Executive Summary
Thermon Group reported a resilient QQ1 2026 performance despite revenue headwinds from delayed backlog conversion. Revenue was $108.9 million, down 5% year over year on a reported basis, with organic revenue down ~11% excluding the contribution from the F.A.T.I. acquisition. The quarter delivered gross margin expansion to 44.1% (up 30 bps vs. last year) driven by a higher-margin OpEx revenue mix and tariff mitigation actions, even as tariffs created marginal margin headwinds. Adjusted EBITDA was $21.2 million (14.6% of revenue) and GAAP EPS was $0.26, with GAAP net income of $8.6 million. Book-to-bill was 1.11x and backlog rose 13% organically, while total bid pipeline grew 43% year over year, aided by the Vapor Power acquisition and strength across chemical, petrochemical, power, LNG and renewables. Management reaffirmed full-year guidance for 2026: revenue of $495–$535 million and adjusted EBITDA of $104–$114 million, noting ongoing tariff uncertainty and execution timing risk. Strategic initiatives remain a core differentiator: data center opportunity with the Pontus and Poseidon liquid load banks, a rail & transit expansion driven by government funding, and the rapid contribution from F.A.T.I. in Europe’s electrification push. The balance sheet remains sturdy (net leverage ~1.0x; net debt around $114.9 million; liquidity ~$130.8 million), supporting disciplined capital allocation including share repurchases and organic/inorganic growth investments. Near-term margin risk persists as tariffs are absorbed, but the company anticipates pricing actions to offset cost pressures in the back half of 2026, subject to macro and trade conditions.
Key Performance Indicators
QoQ: -18.95% | YoY:-14.69%
QoQ: -22.66% | YoY:-1.88%
QoQ: -57.65% | YoY:-24.77%
QoQ: -53.71% | YoY:-14.90%
QoQ: -52.73% | YoY:-13.33%
Key Insights
Revenue: $108.9m (YoY -5%; Organic ex-F.A.T.I. down ~11%); Gross margin: 44.1% (up 30 bps YoY); Gross profit: $48.0m; EBITDA: $18.63m; Adjusted EBITDA: $21.20m (margin 19.5%); Operating income: $11.73m (margin ~10.77%); Net income: $8.58m (net margin ~7.88%); EPS: $0.26 (diluted $0.26); Orders: -5% YoY (organic -19%); Book-to-bill: 1.11x; Backlog: up 13% organically; End-Backlog growth: 27% YoY; Large project revenue: $15.6m (down 11%); Cash flow: Operating cash flow $10.74m; Free cash flow $8.3...
Financial Highlights
Revenue: $108.9m (YoY -5%; Organic ex-F.A.T.I. down ~11%); Gross margin: 44.1% (up 30 bps YoY); Gross profit: $48.0m; EBITDA: $18.63m; Adjusted EBITDA: $21.20m (margin 19.5%); Operating income: $11.73m (margin ~10.77%); Net income: $8.58m (net margin ~7.88%); EPS: $0.26 (diluted $0.26); Orders: -5% YoY (organic -19%); Book-to-bill: 1.11x; Backlog: up 13% organically; End-Backlog growth: 27% YoY; Large project revenue: $15.6m (down 11%); Cash flow: Operating cash flow $10.74m; Free cash flow $8.32m; CapEx $2.42m; Share repurchases: $9.8m in Q1; Debt: Total debt $151.45m; Net debt $114.92m; Net leverage ~1.0x; Cash and available liquidity: $130.8m; Regional mix: US-LAM and Canada down; EMEA up strongly (F.A.T.I. contribution +$6.8m); APAC down to $6.6m; Credit facility closed at $240m (matures July 2030).
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
108.90M |
-14.69% |
-18.95% |
| Gross Profit |
48.05M |
-1.88% |
-22.66% |
| Operating Income |
11.73M |
-24.77% |
-57.65% |
| Net Income |
8.58M |
-14.90% |
-53.71% |
| EPS |
0.26 |
-13.33% |
-52.73% |
Management Commentary
- Strategy and growth: Management emphasizes diversification into high-growth verticals (data centers, rail & transit, electrification) and references F.A.T.I. as a fast-growing acquisition with backlog doubling in 6 months. Bruce Thames highlighted the emerging data-center opportunity and the 43% rise in the total bid pipeline, driven by Vapor Power and end-market activity.
- Margin and tariff dynamics: Management attributes the Q1 gross margin gain to a shift toward higher-margin OpEx revenues and tariff mitigation (pre-buys, sourcing/production shifts, price increases). They acknowledge tariff headwinds and project margin risk into the balance of the year, but expect pricing actions to offset input costs in H2.
- Backlog and orders: Delayed backlog conversion and project execution timing caused roughly $10 million of revenue lag in Q1, with a 5% reported decline in bookings yet a backlog up 27% YoY at quarter end. Q2–Q4 execution is anticipated to convert backlog into revenue.
- Data center product launch and go-to-market: Pontus and Poseidon liquid load banks launched in late July to capitalize on liquid-cooled data centers; management noted direct global selling with potential partners in rental/tech spaces. Early-stage pipeline is building with a target 20–25% market share over time.
- Capital allocation and liquidity: The company repurchased ~$9.8m of shares in Q1 and maintained a refreshed authorization of $50m. A new $240m credit facility extended to 2030 supports organic and inorganic growth and deleveraging potential. CEO notes flexibility to react to tariff developments as conditions evolve.
"these actions enabled us to achieve gross margin improvement over prior year, affirming the effectiveness of our operational framework and the agility of our organization."
— Bruce A. Thames
"The M&A pipeline remains active, and we continue to search for opportunities to deploy capital to augment our strategic growth initiatives."
— Jan L. Schott
Forward Guidance
Thermon reaffirmed its FY2026 guidance: Revenue $495–$535 million and Adjusted EBITDA $104–$114 million. Management cautions that tariff dynamics introduce near-term margin risk, but expects pricing actions and productivity gains to offset input-cost pressures in the back half of 2026. Key factors to monitor include: (1) the trajectory of tariff announcements and their impact on input costs and customer demand, (2) the rate of revenue conversion from delayed backlog and the progression of large-project execution into revenue in Q2–Q4, (3) the ramp and monetization of the data-center liquid load-bank opportunity (Pontus/Poseidon) with a goal of meaningful revenue in the back half of 2026 and beyond, (4) the pace of electrification and LNG-related opportunities in Europe via F.A.T.I., and (5) the durability of order momentum in rail & transit, LNG, and commercial end-markets. Overall, the outlook rests on a combination of (a) stabilization of trade policy, (b) continued success in pricing and mix optimization, and (c) execution of long-cycle projects, with Q2 headwinds implying a cautious path to stronger H2 performance.