Thermon(THR) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q1 fiscal year 2020 was $91.7 million, representing a 3.2% increase year-over-year, marking the sixth consecutive quarter of growth [7][19] - Gross margins declined by 419 basis points year-over-year, although there was a sequential improvement of 111 basis points [8][11] - Adjusted EBITDA was $13.1 million, down 26.7% from the prior year [11][23] - Adjusted EPS was $0.15 per share, a decrease of $0.09 per share year-over-year [11][23] Business Line Data and Key Metrics Changes - The revenue mix between MRO/UE and Greenfield was 51% and 49%, respectively, with Greenfield significantly higher than in the past [19] - MRO/UE business saw a decline of 1.3% year-over-year, contrasting with expectations for growth [30][32] - Orders totaled $82.8 million, a 12% increase from the prior quarter, but backlog decreased by 23% year-over-year to $111.5 million [11][20] Market Data and Key Metrics Changes - Upstream activity is flat to declining due to lower oil prices, while the chemical and petrochemical sectors remain robust [12] - Midstream LNG investments are expected to increase global capacity significantly, providing a tailwind through 2025 and beyond [13] - The Western Hemisphere showed continued strength, while the Eastern Hemisphere faced weakness, particularly in Europe, the Middle East, and Africa [15] Company Strategy and Development Direction - The company is focused on margin improvements through price increases and cost reduction initiatives, expecting a positive impact in the second half of the year [9][27] - New product development is aimed at creating differentiated value and expanding the margin profile [10][17] - The company maintains a revenue forecast of 2% to 4% organic growth for fiscal year 2020 [18][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in future growth despite the unpredictable nature of the first quarter, particularly for MRO/UE [32] - The company anticipates a seasonal uptick in margins due to increased MRO activity as the heating season approaches [27] - There are expectations for mid-single-digit growth in MRO/UE for the year, despite the first quarter's decline [33] Other Important Information - The company is investing in globalization and expanding its addressable market through new product introductions [17] - The cash and investments balance improved to $35.3 million, with a net debt-to-EBITDA ratio of 2.4x [24] Q&A Session Summary Question: Clarification on Greenfield-MRO legacy - The Greenfield-MRO legacy excludes Thermon Heating Systems [29] Question: Year-over-year growth in MRO/UE business - MRO/UE business declined by 1.3% year-over-year [30][31] Question: Expectations for gross margin modeling - Gross margin guidance is difficult to specify due to customer-dependent Greenfield mix [34][35] Question: Implications of 90% book-to-bill ratio - Management does not expect a sequential decline in revenue despite the negative book-to-bill ratio [37] Question: Adjusted EPS reporting - There has been no change in how adjusted EPS is reported [40]