Thermon(US:THR)2022-08-06 18:09Financial Data and Key Metrics Changes - Thermon reported record Q1 revenue of $95 million, a 34% increase year-over-year, exceeding internal expectations [21][9] - Adjusted EBITDA more than doubled to $16.6 million, with a margin expansion of 600 basis points [34] - Adjusted EPS was $0.25 per share, a 525% increase from the previous year's $0.04 per share [36][11] - Free cash flow for the quarter was strong at $10.3 million, representing over 150% of net income [10] Business Line Data and Key Metrics Changes - The acquisition of Powerblanket contributed approximately $1 million to revenue in June, with 85% of its revenues coming from outside the oil and gas sector [9][40] - Organic growth for Thermon was 33% year-over-year, with point-in-time revenues growing 34% and over-time revenues up 25% [25][26] - Maintenance spending in oil and gas markets is recovering significantly, contributing to strong revenue growth [16][62] Market Data and Key Metrics Changes - North America saw a revenue increase of 34%, driven by a recovery in oil and gas maintenance spending [9][22] - The Eastern Hemisphere is lagging due to the war in Ukraine and higher energy costs, impacting demand [17][60] - The backlog reached $165 million, up 39% year-over-year, indicating strong future demand [18] Company Strategy and Development Direction - The company aims to diversify its revenue sources, targeting 65% of total revenues from non-oil and gas markets by fiscal 2026 [12][46] - Investments in manufacturing capabilities in India are planned to meet demand in the Asia Pacific market [45] - The company is focusing on technology-enabled maintenance and digital transformation to capture new market opportunities [48] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in Europe due to geopolitical tensions and high energy prices but remains optimistic about growth in North America and Latin America [60][61] - The company raised its fiscal year 2023 revenue guidance to $380 million to $405 million, reflecting strong performance and backlog [55] - Management expects continued strength in maintenance spending in the oil and gas sector, driven by a focus on maximizing existing assets [62][65] Other Important Information - The company is experiencing FX headwinds, with a negative impact of $2.9 million on revenue due to a stronger U.S. dollar [22] - The acquisition of Powerblanket was valued at $35 million, expected to be accretive to GAAP EPS in fiscal 2023 [42] - The company is committed to maintaining fiscal discipline while investing in growth initiatives [31] Q&A Session Summary Question: Can I get a little bit more color on your revenue expectations? - Management noted that Europe is experiencing modest year-over-year declines due to the war in Ukraine and high energy prices, but strong performance in the Western Hemisphere is expected to offset this [60][61] Question: What kind of legs does maintenance spending have to continue? - Management indicated that maintenance spending is expected to remain strong for several quarters, driven by a focus on maximizing existing assets [62][65] Question: How significant is the order for the EnviroDyne units? - The initial order of 20 units is less than $1 million, but management sees potential for significant growth in this area due to environmental regulations [66] Question: How sustainable is the gross margin improvement? - Management believes that gross margin improvements are sustainable, with expectations for continued operational efficiencies and a favorable mix as low-margin contracts roll off [70][72] Question: How much revenue was there from Russia in the first quarter? - Approximately $3 million in revenue was generated from Russia in Q1, with expectations of $8 million to $10 million for the fiscal year as contracts are executed [74] Question: What was the impact of seasonality on orders? - Management emphasized that Q1 is typically the weakest for incoming orders due to seasonality, and year-over-year comparisons are more meaningful [76][80]