May 31, 2023
Record Revenue, Adjusted EBITDA, and EPS for Fiscal 2023
Accelerating progress of Decarbonization, Digitization and Diversification initiatives
Introducing Fiscal 2024 revenue guidance of $455 – $485 million
Thermon Group Holdings recently announced consolidated financial results for the fourth quarter (“Q4 2023”) of the fiscal year ending March 31, 2023 (“Fiscal 2023”).
As previously disclosed, the Company expects to complete the withdrawal of operations from Russia (“the Russia Exit”) by the end of the second quarter of Fiscal 2024, subject to the receipt of the requisite regulatory approvals. The Company has incurred charges in Fiscal 2023 that have written down the Russian entity balance sheet to a nominal amount.
The Company reported GAAP gross profit of $51.5 million for Q4 2023, which was impacted by a benefit of $0.5 million related to the Russia Exit. The Company also reported Q4 2023 GAAP net income of $7.7 million and fully diluted GAAP earnings per share (“EPS”) of $0.23, which were adversely affected by charges related to the Russia Exit of $4.5 million or $0.13 EPS, respectively. The Company reported GAAP gross profit of $185.1 million for the year which was impacted by a charge of $4.3 million related to the Russia Exit. The Company also reported GAAP net income of $33.7 million and fully diluted GAAP EPS of $1.00 for Fiscal 2023.
Key highlights for Thermon Q42023 as compared to the three months ended March 31, 2022 (“Q42022”) include:
- Produced record revenue of $122.5 million, an increase of 19%, driven by solid growth across all regions
- Realized non-GAAP Adjusted EPS of $0.41, an increase of 33%, largely due to margin improvement and cost control
- Generated Adjusted EBITDA of $25.1 million, an increase of 37%, driven by volume growth and prudent cost management
- Achieved Adjusted Gross Margin of 41.7%, compared to 40.1%, due to increased volume and price realization
- Reached bookings of $132.1 million, an increase of 17%, which represents the highest quarterly bookings since the Company’s IPO
Key highlights for Fiscal 2023 as compared to the twelve months ended March 31, 2022 (“Fiscal 2022”) include:
- Produced record revenue of $440.6 million, an increase of 24%, driven by strong demand in North America
- Realized non-GAAP Adjusted EPS of $1.56, an increase of 88%, mainly due to volume and improved margins
- Generated Adjusted EBITDA of $93.3 million, an increase of 60%, driven by volume and improved gross margins
- Achieved Adjusted Gross Margin of 43.0%, compared to 39.4%, due to increased volume and price realization
“Thanks to the strong execution by our team, Thermon delivered another quarter of outstanding results, which concluded a record year for revenue, Adjusted EBITDA, and earnings per share performance,” said Bruce Thames, President and CEO.
“We achieved Adjusted EBITDA margin expansion of 480 basis points and 260 basis points year over year for Fiscal 2023 and Q4 2023, respectively, with strong cash conversion. Robust customer demand in the Western Hemisphere over the course of Fiscal 2023 was a key driver for sales growth, while in the fourth quarter, we saw what we believe to be the beginnings of demand recovery in Asia Pacific. Our book-to-bill ratio was again positive in the quarter, and our near record backlog grew 5% over prior year.”
Thames added, “We are building momentum on executing our strategic plan as we invest for profitable long-term growth through disciplined capital allocation. We are progressing our end market diversification plan, with non-Oil and Gas revenue growth of 13% year over year, climbing to 61% of our total revenues in Fiscal 2023. Our pipeline of decarbonization projects more than doubled, increasing our exposure to high-growth end markets focused on sustainability.
We are also seeing an accelerating rate of adoption of our Genesis Network, which is an industry-leading IIoT solution that provides full operational awareness of the heat trace system. I am proud of all that our team accomplished during Fiscal 2023 and look forward to further success in the coming year.”Bruce Thames, President and CEO Thermon
|Financial Highlights||Three Months Ended|
|Twelve Months Ended|
|Unaudited, in millions, except per share data||2023||2022||% Change||2023||2022||% Change|
|Over Time – Small Projects||18.8||14.3||31.5||%||65.4||55.7||17.4||%|
|Over Time – Large Projects||25.9||25.6||1.2||%||97.9||85.2||14.9||%|
|Net Income (Loss)||7.7||8.7||(11.3||)%||33.7||20.1||67.6||%|
|Adjusted Net Income (Loss) 2||14.0||10.4||35.0||%||52.8||27.9||89.2||%|
|Adjusted EBITDA 3||25.1||18.3||36.8||%||93.3||58.5||59.6||%|
|% of Sales:|
|Point-in-Time||63.5||%||61.1||%||240 bps||62.9||%||60.4||%||250 bps|
|Over Time – Small Projects||15.3||%||13.9||%||140 bps||14.8||%||15.7||%||-90 bps|
|Over Time – Large Projects||21.1||%||25.0||%||-390 bps||22.2||%||24.0||%||-180 bps|
|Net Income (Loss)||6.3||%||8.5||%||-220 bps||7.6||%||5.7||%||190 bps|
|Adjusted Net Income (Loss)2||11.4||%||10.1||%||130 bps||12.0||%||7.8||%||420 bps|
|Adjusted EBITDA 3||20.5||%||17.9||%||260 bps||21.2||%||16.4||%||480 bps|
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 in total revenue, and Over Time – Large Projects are each equal to or greater than $0.5 million in total revenue.
2 Net Income (Loss) after the impact of acquisition costs, restructuring, costs associated with impairment 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 below, Reconciliation of Net Income to Adjusted Net Income and Adjusted EPS).
3 See table below, Reconciliation of Net Income to Adjusted EBITDA.
Q4 2023 organic sales (excluding revenue contributed by the acquisition of Powerblanket) were $117.0 million as compared to $102.6 million in Q4 2022, an increase of $14.5 million, or 14%. Sales growth in the Western Hemisphere was due to ongoing 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 $5.4 million, with integration in progress and on schedule.
Backlog was $163.3 million as of March 31, 2023, representing a $7.1 million increase, or 5%, as compared to Q4 2022 backlog of $156.2 million. Orders in Q4 2023 were $132.1 million compared to $113.1 million in Q4 2022, an increase of $19.0 million or 17%.
Balance Sheet, Liquidity and Cash Flow
Thermon continued to maintain a strong balance sheet during Q4 2023. The net debt-to-adjusted EBITDA ratio decreased to 0.8x from 1.5x in the prior year period. Gross outstanding debt decreased 13% year over year. Available liquidity at the end of the quarter totaled $122.3 million, including $35.6 million in cash and cash equivalents and $83.7 million available under credit agreements.
Working capital increased by 14% to $152.4 million during Q42023. Capital expenditures during the quarter were $4.3 million, an increase of $2.5 million from the prior year period. Cash from operating activities was $26.1 million and Free Cash Flow was $21.9 million.
|Balance Sheet Highlights||Three Months Ended|
|Unaudited, in millions||2023||2022||% Change|
|Cash and Cash Equivalents||$||35.6||$||41.4||(14.0||)%|
|Net Debt 1 / TTM Adjusted EBITDA||0.8||x||1.5||x||(0.7||)x|
|Working Capital 2||152.4||133.4||14.2||%|
|Free Cash Flow 3||21.9||13.2||65.9||%|
1Total company debt, net of cash and cash equivalents.
2 Working Capital equals Accounts Receivable plus Inventory less Accounts Payable.
3See table, Reconciliation of Cash Provided by Operating Activities to Free Cash Flow.
Kevin Fox, Thermon’s Chief Financial Officer, added, “Based on our continued momentum and investments in our long-term strategy and manufacturing efficiencies, we believe that we can sustain growth in both revenue and earnings for our fiscal year ending March 31, 2024. We expect revenue will be approximately $455 – $485 million, which includes a full twelve months of revenue contribution from the Powerblanket acquisition.
We also expect GAAP EPS in Fiscal 2024 to be approximately $1.45 – $1.61 per share, with Adjusted EPS to be approximately $1.66 – $1.82 per share. We expect continued strength in the Western Hemisphere to lead growth in Fiscal 2024, and Thermon is well positioned to benefit from both tight commodity markets and accelerating, long-term investments in a more digital and lower carbon future.”
Conference Call and Webcast Information
A replay of the webcast will be available on Thermon’s investor relations website after the conclusion of the call.
Desdowd Inc. has been chosen to serve as Thermon’s manufacturer’s agent for the province of Quebec and will represent the company’s comprehensive product line, which includes, Thermon Industrial Electric Trace Products, and the Caloritech, Ruffneck, Norseman, Cata-Dyne and 3L Filters brands.