Throughout the year, we continue to see revenue growth on our installed base from opex activity associated with recurring maintenance.
Speaker Change: And as I'll cover in more detail. Shortly we continue to diversify our end markets with 68% of our revenue now coming from any markets other than oil and gas.
Bruce A. Thames: We also continue to invest in new product development with multiple new product introductions for commercial heat tracing and heating technologies, such as our new Thermon Quantum TrueFlow heater and medium voltage boilers to further enable the electrification of industrial heat.
Speaker Change: We also continue to invest in new product developed multiple new product introductions.
Speaker Change: Most of the heat tracing and heating technologies, such as our needs are mom and Pops, a true leader in medium voltage boilers to further enable the electrification of industrial heat.
Bruce A. Thames: At the end of our third quarter, we completed the acquisition of April Power, which further diversified our in-market presence while increasing our exposure to depolarization and electrification opportunities. We also made meaningful progress in our decarbonization and digitization growth strategies, which I'll discuss in more detail later. Turning now to slide four and our strategic pillar, we continue to navigate some near-term macroeconomic uncertainty.
Speaker Change: At the end of our third quarter, we completed the acquisition of vapor power, which further diversified our end markets, while increasing our exposure to decarbonization and electrification opportunities.
Speaker Change: We also made meaningful progress in our decarbonization and digitalization growth strategies, which I'll discuss in more detail later.
Speaker Change: Turning now to slide four and our strategic pillars, we continue to navigate some near term macroeconomic uncertainty we remain confident in our long term strategy and the ability to drive profitable growth by focusing on our strategic pillars of profitably growing our install base.
Bruce A. Thames: We remain confident in our long-term strategy and the ability to drive profitable growth by focusing on our strategic pillars of properly growing our installed base, decarbonization, digitization, and diversification, and disciplined capital allocation. While we are growing our global install base and generating recurring revenues by expanding the products and services for mission-critical industrial process heating solutions that we provide to our more than 10,000 customers, our technology-enabled, end-to-end solutions and industry-leading portfolio give Thermon a unique, highly defensible position with the ability to capture additional market share.
Speaker Change: Carbonization, digitalization and diversification and disciplined capital allocation.
Speaker Change: Well, we are growing our global installed base and in generating recurring revenues by expanding the products and services are mission critical industrial process heating solutions that we provide to our more than 2000 customers.
Speaker Change: Our technology enabled Indian solutions industry, leading portfolio getting storm on a unique highly defensible position with the ability to capture additional market share.
Bruce A. Thames: Additionally, we're creating long-term value by executing our strategic initiatives of decarbonization, digitization, and diversification. We made significant progress across each of these initiatives throughout fiscal 2024 by enabling the energy transition, helping our customers optimize maintenance through the enhanced controls and monitoring provided by our digital solutions, and continuing to diversify our end markets to reduce cyclicality and position the company for long-term growth. Our commitment to disciplined capital allocation underpins the first two strategic pillars and is key to creating sustainable shareholder value.
Speaker Change: Additionally, we're creating long term value by executing our strategic initiatives of de carbonization digitalization and diversification.
Speaker Change: We made significant progress across each of these initiatives throughout fiscal 2024.
Speaker Change: Labeling the energy transition, helping our customers optimize maintenance through the enhanced controls and monitoring provided by our digital solutions and continuing to diversify our end markets to reduce cyclicality and position the company for long term growth.
Speaker Change: Our commitment to disciplined capital allocation underpins the first two strategic pillars and is key to creating sustainable shareholder value.
Bruce A. Thames: The acquisition of vapor power is expected to drive inorganic growth with anticipated returns in line with our stated M&A objectives. In addition, our board recently approved a $50 million share repurchase program as another way to return value to our shareholders. This is our first share repurchase program and is indicative of the board's confidence in the company's strategy and ability to deliver growth over the long term.
Speaker Change: The acquisition of vapor power is expected to driving organic growth with anticipated returns in line with our stated M&A objectives.
Speaker Change: In addition, our board recently approved a $50 million share repurchase authorization as another way to return value to our shareholders. This is our first share repurchase program is an indicative of the board's confidence in me.
Speaker Change: Company strategy and ability to deliver growth over the long term.
Bruce A. Thames: Turning now to slide five, we can see more detail on the progress we've made over the last year on advancing our decarbonization strategy, as well as a recent example of how Thermon is providing sustainable decarbonization solutions. In the past year, we have grown decarbonization revenue to $34 million, an increase of 48% over fiscal 2020. During fiscal 2024, 7% of incoming orders were related to decarbonization opportunities, with the sales pipeline tripling to over $250 million by year-end.
Speaker Change: Turning now to slide five you can see more detail on the progress we've made over the last year on advancing our de carbonization strategy as well as a recent example of how ceremonies, providing sustainable decarbonization solutions.
Speaker Change: The past year.
We have grown de carbonization revenue to $34 million, an increase of 48% over fiscal 2023.
Speaker Change: During fiscal 2024, 7% of incoming orders were related to decarbonization opportunities with our sales pipeline tripling its over $250 million by year end.
Bruce A. Thames: One of the ways in which we're growing our decarbonization business is by supplying existing Thermon solutions to the growing carbon capture and storage industry. Of the current pipeline, carbon capture and storage applications represent approximately 25% of the $250 million in opportunities. The example on the right highlights our participation in a project that will capture up to 18 million metric tons of carbon dioxide per annum from biofuel facilities across the Midwest. The captured CO2 will then be transported via pipeline to permanent geologic underground storage locations.
Speaker Change: One of the ways in which we are growing our de carbonization business is bus by supplying existing or non solutions to the growing carbon capture and storage industry.
Speaker Change: The current pipeline carbon capture and storage applications represents approximately 25%.
Speaker Change: Of the $250 million and opportunities.
Speaker Change: The example on the right highlights our participation in the project that will capture up to 18 million metric tons of carbon dioxide per annum from biofuel facilities across the Midwest.
Speaker Change: The captured C. O. Two will then be transported via pipeline to permanent geologic underground storage locations.
Bruce A. Thames: Thermon is supplying 31 flange heaters and control panels which will enable the carbon dioxide to be compressed for transportation. Additionally, our heat transfer solutions are used to prevent damage to valves and piping after the CO2 is compressed.
Speaker Change: Our moly supply 31 plants heaters and control panels, which will enable the carbon dioxide to be compressed for transportation.
Additionally, our heat tracing solutions are used to prevent damage to valves piping after two months from crest.
Bruce A. Thames: This is just one of the many examples of how Thermon is leveraging our existing solutions to meet customers' decarbonization and electrification needs. Turning now to slide six, I'd like to provide an update on the progress we made during fiscal 2024 on our digitization strategy. As you can see here, the adoption of our Genesys network continues to be strong, with the installed base growing by over 200% during fiscal 2024, as customers look for ways to improve efficiency, productivity, safety, and reliability in their operations. The capabilities of this platform enhance operational awareness, which creates real value for customers and differentiates Thermon in the marketplace.
Speaker Change: This is just one of the many examples.
Speaker Change: Leveraging our existing solutions to meet customers' decarbonization and electrification needs.
Speaker Change: Turning now to slide six I'd like to provide an update on the progress we made during fiscal 2024, our digitization strategy.
Speaker Change: As you see here the adoption of our Justice network continues to be strong with the installed base growing by over 200% during fiscal 2024.
Speaker Change: As customers look for ways to improve efficiency productivity safety and reliability in their operations.
Speaker Change: Yeah.
Speaker Change: The capabilities of this platform enhance our operational awareness.
Speaker Change: Which creates real value for customers to differentiate storm on in the marketplace.
Bruce A. Thames: As you can see on slide seven, we made tremendous progress on our in-market diversification strategy, which will help to reduce volatility through the summer. At our first Investor Day in November, we introduced an updated FISPA 2026 target of reaching 70% diversified revenue, or revenue from non-oil and gas related end markets. As a result... At the end of fiscal 2024, we'll have nearly achieved that target with 68% of our revenue derived from diversified end markets, which includes the impact of our vapor power acquisition in Q4.
Speaker Change: As you can see on slide seven we made tremendous progress on our end market diversification strategy, which will help to reduce volatility through the cycle.
Speaker Change: And our first Investor day in November we introduced updated fiscal 'twenty 'twenty six target of reaching 70% diversified in revenue or revenue from non oil and gas related end markets as a result.
Speaker Change: At the end of fiscal 2024.
Speaker Change: Nearly achieved that target with 68% of our revenue derived from diversified end markets, which includes the impact of our banker power acquisition in Q4.
Bruce A. Thames: We continue to grow our share across key markets, such as power, up over 170 percent, food and beverage, up nearly 120 percent, and commercial, up almost 20 percent, all on a year-over-year basis. Turning now to slide eight and our fourth quarter fiscal 2024 results, which were in line with our expectations. Despite strong quotations of $250 million in Q3, our orders decreased 12% year-over-year to $117 million as larger CapEx spending moved to the right. On a positive note, more than 70% of incoming orders were related to diverse end markets.
We continue to grow our share across key markets, such as power up over 170% food and beverage up nearly a 120% and commercial up almost 20% all on a year over year basis.
Speaker Change: Turning now to slide eight and our fourth quarter fiscal 2024 results, which were in line with our expectations.
Speaker Change: Despite strong quotations that $250 million in Q3, our orders decreased 12% year over year to $117 million as larger capex spending moves too right.
Speaker Change: On a positive note more than 70% of incoming orders were related to diverse end markets in the quarter. We grew revenue, 4% to $128 million driven by an increase in de carbonization and diversified revenue in the organic business that were offset by 12%.
Bruce A. Thames: In the quarter, we grew revenue 4% to $128 million, driven by an increase in decarbonization and diversified revenue in the organic business, which were offset by a 12% contraction in large capex spending in the quarter. Our short cycle business tied to customer OPEX spending was up 8% year-over-year, inclusive of bank. However, organically, OPEC spending was down 3%, largely related to slower activity.
Speaker Change: <unk> in large capex spending in the core.
Speaker Change: Our short cycle business tied to cover customer Opex spending was up 8% year over year inclusive of vapor organically.
Speaker Change: Organically Opex spending was down 3% largely related to slower activity in Canada.
Bruce A. Thames: Vapor Power also met expectations, delivering $10.9 million in revenue at 20% EBITDA for the quarter. It was a positive move to build as demand for their solutions remains robust. Our record Q4 cash flow of $35.1 million enabled a debt paydown of $41 million, reducing our operating leverage to 1.2 times, down from 1.5 times in the prior quarter. This level of leverage remains below our stated operating range of one-and-a-half to two times, giving us a strong balance sheet and the ability to pursue growth opportunities should they arrive.
Speaker Change: Vapor power also met expectations, delivering $10 9 million in revenue at 20% EBITDA in the quarter with a positive book to Bill as demand for their solutions remains robust.
Speaker Change: Record Q4 cash flow of $35 1 million enabled debt paydown of 41 million, reducing our operating leverage to 1.2 times down from one and a half times in the prior quarter.
Speaker Change: This level of leverage remains below our stated operating range of one and a half to two times, giving us a strong balance sheet and the ability to pursue growth opportunities should they arise.
Bruce A. Thames: Importantly, while the operating environment continues to be dynamic, we are focused on driving structural cost reductions so that we are positioned to improve profitability across a wide range of macro environments. At investor day, we introduced the Thermon business system, which we're applying across the entire enterprise to sustainably deliver results and unlock value. As part of this effort, we are optimizing our manufacturing footprint to improve asset utilization through a rooftop consolidation of our Denver facility.
Speaker Change: Importantly, while the operating environment continues to be done and we are focused on driving structural cost reductions. So that we are positioned to improve profitability across a wide range of market.
Speaker Change: Macro environments.
Speaker Change: At Investor Day, we introduced the thermo business system, which we are applying across the entire enterprise to sustainably deliver results and unlock value.
Speaker Change: As part of this effort, we are optimizing our manufacturing footprint to improve asset utilization through a rooftop consolidation of our Denver facility.
Bruce A. Thames: In line with our Center of Excellence concept, our rail and transit business will be consolidated into our San Marcos facility to increase productivity to meet growing demand. While we never take these decisions lightly, we also implemented a reduction in force during the first quarter of fiscal 2025 to align SG&A and overhead costs with this volume.
Speaker Change: This aligns with our center of excellence concept.
Speaker Change: Rail and transit business will be consolidated into our sand market's facility increase productivity to meet growing demand.
Speaker Change: While we never take these decisions lightly we also implemented a reduction enforced during the first quarter of fiscal 2025 July SG&A and overhead cost then this volume.
Speaker Change: Greg.
Bruce A. Thames: We'll discuss more about the associated Q1 restructuring charges and anticipate savings in FY25. Turning to slide nine in our four-year fiscal results, our strategy and strong execution enabled Thermon to achieve record revenue adjusted EBITDA and EPS in fiscal 2024.
Greg: We will discuss more about the associated Q1 restructuring charges and anticipating savings in FY 'twenty five.
Speaker Change: Turning to slide nine our full year fiscal results.
Greg: Our strategy and strong execution enabled fairmont to achieve record revenue adjusted EBITDA and EPS in fiscal 2020 for most of the growth was driven by our focus on diversity in markets, where revenue was up 21% year over year, while revenue from oil and gas market was down 3%.
Bruce A. Thames: Much of the growth was driven by our focus on diversity in markets where revenue was up 21% year-over-year, while revenue from the oil and gas market was down 3%. Revenue, adjusted EBITDA, adjusted EPS, and free cash flow were all double digits for the year. Geographically, the U.S. and Latin America drove strong growth and large capex revenues during the first three quarters, up 22% year-over-year. Our channel expansion efforts also helped drive broad-based growth across the installed base in our short cycle business, which was up 9% year-over-year. With that, I'd like to turn the call over to Greg.
Speaker Change: Revenue adjusted EBITDA, adjusted EPS and free cash flow were all up double digits for the year.
Speaker Change: Geographically U S and Latin America drove strong growth in large capex revenues during the first three quarters up 22% year over year.
Speaker Change: Our channel expansion efforts also helped drive broad based growth across the installed base in our short cycle business, which was up 90% year over year.
Speaker Change: With that I'd like to turn the call over to Greg Lucas.
Bruce A. Thames: As we announced on April 3rd, Greg has assumed the interim roles of Principal Financial Officer and Principal Accounting Officer of the company as we conduct a search for a new CFO. Greg joined Thermon in 2020 as Corporate Controller and has been instrumental in improving our control environment and financial reporting during his tenure. Greg will now share a more in-depth review of our financial results for the quarter and the fiscal year. Thanks, Bruce.
Greg Lucas: We announced on April four and Greg has assumed the interim erodes, our principal financial officer, and principal accounting officer of the company as we conduct a search for a new CFO.
Greg Lucas: Greg joined <unk> in 2020, as corporate controller and head.
Greg Lucas: He's been instrumental in improving our control environment.
Greg Lucas: Financial reporting during his tenure.
Greg Lucas: Greg will now share more in depth review of our financial results for the quarter and the fiscal year Greg.
Thanks, Bruce living.
Greg: Moving to slide 10, our fourth quarter performance. Revenue in the fourth quarter was $128 million, a year-over-year increase of approximately 4%, primarily driven by our acquisition of paper power on December 29, which contributed $10.9 million. However, organic sales decreased nearly 5%, primarily related to the decline in large CapEx projects and Weaker Economic Interest Sales in Canada during the quarter.
Greg Lucas: Moving to slide 10, and our fourth quarter performance.
Greg Lucas: Revenue in the fourth quarter was 128 million a year over year increase of approximately 4% primarily driven by our acquisition of <unk>.
Speaker Change: December 29.
Speaker Change: <unk> 10 9 billion.
Speaker Change: <unk> sales decreased 5% primarily related to a decline in.
Speaker Change: And large capex projects, the weaker economic heater cells in Canada during the quarter.
Greg: Large project revenue was $23 million, down 10% from last year, impacted by less activity related to all the gas-capric projects, which decreased by 26%. This reduction was partially offset by an increase of 6% and large CapEx project activities within our diversified in-market. Separately, small projects plus maintenance and repair revenue fell to $104 million, an increase of 8% compared to the prior year. Excluding vapor power, small projects plus maintenance and repair revenue is down, which was driven by a decline in own-debt sales of approximately 8%.
Speaker Change: Large project revenue was 23 million down 2% from last year.
Speaker Change: I could buy less activity.
Speaker Change: And gas audits, which decreased by 26%.
Speaker Change: This reduction was partially offset by an increase of 6%.
Speaker Change: Our Capex project activity and our diversified end markets.
Speaker Change: Separately small projects, plus maintenance and repair them, along $140 million, an increase of 8% compared to the prior year.
Speaker Change: Excluding Viper power small projects plus maintenance and repair revenue was down 3%. This was driven by a decline in organic sales of approximately 8% now.
Greg: The lower oil and gas activity was largely related to the Canadian market and was significantly offset by growth in the diverse Indian market, which will provide more stable earnings through any economic cycle, thus underscoring the validity of our growth strategy. Adjusted EBITDA was $23.6 million in the quarter. A year-over-year decrease of 6% for an adjusted EBITDA margin of $18.5 million. The adjusted EBITDA margin was largely due to product mix in the quarter combined with higher planned spending to support our long-term investments around decarbonization, digitization, and diversification.
Speaker Change: The lower oil and gas activities largely related to the Indian market.
Speaker Change: Significantly off road wagon Earth landmark.
Speaker Change: To provide more stable earnings any economic cycle.
Speaker Change: Underscoring a literally a growth strategy.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Adjusted EBITDA was $23 6 million in the quarter or year over year, a decrease of 6% and adjusted EBITDA margin of 18, 5%.
Speaker Change: Adjusted EBITDA margin was largely due.
Speaker Change: Mix in the quarter combine to higher planned spending.
Speaker Change: Support our long term investments around decarbonization digitalization in the first place.
Greg: Adjusted EPS for the fourth quarter was $0.34 per share, down 17% compared to the prior year period due to lower volumes, product mix, spending, and incremental interest expense, which were partially offset by improved pricing. Turning now to slide 11 in our full-year fiscal 2024. This year's 2024 revenue was a record $495 million, a year-over-year increase of approximately 12% or 10% organically, primarily driven by growth in our power, commercial, food and beverage, and petrochemical end markets, in line with our diversification strategy. Moreover, while oil and gas-related sales were down 3%...
Speaker Change: Adjusted EPS for the fourth quarter was 34 cents per share.
Speaker Change: 17% compared to the prior year period, due to lower volumes product mix spending and incremental interest expense, which were partially offset by improved pricing.
Speaker Change: Turning now to slide 11, and our full year fiscal 'twenty pretty fast.
Speaker Change: Yes.
Speaker Change: This is the 24 revenue was a record $195 million a.
Speaker Change: The year over year increase in approximately 12%.
Speaker Change: 10% organically, primarily driven by growth.
Speaker Change: Power commercial food and beverage and chemicals.
Speaker Change: Petrochemical end markets in line with our diversification strategy work, while oil and gas related sales were down 3%.
Speaker Change: Our downturn in sales from our diversified non oil and gas end markets were collectively up 17% year over year.
Greg: Sales from our diversified non-oil and gas spin markets were collectively up 17% year-over-year. Sales are up year-over-year in U.S. land, Armenia, and impact; all flat in Canada. Large project revenue was $120 million, up 22% from the prior year, while small projects plus incremental repair were $2.5 million. $375 million, an increase of 9% compared to the prior year. 76% of our sales were derived from op-ed spending, which was comparable with last year.
Speaker Change: Sales were up year over year in U S land, EMEA and APAC are flat and Canada.
Speaker Change: Project revenue was $140 million up 22% from the prior year, while small project paint.
Speaker Change: Yeah.
Speaker Change: $375 million, an increase of 9% compared to the current yet.
Speaker Change: 76% of our sales are derived from Opex spending which was comparable with last year.
Greg: Our backlog varied to $186.1 million, up 14% year-on-year. However, excluding vapor power, our backlog contracted 10% relative to the same period last year, which is weaker as far as capex activity can stand up to 8.54. On another note, U.S. land and EMEA reasons were both up year over year, with expansions of 3% and 18%, respectively. Adjusted EBITDA was $104 million, a year-over-year increase of 12%, with an adjusted EBITDA margin of 21.1%. This adjusted EBITDA margin improvement was largely driven by higher volume in price. Adjusted EPS for the full year was $1.82 per share, up 17% year-over-year. Moving to slide 12.
Our backlog Burlington wasn't didn't even $6 1 million up 14% year on year.
Speaker Change: However, excluding paper power backlog contracted 10% relative to the same period last year due to weaker orange.
Speaker Change: Thank you Deepak.
Speaker Change: On another note Northland and EMEA regions were both up year over year.
Speaker Change: Ancients of 3% and 18% respectively.
Speaker Change: Adjusted EBITDA was 104 million a year over year.
Speaker Change: I'll first start with an adjusted EBITDA margin of 21.
Speaker Change: Uh huh.
Speaker Change: This adjusted EBITDA margin.
Speaker Change: Improvement was largely driven by higher volume and price.
Adjusted EPS for the full year was $1 82 per share.
Speaker Change: 17% year over year.
Speaker Change: Moving to slide 12.
Greg: We've cash flowed with a record $35 million and near record $56 million for the year driven by higher sales and sound working capital management. As a result of our continued strong cash generation, and in line with our capital allocation strategy, we paid down $41 million of term debt during the fourth quarter, or nearly 40% of the borrowings associated with a paper power acquisition. At the same time, we ended the year with a cash and cash recovery balance of $48.6 million.
Speaker Change: Free cash flow was a record $35 million.
Speaker Change: And near record 56 million tons, a year driven by higher sales and sound working capital management.
Speaker Change: As a result of our continued strong cash generation in line with our capital allocation strategy, we paid down 41 million of term debt during the fourth quarter are nearly 40% of the borrowings associated with our acquisition.
Speaker Change: At the same time, we ended the year with cash and cash equivalents balance.
Speaker Change: 48.
Greg: Our net debt-to-adjusted EBITDA ratio improved from 1.5 times last quarter to 1.2 times at year-end, below our target range of 1.5 to 2 times. This gives us the flexibility to advance our strategic policy, and make targeted investments, including bulk owned M&A, that meets our strategic and financial criteria. Working capital was $162.2 million, or 33% of revenue, down from 35% last year, as we continue to optimize our supply chain while also improving lead times and on-time delivery to our customers. Net income in the fourth quarter was $10.1 million, up 31% year-over-year.
Speaker Change: Our net debt to adjusted EBITDA ratio improved from one five times last quarter.
Speaker Change: One two times at year end below our target range of one five to two times. This gives us the flexibility advance our strategic pillars.
Speaker Change: So we've targeted investments, including bolt on M&A that meets our strategic and financial criteria.
Speaker Change: Working capital was $162 2 million at year end.
Speaker Change: 33% of revenue down from 35% last year as we continue to optimize our supply chain.
Also improving lead times and on time delivery and our customers.
Speaker Change: Net income in the fourth quarter was $10 one.
Speaker Change: 1% year over year.
Greg: CapEx was $3.1 million this quarter, bringing the full-year CapEx to $10.9 million, or just 2% of sales, consistent with our disciplined capital allocation strategy. As Bruce mentioned, we remain focused on optimizing our prospects so that we can continue to create value for our shareholders in any macroeconomic environment. To that end, we are consolidating our rail and transit production lines into our set markets. I will carry out a reduction in force in the first quarter of fiscal 2025 that will result in a charge of approximately $2.8 to $3.5 million.
Speaker Change: For three months.
Speaker Change: Bringing the full year to $10 9 million or just 2% of sales consistent with our disciplined capital allocation strategy.
Speaker Change: As Bruce mentioned, we remain focused on optimizing our cost structure. So that we can continue to create value for our shareholders in any macroeconomic environment.
Speaker Change: To that end, we have consolidated real intrinsic production line in Tomorrow August <unk>.
Speaker Change: We carried out a reduction in force in the first quarter of fiscal 'twenty five.
Speaker Change: Also in charge of approximately 2.3 point.
Speaker Change: Knowledge.
Greg: We expect this restructuring to deliver $5.7 million annualized and annualized run rate savings, of which $4.3 million will be realized this fiscal year. This impact is factored into our whole year, fiscal 2025, to get BCS guidance. On another quick modeling note, in line with our capital allocation priorities, we anticipate an optional debt payout during the period in the range of $20 to $40 million, and our interest rates will remain consistent at our current variable rate.
Speaker Change: This restructuring to deliver $7 million and on an annualized run rate savings.
Speaker Change: With $4 9 million.
Speaker Change: While we realize this fiscal year.
Speaker Change: This impact is factored into our full year, it's about 2025 yeah.
Speaker Change: Guidance.
Speaker Change: On another quick modeling now in line with our capital allocation priorities do you anticipate an optional debt paydown during the year in the range of 20 $40 million.
Speaker Change: Our interest rate will remain consistent.
Speaker Change: All right.
Greg: As we wrap up Fiscal 2024, we are pleased with our global team's execution, which resulted in strong financial performance, robust cash flows, improved diversification, and a sizable acquisition in the electrification space. And as we look ahead to the coming year, we will continue controlling costs while prudently investing in our strategic partners for long-term drugs. With that, I'll turn the call back over to Bruce. Thank you, Greg.
Speaker Change: As we wrap up fiscal 'twenty four we are pleased with our global team's execution, which resulted in strong financial performance robust cash flows.
Speaker Change: <unk> diversification and a sizable acquisition in the electrification space.
Speaker Change: And as we look ahead to the coming here.
Speaker Change: We'll continue controlling costs, while prudently investing in our strategic pillars are long term drug list.
Speaker Change: With that I'll turn the call back over to Bruce.
Speaker Change: Okay.
Bruce: Thank you Greg.
Bruce A. Thames: Turning now to Slide 13 in our Outlook for Fiscal 2025, we're pleased with the position of our business and the success we're seeing in the execution of our strategy. As we noted in earlier calls, we expect the rate of organic growth to moderate weighted towards the second half of this year. Looking ahead, we're seeing some positive signs in Canada following the slowdown in the second half of last year. With the completion of the Trans Mountain Pipeline this month, we expect an increase in drilling activity to fill the incremental 590,000 barrels of oil a day of take-away capacity.
Bruce: Turning now to slide 13, and our outlook for fiscal 2025.
Bruce: We believe we're pleased with the positioning of our business and the success, we're seeing the execution of our strategy.
Speaker Change #101: As we've noted in earlier calls we expect the rate of organic growth.
Speaker Change #101: So moderate weighted towards the second half of this year.
Speaker Change #101: Looking forward, we're seeing some positive signs in Canada following the slowdown in the second half of last year.
Speaker Change #102: With the completion of the Trans Mountain pipeline. This month, we expect an increase in drilling activity and all the incremental 590000 barrels of oil a day of takeaway capacity.
Bruce A. Thames: Additionally, the spring turnaround season in Canada is off to a solid start. Globally, our short cycle MRO business remains robust, but we are experiencing some delays and deferrals in large-capex spending, particularly in North America, that we expect to make organic growth challenging in the first half of fiscal 2025. In this quarter, we've secured wins for large capital projects and diversity in markets like semiconductors, pharmaceuticals, and nuclear power that will help build the backlog, but the timing of execution will lag.
Speaker Change #102: Additionally, the spring turnaround season in Canada is off to a solid start.
Speaker Change #103: Globally, our short cycle MRO business remains robust, but we are experiencing some delays and deferrals.
Speaker Change #104: Capex spending, particularly in North America that we expect to make organic growth challenging first half of fiscal 2025.
Speaker Change #105: In this quarter, we secured wins for large capital projects in diverse end markets like semiconductors pharmaceuticals and nuclear power.
Speaker Change #105: Helped build the backlog the timing of execution will lag.
Bruce A. Thames: Our vapor power acquisition is performing well, with revenues and profitability in line with our expectations for Q4 fiscal 2024, and several large shipments are scheduled in Q1 of fiscal 2025 that will help drive organic growth. We also had a positive look to building this business in Q4, including a sizable synergy sale to a large public university from Thermon's traditional channel. For the full year, revenue guidance is projected to be from $527 million to $553 million, which at the midpoint represents approximately 9% growth over fiscal 2024.
Speaker Change #105: Our vapor power acquisition is performing well with revenues and profitability in line with our expectations for Q4 fiscal 2024 and several large shipments are scheduled in Q1 of fiscal 2025 that will help drive inorganic growth. We also had a positive book to bill in this business.
Speaker Change #106: Q4, including a sizeable synergy sale to a large public university from Carlos traditional channels.
Speaker Change #107: For the full year revenue guidance is projected to be from 527 million to $553 million, which at the midpoint represents approximately 9% growth over fiscal 2024.
Bruce A. Thames: We anticipate that Vapor Power will contribute organic growth of $46 million at the midpoint of our guidance as we continue to successfully integrate the business while creating the processes and capacity to drive scale. This represents roughly 15% organic growth for vapor at the midpoint of this year.
Speaker Change #108: We anticipate that vapor power will contribute organic growth of $46 million at the midpoint of our guidance as we continued to successfully integrate the business, while creating the processes and capacity to drive scale.
Speaker Change #109: This represents roughly 15% organic growth for vapor at the midpoint range.
Bruce A. Thames: The guidance for fiscal 2025 also assumes low single-digit organic growth after adjusting for the disposition of Thermon's Russian business. We're initiating adjusted EBITDA guidance with a range of $112 to $120 million, representing 11% year-over-year growth at the minimum. GAP EPS is expected to be in the range of $1.57 per share to $1.73 per share, which represents 9% year-over-year growth at the midpoint. Adjusted EPS is projected to be in the range of $1.90 per share to be up $2.06 per share, which represents 8% year-over-year growth at the midpoint.
Speaker Change #110: The guidance for fiscal 2025 also assumes low single digit organic growth in it.
Speaker Change #110: Adjusting for the disposition of Fairmont Russian business.
Speaker Change #111: We're initiating adjusted EBITDA guidance with a range of about $112 million to $120 million, representing 11% year over year growth at the midpoint.
Speaker Change #111: GAAP EPS is expected to be in the range of $1 57 per share to $1 73 per share, which represents 9% year over year growth at the midpoint.
Speaker Change #112: Adjusted EPS is projected to be in the range of $1 90 per share to be about $2 six per share, which represents 8% year over year growth at the midpoint.
Bruce A. Thames: Finally, we remain focused upon delivering our fiscal year 26 objectives. This guidance does not contemplate additional M&A activity, but we expect to continue generating cash to further strengthen our balance sheet throughout the fiscal year, providing the ability to capitalize on inorganic opportunities that advance our strategy. As we wrap up today on slide 14 and look ahead to fiscal 2025, we'd like to leave you with these. Thermon is a leading global brand providing mission-critical process heating technology and solutions to customers across the world in a wide variety of end markets.
Speaker Change #113: Finally, we remain focused upon delivering our fiscal year 'twenty six objectives.
Speaker Change #114: This guidance does not contemplate additional M&A activity. However, we expect to continue generating cash to further strengthen our balance sheet throughout the fiscal year, providing the ability to capitalize on inorganic opportunities that advance our strategy.
Speaker Change #115: As we wrap up today on slide 14, and look ahead to fiscal 2025, we'd like to leave you with these key points.
Speaker Change #116: Vermont is a leading global brands, providing mission critical process heating technology and solutions to customers across the world in a wide variety of end markets.
Bruce A. Thames: Our strategy enables us to create long-term value for our shareholders across any type of operating environment and is focused on the three pillars of profitably growing our installed base, decarbonization, digitization, and diversification, and Disciplined Capital Allocation. Our operational excellence driven by the Thermon business system and differentiated products and solutions are a significant competitive advantage. With our existing technology and expertise, we believe that we are well positioned to capture the enormous opportunity tied to the energy transition and decarbonization while also benefiting from secular growth trends in chemicals, power, onshoring, and various forms of government stimulus.
Speaker Change #116: Our strategy enables us to create long term value for our shareholders across any type of operating environment and is focused on the three pillars of profitably growing our installed base.
Speaker Change #117: Carbonization, digitalization and diversification and disciplined capital allocation.
Speaker Change #117: Our operational excellence driven by the third of our business system and differentiated products and solutions are significant competitive advantages with our existing technology and expertise. We believe that we are well positioned to capture the enormous opportunity tied to the energy transition and decarbonization.
Speaker Change #117: While also benefiting from secular growth trends in chemicals, our onshoring and various forms of government stimulus.
Bruce A. Thames: Our strong balance sheet and low-capital-intensity business model yields significant free cash flow, which provides us with capital allocation optionality and, most importantly, allows us to deliver long-term value for our shareholders. I'd like to close today by once again thanking the entire Thermon team for their contributions to a very successful fiscal 2024. I'm excited about the opportunities ahead and look forward to seeing what we can achieve together in the coming year. Darrell, I'll hand it back to you, and we're now ready to take questions.
Speaker Change #117: Our strong balance sheet and low capital intensity business model yield significant free cash flow, which provides us capital allocation Optionality and most importantly allows us to deliver long term value for our shareholders.
Speaker Change #118: I'd like to close today by once again thanking the entire therma team for their contributions to a very successful fiscal 2024.
Speaker Change #119: I'm excited about the opportunities ahead and look forward to seeing what we can achieve together in the coming year.
Darrell: Darrell I'll hand, it back to you and we're now ready to take questions.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for your question. Our first questions come from the line of Justin Ages with CJS Securities. Please proceed with your questions.
Darrell I'll: Thank you we will now be conducting a question and answer session.
Darrell I'll: To ask a question. Please press star one on your telephone keypad.
Speaker Change #122: Information tone will indicate your line is in the question queue.
Speaker Change #123: Press Star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.
Speaker Change #124: Our first questions come from the line of Justin agents with C. J S. Securities. Please proceed with your questions.
Justin Ian Ages: Hi, good morning. Thanks for taking the question.
Speaker Change #125: Hi, good morning, Thanks for taking the questions.
Unknown Executive: Morning, Justice Department.
Justin: Good morning, Justin.
Justin Ian Ages: Would you mind providing some more details on the restructuring effort, you know, what drove the decision and some of the financial impacts on the 2026 targets, and then I'll have a follow-up after that?
Justin agents: Would you mind, providing some more details are on the restructuring effort you know what drove that decision and some of the financial impacts into you know the 2026 targets and then I'll have a follow up after that please.
Bruce A. Thames: Yeah, I'll start with maybe the rationale. A few things as we've been implementing our business system, and we've been implementing our, Really, a concept around focused factories and value streams, it made a lot of sense to move our Denver location into our San Marcos facility to consolidate our rail and transit value streams there. So that was really a lot of the rationale behind that. In addition to that, we really drove some broader restructuring as we made improvements to our thermal business system and improvements in operational efficiencies and productivity that really had broader implications, really right-sizing our capacity with the current business volume.
Justin agents: Yeah, I'll start with maybe the rationale.
Speaker Change #128: A few things as we've been implementing arthropod business system and we've been implementing.
Speaker Change #129: Really a concept around focus factories and value streams.
Speaker Change #130: It made a lot of sense to move our Denver location.
Speaker Change #131: Into our sand market's facilities to consolidate our real in transit.
Speaker Change #132: Value streams, there so that was really a lot of the rationale behind that.
Speaker Change #132: In addition to that we really drove broader in some broader restructuring.
Speaker Change #133: We're making improvements to our pharma business system, and an improvements in operational efficiencies and productivity.
Speaker Change #133: That really had broader implications really right sizing our capacity.
With the current business volume. So that's really the rationale I'll hand, it maybe over to Greg to talk a little bit more about the anticipated financial impact.
Bruce A. Thames: So that's really the rationale. I'll hand it maybe over to Greg to talk a little bit more about the anticipated financial impact in the current year and on a run rate basis. Yeah, great. So, good question.
Greg Lucas: In the in the current year and on a run rate basis.
Greg: So, as I mentioned, we have $5.7 million of anticipated savings on an annualized basis and $4.3 million that should be recognized or realized in the coming fiscal year. I would weight that more towards the back half of the year, with about, say, $1 to $1.4 million or so in positive sales and the remaining around SG&A. So, I'll see those savings, but we're going to see them more back.
Greg Lucas: Yeah, great. So a good question, so as I mentioned with $5 7 million and savings.
Greg Lucas: I think on an annualized basis and four three it should be.
Greg Lucas: Recognize realized in the coming fiscal year, I, wouldnt waste out and more towards the back half of year was about say one to one five or so in parts of sales and the remaining around all three of those.
Speaker Change #134: So I wouldn't say that.
Greg Lucas: Sure.
Greg: And then one more bit different. Can you give us a breakdown by segment of the backlog? You know, how much is point in time versus large projects, and small projects, if possible?
Speaker Change #135: That's that's helpful. Thanks, and then one more but different can you give us a you.
Speaker Change #136: You know a breakdown by segment of the backlog you know how much is point in time versus large projects small projects or if possible.
Bruce A. Thames: Yeah, so I think that's a great question. And it's important to understand that when we think about point in time, we're talking about material sales. And that is typically a very short cycle business. So at any given time, there are less than 30 days on average of that sitting in our backlog. So what you see in our backlog is really representative of what we call large CapEx projects. That would be projects, it would be a combination of some small but mostly large CapEx projects, half a million or greater, that are sitting in our backlog, and they take more time to execute.
Speaker Change #137: Yeah. So I think that's a great question and it's important to understand when we think about point in time, we're talking about material sales.
Speaker Change #137: And that is typically very short cycle business. So at any given time, there's less than 30 days on average of that sitting in our backlog. So what you see in our backlog is really representative of what we call large capex projects that would be projects it'll be a combination of some small but.
Speaker Change #137: Mostly large capex projects half a million or greater.
In backlog and they take more time to execute they typically will they typically include some engineering.
Bruce A. Thames: They typically include some engineering and, in some cases, will even include installation and commissioning type services. So the backlog you see again is probably largely, I'd say, in excess of 80% are the large CapEx projects. The other, the point-in-time business, is a flow business, and it comes in and out of backlog very quickly.
And in some cases in believing that include installation.
Speaker Change #137: And commissioning type services. So the backlog you see again is probably largely I'd say.
Speaker Change #138: Eight in excess of 80% is the large capex projects. The other the point in time business is flow business and it comes in and out of backlog very quickly.
Unknown Executive: All right, that's super helpful. Thanks for taking the time to ask the question.
Speaker Change #139: Alright, that's super helpful. Thanks for taking the question.
Unknown Executive: You're welcome. Thank you. Have a good day.
Speaker Change #140: Youre welcome. Thank you have a good day.
Operator: Thank you. Our next questions come from the line of Chip Moore with Roth MKM. Please proceed with your
Thank you our next questions come from the line of Chip Moore with Ralph M. Kam. Please proceed with your questions.
Chip Moore: Morning. Thanks for taking the question. I wanted to ask more about Bruce. I wanted to ask about the guidance for the year, you know, you called out some larger projects, CapEx delays. Maybe just speak to what's contemplated in the low and the high end of that range.
Chip Moore: Good morning, Thanks for taking the question.
Speaker Change #142: And then I wanted to ask on more and Bruce I wanted to ask on on the guidance for the year. You know you called out some larger project Capex.
Chip Moore: Capex delays, maybe just speak to what's contemplated in the low and the high end of that range.
Bruce A. Thames: Yeah, so just to give you some context, if you go back to Q3, we had really strong quotations of $250 million, which is very strong activity for our business. This quarter, we had another $200 million in quotations, which is solid activity, again, sequentially.
Bruce: Yeah. So just to give you some context. If you go back to Q3, we had really strong quotations of 250 million, which is very strong activity for our business. This quarter, we added another 200 million.
Speaker Change #143: And quotes which is solid activity again sequentially.
Bruce A. Thames: What we're seeing is just the placement of these orders is moving out. As I look at our conversion rates, they're actually flat to improving, and if we look at our CRM pipeline, we're tracking in excess of 350 opportunities that represent over $750 million in larger CapEx projects between the balance of fiscal 25 and through fiscal 26. So we're seeing a lot of opportunities sitting out there, but we're really not seeing those conversion rates. And what we anticipate is just the timing that's going to move to the right a bit, and we'll see some weakness in the first half.
Speaker Change #144: What we're saying is just the placement of these orders is moving out as I look at our conversion rates they are actually flat to improving and.
Speaker Change #145: And if we look at our our CRM pipeline, we're tracking in excess of 350 opportunities that represent over $750 million.
Speaker Change #146: And in larger Capex projects between.
Speaker Change #147: The balance of 25 and through fiscal 'twenty six so we're seeing a big a big a lot of opportunity sitting out there, but we're really not seeing those conversion rates.
Speaker Change #148: And what we are what we anticipate is just the timing that's going to move to the right a bit and you'll see some weakness in the first half as I noted we've had some nice bookings with Bozeman tens of materialize later.
Bruce A. Thames: As I noted, we've had some nice bookings, but those would tend to materialize later in the year, and so we would expect that to show some more positive growth in the back half. If I roll the clock back to last year, we had very strong capital projects bookings in Q4 of 23 and Q1 of 24. Those two quarters combined, we booked over $250 million in opportunities that were heavily weighted towards large CapEx.
Speaker Change #148: In the year and and so we would expect that.
To show some more positive growth in the back half is a little the clock back to last year, but very strong.
Speaker Change #149: Capital projects bookings in Q4 of 23 in Q1 of 'twenty for those two quarters combined we booked over $250 million.
Speaker Change #150: Opportunities that were heavily weighted towards large capex a lot of that got an executed, particularly in Q3, and Q and Q2 and Q3 and so we're going to see some challenges, particularly in the first half of the year and driving organic growth based on just the timing of the backlog and what we're seeing.
Bruce A. Thames: A lot of that got executed, particularly in Q2 and Q3. And so we're going to see some challenges, particularly in the first half of the year, in driving organic growth based on just the timing of the backlog and what we're seeing.
Bruce A. Thames: Got it, that's helpful. And maybe just to follow up there on sort of quarterly cadence and margin trajectory, it sounds like maybe Q1 was a little weaker, obviously, we're a couple months into it, but any more color you can give us on that?
Speaker Change #150: Got it that's helpful and maybe just a follow up there on on sort of quarterly cadence and margin trajectory. It sounds like maybe Q1, a little weaker obviously, where a couple of months into it but but any any more color you can give us on that.
Bruce A. Thames: Yeah, so, you know, my comment is, as I said, this group, really, Canada, we're seeing some positive signs there. I would say, as we look across our various end markets, our customers, and businesses are fairly healthy and profitable, and we're seeing the short cycle, quick turn, point-in-time type revenues, those are very consistent and have been very resilient.
Speaker Change #150: Yeah. So yeah my family as Dave said in his script there really Canada is is we're seeing some some positive signs there I would say as you look across our various end markets our customers businesses are fairly healthy and profitable and we're seeing that.
Speaker Change #151: The short cycle quick turn point in time type revenues.
Speaker Change #151: Those are very consistent.
Speaker Change #152: And have been very resilient, where we've seen weakness is really in capex, it's probably been more heavily weighted towards.
Bruce A. Thames: Where we've seen weakness is really in CapEx; it's probably been more heavily weighted towards, you know, the oil and gas sector, and some of that's really based more on capital allocation. And then some of that we're also seeing in just the timing of some of the larger decarbonization projects, and there are different, you know, reasons for those delays, whether it's a customer decision, in some cases we see permitting, in other cases it's really around government stimulus and other types of funding.
Speaker Change #152: Hum towards the oil and gas sector and some of that is really based more on capital allocation.
Speaker Change #152: And then some of that we're also saying it just timing of some of the larger decarbonization projects and there is different.
Speaker Change #152: Reasons for those delays, whether it's customer decision in some cases, we see permitting in other cases, it's really around government stimulus and others.
Bruce A. Thames: So, you know, those types of activities we've seen contribute to those delays. But the good news is that we're seeing solid turnaround business in Canada, so we're seeing that overall environment stabilized and slightly improve. But we do see there'll be some weakness in CapEx spending in the first quarter, and as we look at the vapor business, I think it's important to understand that business is not as seasonal as our business has traditionally been, and so we might see a more equal cadence of that business quarter to quarter throughout the year as you're thinking about that on a quarterly basis.
Speaker Change #153: <unk>. So those types of activities, we've seen contribute to those delays, but the good news is we're seeing solid turnaround business in Canada. So we're seeing that overall environment stabilize to slightly improve.
Speaker Change #153: But we do see there'll be some weakness in capex spending in the first.
Bruce A. Thames: That's very helpful. And just on vapor, I guess if I could ask one last one, it sounds like integration is going very well. And I think you've even called out some projects in this quarter, they're going to be delivered, but maybe on the cross-selling side, I think you mentioned a nice synergistic sale already, but any more details on synergies? Thanks.
Speaker Change #153: First quarter and as we look at the vapor business. So I think it's important to understand that business is not as seasonal as our business has been traditionally and so we might see a more.
Speaker Change #154: Cadence of that business quarter to quarter throughout the year as you're thinking about that on a quarterly basis.
Speaker Change #155: That's that's very helpful and just on vapor I guess, if I could ask one last one it sounds like integration is going very well and I think.
Speaker Change #156: You've got even called out some projects.
Speaker Change #156: This quarter, they're gonna be delivered then maybe on the cross selling side I think you mentioned a.
Speaker Change #157: A nice synergistic sale already but any any more of the details provided on on synergies. Thanks.
Bruce A. Thames: Yes, so, on synergies, first of all, you know, we have some supply chain synergies and some operational synergies that were factored into the financial returns, and we're progressing those well. You know, one of those is just the vertical integration of Thermon supplying all the heating elements. That transition has already been completed, and we're moving, really, we're actually on pace or ahead of pace in realizing the other cost synergies that have been identified as a business.
Speaker Change #158: Yeah, so on on synergies first of all.
Speaker Change #159: We had some supply chain synergies.
Speaker Change #159: And some operational synergies that were factored into the financial returns and we're progressing as well no. One of those is just the vertical integration.
Speaker Change #160: Vermont supplying all the heating elements that transition has already been completed and we're moving really we're actually on pace are ahead of pace and realizing your other the.
Speaker Change #160: The other cost synergies that had been identified as a business.
Bruce A. Thames: As we look at the sales synergies, again, I'll reinforce, none of those were factored into the financial returns, but, you know, we had noted on the last call that we had a number of opportunities that had been identified through the traditional Thermon sales channels that were not really in line of sight to the vapor power business and sales team. And we actually converted a couple, but one is really notable.
Speaker Change #161: As we look at the sales synergies again I'll reinforce none of those were factored into the financial returns, but we have noted in the last call that we had a number of opportunities that are ahead.
Speaker Change #161: It's been identified through the traditional Claremont sales channels.
Speaker Change #162: Yeah, we're not really in line of sight to the Viper power business and sales team and we actually we've converted a couple but one is really notable is a it's a very it's a large oh.
Bruce A. Thames: It's a very, it's a large college, university, or institution where they've purchased the system, and that's via Thermon's traditional sales channel. So that was over $2 million in bookings and would be delivered this year. And so if you think about, you know, what was a $50 million business, a couple million dollars in synergy sale, that has a significant impact when you think about the growth profile. So we're really very pleased with what we've identified through our current channels in the ability to help find and enclose on opportunities in the marketplace that really provide a broader reach than what the vapor power sales team and channels may have provided previously. So it's really a good early indicator.
Speaker Change #163: College University institution, where they've been.
Speaker Change #164: <unk> purchased the system and that's via Thermo as traditional sales channels.
Speaker Change #165: That was over $2 million in bookings in and will be delivered this year and so as you think about you know what.
Speaker Change #166: Was it $50 million business, a couple of million dollars synergy sale, having significant impact when you think about the growth profile. So we're really very pleased with what we've identified through our current channels.
Speaker Change #167: And in the ability to help find and close on opportunities.
Speaker Change #168: In the marketplace that that really provide a broader reach than male what the paper power.
Speaker Change #168: Sales.
Speaker Change #169: Jim and channels May have provided previously so it's really a good early indicator.
Unknown Executive: Excellent. Great to hear. Appreciate it, Tyler. Thanks.
Speaker Change #170: Excellent great to hear I appreciate all the color. Thanks.
Speaker Change #171: Thank you.
Operator: Thank you. Our next questions come from the line of Brian Drab with William Blair. Please proceed with your question.
Speaker Change #172: Thank you our next questions come from the line of Brian Drab with William Blair. Please proceed with your questions.
Brian Paul Drab: Hi, good morning. Thanks for taking my question. Good morning.
Speaker Change #173: Hi, good morning, Thanks for taking my questions.
Speaker Change #174: Well first of all good.
Brian Paul Drab: Morning, I just wanted to follow up on one of the questions that was just asked a second ago on on the margin trajectory through the year can you give a little more color specifically on gross margin I. My sense is that if we're going to lean a little bit more toward.
Unknown Executive: I just want to follow up on one of the questions I was just asked a second ago on the margin trajectory through the year. Can you give a little more color, specifically on gross margin? My sense is that if we're going to lean a little bit more toward, you know, MRO or small project type work that may be, that mix is favorable for gross margin. And can you just comment on that and how gross margin progresses as we go through the year here?
Brian Paul Drab: You know MRO or small project type work that maybe that that mix is favorable for for gross margin and <unk>.
Brian Paul Drab: Can you just comment on that and and how how does gross margin are you know proceed as we go through the year here.
Bruce A. Thames: Yeah, so good question, Brian. Certainly, as we would see weaker capex spending, we would anticipate some improvement in the gross margin profile, and certainly, some of the type of activity we're seeing in Canada, you know, particularly around turnarounds, would support that. So, you know, in a weaker capex environment, we would typically see some expansion in gross margins, and that should flow through to the margins as well.
Brian Paul Drab: Yeah. So good question Bryan certainly as we would see a weaker capex spending we would anticipate some improvement in our gross margin profile certainly.
Brian Paul Drab: Some of the type of activity, we're seeing in Canada, particularly around turnarounds.
Brian Paul Drab: To support that.
So you know in a weaker capex environment, we would typically see some.
Brian Paul Drab: Expansion in and gross margins in and that should flow through to EBITDA margins as well.
Brian Paul Drab: Okay.
Bruce A. Thames: Okay, and then Bruce, you commented on the Trans Mountain Pipeline completion, and I was wondering if you could elaborate a little bit on the potential impact on your business from that and also the timing of any potential impact.
Brian Paul Drab: Okay, and then Bruce you commented on the Trans Mountain pipeline completion, and I was wondering if you could elaborate a little bit on the.
Bruce: The potential impact on your business from that and and also the the timing of any potential impact.
Speaker Change #176: Yeah, well when would you think about our oil and gas business, we've got to.
Bruce: Greatest exposure in Canada, and and certainly that 590000 barrels of oil per day of incremental takeaway capacity is significant for the oil sands and they'll have to ramp up production to be able to fill that capacity and so certainly as they look at drilling, particularly in some of the sag.
Speaker Change #177: <unk> sites.
Speaker Change #178: We'll benefit from.
Speaker Change #179: That they will use our our heat tracing as well as their use our environmental he heaters.
Speaker Change #179: Some of the.
Speaker Change #179: The rigs and in some cases for equipment and various things so those tend to help support.
Speaker Change #180: Our revenues there.
Speaker Change #180: In Canada, when we see an increase in drilling activity.
Bruce A. Thames: Is that something that impacts Fiscal 25 then, or does that take some time to ramp up?
Speaker Change #181: So is that something that impacts fiscal 'twenty five or does that take some time to ramp up.
Bruce A. Thames: I would think we'd begin to see it this year, but certainly, you know, I'm not..., certain maybe what the timeline is for the ramp-up in that capacity, but we would see that really should be fairly well-correlated to that ramped-up incapacity to fill it.
Speaker Change #182: I would think we'd begin to see it this year, but then certainly I'm not.
Speaker Change #182: Certainly maybe what the timeline is for the ramp up in that capacity, but we would see that.
Speaker Change #182: Really.
Speaker Change #182: It should be fairly well correlated to that ramped up in capacity to fill that pipeline.
Brian Paul Drab: Great, and then I guess just the last question for now is, based on your comments toward the end of your prepared remarks, you talked about quoting activity. I think you mentioned a figure of $750 million. Potential Projects. Can you provide some framework of reference for everyone regarding that 750 and some of those other numbers that you gave it, you know, relative to history? I know those are really healthy levels, but could you kind of quantify that?
Speaker Change #183: Great and then I guess just the last question for now is.
Speaker Change #184: Just on your comments towards the end of the prepared remarks, you talked about the quoting activity I think you mentioned a figure of $750 million and.
Speaker Change #185: You know potential projects can you.
Speaker Change #185: Provide some frame of reference.
Speaker Change #185: For everyone regarding that 750 and some of those other numbers that you gave it you know relative to history.
Speaker Change #186: I know, there's a really healthy levels, but if you could kind of.
Speaker Change #186: Yes.
Speaker Change #186: Oh.
Bruce A. Thames: Just overall, our sales pipeline, our CRM pipeline for opportunities is in excess of a billion dollars right now, which is very robust, and we've seen growth year over year. I think that the thing that I'm noting here is that it's pretty heavily loaded towards the next, 24 months. You know, three-quarters of that pipeline is loaded towards the next, I would say, less than 24 months, probably more in the 20-month time frame. So, it's pretty heavily weighted towards the balance of 25 and through 26.
Speaker Change #187: Just overall our.
Speaker Change #188: Our sales pipeline, our CRE pipeline for opportunities is in excess of $1 billion, which is very robust and we're seeing growth year over year I think the things that I've noted here.
Speaker Change #189: Is that it's pretty heavily loaded towards the next.
Speaker Change #189: 24 months in fact.
Three quarters of that pipeline is loaded towards the next well I would say more.
Speaker Change #189: Less than 24 months, probably more in the 20 month timeframe. So it's pretty heavily weighted over the balance of 25 and $3 26, so that that is pretty significant and.
Bruce A. Thames: So, that is pretty significant, and as I look forward, the question is, when will we see those begin to convert? And so, we're watching that very closely, and we would anticipate that to begin to convert, you know, through the first half of the year and then begin to positively impact backlog. And of course, with larger capital projects, there'll be some delay in the timing of execution, which is, you know, factored into our guide for the fiscal year.
Speaker Change #190: And as I look forward. The question here is when will we see those begin to convert and and so we're watching that very closely.
Speaker Change #190: And we would anticipate.
Speaker Change #190: That to begin to convert through the first half of the year and then begin to positively impact backlog.
Speaker Change #191: Of course with larger capital projects there'll be some delay in the timing of execution, which is factored into our guide for the fiscal year.
Bruce A. Thames: So just to be clear, you're saying convert, like convert from, to actual orders and then convert to revenue is another step. I mean, it sounds like, I don't want to put words in your mouth, but it seems like the view is that it's going to be, you know, maybe fiscal, even fiscal 26 before you really meaningfully start to benefit from the revenue from that pretty significant pipeline.
Speaker Change #192: So just to be clear when you think convert they convert from.
Speaker Change #192: Pipeline to actual orders and then convert to revenue is another step I mean, it sounds like that.
Speaker Change #193: I don't want to put words in your mouth, but I mean, it seems like the view is that it's going to be you know maybe fiscal even fiscal 'twenty six before you really meaningfully start to benefit from the revenue from that.
Speaker Change #193: Pretty significant pipe quit.
Bruce A. Thames: It will be the latter part of this year and into Fiscal 26, when we go. So, yes, there are two conversions. One, convert from the pipeline to orders, which we would expect to start over the next couple of quarters. And then, second, to convert from backlog to revenue, which would then begin to follow that. And, you know, on average, our backlog takes around 12 to 15 months to execute. So it gives you a score, maybe the timing associated with it.
Speaker Change #193: It will be the latter part of this year and into fiscal 'twenty six when we woke up yeah. So yes. There's two versions one converted from a pipeline to orders, which we would expect to start over the next couple of quarters.
Speaker Change #193: Second to convert from backlog into revenue, which would then begin to follow that and you know.
Speaker Change #193: On average our backlog takes around 12 to 15 months to execute so it gives you a sense for.
Speaker Change #193: Maybe just the timing associated with that.
Bruce A. Thames: Again, the backlog is heavily weighted towards large capital projects.
Unknown Executive: Yep, I understand. Okay. Thanks for the detail.
Speaker Change #193: Yeah, very helpful backlog being heavily weighted towards.
Speaker Change #193: Large capital projects.
Speaker Change #194: Yeah understood Okay. Thanks for the detail.
Speaker Change #195: Thank you.
Speaker Change #195: Yeah.
Bruce A. Thames: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Bruce Thames for closing remarks.
Unknown Executive: Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Bruce <unk> for closing remarks.
Bruce <unk>: Yeah.
Bruce A. Thames: Well, thank you all for joining us today and for your interest in Thermon. Have a good day. Thank you. On behalf of the Thermon team, this does conclude today's teleconference. Thank you for your participation. Have a great day, and you may disconnect at
Unknown Executive: Alright, well. Thank you all for joining us today and for your interest in Vermont.
Speaker Change #198: Have a good day.
Speaker Change #198: Yeah.
Operator: Thank you. On behalf of the Thermon team, this does conclude today's teleconference. Thank you for your participation. Have a great day, and you may disconnect at this time.
Speaker Change #199: Thank you on behalf of the firm on team. This does conclude today's teleconference. Thank you for your participation have a great day and you may disconnect at this time.
Operator: ...
Speaker Change #199: Okay.
Speaker Change #199: [noise].
Speaker Change #199: Yeah.
Speaker Change #199: Okay.
Speaker Change #199: [music].