Revenue Up 21%; Raising Full Year Guidance
AUSTIN, TX / ACCESSWIRE / February 2, 2023 / Thermon Group Holdings, Inc. (NYSE:THR) ('Thermon'), a global leader in industrial process heating solutions, today announced consolidated financial results for the third quarter ('Q3 2023') of the fiscal year ending March 31, 2023 ('Fiscal 2023').
On January 31st, 2023, the board of directors authorized the Company to withdraw from its operations in the Russian Federation through a disposition of its Russian subsidiary (the 'Russia Exit'), which is expected to be completed by the first fiscal quarter of 2024. The Russia Exit resulted in a total pretax charge during the three months ended December 31, 2022, of approximately $8.3 million. The Company reported GAAP gross profit of $50.5 million for the quarter, which was impacted by a charge of $4.8 million related to the Russia Exit. The Company also reported GAAP net income of $8.4 million and fully diluted GAAP earnings per share ('EPS') of $0.25, impacted by charges related to the Russia Exit by $7.3 million or $0.22 earnings per share, respectively.
Key highlights for Q3 2023 as compared to the three months ended December 31, 2021 ('Q3 2022') include:
- Produced revenue of $122.1 million, an increase of 21%, driven by sales growth in the US, Canada and Latin America
- Record non-GAAP adjusted EPS of $0.52, an increase of 41% due to margin improvement and cost control
- Adjusted EBITDA of $29.8 million, an increase of 45%, driven by volume growth and prudent cost management
- Adjusted gross margin of 45.3%, compared to 40.5%, improved due to higher volume, pricing realization and operational efficiency
- Bookings of $126.0 million, an increase of 40%, highest quarterly bookings since IPO
- Raising Fiscal 2023 revenue and earnings guidance due to continued strong market demand
'Building on the strong momentum from the first two quarters, our global Thermon team delivered another quarter of excellent performance with robust profitability, including revenue growth of 21% and adjusted EBITDA growth of 45%,' said Bruce Thames, President and CEO. 'Our operational excellence program and price realization, in addition to higher volume and favorable mix, enabled us to grow profit margins year over year. Western Hemisphere customer demand remained strong during the third quarter and was the main growth driver, while Europe continues to be challenged by geopolitical events and higher energy costs. Record orders of $126 million in the quarter grew 40%, bringing our trailing twelve-month total to over $437 million, an all-time high. We are also seeing strong traction in the adoption of Genesis, our networked industrial IoT solution, which provides our customers with enhanced operational awareness of heat trace systems, streamlined maintenance, and reduced total installed costs. We continue to execute our long-term strategy, which includes the sizable and accelerating opportunity around decarbonization and the energy transition, while allocating investment towards our strategic initiatives and managing controllable spending.'
1 Over Time sales were previously reported as a single figure and are now presented as Over Time - Small Projects and Over Time - Large Projects. Over Time - Small Projects are each less than $0.5 million and Over Time - Large Projects are each equal to or greater than $0.5 million.
2 Net Income (Loss) after the impact of acquisition costs, restructuring, costs associated with impairments and other charges, amortization of intangible assets, the tax expense/(benefit) for impact of foreign rate increases, and the benefit from the Canadian Emergency Wage Subsidy (the 'CEWS') (see table, 'Reconciliation of Net Income to Adjusted Net Income and Adjusted EPS').
3 See table, 'Reconciliation of Net Income to Adjusted EBITDA.'
Q3 2023 organic sales (excluding revenue contributed by the acquisition of Powerblanket) were $114.2 million as compared to $100.6 million in Q3 2022, an increase of $13.6 million, or 14%. Sales growth in the Western Hemisphere was a result of continued deferred maintenance activity in upstream and downstream oil markets and investments driven by sustained commodity prices and global demand. Sales attributable to the recent Powerblanket acquisition were $7.9 million, with integration in progress and on schedule.
Backlog was $164.7 million as of December 31, 2022, representing a $19.0 million increase, or 13%, as compared to Q3 2022 backlog of $145.7 million. Orders in Q3 2023 were $126.0 million compared to $90.2 million in Q3 2022, an increase of $35.8 million or 40%.
Balance Sheet, Liquidity and Cash Flow
Thermon maintained a strong balance sheet during Q3 2023. The net debt-to-adjusted EBITDA ratio decreased to 1.1x from 2.2x in the prior year period. Gross outstanding debt was flat year over year. Available liquidity at the end of the quarter totaled $109.1 million, including $35.4 million in cash and cash equivalents and $73.7 million available under credit agreements.
Working capital increased by 24% to $153.8 million during Q3 2023. Capital expenditures during the quarter were $1.5 million, up from $0.7 million in the prior year period. Cash from operating activities was $19.1 million and Free Cash Flow was $17.6 million.
1 Total company debt, net of cash and cash equivalents.
2 Working Capital equals Accounts Receivable plus Inventory less Accounts Payable.
3 See table, 'Reconciliation of Cash Provided by Operating Activities to Free Cash Flow.'
Kevin Fox, Thermon's Chief Financial Officer, added, 'Due to the strong performance in the first three quarters of the year, we are again raising our annual guidance. For our fiscal year ending March 31, 2023, we expect revenue will be approximately $429-$437 million, which includes $18 million of revenue contribution from the Powerblanket acquisition. We also expect GAAP EPS in Fiscal 2023 to be approximately $1.11-$1.15 per share, with Adjusted EPS to be approximately $1.55-$1.59 per share, the adjusted guidance does not include any potential impact to the Russia Exit that we will incur at closing. We expect continued strength in the Western Hemisphere to offset the contraction we are seeing in Europe, and we believe the combination of our operational excellence program with disciplined capital allocation priorities will deliver solid cash flow and profitable growth throughout the remainder of Fiscal 2023.'
Conference Call and Webcast Information
Thermon's senior management team, including Bruce Thames, President and Chief Executive Officer, and Kevin Fox, Senior Vice President and Chief Financial Officer, will discuss Q3 2023 results during a conference call today, February 2, 2023 at 10:00 a.m. (Central Time). The call will be simultaneously webcast and the accompanying slide presentation containing financial information can be accessed on Thermon's investor relations website located at http://ir.thermon.com . Investment community professionals interested in participating in the question-and-answer session may access the call by dialing (877) 407-5976 from within the United States/Canada and (412) 902-0031 from outside of the United States/Canada. A replay of the webcast will be available on Thermon's investor relations website after the conclusion of the call.
Through its global network, Thermon provides safe, reliable and mission critical industrial process heating solutions. Thermon specializes in providing complete flow assurance, process heating, temperature maintenance, freeze protection and environmental monitoring solutions. Thermon is headquartered in Austin, Texas. For more information, please visit www.thermon.com .
Non-GAAP Financial Measures
Disclosure in this release of 'Adjusted EPS,' 'Adjusted EBITDA,' 'Adjusted EBITDA margin,' 'Adjusted Net Income/(Loss),' 'Free Cash Flow,' and 'Net Debt,' which are 'non-GAAP financial measures' as defined under the rules of the Securities and Exchange Commission (the 'SEC'), are intended as supplemental measures of our financial performance that are not required by, or presented in accordance with, U.S. generally accepted accounting principles ('GAAP'). 'Adjusted Net Income/(Loss)' and 'Adjusted EPS' (or 'Adjusted fully diluted EPS') represent net income/(loss) before the impact of restructuring and other charges/(income), costs associated with impairments and other charges, acquisition costs, amortization of intangible assets, tax expense for impact of foreign rate increases, the benefit from the CEWS, and any tax effect of such adjustments. 'Adjusted EBITDA' represents net income/(loss) before interest expense (net of interest income), income tax expense, depreciation and amortization expense, stock-based compensation expense, acquisition costs, costs associated with restructuring and other income/(charges), costs associated with impairments and other charges, and income related to the CEWS. 'Adjusted EBITDA margin' represents Adjusted EBITDA as a percentage of total revenue. 'Free Cash Flow' represents cash provided by operating activities less cash used for the purchase of property, plant, and equipment, net of sales of rental equipment and proceeds from sales of land and buildings. 'Net Debt' represents total outstanding principal debt less cash and cash equivalents on hand.
We believe these non-GAAP financial measures are meaningful to our investors to enhance their understanding of our financial performance and are frequently used by securities analysts, investors and other interested parties to compare our performance with the performance of other companies that report Adjusted EPS, Adjusted EBITDA, Adjusted EBITDA margin or Adjusted Net Income/(Loss). Adjusted EPS, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income/(Loss) and Free Cash Flow should be considered in addition to, and not as substitutes for, income from operations, net income/(loss), net income/(loss) per share and other measures of financial performance reported in accordance with GAAP. We provide Free Cash Flow as a measure of liquidity. Our calculation of Adjusted EPS, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income/(Loss) and Free Cash Flow may not be comparable to similarly titled measures reported by other companies. For a description of how Adjusted EPS, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income/(Loss) and Free Cash Flow are calculated and reconciliations to the corresponding GAAP measures, see the sections of this release titled 'Reconciliation of Net Income/(Loss) to Adjusted EBITDA,' 'Reconciliation of Net Income/(Loss) to Adjusted Net Income/(Loss) and Adjusted EPS' and 'Reconciliation of Cash Provided by Operating Activities to Free Cash Flow.'
This release includes forward-looking statements within the meaning of the U.S. federal securities laws in addition to historical information. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding our industry, business strategy, plans, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information such as the anticipated financial performance of our Powerblanket acquisition, our execution of our strategic initiatives, our ability to complete the disposition of our Russian subsidiary and anticipated timing and associated charges and our ability to achieve our financial performance targets for fiscal 2026 and our Fiscal 2023 full-year guidance. When used herein, the words 'anticipate,' 'assume,' 'believe,' 'budget,' 'continue,' 'contemplate,' 'could,' 'should' 'estimate,' 'expect,' 'intend,' 'may,' 'plan,' 'possible,' 'potential,' 'predict,' 'project,' 'will,' 'would,' 'future,' and similar terms and phrases are intended to identify forward-looking statements in this release. Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our financial condition, results of operations and cash flows.
Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to identify all of these factors, they include, among others, (i) the outbreak of a global pandemic, including the current pandemic (COVID-19 and its variants); (ii) general economic conditions and cyclicality in the markets we serve; (iii) future growth of energy, chemical processing and power generation capital investments; (iv) our ability to operate successfully in foreign countries; (v) our ability to successfully develop and improve our products and successfully implement new technologies; (vi) competition from various other sources providing similar heat tracing and process heating products and services, or alternative technologies, to customers; (vii) our ability to deliver existing orders within our backlog; (viii) our ability to bid and win new contracts; (ix) the imposition of certain operating and financial restrictions contained in our debt agreements; (x) our revenue mix; (xi) our ability to grow through strategic acquisitions; (xii) our ability to manage risk through insurance against potential liabilities (xiii) changes in relevant currency exchange rates; (xiv) tax liabilities and changes to tax policy; (xv) impairment of goodwill and other intangible assets; (xvi) our ability to attract and retain qualified management and employees, particularly in our overseas markets; (xvii) our ability to protect our trade secrets; (xviii) our ability to protect our intellectual property; (xix) our ability to protect data and thwart potential cyber-attacks; (xx) a material disruption at any of our manufacturing facilities; (xxi) our dependence on subcontractors and third-party suppliers; (xxii) our ability to profit on fixed-price contracts; (xxiii) the credit risk associated to our extension of credit to customers; (xxiv) our ability to achieve our operational initiatives; (xxv) unforeseen difficulties with expansions, relocations, or consolidations of existing facilities; (xxvi) potential liability related to our products as well as the delivery of products and services; (xxvii) our ability to comply with foreign anti-corruption laws; (xxviii) export control regulations or sanctions; (xxix) changes in government administrative policy; (xxx) the current geopolitical instability in Russia and Ukraine and related sanctions by the U.S. and Canadian governments and European Union; (xxxi) environmental and health and safety laws and regulations as well as environmental liabilities; and (xxxii) climate change and related regulation of greenhouse gases, and (xxxiii) those factors listed under Item 1A 'Risk Factors' included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022 filed with the Securities and Exchange Commission (the 'SEC') on May 26, 2022 and in any subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K or other filings that we have filed or may file with the SEC. Any one of these factors or a combination of these factors could materially affect our future results of operations and could influence whether any forward-looking statements contained in this release ultimately prove to be accurate.
Our forward-looking statements are not guarantees of future performance, and actual results and future performance may differ materially from those suggested in any forward-looking statements. We do not intend to update these statements unless we are required to do so under applicable securities laws.
Kevin Fox, Chief Financial Officer
Ivonne Salem, Vice President, FP&A and Investor Relations
1 - The 2022 charges relate to the Company's Russian subsidiary.
1 - The 2022 charges relate to the Russia Exit.
SOURCE: Thermon Group Holdings, Inc.
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