Q4 2025 Thermon Group Holdings Inc Earnings Call
Greetings and welcome to the stair mining group Holdings.
Fourth quarter fiscal year 2025 earnings presentation.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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Please note that this conference is being recorded.
Speaker Change: I'll now turn the conference over to our host Yvonne Salem, Vice President S. P. N E and I are thank you you may begin.
Speaker Change: Thank you good morning, and thank you for joining Thermo group fourth quarter and full year fiscal 2025 results conference call.
Bruce: Leading the call today are CEO, Bruce <unk>, and Chief Financial Officer, John Shaw.
Bruce: Earlier. This morning, we issued an earnings press release, which has been filed with the SEC on form 8-K.
Bruce: Also available on the Investor Relations section section of our website.
Speaker Change: The slides for this conference call can be found in our IR website under news any Ben I, Our calendar earnings conference call Q4 2025.
Speaker Change: During the call we will discuss some items that did not conform to generally accepted accounting principle.
Speaker Change: We have reconciled those items to the most comfortable GAAP measures in the tables at the end of the earnings press release.
Speaker Change: These non-GAAP measures should be considered in addition to not as a substitute for measures of financial performance reported in accordance with GAAP.
Speaker Change: I would like to remind you that during this call we might make certain forward looking statements regarding our company.
Speaker Change: Please refer to our annual report and most recently quarterly report filed with the SEC for more information regarding our forward looking statements.
Speaker Change: The risks and uncertainties that could impact our future results.
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 future developments or otherwise.
Speaker Change: Except as may be required by law today.
Speaker Change: Today's call will begin with remarks from our CEO, Bruce Lee, who will provide a review of our recent business performance.
Speaker Change: An update on the progress we have made on our strategic initiatives.
Speaker Change: Hello by a financial update and review from our CFO Jim Schott.
Speaker Change: Bruce will then wrap up our prepared remarks with an update on our outlook.
Speaker Change: At the end at the conclusion of these prepared remarks, we will open the line for questions with that I'll turn the call over to Bruce.
Bruce Lee: Thank you Ivan and good morning to everyone joining us on the call today.
Bruce Lee: I'll begin my commentary with a fourth quarter highlights, which we detail on slide three of our presentation.
Speaker Change: The fourth quarter was another period of solid execution by our team, which resulted in further strength in our opex recurring revenues.
Speaker Change: <unk> bookings momentum and strong margin expansion.
Speaker Change: Over the past couple of quarters, we detailed how our team has remained focused on our key strategic priorities, despite the difficult market conditions well.
Speaker Change: Well Capex revenue trends in recent quarters were weaker than we would have liked we remain confident that the positive order momentum in our business would translate to an improved growth trajectory.
Speaker Change: During the fourth quarter, our hard work and dedication paid off as we generated 3% organic growth during the quarter. The first in over a year.
Speaker Change: These order trends have improved across a range of verticals, most notably the LNG market.
Speaker Change: After the moratorium on LNG exports from the U S was lifted earlier this year activity has resumed and we are seeing increased bidding and project awards.
Speaker Change: The activity around natural gas is broad based with numerous projects underway in the Gulf coast and the Middle East.
Speaker Change: We built a strong portfolio of products targeting the LNG market have secured five major awards and are well positioned to capitalize on numerous other opportunities in our pipeline.
Speaker Change: This bookings momentum resulted in a fourth consecutive quarter with a positive book to Bill.
Speaker Change: As a result, our backlog as of March 31 increased 29% from last year with the organic backlog up 20% driven.
Speaker Change: Driven by momentum in diversified verticals, coupled with a rebound in certain oil and gas markets.
Speaker Change: We also made further progress on our operational excellence initiatives, which combined with a more favorable revenue mix translated to an EBITDA margin of 22, 7% during the fourth quarter, a 423 basis point improvement relative to Q4 of last year.
Speaker Change: These results underscore the strength of the <unk> business system and resilience of our business operating model.
Speaker Change: And finally, our strict financial discipline and improved operating profitability enabled us to finish fiscal 2025, and a strong financial position with net leverage of just under one times.
Speaker Change: Importantly, we were able to accomplish this while continuing to invest in our growth initiatives, while also making nearly $14 5 million and optional debt repayments and returning over $14 million in capital to shareholders through our share repurchase program all in the fourth quarter.
Speaker Change: As a testament to our solid financial position. The board has approved refreshing our share repurchase authorization back to the initial $50 million underscoring our optimism for the future.
Speaker Change: Turning now to reflect on fiscal 2025.
Speaker Change: I'm extremely pleased with our team's performance delivering another record year of revenue and adjusted EBITDA. Despite what was a very challenging operating environment.
Speaker Change: On slide four we provide a snapshot of our 2025 highlights.
Speaker Change: Our $498 million and revenue was up just 1% over prior year, Despite a 37% decline in large capital projects.
Speaker Change: Our diverse revenue base, making up over 72% of our end market mix along with growth in recurring revenues and strategic M&A were instrumental in delivering this year's results.
Speaker Change: We generated an adjusted EBITDA margin of 22% during fiscal 2025, which was up 86 basis points from last year.
Speaker Change: Reflecting our more favorable revenue mix and productivity gains through the implementation of the <unk> business system.
Speaker Change: Our earnings growth.
Speaker Change: And solid gross margin expansion of 196 basis points delivered 53 million and free cash flow during the year more.
Speaker Change: More importantly, we generated 536 million in bookings during the year with a book to Bill of 1.08 times, demonstrating the favorable trends in our end markets, our strong competitive position and the hard work and dedication of our team.
Speaker Change: Our three D initiatives, which we'll discuss in more detail later on the call contributed $93 million in revenue during the year.
Speaker Change: The R&D team also announced 28, new product and software releases during fiscal 'twenty five advancing our solution set from digitization to diversification and de carbonization as as well as in the core business.
Speaker Change: The advancement of our strategy positions us well as we enter our fiscal year with solid momentum, which we illustrate on slide five.
Speaker Change: The addition of vapor power.
Speaker Change: Has expanded our addressable market, increasing our sales pipeline by 25%, even though the business represents just 11% of total revenue today.
Speaker Change: The favorable book to Bill underpinned by strong order trends in recent quarters has resulted in backlog growth on a year over year basis, while there's broader macro uncertainty we remain encouraged by the favorable trends in our key end markets, which is reflected in our strong bid pipeline, which is up 25%.
Speaker Change: From the end of last year.
Speaker Change: As we anticipate the opportunities ahead in fiscal 2026.
Speaker Change: I would like to take a moment to reflect on the strides we've made in advancing our strategic initiatives during fiscal 2025.
Speaker Change: Now turning to slide six where we highlight our key strategic pillars.
Speaker Change: First growing our installed base.
Speaker Change: Second de Carbonization, digitalization and diversification and third.
Speaker Change: Disciplined capital allocation.
Speaker Change: These pillars underpinned by our dedication to operational excellence form the basis of our long term value creation framework.
Speaker Change: I will begin on slide seven with growing the installed base.
Speaker Change: Over the past 70 years, we've cultivated a law.
Speaker Change: Loyal customer base that is the foundation of this business and continues to drive meaningful results even in challenging market conditions.
Speaker Change: During fiscal 2025, our organic revenues declined only 8% despite a decline in large prevalent project revenues of nearly 40%.
Speaker Change: On a trailing 12 month basis, our Opex revenues represented 85% of our total revenues up from the low 70% range, just two years ago, providing a more stable and.
Speaker Change: And predictable base of revenues.
Speaker Change: As importantly, these opex revenues carry significantly higher gross margins typically in the 40% to 65% range well above the levels in our large project business.
Speaker Change: On slide eight we underscore the critical components of our second strategic pillar pursuing diversification de carbonization and Digitization.
Speaker Change: Otherwise known as our three D initiatives to achieve growth above and beyond GDP.
Speaker Change: By capitalizing on these transformative opportunities and expanding our presence in higher growth diversified markets. We are positioning the company for sustained profitability and long term competitive advantage.
Speaker Change: Diversifications flown shown here on slide nine has been an area, where we've exceeded our expectations.
Speaker Change: The goal of 70% of revenue from diverse end markets was achieved at the beginning of fiscal 'twenty five almost two years early was the most significant insights from fiscal 2017 is the remarkable 220% revenue growth driven by diversification across multiple end markets.
Speaker Change: It's even as oil and gas revenues contracted.
Speaker Change: As we look forward, we remain committed to further diversifying our revenue base through new product introductions and expanding into new emerging markets, such as data centers and nuclear power.
Speaker Change: That said, our longstanding oil and gas customers remain an important part of the Fairmont business at roughly 30% of our total revenues.
Speaker Change: We've been encouraged by the recent LNG project activity, which we view as a bridge fuel for years to come.
Speaker Change: These pockets of strength, we're seeing contributed to our Q4 bookings with oil and gas up over 50% from last year base.
Speaker Change: Based on the priorities of the newest administration, we're optimistic this momentum can continue.
Speaker Change: Turning now to slide 10, the de Carbonization opportunity remains a critical aspect of our strategy as we look to leverage existing solutions and new product development to meet our customers' decarbonization and electrification needs. The electrification of industrial heating is still in its early stages and we built both the.
Speaker Change: [noise] competencies and breadth of solutions to enable this transition.
Speaker Change: The acquisition of vapor power in fiscal year 'twenty for expanded our product portfolio, while increasing our total addressable market for decarbonization and electrification opportunities with the pipeline growing 70% and.
Speaker Change: And revenues, increasing 85% over fiscal year 'twenty four.
Speaker Change: During fiscal 2025, we took another important step to further advance our de carbonization strategy with the acquisition of Bacci.
Speaker Change: This acquisition brought us a very well respected brand of heating solutions that is highly complementary to our legacy port folio, while expanding our global manufacturing footprint.
Speaker Change: Since acquiring the business the <unk> backlog is essentially doubled due to strong demand from thermal and legacy customers.
Speaker Change: In addition to our inorganic growth we have built advanced software analytic tools to validate designs and launched several new products that reduce the total cost of ownership for our customers.
Speaker Change: While the policy shift in the U S has led to a slowdown of de carbonization conversion rates Europe continues to invest in the energy transition.
Speaker Change: As outlined on slide 11, we remain highly encouraged by the significant strides we've made in advancing our digitization strategy. The continued investment in our Genesis control offerings reflects our unwavering commitment to delivering leading controls and monitoring solutions that empower our.
Speaker Change: Customers with real time operational insights enhancing safety reliability and efficiency. These.
Speaker Change: These solutions now constitute 12% of our total heat tracing revenue a clear testament to its growing impact.
Speaker Change: Furthermore, fiscal 'twenty twenty-five saw remarkable growth in our Justice network installed base, where circuit counts surged by nearly 90% and we're projecting an additional 50% growth in fiscal 'twenty 'twenty six.
Speaker Change: This robust adoption underscores the differentiated value, we bring to the market by enabling our customers to digitize and optimize their maintenance operations, we're not only strengthening our competitive advantage, but also driving success in new capital projects, while capturing recurring MRO revenues.
Speaker Change: Yeah.
Speaker Change: This strategic focus positions us well for sustained growth and leadership in the market.
Speaker Change: Turning now to slide 12.
Speaker Change: I'm pleased to highlight the transformative impact of the Fairmont business system by streamlining our operations through initiatives, such as rooftop consolidation and efficiency improvements as well as the seamless integration of vapor power and 40, we strengthen our operational foundation.
Speaker Change: This system not only accelerates our product progress towards achieving our profitability targets, but also enhances our agility and positions us to deliver a sustained competitive advantage in the marketplace.
Speaker Change: And finally.
Speaker Change: As it relates to our disciplined capital allocation strategy, we successfully executed on our balanced approach during fiscal 2025, as we continue to make important investments to advance our organic growth strategy, we deploy capital for strategic M&A through the acquisition of body, where current capital to shareholders through our share repurchase.
Speaker Change: Graham and made optional debt repayments throughout the year.
Speaker Change: As we move forward, our strategic focus remains on identifying and executing high value acquisitions that align with our mission to expand and diversify our portfolio of industry, leading industrial heating solutions.
Speaker Change: With that I'll turn it over to Jan who will provide a more detailed review of our fourth quarter results before I wrap up with some remarks on our financial outlook Jan.
Jan: Thank you Bruce and good morning, everyone I will review the financial results for the quarter give an update on working capital and free cash flow and conclude with comments on the balance sheet and liquidity.
Jan: Moving to slide 14, I will start with our fourth quarter highlights.
Jan: Revenue in the fourth quarter was $134 1 million a year over year increase of 5% driven by continued momentum in opex revenues, including solid breath at vapor power and contribution from fussy.
Jan: Please note that they per power is now included in organic results are.
Jan: Our strategic focus on diversifying our revenue base and increasing our exposure to short cycle projects and MRO related recurring revenue continues to benefit our business.
Jan: This was partially offset by softness in large project revenue.
Jan: Bruce mentioned earlier, we are beginning to see improved booking momentum in our large project business.
Jan: Large project revenue was $22 3 million during the fourth quarter down 5% from last year.
Jan: Compared to the previous quarter. However, we saw revenue increase 20% another indicator of improved momentum in Capex spending.
Jan: Our opex revenues or $111 8 million during the fourth quarter, an increase of 7% compared to last year, highlighting the benefit of our strong and loyal installed base of customers and the stability of maintenance and repair spending.
Jan: Excluding the contributions from Farsi Opex revenues increased 4% from the same period last year.
Jan: Opex revenues represented 83% of total revenues for the quarter.
Jan: Orders increased 19% on a reported basis and were up nearly 14% organically with balanced strength across our diversified end markets, including strength in chemical petrochemical and rail and transit markets.
Jan: We also saw a rebound in oil and gas, particularly LNG as Bruce mentioned earlier as a result, our fourth quarter book to Bill was one point of four times up from one point is three times in the prior quarter.
Jan: Looking at our results by geography U S land sales increased 6% due to continued strength in opex revenue and improved large project trends.
Jan: Revenue in EMEA was up 51% on a reported basis to $15 million and up 18% excludes the contribution from bacci.
Jan: Canada sales of $40 million were down 6% from last year due to the general macroeconomic conditions in the country.
Jan: Revenues in APAC were $9 2 million.
Jan: Adjusted EBITDA was $30 5 million during the fourth quarter up from $23 6 million last year, an increase of 29%.
Jan: Solid revenue growth and strong operating performance were partially offset by continued investments in growth initiatives.
Jan: Adjusted EBITDA margin was 22, 7% during the fourth quarter up from 18, 5% last year due to a more favorable revenue mix disciplined cost management and productivity gains.
Jan: Moving to slide 16 for an update on our balance sheet and liquidity.
Jan: Working capital increased by 3% to 167 6 million at the end of the quarter due to timing of collections.
Jan: Capex was $3 1 million during the quarter flat can play a compared to last year.
Jan: Free cash flow during fiscal 2025 was $52 9 million down from $55 million last year, while we remained focused on working capital management and strong free cash flow conversion the modest decline in free cash flow was driven by technology investments.
Jan: <unk> to our ERP implementation.
Jan: We repurchased 14 million in shares during the fourth quarter, bringing our total share repurchases for 2020 five to over $20 million.
Speaker Change: As Bruce mentioned earlier after purchasing 24 million to date under our original share repurchase program. Our board approved a refresh of the program back to $50 million.
Jan: We paid down $14 5 million of net debt during the quarter, bringing our net debt balance to $99 million and our reporting net leverage at the end of the year 0.9 times.
Jan: We are currently working with our bank rate can extend the maturity of our existing credit facility, which becomes current in September 2025.
Jan: In summary, the fourth quarter wrapped up a year of strong financial discipline for thermal mine.
Jan: We successfully executed our capital allocation priorities, including continued investments in organic growth capital deployed for acquisition and opportunistic return of capital through our share repurchase program.
Jan: And we did all of this while still maintaining a strong balance sheet.
Jan: Based on our total cash and available liquidity of $137 million, we remain well capitalized and have ample flexibility to support our capital allocation needs and will continue to balance investments in growth.
Jan: Pay down and opportunistic share repurchases.
Bruce Lee: With that I will turn the call back over to Bruce.
Speaker Change: Thanks, Dan.
Speaker Change: Moving now to slide 17.
Speaker Change: As we enter fiscal year 2026, we remained focused on navigating a dynamic global trade environment with discipline and agility Terra.
Speaker Change: Tariffs continue to present, both direct and indirect challenges to our cost structure, particularly in the form of elevated input cost and near term margin pressure.
Speaker Change: Our current assumptions include 25% tariffs on steel and aluminum, 30% on goods from China, 25% reciprocal tariffs from Canada, and Mexico, and 10% for the rest of the world.
Speaker Change: Based upon these assumptions, we're expecting an annualized impact of roughly $16 million to $20 million on.
Speaker Change: On a gross basis prior to mitigating actions, which are already underway.
Speaker Change: While our direct market exposure to China remains low representing just 2% of total revenue, we're mindful of second and third order effects through our supplier and distributor networks.
Speaker Change: These ripple effects are being closely monitored and addressed through proactive supply chain management to mitigate these impacts were executing a multi pronged strategy.
Speaker Change: First pricing actions, we've implemented targeting price increases to offset rising input costs, while maintaining competitiveness and customer value.
Speaker Change: Second.
Speaker Change: U S. M C. A compliance we're committed to preserving our U S. MCA qualifications, which continue to provide a strategic advantage in North America.
Speaker Change: Baird.
Speaker Change: Global footprint optimization with manufacturing operations in the U S, Canada, India and Europe, we are leveraging our global footprint to ship production and sourcing in ways that reduce tariff exposure.
Speaker Change: Fourth.
Speaker Change: Supply chain reconfiguration, we are actively evaluating and reconfiguring, our supply chain to minimize tariff related disruptions and enhanced resilience.
Speaker Change: Despite these headwinds we are entering fiscal year 2006, with strong order momentum and a healthy backlog, which reinforces our confidence in the underlying demand for our products and the strength of our customer relationships.
Speaker Change: We remain calm focused and confident in our ability to manage through these challenges while continuing to deliver long term value for our shareholders.
Speaker Change: And now if you'll turn to slide 18, I will discuss our outlook for fiscal 2026.
Speaker Change: Looking forward the uncertainty created by the volatile and rapidly changing trade environment makes it very challenging to ascertain the second and third order impacts from tariffs, particularly as it relates to customer behaviors and the demand environment.
Speaker Change: Our guidance assumes the current tariff levels remain in place, resulting in margin headwinds in the first half of the year offset by price increases in the back half of the year as mitigating actions take full effect.
Speaker Change: Given the uncertainty with tariffs in the overall global economy, the current guidance contemplate slowing growth in the second half of the fiscal year based.
Speaker Change: Based upon these factors we are providing fiscal 2026 financial guidance that calls for revenue in a range of 495 million to $535 million, representing three 5% growth at the midpoint of the range.
Speaker Change: Adjusted EBITDA in a range of $104 million to $114 million essentially flat at the midpoint of the range.
Speaker Change: Our guidance assumes a modest decline in adjusted EBITDA margin largely as a result of the expected lag before our tariff mitigation efforts in the first half will flow through to positively impact results in the second half.
Speaker Change: Given the dynamic nature of tariffs global trade and policy changes, we'll provide updates on the business and our mitigating actions throughout the year.
Speaker Change: Finally, as we conclude on slide 19, I want to express my deep appreciation for the efforts of the therm on team throughout fiscal 2025, their dedication and innovation have positioned us as a leader in industrial process heating with a resilient business model and <unk>.
Speaker Change: <unk> operational framework.
Speaker Change: While the ongoing tariff dynamics present challenges, we remain acutely focused on the things within our control with a strong financial foundation and clear strategic priorities. We are confident in our ability to capitalize on opportunities mitigate risks and delivered sustained Val.
Speaker Change: You for our shareholders.
Speaker Change: That completes our prepared remarks, we are now ready for the question and answer portion of our call.
Speaker Change: Thank you.
Speaker Change: And if he would like to ask a question at this time. Please press star one on your telephone keypad, a confirmation tone will indicate that the line is in the question queue.
Speaker Change: You can press star two if you 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. Once again to ask a question press star one on your telephone keypad will pause for a moment, while we poll for questions.
Unspecified Announcer: And our first question comes from Chip Moore with Roth Capital Partners. Please state your question.
Chip Moore: Hey, good morning, Thanks for taking the question.
Speaker Change: Okay.
Speaker Change: First I wonder if you could elaborate on.
Speaker Change: You talked about <unk> seen a bit of a resurgence.
Speaker Change: Elaborate a bit on that what you are seeing how that might translate.
Speaker Change: Yeah chip.
Speaker Change: We've since the lift of the moratorium in the January timeframe. There was always a really a number of projects.
Speaker Change: That were in the Q in our pipeline and we've seen those move forward.
Speaker Change: Pretty quickly.
Speaker Change: And as I noted in the prepared remarks, the areas of strength, we've seen have been along the U S Gulf coast as well as in the Middle East and some of those are field developments as well as export facilities.
Speaker Change: As we look at our pipeline ahead. There is a number of opportunities that are still out there were tracking around $80 million in LNG opportunities that.
Speaker Change: For our content. So so we see some.
Speaker Change: So really some nice.
Speaker Change: <unk>.
Speaker Change: They're in that sector.
Speaker Change: Great appreciate that.
Speaker Change: And maybe just on and on.
Speaker Change: FY 'twenty six he talked about I think some margin headwinds maybe here in the first half.
Speaker Change: Before the pricing kicks in gist.
Speaker Change: And then you know.
Scott Grout: Maybe Scott Grout.
Scott Grout: <unk> be a little more challenging in the back half maybe just.
Scott Grout: Any more detail there on what youre thinking and Directionally and cadence. Thanks.
Speaker Change: Yeah, Great question. So we've put together a task force, we're looking very closely.
Speaker Change: The inflationary impact of tariffs to our input costs.
Speaker Change: And while it's a moving target.
Speaker Change: We see there there'll be a near term impact to gross margins.
Speaker Change: In the first half of the year, we've already moved on pricing and in a number of areas to be able to offset that.
Speaker Change: As usual, our our pricing we have about a 60 day.
Speaker Change: Window or lag before that is effective through our our channel partners and with customers. So there's a lag effect. There. There is also work that's in backlog, particularly around project activity some of which we don't have the opportunity to go and renegotiate so we anticipate that.
Speaker Change: We will be a margin where those will create some margin headwinds in the first half.
Speaker Change: However, we have pricing power, we've been able to pass price increases in the past.
Speaker Change: I look back at Covid and the inflationary impact there we were able to pass those on.
Speaker Change: My expectations, we've moved fairly quickly here and so it should be begin to see that flow through late in the second quarter and see that fully offset any inflationary input cost we see in the in.
Speaker Change: In the first half.
Speaker Change: Looking more at the demand environment, certainly when you look at the leading indicators as we come into this fiscal year. There's nothing that would indicate that there is a big slowdown in the back half, but it's just a more cautious approach given the uncertainty it's difficult I think for customers to <unk>.
Speaker Change: First through the data, particularly as it relates to deploying capital and so it's our general belief that this could create a headwind in the back half of the year, although the leading indicators, we track have not indicated that to be true yet.
Speaker Change: Fantastic I appreciate it I'll hop back in queue. Thanks.
Speaker Change: And your next question comes from.
Unspecified Announcer: Brian Drab with William Blair. Please state your question.
Brian Drab: Good morning, Thanks for taking the questions I just wanted to maybe first build on that last question and Bruce how are you thinking about.
Unspecified Announcer: You know that over time.
Unspecified Announcer: Category in your in your forecast for for fiscal 'twenty six is that are.
Unspecified Announcer: Obviously as you know.
Unspecified Announcer: Down a lot in fiscal 'twenty five.
Speaker Change: Are you forecasting that to be.
Speaker Change: About the same I guess given the the overall guidance.
Speaker Change: Yes, roughly what are our the way we're thinking about this right now is that we.
Speaker Change: We actually saw a really nice backlog build overtime projects in fact, our engineering workload is really at an all time high and that's related to these.
Speaker Change: No.
Speaker Change: Return of capital projects that that we've seen really building, we anticipated that coming into this year and it really began to manifest particularly.
Speaker Change: In the fourth quarter, but you know we've had four consecutive quarters of positive book to Bill. So this has been building.
Speaker Change: Our assumption at this point is that the order in the incoming order rates for these larger capital projects.
Speaker Change: Will will be muted until we get more clarity on the trade policy going forward.
Speaker Change: And and we will begin to burn through those through the second half of the year. So that's essentially the assumptions we have at the mid point of our guidance.
Speaker Change: If we look at our guide overall.
Speaker Change: The upper end of the range would be.
Speaker Change: Really what we would have maybe anticipated had we not had some of the trade disruptions and given the momentum we had we have seen in the market leading into our fiscal 'twenty six the lower end of the range would would assume an erosion in the overall trade.
Speaker Change: Trade negotiations and an escalation in the trade conflicts.
Speaker Change: Okay. Thanks.
Speaker Change: Can I ask you to comment on how you're thinking about at the midpoint of the range are you thinking about.
Speaker Change: You know the Opex spending as I think our the point in time.
Speaker Change: Segment.
Speaker Change: Oh the mix.
Speaker Change: The mix should be fairly consistent to what we saw in 25, it should be fairly consistent.
Speaker Change: Yes.
Speaker Change: You look at our guide at the midpoint.
Speaker Change: Okay.
Speaker Change: And can you talk at all about other categories or other end markets, where you're seeing.
Speaker Change: Some of the improvement in the Capex spending you talked about the LNG being a standout but are there other areas in.
Speaker Change: And.
Speaker Change: Can you can you update us at all on.
Speaker Change: If you're seeing any incremental demand from the.
Speaker Change: The data center opportunity that you mentioned.
Speaker Change: Yes, so I'll start with just the overall demand environment.
Speaker Change: General Industrial remains strong it's one of our largest oh, it's one of our largest booking segments in the fourth quarter.
Speaker Change: It represented almost 32% of the bookings in the quarter chemical petrochemical we saw it almost 17, 5%.
Speaker Change: In the quarter.
Speaker Change: So we've seen some strong demand there as I noted earlier oil and gas, which has been weak for quite some time, we've seen an uptick there, particularly as it relates.
Speaker Change: To LNG.
Speaker Change: And when we look overall renewables, we still see opportunities in that.
Speaker Change: That was actually up although it's a fairly small percent of revenue, but that was up fairly sharply in the fourth quarter.
Speaker Change: Well.
Speaker Change: Rail and transit we've seen some really strong bookings our backlog there has grown to about $36 million of which we anticipate executing about $17 million of that in.
Speaker Change: In the coming year, the one thing.
Speaker Change: To note here around data centers, we've done more work there in there that is a real opportunity around load banks and where we've got some work underway. We will provide some more updates on that in upcoming calls.
Speaker Change: But that is a real opportunity in the market and we're working.
Speaker Change: We're very active in trying to develop in an.
Speaker Change: Execute on that opportunity we see.
Speaker Change: Okay.
Speaker Change: My question is related but I just want to make sure I think high level idea correct here it seems like.
Speaker Change: What I'm hearing from you today is that you know.
Speaker Change: Backlogs up 20% organically, you've got some momentum and some different end markets. The capex environment at the moment looks like its improved materially.
Speaker Change: You know just.
Speaker Change: Instead of a like a lot of companies are doing pulling guidance here just saying.
Speaker Change: We're going to give a broad kind of a broad range. There's a lot of yes. The consensus view is that there's going to be a slowdown later later this year. The overall macro so you're taking all of all of this into account and just say, let's be cautious but.
Speaker Change: It seems like the high end of the range.
Speaker Change: It could be in play here.
Speaker Change: Is this.
Speaker Change: A fair way to interpret it everything that I'm hearing today.
Brian Drab: Yeah, I think that's a really good way of summarizing it Brian I think the high end of the range as I said is if we see some real progress on some of these trade agreements.
Brian Drab: We get more clarity on the tariff environment going forward.
Speaker Change: I think customers can become more comfortable with deploying capital.
Speaker Change: Which we've seen that momentum building quite frankly for at least the last three quarters and we began to see it manifest in our Q4 with expectations that that would come through in in fiscal 'twenty six so we're being more cautious in and really.
Speaker Change: The demand side of the equation just given the uncertainty.
Speaker Change: That we see and our customers are seeing in the trade environment.
Speaker Change: Got it okay. Thanks for all the detail I'll talk to you later.
Speaker Change: Yes.
Unspecified Announcer: Thank you and a reminder to ask a question press star one on your phone.
Speaker Change: Your next question comes from Justin Ages with C. J S Securities. Please state your question.
Justin Ages: Alright, thanks for taking the questions.
Speaker Change: Hey, Justin.
Speaker Change: With the debt pay down and the share buyback and then refresh can you just give us a little more detail on your capital allocation priorities.
Speaker Change: Yes, Hi, Justin I'll take that one.
Speaker Change: Yeah, I guess first and foremost I'm you know we have our capital investments for growth and that's in the same range that we have done in prior years with 2% to 3% Capex at two 3% of sales and then probably with all of the technology investments that we have going and that's about 1% and for next.
Speaker Change: Year. So that's first and foremost second I would say and we do add.
Speaker Change: Obviously with the refresh of the share repurchase program and we will look for opportunistic opportunities to buy shares we bought 14 million shares and this last quarter and really you know taking advantage edson some deaths due to other macro.
Speaker Change: Economic things that were happening and that we yeah. We think that that's really a path forward and we'll continue on that plan.
Speaker Change: And then the other aspect as Al said that we do have an active M&A pipeline and in this environment really you know just looking for buying opportunities to be honest, but I think yeah. That's something that we're very focused on and with $137 million of liquidity and we have a lot of tailwind at our back really end.
Speaker Change: Hoping to execute something in the near term and on M&A.
Speaker Change: Okay I appreciate that and then Mike you just mentioned the guidance includes this $5 million onetime Tech investment can you just give us a little more color on what that entails.
Speaker Change: That's mostly associated with our ERP implementation.
Speaker Change: That we have ongoing and will be implementing kind of in stages across the globe really over the next year and a half or so and.
Speaker Change: And so where we're actually looking forward to having more color on that I guess in future calls, but that's that's underway right now.
Speaker Change: Okay. Thank you and then last question Thurman long term initiatives and particularly on the EBITA margin target just wanted to know.
Speaker Change: Okay.
Speaker Change: What steps are you taking to get there do they include some of these mitigation efforts that are now part of <unk>.
Speaker Change: Offsetting some of the tariff impact that any any color on that.
Speaker Change: Yeah, So certainly the the higher input cost create some headwinds in the near term, but I still feel confident that the same.
Speaker Change: <unk> that we have to pull in the business exists on a go forward basis to continue to drive.
Speaker Change: EBITDA margin expansion, we saw some very nice.
Speaker Change: Gross margin expansion in the year about half of that was related to mix.
Speaker Change: We had about 196 basis points.
Speaker Change: And so half of that was was mix. The other half was the Fairmont business system and the rooftop consolidation we did earlier in the year with.
Speaker Change: Consolidating operations into sand market as well as the continuous improvement efforts that we've made are.
Speaker Change: Going forward. So we continue to see that as a lever.
Speaker Change: To be able to drive gross margin expansion and then certainly as we look forward price is always an opportunity and we tend to be able to get price in the marketplace new product introductions create opportunities.
Speaker Change: As we work and implement the thermo business system, and our new acquisitions those were a headwind to our gross margin profile. This year.
Speaker Change: But we're confident there is a path to get those more in line with the averages of.
Speaker Change: The overall enterprise and so those are opportunities for margin expansion and then last but not least as we drive growth in volume, we get operating leverage on the fixed cost basis. So those are really the levers that we see pulling on a go forward basis, we were able to improve 86 basis points. This past year.
Speaker Change: I believe we can continue to drive those changes, although I do see.
Speaker Change: Just a setback this year given the impact of tariffs on input costs, and a lag of being able to push that through to the market.
Speaker Change: Sure I appreciate the answers thank you.
Speaker Change: Thank you.
Unspecified Announcer: And your next question comes from Jon Braatz, with Kansas City Capital. Please state your question.
Speaker Change: Good morning, Bruce Chan.
Speaker Change: Hi, Bruce.
Speaker Change: Maybe a little more clarity on the tariffs you said the gross impact is $16 million to $18 million.
Speaker Change: Obviously, you have some mitigation efforts, but when you think about.
Speaker Change: The upcoming year one.
Speaker Change: What might be the net impact.
Speaker Change:
Speaker Change: For the full year.
Speaker Change: Considering the.
Speaker Change: Our mitigation efforts.
Speaker Change: Yeah. So on a gross basis, we gave a range of $16 million to $20 million, Yes, I'm, sorry, and we believe on a net impact it's somewhere.
Speaker Change: In the $4 million to $6 million range within the current fiscal year and that'll be mostly in the first half correct.
Speaker Change: Correct, Okay. Okay, alright, good Okay, and then secondly.
Speaker Change: When you look at the competitive landscape.
Speaker Change: Are your any of your competitors and.
Speaker Change: A better position regarding tariffs and trade policy and all this other stuff.
Speaker Change: And in a better position, our worst position any any thoughts on.
Speaker Change: Relative to the landscape.
Speaker Change: Given that.
Speaker Change: The new tariff trade policy.
Speaker Change: That's a that's a difficult question, especially just given the complexity and interconnectedness of global supply chains today, but what I can say is about our position and given our operating footprint in the U S about 50% of our productions from the U S. We have a significant presence.
Speaker Change: In Canada as well, we grew a lot of for country in country for country production.
Speaker Change: The acquisition of <unk> increased our operating presence in the European continent, certainly has been.
Speaker Change: Really.
Speaker Change: A bright spot when we look at just the overall demand environment. Therefore.
Speaker Change: Four.
Speaker Change: Decarbonization and electrification solutions in that business, we acquired it with about a $15 million backlog, it's almost doubled.
Speaker Change: That time, and our ability to serve that on the European continent is a real advantage.
Speaker Change: And then we do have operations in India that will begin to leverage to serve more of the Asian continent.
Speaker Change: We certainly as we look at our M&A opportunities, we're looking for potential acquisitions that would mirror or 40 that would give us a larger operating footprint in Asia.
Speaker Change: Just for these these types of situations just to diversify our risk based so we've made a lot of progress since COVID-19, we've done a lot to build more resiliency into our supply chain that I think that really exposed weaknesses, not only us, but with others. We've never been heavily dependent upon China. So I think that's a real advantage.
Speaker Change: We have over some others. The one thing I would note is that while we're not dependent.
Speaker Change: We are exposed in second and third order effects with our suppliers.
Speaker Change: And their supply chains, although again people have diversified away from.
Speaker Change: China and have multiple sources. So we'll just have to see how a lot of this flows through where but we've factored all of that into our guidance. Okay. Alright, Bruce. Thank you very much I appreciate it. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you and the next question comes from Brian Drab with William Blair. Please state your question.
Brian Drab: Hi, I'm back with just one clarification.
Brian Drab: On the one time technology investment.
Speaker Change: $5 million.
Brian Drab: This is not being adjusted out of obviously isn't what you're indicating is that being adjusted out of here.
Brian Drab: Our guidance for EPS calculation and it seems like.
Brian Drab: That would be about 100 basis point headwind to <unk>.
Brian Drab: Operating margin and EBITDA margin is that.
Brian Drab: On the right way to think about it no. This would be adjusted out of our <unk> on the adjusted EBITDA calculation and so you are okay. So I'm glad I clarified that say, okay I see.
Brian Drab: And I'm, calling it out that it is an adjustment okay I dismiss right I just want to make sure okay.
Brian Drab: So there is a you are expecting a margin headwind.
Brian Drab: Excluding this situation okay, alright, thank you very much and it's not it's I you know I think it's obvious it's obviously not something that we do every year and don't plan to.
Brian Drab: No.
Speaker Change: Right right well that was my other question is that this goes away then.
Speaker Change: <unk> 5 million to be the entire investment and for that to be a fiscal 'twenty six events in fiscal 'twenty seven. It's the plan is for this not to be unexpected spike.
Speaker Change: Is that right or yeah, I mean, we will have some I think some very marginal investments going into 'twenty seven four just submit the required.
Speaker Change: Acquired entities that will roll into the new ERP system, but that the majority will be in fiscal 'twenty six yes, okay. Okay perfect. Thanks very much.
Speaker Change: Thank you.
Unspecified Announcer: Ladies and gentlemen, that's all the questions. We have for today I'll now hand, the floor back to Bruce <unk> for closing remarks.
Bruce Lee: Yes, Thank you Diego and and you know I'd like to again, thank our thumb on employees around the globe for their contributions to a successful 2025 and thank you all for your interest in <unk>, if we don't speak to you.
Speaker Change: In the coming quarter, we look forward to you join us on our next earnings call. Thank you and have a good day.
Speaker Change: Thank you all parties may now disconnect.