Greetings and welcome to Thermon Group Holdings Inc.'s Earnings Call for the Second Quarter 2025. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ivonne Salem, Vice President, FP&A and IR. Thank you. You may begin.

Good morning and thank you for joining Thermon Group's fiscal 2025 second quarter results conference call. Leading the call today are CEO, Bruce Thames; and Chief Financial Officer, Jan Schott. Earlier this morning we issued an earnings press release which has been filed with the SEC on Form 8-K and is 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 & Events IR Calendar Earnings Conference Call Q2 2025. During the call, we will discuss some items that do not conform to Generally Accepted Accounting Principles. We have reconciled those items to the most comparable GAAP measures in the tables at the end of the earnings press release. 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 recently 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. 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, except as might be required by law. Today's call will begin with remarks from our CEO, Bruce Thames, who will provide a review of our recent business performance including an update on the progress we have made on our strategic initiatives, followed by a financial update and review of our CFO, Jan Schott. Bruce will then wrap up our prepared remarks with an update on our business outlook. At the conclusion of these prepared remarks, we will open the line for questions. With that, I'll turn the call over to Bruce.

Well, thank you, Ivonne, and good morning to everyone joining us on the call today. Before I begin my comments, I'd first like to start by welcoming our new Chief Financial Officer, Jan Schott. Jan is a proven public company finance executive who brings significant financial expertise and deep capital markets experience to Thermon. We're very excited and fortunate to have her joining our team. Jan, welcome aboard. I and the rest of the management team are looking forward to working with you. Turning now to Slide 3, during the second quarter we remained laser focused on executing against our strategic priorities highlighted by improved bookings momentum, further progress on our operational excellence initiatives, and another quarter of financial discipline leading to strong free cash flow generation. In addition, we executed against our stated capital allocation priorities with the acquisition of F.A.T.I. and the return of capital through our share repurchase program. I think it's important to highlight that while we continue to effectively manage costs to the current level of demand, we've not wavered on our capital allocation to advance strategic initiatives while augmenting our organic growth. Since the start of the calendar year, we've acquired Vapor Power, which increased our exposure to more diverse end markets and electrification. This integration is going well and we're pleased with the strong level of market demand that we're seeing for these products. Just last month we announced the acquisition of F.A.T.I., significantly expanding our geographic footprint in the Eastern Hemisphere. In spite of some short-term weakness in capital spending, we have continued to invest in our organic growth initiatives to further strengthen our competitive positioning over the long term. So with that, I'd like to turn to the second quarter starting on Slide 4. We were very pleased with the improved…

Thank you, Bruce, and good morning everyone. I'm very excited to be here with you all today. It has been less than a month since I joined Thermon, but it is already clear we have a strong finance team in place. I look forward to working with Bruce, the executive leadership team and our finance organization, as we continue to execute on our strategic plan and continue the tradition of strong execution and operational excellence at Thermon. I also look forward to meeting our analysts and investors and building strong relationships with the investment community. So with that I will get into our financial review. During my discussion I will provide some additional details on the quarter, give an update on our working capital and free cash flow, and conclude with a commentary on our balance sheet and liquidity. Moving now to Slide 9 and our second quarter performance; revenue in the second quarter was 115 million, a year-over-year decrease of 7.4%, as continued headwinds in our large project business was partially offset by the contribution from Vapor Power and stable performance in our OpEx revenues. Vapor Power contributed 12.1 million of revenue during the second quarter. Excluding Vapor Power, second quarter organic sales decreased 17% versus a record 2024 quarter two. Large project revenue was 17.5 million during the second quarter, down 51% from the same period last year as customers continue to delay decisions on large capital projects, as Bruce mentioned previously. This weakness was generally broad based across our different market verticals. While large project spending was weak, our OpEx revenues were 97.2 million during the second quarter, an increase of 10% compared to last year, as our customers continue to prioritize maintenance and repair spending, given the market uncertainty. Excluding Vapor Power, our OpEx revenues decreased…

Thanks Jan. Now if you'll turn to Slide 11, we'll wrap up with our outlook for fiscal 2025. We continue to execute at a high level and are making important progress on our key strategic initiatives. I'm encouraged by our improved order trends over the last two quarters and am optimistic we'll see further momentum as we move forward. The long term secular trends that positively impact many of our important end markets remain favorable and we're well positioned to benefit from these drivers going forward. However, we're not totally immune to the weakness we're experiencing in the large project market and the push out of project timing. While over the last two quarters we're seeing the improved order momentum that was needed to drive our second half results, execution timelines of projects in backlog extend beyond our current fiscal year. As a result of these factors, we're adjusting our full year 2025 guidance as follows. We expect revenue in the range of 495 million to 515 million, which includes expected revenue from recent acquisitions. Adjusted EBITDA is now expected to range from 105 million to 110 million and adjusted EPS in a range of $1.77 to $1.89 per share. We think it's important to highlight that we continue to focus on our operational excellence initiatives and are carefully managing cost of current revenue levels, enabling us to protect earnings. Finally, just to wrap up things on Slide 12, we're optimistic as ever for our business and the opportunities ahead remain as strong as ever. Our recent results demonstrate the progress we've made in developing a business that is more stable, profitable and durable across cycles. Our large and growing installed base of loyal customers provides us with a resilient aftermarket franchise, which gives us access to a steady stream of predictable and highly profitable MRO [Phonetic] revenues. We also remain well positioned to benefit from several powerful secular growth drivers and these trends have not changed despite the recent macroeconomic uncertainty. These secular drivers include the energy transition and decarbonization, onshoring in North America and infrastructure spending. We remain confident that these trends are as powerful as ever and we believe that the recent spending delays only serve to create pent up demand when customer confidence improves. Lastly, we benefit from a high margin, low capital intensity business that yields significant cash flow. As Jan covered earlier, our free cash flow through the first half is up meaningfully from last year and we continue to maintain a strong financial position. This provides us the flexibility to pursue our capital allocation priorities and we've demonstrated this commitment to our strategy through the recent acquisitions of Vapor Power and F.A.T.I., ongoing investments in organic growth initiatives and execution under our share repurchase plan, all with a focus on creating long-term shareholder value. That completes our prepared remarks. We're now ready for the question-and-answer portion of our call.

Thank you. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Today's first question is coming from Justin Ages of CJS Securities. Please go ahead. .

Hi, good morning and thanks for taking the questions.

Good morning, Justin.

Yeah. And I look forward to working with you, Jan.

Yes, absolutely. Nice to meet you on the phone.

Yeah. And first question I have, the sales guidance, in the past you've given the contribution from Vapor Power. Can you give us any indication whether that's still tracking towards 55 million? Just kind of want to triangulate an organic growth for the sales guidance.

Yes. So yes, we do believe that the Vapor business is still tracking in that $55 million to $57 million range, looking forward for the balance of the year. Our backlog there is quite strong, so the real challenge is growing capacity to ship and should we be able to execute on that, we could possibly see some upside. But right now we're forecasting in that $55 million to $57 million range and that's included in the guidance.

Okay, that's helpful, thanks. And the next last question, if I could, interesting to call out the presence in nuclear, given the data center demand. Can you give us any more color on this current size of what that end market is to your business or any other details?

Yes. So as we look at just the pipeline of opportunities, and the pipeline is roughly about 1.2 billion. We see the current nuclear opportunities roughly about 4% of that. We have some other very large opportunities that are not included in that. Number one is a large expansion of an existing facility and another is around small modular reactors. Those are about 100 million, but they've not necessarily -- there's not plans yet to move forward. So we're seeing some growing opportunities in that space.

All right, thanks. I appreciate you taking the questions.

Thank you, Justin.

Thank you. The next question is coming from Brian Drab of William Blair. Please go ahead.

Good morning. Thanks for taking my questions. Jan, nice to meet you. Looking forward to working with you.

Nice to meet you. Yep.

I first just wanted to ask about the large project activity. I guess I'm wondering now that we're past the election, does that affect the probability that some of these projects start to get released and/or is that really not what was holding it up and just what's the outlook for some of that activity coming back?

Yeah, Brian, I can't necessarily speak for customers, but they're -- certainly with the elections behind us, I think you get clarity moving forward and certainly policy is going to drive pace. So I think that will be important and I think there'll be more clarity moving forward. So, we believe it's probably going to be -- have a positive impact on overall activity. The good news is we continue to see that pipeline of opportunities grow and we actually began to see some of these projects move forward during the quarter. I noted a couple of them. One in a large carbon capture petrochemical project and the other a large multi-year rail and transit project that's tied to infrastructure spending. So those are a couple of examples of what we're seeing. And certainly as we look at the pipeline of opportunity and quotations, it would indicate that the opportunities ahead are growing, not contracting. So at some point we would expect customers to begin to move forward.

Okay, and then next question, just on the weather and thinking back to last year and the unusually warm weather we had in Canada in particular, what are you seeing as you're heading into the -- getting into the heating season now and, are you -- you have some very easy comps obviously with the weather and I guess I'll just leave it there for a second and then I have a follow up on that.

Yeah, so I'm not a meteorologist, so I can't predict the weather, but we are seeing nice material sales which we noted during the quarter and that has continued into the beginning of this quarter, so we see that momentum. We also are just expectations as we're planning, we're planning for more of a normalized winter ahead. I mean that's typically how we plan. And as we look at this, when we look at just the weakness in revenues, it's really on the large capital project side. And as I said, our backlog, our organic backlog is growing. So we had two positive book-to-bill quarters. This quarter we actually saw year-over-year bookings growth, so we see that backlog growing. Right now, just the bulk of those projects, the timing of execution is out into early 2026 and right now we're heavily involved in engineering and design in anticipation of material shipments and any field execution.

Okay. And then I was just going to say could you remind me, isn't some of that product that you ship into the Canadian region? I guess I think it's some of the mineral insulated cable, if I remember correctly is relatively high margin and I'm just wondering -- I'm trying to if there's a positive year-over-year comparison coming potentially. There's a lot of talk about La Nina Winter and who knows. Again we're not meteorologists obviously, but trying to find opportunity here.

Well, I would make a couple comments. First of all, if you recall last year our Canadian business was quite weak. Coming into this year, our Canadian business is actually up year-over-year. So we've seen that not only bottom out but begin to improve. So I would just say that is more on the general business activity and overall economic conditions we're seeing. So I think that's certainly a positive sign. And then as you say our Canadian operations because of the harsh climates they tend to have the very high temperature types of products which tend to drive higher margin profile. So yes, stronger sales in Canada equals better gross margins certainly.

And then just last question. Can you repeat what you said about the decarbonization pipeline? I just missed the number that you said. What percentage of the 1.2 is that and how did that grow?

It's grown to roughly 320 million of that 1.2 billion.

Got it. Okay, thank you very much.

Thank you.

[Operator Instructions] Our next question is coming from John Bratz of Oppenheimer. Please go ahead.

Good morning everyone. And Jan, welcome aboard.

Thanks so much. Look forward to working with you.

Bruce. I don't know, maybe I missed it. But the large projects that are being pushed out, are they in the your more traditional oil and gas markets or are they elsewhere?

Right now, overall, our oil and gas activity I would say is down. As we look at this and we look at the project opportunities and large capital projects, first and foremost, just our backlog of those opportunities are down, but then also we see some execution and I would say we're seeing timing of some of these change. It's broad based. There's a large -- there's some large projects in renewables that we're seeing being somewhat delayed due to some permitting issues. We've got things that are just typical project delays. Execution is lagging, particularly there's one large project in semiconductors that's lagging. We've got a large pharmaceutical project that we would expect to start to generate revenues later this year, it's in the engineering stages. So there's just -- if you think about the project timing, a lot of the projects we have now are in engineering. And the large petrochemical project we just booked with carbon capture storage, that's going to be in engineering for the back half of this year and revenues will start early in 2026. So what we see is some nice momentum building into 2026 as we grow the backlog and we see order activity improve on larger capital project spending.

Okay, okay. And Bruce, in your conversations with your customers, clients, obviously we have a new administration coming in who sort of favors oil and gas, and maybe drilling. And do you get the sense that any of these alternative energy projects, decarbonization, things like those, might be put more on a back burner and there's more of an emphasis on oil and gas? Do you think there's going to be any shift in the business opportunities that you're seeing currently?

I think first and foremost the reduction in uncertainty by having a known outcome I think is positive overall for business. I think the good news is that we stand to benefit no matter which direction. Policy takes us going forward. We have still 30% of our revenues are in the oil and gas sector and we will benefit if those spending patterns improve. And conversely, we've got opportunities in the decarbonization space as well. So it'll be interesting to see how policy evolves and impacts. I think if you look historically, there are certain areas that spending may be favored, particularly as you look at how the IRA dollars may be spent that will support certain technologies and maybe challenge others. So I think policy will drive pace and we'll see that evolve over the next, say, 6 to 12 months.

Okay. Okay. And Jan, spending -- the SGA spend maybe a little bit more than what I was looking for. You talk about spending on some of the initiatives to develop your business further. Would you see that spending rate continuing on for a while or some of the heavier spending behind us now?

I think going forward we would expect that to not to trend downward. We did see an increase in SG&A for the Vapor Power acquisition this quarter, but our organic was actually 3% down. That's consistent with our long term strategy.

Okay, thank you, Jan.

Thank you. [Operator Instructions] At this time, I'd like to turn the floor back over to Mr. Thames for closing comments.

All right, thank you. And again, I'd like to thank all of our Thermon employees around the globe that are serving our customers with excellence each and every day. So thank you for all that you do. And I'd also like to thank all of you for your time and your interest in Thermon. And if we don't speak during the quarter, I look forward to spending time with you on our next quarterly call. So thank you and have a good day.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.