Thermon Reports Second Quarter Results

Thermon Announces Second Quarter Fiscal 2014 Revenue of $72.8 Million, Net Income Increases 51%, $0.33 GAAP Fully Diluted EPS

Marketwired

SAN MARCOS, TX--(Marketwired - Nov 7, 2013) - Thermon Group Holdings, Inc. (NYSE: THR) ("Thermon" or the "Company") today announced consolidated financial results for its fiscal second quarter ended September 30, 2013 ("Q2 2014").

Highlights for the quarter include:

  • Revenue of $72.8 million, an increase of 7% versus Q2 2013
  • Gross margin percentage of 48.6% versus 48.1% for Q2 2013, an increase of 50 basis points
  • Gross profit increased by 8% to a record $35.4 million versus $32.6 million in Q2 2013
  • Net income increased 51% to $10.6 million versus $7.0 million in Q2 2013
  • Record GAAP fully diluted EPS of $0.33 versus $0.22 in Q2 2013

"Revenues and gross margins exceeded our expectations in Q2. The revenue strength was primarily driven by a 25% increase in sales in the United States, continued growth in Canada and stabilization in European revenues. Gross margins were positively impacted by a favorable product mix, which drove record EPS results. We are reaffirming our guidance of mid-single digit revenue growth in FY 2014," said Rodney Bingham, President and Chief Executive Officer.

Q2 2014 revenue of $72.8 million reflected an increase of 7% compared to revenue of $67.8 million in Q2 2013. Foreign currency negatively impacted revenue by $1.1 million in Q2 2014, an impact of approximately 2%, primarily attributable to weakness in the Canadian dollar. Greenfield projects represented approximately 39% of Q2 2014 revenue and MRO/UE (maintenance, repair, operations/upgrade and expansion) represented approximately 61% of Q2 2014 revenue. Greenfield revenue grew 11% in Q2 2014 and MRO/UE revenue grew 6%, both relative to Q2 2013. 

Gross profit as a percentage of revenue was 48.6% in Q2 2014 compared to 48.1% in Q2 2013. Q2 2014 net income of $10.6 million reflected an increase of $3.6 million versus net income of $7.0 million in Q2 2013. 

Adjusted EBITDA was $18.3 million, a decrease of $1.3 million or 7% from $19.6 million generated in Q2 2013. Backlog at the end of Q2 2014 was $91.8 million compared to $92.3 million at the end of Q1 2014. Free cash flow per share decreased from $0.37 per fully diluted share in Q2 2013 to $0.31 in Q2 2014.

Q2 2014 GAAP fully diluted EPS was a record $0.33, an increase of $0.11 relative to Q2 2013, and Adjusted EPS was also a record $0.30, an increase of $0.04 relative to Adjusted EPS in Q2 2013. The adjustment to GAAP net income in Q2 2014 is due to the conclusion of an IRS tax audit and the release of a related accrual for uncertain tax positions. Adjustments to GAAP net income in Q2 2013 are due to the effects of negotiating a new revolving line of credit and expenses associated with our September 2012 secondary public offering. See the tables titled "Reconciliation of Net Income to Adjusted EBITDA and Return on Equity" and "Reconciliation of Net Income to Adjusted Net Income and Adjusted EPS" for additional details.

On a year to date basis, the Company generated revenue of $138.4 million versus $135.5 million in FY 2013. Foreign currency negatively impacted revenue by $1.3 million, relative to the first half of FY 2013. On a year to date basis, adjusted for foreign currency, revenue grew 3% from FY 2013. The appreciation of the US Dollar relative to the Canadian Dollar was the primary cause of the negative foreign currency impact.

GAAP net income year to date was $3.6 million, or $0.11 per fully diluted share, versus $13.6 million and $0.43 per fully diluted share in FY 2013. Adjusting for the redemptions and refinancing of our senior secured notes, our Adjusted net income in the first half of FY 2014 was $16.9 million, or $0.53 per fully diluted share, versus $15.5 million and $0.49 per fully diluted share in FY 2013. 

Conference Call and Webcast Information

Thermon's senior management team, including Rodney Bingham, President and Chief Executive Officer, and Jay Peterson, Chief Financial Officer, will discuss second quarter fiscal 2014 results during a conference call today at 10:00 a.m. (Central Standard Time), which will be simultaneously webcast on Thermon's Investor Relations website located at http://ir.thermon.com . Investment community professionals interested in participating in the question-and-answer session may access the call by dialing (877) 312-5421 from within the United States/Canada and (253) 237-1121 from outside of the United States/Canada. A replay of the webcast will be available on Thermon's Investor Relations website beginning two hours after the conclusion of the call.

About Thermon

Through its global network, Thermon provides highly engineered thermal solutions, known as heat tracing, for process industries, including energy, chemical processing and power generation. Thermon's products provide an external heat source to pipes, vessels and instruments for the purposes of freeze protection, temperature maintenance, environmental monitoring and surface snow and ice melting. Thermon is headquartered in San Marcos, Texas. For more information, please visit www.thermon.com .

Non-GAAP Financial Measures

Disclosure in this release of "Adjusted EPS," "Adjusted EBITDA," "Adjusted net income," "Free cash flow per share" and "Return on equity," which are "non-GAAP financial measures" as defined under the rules of the Securities and Exchange Commission (the "SEC"), are intended as supplemental measures of our financial performance that are not required by, or presented in accordance with, U.S. generally accepted accounting principles ("GAAP"). "Adjusted fully diluted net income" and "Adjusted earnings per share (or EPS)" represents net income before certain transaction expenses and expenses related to the release of a liability for uncertain tax provisions, debt redemptions and refinancing of our revolving line of credit, per fully-diluted common share. "Adjusted EBITDA" represents net income before interest expense (net of interest income), income tax expense, depreciation and amortization expense and other non-cash charges such as stock-based compensation expense, and transaction expenses incurred with transactions not associated with our ongoing operations, such as the loss on retirement of debt and our fiscal 2013 shelf registration and secondary public offering. "Return on equity for the three month period ended September 30, 2013" represents Adjusted EBITDA for the three month period ended September 30, 2013 that is multiplied times four to represent a full year's results, divided by the average of total shareholders' equity at September 30, 2013 and June 30, 2013. "Return on equity for the six month period ended September 30, 2013" represents Adjusted EBITDA for the six month period ended September 30, 2013 that is multiplied by two to represent a full year's results, divided by the average of total shareholders' equity at September 30, 2013 and March 31, 2013. We believe that the average shareholders' equity properly accounts for net income that occurred during the three and six months ended September 30, 2013. "Free cash flow per share" represents cash provided by operations less cash used for the purchase of property plant and equipment. The resultant cash provided or used is then divided by the fully diluted common shares outstanding.

We believe these non-GAAP financial measures are meaningful to our investors to enhance their understanding of our financial performance and are frequently used by securities analysts, investors and other interested parties to compare our performance with the performance of other companies that report Adjusted EPS, Adjusted EBITDA, Adjusted net income, Free cash flow per share or Return on equity. Adjusted EPS, Adjusted EBITDA, Adjusted net income, Free cash flow per share and Return on equity should be considered in addition to, not as substitutes for, income from operations, net income, net income per share, net cash provided by operating activities and other measures of financial performance reported in accordance with GAAP. Our calculation of Adjusted EPS, Adjusted EBITDA, Adjusted net income, Free cash flow per share and Return on equity may not be comparable to similarly titled measures reported by other companies. For a description of how Adjusted EPS, Adjusted EBITDA, Adjusted net income, Return on equity and Free cash flow per share are calculated and reconciliations to the corresponding GAAP measures, see the sections of this release titled "Reconciliation of Net Income to Adjusted EBITDA and Return on Equity," and "Reconciliation of Net Income to Adjusted Net Income and Adjusted EPS" and "Reconciliation of Cash Provided by Operating Activities to Free Cash Flow per Share."

Forward-Looking Statements

This release may include forward-looking statements within the meaning of the U.S. federal securities laws in addition to historical information. These forward-looking statements include, without limitation, statements regarding our industry, business strategy, plans, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. When used, the words "anticipate," "assume," "believe," "budget," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "will," "future" and similar terms and phrases are intended to identify forward-looking statements in this release. Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our financial condition, results of operations and cash flows.

Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to identify all of these factors, they include, among others, (i) general economic conditions and cyclicality in the markets we serve; (ii) future growth of energy and chemical processing capital investments; (iii) changes in relevant currency exchange rates; (iv) our ability to comply with the complex and dynamic system of laws and regulations applicable to international operations; (v) a material disruption at any of our manufacturing facilities; (vi) our dependence on subcontractors and suppliers; (vii) our ability to obtain standby letters of credit, bank guarantees or performance bonds required to bid on or secure certain customer contracts; (viii) competition from various other sources providing similar heat tracing products and services, or other alternative technologies, to customers; (ix) our ability to attract and retain qualified management and employees, particularly in our overseas markets; (x) our ability to continue to generate sufficient cash flow to satisfy our liquidity needs; (xi) the extent to which federal, state, local and foreign governmental regulation of energy, chemical processing and power generation products and services limits or prohibits the operation of our business; and (xii) other factors discussed in more detail under the caption "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013, as filed with the Securities and Exchange Commission on June 10, 2013. Any one of these factors or a combination of these factors could materially affect our financial condition, results of operations and cash flows and could influence whether any forward-looking statements contained in this release ultimately prove to be accurate.

Our forward-looking statements are not guarantees of future performance, and actual results and future performance may differ materially from those suggested in any forward-looking statements. We do not intend to update these statements unless we are required to do so under applicable securities laws.

   
Thermon Group Holdings, Inc. and Subsidiaries  
             
Condensed Consolidated Balance Sheet  
             
(in Thousands)  
             
    September 30, 2013     March 31, 2013  
    (Unaudited)        
Assets                
Current assets:                
  Cash and cash equivalents   $ 53,368     $ 43,847  
  Accounts receivable, net of allowance for doubtful accounts of $1,423 and $1,141 as September 30, 2013 and March 31, 2013, respectively     58,487       56,123  
  Inventories, net     36,729       34,391  
  Costs and estimated earnings in excess of billings on uncompleted contracts     3,978       3,515  
  Income taxes receivable     5,285       5,287  
  Prepaid expenses and other current assets     6,451       6,203  
  Deferred income taxes     4,956       2,211  
Total current assets     169,254       151,577  
Property, plant and equipment, net     31,240       31,211  
Goodwill     116,859       116,303  
Intangible assets, net     126,863       131,916  
Debt issuance costs, net     1,770       4,373  
Other noncurrent assets     126       143  
Total Assets   $ 446,112     $ 435,523  
                 
Liabilities                
Current liabilities:                
  Accounts payable   $ 22,527     $ 20,370  
  Accrued liabilities     13,663       18,715  
  Obligations due to settle the CHS Transactions     3,144       3,239  
  Current portion of long-term debt     13,500       --  
  Billing excess of costs and estimated earnings on uncompleted contracts     2,124       1,629  
  Income taxes payable     1,368       1,706  
Total current liabilities     56,326       45,659  
                 
Long-term debt, net of current maturities     114,750       118,145  
Deferred income taxes     40,761       42,599  
Other noncurrent liabilities     2,160       3,073  
Total liabilities   $ 213,997     $ 209,476  
                 
Shareholders' equity:                
Common Stock     32       31  
Additional paid in capital     205,251       203,027  
Accumulated other comprehensive loss     (866 )     (1,075 )
Retained earnings     27,698       24,064  
Total shareholders' equity     232,115       226,047  
                 
Total liabilities and shareholders' equity   $ 446,112     $ 435,523  
                 
   
Thermon Group Holdings, Inc. and Subsidiaries  
                         
Condensed Consolidated Statement of Operations  
                         
(Unaudited, in Thousands except earnings per share amounts)  
                         
    Three Months Ended     Three Months Ended     Six Months Ended     Six Months Ended  
                         
    September 30, 2013     September 30, 2012     September 30, 2013     September 30, 2012  
Sales   $ 72,783     $ 67,849     $ 138,383     $ 135,539  
Cost of sales     37,428       35,210       72,014       69,561  
Gross profit     35,355       32,639       66,369       65,978  
Operating expenses:                                
  Marketing, general and administrative and engineering     17,579       14,158       33,384       30,115  
  Stock compensation expense     544       336       910       394  
Amortization of other intangible assets     2,779       2,798       5,567       5,592  
Income from operations     14,453       15,347       26,508       29,877  
Interest expense, net     (1,139 )     (2,939 )     (2,907 )     (6,099 )
Acceleration of unamortized debt cost     --       (1,447 )     (4,010 )     (2,318 )
Debt cost amortization     (135 )     (277 )     (332 )     (586 )
Loss on retirement of senior notes     --       --       (15,485 )     --  
Interest expense, net     (1,274 )     (4,663 )     (22,734 )     (9,003 )
Other income     (262 )     93       (232 )     137  
Income before provision for taxes     12,917       10,777       3,542       21,011  
Income tax expense (benefit)     2,345       3,790       (92 )     7,424  
Net income   $ 10,572     $ 6,987     $ 3,634     $ 13,587  
                                 
                                 
Net income per common share:                                
Basic income per share   $ 0.34     $ 0.23     $ 0.12     $ 0.44  
Diluted income per share   $ 0.33     $ 0.22     $ 0.11     $ 0.43  
Weighted-average shares used in computing net income per common share:                                
Basic common shares     31,486       30,726       31,521       30,535  
Fully-diluted common shares     32,106       31,641       32,133       31,419  
                                 
   
Thermon Group Holdings, Inc. and Subsidiaries  
                         
Reconciliation of Net Income to Adjusted EBITDA and Return on Equity  
                         
(Unaudited, in Thousands except return on equity percentages)  
                         
Adjusted EBITDA and Return on Equity   Three Months Ended September 30, 2013     Three Months Ended September 30, 2012     Six Months Ended September 30, 2013     Six Months Ended September 30, 2012  
Net income   $ 10,572     $ 6,987     $ 3,634     $ 13,587  
Interest expense, net     1,274       4,663       22,734       9,003  
Income tax expense (benefit)     2,345       3,790       (92 )     7,424  
Depreciation and amortization expense     3,543       3,439       7,076       6,856  
EBITDA - non-GAAP basis   $ 17,734     $ 18,879     $ 33,352     $ 36,870  
                                 
Stock compensation expense     544       336       910       394  
Expenses related to fiscal 2013 shelf registration and secondary public offering     --       263       --       536  
Refinance revolving line of credit expense     --       94       --       94  
Adjusted EBITDA - non-GAAP basis   $ 18,278     $ 19,572     $ 34,262     $ 37,894  
                                 
Adjusted EBITDA - Annualized for a full fiscal year   $ 73,112     $ 78,288     $ 68,524     $ 75,788  
                                 
Average total shareholders' equity for the three and six month period ended September 30   $ 224,019     $ 204,554     $ 229,081     $ 202,371  
                                 
Return on Equity - non-GAAP basis     33 %     38 %     30 %     37 %
                                 
 
Thermon Group Holdings, Inc. and Subsidiaries
                             
Reconciliation of Net Income to Adjusted Net Income and Adjusted EPS
                             
(Unaudited, in Thousands except earnings per share amounts)
 
Adjusted Net Income and Adjusted EPS   Three Months Ended September 30, 2013     Three Months Ended September 30, 2012     Six Months Ended September 30, 2013     Six Months Ended September 30, 2012     Adjustment to:
                                     
GAAP Net income   $ 10,572     $ 6,987     $ 3,634     $ 13,587      
                                     
Expenses related to fiscal 2013 shelf registration and secondary public offering     --       263       --       536     Operating expense
Refinance revolving line of credit     --       94       --       94     Operating expense
Premium paid on redemption of senior secured notes     --       --       15,485       871     Loss on retirement of debt
Acceleration of unamortized debt costs     --       1,447       4,010       1,447     Loss on retirement of debt
Release of liability for uncertain tax positions     (1,047 )     --       (1,047 )     --     Income tax expense/
(benefit)
Tax effect of financial adjustments     --       (634 )     (5,205 )     (1,042 )   Income tax expense/
(benefit)
Adjusted Net Income - non-GAAP basis   $ 9,525     $ 8,157     $ 16,877     $ 15,493      
                                     
Fully-diluted common shares     32,106       31,641       32,133       31,419      
                                     
Adjusted fully-diluted earnings per common share - non-GAAP basis   $ 0.30     $ 0.26     $ 0.53     $ 0.49      
                                     
   
Thermon Group Holdings, Inc. and Subsidiaries  
                         
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow per Share  
                         
(Unaudited, in Thousands except free cash flow per share amounts)  
   
Free cash flow per share   Three Months Ended September 30, 2013     Three Months Ended September 30, 2012     Six Months Ended September 30, 2013     Six Months Ended September 30, 2012  
                                 
Cash provided by operating activities   $ 10,891     $ 13,468     $ 17,052     $ 13,825  
                                 
Less: Cash used for the purchase of property, plant and equipment     (848 )     (1,612 )     (1,465 )     (2,880 )
                                 
Free cash flow provided   $ 10,043     $ 11,856     $ 15,587     $ 10,945  
                                 
Fully-diluted common shares     32,106       31,641       32,133       31,419  
                                 
Free cash flow provided per fully-diluted common share   $ 0.31     $ 0.37     $ 0.49     $ 0.35  
                                 
Contact:
CONTACT:
Sarah Alexander
(512) 396-5801
Investor.Relations@thermon.com
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