Sometimes the best investment opportunities come wrapped in government buzzwords and unrealistic timelines.

Last Friday, the White House issued an executive order called "Unleashing American Drone Dominance." Yes, that's the actual title. And while it's long on ambition and short on specifics, buried in the bureaucratic language is something that matters for growth investors: a clear signal that the administration wants to fast-track electric vertical takeoff and landing (eVTOL) aircraft.

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Image source: Getty Images.

The executive order creates an eVTOL pilot program requiring the FAA to select at least five companies for real-world operations, with aggressive timelines that suggest political pressure to move faster than typical aviation bureaucracy allows.

While the details remain vague and the timelines optimistic, the direction is clear: America wants to lead in urban air mobility. This political tailwind arrives just as the technology reaches commercial viability, creating a rare convergence of innovation, regulation, and market demand.

Now, before you roll your eyes at another government initiative, consider this: Archer Aviation (NYSE: ACHR) and Joby Aviation (NYSE: JOBY) don't need this executive order to succeed. Both companies are working through FAA certification (though timelines for experimental aircraft are notoriously opaque), have secured major airline partnerships, and claim to be targeting commercial launches shortly.

What both companies are getting is something potentially more valuable -- political cover to move faster through the regulatory maze. Both stocks have already had massive runs over the past 12 months (Archer up 203%, Joby up 63%), but if you think flying taxis are still science fiction, you haven't been paying attention. Here's why these two pioneers look like buys even after their recent runs.

Archer Aviation: The execution story

Archer Aviation operates with remarkable efficiency for a pre-revenue company, achieving milestones that arguably justify its $5.6 billion market cap. The company's Midnight aircraft, designed to carry four passengers plus a pilot on trips up to 100 miles, recently completed piloted flights -- a critical step that positions Archer, alongside Joby, as one of America's leading eVTOL companies.

With partnerships spanning United Airlines for domestic routes and Stellantis for manufacturing expertise, Archer has assembled the pieces for rapid commercialization once certification arrives. Its Launch Edition program, securing commitments from Abu Dhabi Aviation and Ethiopian Airlines valued at up to $30 million each, provides early revenue visibility and validates international demand.

The investment case is compelling. Archer's $6 billion order backlog now exceeds its entire $5.6 billion market cap, while its hefty 11.7% short interest (as of mid-May) sets up a potential short squeeze. Though Friday's executive order lacks implementation details, it sends an unmistakable signal -- the U.S. government views eVTOL dominance as a national priority. For a company already executing ahead of most of its peers in many ways, that political validation could be the spark that sends shares soaring in the months ahead.

Joby Aviation: The deep-pocketed pioneer

Joby Aviation brings unmatched financial firepower to the eVTOL race, with $813 million in cash plus Toyota's recent $250 million investment (part of a $500 million commitment) providing runway through commercialization. The company's Q1 2025 achievements read like a pre-launch checklist: routine pilot-on-board transition flights, Virgin Atlantic partnership for U.K. market entry, fifth production aircraft powered on, and expanded Marina manufacturing facility set for June handover.

Joby benefits from Toyota's manufacturing expertise embedded directly in operations, potentially solving the hardest challenge facing aerospace start-ups -- scaling from prototypes to volume production. The company claims to be 62% complete on its side of Stage 4 FAA certification (43% on FAA's side), though investors should view these self-reported metrics skeptically given the opaque nature of experimental aircraft approval. That's not a knock against either company, but the reality of developing a new form of aviation.

With strategic partnerships including Delta Air Lines, Virgin Atlantic, and a $131 million Department of Defense contract, Joby has diversified its path to revenue across commercial, international, and military applications. And like Archer, Joby also sports a fairly high short interest, with 7.6% of outstanding shares sold short in May. As such, this eVTOL pioneer could also benefit form a short squeeze on positive news or a marketwide melt-up.

Why these two eVTOL pioneers are a buy this week

Friday's executive order accelerated the eVTOL timeline, and the market hasn't caught on. While Archer executes lean and Joby brings Toyota's backing, both companies now face compressed regulatory timelines that could pull commercial operations forward by years.

This week's setup is compelling: Heavy short interest creates squeeze potential, operational milestones keep hitting, and a fresh political catalyst has just emerged. So, for growth investors comfortable with volatility, this could be a stellar entry point.

Should you invest $1,000 in Archer Aviation right now?

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George Budwell has positions in Archer Aviation, Joby Aviation, and Toyota Motor. The Motley Fool recommends Delta Air Lines and Stellantis. The Motley Fool has a disclosure policy.

Makers of electric vertical takeoff and landing aircraft (eVTOLs) aim to revolutionize the transportation industry by allowing people to literally fly above urban traffic on short-haul routes. Archer Aviation (NYSE: ACHR) is an early mover in the air taxi space, and with its market cap at just $5.83 billion now, new investors can still get in early on what could be an exciting long-term growth opportunity.

That said, potential rewards often correlate with potential risk in the stock market. And in late May, a report from short-seller Culper Research cast doubts about the quality of Archer Aviation's communications with investors and the public. Remember that short-sellers make money when a stock falls.

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Culper Research is short Archer Aviation

On May 20, Culper Research published a report titled "Archer Aviation (ACHR): When You Can’t Earn Airtime in the Sky, Buy it on Late Night Television" and featuring an image of Archer Aviation CEO Adam Goldstein alongside Jimmy Fallon, host of The Tonight Show Starring Jimmy Fallon. Culper Research claims the company "systematically misled" investors about its progress toward developing and testing its flagship Midnight aircraft. The report cites examples from employee emails, photos, and public statements that the short-seller believes contradict Archer Aviation's claims about the progress of its eVTOL program.

The stock didn't immediately drop after the report, but was down about 18% from the close of trading May 19 to the close on June 5. Archer's management fired back in a statement, dismissing the claims as "baseless" and questioning Culper's credibility.

Short-sellers profit when the price of a stock that they have shorted goes down, which gives them an incentive to present such a company's situation as negatively as possible. That gives me pause about the Culper report. Furthermore, even if Archer Aviation is overselling the progress of its eVTOL program, that's par for the course for speculative tech companies. For example, Tesla CEO Elon Musk has frequently made projections about timelines and projects (such as self-driving) that have rarely played out the way he said they would. Expectations of some exaggerations and delays are likely already priced into Archer Aviation's stock.

Focus on the fundamentals

Instead of getting caught up in news stories and short-seller allegations, investors should focus on Archer Aviation's financial reports. This data should give investors the best indications of how long the company can sustain its operations while it waits for factors outside its control, such as regulatory approvals. So far, the situation is complicated.

In the first quarter, its operating losses stood at $144 million, compared to $142 million in the prior-year period. This was mainly due to research and development outflows, as it spent more to bring the Midnight aircraft closer to commercialization. However, with around $1 billion in cash and equivalents on its balance sheet, Archer Aviation could sustain that rate of cash burn for about seven more quarters before it would need to seek outside sources of capital.

Artist's rendering of futuristic eEVTOLs parked and landing on a building in a city. Image source: Getty Images.

The company is also working on expanding its manufacturing capabilities through a partnership with multinational automaker Stellantis. The companies are teaming up to build a manufacturing facility in Covington, Georgia, that will eventually be capable of producing up to 650 aircraft annually, with Stellantis contributing expertise and capital to the project. Archer Aviation expects to be able to produce two Midnight aircraft per month by the end of 2025.

What will the next three years have in store?

Like many speculative companies, Archer Aviation presents a hugely optimistic vision for its future. While the company is still awaiting final approvals from the Federal Aviation Administration (FAA) in the U.S., in international markets, it seems to be moving much faster.

Early "launch edition" customers for its eVTOLs include Ethiopian Airlines and Abu Dhabi Aviation, which plans to take delivery of Midnight aircraft later this year. Over the next three years, Archer's revenue growth could accelerate dramatically as it secures more clients and ramps up production. But while this is exciting news for investors, it is unclear if these customers plan to merely test and experiment with eVTOLS or incorporate them into large-scale revenue-generating operations.

Furthermore, investors shouldn't be surprised if there are delays and disappointments associated with the aircraft's commercialization, especially considering the allegations made in Culper Research's report. Archer Aviation remains a high-risk, high-potential-reward bet and it's not clear where it will be in three years.

Should you invest $1,000 in Archer Aviation right now?

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• HR software company Lattice is unleashing new AI agents for the workplace.
• The new features transform the tools from simple chatbots into more proactive assistants.
• Sarah Franklin, the CEO of Lattice, told BI that embracing AI now would help protect jobs.

AI is already entering the workplace, so how should employees make sure it doesn't take their jobs?

For HR software company Lattice, the answer is to embrace it now and get ahead.

Last month, the company announced it was launching an AI agent designed to help HR teams. The agent would effectively give employees a digital copilot to answer questions about payroll, benefits, and other things they might usually message a human about.

On Tuesday, Lattice announced it's rolling out more features to transform these tools from simple chatbots into more proactive assistants.

They'll sit in on 1:1 meetings with your manager. They'll nudge you if they think an employee is disengaged and at risk of leaving the company. They'll let you practice difficult questions before having them with other employees.

Notably, Lattice is applying those same techniques to other business departments beyond HR, with what it's calling an "agent platform." Lattice CEO Sarah Franklin told Business Insider that IT and finance are two areas where these agents could be most helpful.

"I have an executive assistant as the CEO of a company, but my regular line engineer does not have an executive assistant," said Franklin. Lattice's proposal is: what if they did?

AI agents are a big theme in the corporate world right now. As the underlying AI models continue to improve rapidly, generative AI tools that can actually carry out helpful tasks and act more proactively are becoming more of a reality. But Franklin says many companies are struggling to make that leap.

"A lot of people are stuck at the starting line of, 'how do I get this going for my employees, rather than just having a ChatGPT window?'" she said.

The elephant in the room

While Franklin says Lattice is trying to get AI to enhance employees, rather than find ways of replacing them, plenty of companies are trying to get AI to take on white-collar jobs.

Franklin believes using AI to replace repetitive daily manual tasks, such as answering employee questions about payroll or health insurance plans, will free employees up for more "strategic" thinking.

She doesn't deny that some companies will look to use these AI tools to replace some humans, but she also said that's not what Lattice is trying to do. Instead, she sees the ability to offload menial tasks to AI as a way to make employees more productive and useful.

"We're not able to have people focused on the things that are really important because they're too busy doing the stuff that is logistical and not strategic," she said.

Franklin says there will always be a human in the loop and that Lattice's AI agents won't act on their "proactive" recommendations, such as contacting an employee who has missed a deadline, without a warm body giving the OK. Some companies that were bullish on AI, such as Klarna, have about-turned in recent months after discovering that taking humans out of the loop backfired.

It's a sign of just how unchartered these waters are. Lattice itself knows: jump back 10 months, and the company found itself in a media storm after announcing a new tool to let companies onboard AI "employees" and even give them official employment records.

It didn't go over well, and Lattice later walked back the release, but Franklin still believes the idea at heart was correct.

"We need to treat them as employees that aren't ghosts," she told BI. That means holding AI agents to the same standards as human employees when it comes to security, compliance, and performance, she added, "so we have a deep understanding of how these entities are behaving."

This, she said, will be important to preventing AI from just taking human jobs outright. It's an optimistic take, and it might prove to be correct. But there's also fear right now that AI agents will soon be good enough to wipe out many white-collar jobs. In some cases, they are already doing so.

"People have fear, uncertainty, doubt — this is why the time is now where we must all go through this change management, know how to be proficient, fluent, and elevated with AI so we're not replaceable," said Franklin.

"We prevent this by being proactive, by seeing the future and getting to it first."

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Short-selling can deliver spectacular returns when overvalued companies collapse, but it can also create devastating losses when markets move against bearish bets. The asymmetric risk profile makes shorting particularly hazardous during periods of rapid technological change, where seemingly overpriced stocks can continue to climb as new business models emerge and mature.

The current environment presents especially treacherous conditions for short-sellers. With artificial intelligence, autonomous systems, and defense modernization driving massive government and private investment, companies operating at the intersection of these trends often defy traditional valuation metrics. What appears overvalued today can quickly transform into tomorrow's essential infrastructure provider.

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Image source: Getty Images.

Archer Aviation (NYSE: ACHR) exemplifies this dynamic perfectly. After surging 202% over the past 12 months, the electric aviation company has attracted significant short interest, with 11.7% of outstanding shares sold short as of mid-May 2025. But beneath the surface, a fundamental business transformation is underway that could make this one of the most dangerous short positions in the market.

The short thesis looks compelling on paper

Archer became a prime short target following its meteoric rise, and the bearish case appears straightforward. The company operates in the nascent electric vertical takeoff and landing (eVTOL) market with limited recurring revenue and significant regulatory hurdles ahead. Commercial air taxi operations require extensive FAA certification and, for widespread adoption, costly investments in specialized vertiport infrastructure and air traffic management systems.

Recent research from Culper Research amplified these concerns, alleging that Archer had misled investors about key development milestones and questioning the timeline for FAA certification. Culper Research accused the company of misrepresenting testing progress and aircraft readiness, claiming Archer's "continued promotion of near-term commercialization is not only premature, but reckless." Like most pre-revenue companies, Archer is valued purely on potential rather than current financial performance, making it vulnerable to any signs that development progress is falling short of expectations.

While initial operations can leverage existing helipads and airport infrastructure, the scaling challenge looms large. Widespread air taxi adoption will eventually require substantial investments in dedicated takeoff and landing facilities, charging networks, and traffic coordination systems. The capital intensity and coordination complexity create natural barriers to rapid scaling that could limit long-term revenue growth potential.

Defense contracts change everything

What short-sellers are missing is Archer's strategic pivot into defense applications through its dedicated Archer Defense unit. The company has already secured a $142 million contract with the U.S. Air Force's Agility Prime program to deliver up to six Midnight eVTOL aircraft for military evaluation. This represents roughly half of the Department of Defense's initial eVTOL investments, positioning Archer as a leading contender for larger procurement programs.

The military use case completely transforms the value proposition. Archer's Midnight aircraft offers a 20- to 50-mile range, 150 mph top speed, and acoustic signature far quieter than traditional helicopters. These characteristics make it ideal for military missions requiring stealth and agility, including quick-reaction transport, medical evacuation, resupply, and intelligence gathering operations.

More importantly, defense adoption bypasses the civilian scaling bottlenecks that concern short-sellers. Military bases already possess suitable landing areas, and the Department of Defense has established procurement pathways designed to accelerate promising technologies into operational use. Success in prototype evaluations typically leads to "programs of record" where the military commits to fleetwide adoption worth hundreds of millions to billions of dollars.

Strategic partnerships multiply the opportunity

Archer's exclusive partnership with defense technology company Anduril Industries significantly expands its addressable market and credibility within military circles. Together, they're developing hybrid-propulsion VTOL aircraft that combine electric lift with fuel-based generators for extended range, directly addressing military requirements that pure battery-powered aircraft cannot meet.

Anduril brings proven defense contracting expertise, having recently secured a $642 million Marine Corps counter-drone system deal and a $99.7 million Space Force contract. This partnership positions Archer for larger defense opportunities beyond pure aircraft sales, potentially including integrated autonomous systems and battlefield mobility solutions.

The timing couldn't be better. Recent conflicts have demonstrated the strategic value of quiet, agile aircraft that can operate in contested environments where traditional helicopters face increasing vulnerability to drone swarms and advanced air defenses. The Department of Defense is actively investing in distributed operations concepts where eVTOL aircraft play a central role, creating immediate demand for proven capabilities.

Why this matters for short-sellers

Full disclosure: I am a long-term shareholder in Archer Aviation and a firm believer in the transformational potential of eVTOL technology. This perspective undoubtedly influences my optimistic view of the company's defense pivot and long-term prospects. However, the fundamental shift from commercial-focused to defense-enabled operations represents a measurable change in Archer's risk profile that short-sellers ignore at their peril.

For short-sellers betting on commercial aviation challenges, Archer's defense transformation represents a massive blind spot. While civilian air taxi operations face legitimate scaling hurdles, military contracts provide immediate validation and revenue potential that could sustain the company through any commercial development delays.

With key partnerships with established military contractors, shorting Archer looks increasingly like a bet against the inevitable militarization of eVTOL technology. In a market where defense spending continues accelerating and autonomous systems receive priority funding, that's a dangerous position to maintain.

Should you invest $1,000 in Archer Aviation right now?

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The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Archer Aviation wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $651,049!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $828,224!*

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George Budwell has positions in Archer Aviation. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Shares of Joby Aviation (NYSE: JOBY) are flying higher on Wednesday. The company's stock spiked 30.2% as of 2:21 p.m. ET. The jump comes as the S&P 500 and the Nasdaq Composite were mostly flat.

The company, which develops electric vertical take-off and landing (eVTOL) aircraft, announced yesterday after the market closed that it has received $250 million from Toyota, the first tranche in $500 million of previously announced funding.

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Toyota releases its first payment

While the funding was not unexpected -- the total $500 million strategic investment had already been announced -- actually receiving it sparked renewed enthusiasm for the company and its relationship with the storied vehicle maker.

The funds will be used to help Joby attain certification for its eVTOL aircraft as well as to advance its manufacturing and production capabilities. Joby leadership is hoping the relationship will progress, saying that the release of the $250 million "puts the two companies a step closer toward a strategic manufacturing alliance."

Image source: Getty Images,

JoeBen Bevirt, founder and CEO of Joby, added that, "We're already seeing the benefit of working with Toyota in streamlining manufacturing processes and optimizing design. This is an important next step in our alliance with Toyota to scale the promise of electric flight."

Joby looks promising

The news comes on the heels of a damning report on its closest competitor, Archer Aviation, that alleges Archer is misleading investors regarding its development timeline and aircraft capabilities. If these allegations prove true, it would give a massive leg up to Joby in the race to commercial operations. Given Toyota's commitment to quality and reliability and its relationship with Joby, I would be surprised if the company faces similar allegations.

Should you invest $1,000 in Joby Aviation right now?

Before you buy stock in Joby Aviation, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Joby Aviation wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $653,389!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $830,492!*

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Thermon Group (NYSE:THR) delivered its fiscal 2025 fourth-quarter results on May 22, reporting 5% year-over-year revenue growth to $134.1 million, an adjusted EBITDA margin of 22.7%, and record annual free cash flow of $53 million. Management at the industrial process heating specialist highlighted a 29% year-over-year backlog increase as of March 31 (the quarter's end), strategic expansion into high-growth markets, and outlined the tariff headwinds it expects for fiscal 2026, as well as its plans for rigorous mitigation efforts.

Backlog Acceleration and Diversification Drive Competitive Resilience

As of fiscal 2025's end, the company's backlog was up by 29% year over year, with organic backlog up by 20%. It's benefiting from gains in the liquid natural gas (LNG) segment and from its exposure to diversified end markets. The backlogs point to sustained order strength despite a 37% annual decrease in revenue from large capital projects. Its book-to-bill ratio has remained above 1.0 for four consecutive quarters, supported by rebounding oil and natural gas activity and strategic wins in the LNG business after the U.S. moratorium on permits for new LNG export projects was lifted in January.

"As a result, our backlog as of March 31 increased 29% from last year, with the organic backlog up 20%, driven by momentum in diversified verticals coupled with a rebound in certain oil and gas markets."
-- Bruce Thames, CEO

LNG and Strategic M&A Expand Addressable Market

The lifting of the U.S. moratorium on permits for new LNG export projects catalyzed increased project bidding, and Thermon secured five major awards. The January 2024 acquisition of Vapor Power contributed to a 25% sales pipeline expansion. Later, in fiscal 2025, it acquired heating solutions specialist Fati, and demand from Thermon's legacy customers has approximately doubled Fati's backlog. Thermon management sees $80 million in potential opportunities for its offerings in the LNG space.

"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. ... The addition of Vapor Power has expanded our addressable market, increasing our sales pipeline by 25%, even though the business represents just 11% of total revenue today."
-- Bruce Thames, CEO

Thermon's proactive portfolio and M&A strategies are solidifying its competitive position in high-growth, high-barrier industries, directly supporting multiyear organic expansion and recurring revenue base shifts.

Tariff Headwinds Quantified and Countermeasures Deployed

Management's guidance factors in an expected annualized gross tariff headwind of $16 million to $20 million, with the net impact after mitigation estimated at $4 million to $6 million, primarily affecting its first-half margins. Management has raised prices, reconfigured supply chains, and enacted production shifts in its effort to offset the cost inflation caused by those new import taxes. Its planned $5 million investment in its Enterprise Resource Planning (ERP) system will be excluded from adjusted EBITDA and EPS, as well as from the guidance figures.

"Based upon these assumptions, we're expecting an annualized impact of roughly $16 [million] to $20 million on a gross basis prior to mitigating actions, which are already underway. ... We believe on a net impact, it's somewhere in the $4 [million] to $6 million range within the current fiscal year."
-- Bruce Thames, CEO

Looking Ahead

Management's guidance for fiscal 2026 is for $495 million to $535 million in revenue (3.5% growth at midpoint) and adjusted EBITDA of $104 million to $114 million, with a brief margin dip expected in the first half due to tariff lag, but with margins recovering as the company's pricing actions take effect in the second half. Management is neutral to cautious on its demand expectations, given the elevated levels of macroeconomic and trade policy risks, but is reinforcing aggressive capital allocation priorities in M&A, share repurchases, and organic growth investments.

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DATE

Thursday, May 22, 2025 at 11 a.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Bruce Thames

Chief Financial Officer — Jan Schott

Vice President, Investor Relations and Global Communication — Ivonne Salem

Need a quote from one of our analysts? Email [email protected]

RISKS

CEO Thames disclosed, "Tariffs continue to present both direct and indirect challenges to our cost structure," noting an expected annualized gross impact of $16 million to $20 million before mitigation efforts in FY2026.

CFO Schott confirmed, Free cash flow for FY2025 was $52.9 million, down from $55 million in FY2024. attributing the decline to investments in ERP technology.

Management's guidance anticipates margin headwinds in the first half of FY2026, with price increases in the second half expected to offset these pressures as mitigation efforts take full effect. indicating temporary pressure on profitability.

TAKEAWAYS

Revenue: $134.1 million in revenue in the fourth quarter of fiscal 2025, a 5% year-over-year increase, primarily driven by recurring revenues and contributions from acquisitions.

Organic Growth: 3% organic revenue growth, reversing a year-long trend of declines.

OpEx Revenue: $111.8 million in OpEx revenue, up 7% year-over-year representing 83% of total revenues.

Large Project Revenue: $22.3 million, down 5% year-over-year but up 20% quarter-over-quarter.

Orders and Bookings: Orders increased 19% on a reported basis in the fourth quarter of fiscal 2025 and nearly 14% organically; book-to-bill reached 1.04x.

Backlog: Total backlog rose 29% year-over-year as of March 31, 2025, with organic backlog increasing 20%.

Adjusted EBITDA: Adjusted EBITDA was $30.5 million, up 29% year-over-year in the fourth quarter of fiscal 2025; the Adjusted EBITDA margin expanded to 22.7%, a 423 basis point improvement relative to Q4 of last year

Free Cash Flow: $52.9 million in free cash flow for fiscal 2025, with a modest decline attributed to technology investments related to ERP implementation

Share Repurchases: $14 million repurchased, over $20 million for fiscal 2025; repurchase authorization refreshed to $50 million.

Net Debt and Leverage: Net debt reduced to $99 million at the end of fiscal 2025, with net leverage at 0.9x at year-end.

LNG Market Activity: Five major LNG project awards secured since the US moratorium lift.

Regional Results: US land sales up 6% in the fourth quarter of fiscal 2025; EMEA revenue up 51% reported (18% excluding Fati); Canada sales down 6% year-over-year in the fourth quarter of fiscal 2025; APAC revenue was $9.2 million.

Diversification: Over 70% of revenue now comes from diversified end markets as of FY2025, meeting the strategic goal nearly two years ahead of plan.

Genesys Control Offerings: Now comprise 12% of total heat tracing revenue in FY2025, with the installed circuit base growing nearly 90% in FY2025 and projected to grow another 50% in FY2026.

Vapor Power and Fati Acquisitions: Vapor Power expanded the sales pipeline by 25% and accounts for 11% of current revenue; Fati backlog has doubled post-acquisition during FY2025.

Capital Expenditures: $3.1 million in capital expenditures in the fourth quarter of fiscal 2025, flat compared to the fourth quarter of last year; planned annual CapEx at 2%-3% of sales for FY2026 with 1% for technology investments in FY2026.

Tariff Exposure: Management estimates the net tariff impact after mitigation at $4 million to $6 million for FY2026, mainly in the first half.

Fiscal 2026 Guidance: Revenue is expected at $495 million to $535 million (3.5% growth at midpoint) for FY2026; adjusted EBITDA is projected to range from $104 million to $114 million for FY2026, with a modest margin decline anticipated for FY2026 due to tariff timing.

SUMMARY

Thermon Group Holdings, Inc. delivered sequential and year-over-year revenue increases in the fourth quarter of fiscal 2025, with recurring revenues and recent acquisitions driving results. Management is proactively addressing tariff-related cost pressures using price increases, supply chain optimization, and global footprint shifts, but expects profitability headwinds primarily in the first half of the year. The company achieved strategic milestones in diversification and digitization, notably expanding backlog and order momentum in LNG, rail and transit, petrochemical, and general industrial sectors.

CEO Thames emphasized, "The decarbonization opportunity remains a critical aspect of our strategy" highlighting both inorganic and organic initiatives to address electrification demand.

Schott stated, "$137 million of liquidity," underlining balance sheet strength supporting ongoing capital allocation to M&A, share buybacks, and technology upgrades.

Management outlined a clear capital allocation framework prioritizing organic growth investment, opportunistic share repurchases, and a robust M&A pipeline, enabled by flush liquidity.

Backlog growth, particularly in LNG and diversified end markets, could benefit future revenue resiliency if macro or trade uncertainties subside.

INDUSTRY GLOSSARY

OpEx Revenue: Revenue derived from operations, maintenance, and recurring services, as opposed to large one-time capital projects.

Book-to-Bill: The ratio of orders received to revenue billed in a given period; values above 1 indicate growing backlog.

Genesys Control Offerings: Thermon’s proprietary digital controls and monitoring system for heat tracing solutions, providing real-time operational insights.

3D Initiatives: Thermon’s strategic pillars covering Decarbonization, Diversification, and Digitization efforts.

ERP: Enterprise Resource Planning, a software system integrating core business processes.

MRO Revenue: Maintenance, Repair, and Operations revenues tied to recurring customer support and product service work.

Full Conference Call Transcript

Ivonne Salem: Thank you. Good morning, and thank you for joining Thermon Group Holdings, Inc.'s fourth quarter and full year fiscal 2025 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 web under news and events IR calendar, earnings conference call Q4 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 from 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.

Bruce Thames: Thank you, Ivonne, and good morning to everyone joining us on the call today. I'll begin my commentary with the fourth quarter highlights, which we detail on slide three of our presentation. The fourth quarter was another period of solid execution by our team, which resulted in further strength in our OpEx recurring revenues, continued bookings momentum, and strong margin expansion. Over the past couple of quarters, we've detailed how our team has remained focused on our key strategic priorities despite the difficult market conditions. While 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.

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. These order trends have improved across a range of verticals, most notably the LNG market. After the moratorium on LNG exports from the US was lifted earlier this year, activity has resumed, and we're seeing increased bidding and project awards. The activity around natural gas is broad-based with numerous projects underway in the Gulf Coast and the Middle East. 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.

This bookings momentum resulted in the fourth consecutive quarter with a positive book-to-bill. As a result, our backlog as of March 31st increased 29% from last year, with the organic backlog up 20%, driven by momentum in diversified verticals coupled with a rebound in certain oil and gas markets. We also made further progress on our operational excellence initiatives, which combined with our 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. These results underscore the strength of the Thermon business system and resilience of our business operating model.

And finally, our strict financial discipline and improved operating profitability enabled us to finish fiscal 2025 in a strong financial position, with net leverage of just under one times. Importantly, we were able to accomplish this while continuing to invest in our growth initiatives, while also making nearly $14.5 million in optional debt repayments and returning over $14 million in capital to shareholders through our share repurchase program, all in the fourth quarter. 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.

Turning now to reflect on fiscal 2025, 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. On slide four, we provide a snapshot of our 2025 high. Our $498 million in revenue was up just 1% over the prior year, despite a 37% decline in large capital projects. 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.

We generated an adjusted EBITDA margin of 22% during fiscal 2025, which was up 86 basis points from last year, reflecting our more favorable revenue mix and productivity gains through the implementation of the Thermon business system. Our earnings growth and solid gross margin expansion of 196 basis points delivered $53 million in free cash flow during the year. 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. Our 3D initiatives, which we'll are contributed $93 million in revenue during the year.

The R&D team also announced 28 new product and software releases during fiscal 2025, advancing our solution set from digitization to diversification and decarbonization, as well as in the core business. The advancement of our strategy positions us well as we enter our fiscal year with solid momentum, which we illustrate on slide five. The addition of Vapor Power has expanded our addressable market, increasing our sales pipeline by 25%, even though the business represents just 11% of total revenue today. 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 is 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% from the end of last year. As we anticipate the opportunities ahead in fiscal 2026, I would like to take a moment to reflect on the strides we made in advancing our strategic initiatives during fiscal 2025. Now turning to slide six, where we highlight our key strategic pillars. First, growing our installed base. Second, decarbonization, digitization, and diversification. And third, disciplined capital allocation. These pillars, underpinned by our dedication to operational excellence, form the basis of our long-term value creation framework.

I will begin on slide seven with growing the installed base. Over the past seventy years, we've cultivated a loyal customer base that is the foundation of this business and continues to drive meaningful results even in challenging market conditions. During fiscal 2025, our organic revenues declined only 8% despite a decline in large preven new project revenues of nearly 40%. On a trailing twelve-month basis, our OpEx revenues represented 85% of our total revenues, up from the low seventy percent range just two years ago, providing a more stable and predictable base of revenues. As importantly, these OpEx revenues carry significantly gross margins, typically in the 40% to 65% range, well above the levels in our large project business.

On slide eight, we underscore the critical components of our second strategic pillar, pursuing diversification, decarbonization, and digitization, otherwise known as our 3D initiatives. To achieve growth above and beyond GDP, 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. Diversification is shown here on slide nine. Has been an area where we've exceeded our expectations. The goal of 70% of revenue from diverse end markets was achieved at the end of fiscal 2025, almost two years early.

One of the most significant insights from fiscal 2017 is the remarkable 220% revenue growth driven by diversification across multiple end markets, even as oil and gas revenues contracted. 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. That said, our long-standing oil and gas customers remain an important part of the Thermon business at roughly 30% of our total revenues. We've been encouraged by the recent LNG project activity, which we view as a bridge fuel for years to come.

These pockets of strength we're seeing contributed to our Q4 bookings with oil and gas, up over 50% from last year. Based on the priorities of the new administration, we're optimistic this momentum can continue. Turning now to slide ten. The decarbonization 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 technical competencies and breadth of solutions to enable this transition.

The acquisition of Vapor Power in fiscal year 2024 expanded our product portfolio while increasing our total addressable market for decarbonization and electrification opportunities, with the pipeline growing 70% and revenues increasing 85% over fiscal year 2024. During fiscal 2025, we took another important step to further advance our decarbonization strategy with the acquisition of Fati. This acquisition brought us a very well-respected brand of heating solutions that is highly complementary to our legacy portfolio while expanding our global manufacturing footprint. Since acquiring the business, the Fati backlog has essentially doubled due to strong demand from Thermon legacy customers.

In addition to our inorganic growth, we have built advanced software analytic tools to validate designs and launch several new products that reduce the total cost of ownership for our customers. While the policy shift in the US has led to a slowdown in decarbonization conversion rates, Europe continues to invest in the energy transition. As outlined on slide eleven, we remain highly encouraged by the significant strides we made in advancing our digitization strategy. The continued investment in our Genesys control offerings reflects our unwavering commitment to delivering leading controls and monitoring solutions that empower our customers with real-time operational insights, enhancing safety, reliability, and efficiency.

These solutions now constitute 12% of our total heat tracing revenue, a clear testament to its growing impact. Furthermore, fiscal 2025 saw remarkable growth in our Genesys network installed base, where circuit counts surged by nearly 90%, and we're projecting an additional 50% growth in fiscal 2026. This robust adoption underscores the differentiated value we bring to the market. By enabling our customers to digitize and optimize their maintenance operations, we are not only strengthening our competitive advantage but also driving success in new capital projects while capturing recurring MRO revenues. This strategic focus positions us well for sustained growth and leadership in the market. Turning now to slide twelve.

I'm pleased to highlight the transformative impact of the Thermon 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 Fati, we strengthened our operational foundation. This system not only accelerates our product progress towards achieving our profitability targets but also enhances our agility and positions us to deliver sustained competitive advantage in the marketplace. And finally, 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, deployed capital for strategic M&A through the acquisition of Fati, recurring capital to shareholders through our share repurchase program, and made optional debt repayments throughout the year. 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. 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 Schott: 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. Moving to slide fourteen, I will start with our fourth quarter highlights. 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 growth at Vapor Power and contribution from Fati. Please note that Vapor Power is now included in organic results. Our strategic focus of diversifying our revenue base and increasing our exposure to short-cycle projects and MRO-related recurring revenue continues to benefit our business.

This was partially offset by softness in large project revenue. As Bruce mentioned earlier, we are beginning to see improved booking momentum in our large project business. Large project revenue was $22.3 million during the fourth quarter, down 5% from last year. Compared to the previous quarter, however, we saw revenue increase 20%, another indicator of improved momentum in CapEx spending. Our OpEx revenues were $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. Excluding the contributions from Fati, OpEx revenues increased 4% from the same period last year.

OpEx revenues represented 83% of total revenues for the quarter. 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. 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 1.04 times, up from 1.03 times in the prior quarter. Looking at our results by geography, US land sales increased 6% due to continued strength in OpEx revenue and improved large project trends. Revenue in EMEA was up 51% on a reported basis to $15 million and up 18% excluding the contribution from Fati.

Canada sales of $40 million were down 6% from last year due to the general macroeconomic conditions in the country. Revenues in APAC were $9.2 million. Adjusted EBITDA was $30.5 million during the fourth quarter, up from $23.6 million last year, an increase of 29%. Solid revenue growth and strong operating performance were partially offset by continued investments in growth initiatives. 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. Moving to slide sixteen for an update on our balance sheet and liquidity. Working capital increased by 3% to $167.6 million at the end of the quarter due to timing of collections.

CapEx was $3.1 million during the quarter, flat compared to last year. 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 tied to our ERP implementation. We repurchased $14 million in shares during the fourth quarter, bringing our total share repurchases for 2025 to over $20 million. 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.

We paid down $14.5 million of net debt during the quarter, bringing our net debt balance to $99 million and reporting net leverage at the end of the year of 0.9 times. We are currently working with our bank group to extend the maturity of our existing credit facility, which becomes current in September 2025. In summary, the fourth quarter wrapped up a year of strong financial discipline for Thermon Group Holdings, Inc. 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. And we did all of this while still maintaining a strong balance sheet.

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 we'll continue to balance investments in growth, debt pay down, and opportunistic share repurchases. With that, I will turn the call back over to Bruce.

Bruce Thames: Thanks, Jan. Moving now to slide seventeen. As we enter fiscal year 2026, we remain focused on navigating a dynamic global trade environment with discipline and agility. Tariffs continue to present both direct and indirect challenges to our cost structure, particularly in the form of elevated input costs and near-term margin pressure. 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. Based upon these assumptions, we're expecting an annualized impact of roughly $16 to $20 million on a gross basis prior to mitigating actions, which are already underway.

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. These ripple effects are being closely monitored and addressed through proactive supply chain management. To mitigate these impacts, we're executing a multipronged strategy. First, pricing actions. We've implemented targeting price increases to offset rising input costs while maintaining competitiveness and customer value. Second, USMCA compliance. We're committed to preserving our USMCA qualifications, which continue to provide a strategic advantage in North America. Third, global footprint optimization.

With manufacturing operations in the US, Canada, India, and Europe, we are leveraging our global footprint to shift production and sourcing in ways that reduce tariff exposure. Fourth, supply chain reconfiguration. We are actively evaluating and reconfiguring our supply chain to minimize tariff-related disruptions and enhance resilience. Despite these headwinds, we're entering fiscal year 2026 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. We remain calm, focused, and confident in our ability to manage through these challenges while continuing to deliver long-term value for our shareholders. And now if you'll turn to slide eighteen, I will discuss our outlook for fiscal 2026.

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. 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. Given the uncertainty with tariffs and the overall global economy, the current guidance contemplates slowing growth in the second half of the fiscal year.

Based upon these factors, we're providing fiscal 2026 financial guidance that calls for revenue in a range of $495 million to $535 million, representing 3.5% growth at the midpoint of the range. Adjusted EBITDA is in a range of $104 million to $114 million, essentially flat at the midpoint of the range. 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. 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.

Finally, as we conclude on slide nineteen, I want to express my deep appreciation for the efforts of the Thermon team throughout fiscal 2025. Their dedication and innovation have positioned us as a leader in industrial process heating with a resilient business model and efficient operational framework. 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 deliver sustained value for our shareholders. That completes our prepared remarks. We are now ready for the question and answer portion of our call.

Operator: Thank you. 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. We'll pause for a moment while we pull for questions. 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. Hey. I wonder if you could elaborate on you talked about LNG seeing a bit of a resurgence. Can you elaborate a bit on that? What you're seeing, how that might translate?

Bruce Thames: Yeah, Chip. We've, you know, since the lift of the moratorium, in the January time frame, there was always a really a number of projects that were in the queue in our pipeline, and we've seen those move forward pretty quickly. And as I noted in the prepared remarks, the areas of strength we've seen have been along the US Gulf Coast, as well as in the Middle East. And some of those are field developments, as well as export facilities. As we look at our pipeline ahead, there's a number of opportunities that are still out there we're tracking. Around $80 million in LNG opportunities that for our content.

So we see some really nice tailwinds there in that sector.

Chip Moore: Great. Appreciate that. And maybe just on FY 2026, you talked about I think, some margin headwinds maybe here in the first half. Before the pricing kicks in. Just and then you know, maybe growth being a little more challenging in the back half. Maybe just any more detail there on what you're thinking and directionally in Cadence. Thanks.

Bruce Thames: Yeah. Great question. So we've put together a task force. We're looking very closely at the inflationary impact of tariffs to our input costs and while it's a moving target, we see there'll be a near-term impact to gross margins in the first half of the year. We've already moved on pricing in a number of areas to be able to offset that. As usual, our pricing, we have about a sixty-day window or lag before that is effective through our channel partners and with customers. There's a lag effect there. There's 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 will be a margin. Those will create some margin headwinds in the first half. However, you know, we have pricing power. We've been able to pass price increases in the past, but, you know, I look back at COVID and the inflationary impact there. We're able to pass those on. My expectation's we moved fairly quickly here, and so we've should be see begin to see that flow through late in the second quarter and see that fully offset by any inflationary input cost we see in the first half.

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's a big slowdown in the back half. It's just a more cautious approach given the uncertainty. It's difficult, I think, for customers to parse 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.

Chip Moore: Fantastic. Appreciate it. I'll hop back in queue. Thanks.

Operator: And your next question comes from Brian Drab with William Blair. Please state your question.

Brian Drab: Morning. Thanks for taking the questions. I just wanted to maybe first build on that last question. And Bruce, how are you thinking about the overtime category in your forecast for fiscal 2026? Is it, you know, obviously, is it, you know, down a lot in fiscal 2025? Are you forecasting that to be about the same, I guess, given the overall guidance?

Bruce Thames: Yes. Roughly. What the way we're thinking about this right now is that we actually saw really nice backlog build in overtime projects. In fact, our engineering workload is really at an all-time high. And that's related to these the return of capital projects that we've seen really building. We anticipated that coming into this year, and it really began to manifest in the fourth quarter. But, you know, we've had four consecutive quarters of positive book-to-bill. So this has been building. Our assumption at this point is that the order in the incoming order rates for these larger capital projects will be muted until we get more clarity on the trade policy going forward.

And we'll begin to burn through those through the second half of the year. So that's essentially the assumptions we have at the midpoint of our guide. If we look at our guide overall, the upper end of the range would be really what we would have maybe anticipated had we not had some of the trade disruptions and given the momentum we have seen in the market leading into our fiscal 2026. The lower end of the range would assume an erosion in the overall trade negotiations and escalation in the trade conflicts.

Brian Drab: Okay. Thanks. And I ask you to comment on, you know, how are you thinking about group at the midpoint of the range, how are you thinking about the OpEx spending or the, you know, the point in time segment.

Bruce Thames: The mix should be fairly consistent to what we saw in 2025. It should be fairly consistent.

Brian Drab: Yeah. Okay. When you look at our guide at the midpoint. Okay. Can you talk at all about, you know, other categories or, you know, other end markets where you're seeing some of the improvement in the CapEx spending? You talked about the LNG being a standout, but are there other areas in can you update us at all on if you're seeing any incremental demand from the data center opportunity that you mentioned last quarter.

Bruce Thames: Yes. So I'll start with just the overall demand environment. General industrial remains strong. It's one of our largest, it's one of our largest booking segments in the fourth quarter. It represented almost 32% of the bookings in the quarter. Petrochemical, we saw it almost the 17.5% in the quarter, 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 up there, particularly as it relates to LNG. And when we look overall, renewables, we still see opportunities, and that was actually up although it's a fairly small percent of revenue, but that was up fairly sharply in the fourth quarter as well.

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 the coming year. The one thing to note here around data centers, we've done more work there, and that is a real opportunity around load banks, and we've got some work underway. We'll provide some more updates on that in upcoming calls. But that is a real opportunity in the market, and we're working very actively in trying to develop and execute on that opportunity we see.

Brian Drab: Okay. I'm gonna save my questions for later. I just want to make sure I have one high-level idea correct. Here. It seems like what I'm hearing from you today is that, you know, backlog's up 20% organically. You've got some momentum in some different end markets. The CapEx environment at the moment looks like it's improved materially. But, you know, just, you know, instead of, like, a lot of companies are doing pulling guidance, you're just saying, we're gonna give a broad kind of a broad range. There's a lot of, you know, the consensus view is that there's gonna be a slowdown later this year, you know, overall macro.

So you're taking all this into account and just saying, let's be cautious. But it seems like the high end of the range, you know, it could be in play. Here. Is this a fair way to interpret everything that I'm hearing today?

Bruce Thames: Yeah. I think that's a really good way of summarizing, Brian. I think the high end of the range, as I said, if we see some real progress on some of these trade agreements, we get more clarity on the tariff environment going forward. I think customers can become more comfortable with deploying capital, 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 would come through in fiscal 2026. So we're being more cautious in really the demand side of the equation just given the uncertainty that we see and our customers are seeing in the trade environment.

Brian Drab: Got it. Okay. Thanks for all the detail. Talk to you later.

Bruce Thames: Yes.

Operator: Thank you. And a reminder to ask a question, please state your question. Your next question comes from Justin Ages with CJS Securities.

Justin Ages: Hi. Thanks for taking the questions.

Bruce Thames: Hey, Justin.

Justin Ages: 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?

Jan Schott: Yes. Hi, Justin. I'll take that one. You know, I guess, first and foremost, you know, we have our capital investments for growth, and that's in the same range that we've, you know, done in prior years with 2% to 3% CapEx, 2% to 3% of sales. And then probably with all of the technology investments that we have going in, that's about 1% for next year. So that's first and foremost. You know, second, I would say, we do obviously, with the refresh of the share repurchase program, we'll look for opportunistic, you know, opportunities to buy shares.

We bought $14 million shares this last quarter, really, you know, taking advantage of some dips due to other macroeconomic things that were happening. But we, you know, we think that's really a path forward, and we'll continue on that plan. And then the other aspect is also 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 that's something that we're very focused on, and with $137 million of liquidity, we have a lot of, you know, tailwinds that are back really looking, you know, hoping to execute something in the near term on M&A.

Justin Ages: Okay. Appreciate that. And then my you just mentioned that, you know, guidance includes this $5 million one-time tech investment. Can you just give us a little more color on what that entails?

Jan Schott: That's mostly associated with our ERP implementation. That we have ongoing. We'll be implementing kind of in stages across the globe really over the next year and a half or so. And so we're actually looking forward to, you know, having more color on that, I guess, in future calls. But that's underway right now.

Justin Ages: Okay. Thank you. And then last question. On Thermon, you know, long-term initiatives and particularly on the EBITDA margin target. Just wanted to know, you know, what steps are you taking to get there? Do they include some of these mitigation efforts that are now part of, you know, offsetting some of the tariff impact? Just any color on that.

Bruce Thames: Yeah. So certainly, the higher input cost creates some headwinds in the near term, but I still feel confident that the same levers that we have to pull in the business exist on a go-forward basis to continue to drive EBITDA margin expansion. We saw some very nice gross margin expansion in the year, about half of that was related to mix. And, you know, we had about 196 basis points, and so half of that was mixed. The other half a Thermon business system and the rooftop consolidation we did earlier in the year with consolidating operations into San Marcos, as well as the continuous improvement efforts that we've made going forward.

So we continue to see that as a lever 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. As we work and implement the Thermon business system in our new acquisitions, those were a headwind to our gross margin profile this year. But we're confident there's a path to get those more in line with the averages of the overall enterprise. And so those are opportunities for margin expansion. And then last but not least, as we drive growth and volume, we get operating leverage on a fixed cost basis.

So those are the, really, the levers we see pulling on a go-forward basis. We were able to improve 86 basis points this past year, I believe we can continue to drive those changes, although I do see just a setback this year given the impact of tariffs on input cost and a lag of being able to push that through to the market.

Justin Ages: Sure. I appreciate the answers. Thank you.

Bruce Thames: Thank you. Thank you.

Operator: And your next question comes from Jonathan Braatz with Kansas City Capital. Please state your question.

Jonathan Braatz: Good morning, Bruce. Jan? Bruce, maybe a little more clarity on tariffs. You said the gross impact is $16 million to $18 million. Obviously, you have some mitigation efforts, but you think about the upcoming year, what might be the net impact for the full year, you know, considering the mitigation efforts.

Bruce Thames: Yeah. So on a gross basis, we gave a range of $16 to $20 million.

Jonathan Braatz: Yeah. Sounds right. And we believe on a net impact, it's somewhere in the $4 to $6 million range within the current fiscal year.

Jonathan Braatz: And that'll be mostly in the first half. Correct?

Bruce Thames: Correct.

Jonathan Braatz: Correct. Okay. Okay. Alright. Good. Okay. And then secondly, when you look at the competitive landscape, are any of your competitors in a better position regarding tariffs and trade policy, you know, all this other stuff, in a better position or worse position? Any thoughts on the competitive landscape given the new tariff trade policies?

Bruce Thames: 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 US, about 50% of our production from the US, we have a significant presence in Canada as well. We do a lot of for country in country, for country production. The acquisition of Fati increased our operating presence in Europe, a really a bright spot when we look at just the overall demand environment, therefore, for decarbonization and electrification solutions. And you know, that business, we acquired it with about a $15 million backlog.

It's almost doubled since that time, and our ability to serve that on the European continent is a real advantage. And then we do have operations in India that will begin to leverage to serve more of the Asian continent, and we certainly as we look at our M&A opportunities, we're looking for potential acquisitions that would mirror Fati that would give us a larger operating footprint in Asia. Just for these types of situations just to diversify our risk base. So we made a lot of progress since COVID. We've done a lot to build more resiliency into our supply chains. I think that really exposes, not only in us, but with others.

We've never been heavily dependent upon China, so I think that's a real advantage that we have over some others. The one thing I would note is that while we're not dependent, we do we are exposed in second and third-order effects with our supplier. And their supply chains, although, again, people have diversified from China and have multiple sources. So we'll just have to see how a lot of this flows through. But we factored all of that into our guide.

Jonathan Braatz: Yep. Okay. Alright, Bruce. Thank you very much. Appreciate it. Thank you.

Operator: 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. On the one-time technology investment, I $5 million, you this is not being adjusted out of obviously, is what you're indicating. It's not being adjusted out of your guidance or EPS calculation, and seems like it's a you know, that would be about a hundred basis point headwind to operating margin and EBITDA margin. Is that right way to think about it?

Jan Schott: No. This would be adjusted out of or on the adjusted EBITDA calculation. In EPS.

Brian Drab: Okay. So you are okay. So I'm glad I clarified. So you're okay. So you're just calling it out that it is an adjustment. Okay. Now I just missed it. I just want to make sure. Okay. Okay. So there is a you are expecting a margin headwind, you know, excluding this situation. Okay. Alright. Thank you very much. It's not it's obviously not something that we do every year and don't plan to.

Jan Schott: Right. Right. And well, that was my other question. If this goes away then, and you're expecting the $5 million to be the entire investment and for that to be a fiscal 2026 event. And fiscal 2027, it's the plan is for this not to be an expense line. Is that right? Or Yes. I mean, we will have some I think some very marginal investments going into 2027 for just some of the, you know, acquired entities that will roll into the new ERP system. But the majority will be in fiscal 2026. Yes.

Brian Drab: Okay. Okay. Perfect. Thank you very much. Thank you.

Operator: Ladies and gentlemen, that's all the questions we have for today. I'll now hand the floor back to Bruce Thames for closing remarks.

Bruce Thames: Yeah. Thank you, Diego. And, you know, I'd like to again thank our Thermon employees around the globe for their contributions to a successful 2025. And thank you all for your interest in Thermon Group Holdings, Inc. If we don't speak to you in the next coming quarter, we look forward to you joining us on our next earnings call. Thank you, and have a good day.

Operator: Thank you. All parties may now disconnect.

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Extending the 5.6% decline that it suffered in March, the S&P 500 (SNPINDEX: ^GSPC) inched almost 0.7% lower in April. Of course, there were stocks that bucked the trend and managed to gain altitude last month. Archer Aviation (NYSE: ACHR), for example, ascended 17.2% higher, according to data provided by S&P Global Market Intelligence.

In addition to the company announcing advancements in its goal to bring air taxi service via its electric vertical take-off and landing (eVTOL) aircraft to customers, investors loaded up on shares of Archer after learning of an analyst's auspicious outlook for its stock.

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Image source: Getty Images.

More than one factor lifted shares higher

On April 17, investors gained more insight into Archer's plan for air taxi service in and around New York City. In collaboration with United Airlines, Archer aspires to offer customers the ability to travel from Manhattan to airports located on Long Island, northern New Jersey, and Westchester County on flights that last under 20 minutes -- a considerable time-saver over trips by car that can take as much as several hours, depending on traffic.

Addressing Archer's vision for reimagining travel around the New York metropolitan area, Adam Goldstein, Archer's founder and CEO, said:

The New York region is home to three of the world's preeminent airports, serving upwards of 150 million passengers annually. But the drive from Manhattan to any of these airports can be painful, taking one, sometimes two hours. We want to change that by giving residents and visitors the option to complete trips in mere minutes.

With respect to the company's business in the Middle East, Archer announced that officials in the United Arab Emirates had approved the transformation of a helipad at the Abu Dhabi Cruise Terminal into a hybrid heliport where both helicopters and eVTOL aircraft can operate.

The progress toward developing infrastructure for Archer's eVTOL aircraft is something that investors are watching closely, as the company has suggested that it may begin commercial operations in the UAE as early as the fourth quarter of 2025.

Providing the bulls with more reason to click the buy button, Needham analyst Chris Pierce reiterated a buy rating on Archer stock on April 21 and maintained a $13 price target toward the end of the month. At that time, the price target implied upside of about 80% from where the stock had closed the day prior.

Should investors now aim to buy Archer stock?

Achieving further progress in its march toward commencing commercial operations, Archer notched an important success in Abu Dhabi -- something that investors certainly appreciated. Likewise, its intention of providing air taxi service in and around New York City also earned approval from investors.

Despite the stock's climb in April, shares are still down about 5% year to date, as of this writing. Those scanning the skies for an intriguing growth opportunity should certainly take a closer look at Archer stock right now, undeterred by the stock's recent rise.

Should you invest $1,000 in Archer Aviation right now?

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Exciting times are ahead as flying taxis inch closer to becoming a reality. Archer Aviation (NYSE: ACHR) is at the forefront of this groundbreaking technology and is gearing up to launch its flying taxis for the first time this year in the United Arab Emirates.

This could be a monumental leap forward as Archer aims to take urban transportation to new heights. Archer Aviation stock is up 89% over the past year. However, recent market volatility has weighed on stocks overall, and Archer Aviation is now 43% below its 52-week high.

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With stock trading at a cheaper price, investors may be tempted to scoop up some shares. Before you do that, there are a few things to consider first.

Air taxis could be up and running as soon as this year

Archer Aviation is one of the leading companies developing electric vertical takeoff and landing aircraft (eVTOL), which could upend urban transportation as we know it. These vehicles, also known as flying taxis, are perfect for urban transportation due to their agility and ability to operate in small spaces. Their electric motors also enable quieter operation with less pollution.

Archer is making solid headway. Last December, it finished constructing its 400,000-square-foot manufacturing facility in Covington, Georgia. Production is slated to begin this year. Archer also intends to launch a commercial air taxi service in the United Arab Emirates (UAE), which would be the first operational air taxi service in the world.

With the help of Abu Dhabi Aviation, Archer plans to launch its air taxi service later this year. The company plans to deploy small fleets of its Midnight aircraft to early adopters, like Abu Dhabi Aviation and the recently signed Ethiopian Airlines, over the next 18 to 24 months as part of its "Launch Edition" commercialization program.

Image source: Archer Aviation.

Archer is making progress on certification in the U.S.

The company is still in the early stages of what could be massive growth in a budding industry. A few years ago, researchers at Morgan Stanley estimated that the total addressable market for urban air mobility could grow to $1 trillion by 2040 and as high as $9 trillion by 2050. However, technology has some serious hurdles to overcome before it becomes a reality.

In February, the Federal Aviation Administration (FAA) also recognized Archer with its Part 141 certificate, formally recognizing it as a regulated institution for pilot training. With the green light from the FAA, Archer can begin training and qualifying pilots for its future fleet of eVTOL aircraft.

This is the third of four certificates the company has been waiting for from the FAA to launch operations. It is awaiting type certification for its Midnight aircraft, which will be the final certification before it can begin commercial operations in the U.S. Archer is hoping to get its type certification sometime this year. However, some have expressed concern that FAA approval could take longer than expected.

JPMorgan analyst Bill Peterson warned investors that commercialization is proving longer than imagined. Peterson says that 2025 is likely off the table, as the rollout in the UAE is proving to be different from what was expected, and that "investors betting on a quick overseas launch may need to adjust their timelines." Peterson has also warned that expectations for total addressable market size have declined from the sky-high projections of three to four years ago.

This is where investors want to keep an eye on Archer's cash burn rate at a time when it still isn't generating any meaningful revenue. The eVTOL company has $1 billion in liquidity. The company posted a net loss of $536 million in 2024, and the burn rate could pick up as it ramps up manufacturing.

ACHR Net Income (TTM) data by YCharts

Is it a buy?

The risk Archer Aviation investors face today is the timing of certifications, production, and the rollout of commercial operations. If these take longer than expected, it will be a while before the business starts to generate serious cash flow.

Archer has ample liquidity right now, so its cash needs aren't an immediate concern. However, the cash burn and a potentially longer timeline could weigh on the stock if it needs to continue raising capital as it expands production.

For this reason, investing in Archer Aviation stock isn't for everyone. The company operates in an exciting new industry, and its growth story is still in the early innings. If you buy the stock, treat your investment in Archer as a speculative growth play and only risk a small portion of your portfolio that you are comfortable with on this high-risk, high-reward stock.

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In today's video, I discuss Archer Aviation (NYSE: ACHR), its development of electric air taxis, key 2025 initiatives, and why only aggressive investors should consider this speculative but potentially revolutionary transportation stock. I'll examine their financial position, upcoming Abu Dhabi launch, and whether their business concept has long-term viability.

Stock prices used were the market prices of March 30, 2025. The video was published on April 24, 2025.

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Should you invest $1,000 in Archer Aviation right now?

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Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.