THR - Earnings call transcript Q3 2020 | Thermon Group Holdings, Inc.

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Operator

Greetings. Welcome to the Thermon Group Holdings Third Quarter Fiscal Year 2020 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to our host, Kevin Fox, Vice President, Corporate Development. you. Thank

begin. may You

Kevin Fox

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

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

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

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

predict performance. They made. you, from statements. only forward-looking forward-looking fact statement by speak is these relying materially therefore, during against it guarantees results actual as no of of from differ those us made to contemplated on required of statements law. neither could and new the We may result otherwise, cause future of or future not to Facts time, time call caution is events may assurances forward-looking to of whether our it publicly results forward-looking or time to be of any emerge nor as undertake this are differ or except by developments as Any statement, historical a that by which all We us them. may actual these Our any for update information, obligation statements. possible

I'd Bruce now, comments. Thames, Chief President Officer, introduce like to our and Executive his for And opening

Bruce Thames

Kevin, all in you, and Thank right. interest our thank and joining conference Thermon. All And for call continued morning. you for your good

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

QX by driven record Starting of quarter. fell other weaker prior expectations factors off, and during short year results the year-end and in QX, spending discretionary a primarily

now in of we in markets projects, as and last fiscal season capital led in year, weakness the noted stronger negatively mix order last see projected which contraction. budgets. we release to demand the and the volume After began heating weakening double-digit While we quarters both has MRO/UE of the to consecutive order two neither end single-digit expected consecutive impacted quarter materialize, saw our as This quarter. of we quarters two growth, customers in

CapEx competitive very are challenging a capital to moderate the America discuss From and seeing and moment standpoint, East, for like Middle trends and neutral markets. investment end months to the estimates in I'd a North we see India; Europe continuing our take growth our to the to with be Africa XX customers growing in a Asia; in market. and next and spending we

some the large relative engineering planning contributed In to the are the prior the stages. and anticipated America, Europe, shortfall crackers next East, early and both coming capital to Middle Geographically, Latin quarter. projects ethane and U.S. of environment year are in we the U.S. and online in and Latin wave as the expectations America Africa, in weaker

discretionary year-end in and to stronger occurred expected we move spending right. the several that However, the quarter, new we projects saw

we several East, highlighted quarters challenging Africa, In to Europe, persist. continue for conditions market that have Middle

Asia Pacific geographies both and digits prior double low over Canadian Our were up year.

see in well. certainly This on We our lower as end upstream across sectors continue oil in markets capital The to other to to companies and commodity integrated remains excess the weigh by prices. mixed weak due of deployment signals has outlook capacity industry. begun

saw weaker quarter. the to contributed this believe year-end we this also We spending

is some transportation for efficiency driven growth in tightening fuels. regulations weakness be sector lower and Capital to in environmental sulfur demand content showing also for with by fuels continue Downstream projects slowing this improvements.

are areas, to be In significant investment opportunities on to capitalize midstream, we well to positioned we gas However, in petrochemicals. continue LNG growth natural tied other an seeing and cycle.

continue years awarded X anticipate will bookings year have been project Canadian LNG a both backlog project QX. We this to begin for We X next positively in the thereafter. and in large that to and impact financials fiscal show XXXX in will

With a timing LNG European storage influence for number planned capacity, final decisions weaker of could Asia demand warmer in near a projects. winter investment and of

create over We're planning markets Coast, in continue gas East several projects few execution and Middle that the that months second feedstock, a business in large to half We're biofuel U.S. particularly with Canada capital next the next over robust various capital cheap tailwind anticipate sectors plants investments across years. and and seeing 'XX the petrochemical this quarters. in to the in U.S. next liquids tied the award LNG XX renewables believe our additional the gap stages several we a most global backlog the Both in of growth processing sector projects opportunities. for these as fiscal also chemical remain the for However, a natural will year as over Asia. of We to Gulf our seeing of and and provide projects end are revenue move

opportunities dollar, transit. to We mass for population and in the business Latin balance continue power diversification multimillion Demand seasonality this in reflected Combined markets. a Awards in the in end the in growing project the continued cycle that and projects QX QX. awarded transportation backlog America. centers will steady, transit particularly rail multiyear nature of were large bookings of multiyear helped remained project be of and U.S. create our and through

tied and to segment, saw mixed forward. late continue to nuclear growth key platform of to opportunities 'XX. process the spending the these nuclear in signals our as market, the globalization and the Thermon's a continues majority project Even these MRO heating We we anticipate fiscal grow, of to through from pipeline within generate increase the year with In facilities. opportunity moving QX, an MRO/UE see are to existing activities activity Canadian in power revenue continue we

Margins continuous stronger season. impact had XX an basis quarter. margin Moving Total the slow expanded financials. to efforts improvement improving to XX% heating of expansion saw were revenue on but in a to and a due prior the XX we quarter. mix, discretionary prior quarters down sequentially. We revenue our After the from spend X negative in year year, a against but over down year-end on a was factors points QX Thermon the and anticipated quarter weaker start growth, projects, basis consecutive points contraction capital record several

a less discretionary anticipated XX% more the to greenfield, average the weaker to than MRO/UE due historical but in First, quarter. mix of spending improved XX% versus

by basis Second, negatively onetime points charges and the about quarter. margins XXX volume in impacted variances

our investing execute new our while profile on to are will development further planned product in over cost margin that We reduction time. also initiatives, enhance continuing

take rightsize growth. for efforts we'll to warranted, also where -- efforts continuing We take while business, our to invest

note, X% were $XX bookings. Bookings our heating for of now flat down year-over-year efforts globalization solid essentially was process backlog quarter a in X% million Turning positive bookings from products, On the sequentially. up resulted XX% year, and to prior and for sequentially.

quarter last quarters, project been we in Africa have incoming region addition, order rate. for order against an flat Middle otherwise and that challenged backlog that contributed In Europe, secured sizable several in during the growth to East, a has a the

want cash to a working generate free this the in capital, concerted year-to-date. able with $XX.X shift focus I and during to With been good we've intensity a million business effort year. $XX.X which combined capital been low cash, flow on has million story to to a model, quarter now

a our we At our debt the an EBITDA the an well As trailing strength adjusted From XX-month to able positions during additional $XX quarter, evaluate transactions we of time, X.Xx. balance continue to quarter. down to standpoint, us M&A debt result, pay at opportunity. were this and right net stands sheet million the in each for

annualized acquisitions or expand reduction prioritize bolt-on basis. $X.XX that environmental technologies, markets. debt build prioritize share expense year-to-date In addressable will M&A, of in an the from the a our We to reduction. will on attractive globalize platform position and in will absence The our interest process leadership savings debt the EPS key associated we heating translate help and upon

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

incoming to weaker the our be fiscal projects coming movement second We in $XXX the lowering our will and of have nearing weaker we year. the orders quarter in upon safety forecast new enhanced connectivity industry-leading schedules, performance for reliability. consecutive announced several that completion will are XXXX and in of pipeline increasing the solutions project to million -- product $XXX year million while the quarters. and provide new Based These development

quarter. the While included in account exposure, supply timing has range additional X% for have and our limited represents in China shipments the only we uncertainty of the revenue chain to of

demand and opportunities market tightening our creating emerging key near-term Thermon as middle the class pipeline in developing choppy, nations remain opportunities. The the gas While petrochemicals, see grow and natural installed remains We is market chemicals space. for environmental of well fuel, by and service positioned for as a growth within intact, bridge environment all to our our growing regulations base. evidenced creating drivers

expertise this decades support new Thermon's position our of global competitive technology, diversity, space. all model, and resilient in-market engineering of in design footprint, pipeline product and business

all earnings and you provide on thank XXXX globe, around Thermon you the call. will the year fiscal for our our you every each To day. customers for next We guidance do that during employees our

You are truly the Thermon difference.

CFO, quarter. details for Jay of address like With now who turn the Jay? third performance I'd our our financial over it will that, to to Peterson, the

Jay Peterson

our Good start generation discussing year by Bruce. a and with and debt margin our enhancements Thank you, will guidance and including paydown, discussion morning. XXXX. cash results, finish QX for then I fiscal on

On was totaled which a business, against record among year-to-date that's performance high majority for revenue been of and the of of impacted million, our the Thermon. First the this past negatively attributable is quarter to economy, $XXX.X a our the which has our all-time decline off, factors. by prior decline European revenue basis, quarter, macro an European XX% other

The for Greenfield versus constant in And XX%, quarter decreased this a $XX currency, for mix a year-end of mix QX between XX% respectively, totaled XX%. to total by million FX X%, legacy a heating of season. approximately revenue due in 'XX. was to million our fiscal and and the $XXX,XXX. and in decline year and weaker-than-expected XX% annual nominally year XX% MRO/UE the by spending warmer Orders revenue and $XXX.X revenue quarter start versus the prior declined was

Our mentioned, And to as our backlog projects backlog of been as recently and ended at that of the million and our awarded in of essentially Thermon, that orders into decrease is XX%. large was are days. And $XXX.X booking have versus fiscal a greenfield XX the at 'XX, year anticipate $XXX.X quarter December them book-to-bill X.XX. next for million flat XXX December we Bruce several to there

attributable volumes. points, the a XX.X% by the the basis point or margins comp were Moving for period, comp large and to closeout were basis $X.X high profit the that Sequentially, improvement gross quarter, Margins cost record a certain period. by by margins. million for down double-digit greenfield which Thermon. XX all-time was that's costs XX lower due Gross for on and project was to versus due decline XX.X% to variances revenue and an versus also declined to

to to due increases our minor, significant and cost without customers able have any increases we have largely impact tariffs to along Cost to relatively these been GMs. been our pass

lower and And in personnel Core OpEx. costs. year. that's X.X%, to the operating reduction $XX.X due million is the million for expenses and a $XX.X that excludes depreciation totaled quarter, this Moving to of prior versus and amortization,

Europe this spending. our expense an And decline XX%, was research XX% again, OpEx a and development cost bps depreciation as that's XX%. better our note incoming the addition, in our align revenue order of excluding with and the level executed year prior expenses to in actions that have XXX of from month increase comprehended is and In in growth a percent in of operating rate. amortization, European January we reduction And of

acquisition by the on of this EPS And tax assets GAAP amortization. the noncash for after plus share as annually basis GAAP that May with quarter prior of decline year earnings. to EPS decrease compared $X.X amortization adjusted And of expense and $X.XX to annual And quarter totaled this full per a million to amortization in amortization due expense share. per quarter total for an related an share, are a in year our million increase note $X.XX quarter. will the Now and expensing after-tax $X.XX, of 'XX. to $X.XX currently $X.XX certain that's or will the by And $X.XX of construct, to EPS per relative private year $X.XX be defined Thermon. the of an EPS on a XXXX share the equity we the fiscal a charges, basis per totaled share any for year $X.X onetime this prior approximately GAAP $X.XX to or share of impact

was comparison decline revenue XX%. basis versus EBITDA points this the EBITDA versus $XX And the a comparison million. of XXX quarter, of past totaled this and EBITDA by percent period. a And quarter And as was declined XX.X%

Turning to last capital balance and grow cash we and pay debt. were to sheet quarter, the This both balance allocation. our down able

free investments flow cash at $XX.X pay Our were additional this million, million we and quarter, debt the million generated this paydown able in grew cash fiscal with down to in of current and to quarter. $XX.X debt December end we $XX.X and balance

be year-to-date down reduction accretive And interest million on by and $XX savings after-tax fiscal interest flow an our $X.XX, $XX.X reduce year have in paydown interest a cash generated On a savings, free basis, expense million in 'XX an per year additional paid next on earnings to the debt. at $X.XX share fiscal after-tax expense by expense, will The will with expense the in coupled basis. basis, again, with share amort our debt forthcoming. we

capital year-to-date capital conversion Our fiscal debt-to-EBITDA that X.Xx the And an our optional the for to EBITDA, debt our XXXX and with year. of net CapEx quarter October a absence months, less last versus repayment. in any since ratio, through current both was in XX spend M&A X.X% near-term to by revenue. CCI $X.X time to and acquisition the our prior EBITDA period. healthy XX% and transaction, improvement is CapEx million, ratio as X.Xx, of planned inclusive maintenance the improved to as continued amounted for debt third of reduce the And at and the delevering And growth has defined our EBITDA of was additional allocation, divided XX%, this is for continue lastly, totaled

taxes in guidance years, will phased in Taxes. The the tax XXXX rate respective becomes reduction the for time adjust that be And the third quarter known. reduction was XX% the reflects over the X% this in and tax of QX while a impact at expense for rate $XXX,XXX accounting totaling tax the accounts we rate of a requires three Netherlands. law tax tax

this possible exposed the tax that our year advisers And we to in continue rate conclusion structure. be work at continue with tax downward of And to to will fiscal our income tax strategies it 'XX. analysis, our optimize on reduce -- potential is

to margins, are are we weaker and increases the reductions the our are There reductions, and of in of projects year; following: fiscal with this we for million coronavirus, impact our higher-than-expected performance, several to call planned will announced out. like and year revenue margin year. improve to X% and additional various partially to our previous offset guidance planned season, products, product the negative has capital $X price this impact; deceleration in to start and to guidance. approximately impact $X.X current volume of including an decline margins. margin anticipated we process points a list to cost small, in due heating finally, with prior cost recent although accretive revising and that that announcements And our million current to savings And a yield activities and anticipate maintenance-related X% for the earlier realization year next relative I'd over the Due

to end debt, the current in at we our TTM our X.X to M&A EBITDA In cash, this to net X.Xx of projection decline conclusion, due excluding and any debt-to-EBITDA in year, reduction our transaction. to growth leverage expect

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

Operator

Instructions]. [Operator

with comes Blair. Drab question William first from Our Brian

Brian Drab

Did revenue quarter? third what you the say in THS was

Jay Peterson

got did we I've No, here. not. that No.

that will discussing this for next that into finalization We going current into the forward. $XX.X $XX and that This But million, be quarter. the million be fiscal next both due just going -- about we be under quarter talking legacy to we will quarter. the the year, business, integration the it was unlikely year, it will will of

Brian Drab

the for million $XX.X quarter.

All right. Okay.

not somewhat really the business, saw from the down year, different I that last decline is core business any you but in that guess? So from

Jay Peterson

Correct. That's correct.

Brian Drab

And seeing Are those Okay, what then in dynamics that margins can had in pressure are putting you the under there? under do that okay. still greenfield greenfield now talk about margins or been see somewhat. you you're that pressure place,

Bruce Thames

Yes.

material a the will year, seen XX% the on change little in vary still or is for running range But They're and type been range greenfield haven't average that X for X last in geography. the the that and upper a years. We the and the project margins. in of has bit

Brian Drab

is your are that safe as that it those range about to in margins I backlog then margins well? And then, are in assume the guess,

Jay Peterson

are essentially in margins, the present, dynamic modestly. see near the quarter the based out margins prior on And certain the with they're We Yes. little term a which flat are projects at term. versus down

Brian Drab

Okay.

out. last that I'm those major projects about update larger I I some that Does Bruce, talked call, project projects think quarter? said wins. what the on we And about of at pushed last you on you talked guess, that of Can is, couple have then projects? wondering you these And a Okay. been all include some

Bruce Thames

Yes.

question. great a that's So

approach to book pretty we projects backlog. First of in conservative we all, how take a

I are of we answer project a is builds to material firm get there driving in received But that that hard about the bookings -- that of no, -- Gulf sizable that that's do large of movement impact more reference there's awards begin projects some did My orders FID. are for in mentioned question, are Coast, POs with some by -- We project backlog. we that and to be could those particularly of are previously, number the are backlog. clear move not we've then to awards to impact over those to months. Canadian and timing yet The And to LNG X committed. the right reflected saw question we've see fourth And ones bookings in a enter that next not reasons to purchase in years. projects. ones just our backlog bookings quarter, -- that before Brian, so know, timing. that various that into the the been And backlog. that your will movement -- And and have other but those the X around those some we no this will multiple and X led have

number, So big will one at year bookings multiple multiple it the throughout it packages. be be won't just for quarters

you So that's of kind what expect going forward. should

Brian Drab

will really numbers Canada not the yet. has That the in shown fourth the LNG start quarter? project So in up

Bruce Thames

numbers up They have correct. all, That's the so. not in shown at

Brian Drab

Okay, it got the it. sure will hit. so if Okay, quarter. -- I But or okay. it fourth wasn't start that like in there's any early engineering I at work something all?

Bruce Thames

Correct.

Operator

Instructions]. [Operator

Our with comes Confluence from Management. next question Investment Joe Hanzlik

Joseph Hanzlik

over it's that and for without with of to years, million quarters going last steadily from LNG What's forward, of the expectation over last sort the backlog the sort at backlog $XXX decreased down million. X the Just looking about $XXX LNG? X

Bruce Thames

Yes.

half the see question. some of What see materialize. in in positive backlog So really second year begin your reasons. we see that Joe, we expected to this to for couple We've for expect, business to and build a a thanks the book-to-bill yet

of is Some we in timing. have that seen project movement

to as hit to yet those bills moving to to just is have with these and material, firm commitments, the phases that POs engineering be of some firm And our through let get secured backlog. we've

see in So some would project, weak and Europe, you we responsible the we which begin has to backlog did the excluding particularly decline backlog large be build. And largely see been is that our had LNG for expectation, would referenced. that

we've of U.S. large drawdown time fairly Asia crackers. strong. ethane are in remains hit that backlog completed various we've in has execution backlog in wave the as year in projects planning been Our a Latin begin and positioned next stages And But a Canada another backlog online last hit flat. seen should are America several there kind to we from some this Pacific well of of and win and believe quarters. to believe the whole we we --

Operator

there no management to I'll turn Ladies for and back remarks. are questions further this gentlemen, at time. closing it

Bruce Thames

enjoy conference you, Diego. again, rest for joining And Thank your We your day. for and you, of this the thank interest call appreciate today. Thermon, support

Operator

concludes disconnect. Thank today's may day. All great you. parties a conference. Have This

Thermon (THR) 7 Feb 202020 Q3 Earnings call transcript