Thermon Group Holdings, Inc. N o v e m b e r

Transcription

1 Thermon Group Holdings, Inc. N o v e m b e r

2 Disclaimer Cautionary Note Regarding Forward-Looking Statements This presentation may include forward-looking statements within the meaning of the U.S. federal securities laws in addition to historical information. All statements other than statements of historical fact are forward-looking statements including, without limitation, statements regarding our industry, business strategy, plans, goals and expectations concerning our market position, future operations, revenues, margins, profitability, capital expenditures, acquisitions, cash flows, liquidity and capital resources and other financial and operating information, regulatory developments, market developments, new products and growth strategies, and the effects of any of the foregoing on our future results of operations or financial conditions. When used, the words "anticipate," "assume," "believe," "budget," "continue," "contemplate," "could," "should" "estimate," "expect," "intend," "may," "plan," "possible," "potential," "predict," "project," "will," "would," "future," and similar terms and phrases are intended to identify forward-looking statements. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the control. 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, chemical processing and power generation capital investments; (iii) our ability to deliver existing orders within our backlog; (iv) our ability to bid and win new contracts; (v) competition from various other sources providing similar heat tracing and process heating products and services, or alternative technologies, to customers; (vi) changes in relevant currency exchange rates; (vii) potential liability related to our products as well as the delivery of products and services; (viii) our ability to comply with the complex and dynamic system of laws and regulations applicable to domestic and international operations; (ix) our ability to protect data and thwart potential cyber attacks; (x) our ability to continue to generate sufficient cash flow to satisfy our liquidity needs; (xi) a material disruption at any of our manufacturing facilities; (xii) our dependence on subcontractors and suppliers; (xiii) our ability to obtain standby letters of credit, bank guarantees or performance bonds required to bid on or secure certain customer contracts; (xiv) our ability to attract and retain qualified management and employees, particularly in our overseas markets; (xv) changes in costs of raw materials; (xvi) our ability to develop and market new products; (xvii) the extent to which federal, state, local, and foreign governmental regulations of energy, chemical processing and power generation products and services limits or prohibits the operation of our business; and (xviii) other factors discussed in more detail under the caption "Risk Factors" in our Annual Report on Form 10-K/A for the fiscal year ended March 31, 2018, as filed with the Securities and Exchange Commission on June 8, 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. Non-GAAP Financial Measures Disclosure in this presentation of "Adjusted EPS," "Adjusted EBITDA," "Adjusted Net Income" and "Free cash flow," 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"). 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. These non-gaap financial measures should be considered in addition to, not as substitutes for, income from operations, net income, net income per share and other measures of financial performance reported in accordance with GAAP. We provide Free cash flow as a measure of our liquidity. Our calculation of Adjusted EPS, Adjusted EBITDA, Adjusted Net Income and Free cash flow may not be comparable to similarly titled measures reported by other companies. For a description of how Adjusted EPS, Adjusted EBITDA, Adjusted Net Income, and Free cash flow are calculated and reconciliations to the corresponding GAAP measures, see the tables in the appendix titled "Reconciliation of Net Income attributable to Thermon Adjusted EBITDA," "Reconciliation of Net Income attributable to Thermon to Adjusted Net Income and Adjusted EPS" and "Reconciliation of Cash Provided by Operating Activities to Free Cash Flow." 2

3 Vision Thermon s vision is to be the world s leader in industrial process heating solutions With passionate people dedicated to anticipating customer needs, we will safely deliver innovative solutions to improve our customer s measures of success Mission Thermon s mission is to provide safe, reliable and innovative mission-critical industrial process heating solutions that create value for our customers LEADERSHIP EXPANSION INNOVATION CUSTOMERS PEOPLE Continue providing global industry leadership in our core competency areas, and establish this leadership position in new markets as we grow Expand our core businesses through providing complete solutions, while exploring new business opportunities in adjacent markets that leverage our core competencies Feed the Thermon innovation pipeline, investing in ideas and technologies that differentiate our offerings and best serve our customers Partner with our customers to learn their business, anticipate their needs, and provide solutions that solve their most challenging problems Our people have always come first at Thermon. We strive to attract, develop and retain our people and continue to feed their passion for excellence, reward hard work, and ensure their safety 3

4 Timeless Business Model Established in 1954, Leading Global Brand, High Value Niche Mission Critical / High Barriers to Entry Strong Financial Performance 10% Revenue CAGR since % Adjusted EBITDA CAGR since % Gross Margin Average over 30 Years Low Capital Intensity 2% 3% of Revenues High Cash Generation Conversion Ratio 90% Large Installed Base 68% MRO/UE Revenues Loyal Customers 4 4

5 Corporate Profile FY 2018 Financials: Revenue $309 million and Adjusted EBITDA $65 million (21% margin) Market leading provider of industrial process heating solutions that deliver industry-leading, highesttechnology, lowest total installed cost, tailored solutions for large-scale projects. Global manufacturer of the highest technology products installed in over 85 countries around the world with wholly-owned sales and engineering support in 17 countries Thermon provides tailored process heating solutions to our customers that includes industry-leading technology to improve safety, productivity and efficiency at the lowest installed cost to the customer Market Mix Market Share (1) (2) Geography (3) Distribution 23% Other 17% Chemical 16% Oil 24% Power 8% Gas 12% Other 54% ~30 fragmented competitors Thermon 13% Canada 34% (1) Based on end of year results as of March 31, (2) Management estimates as of September Includes the design and supply of materials for industrial process heating. Excludes commercial process heating products and services. (3) Based on trailing twelve months results at the end of September 2018 nvent 15% NIBE 11% Chromalox 7% EMEA 20% APAC 10% US & LAM 36% 5

6 Industry Leader in Industrial Process Heating Thermon now offers heating solutions for the external and internal maintenance of process temperatures in critical applications, while including advanced controls and communications platforms to add more value for our end customers Explosion-proof Gas Catalytic Heating Explosion-proof Electric Air Heating Analytical & Emission Monitoring Bundle Steam Heat Tracing Solutions Market-leading IIoT Communication Software & Controls Engineered Heating & Filtration Systems Electric Heat Tracing Systems Immersion Heating 6

7 Thermon Product and Services Overview Technology Products Services Competitive Advantage Digital Controls Competitor A B C Electric Heating Controls & Monitoring Steam Heating Engineering Electrical Heating Solutions Steam Heating Solutions Tubing Bundles Engineering Optimization Process Heating & Filtration Environmental Heating Installation Tubing Bundles Construction Services Maintenance Services Temporary Power Process Heating Environmental Heating Transportation Heating Maintenance Our customer s success is our primary goal. With over 60 years of experience in the same industry, we can safely, quickly, and efficiently deliver complete solutions at the lowest total cost of ownership. 7

8 Attractive Mix Between Greenfield and Recurring Business Greenfield (New Projects) Maintenance, Repair and Overhaul (MRO) Upgrades and Expansion (UE) 32% 68% Margins: [25 40]% [50-65]% [40-50]% Project Size / Length: More than $1mm per project More than 6 months (1-2 years typical) Less than $1mm annually Less than 6 months Less than $1mm 3-6 years after installation Competition: Competitive bid process Not competitive/no bid Usually awarded to Greenfield provider Involves minimal bidding/marginally competitive Commentary: Drivers include energy demand and capital spending Turnkey solutions, global footprint, local presence, strong reputation and deep customer relationships are critical Begins ~3-5years after the initial installation and lasts through the asset s useful life Local design, engineering, inventory and supply chain Installed base creates advantage MRO / UE business provides consistent recurring revenues 8

9 Thermon Company Overview Customer Overview Longstanding Relationships with Diverse Customers $ (000 s) FY 2018 Revenue % FY 2018 Relationship Customer 1 $10,104 3% 10 + Years Customer 2 5,913 2% 10 + Years Customer 3 5,867 2% 50 + Years Customer 4 5,752 2% 5 + Years Customer 5 5,626 2% 10 + Years Customer 6 5,581 2% 1 Year Customer 7 5,014 2% 50 + Years Customer 8 4,913 2% 5 + Years Customer 9 4,099 1% 20 + Years Customer 10 3,786 1% 1 Year Total $56,656 18% Thermon s top 10 customers represented 18% of FY2018 revenues and no single customer represents more than 10% of the Company s total revenue Commentary Thermon serves a large and diverse base of multinational, loyal customers Significant blue chip participation Thermon has developed tremendous brand equity within the end markets being currently served, and is considered a premium brand Loyal relationships with customers and strategic partners, some for 60+ years 9

10 Thermon Case Studies Greenfield: OS2 Sakhalin Islands, Sea of Okhotsk MRO / UE: Irving Oil Project Total feet of heat tracing: Total feet of tubing bundles: Total number of control panels: Total heat tracing expenditure: 590,000 82, $12 million Original contract value of $6.3 million Recurring revenue generated by small site projects and material purchases Average annual revenue continues to be approximately $0.5 million, or 7.5% of original contract value 10

11 Trends in Thermon s Key End Markets Global Oil & Gas Capex ($ billions) Global Chemical Capex ($ billions) $737 $690 $645 $454 $494 $519 $387 $246 $299 $352 $421 $387 $433 $446 $454 $439 $450 $470 $498 $530 $565 $603 $ Source: IEA World Energy Investment McKinsey Energy Insights Source: American Chemistry Council Favorable tailwinds across key end markets resulting from growing customer capex budgets 11

12 Deliver Double-Digit Shareholder Returns Growth Strategy Broader Solution Set Innovation that delivers the industry s most safe and reliable products Bolt-on Acquisitions to Expand the Solution Set and Share of Customer to bolster Thermon s market leadership position Provide a full spectrum of heating solutions to end markets that derive value from our solutions Market Expansion Address end markets that derive value from the highest quality and most advanced heating products available today Adjacent Verticals to Expand Addressable Market and Reduce Cyclicality Develop channels to market across the globe to enhance our coverage and increase service levels 12

13 Invest for Growth Debt Reduction Capital Allocation Maximum Sustainable Shareholder Return Reduce funded debt to EBITDA levels to 2.0x or less by March Target Debt/EBITDA levels of 1.5x to 2.0x under normal conditions Sustain R&D spend as 3% of revenue to deliver the most highly innovative solutions that create unique customer value Strategically invest approximately 2% of sales in CAPEX to deliver operational enhancements and fuel growth Continue to cultivate a robust M&A Pipeline of bolt-on opportunities that advance our strategy, expand our geographic footprint and enhance our value proposition with investments that exceed our WACC in 3 4 Years. 13

14 FY H Actual 2H Outlook Consistent Financial Performance ($ Millions) 16% ADJUSTED EBITDA CAGR $450 $400 $350 $300 $250 $200 $150 $100 $50 10% REVENUE CAGR 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% $ Revenue 30 yr. Mean GM% Gross Margin % 20% Note: Results for fiscal years ended March 31. Gross margin results for fiscal years ended March 31, 2006 and 2011 exclude non-cash purchase accounting adjustments of $7.1 million and $7.6 million related to the Audax and CHS private equity transactions, respectively. The mean gross margin of 45.5% represents historic data since Fiscal year end March 31, 2019 outlook 14

15 FY H Performance ($ Millions) Revenue 22% PRO-FORMA GROWTH Adjusted EBITDA 34% PRO-FORMA GROWTH $38.2 $8.7 $33.3 $ % ORGANIC GROWTH $ $6.3 $ % ORGANIC GROWTH $27.1 FY 2018 FY 2019 FY 2018 FY 2019

16 TEV/EBITDA Benchmarking Thermon Thermal Peers Industrial Technology Peers Capital Goods Peers TEV (Total Enterprise Value)/ CY2019P Adj. EBITDA Multiples Median: 13.4x Median: 13.7x Median: 9.0x 18.3x 16.2x 14.7x 15.1x 15.0x 13.4x 12.3x 13.7x 13.3x 13.1x 12.6x 11.9x 9.2x 8.0x 10.7x 9.9x 9.2x 9.2x 8.8x 8.8x 8.4x 8.3x 7.7x THR LSE:SPX OM:NIBE B GTLS ALFA SPXC ROP FTV IEX GGG AME NDSN JBT AIMC ATU B TRS CR ITT MWA CMCO HSC NPO 18.0x 3-Year TEV / NTM EBITDA Multiples x 14.0x 12.0x 10.0x 8.0x Thermon Thermal Peers Industrial Technology Peers Capital Goods Peers Current 10.5x 14.1x 14.3x 9.1x 3-Yr Median 11.5x 13.7x 14.5x 9.6x 6.0x Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 Nov-18 Source: Wall Street consensus equity research as of 11/2/18 1 Peer sets represent medians AIMC pro forma for Fortive A&S acquisition Wells Fargo Securities 16

17 Thermon FY2019 Q2 Earnings Breakdown Earnings Release Summary Estimates 1 Revenue estimates: $90.2mm vs. $87.3mm Beat Adjusted EBITDA estimates: $17.9mm vs. $19.2mm Miss Adjusted EPS estimates: $0.22 vs. $0.23 Miss Share Price Performance Down approximately 8% on day of announcement vs. the S&P which was up approximately 1% Key Takeaways Despite raising guidance, analysts expressed significant concerns over gross margin Decline in gross margin driven by increased greenfield mix and higher labor content, but in line with management expectations and historical average GILTI Tax impact of $0.02 per share CCI integration progressing well and expect full realization of cost synergies as well as additional revenue synergies Able to effectively leverage SG&A spend with increased sales volume Key Analyst Concerns Gross margin pressure and ~540bp YoY decline Backlog composition Greenfield/brownfield project mix Potential impact of tariffs on input prices Post-Earnings Analyst Commentary Shares of Thermon closed down 8% after the company reported second-quarter results. We believe the source of disappointment was modest pressure on gross margin. Gross margin, however, was 44.8%, in line with our expectation for the quarter and in line with the company's long-term target. At 44.8%, gross margin was down 520 basis points year-over-year, but flat sequentially. Gross margin in second quarter 2017 was unusually high given an ideal sales mix in terms of product and geography. In our view, there were no surprises with respect to gross margin. In fact, over the last 28 years, gross margin has averaged 45%, right in line with the second-quarter result. Thermon s gross margin has a tendency to fluctuate around that level, but one of the company attributes we find most attractive is the relative stability in gross margin. In the second half of the fiscal year gross margin is expected to step up, driven by typical seasonality related to the heating season. - William Blair, October 2018 Source: Capital IQ, mean of all Analyst published estimates and Wall Street equity research 1 As of 10/31/18. Wells Fargo Securities 17

18 About Thermon Addressable Markets 18

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