THR - Earnings call transcript Q2 2020 | Thermon Group Holdings, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Greetings. Welcome to Thermon Group Holdings Incorporated Second Quarter Fiscal Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded.

the Corporate to Development. turn Fox, host, now President, Vice would conference your over Kevin I Mr. Fox, may you begin.

Kevin Fox

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

items we not During will do Generally Accounting some discuss also Principles. that Accepted call, to conform the

to considered accordance those at release. comparable We financial be should the items in to for performance a measures reported of of GAAP. substitute measures tables These the end have the earnings press and not in in measures the as with most reconciled addition non-GAAP gap

our and quarterly in including that are recent information to future impact to difficult make report are turn statements forward-looking company forward-looking our more changes to annual this call may like predict. regarding SEC the subject I'd remind forward-looking statements and that statements that not future, that historical the and circumstances I refer risks to results. uncertainties during facts call and inherent relate filed we most regarding with Bruce, for could uncertainties, business our risks you report our this are to Before to over the Please certain because they

speak forward-looking us caution assurances these forward-looking those nor They statement by may or differ during facts guarantees made time call statements. any you these are as of is results of statements. at of which We Any only future the actual from contemplated statements neither historical this against it relying on of therefore Our by made. materially forward-looking performance.

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

pleasure introduce and President Thames, And opening Chief to his my for now, our Executive it's Bruce remarks. Officer

Bruce Thames

Thank for Thermon. continued you, for Kevin. conference your joining in Good call, you interest thank morning and and our

Peterson, CFO, Joining me me XXXX today Jay our on follow details our who of and is present will the second the today financial year conference call quarter. fiscal

most to forecasts and the approach our I'm in to seeing capital about IMF of compete. by talking markets macro We're where seeing environment we're in choose by more overall that as customers the customers. deployment our supported going with has resulted we trends to weakening end the many begin a growth a by recent cautious

economic the questions well of our persist the believe to factors positioned number Thermon global of we regarding execution that continue in uncertainty. grow impacting economy, strategy to While of a has spite

billion, reminder, CCI of market the expanded Technologies, a roughly was tracing process Thermon As Thermal into our heat now capabilities with purchase years $X.X when the Heating business ago legacy two of heating Systems. we

our market into verticals to grow addressable least total well large. expansion addressable new growth, via continue our It's that as acquisitions. future believe now share our to as We as potential and intent is at geographic twice market

and a environment. East, in continuing we to the India, CapEx competitive Middle From Asia for Africa XX neutral a in economic growth estimates Europe America next capital challenging months very investment and standpoint, spending moderate growing to be see and North the and

the four the prior levels line the year growth at consecutive over the growing three for the in segments top comp quarter delivered Despite Thermon geographic eighth of revenue quarter. varying over the world, across least period of QX growth XX% with

to the our over see last in has GDP we growth, base value create been business limited for expanding installed and decades. with customers the an that selectively several and environment built Even opportunities pursuing shareholders new by

our end markets we're to The demand in softening signals. capacity the due to mixed outlook weaken continues moving commodity of prices. Now, where seeing global to excess leading to lower upstream and

transportation content driven slowing Downstream demand some is by been for sector largely tightening showing Capital sulfur projects also environmental weakness fuels. have in with fuels. growth this in regulations for lower

on We've we're that and major In or cycle. project reflected is growth significant opportunities areas, for continue bookings yet a natural well-positioned LNG to this midstream, seeing petrochemicals. quarter. in an capitalize tied other in not been in gas investment awarded However, LNG America be to backlog we to North

anticipate tailwind will provide a this significant three impact two thereafter. XXXX for to in and to next year demand will trend through our this remain financials for remains fiscal positive. as the outlook consumer global XXXX and years believe We beyond. begin markets continue robust end tied project Both LNG We plastics for petrochemical to chemical the investment of and a sectors spending most

planned Gulf and projects trending number positively We're US weakens. showing East There Coast, seeing for transportation the Combined growth shift a all also America. capital and single the are digit across US Asia. of projects in for cycle and investments in chemical particularly are demand fuel the as Middle Canada Latin projects power a toward the

products revenue growing and before in population mass QX year-end. as in opportunities dollars in now and line. released begin centers the production contribute as anticipate to We for projects rail continue Demand top MRO maintenance to in seeing create large growth project We're in also to are track transit. transportation switch multiyear opportunities

spending majority are In MRO/UE existing opportunities facilities. within tied of to the nuclear,

begin following in this opportunities the the which in We first during in an will completion translate have we expect Canada to half half into seen fiscal anticipated second upgrades year. was increase major revenues of the plant nuclear of that MRO Eastern

process recently a Southeast had Even an attractive heating We've market, THS growing. from and the with of these award in mixed refinery. the are quotation project win system activity signals Asian with a key our pipeline

see continue growth as the the of We to THS forward. key going a globalization platform opportunity

been on respectively. sequential XX.X% revenues XXX mix to of new point More price very realization, expanded detailed results, this of we the Thermon but our notable, Total and efforts trend. will continued and financial manufacturing revenue our to improvement was quarters mixed Jay, story our quarter that Greenfield historical basis products and to few onto speak up margin and related expansion Moving costs. at and XX% heavy margins has drive a through continuous past revenue able margins were financials, a from XX% XX% average MRO/UE market our positive a the for in CFO, approached a our

over we on while cost development execute that Throughout to enhance continue margin reduction time. product on year, the new will our further plans our also profile focusing will

focus to story a shift to good like quarter. cash was this which I'd

our As sheet we of improved on and efficiency we the by days our our conversion mentioned over call, to opportunity we last balance quarter. versus XX increase cycle there felt was cash an last

inorganic over to pursue CapEx. all were consistently a reminder, three million the drivers, generate $XX to flow we With over our revenue slightly help capital pay X% to cash continue on in a on low additional business spend the during needed opportunities. Staying we cash on generate will focused focused debt model, typically quarter. operating of down able capital our as effort working or intensity With

now pleased standpoint, the years Systems. the business ago, we will were Heating our we Thermon We known and be progress line we purchased with potential deals. since continue disciplined as two M&A to as From then evaluate

or THS in We platform technologies, leadership bolt-on our expand our that position acquisitions will globalize key prioritize help the upon addressable markets. build

we M&A, the EPS continue to interest share of an We evaluate In on prioritize savings in to quarter reduction. reduction basis. quarter and each transactions attractive annualized this will debt and the associated $X.XX in debt from will translate a absence expense alone,

organic the positions are to in perspective, Alternatively to continuing growth an technology invest market. from in Thermon win we that

the research completed iterate improve of and For will to rapidly lab development material heating new capability us compositions the example, for our expand recently solutions. and now enhance applications range that give our test performance, and investments quality in

into as to product but our productivity, revenue enterprise process We've to develop also certainly invest future solutions our incorporated team safety they in continue least, performance. Last enhance into opportunities. not THS' software customers' new providing an wide we and ideas stage-gate modern our view development

into XXXX especially fiscal look tougher of we set half comparisons year, growth the of see to half second a due we I our strong second QX. of the achieved As in the

we However, our remainder maintaining our plan in for revenue annual to of X% the feel X% we and for confident XXXX. the fiscal are of organic growth forecast year

will last we that we what contribute around accomplish an making Thermon To been and years globe, has I market highlight the in look you all celebrated in to company was the anniversary to in and XXXX, also Thermon I employees week. the you forward what in thank The since. ever founded the are today, together XXth its ahead. company for innovator this Thermon wanted

to address CFO of our quarter. Jay our Jay? financial the Now, second for who I'll Peterson, turn it will the over performance details

Jay Peterson

Bruce. you, Good Thank morning.

QX start our guidance I on by will results a for enhancements and XXXX. fiscal year with margin and then discussing discussion finish

First off, revenue and orders.

million Greenfield past higher increase legacy respectively than an mix prior over in that's and the MRO/UE revenue was between revenue with this XX% past. Our $XXX.X XX% quarter and the XX% year's and totaled significantly The of mix quarter. the Greenfield

the quarter a business have our the and by total revenues grew or quarter our million totaled $XX.X decline quarter decreased X%. marks for prior XX%. grown. quarter approximately X.X%, And FX of by in revenue million in currency, last constant $XX.X consecutive versus Orders revenue this eighth that the

$XXX.X as of the improved and of last orders X.X. three decrease XXXX, our basis September points ended the days backlog Our over XXX of XX at year and basis Margins for million quarter in over quarters, fiscal book-to-bill was $XXX.X of points XXX is versus our September and backlog a the last that by XX%. million a

three Moving we're margins, of margins revenue, quarters. gross XX% highest on and the last at fiscal level were to in the

spite And that points by comp period, by basis XX% gross declined or is in of we maintain points, the by $X mix two able margins profit Greenfield revenues gross gained by and million were in consecutive over grew Although margins the quarter to it substantial XXX period. margins versus quarter, basis points last the XX XX% of noteworthy versus the increase XXX basis improved project comp a the quarters. in

we to our impact not have any attributable we increases recent and and pass to have to to due experienced along seen able increases material to these margins to our customers largely the we tariffs, been tariffs cost While gross OpEx. have

for and in $XX.X that of increase an amortization totaled increase and X.X% to year. depreciation SG&A, is this of that's expenses relative intangibles revenue. million operating excludes quarter in And million $XX.X prior versus Core the a XX% the

of this to of achieving revenue specific XXX for And research in XX.X%. year excludes bps was and year a percent our and increase in of this operating strategic decrease expense from comprehended is and and depreciation that's costs quarter our the modest XX% other again initiatives. the spending growth as And prior level fiscal amortization XX.X%, expense operating development a XXXX a

Now on totaled XX% growth gross relative to in and to $X.XX prior profit of EPS increase GAAP the defined $X.XX, GAAP compared to one-time management. order. quarter and expense than note by $X.XX, more that doubled $X.XX to year amortization EPS any as year of EPS earnings, a Adjusted expense quarter for share $X.XX continued share prior and share charges less per the totaled an revenue due the growth EPS a

note the for And I'd $X.X EBITDA $X.XX tax fiscal private $X.X decrease versus due was that quarter XX% an XXXX on per EBITDA assets an XXXX non-cash a May that's and the to this the currently XX approximately of share amortization. totaled year million or out per year we of million expense acquisition and $X.XX $XX.X basis to approximately share quarter, expensing annual a per to grew the equity certain Thermon. or period. in improvement EBITDA points of And roll-off are total versus basis after amortization revenue will the as like of by In quarter. comparison of call percent last that to quarter, XX.X%, related million comparison

and to Now on allocation. the balance capital sheet moving future

improved we this months. next over Thermon number. quarter. this September investments And $XX.X generated and cash that's expense cash with flow our additional debt will And million, million debt share $XX.X XX tax interest in to paid pay current be the by a down accretive down balance of done were quarter. million free earnings at able foregoing $XX an And the to $X.XX after to in and we end Our this

the was Pac to $X.X for is with EBITDA revenue. both at the that's spend anticipated time second million and year. at additional capital and fiscal Our XXXX it this debt net and inclusive sustaining de-levering of the CapEx quarter Recall, our of X.Xx October at came maintenance X% totaled acquisition in of CCI X.Xx presently

any M&A optional in transaction allocation to absence lastly, continue is near of And capital to debt through our the priority repayment. our debt reduce term

rate structure accounts tax three fiscal X% was tax quarter becomes Alberta known tax taxes expense exposed our XX%, time possible years, of a Canada. respective $XXX,XXX Taxes, to totaling quarter rate the optimize our we law of adjust the at reflects for it tax at will tax a the while strategies the year. phased conclusion for reduction analysis, tax accounting and rate will our advisers with later that the continue various work our income tax And on impact the and this we this to downward over for this is in rate be requires reduction in and of guidance second be the

guidance, there I several guidance to points like And finally would are mention. on XXXX to

guidance our earlier products. year, are revenue fiscal X% and this our of related our to are to to of anticipated we margin with savings including an million cost list $X.X and process price this activities current We current announced margins year million growth our increases X% realization in performance reductions to in for various improve holding in previous relative $X.X maintenance

And for XXX yield recent year. with to the in basis QX, an bps expectation points we that will XXX And planned margins we a of year. announcements anticipate realized product accretive total fiscal due this a price

mix season, activity. MRO due a uptick And into increased lastly, the we to as see we the margins of head in typically heating seasonal

year due is in excluding expect the at debt EBITDA approximately continued EBITDA the And M&A we our cash and to growth debt, to any to to improve reduction and our and conclusion, in net in transaction. leverage end this X.Xx of

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

Operator

we'll be question-and-answer time, this At a session. conducting

from proceed question first question. Drab, your is with Please Blair. Brian Our William

Brian Drab

that's I The but can large we projects in whether Canada, North I America, guess you say congratulations, guess, only said LNG? Canada

Bruce Thames

have now, liberty at and a not agreement we non-disclosure that discuss further. we're Right to

Brian Drab

Okay.

Bruce Thames

yield next very It though. large will that two revenues is pleased a for very to... project We're years North American to three the

Brian Drab

overall, would of talk that or any that XX%? better Is can there what about expect project and margin on than like chance be just below gross you'd you it XX% maybe type directionally,

Bruce Thames

projects. similar would margin to be It Greenfield of our profiles our for mix

Brian Drab

Okay.

average, that Greenfield... were that's business, below So, I XXsXX clearly below on guess it's that your if

Bruce Thames

margins. be would it is, It project an average Greenfield

Brian Drab

Got it.

Okay.

Bruce Thames

Obviously, the would the is follow. or on that XX-year opportunity XX-year annuity there

Brian Drab

there on Right. project projects other qualitatively some Bruce, on are And least other projects? optimism larger there there, LNG of And the big any then, out pipeline there winning some update any Arctic on I out, is about at of the large another big these that any know in projects. your update the you're and even is projects bidding

Bruce Thames

awards. the projects we design overall I but midstream What large that is promising say environment and these will really through beyond of and LNG FID, just a moving for is number forward see

the current additional with quotes our we in opportunities in also our very see win we So, pipeline. pleased we're have and

Brian Drab

beat for and for the guidance, the things too quarter expectations second maintained likely a the maybe I year. guess quarter second low either implies Street two that to year, so one then or you the of more was Street second implying And the slower half just

Bruce Thames

Yes.

I the... think

Brian Drab

Is that right?

Bruce Thames

of just we last backlog heavy Yes. a see backlog, Slower a strong second our HX the Greenfield of mix the a and Greenfield. second don't looking had we that half, current our And half. strong year was in really we at makeup

HX prior think margin do some for year. relative we expansion conversely gross the opportunity to see in I significant

Brian Drab

and that third expect in said you I on would I that the quarter that the splitting the in quarters, fourth in that guess growth obviously then But think quarter, third quarter. fourth decline call the takeaway? And kind of between the the then year-over-year quarter mean you up the just is a

Bruce Thames

No. we half in growth that and the My we guidance volatility were year, moving be of second and fact due and just really out projects in to for that that our the was quarter. to QXsQX revenue difficult comp projections comment a X% a comp give don't a or maintaining quarterly X% the we difficult of really in were would

Brian Drab

relatively the Okay. doing either gets But guidance or revenue the that wrong have flat that imply the of looking an quarters for it just high I we've guidance. kind if got me, two at you of... end tell - modeling conservative should to to the year-over-year I'm was to I about that's or down is I'm midpoint. the we just next you at should the be to want guess you year-over-year math opportunity give the

Bruce Thames

relative down the to would year. the slightly revenues HX flat That's to in we expectation see prior

Brian Drab

just one win market? timing THS the And then maybe terms Can of elaborate size, on in you one. last end geography

Bruce Thames

I Asia in Yes, was refinery. it noted Southeast which it's a

Brian Drab

Yes.

Bruce Thames

awarded. or it's in process should been XXXX. we've land revenue real QX generate see that fiscal that package heating And nice a QX We late of

Brian Drab

right Okay. All very thanks much.

Bruce Thames

I about it. what's this illustrative think thing the opportunities globalize business. to there excited of have about that we the exciting is That's we're it's

Operator

Our Please Braatz, proceed next Jon question. with is City question from Kansas Capital. your

Jon Braatz

Bruce, the some a And your that But these of for markets headwind I don't these quantify MRO of you activity Greenfield operations? slowing some can much you opposed headwinds look persist, bit, assume little is seeing mentioned area to and how Thermon. as if a forward, know headwinds if you're the it's as things. you the in mostly that in end I

Bruce Thames

as a we the our has with that areas which less of Yes. challenges approach upstream plays do in a been Jon, not really businesses, been shale and best since we see more we the of downturn. been much cautious in some couple noted Canada has really going so benefit deployment I impactful as recovered that's which from areas so forward capital more we that's that have are maybe don't Where some the correct. like weak, some upstream and to upstream particularly more and customers other

that because the worsened. on quite has a And Russia. other then, really a So hasn't area it impact bit hasn't huge had we been of business do in us where upstream

demand growth noted capital really refining area of The just slow has not in in for other investment. certainly the was level the I fuels and required transportation

from to we sulfur, in it really reduce produce sulfur. investments lower is the there to projects have However, benefited for are

sector. those in have that in - hasn't additional growth fairly created the opportunities so there fact been that really spite the demand And has of weak

Jon Braatz

is or too you Are - it to could seeing these are is believe early tell? worsen any seeing trends you that to any there reason

Bruce Thames

would it's to I just we're at this just time say know - We're early too tell. watching you it.

We are because markets. mixed signs some in we see signals positive areas really of our seeing other end

Operator

concludes question the answer session. This

back Now, to I'll floor for over Bruce remarks. closing now turn Thames the

Bruce Thames

thank right, the all All rest appreciate for Enjoy thank call do you. We your And of in on you the interest today. day. Thermon. joining your

Operator

conference. today's concludes This

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

Thermon (THR) 8 Nov 192020 Q2 Earnings call transcript