Thermon (THR) Q1 Revenue Falls 5.4%

Thermon Group (THR -10.95%), a leader in industrial process heating, released its first quarter results for fiscal 2026 on August 7, 2025. Thermon Group reported a decline in revenue and adjusted profit (non-GAAP) in Q1 FY2026 compared to the same period last year, primarily due to $10 million in delayed backlog conversion and continued tariff-related uncertainty. No analyst estimates were issued for comparison, but management indicated that Q1 FY2026 fell short of internal expectations. Revenue (GAAP) was $108.9 million and adjusted earnings per share (EPS, non-GAAP) was $0.36, both down from the prior year. Despite the shortfall, management maintained full-year guidance, signaling confidence that delayed revenue will be recognized in subsequent quarters.

About Thermon Group and Strategic Focus

Thermon Group is a global supplier of specialized industrial process heating solutions. Its technology is widely used in energy, chemical, power generation, and transportation sectors, where reliable temperature management is critical. The business operates through 11 manufacturing facilities worldwide and delivers both standard and highly engineered products to customers with complex process heating needs.

Recently, Thermon Group has focused on expanding its recurring revenue from operational expenditure (OPEX) services, investing in digital controls and software, and broadening its market reach beyond oil and gas. Key success factors include innovative product development, strong customer relationships, diversification across high-growth industries like renewables and power, and maintaining efficient, compliant manufacturing operations.

Quarterly Highlights and Business Performance

Revenue (GAAP) fell 5.4% from the prior-year period in Q1 FY2026, which management attributed to both delayed project execution and ongoing tariff and trade uncertainties. The company noted about $10 million in revenue was delayed due to supply chain sourcing issues and production delays linked to a capital improvement project. Management described these factors as temporary, expecting the shortfall to be recovered as projects move forward.

Despite lower overall sales, Thermon Group reported gross margin of 44.1% (GAAP), an increase of 30 basis points year over year. This margin expansion was achieved through a favorable mix of higher-margin product sales and cost-control actions, including pricing adjustments in response to tariffs. While adjusted EBITDA (non-GAAP) fell 8.6%, the adjusted EBITDA margin (non-GAAP) remained healthy at 19.5%, primarily impacted by reduced operating leverage from lower sales volume, not increased costs or inefficiencies.

Operational results showed continued progress in the shift towards OPEX-driven revenue. Recurring operational expenditure (OPEX Sales, non-GAAP) made up 85.7% of total revenue, rising from 84.6% in Q1 FY2025. In contrast, revenue from large, over-time capital projects declined 11.4%. This focus on stable, maintenance-based services helps lessen the company’s dependence on volatile project work and provides more predictable cash flow. Orders decreased 5.1%, and organic orders fell more sharply, declining 18.9%, signaling that some customers are approaching new capital investment cautiously.

The company’s backlog -- the value of orders booked but not yet delivered -- rose to $252.2 million as of June 30, 2025, up 27.1% year over year. Excluding the positive impact of the F.A.T.I. acquisition, organic backlog was up 12.6% year over year. This growing book of committed work, particularly in areas like chemical, nuclear, liquefied natural gas (LNG), and renewables, supports management’s expectation for improved results as the year progresses. Acquisitions, such as F.A.T.I. last October, helped increase market exposure, particularly in Europe’s electrification and decarbonization sectors.

Thermon Group also continued to invest in technology and digital controls. Its Genesys controls product family, which is a type of advanced digital heat tracing controller, is gaining traction as more customers seek energy-efficient, automated solutions. Ongoing investment in a new enterprise resource planning (ERP) system, a back-office software platform to streamline operations, represented a major capital commitment. About $5 million will be spent on this mostly one-time project during FY2026.

Management reaffirmed that it actively manages risks from tariffs and global trade disruptions through price adjustments, supply chain changes, and a globally distributed manufacturing footprint. Capital allocation continues to balance internal investments, share repurchases (with $9.8 million in buybacks), and opportunistic acquisitions. Net leverage (non-GAAP) remains low at 1.0x TTM Adjusted EBITDA, and free cash flow (non-GAAP) of $8.3 million reflects ongoing financial discipline despite lower earnings in the period.

Looking Ahead: Guidance and Key Watchpoints

For the remainder of FY2026, management expects to recover delayed revenue and benefit from the growing order backlog. The company reiterated full-year FY2026 guidance for revenue of $495 million to $535 million, adjusted EBITDA of $104 million to $114 million, and adjusted EPS of $1.77 to $1.99. Management projects that delayed projects and recent orders will convert to sales during the rest of the year, supporting these targets. No cash dividend is currently paid to shareholders.

Key factors to watch in upcoming quarters include how quickly delayed backlog converts to revenue, customer appetite for new capital projects—particularly in the face of evolving tariffs—and the company’s ability to sustain margin improvement efforts. Investors may also watch for further updates on digital controls and software initiatives, as well as progress on integrating recent acquisitions and scaling recurring, maintenance-oriented business lines. The leadership team did not make material changes to forward guidance, maintaining a cautiously optimistic view anchored by strong backlog and pipeline growth.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.