Investor Presentation Summer / Fall 2014
Disclaimer Certain statements in this presentation and responses to various questions may constitute forward-looking statements within the meaning of the U.S. federal securities laws. These forward-looking statements include, without limitation, statements regarding Thermon Group Holdings, Inc. s (the Company, Thermon, we, our or us ) 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, forecast, will, future and similar terms and phrases are intended to identify forward-looking statements. 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. Our forward-looking statements are based on management s knowledge and reasonable expectations on the date hereof and are not guarantees of future performance. Actual results and future performance may differ materially from those suggested in any forward-looking statements due to a variety of factors, including those described under the caption Risk Factors in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 30, 2014. We do not intend to update these statements unless we are required to do so under applicable securities laws. The trademarks included herein are the property of the owners thereof and are used for reference purposes only. Such use should not be construed as an endorsement of the products or services of the Company. The information and opinions contained in this document are provided as at the date of this presentation and are subject to change without notice. This document has not been approved by any competent regulatory or supervisory authority. 2
Who We Are A leading provider of heat tracing solutions delivering comprehensive, engineered solutions for complex projects around the world Attractive mix between Greenfield and recurring business Serve a large and diverse base of multinational, loyal customers Long history of revenue growth and consistent margins Organic revenue CAGR of 8% since fiscal 1990 Average gross margins of 45% since fiscal 1990 End-Markets (1) Market Share (4) Geography (1) Distribution Channels (3) 20% Other (2) 5% Power 11% Oil & Gas 45% Pentair Thermal Management (5) 26% Thermon 20% Bartec 4% EMEA & Russia 21% Asia 12% Americas 33% Chemical 19% Others 50% Canada 34% (1) Results for the fiscal year ended March 31, 2014 (2) Other category includes sales to end-markets such as Mining, Food & Beverage, Wastewater Treatment, Textiles, LNG, Pharmaceuticals and Pulp & Paper (3) Distribution Channels category includes all sales to agents and representatives (4) From an analysis prepared by Alvarez & Marsal, February 2013 (5) Formerly Tyco Thermal Controls 3
What is Heat Tracing? Power Distribution / Control Panel Components of a Turnkey Heat Tracing Solution Communication Software Thermal Insulation RTD/Temperature Sensor Heat Tracing End Markets Petroleum Production Refining and Gas Processing LNG Tank Foundations, Terminals & Pipelines Power Generation Transformer Conduit & Wire Heating Cable Chemical Production Snow & Ice Melting Pharmaceuticals Mining Wastewater Management 4
Key Heat Tracing Applications Process temperature maintenance in oil refining, natural gas processing and chemical manufacturing Heating of steam delivery pipes and oil and gas collection lines in upstream energy Temperature maintenance of emissions monitoring and process analytical sample lines at industrial facilities Freeze protection of water lines at industrial and commercial facilities Products Engineering / Design Comprehensive Solutions Heating Cables and Tubing Bundles Pipe Mounted Controller Integrated Control and Power Distribution Systems Engineering Design, Installation, and Maintenance Services Shell s Pearl Project Gas-to-Liquids Facility in Qatar 5
Global Footprint Provides Access to High-Growth Markets Worldwide Canada: Thermon #1 Europe: Thermon #2 Russia: Thermon #2 Japan: Thermon #1 USA: Thermon #2 Korea: Thermon #1 Mexico: Thermon #1 South America: Thermon #2 India: Thermon #1 China: Thermon #2 Sales and engineering Fabrication plants Production plants Turnkey construction offices Source: Heat tracing market analysis prepared by Alvarez & Marsal, April 2012. Global footprint, local presence Sales in more than 90 countries worldwide Over 800 employees in more than 15 countries Over 100 independent sales agents and distributors in over 30 countries Manufacturing facilities in the U.S., Europe, Canada and India 6
Highly Engineered, Mission Critical Solutions Products Critical to Safe and Efficient Facility Operation Customers place a premium of fast, reliable, on-spec system delivery High cost of non-performance; product price is often a secondary consideration Low in cost relative to the overall facility expenditure, but critical to the efficient and continued operation of the facility Use incumbent brand for MRO/UE to avoid switching complications or compatibility concerns Strong, Established Reputation for Quality and Reliability Important due to critical role of heat tracing in the operation of the plant Well respected for technical expertise Reputation for helpful and responsive customer service Leader in developing international industry standards Reputation for Quality and Critical Nature of Products Creates Significant Barriers to Entry 7
Attractive Mix Between Greenfield and Recurring Business Long-Term Business Mix Definition Greenfield Project work related to new facilities MRO / UE Maintenance, upgrade & small expansion work ( inside the fence ) % of Revenue ~40% ~60% Size / Length of Projects > $1 million per customer annually > 6 mos. (1-2 yrs lead time) < $1 million per customer annually < 6 mos. Drivers Energy demand Capital spending Installed base High switching costs Heat tracing is replaced as maintenance is performed on in-line equipment Strategy Turnkey solutions Global footprint, local presence Reputation Longstanding customer relationships Local design, engineering, inventory and supply chain Installed base creates advantage MRO / UE Business Provides Consistent Recurring Revenues 8
Attractive End-Markets Driven By Global Growth & Development Focus Industries Drivers Energy Chemical Rapid industrialization of developing countries Refining the increasingly heavy / sour crude produced globally Replacing and expanding transmission pipeline networks Environmental compliance and regulatory mandates Growing base chemical demand in developing regions Growing processing capacity in low-cost feedstock regions Environmental compliance and regulatory mandates Power Increasing demand for electricity worldwide Population growth in emerging markets and increased urbanization Power generation infrastructure spending in all regions, particularly in Asia Environmental compliance and regulatory mandates Commercial and Other Freeze protection of water lines and fire protection systems Snow and ice prevention Favorable Tailwinds Across All End-markets Resulting from Growing Customer CapEx Budgets 9
Trends in Thermon s Key End-Markets Growth in Non-OECD Energy Consumption Growth in Global Upstream Capital Spending (Quadrillion BTU) ($Billions) $1,000 800 $682 $723 $804 $894 $994 600 400 200 0 2013 2014 2015 2016 2017 Source: EIA International Energy Outlook, 2013. Source: Barclays Capital Equity Research, December 2013. Global Growth in Refined Product Demand Growth in Global Chemical Capital Spending (million barrels / day) ($Billions) +20.0% +42.8% +44.6% Source: Purvin & Gertz, February 2011 Global Petroleum and Power Outlook. Source: American Chemistry Council, December 2013. 10
Impressive Financial Performance ($ Millions) Revenue Growth and Consistent Margins Since 1990 $300 75% $250 60% $200 Average Gross Margin: 45% 7-Year Average Gross Margin: 47% $150 45% $100 30% $50 $0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 15% Sales Gross Margin % Median Gross Margin % Note: Results for fiscal years ended March 31. Gross margin results for fiscal years ended March 31, 2008 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. 11
Customer Case Studies Greenfield: Imperial Oil s Kearl Oil Sands Project MRO / UE: Irving Oil Project Total feet of heat tracing: % of total pipes traced: Total heat tracing expenditure: Phase 1 Phase 2 ~1.5 million ~2.0 million ~44% ~47% ~$64 million ~$58 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 Total project cost: ~$8 billion ~$9 billion 12
Customer Case Studies Sakhalin Island: ExxonMobil s Arkutun-Dagi Project Emissions Monitoring: Calaveras Power s J.K. Spruce 2 Upgrade Total feet of heat tracing: 350,000 Total feet of tubing bundles: 1,975 % of total pipes traced: 40% Total tubing bundle expenditure: $89,000 Total heat tracing expenditure: $17 million Total emissions monitoring upgrade cost: $750,000 Total project cost: ~$1.5 billion 13
Serving a Large and Diverse Base of Loyal Customers Loyal Relationships with Customers and Strategic Partners, Some for 50+ Years No customer represents > 10% of the Company s revenue 14
Manufacturing Capacity Recently completed ~48,000 sq. ft. expansion of cable manufacturing facility Total cost of expansion was approximately $6 million Expansion should support growth to a revenue threshold of approximately $400-$500 million Expansion of warehouse and tubing bundle manufacturing facility is currently underway with expected completion by the end of Fiscal 2015 Anticipated cost of expansion is approximately $5-6 million Tubing bundle products are used for temperature maintenance of emissions monitoring and process analytical sample lines Tubing bundle sales currently represent approximately 10% of total revenue, with rapid growth in recent years 15
Investment Highlights Attractive end-markets driven by accelerating global growth and development Well-positioned to access high-growth segments of addressable market worldwide A global market leader with respected reputation established over decades Highly engineered, mission critical solutions High free cash flow generation and flexible cost structure Minimal ongoing maintenance capital expenditure requirements Long history of attractive financial results Significant growth potential Experienced management team with proven track record 16
Platform for Growth Pursue Organic Growth, Including Commercial Market, Steam-to-Electric Conversion and Re-Invest in Business Next Generation Thermal Control Products & Solutions Leverage Installed Base to Expand Recurring Revenue Stream Pursue Value- Added Acquisitions Drive Growth Through Alliances with Major Customers and Suppliers Support Alternative Energy Initiatives and Environmental Compliance Mandates 17
Thank You! 18
Appendix 19
Summary of Historical Financial Performance ($ Millions, except per share amounts) Revenue and Gross Profit Adjusted EBITDA and Margin % $300 $272.3 $284.0 $277.3 $80 $71.4 $72.4 $74.4 $250 $60 $200 $150 $40 $100 $132.1 $132.8 $135.2 $20 26.2% 25.5% 26.8% $50 2012 2013 2014 $0 2012 2013 2013 Adjusted EBITDA less CAPEX and Conversion Ratio (1) Adjusted EPS $100 $80 $60 95.7% 93.8% 95.5% $68.3 $67.9 $71.0 $1.40 $1.20 $1.00 $0.80 $0.85 $0.91 $1.20 $40 $0.60 $20 $0.40 $0 2012 2013 2014 $0.20 $0.00 2012 2013 2014 Note: Fiscal years ended March 31. (1) Conversion ratio defined as EBITDA less capital expenditures divided by EBITDA. Capital expenditures for the fiscal year ended March 31, 2012 exclude a $5.8 million building investment at the San Marcos, Texas campus and a $1.8 million expansion investment for the fiscal year ended March 31, 2013. 20
Financial Reconciliation 21
Consolidated Statements of Operations ($ Thousands) Fiscal Year Ended March 31, 2012 2013 2014 Sales $272,323 $284,036 $277,323 Cost of sales 140,208 151,204 142,153 Gross profit 132,115 132,832 135,170 Operating expenses: Marketing, general, and administrative and engineering 69,766 63,292 63,260 Stock compensation 6,514 1,341 2,203 Amortization of intangible assets 11,379 11,211 11,090 Income from operations 44,456 56,988 58,617 Interest income and expense (15,366) (11,792) (5,201) Acceleration of unamortized debt charges (3,096) (2,318) (4,010) Debt cost amortization (1,030) (1,003) (562) Loss on redemption of debt (3,825) - (15,485) Other expense (1,671) (325) (596) Income before provision for income taxes 19,468 41,550 32,763 Income tax expense 7,468 14,576 6,964 Net income (Loss) $12,030 $26,974 $25,799 Capital expenditures (1) $3,100 $4,502 $3,367 Backlog $117,748 $95,228 $84,840 Note: Fiscal year ended March 31. (1) 2012 capital expenditures exclude $5.8 million building investment in the new San Marcos, TX facility, 2013 capital expenditures exclude $1.8 million building investment in the new San Marcos, TX facility. 22
Adjusted EBITDA Reconciliation ($ Thousands) Fiscal Year Ended March 31, 2012 2013 2014 Net income $12,030 $26,974 $25,799 Interest expense, net 19,462 15,113 9,773 Income tax expense 7,468 14,576 6,964 Depreciation and amortization expense 13,971 13,831 14,178 Stock-based compensation expense 6,514 1,341 2,203 Loss on retirement of debt 3,825-15,485 Management fees 8,105 - - Secondary equity offering expenses - 536 - Adjusted EBITDA $71,375 $72,371 $74,402 23
Adjusted EPS Reconciliation ($ Thousands, except per share amounts) Fiscal Year Ended March 31, 2012 2013 2014 Net income $12,030 $26,974 $25,799 Acceleration of stock compensation in connection with the IPO 6,341 - - Management fees which terminated at the IPO 8,105 - - Premium charges on long term debt 3,825-15,485 Acceleration of unamortized debt costs 3,096 2,318 4,010 Discrete tax items related to the CHS Transactions - - (575) Release of liability for uncertain tax positions - - (1,047) Secondary offering expenses - 536 - Tax effect of financial adjustments (7,500) (1,007) (5,088) Adjusted Net Income - non-gaap basis $25,897 $28,821 $38,584 Adjusted fully-diluted earnings per common share - non-gaap basis $0.85 $0.91 $1.20 Fully-diluted common shares - non-gaap basis (thousands) 30,454 31,797 32,154 24