Thermon(THR)2025-02-06 19:01Financial Performance - Sales for the three months ended December 31, 2024, were $134.4 million, a decrease of 2% compared to $136.4 million in 2023[116] - Gross profit increased by 8% to $62.1 million, with a gross profit margin of 46.2%, up from 42.1% in the previous year[116] - Net income for the three months ended December 31, 2024, was $18.5 million, representing a 17% increase from $15.8 million in 2023[116] - Revenues decreased by 11% excluding acquisitions, primarily due to softness in Over time revenue associated with large projects[117] - Free Cash Flow for YTD 2025 was $23.9 million, up from $20.8 million in YTD 2024, driven by higher operating cash flows[159] - Operating cash flows increased by $2.5 million in YTD 2025, primarily due to higher non-cash operating items and lower cash use in operating assets[151] Revenue Composition - Revenue recognized at a point in time accounted for 74% of total revenue for the three months ended December 31, 2024, compared to 63% for the same period in 2023[107] - Over time sales decreased by 32%, primarily due to reduced activity from large customer projects in the US-LAM segment[119] - Point in time sales increased by 16%, with $99.6 million representing 74% of total sales, compared to 63% in the previous year[118] Backlog and Future Prospects - The company's backlog as of December 31, 2024, was $235.6 million, up from $186.1 million at March 31, 2024, indicating a strong pipeline for future revenue[101] - The company expects to secure more new facility project bids and generate additional revenue from facility maintenance and upgrades[94] Acquisitions and Integration - The company executed an acquisition strategy to grow by acquiring businesses in the process heating solutions industry[114] - The company initiated the integration of its recent acquisition, F.A.T.I., into its EMEA operations during the three months ended December 31, 2024[111] Costs and Expenses - Selling, general and administrative expenses rose to 25.4% of sales in Interim 2025, up from 23.3% in Interim 2024, driven by acquisitions and strategic investments[122] - Amortization of intangible assets increased due to recent acquisitions, with interest expense rising to $163 million in YTD 2025 from $122 million in YTD 2024[140] Taxation - The effective tax rate increased to 25.9% in Interim 2025 from 22.2% in Interim 2024, attributed to anticipated withholding tax on repatriated earnings[128] - The effective tax rate increased to 25.5% in YTD 2025 from 23.2% in YTD 2024, influenced by discrete tax items and anticipated withholding tax from Canadian earnings[142] Foreign Exchange and Commodities - Foreign exchange rates negatively impacted revenues by approximately $1.9 million in Interim 2025 as the U.S. dollar strengthened[120] - Sales were negatively impacted by $3.7 million in YTD 2025 due to foreign exchange translation rates compared to YTD 2024[168] - The company is subject to commodity price risks due to reliance on market prices for raw materials without long-term purchase commitments[170] - Recent periods have seen shortages in certain raw materials and increased costs due to various factors including higher freight costs and increased lead times[170] - The company cannot assure continued mitigation of raw material shortages or passing cost increases to customers, which may adversely affect operations[170] Cash and Liquidity - Cash and cash equivalents totaled $38.7 million as of December 31, 2024, with $97.6 million available under the revolving line of credit[146] - Capital expenditures are expected to be approximately 2.5% of revenue in fiscal 2025, with $18.0 million in principal payments on long-term debt anticipated[149] Interest Rate Sensitivity - A 1% change in interest rates would result in a $1.5 million increase or decrease in annual interest expense[169] Workforce and Operations - The company enacted a reduction in force and closed its Denver manufacturing facility, resulting in a gain of $3.0 million from the sale of the facility, offsetting related costs[139] - The company continues to manage working capital effectively through inventory optimization and extending payment terms with suppliers[147] Currency Management - The company had approximately $12.9 million in notional forward contracts to mitigate foreign currency exchange rate fluctuations as of December 31, 2024[167] - Unrealized foreign currency translation losses were $18.3 million in YTD 2025, while gains were $4.7 million in YTD 2024[168]