THR - Earnings call transcript Q3 2019 | Thermon Group Holdings, Inc.

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Operator

Greetings. And welcome to the Thermon Group Holdings Third Quarter Fiscal 2019 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. pleasure Thermon your Group my General Sarah now for Counsel Holdings. is to host introduce Alexander, It Please go ahead, Sarah.

Sarah Alexander

will release issued This Thank website you, also joining earnings conclusion at been We for is also be consent the and our via the SEC on prohibited. you thank which on press filed an today's www.thermon.com. Form is with A Thermon. the call. replay expressed company webcast Kevin. Good or any of of of today's property call the retransmission the morning rebroadcast broadcast conference Investor and of section the this has morning, after written is X-K all redistribution, available form the call. available Any Relations of in without

call, do actual and do to not to today. include which forward-looking During comments views the unless under intend to laws, differ so may applicable We expressed statements our we're risks uncertainties. this results are our may required materially and from statements update these subject securities

acquisitions, of within for outlook future Act provisions fall and statements to of advise statements the Litigation call set intended other We among safe profitability, various the also and our to others, press our release the all that and business. forth our performance, ratios, the Reform today's filed would may risks leverage been quarterly Some Securities earnings in Private SEC. annual like in made synergies reports harbor have aspects on of growth, include, forward-looking XXXX. of you These these with are revenue

not principles. conform discuss also will accounting items to accepted generally we do that call, the During some

and Officer. press the Chief the the GAAP in not it Thames, We my substitute measures call have President for to and considered to measures financial the earnings GAAP. to Bruce tables non-GAAP comparable over of end with at most These our addition is turn pleasure be should those in to reconciled of a release. And accordance Executive reported measures performance in now. the as items

Bruce Thames

points, an case million Heating compared EBITDA Thermon base XXXX. mix at XX% prior forma in the future MRO/UE We EBITDA, to barrel of was when forma pro price business, growing is in notably, capture year-over-year for this increasing expanded oil realization X.X% electrical by able remaining we joining for in Thank on our more with everyone. achieve of financial of there very approaching a An FX. basis $XX to by basis have call. base adjusted continue and to Systems leverage XX.X%, than delivered lines. up large versus EBITDA XX% in saw increase as rate XXXX finish third project Thank simultaneously while year as up margins to $XX.X XX- into track with during MRO/UE, saw this execution impacted up quarter, XX.X% drove our adjusted you, basis, XX- as were installed on the and quarter, expanding basis year. MRO/UE efforts and business $XXX Jay of growth revenues. an the for also $XX.X year. with impacts over in pro strong market, our our Good of translate These drove record investments XX% ERP by third team Greenfield me in continued XX% our revenues high the our present organic at QX revenue morning, On interest and drove you HRIS growth accomplish and revenue, on strong follow and our volume industry on offering. to leverage improvements improved mix me expanding joining The unusually the the will business the year-over-year This and improved quarter directly nearly season. which prior prior fiscal respectively, research XX.X% and warmer base conference to excluding addressable a To oil conference million our season, growth negatively of We've EBITDA million into achieve quarter Inorganically, we organic margins project our the were an markets Project the details XXXX see market adjacent differentiating acquisition. to call quarter operating projects in this across to expenses key in we an Operational incremental of Greenfield in the system CFO, year quarter. Sarah. accelerated growing results Jay by XX% begin, Most implementing a a in of on Thermon. the mix, and a sands to the diversifying margins underway. our $XXX.X fiscal overall offset and Despite revenues Today, during our Peterson, basis year made versus grew points tariffs execution we Greenfield development. operating set drove the business positive despite grew share. warm million able broad-based previous the the by respectively, impacts investments trailing to over XX% start installed downturn points XX%. volume XX-month margins. the start heating a fiscal of drove a over quarter very and the XXX- the your heating basis in been

to prior $X.XX fully EPS $X.XX quarter share adjusted a fiscal the a of Heating third Adjusted associated compared of a EPS the EPS Systems debt. in Thermon of $X.XX share burdened quarter $X.XX XXXX. with per in contributed share XX% GAAP when quarter. in increased over share Our the the year

to lower has net Since debt-to-EBITDA. X.Xx acquisition, a to We growth over debt-to-EBITDA net XX-month drive period. X.Xx continue generate reduced cash positive EBITDA from flow to the and been

first basis. the pro million $XXX.X trailing remains at allocation for reduction were the opportunities. year-over-year of down business during down debt X% to capital of to advantage to also position quarter take The a over Our on shipments Bookings a future quarter. is growth $XXX priority of year million. the are XX% million strong $XXX On the due XX-month bookings prior basis, forma for backlog

we saw forward, quotations, Looking were XX% in which prior large year. a very increase over up

extend seasonality the has energy over quarters. the grow to driving X,XXX number to see the to From The power chemical plays contracts are LNG, shown in record fuel the oil the years. opportunities activity, volatility. a in with over of and strength, X been in uncertainty that active Midstream we in But steady several growth moderate opportunities Canada Combined We cycle that some $X.X with choice have large sectors is projects which a be U.S. have market there, petrochemical Transportation for X sector. also the to billion generation. been a X some saw over power of shale steady. operators project help the been particularly upstream the growth continued active over and next instrumental natural with gas activity last has very showing single-digit next perspective, should pipeline of transit being the continues awarded multiyear as level in globally due project price years. driving

X maintenance began continue the this continues petrochemical in to of upgrade America North that geographically, is expect XXXX. spending across growth We look first expansions momentum pace. We're projects and to to in XXXX. see fiscal at XXXX in move hemisphere we in through half fiscal in to continue fiscal do Eastern of forward to growth America show North now in Hemisphere, by Pent-up seeing in the to the demand strength robust 'XX. fiscal spending. fiscal XXXX and In and second led anticipated growth to during early led Turning has and gain backlog our QX moderate this larger quarters continue chemical

accelerate We our road development in to project technology and of and continue our maps. to execution invest capabilities research

software and ensure systems. modular the beginning This the streamlines our we CompuTrace management new automating platform design load schedules. During by aids launched module. X the labor management we to coming that tracing fiscal This automates electrical promised and construction of distribution the new will quarter, heat designs software to months, reduce VisiTrace this a and addition XD design costs at project tool for power In announce design improving process as while material programs of the launches more optimal year. product power new

quarters last year XX% of X No The X we're be comprehended million guidance an with quarters activity over our fiscal the fiscal year. momentum to increase for the year year third revenue to and fiscal to $XXX $XXX the over these consecutive has increased sustained through business of to first M&A XXXX will led performance forward, projections. us this full Looking million, increase project the quarter. new pleased forecast XX% is in The XXXX. revenue positive

We are earnings our and to performance. over details building provide Peterson, during May. CFO, year QX scheduled plans currently to XXXX fiscal fiscal address the we'll the our call call for now update the an Jay I'll turn Jay? XXXX, in financial our of

Jay Peterson

and by then start year. QX of this record Thank a for our I results updated guidance morning. Bruce. Good turn our discussing to you, will fiscal review

revenue off, First orders. and

that by in M&A acquisition, of the grew the revenue And revenue revenue and typical prior organic Greenfield total constant revenue million. XX% was Organic MRO/UE XX% totaled mix X% grew and And X%. That's a quarter. The pro XX% the an And record million, grew higher the revenue amounted XX%. our basis, from and than totaled by is of on prior our FX approximately by historical forma over XX% and increase XX%. quarter Greenfield revenue year $XXX organic organic our performance. grew XX% that to mix. by mix. was Organic revenue decreased revenue XX%. quarter over a grew this above past the the was revenue of $XX.X currency Our year's by CCI

consecutive experience to versus and a million $XXX that's December of year. decrease in orders million. increased last organic for $XXX backlog ended in revenues And the forma signs the of Heating by totaled Orders December $XXX Thermon And at prior million a growing quarter, the a negatively And revenue of recovery continue $X.X for digits positive Systems FX We versus quarter. backlog XX%. as $XXX addition, our million our pro basis. impacted of on quarter million fifth with of double slightly our

to was due to Greenfield the Our to moving profit. higher of gross a the profit and project third-party GAAP we to QX and Greenfield attributable from construction margins these our Thermon content book-to-bill forma accretive not The margins. and recent negative grew pass And increases was on profit our quarter been seen experienced margins along able lower grew X.XX, of acceleration to gross have And dollars to Systems gross mix to have gross revenues engineering shift basis. margins revenue, due and to XX% XX% organic to tariffs, Margins of and from a we have due we the were our corporate buy-out were And contributed typical corporate tariffs. by on into cost QX. impact the Margins primarily to gross for customers, and at labor on the by any items. this pro to Heating while increases basis, XX.X%. than

our Core And to SG&A, on intangibles Moving quarter million excludes basis, million $XX.X the any that XX.X%. increase from versus in and quarter year. XX.X%. $XX.X depreciation a And pro of amortization totaled a on that's compares XX% operating prior to of the or spending that $XX.X operating forma this expenses. And revenue. in expenses, expenses increase and the $XX.X to transaction-related for for core and an increased is

a XX% a of a spending to research increase that project this of implementation. year expenses. was again, of And XX.X%. percent any an And corporate-wide Our the development tail-end organic of -- and and XXX with organic transaction-related a basis an from implementation OpEx future that's level concurrent successful offerings, HRIS the and revenue product improvement in was excludes and points ERP as amortization of XX.X%. depreciation very improvement related And prior system spending

EPS in to revenue is was the of -- -- this to of EPS the running a EPS expenses will per the $X.XX million. And relative our basis percent grew we EBITDA at EBITDA share $X.XX basis, by gain amortization. annual income quarter, or our the all totaled of of a per $X.XX, $X.XX for year prior capital for per And basis quarter. the Now level and And $XX.X this that's by transaction-related are construct share $X.X allocation. Adjusted over XX% pro quarter $X.XX that million contributed and EBITDA an a XX% through or Thermon GAAP share XX-month to an record charges any and burdened And on interest approximately adjusted comparison of incremental that's non-cash forma a fully statement. earnings. switching an And XX-month amortization quarter $X.XX a prior amortization the on is share. of EPS, $X.XX non-cash as of of a $XX.X share XX.X%. totaled XXXX. to expense sheet share past less and million due present, expense. increase quarter in high a and expensing to near trailing compared year $X.XX on the December Heating defined a quarter. the and a balance EBITDA to as GAAP to on continue this trailing EPS inclusive increase future one-time communicate totaled we a of share GAAP Systems totaled versus

end due high allocation X.Xx and a this lastly, at debt our was to our transactions, and reduce cash of The any debt-to-EBITDA priority, is repayments. acquisition. the the CCI continued for significant our the net $XX continued in million to at first December balance And X quarters reduction our of of increase M&A in use the for $X.X level time to totaled all October the cash Recall X.Xx, and delevered debt, December $XX have within business or capital the of receivable investments the XX period. the growth most net ratio million. we to absence Our through million continue is to Through EBITDA the Taxes. XX-month near-term CapEx shipments. revenue. balance in X.X% debt the of improved was in optional quarter year accounts our of of

And for we A the third guidance. points work tax quarter mention. I our to of couple to tax tax our continue finally, And reduce advisers income XX.X%. potential Our exposure. to rate on was with strategies like would XXXX

moderate Kevin? be And First reduce we the back to debt-to-EBITDA approximately year. in in leverage to would fiscal our $XXX off, this to turn we the expect like to X.Xx are lastly, balance planning million to revenue our question-and-answer over over to million of the year. range call Kevin I top-line net And $XXX now session. the to

Operator

SunTrust. [Operator Charley coming question is Instructions] Our from first from Brady

is now Your line live.

Patrick Wu

for This you Charley. is okay? actually hear Patrick Wu me standing in Can

Bruce Thames

Yes. Good morning, Patrick.

Patrick Wu

margin, pricing tariffs. coming mentioned guys can for you ago? the were that how we guess, a to you -- skews able mean, How higher granularity then. mix down are the backlog the relative year the now I margin some I guess, And start that And understand is I the to I just like point gross provide in Greenfield your you -- of can on the So, on it bit. that obviously of in offset is projects new with quarter this some how trends that But pricing the but looking looks a in?

Jay Peterson

essentially with of at end they margins what QX. the the So, are were the gross backlog flat in

have of quarter-on-quarter. essentially the nor backlog We mix and the seen so the -- any inherent significant projects in it's pricing, flat not

Patrick Wu

numbers Can think you forward beginning guys gross you to Greenfield of might mentioned of that how light bit that have restate margin and moved this be shed it mix on from quarter-to-quarter, your given the very see had the or -- for the on would I is think you basis. I the just margins of have maybe the And Greenfield about variability this you gross a little you mentioned? helpful within past, in missed and given in the quarter. have how numbers. may MRO/UE But a commentary,

Jay Peterson

Patrick. Sure,

the on XX% guidance the in range and past, margin a the we Greenfield of range nearly not rate mentioned. be on was margins really was in going Greenfield say MRO/UE. provided And not for this quarter, specific relative to XX%. have XX% it reasons, of gross to In the articulated percentages. to main both disclose of Xx and XX%. just but in a would to lower year-on-year the Greenfield exact So margins I correspondingly, were differential that was gross the to past MRO/UE, end for our range we're can competitive margins, change driver the But gross the I a they of growth MRO/UE

Operator

Our Brian question from next Blair. William from Drab is coming

Brian Drab

just take Is thereabouts. $XX.X maybe the of million THS clarify When where Jay, And right? compares and you it, that's that saying organic to last to So, on let's revenue $XX.X completely. the growth. calculation million, release, made in you're and it year just organic clear saying that or get the press you out you're the

Jay Peterson

to exact currency million impacted The basis, it that numbers for FX $XX.X million. constant Yes. $XX.X $X.X million, give a versus by on organic, I'd you number

Brian Drab

Right.

that. got I So

Okay.

thinking terms months tell revenue item is So when in have like THS But really. can in of housekeeping are two you this a revenue that about I'm us the organic, how would this much organic versus quarter just calculation? in recorded acquisition

Jay Peterson

okay? the And it be... done So that Yes. we've to way this out, was might actually, break

Brian Drab

want do I understand, I yes, to but other the just way. it

Jay Peterson

for period, million $XX.X X% quarters, both growth in the versus $XX.X THS. If million. quarter X $XX a the $XX.X X months million prior million Okay. in for we or pro it's the forma, months do for

Brian Drab

$XX third of million quarter in 'XX?

Jay Peterson

Brian. correct, is That

Brian Drab

so for to this in revenue in the close on so -- period, just in what October? was THS this. And the I and books guess,

Jay Peterson

the I for have Brian. don't number month, that exact

Sorry.

Brian Drab

from reason calculation okay. just would organic Okay, to I'm asking I revenue because my the I'd into THS like only is And versus? what put know

Jay Peterson

that get I Yes. for can you.

with Let me that. shoot you e-mail an

Brian Drab

Okay.

your about talk be, that? $XXX guidance going the in the to was It secondary, quarter, guidance estimates, and third bigger So, going $XXX the on can million, that? third which for What's the quarter. think, is million recognized around like Street I big some is or why earlier expected some $XXX And from did into -- implies you quarter pulled than you below the implied sounds question right fourth quarter and revenue picture. And, maybe fourth is why million today there?

Bruce Thames

Brian, the And prior and seen opportunity we during kind lot we backlog began begin in this is this saw we've of the into a did talked you in. Bruce. very we that of protracted a recall, really this -- of about We calls, materialization will if downturn, come see kind year. to coming see to fiscal

that more Historically, been saw XX so as has now the conversion it normalize. we seeing We're XX-month And that months. as protracted backlog range. in

of we that led seen the deferring, had of to And affect delaying look Greenfield really so timing revenue quarters, heavier has much a the, at which of projects, you saw We in customers timing that last when accelerate couple really, the so would actually mix. quarter-to-quarter.

it's a this We just So into next -- do carrying really issue. excuse project year to see next quarter, me. continue over timing

do in-line season And based that the very fourth upon just as in see we stronger But QX so well. we QX. those our tying the the more Quite historical with confident quarter forecast the revenues frankly, weather, will we the revenue impact And negatively MRO or revenues, being positively revenues that's than feel in in seasonality. certainly, heating projected.

Brian Drab

fourth Okay. It big here, you step-down, like bit hold -- a third there's if to seems seems from it know pretty constant like I MRO MRO was a seasonality quarter -- quarter. like, but

you would first wondering, just $XX the given I'm line in or pipeline a -- all quarter. Greenfield the fourth -- the the did down momentum fourth You'd million. you you million sense and go that's the is -- building what quarter for does in $XX.X have to even first numbers make Greenfield? of quarter million, I these with be $XX didn't to and that know would That's in $XX million in give quarter kind that from

Bruce Thames

MRO/UE. Greenfield at you've not of the range it think would more What is expense would to expect mistaken. XX-XX to would that and the be the our amount be No, in we revenues We I expect of normalized historical.

Brian Drab

okay. Yes,

down So be? -- that guess, would why that what that MRO/UE we're sequentially, Is -- you steps would I expect implies. the what then,

Bruce Thames

what exactly in experienced. we've necessarily over we that's It's occur last you been see business. way that this what time, if certainly, But seasonality typically the of year. Didn't look

Brian Drab

together. just okay. momentum, given step-down quarter. given the seems like to the your I a heating you Yes, in slow comment season big trying it. that. off the in see I But to got pretty start I'm Yes, It piece just them third that know again, a

Bruce Thames

forecast. Certainly, seeing that on positive the weather have a now could we're right very impact that

Brian Drab

my so. walked XX would I Yes. I this morning. It's negative when windshield think dog

Bruce Thames

really very impact Yes. can a positive been that That have forecast that's -- to provided. definitely the

Operator

Johnson today Our next is question from coming Rice. Malloy from Marty

Marty Malloy

My at curtailment How with and first oil what customers, that from question for all? you're about in sands your Canada is is seeing if the Alberta. impacting

Bruce Thames

really Texas that but We've the to impacted this negatively Certainly, the discount Intermediate. several over has Alberta a the about $XX really investment. had that a of takeaway capacity sands barrel talked the It been big -- crude. oil years. to last in a has so price Certainly, has impact West at varies,

time based we've we been seen installed from, XXXXs, revenues these drive have much the So baseline 'XX XXXX we installed during base, our essentially, that's that have Canada the in really the there. large doubled so And the 'XX, XXXX what larger able business due we've MRO those frame. say, time is is to in lack base virtually mid on of capital to to projects seen the really What of saw kind in levels with frame. early Canada

So million now basis. historically, generating we're in the $XX $XX our in been might range $XX to have in you our revenues kind look million Canadian MRO/UE back revenues to operations. mid-XXs and of million And would

what seen. characterizes we've broadly that just guess, I So

Marty Malloy

in just think months, then speak the maybe at X, XX be a you're Could do if And position looking to -- seeing your debt the you -- improvement you're more to look ratio. you that active acquisitions? net be Okay. going with in in to you out

Jay Peterson

do. Yes, we Yes.

we the XX pace, were a idea we next both the business that acquisition do if again, based months. And we lever assuming to grow now and on acquisitions, an organically is history rather of We rapid to our a in to inorganically. have believe were up pipeline we delever can and in

So the Marty. answer yes, is

Operator

coming is BMO Markets. Scott question from from Graham Capital next Our

Katja Jancic

on for Katja Scott. is This

provide more So, driving Greenfield, you acceleration? the that? is what on the on Can color really any

Bruce Thames

What seen really ethane, a things petrochemical pretty go like I propane, these the like and Again, timing. big in we that saw saw have And we as natural say, some is disparities kind projects things the of, as a between related. naphtha oil gas increase price particularly of to are of feedstock. back we liquids, prices, lot

And even so pretty price the crude these come mid-XXs compelling. that seen differential fall made we're And those has are from really we've still XXs, to though economics low seeing here for operators. prices the pretty compelling economically

So largest -- behind those have execution. been of they're probably pace driver just really the

Katja Jancic

said And expect Bruce, to if year? that you right, continue, I'm not you mistaken, next this until

Bruce Thames

Yes.

So It -- normalized. historically, range. that more been seeing a that kind as protracted and conversion And XX I we've to backlog and again, months. in as XX-month of we're go seen had back now

Katja Jancic

So How margin. gross then provide that? going are gross in we any at XQ these lower forward? look and margin should on color you Can

Bruce Thames

really seen to MRO/UE is -- that -- we've weeks biggest impacts in seen our the that. one margins mean, to largely and project And X of kind we gross of want historically is of backlog sitting projects. that the biggest So only X There's mix. large or I clarify I have

we as margins relatively been they've at backlog, flat. So in look

in had that noticed I has the script our given And greatest mix had margins. And that in some seeing similarly. we just in so within I our able a look -- margins. improve margins basis XX- the see been seen we've have about electrical to our see quarter as we really, year-over-year as my product impact we any in it's project XX-, improvement on our execution. that sales, And noted a just we're improvement project point result, absolute

offset signs well some just So seen effects are execution price tariffs. negative the as realization from as to project positive we've on those really the

Katja Jancic

my last slowed? Just orders The growth? Why question. have

Bruce Thames

is The lumpy intake projects. order because these of

XX% baseline a business sign. very MRO positive was Our which year-over-year, actually increased

double-digit in year-over-year. significantly So low was which Greenfield, revenue the saw growth by nearly overshadowed year-over-year. growth It up was just we XX% it's kind of

that look was seeing good trailing our our we've to And that, grow and pipeline, we $X.X a that a seen really broad-based. both grow projects kind which past process heating some XX. activity So news quarter, the as during content a growth look that's on we in the record that we're of this. of number rose forward, over The really -- And is hemispheres. And the we're our really watch tracking nice X we've significantly look to activity is actually seen lot that opportunities certainly, us. we the of as to it quote years, over X,XXX, at we're over next level have so billion. project X new seeing for We

growth well seen areas opportunities installed the would see we've that particular in grow as some years. horizon we on been of And One nice both projects generate significant Greenfield very has the as major growing LNG. to do over X some some the base the next

Operator

from follow-up from a coming SunTrust. is question Charley next Our Instructions] Brady, [Operator

live. Your is now line

Patrick Wu

again. Wu Patrick is This

I triangulate similar margins like, obviously, comments backlog the your And or want the of last backlog the margins. it to year levels. pretty on just to So sounds are

margins is margin? gross the say moving growth a it's will any And Would saw into quarter, would've understand that to in Given the then, higher. you is bigger you I surmise, becoming cost impact labor that Greenfield I the in that that organic are imagined regard mix. that fair you a out? seeing bigger further be strain

Bruce Thames

we labor a being no, strength. cost see don't as Well,

But not been we margins, far more within the However, that case. labor labor as contracts. cost has the as our seeing are eroding

Patrick Wu

one-time of the your on as sales, SG&A a of percentage are more really pretty the a quarter? of lower And sales prior function a a more in was thing of the is on significant a least? sustainable That's you some of the quarter Okay. versus for level as a Or basis? color SG&A terms and quarter. drop-off Is the broader the in gave adjusted How the seeing good a expenses to cost this even you permanent prior percent better, cost broader it -- this reduce integrate at ability year.

Jay Peterson

at by it faster where rate now. once uptick. with thing revenue, certain one downturn, the in It such sustainable. the this and And right is an future. that level we could will but near business downturn the that increase large, investments we purposefully we near to And or believe, call Patrick. that's not exactly grow saw ended we of the grow will So And anywhere the out, and made in be grow we're will revenue

Operator

next Brian from Drab Our a William from Blair. is question follow-up

comments. phone line now floor no I'll are live. mute? over Your your to or is any for questions, turn perhaps closing further If further back there management Brian on the is

Bruce Thames

to All around this right. their make the this shareholder And thank to Have truly value. serving everyone day. to the in Thermon. a creating for They And like commitment Thank employees you, interest Thermon great your also thank our Kevin. Thermon difference. customers for globe really to opportunity I'd take joining for I'd call, our like and

Operator

does you. teleconference. Thank conclude That today's

wonderful We may today. participation time. a disconnect at this your And You your you lines have day. thank for

Thermon (THR) 31 Jan 192019 Q3 Earnings call transcript