THR - Earnings call transcript Q4 2019 | Thermon Group Holdings, Inc.

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Operator

Greetings. And welcome to the Thermon Group Holdings Inc. Fourth Quarter Fiscal Year 2019 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. reminder, is a recorded. As Instructions] this being conference [Operator

conference to you, begin. I like the over Please would now you. turn to Thank Kevin Fox.

Kevin Fox

you, joining you and Good conference call. Thank for Roya. afternoon today's thank

with is the call earnings ir.thermon.com. an A site and afternoon, expressed of also property been Form be in webcast release via We Any call. retransmission of section the is the available of issued will on of on press SEC broadcast redistribution, also at today's after Relations the Thermon. which company the any replay This conclusion this form written available has of or filed Investor is the Web prohibited. X-K rebroadcast our without consent the

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

We to those tables the most end measures release. GAAP the items at comparable and earnings press the of have reconciled the

in substitute with financial and should These to not addition measures GAAP. reported a as performance be non-GAAP of measures in considered for accordance

I make forward-looking like that future we historical that because to not call Bruce, to during to relate to regarding this this changes remind may I would predict. are call circumstances they and Before that forward-looking company and are and you statements facts, our business uncertainties, over the subject inherent statements certain to turn risks are difficult

including our our statements most report impact with filed forward-looking for risks that and information quarterly annual recent refer report regarding our results. Please to the SEC and future ore could the uncertainties

historical neither nor against relying of forward-looking of forward-looking from guarantees contemplated future these therefore, or We may facts statements. statements statements. assurances caution these materially results you, any differ of those actual They are performance. Our on by

obligation Factors as emerge And during to events this otherwise may as made to undertake publicly all or a us differ results by it statement new that from or statement required made. of is whether as is be by only of time. it time forward-looking of update to Any cause result except could for them. actual at time forward-looking may predict which developments not any our no We law. possible the speak call future us to information,

it's now Bruce our over Chief Executive Thames, and President the turn Bruce? to to call Officer. my And pleasure

Bruce Thames

good thank you And you, of fourth XXXX present Jay call will quarter Well, and to details me full Kevin, Thermon. conference we continued the everyone. have financial joining call. for conference year. our CFO on Jay interest year our thank and me your Peterson, afternoon Today for fiscal fiscal and the in joining follow our And

take begin, new our highlight The our and efforts investment eight product to and robust I'd than Thermon. at just pipeline XXXX. in some during the in to research key that of To to solutions fiscal extend like products history any resulted These in position. yielded year increased leadership a to more has in a launches of the new continued marketplace development build our fiscal our the moment accomplishments differentiate time in

solutions available cloud-based Genesis efficiency the basis their and IoT will of customers accurate included new give control advanced New Beacon to more heat formed platform information has heater to we accessories for temperature forward. the Self-Regulating the today. going introductions the Temperature the new that Triton system our market recently, HTSX tracing and safety improve These the transducer, reliability, These solutions timely next and on and Terminator Most introduced TraceNet the operations. High the wireless generation System HT provide Light most

and value installation with CompuTrace platforms operations. design X.X; software continuing such early for starting that and management TraceNet through to as new also CompuTrace Sync design power and technology of improve greater our We launched suite creates customers ongoing

water fugitive methane the Catalyst natural reducing dramatically Cata-Dyne gas converting our greenhouse which our COX by Technology and customers. on introduced capitalizes for emissions to destruction module, we gas Finally, emissions

the pace upgrading overall talent, accelerate improving equipment we enhancing and success adding the processes continued the to key launches. by new while product During year rate invest to of these

processes, now in productivity we and systems award the for tools and world's that we largest year, to business ethylene improved people, as of operations, of scalable completion. by to the global During a received execution year from project build evidenced supplier continued invest execution the the the Bechtel unit nearing

heating the while integrated cost increasing growing also on Thermon We by identified enhancing and synergies, our an growth. addressable expanded creating the platform solution capitalizing successfully business, the set systems for market,

while in million a investments All revenue deliver and these adjusted growth translated XX% over a market over EBITDA costs finished prior an a increase share, $XX.X $XXX prior and a GAAP increase This organic million revenue successfully record enabled in XX% EBITDA. and record in of of $X.XX above EPS Adjusted $X.XX a recovery to an into of year. of beyond the share, managing growth at EPS year.

recovery of fiscal which the look materialize an particularly gross margin year this to we in year. was strong XXXX, spending, As the saw during drove of half in beginning the recovery characterized we by expansion back Canada, second in increase early and maintenance to stages deferred fiscal that

projects feedstock. unfavorable greenfield During as activity an begin drove on for year This disproportional weighing to acceleration accelerate and fiscal growth saw particularly mix gross economics project the higher projects creating to petrochemical created improved during in linked activity natural margins. a in XXXX, oil greenfield we prices gas project

we Thermon the the margin, in However, our on firmly believe higher revenues the capitalize resulting project historically growth well installed to future. recurring positions that base and in wins

accelerating level The We of our increased was were the year-over-year. quarter, the our very Organically, this to for orders schedules, by to XX% an growth exceed in largely million, driven revenues XX% change quarter. respectively. business a consecutive sixth We expectations now projects our double-digit fourth XX% the shifted MRO/UE of mix and the of represented which versus the growth with projects pleased $XXX quarter revenue QX. delivered growth. Turning team greenfield versus at record saw

negative base margins associated revenues, had a to at over recurring impact the in future have shift in a this and expect the to higher positive on due the heat higher time we gross greenfield tracing quarter. margins the impact lower the with mix of While installed margins growth

gross margins declined Despite adjusted EPS the the delivered from result, a quarter of offsetting margin $X.XX the business the share pressure mix with was million headwind quarter points. EBITDA the largely mix shift, a cost a Adjusted gross in by basis $XX.X XXX down $X.XX for As share leverage. year-over-year. base this

year-over-year the million after quote $XXX of solid activity. percent by in that Bookings bookings, QX XX% but growth slower a characterized was showed quarter increased

revenues overachieve the we Although, saw growth of number resulted a XX% book double-digit orders, the bill substantial for in incoming quarter. in to

the year at a points backlog during quarter. and million finished by the $XXX XX%, of year-over-year the improved decline result, As backlog a margins basis XXX

could will perspective, Turning improve. midstream an now sectors upstream LNG and is that awarded for XXXX, chemical of continues to but We geographies. will and petrochemical significant expanding a activity create growth XXXX materialize the that From projects beyond. to markets We an pipeline through be this fiscal the overview market believe begin stable. see not XXXX fiscal beyond. opportunities remain pipeline trend most to in active Both and into and of our project as

end in contribute Thermon. to Eastern year The opportunities particularly transportation fiscal power create diversify to projects U.S. anticipate U.S. and in for will Latin showing several to XX. America sector the Canada the North growth single-digit low in bookings America. cycle markets infrastructure Combined We projects our and are continues in large

Our sector refurbishments on installed well approvals a as years. base position to steady in of associated the in and the coming nuclear flow capitalize planned

by geography. U.S. Geographically, driven North and Latin XXXX America America largely showed strength the throughout fiscal year

by of weakness rate East the saw expect we In we eastern XXXX. will growth XXXX, Africa continue Europe, into in into fiscal the Middle we hemisphere, Going Asia to in and offset that slow. expect strength

stream growth new expansion for product Overall, of introductions is and addressable we're a pleased well business of with with how our the market. positioned future the

we volatility see is ongoing in there markets commodity like uncertainty U.S. trade events and Brexit the While continued in macro petrochemicals. Asian due by part China markets discussions, U.S. to and overall strength driven in do large the and

become years. that in XXXX that significant LNG investments driver also made for would midstream the through be business We coming the anticipate our will a

include of fiscal the heating growth our bound the XXXX plans to business ahead, Looking market. Thermon drive globalization above beyond and system

of to fiscal the traditional in the forecast business revenues mix greenfield versus also which margin gross improve We profile. returning should MRO/UE XXXX, a more

In fiscal XXXX. during price range increases X% along which to the be pass will to of we X% realized in half expect we addition, anticipate approximately

will We new see five to in opportunities coming expanded attractive our We continue product launches capabilities to of introductions year. year. solutions. anticipate the our We another investment spending across coming X% expand R&D organic the and of revenues these approximately capabilities R&D product be deliver new to the believe that portfolio in expect

Our M&A robust. pipeline remains

ratio debt attractively and strategic EBITDA business Our opportunity. right cash net generation for current flow positions the the to

during goods an basis. reduction cost targeted of have we expect the projects, and improvement net of double that operational annualized approximately ongoing savings will fiscal cost on that X% of part year As initiatives we sold

shareholders. We continue of will XXXX, our to revenue XXXX. of reach the $XXX our and million plan Xx our end is our fiscal near-term growth million EBITDA fiscal to by annual in addressable the market goal $XXX by translate execute in for Xx on compounded grow to by end to to That double-digit

to forward, of growth revenue XXXX. for we're X% organic X% forecasting fiscal Looking

the fiscal to Given start the anticipate year. first and the strong business, QX half of we of seasonality shipments slow the a

value employees around serving their opportunity well our our for to I creating Thermon shareholder this customers to in fiscal XXXX. like would and take to thank the commitment globe

continue this I fiscal to forward and seeing what in XXXX beyond. team is delivering of to look capable

the CFO and our Jay? full details of for year now performance financial address XXXX. Peterson, QX Jay will our

Jay Peterson

afternoon. Bruce. you, Good Thank

recap start fiscal our conclude will a XX XX. I of guidance accomplishments, discussing results year by then, QX then year fiscal record our and for with

decreased the to and the that's U.S. this orders; the of the revenue points. a years. and an the mix in across approximately FX and And dramatic revenue in due greenfield by dollar the revenue at of in MRO/UE was nine quarter past And increase X mix to million QX XX% past highest our quarter. year's shift totaled revenue XX:XX. off, over First QX percentage globe, strong record this greenfield saw XXX prior least We our

XX% revenue year mix greenfield prior the above XX% and historical was over tracing negatively heat was to performance than gross quarter the higher The greenfield margins. typical and our grew our impactful by

and for of double the sixth they XX% million growing We heat for experience consecutive quarter prior our to tracing grew totaled with versus revenues signs recovery period. digits by orders positive continued XXX quarter. And the the

at Our XX%. of as that's project million greenfield as But FX quarter to backlog the of backlog the was our of for orders from due maintenance XX% a versus backlog our to into negative typically the velocity XX% in $X.X by only of reminder, year orders in XX of Fiscal are of March book-to-bill a and of and X.XX somewhat acceleration million resident and out $XXX $XXX unanticipated decrease In ended March, due impacted negatively our backlog. at flowing revenue to and standardized our products primarily QX QX. our million.

profit Moving buyout recall of that on XX.X% items. main typical revenue basis Margins heat than and significant to mix and corporate content shift construction lower margins. margins lower The gross gross the due to XXX to the points. was margins of engineering MRO/UE declined by tracing are the greenfield labor to and third-party greenfield than revenue contributor were higher and

margins from $X.X Margins accretive along profit million. any the and gross our And by XX able due by we systems attributable gross in tariffs to to customers the quarter. heating these Thermon our been seen impacted to tariffs. impact we basis FX minimal corporate increases were pass and ongoing points margins to to largely have And our negatively our margins to have cost gross

decreased in relative to any operating versus in intangibles is quarter a $XX.X that quarter core year. of And million X%. the transaction-related the depreciation expenses this SG&A experienced Turning the X% amortization and significant spending, revenue expenses, with prior to XX% which our totaled for excludes we million an increase. have expenses $XX.X of leverage That's decrease operating in and again

And prior is as offerings, product and Our tail XX% improvement level end again a operating this a development legacy XX.X. an and was points percent from a of D&A revenue expense of excluding year and future basis the the ERP spending related with of in of concurrent successful system improvement was XX.X% of this spending corporate implementation a a wide implementation. HRIS research increase XXX to

increased over have XX% into more years, marketplace. last the have And new by dramatically introductions increased of the number and spending research we five specifically and product development the our

including quarter GAAP to $X.XX of the by quarter share to to our all negatively on EPS a that's Moving an cents $X.XX burdened per year incremental our $X.XX the a totaled for Thermon impacted QX a share. earnings a systems fully GAAP and And share. interest EPS heating basis FX gain of contributed $X.XX a share of prior earnings, expense. compared $X.XX, increase

a EPS charges in GAAP by totaled to defined prior onetime share the and expense any EPS $X.XX quarter. $X.XX share relative amortization a less year Adjusted

to construct EPS amortization through income continue will non-cash high-level statement. this the our communicate running expense We adjusted due to of

million EBITDA are XX.X At versus quarter. XX%. present will off expensing XX to $X.XX assets share Thermon. annual a million the And of $XX.X the a May expense fiscal a non-cash per and tax the to EBITDA XXXX X% this And to due equity acquisition decrease after quarter revenue was EBITDA of approximately basis XX% related comparison percent for the year $X.X past that or private share quarter roll as certain million in of declined of totaled by we Amortization by or on $X.XX amortization. total approximately an note

capital the balance and up sheet Next allocation.

end cash of accounts occurred. the at cash in of improved $X shipments. investments Our the high most in the million March the XX% revenue significant balance quarter use to for due million our to our in excess level March receivable of the balance XX.X March of And and of increase was and

our $XX ongoing the near-term capital million our continue revenue the cash absence And XX%. debt the of at a to transaction year ratio year totaled ended generation is any of for conversion healthy X.X% our reduce in optional through EBITDA CapEx lastly, or priority to and net debt repayment. M&A allocation and

record rate profitability and rate American this was our XX%. quarter effective tax tax year in with to subsidiary for our fourth an past Latin our due was Taxes, rate of upward exposed the tax XX%

cost terms Thermon business year systems to capital TH continue heating on of capital, three. In we of return weighted by for track exceed on invested the be our to

the our financial prior the at invested of record grew million XXXX annual high year year, debt-to-EBITDA to October a over net XX.X the X.Xx, million full of in And EBITDA record for record totaled prior ended back set new XXXX. by that's highlights XX% a year. year Turning for and EBITDA revenue That's the since our decrease a totaled of in XXXX. X.Xx. XXX

Commenting our annual XX-K weakness, impact systems business business implemented weakness. relating along weakness identified this our not The believe as we controls with material SEC year-end weakness previous accounting. over outlined a on of during material material filings any to project was the additional ERP remedy controls audit that material and received we our recently did our in will

And finally, guidance XXXX. for

planning to revenue And acquisition X% M&A possible. we certainly revenue First balance grow to to top-line M&A off, on is fiscal improving based in time pipeline are we any at X% year while XXXX. are our and guiding this not sheet revenue

increase reductions realized gross coming behind $X.X expect increase run of to XX. are drivers mix MRO/UE margins of an recent million and $X.X the actions cost fiscal pricing rate year year We in this of the be will and improved million which in

year to expect by we XX. lastly, our fiscal X.Xx And of end leverage debt-to-EBITDA reduce to the net approximately

to like our call Roya? to session. Q&A turn now moderate the Roya I would over to

Operator

[Operator you. Instructions] Thank Thank you.

from Brian line with Drab proceed. of comes Please William question the Blair. first Our

Brian Drab

Hi Hey Bruce. Jay.

Bruce Thames

good Brian. afternoon, Hey,

Brian Drab

root the in But you K around comfort any the be community there's don't know a the and if is I the kind place add in some upgrade color was you've give how you've great. that kind a on could the within older little gone would given I detail, revenue But and you and regarding to and And to recognition around ERP know of lot information about Hey. happened want through cause function what fix in that a investment that situation. of an since. operating this. of of comment bit you it could

Jay Peterson

we EMEA under subsidiary for ERP that old system. Sure. were accounting six were projects our our There in

ERP implemented new controls accurate ERP which under a business have and this greater are We all visibility much granularity greater and new new projects system to robust and bookkeeping. accounting system, has ensure more

there will training system, the any immaterial therefore, the current not to be this QX changes past implementing thing immaterial of with issue new a was that we Thermon -- of or So including QX resource. business this is were to with that fiscal any proposed terms of believe impact some we We so believe along year. adjustments and additional controls issue this in and this fortunately revenue other QX,

Brian Drab

Okay. period? Or any

Jay Peterson

Any period.

Brian Drab

period. Any

right. year? And the just All the on did commented sure of LNG. then, from heard make projects want you I Thanks. correctly. say I about Did Okay. -- this major what midstream say to potential impact you these you some

Bruce Thames

projects. key around of current expect was of And a didn't that's really installed greenfield current capital revenues in MRO/UE awards some more would driven we I in comments going We those our to Brian, capital this mix larger piece kind the year, in Yes. of year we heavy We don't year our to occur this some year. -- type the fiscal quantify year. expect base. it. more don't of normalized forward see fiscal projects really the it a because baseline We see in projects last growth expect of and that be by

Brian Drab

Okay.

major of yet, the have LNG of been you right? But So, the many though those in of none that think awarded that projects midstream –

Bruce Thames

I say the ones them, of following be that awarded. yet but can't we're have none to certainly

Brian Drab

a last one. down R&D in run slightly I expect and the got terms does what level going from rate or of you. is then, forward potentially do R&D just up we spending spending. And here? it the Is of step this

Bruce Thames

really revenues that appropriate we an time, being of X% this At see level.

of the provide ultimately roadmaps have But, to the the development product three the to spending next not and as that's to we years, we technology industry we lead our just pace opportunities level solutions it's As five with and we peers. look the at the industry. an look in over at of to across looking we appropriate that drive believe

Brian Drab

much. very Thanks Okay.

Jay Peterson

Thanks Brian.

Bruce Thames

Thank you.

Operator

the have Instructions] our me to closing question-and-answer of appears for It reached end remarks. to we floor you. [Operator back over hand the session. Allow management Thank

Bruce Thames

Roya, call. afternoon. Thank interest on Thermon for Well, thank you you. your Thank in continued a in for have listening you nice all this and

Operator

Thank you. today's This conclude conference.

may participation. You at you disconnect thank your and time lines for this your

Thermon (THR) 6 Jun 192019 Q4 Earnings call transcript