Thermon(US:THR)2021-02-06 03:47Financial Data and Key Metrics Changes - Revenues for Q3 totaled $79.6 million, down 21% year-over-year but up 20% sequentially [14][30] - Adjusted EBITDA was $18.5 million, down 11.2% from the prior year but up 77% sequentially [14][36] - Gross margins improved to 46.4%, an increase of 310 basis points year-over-year and 285 basis points sequentially [14][32] - Adjusted EPS was $0.30, a 7% increase from the prior year despite a 21% lower volume [15][35] Business Line Data and Key Metrics Changes - Bookings for the quarter were $71 million, down 28% year-over-year and 6% sequentially, with a book-to-bill ratio of 89% [16][31] - The revenue mix between MRO/UE and Greenfield remained at 62% and 38%, respectively [30] - Continuous improvement programs yielded $3.8 million in projected savings, close to the target of $3.9 million [11][12] Market Data and Key Metrics Changes - There are signs of improvement in end markets, particularly in chemicals and petrochemicals, with less decline in demand [19][20] - Maintenance activity has improved beyond normal seasonality, indicating pent-up demand [17][19] - The transportation sector has grown from 3% of revenues in fiscal year 2020 to over 15% of backlog at the end of Q3 [23] Company Strategy and Development Direction - The company is focused on operational improvements and aims to increase EBITDA margins by 200 to 300 basis points in FY '22 [26] - Strategic initiatives include globalization of the process and environmental business, diversification of end markets, and technology-enabled maintenance [27] - Investments in R&D are prioritized, with a focus on smart control solutions and advanced heating technologies [24] Management's Comments on Operating Environment and Future Outlook - Management believes Q3 represented the bottom in terms of trailing 12-month adjusted EBITDA, with expectations for improvement in Q4 [25][42] - The company anticipates weaker capital spending in the fourth quarter and into FY '22, particularly in the US and Latin America [17][76] - There is cautious optimism regarding recovery in end markets, particularly in power and natural gas opportunities [19][76] Other Important Information - The company generated positive cash flows of $2.9 million during Q3, enabling $5.6 million in debt repayment [18][37] - The Canadian subsidiaries received a $1.7 million pre-tax benefit from the Canadian Wage Subsidy program [29][30] - The company has a strong balance sheet with $49.6 million in cash on hand and a net debt to adjusted EBITDA ratio of 3.0 times [38] Q&A Session Summary Question: Will gross margins improve sequentially in Q4? - Management did not provide specific guidance on gross margins but indicated that continuous improvement efforts should sustain margin improvements [50] Question: How is the tubing bundles business performing? - The tubing bundles business is approximately $40 million in a normal year, with potential for growth despite current capital deferrals [53] Question: What macro factors will trigger capital spending from core customers? - Stability in commodity pricing, particularly oil prices around $60 per barrel, is seen as a potential tipping point for increased capital spending [74] Question: Will the Canadian Wage Subsidy continue into 2022? - Management does not expect the subsidy to be ongoing and will not rely on it for future planning [80] Question: What is the outlook for the CCI business? - The CCI business is expected to rebound quickly post-pandemic, benefiting from operating leverage and high margins [62][64]