Q3 2025 Thermon Group Holdings Inc Earnings Call
Greetings and welcome to the <unk> 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.
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Please note that this conference is being recorded.
I will now turn the conference over to your host Yvonne Salem, Vice President of S. P N E and Investor Relations. Thank you you may begin.
Yvonne Salem: Thank you good morning, and thank you for joining derma groups.
Speaker Change: He's got 2025 third quarter results conference.
Yvonne Salem: Conference call.
Christine <unk>: Leading the call today are CEO, Christine <unk>, Chief Financial Officer, John Sharp.
Christine <unk>: Earlier. This morning, we issued an earnings press release, which was filed with the S. E. T on form 8-K, 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 I R. Kelly hurt earnings conference call.
Christine <unk>: Q3 2025.
Christine <unk>: During the call you did cause some items that did not conform to generally accepted accounting principles, we have reconciled those items to the most comparable GAAP measures in the tables at the end of the earnings Christy.
Christine <unk>: These non-GAAP measures should be considered in addition to and not a substitute for measures.
Christine <unk>: Financial performance reported in accordance with GAAP.
Christine <unk>: I would like to remind you that during this call we might make certain forward looking statements regarding our company.
Christine <unk>: Refer to our annual report.
Christine <unk>: Recent quarterly reports filed with the U S E T for more information regarding our forward looking statements, including the risks and uncertainties that could impact our future results.
Christine <unk>: 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.
Christine <unk>: The information for their development.
Christine <unk>: Except as may be required by law todays call will begin with remarks from our CEO, who will provide a review of our recent business before.
Speaker Change: Moving on update on the progress we have made to our strategic investments followed by a financial update and review from our CFO Jan Schott.
Speaker Change: I'll, 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.
Speaker Change: Thank you Rod and good morning to everyone joining us on the call today.
Speaker Change: I'll begin my comments during the third quarter highlights on.
Speaker Change: On slide three of our presentation.
Speaker Change: The third quarter was another period of solid execution by our global team has resulted in continued strength in our opex related revenue.
Speaker Change: Momentum strong margin capture and efficient free cash flow conversion.
Speaker Change: Based on our disciplined execution against our strategic priorities.
Speaker Change: Cash flow generation in this business and our strong balance sheet.
Speaker Change: Were strategically positioned to benefit from the improving demand problems, which we expect will translate to in a prudent way trajectory in the coming quarters.
Speaker Change: <unk> continues to benefit from our strategic focus on diversifying our revenue base and increasing our exposure to short cycle projects.
Speaker Change: For home related recurring revenue.
Do you think it's all good and a revenue base that is both more stable and more profit.
Speaker Change: We were also encouraged by the continued momentum in order trends during the third quarter and our strong backlog growth.
Speaker Change: Orders increased 11% on a reported basis and was modestly organic constant currency basis.
Speaker Change: It resulted in another quarter with a positive book to Bill.
Speaker Change: Importantly, our backlog increased nearly 48% on a reported basis and was up 9% organically with.
Speaker Change: The strong backlog growth is being driven by the solid order trends as well as a slightly extended backlog conversion I discussed last quarter.
Speaker Change: While the slower backlog burn has been a bit of a headwind to our near term revenue growth the higher backlog at heavy workload and engineering gives us increased visibility and growing confidence in our growth trends moving forward.
Speaker Change: No.
Speaker Change: Business mix was the key drivers that have 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.
Speaker Change: Mix was a key factor in improving <unk>.
Speaker Change: Also benefiting from cost savings and productivity initiatives, we instituted across the business.
Very pleased with our margin capture during the quarter and believe our third quarter profitability highlights mobile margin potential for the business providing confidence in the ability to achieve our long term profitability targets.
Speaker Change: And finally, our strict financial discipline resulted in strong free cash flow conversion during the quarter.
Speaker Change: During the first nine months of fiscal 2025, we generated 24.
Speaker Change: Cash flow, which is up 3 million from last year, despite slightly lower EBITDA.
Speaker Change: As a result, we paid down $12 million and get during the third quarter, bringing our net leverage at quarter end down to just over one times.
Speaker Change: So with that I'd like to turn to the third quarter results starting on slide four.
Speaker Change: Ken will go over the financials in more details on our long haul out of a few key items.
Speaker Change: We are focused on growing our diversified end markets.
Speaker Change: Oil and gas remains an important market for business and we're seeing improving trends in this sector.
Speaker Change: As already discussed we continue to experience improved order intake momentum during the third quarter, which was driven by broad market strength, including solid trends in chemical and petrochemical trades at general industrial and.
Speaker Change: In addition to a rebound in oil and gas.
Speaker Change: We're still seeing extended decision cycles on larger capital projects, we easily customer confidence is improving and we remain encouraged by the growing opportunities pipeline and strong quoting activity.
Speaker Change: Recent aggressive and broad approach to tariffs has unfortunately created additional uncertainty in the business.
Speaker Change: They've just been tradeoffs I mean, when the final outcomes are in question that we have not yet fully contemplated the particular impact on customer behaviors and the business.
Speaker Change: However, I'll need to take a moment to reinforce <unk> manufacturing strategy.
Speaker Change: We like to be close to our customers and our people our services and our manufacturing operations our footprint in both the U S and Canada allow us to produce in countries has been responsive to customers' needs.
Speaker Change: Our acquisition of bump you as a further move in this direction.
Speaker Change: While improving our competitive position.
Speaker Change: This approach also serves as a natural kids to fluctuations in currency and import duties.
Speaker Change: We are monitoring these trade negotiations closely as the magnitude breadth and duration of tariffs becomes clear.
Speaker Change: Jan will talk more about the tissue exposure later in the call.
Speaker Change: Our reported revenue declined by 2% during the quarter driven by the ongoing pressures in large capex projects.
Speaker Change: Our short cycle revenues remain resilient.
Speaker Change: Turning to slide five.
Speaker Change: Our opex revenues increased 13% during the third quarter and were essentially flat organically despite the challenging capex.
Speaker Change: The environment in our business on a trailing 12 month basis, our Opex revenues represented 84% of our total revenues.
Speaker Change: When you lose them consume range, just a few years ago.
Speaker Change: We do anticipate a rebound in large capital expenditures, which will have an impact on the mix front.
Speaker Change: The increased exposure to Opex revenues should continue to provide a more predictable and profitable revenue streams going forward.
Speaker Change: In addition to improving our revenue stability, our evolving business mix is driving enhanced margin performance.
Speaker Change: 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.
Speaker Change: Now I'm, turning to slide six and our strategic pillars.
Speaker Change: We continue to make important progress on our strategic priorities during the third quarter as evidenced by our favorable office revenue trends margin expansion and backlog growth.
Speaker Change: And in key aspect of our strategy has been our goal to reduce exposure to oil and gas sector.
Speaker Change: And as discussed last quarter, we achieved our FY 'twenty six goal of generating at least 70% of revenues from diversified end markets. While we remain committed to maintaining a further improving this measured oil and gas is still an important end market and put them on so we've been encouraged by the recent momentum we've seen in this business.
Speaker Change: In particular <unk>.
Speaker Change: Things picked up in our Canadian oil and gas business, driven by increased maintenance activity and drilling programs to support LNG exports and additional export capacity with a new condition Trans mountain pipeline.
Speaker Change: I will discuss our end 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 we expect we could see further momentum giving priority living within the industry.
Speaker Change: We remain focused on our disciplined capital allocation strategy, which is based on a balanced approach between investments and organic growth strategic M&A, maintaining financial flexibility and opportunistic return of capital.
Speaker Change: We continue to successfully integrate the recently acquired very little power and <unk> businesses five we generated solid financial results during our first quarter, along with new business.
Speaker Change: And very low power, 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.
Speaker Change: We purchased $6 2 million of our shares thus far during fiscal 'twenty five and has 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 one and half to two times net.
Speaker Change: Language range.
Speaker Change: Leaving us in a strong position to continue to execute on our capital allocation priorities.
Speaker Change: With that I'll turn it over to Jan who will provide more detailed review of our third quarter results before I wrap up with some remarks on our financial outlook.
Speaker Change: Jim.
Jim: Thank you Bree and good morning, everyone.
Jim: I'll review financial results for the quarter give an update on working capital and free cash flow and can claimed and comment on the balance sheet and the entity.
Jim: Moving now to slide seven.
Jim: Revenue in the third quarter was $34 4 million a year on year year over year decrease of one 5%.
Jim: And Oh power in Farsi combined to contribute 13 million of revenue during the third quarter.
Jim: Admissions revenues, coupled with continued resilience and opex revenues mitigated the impact of the ongoing headwinds in our large project business.
Jim: Excluding pay per tower in the bottom third quarter organic sales decreased 11% versus record results last year, namely a large project sales.
Large project revenue was $18 6 million during the third quarter down 45% from last year as customers continued to delay decisions on large capital projects.
Jim: Geographic geographically this weakness was primarily in the U S. Latin American region, and it's fairly consistent across our vertical are various Martin birchall.
Jim: Our Opex revenues were $115 8 million during the third quarter and increased 6% compared to last year as our customers continue to prioritize high maintenance and repair spending.
Jim: Excluding the contributions from paper tower in Boston, our Opex revenues were essentially flat in the quarter.
Jim: We believe that the state will result in our Opex revenues, despite the challenging capital spending environment demonstrate the benefits of our long term customer relationships.
Jim: Solve base and the resilience that MRI spend they are customers.
Jim: Demand in Canada remained favorable with sales of $43 5 million up 6% year over year.
Jim: <unk> sales were $13 8 million up 11%.
Jim: APAC sales at $9 8 million declined 3% and U S. Latin America sale of $67 2 million declined 8% driven by the continued contraction in large project sales.
Jim: As we are discussing our geographic graphic expenditure I mean, well take a quick minute and build on Bruce's comments regarding insurance.
Jim: At this point the tariff situation is very fluid and it's clearly too early to predict what the ultimate impact might be in that sense.
Jim: Fortunately as already highlighted our manufacturing strategies in place to our customer.
Jim: Insulate us from any potential tariffs.
Jim: Our total cost of goods sold extended U S. Canada, Erin is roughly 10% and our products were not impacted by the initial countermeasures, Canada had in the past.
Jim: We believe that our Mexico and China exposure is limited given we have no manufacturing presence and the combined markets represent roughly 5% of revenue.
Jim: Adjusted EBITDA was $31 8 million during the third quarter.
Jim: 37 million last year, an increase of 3%.
Jim: Strength in our short cycle revenues and the contributions from vapor power and party.
Jim: These were partially offset.
Jim: And our project revenue and continued investments in growth initiatives.
Jim: Adjusted EBITDA margin was 23, 7% during the third quarter.
Jim: 22, 5% last year equally more favorable revenue mix and productivity gains from operational excellence initiatives.
Orders during the third quarter were 139 million compared to $124 million in the same period last year, an increase of 11, 4%.
Jim: And then N.
Jim: And our order trend highlighted by notable strength in Petro Chem transit and when gas.
Jim: Importantly, nearly 70% of our incoming orders and the order of once again from diverse end markets.
Jim: It resulted in solid order momentum backlog was $235 6 million at the end of the third quarter at 48% compared to the third quarter last year explaining.
Jim: Explaining based on power and funded backlog increased 9% on an organic basis.
Jim: Moving to slide eight.
Jim: For an update on our balance sheet and liquidity.
Jim: Working capital decreased by 7% to $177 2 million at the end of this important.
Jim: We continue to fine chain optimization efforts, while in Freebee lead times and on time delivery to our customers.
Jim: Capex was one 4 million during the third quarter at 25 down from $2 2 million last year.
Jim: As a result of our strict financial discipline free cash flow was $8 5 million in the quarter, bringing our year to date free cash flow to 24 million or $3 million or 14% from the same period last year.
Jim: We believe our focus on working capital management and solid operating results will deliver another year of strong free cash flow conversion.
Jim: We paid down $12 million of debt during the quarter, bringing our net debt balance to 115 million net leverage was one one times at the end of the third quarter down from one five times last year.
Jim: This past October we completed the consolidation of our Denver facility and the sale of the property, which brought in net cash of $5 8 million and a gain of about three 9 million a quarter.
Jim: In summary, we are pleased with our financial execution during the quarter as we made further progress on operational excellence initiatives and we generated strong free cash flow, which enabled us to reduce our leverage.
Jim: Based on our total cash and available liquidity of $136 million, we remain well capitalized and have ample flexibility to continue to support our capital allocation needs, which will be a balance of investments in growth debt paydown and opportunistic share repurchases.
Bruce: With that I will turn the call back over to Bruce.
Bruce: Thanks Jan.
Bruce: Before I wrap up with our financial outlook I thought it might be helpful to provide some updated thoughts on what we're seeing in some of our key end markets as we enter the new calendar year, particularly with the new administration taking over.
Bruce: Over the last several quarters the industry, even Spain headwinds due to the pause in large project capital spending, particularly in the U S alone. We believe as delayed investment decision timelines over the last year was due in large part to the uncertainty surrounding interest rates the presidential election and the overall.
Bruce: Tommy.
Bruce: While the timing and magnitude of Britain fed easing is yet to be determined and the macro economic environment is still uncertain customer confidence appears to be improving particularly with the election now behind us while our global momentum with Q4's remain robust we haven't yet been English.
Bruce: Threat of tariffs may impact customer behavior going forward.
Bruce: The improved order momentum and quoting activity.
Bruce: So over the last couple of quarters have been broad based I'd like to provide some color on some of the key areas of strength.
Bruce: First while we are focused on growing our diversified end markets oil and gas remains an important market for our business and we're seeing improving trends in this sector.
Bruce: LNG project activity is notably increased following the lifting of the hold previously placed on new LNG export permanents, given our technical capabilities and customer relationships, we are well positioned to benefit as project activity resumes.
Bruce: We continue to see favorable trends in our tower business due in large part to increasing demands on cut on the grid driven by growth in population Datacenters. The movies between the illustration recently announced projects target, which will provide up to 500 billion funding for competing in.
Bruce: This structure in support of AI.
Bruce: This program is made of 100 billion funding available immediately with 10 data centers already under construction in Texas.
Speaker Change: Slide nine you can see an example of an electric ballroom being used and loan banks and liquid data centers to stimulate both the heat and electric along these facilities during the startup phase.
Speaker Change: These systems are also used for maintenance and testing drunk of life in the data center.
Speaker Change: While liquid cooled data centers represent only 10% of the market today. They have these distinctive brand is being more cost efficient and allowing higher server densities.
Speaker Change: We've estimated that we couldn't data centers represent as much as 40% 50% of the new data centers planned for construction in 2025.
Speaker Change: Another area of strength has been in chemical and petrochemical markets growth projections for the sector range from 5% to 6% through 2034, and our sales pipeline shows. This is the largest sector representing 16% of the total opportunities through FY 'twenty seven.
Speaker Change: Overall, we continue to be encouraged by the growing momentum in our business, particularly in some of the markets that had been facing headwinds over the last year, such as LNG and oil and gas is.
Speaker Change: This improved momentum combined with favorable secular trends, we have been getting from such as <unk>.
Speaker Change: Ensuring electrification and decarbonization with increased confidence in our growth trajectory and we're beginning to see this in our food clothing activity oil rates and backlog growth.
Speaker Change: Before I discuss arent, therefore in 2020 five financial outlook.
Speaker Change: I want to provide some brief comments on the fiscal 2020, which targets we provided at our 2023 Investor day.
Speaker Change: Currently the wrong thing or implied 26 plan and we will provide full year guidance. When we report on our fourth quarter results in May.
Speaker Change: I do want to provide some additional color on our targets, which includes $6 million to $700 million in revenue and adjusted EBITDA margins of approximately 24% and at least 70% of revenues being derived from the diverse end markets.
Speaker Change: The team has made tremendous progress towards obtaining these objectives over the last four years driving revenue growth diversification and EBITDA margin expansion and while we remain confident in our ability to achieve these goals. There are two key factors outside of our control that will affect timing first will be the.
Speaker Change: Overall macroeconomic backdrop and second the timing and magnitude of acquisitions in our M&A pipeline without strengthened both the timeline for achievement will likely push beyond fiscal year 2026.
Speaker Change: And now, let's turn to slide 10, I'd like to discuss our outlook for fiscal 2025.
Speaker Change: Based on everything we shared this morning, we're maintaining our full year 2025 guidance that calls for revenue in the range of 495 million to $550 million.
Speaker Change: Adjusted EBITDA in the range from $105 million to $110 million and adjusted EPS in a range of $1 77 to $1 89 per share.
Speaker Change: The contingent impacts from tariffs have not been contemplated in this guidance.
Speaker Change: Finally, just to wrap things up on slide one.
Speaker Change: We are optimistic in our business outlook and the opportunities ahead, we remain as strong as ever.
Speaker Change: We made significant progress in developing a business that is more stable profitable and durable across sites.
Speaker Change: These are large and growing installed base provide us with a resilient aftermarket franchise, which gives us access to a steady stream of predictable and highly profitable MRI revenues.
Speaker Change: We also remain well positioned to benefit from several several secular growth drivers, including the energy transition and decarbonization onshore North America and infrastructure spending.
Speaker Change: We remain confident in these trends and we believe that the recent spending delays are only starting to create pent up demand when customer confidence improves.
Lastly, we benefited from a high margin low capital intensity business that yield significant cash flow, we continue to maintain strong financial discipline and with leverage of just over one times, we have the flexibility to pursue our capital allocation priorities.
Speaker Change: We remain focused on following a disciplined approach to capital allocation.
Speaker Change: And we will balance these priorities all with a focus on creating long term shareholder value.
Speaker Change: That completes our prepared remarks, and we're now ready for the question enhancement portion of our call.
Speaker Change: Thank you.
Speaker Change: At this time well conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Once they get to ask a question press star one on your telephone keypad.
Speaker Change: And our first question comes from Brian Drab with William Blair. Please state your question.
Brian Drab: Hi, good morning, Thanks for taking my questions.
Speaker Change: Hmm.
Speaker Change: Morning.
Speaker Change: The point in time revenue.
Speaker Change: $99 million. It was a I think an all time record and I'm just wondering if you could.
Speaker Change: You know I talk about that.
Speaker Change: That that number a little bit and then the dynamics I mean, I know, it's obviously the the heating season that drives that.
Speaker Change: At this time of year to be strong, but it is there.
Speaker Change: Anything else in there that was unusual in the in the quarter and as are we.
Speaker Change: We are reaching kind of a new base line level I mean again acknowledging that this is a seasonally strong period, but like a new baseline level of.
Speaker Change: A point in time revenue are going for.
Speaker Change: Yeah, Brian So a couple of things to note first of all we have.
Speaker Change: Have seen a more normalized senior citizen and and so that has certainly contributed and we have been focusing on driving recurring revenues on the installed base. It's been acute piece of the strategy and we're seeing success in those efforts and then also we've had contributions from some of the New Act.
Speaker Change: Physicians with point in time revenue generated through those as well and so when you think about those things combined yes, I think the.
Speaker Change: The point in time, our revenues as far as volume levels, where we were.
Speaker Change: I mean are are really a step change in in our business and something we will continue to drive on a go forward basis.
Speaker Change: Okay, great and Oh and by the way I guess I should round up to $100 million was 99.6 [laughter].
Speaker Change: And and following on to that.
Speaker Change: No.
Speaker Change: Bruce you can envision.
Speaker Change: But at some point.
Speaker Change: You know, maybe it's a few quarters from now where the overtime large.
Speaker Change: Revenue lines has kicked back in and then you have this.
Speaker Change: A point in time, you know foundation that larger I mean, it seems like you know once that.
Speaker Change: Overtime large kicks in.
Speaker Change: You know that that's where your that's your target that's your expectation for a few quarters from now.
Brian Drab: Yes, Brian.
Zinc cobalt things alone.
Speaker Change: Our focus has been heavily on driving recurring revenues on the install base, but we really can't lose sight of the fact that growing that installed base through overtime and project activity is really how we continue to drive growth. So we are still very focused on the capex piece of our business.
Brian Drab: As a means to grow that installed base.
Speaker Change: Given the bookings momentum.
Speaker Change: Given the backlog growth organically of 9%.
Speaker Change: Given the loan that we currently have in our engineering organization.
Speaker Change: And the overall quoting activity.
Speaker Change: Pointing towards.
Speaker Change: Our return to capital spending and growth there.
Speaker Change: We do see that we would expect to see this revert back and they were at a very high mix of <unk>.
Speaker Change: Opex related spending that one probably.
Speaker Change: Begin to move back towards the 75% range whenever we do see this capex cycle.
Speaker Change: Our improved and customers begin to release.
Our capex spending.
Speaker Change: And can you talk a little bit about the potential for.
Speaker Change: The release of some of that large.
Speaker Change: Our capex spending and <unk>.
Speaker Change: Specifically, you mentioned LNG projects or what what other types of projects I know you've talked about hydrogen and biofuel projects.
Speaker Change: How how about also combined cycle natural gas plants and you know what what is in the you know what what kind of big projects might we expect to hear you talking about in the next you know.
Speaker Change: Call It four quarters next year.
Speaker Change: One of the big things that we've seen.
Speaker Change: Really since the new administration has been in place and they've lifted the ban on export of LNG export permits is there's been a really big.
Speaker Change: Surge of activity around LNG, and so a lot of those projects largely along the Gulf coast are moving forward and as I had noted in the prepared remarks.
Speaker Change: Our technical.
Speaker Change: Capabilities, the breadth of our solution set and our customer relationships position us well to take advantage of that the other areas, where we see the emphasis on.
Subsidies around.
Speaker Change: Wind solar Evs.
Speaker Change: We do expect to see a pickup in combined cycle natural gas fired plants.
Speaker Change: And we are that's really front and center for our marketing really very well positioned to take advantage there.
Speaker Change: Also see.
Speaker Change: Renewed interest in nuclear.
Speaker Change: And so we've seen some of those projects around Refurbishments and an expansion in North America.
Speaker Change: One of the things, we're really excited about and as we move further out but we just won a very nice engineering award for small modular reactors for a customer.
Speaker Change: Customer in Europe, and so we're excited about that and being able to participate in the development of that technology.
Speaker Change: We're building.
Speaker Change: Some about three gigawatts of capacity in Central Europe. So those are some of the areas we've seen movement Petro Chem Jim.
Speaker Change: Ah remains strong it's been a bright spot general and industrial as well and certainly we will see what happens.
Speaker Change: It happens with tariffs and that's very fluid but.
Speaker Change: That could drive more onshoring in the U S, particularly which would be a tailwind as well.
Speaker Change: Okay and then.
Speaker Change: The last question for now could you comment on gross margin, which was.
Speaker Change: Obviously, a function of a strong point in time revenue, but.
Speaker Change: Comment on that and I think what it is.
Speaker Change: It's got to be the highest gross margin that we've seen for many quarters at least maybe maybe a few years, but you know how how should we expect gross margin.
Speaker Change: To look in the fourth quarter and maybe beyond if you can give us a sneak peek into next year.
Speaker Change: Yeah. So I think the assumption we've got in the fourth quarter is.
Speaker Change: We are going to begin to see a stronger mix of projects in the fourth quarter now.
Speaker Change: I think one comment.
Speaker Change: <unk> Bank is.
Speaker Change: We've got to see the customer sentiment shift if we don't see movement, there, which we've seen some positive indications that you don't see movement there I think.
Speaker Change: There could be some.
Speaker Change: Downside.
Speaker Change: Probably land on the lower end of our revenue guidance, but.
Speaker Change: Gross margins would be quite strong and still put us in the midpoint of our EPS guidance. So I think that's important.
Speaker Change: So even though when I look at gross margins Miss is about half of the improvement year over here. The other half is related to productivity.
Speaker Change: And continuous improvement initiatives as well as price so it's pretty evenly balanced.
Speaker Change: And I would go on to say that organically gross margins are quite strong we've seen about 164 basis points dilution from the acquisitions, but we're very confident that we can bring those businesses up to the similar margin profile over say the next 18 to 24.
Speaker Change: Months.
Speaker Change: Okay, I am going to ask one more just because I think that's important to make sure that I and everyone has the clear you're saying.
Speaker Change: It's likely that you'd be it for the full year closer to the end and go closer to the low end of the revenue range, but gross margin, although maybe down a little sequentially solid.
Speaker Change: Margin overall solid putting you at the midpoint closer to the midpoint of the EPS range for the for the full year.
Speaker Change: Is that right, yes, dubious the risk will be Brian is just on project execution in the quarter.
Speaker Change: Should that continue to drag we would expect to be on the lower end of the revenue guide, but India midpoint of the EPS guide given the margin profile of the business.
Speaker Change: Yeah.
Speaker Change: Thanks very much.
Speaker Change: Thank you.
Your next question comes from Chip Moore with Roth Capital Partners. Please state your question.
Chip Moore: Good morning, Hey, Thanks for taking the question.
Chip Moore: On some of this already but he papers you touched on some of this but maybe you can provide a little more color on I guess, just just the current bid pipeline and make up since the new administration took over in January and then you talked about some of the puts and takes for fiscal 'twenty six.
Chip Moore: Maybe talk about the biggest things you're watching there obviously M&A is time independent but.
Chip Moore: Any thoughts on 'twenty six.
Chip Moore: Yeah.
Chip Moore: Yeah. So you know first of all.
Chip Moore: We will give full guidance in our May earnings call for fiscal 2026.
Chip Moore: I would say at this time given.
Chip Moore: <unk> used the quote volume and what we believe is.
Chip Moore: Improving customer sentiment and optimism, but I'd say, we're cautiously optimistic about.
Chip Moore: Growth in FY 'twenty, six returning to that organic growth and then certainly.
Chip Moore: The contributions of the acquisitions in.
Chip Moore: In addition to that so.
Chip Moore: We are cautiously optimistic about an improving overall scenario, particularly as it relates to our larger capital spending.
Chip Moore: And then come in the coming year.
Chip Moore: Since the new administration has been in place we have seen a resurgence in quoting activity.
Chip Moore: A number of different projects, so I would say.
Chip Moore: Oil and gas activity has picked up.
Chip Moore: You know in Canada, we've actually seen growth there year over year, which.
Chip Moore: Which we've noted and so that's been very positive I think part of that is.
Chip Moore: Related just to a more normal winter, but also just MRO spending with with our customer base.
Chip Moore: Very helpful.
Chip Moore: And I guess, a follow up on tariffs I think you did a great job outlining.
Chip Moore: Hey.
How those could impact you is the risk maybe more indirect around.
Chip Moore: Some of that.
Chip Moore: Project capital spend.
Chip Moore: And that uncertainty is but that's something you're concerned about.
Chip Moore: Yeah I think.
Chip Moore: We understand well.
Chip Moore: Roughly and it depends on the magnitude and the breadth and the duration of.
Speaker Change: Are there any types of tariffs and the impact on the business or our approach to.
Chip Moore: Business and our manufacturing philosophy really.
Chip Moore: In country for country helps to insulate us for.
Chip Moore: Some of this the real unknown is.
Chip Moore: What impact might this have on customer sentiment.
Chip Moore: And so that gives us a little ball grid.
Chip Moore: Like to see where things land.
Chip Moore: And and really understand our customers may or may not react or respond.
Chip Moore: Helpful. Maybe I could ask one last one.
Chip Moore: Liquid cooling in the data center very interesting I haven't I haven't thought about that as people are trying to get the heat out so.
Chip Moore: So interesting opportunity for you is that is that a market you are.
Chip Moore: It's still nascent but is that a market you are active in already or how are you thinking about that opportunity and then maybe you paid $6 two sides of it as well.
Chip Moore: Yeah. So yeah. That's a good question. So we've been trying to highlight where we play in some of these opportunities. This is a very nice and very new.
Speaker Change: I'll tell you we've won three orders that totaled around $10 million and we've identified a very large market opportunity we believe.
Chip Moore: That will be developing on a go forward basis and so.
Speaker Change: We're excited about the application.
Speaker Change: And one illustration of how we play certainly when we think about demand.
Speaker Change: Demand growth for power.
Speaker Change: That's driven by data centers Evs population growth.
Speaker Change: Well positioned to benefit from that and especially in <unk>.
Speaker Change: Changes in environmental Regs that we'll make.
Speaker Change: Natural gas fired power plants are more in favor of that.
Speaker Change: That certainly is going to be an area of benefit but this is another area. We've identified and we've won some nice business just in the last.
Speaker Change: Two quarters.
Speaker Change: Very good color I appreciate it thank you Bruce.
Speaker Change: Your next question comes from.
Speaker Change: Your next question comes from Jon Braatz, with Kansas City Capital. Please state your question.
Bruce Good morning, Jim.
Jim Petro: Good morning, John.
Speaker Change: It's just some commentary if you could on your SG&A spending continues to be pretty high and.
Speaker Change: And I know you're investing on growth initiatives and so on but as we look ahead would that begin to ease a little bit and and and we begin to see some some leverage on that on that line.
Speaker Change: I think on the new years more on the near term.
Speaker Change: We would expect it to be relatively flat and going forward and that's really a function of that.
Speaker Change: Just yeah. It does.
Speaker Change: If you look historically the M&A that we added on with Buffy and empowered them. Then I would say you know when we work with the third quarter, probably staying flat for the near term going forward at that rate.
Speaker Change: And at that dollar rate or.
Speaker Change: The ratio.
Speaker Change: That's all right.
Speaker Change: Sorry, what.
Speaker Change: S dollar rate, okay, Okay, alright, okay, and and the acquisition a $13.3 million contribution.
Speaker Change: In the quarter I will I guess I was looking for a little bit more but hum.
Speaker Change: Can you parse it out a little bit between vapor and and and the Italian acquisition and <unk>.
Speaker Change: Paper continuing it has been Ah is.
Speaker Change: We're continuing to perform in line with your expectations.
Speaker Change: Yeah, John So couple of things one is revenues from acquisitions were below our expectations.
Speaker Change: And our first quarter of ownership actually performed exceptionally well.
Speaker Change: Uh huh.
Speaker Change: Resistors are monitored there's about a $12 5 million.
Speaker Change: Zero in 12, trailing 12 revenue business with <unk>.
Speaker Change: Backlog of $15 million, so very strong backlog.
Speaker Change: The challenge there is really around growing capacity in fact this week, we've got teams they're doing cat events.
Organizers and factory floor and working to improve throughput.
Speaker Change: Vapor is a business that really fell short well we had some a couple of major projects.
Speaker Change: Major orders that we're going through production and it did not convert in the quarter and so we felt fairly short.
Speaker Change: In revenue and <unk>, and we expect to pick up some of that in.
Speaker Change: In the fourth quarter, but our big focus there is on the increase in capacity both on the factory floor as well as in the supply chain and in order to convert what is roughly a $45 million backlog in that business and what we've seen really strong market momentum.
Speaker Change: We had another quarter of positive book to Bill in that business and so we're excited in the Boston market potential for growth, but we really got to work through some of the capacity constraints to take full advantage of it.
Speaker Change: And I will add just.
Speaker Change: Even with that said you know our measure for kind of evaluating our M&A on first year Creatives, we were about flat with micropower ruling that that trend that kind of reversed out and be accretive going forward.
Speaker Change: Nice quarter.
Speaker Change: Okay. Thank you and interest on the LNG front.
Speaker Change: Obviously, theres a big opportunity there.
Speaker Change: And.
Speaker Change: In December the D. O you came out with their LNG report and it wasn't that flattering and and I know that.
Speaker Change: Jumping administration has to come up with a a rebuttal sort of speak.
Speaker Change: And I guess I am.
Speaker Change: And I don't know how holiday how concerned the industry is.
Speaker Change: No that's a pause has been lifted.
Speaker Change: If the if the rebuttal reports sorta speak isn't all that strong.
Speaker Change: Or are we just going to see some additional lawsuits are filed and.
Speaker Change: And things just get further a further pushed to the right in the LNG area and I guess, what how how.
Speaker Change: How is the industry thinking about that.
John So: Yeah, John I'll tell you just from R. R.
Speaker Change: Our customer engagement.
Speaker Change: It feels like they're very positive on the outlook.
Speaker Change: Being able to.
Speaker Change: Secure permits on a go forward basis, we've also seen.
Speaker Change: A number of customers take existing permits.
Speaker Change: And use those and expand the plans for the capacity for export. So we've seen some of that type of activity and I'll be honest I don't really have.
Speaker Change: An opinion or any insight or information as to any.
Speaker Change: Litigation or legal actions that may happen.
Speaker Change: Alright, Thank you very much.
Speaker Change: Thank you. Thank you.
Speaker Change: Thank you and there are no further questions at this time I'll hand, the floor back to management for closing remarks.
Diego: Alright, Thank you Diego and thank you all for joining on the call today.
Speaker Change: Appreciate it we don't speak to you between now and the May timeframe, we look forward to reporting out on a full year.
Diego: At the end of May.
Speaker Change: Thank you with that we conclude today's call. All parties may disconnect have a good day.