Industrial process heating solutions provider Thermon (NYSE:THR) fell short of the market’s revenue expectations in Q2 CY2025, with sales falling 5.4% year on year to $108.9 million. The company’s full-year revenue guidance of $515 million at the midpoint came in 0.6% below analysts’ estimates. Its non-GAAP profit of $0.36 per share was in line with analysts’ consensus estimates.
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Thermon (THR) Q2 CY2025 Highlights:
- Revenue: $108.9 million vs analyst estimates of $122.5 million (5.4% year-on-year decline, 11.1% miss)
- Adjusted EPS: $0.36 vs analyst estimates of $0.36 (in line)
- Adjusted EBITDA: $21.24 million vs analyst estimates of $22.03 million (19.5% margin, 3.6% miss)
- The company reconfirmed its revenue guidance for the full year of $515 million at the midpoint
- Management reiterated its full-year Adjusted EPS guidance of $1.88 at the midpoint
- EBITDA guidance for the full year is $109 million at the midpoint, above analyst estimates of $108 million
- Operating Margin: 10.8%, down from 13.8% in the same quarter last year
- Market Capitalization: $796.9 million
StockStory’s Take
Thermon’s second quarter was marked by a notable revenue shortfall and a significant negative market reaction, as sales fell due to delayed backlog conversion and project execution timing. Management attributed the year-over-year decline primarily to temporary disruptions, including a longer-than-anticipated production shutdown for capital improvements and supply chain challenges. CEO Bruce Thames acknowledged these setbacks, stating they were "not indicative of lost revenue opportunity" and expressed confidence that affected orders will convert to revenue in the coming quarters.
Looking forward, Thermon’s guidance hinges on several growth initiatives and emerging market opportunities, particularly in data centers, rail, and electrification in Europe. Management expects margin headwinds from tariffs to be offset by pricing actions in the second half of the year. Thames emphasized the company’s "robust backlog and rising bid pipeline" as key enablers for achieving full-year revenue targets, while also highlighting the launch of liquid load banks for data centers and continued momentum in the F.A.T.I. acquisition as central to Thermon’s growth outlook.
Key Insights from Management’s Remarks
Management attributed the quarter’s underperformance to delayed revenue from project timing and supply chain disruptions but highlighted strong backlog growth and early traction in new verticals.
- Delayed backlog conversion: Thermon’s revenue was reduced by roughly $10 million due to project execution delays and a capital improvement project that extended beyond expectations; these issues are now resolved, with associated revenue expected to be recognized in subsequent quarters.
- Margin resilience amid tariffs: Gross margin improved slightly year over year, aided by a shift toward higher-margin OpEx (operational expenditure) revenue and proactive mitigation measures against tariffs, including strategic sourcing and price increases late in the quarter.
- Data center opportunity emerges: The company launched new liquid load bank products, targeting the rapid shift to liquid-cooled data centers driven by artificial intelligence adoption. Management estimates this nascent market could see Thermon capture a 20%–25% share over time, with revenue contributions anticipated to build in the back half of the year and beyond.
- Rail and transit growth: Federal infrastructure funding has driven strong order momentum in the rail and transit segment, with backlog doubling in the past year. Thermon is investing to expand production capacity to meet this demand.
- F.A.T.I. acquisition boosts diversification: The F.A.T.I. business, focused on electrification in Europe and the Middle East, showed strong growth with its backlog doubling in six months. Integration into Thermon’s sales network has accelerated opportunity development, particularly around LNG and industrial decarbonization projects.
Drivers of Future Performance
Thermon’s outlook is underpinned by backlog realization, new product launches in growth markets, and tariff-related margin management.
- Backlog conversion and project execution: Management expects delayed revenues from Q2 to convert in the coming quarters, with a return to normalized project scheduling and a larger proportion of revenue recognized in the second half of the year, aligning with historical trends.
- Growth in emerging verticals: Expansion in high-growth areas such as data centers, rail, and European electrification are expected to drive organic growth. The launch of new products and capital deployment to support these markets are central to the company’s strategy.
- Tariff and pricing impacts: While tariffs remain a source of uncertainty, management believes that recently implemented pricing actions and supply chain mitigation will offset cost pressures by year-end. However, some margin risk remains until the full impact of tariffs is known.
Catalysts in Upcoming Quarters
In the coming quarters, our analysts are monitoring (1) the pace of revenue recognition from the cleared backlog and whether delayed orders convert as expected, (2) adoption rates for Thermon’s new liquid load bank products in the data center market, and (3) continued expansion and backlog growth in the rail, transit, and European electrification segments. Execution of pricing strategies to counteract tariff headwinds will also be a critical area to track.
Thermon currently trades at $24.51, down from $28.22 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).
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