Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Thermon Group Holdings Inc (THR, Financial) achieved nearly 8% revenue growth in the first quarter, driven largely by the successful integration of the Vapor Power acquisition.
- The company reported strong cash flow and adjusted EBITDA growth, highlighting disciplined financial management.
- Thermon Group Holdings Inc (THR) has diversified its end market exposure, reducing reliance on the oil and gas sector, which has helped stabilize revenue streams.
- The company has a robust pipeline of decarbonization opportunities, with $320 million in potential projects, representing 30% of the total pipeline.
- Thermon Group Holdings Inc (THR) has maintained a strong financial position with a leverage ratio of 1.1 times, providing ample capacity to pursue growth objectives and capital allocation priorities.
Negative Points
- Organic revenue declined by approximately 5% in the first quarter, excluding the contribution from Vapor Power.
- Large project revenue decreased by 34% due to extended sales cycles and customer uncertainty related to the macro environment.
- Sales in the US-LAM segment, excluding Vapor Power, declined by 14%, and sales in the EMEA region declined by 19%.
- Adjusted EBITDA margin slightly decreased to 20.2% from 20.7% in the same period last year, impacted by higher labor content contracts and strategic initiative investments.
- Backlog declined 10% on an organic basis, excluding the contribution from Vapor Power, indicating potential challenges in securing new large projects.
Q & A Highlights
Q: Could you provide more detail on your visibility to project revenue recovering later this year? Are there specific projects you have line of sight to, and what needs to happen for that revenue to materialize?
A: Our pipeline of sales and project opportunities is over $1 billion, growing 9% year-over-year. Quoting activity is up 12% to 13% year-over-year. We need to see continued positive book-to-bill in Q2, but we feel well-positioned to capitalize on these opportunities as projects move forward. - Bruce Thames, President, Director
Q: Can you help reconcile the positive move in pipeline and quoting activity with what you're seeing in the backlog?
A: Backlog was down 10% year-over-year but up 5% sequentially. Our MRO business, tied to OpEx spending, moves quickly in and out of backlog. The positive book-to-bill and shift to more OpEx spending are key dynamics in our backlog. - Bruce Thames, President, Director
Q: What percentage of orders or backlog is tied to decarbonization and renewables, and how is that trending?
A: We secured $9 million in orders related to decarbonization, representing 7% of total bookings. The pipeline has grown to $320 million, up from $250 million at the end of fiscal '24. - Bruce Thames, President, Director
Q: Can you unpack the diversified end markets, particularly trends in food and beverage, transport, and other sectors?
A: We've seen strong activity in petrochemical power, infrastructure, and rail and transit. We also have significant opportunities in LNG liquefaction facilities, especially in North America. - Bruce Thames, President, Director
Q: What is your capital allocation strategy, especially regarding M&A to reach the $600 million to $700 million revenue target for fiscal '26?
A: We have a healthy pipeline of actionable M&A opportunities within the next 12 to 18 months. Our balance sheet is strong, and we see opportunities that align with our strategic initiatives. - Bruce Thames, President, Director
Q: Should CapEx budgets increase post-election with interest rate cuts, would there be a reduction in operating expense budgets?
A: Operating expenditures are stable and less susceptible to economic cycles. CapEx budgets have not seen significant cuts, and some are projected to increase. Decision-making has slowed, but we expect improvement post-election and interest rate clarity. - Bruce Thames, President, Director
Q: Are you seeing expected growth at Vapor Power due to electrification trends, and is there potential for increased CapEx to support this growth?
A: Opportunities in electrification, particularly with electrode and resistance electric boilers, are promising. We're working on scaling capacity and may consider additional CapEx if demand exceeds expectations. - Bruce Thames, President, Director
Q: Is there any catch-up in maintenance spending by clients?
A: No, any catch-up in maintenance spending is long in the rearview mirror from about two years back. - Bruce Thames, President, Director
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
