Thermon Group Holdings, Inc.

Greetings and welcome to the Thurmond Group Holdings second quarter fiscal 2023 earnings conference call. At this time, all participants are in the listen-only mode. A question and answer session will follow a formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to our host, Yvonne Salem, Vice President and FP&A, and investor relations. Thank you. You may begin.

Thank you, Diego. Good morning, and thank you for joining today's fiscal 2023 second quarter conference call. Earlier this morning, we issued an earnings press release, which has been filed with the SEC on form 8K, and it's also available on the investor relations section of our website. Additionally, the slides for this conference call can be found in our IR website under news and events, IR calendar earnings conference call Q2 2023. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures in the tables at the end of the earnings press release. These non-GAAP measures should be considered in addition to and not as a substitute for measures of financial performance reported in accordance with GAAP. I'd like to remind you that during this call, we might make certain forward-looking statements regarding our company. Please refer to our annual report and most recent quarterly report filed with the SEC for more information regarding our forward-looking statements, including the risks and uncertainties that could impact our future results. Our actual results might differ materially from those contemplated by these forward-looking statements. and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments, or otherwise, except as might be required by law. Now, I would like to introduce Bruce Thames, our President and Chief Executive Officer, for his opening remarks.

Well, thank you, Yvonne. And good morning, everyone, and thank you for joining us today. I wanted to begin today by setting the stage with a quick overview of Thermon. As a 68-year-old company, we've been tested and proven resilient across many economic cycles. We're a world leader in providing safe, reliable, and innovative mission-critical industrial process heating solutions to customers in 85 countries from facilities on four continents. Our over 1,300 employees have an industry-leading safety record and are dedicated to creating value for our customers by executing our strategic long-term plan, which I will discuss in more detail in the next few slides. I'd also like to thank and recognize our Canadian team for being an Excellence Awardee as one of Canada's safest employers in 2022. Thank you all for your commitment to safety. Turning now to slide four, you can see our strategic pillars. In order to create value for our shareholders over the long term, we're focused on three key areas. First, profitably growing our installed base. Second, diversification, digitization, and developing markets. And third, disciplined capital allocation. We benefit from a very large global installed base which provides significant opportunity to capture recurring revenues while driving growth across our traditional end market verticals. We are driving additional growth through diversification into attractive adjacencies such as commercial, rail and transit, food and beverage, and other end markets. Our solutions also help enable the long-term transition towards sustainable energy sources. We're expanding our solutions in the area of digitization with products that utilize the industrial Internet of Things and support customer demand for productivity, reliability, efficiency, and safety enhancements. We're also seeing growth in the developing markets driven by a rising middle class, and localization has become increasingly important particularly with ongoing supply chain challenges to meet price point, lead time, and content requirements for our customers. Finally, we're committed to disciplined capital allocation with inorganic growth through bolt-on acquisitions and debt pay down to maintain balance sheet strength as our current priorities. Turning now to slide five, we are increasingly focused on enabling the transition to sustainable energy and decarbonization. As the world moved towards carbon neutrality in 2050, we are seeing a wide range of opportunities emerge. You can see here that our portfolio offers a wide variety of products and services that are critical for the transition to renewable energy sources, as well as for decarbonization efforts. Our heating applications support renewable energy sources such as wind farms, solar plants, and battery power. Our products and services also contribute to the process of decarbonization through electrification, carbon capture and storage, and recycling, amongst others. Our technology and controls in communication, high temperature, and harsh conditions make Thermon uniquely qualified for many of these applications. This year, we've secured over $16 million in orders in these applications with a growing pipeline of over 150 opportunities. Our team of technical experts are dedicated to delivering solutions that help our customers achieve their sustainability and decarbonization objectives. Moving now to slide six on our end markets in the external environment. I would like to again emphasize the progress that we've made against our end market diversification strategy. At the end of fiscal year 22, approximately 60% of our revenue came from non-oil and gas end markets compared to roughly 50% in fiscal year 21. In fiscal year 23, we're currently seeing a strong recovery in the oil and gas sector outpacing other end markets that is largely focused upon maintenance, combined with efforts to increase throughput and reliability on the installed base. However, we are also seeing continued success in our efforts to diversify and will diligently work toward our long-term goal of targeting 65 to 70 percent non-oil and gas revenue by the end of our fiscal year 2026. We continue to see strength across the majority of our other end markets, We believe that the strong maintenance environment in chemicals and petrochemicals combined with customer demand for end-use plastics enables those markets to grow over the longer term. The headwinds from margin pressures and increased European energy prices are partially offset by the cheaper and abundant feedstock here in the U.S. In the power sector, we expect growth going forward to be driven by the transition to electric power and renewable energy, along with the rise of the middle class in Asia. Several of the verticals that make up the strategic adjacencies category continue to experience growth, including renewables such as hydrogen, biofuels, and nuclear power. As mentioned earlier, we have secured over $16 million in orders this fiscal year. Overall, while we're not immune to the impacts from ongoing macroeconomic turbulence, we believe the breadth of our solutions combined with our diversification across a wide variety of both geographic and end markets, continues to serve us well. Turning now to our results for the second quarter of fiscal year 2023 on slide seven. Thermon had another quarter of outperformance driven by our team's outstanding execution, despite ongoing macroeconomic challenges, including supply chain disruptions, and softening of revenue and incoming orders in Europe. We achieved record second quarter adjusted earnings per share due to strong performance in North America, which benefited from the ongoing recovery in the oil and gas industry. We've also been able to offset increased material and transportation costs with strong price realizations while diligently managing controllable costs and continuing to make strategic investments to grow our business over the longer term. For example, the integration of our power blanket acquisition announced during the first quarter is on track and produced over $3 million of revenue during the second quarter. Revenue of $100.6 million was up 24% year-over-year. Adjusted EBITDA nearly doubled year-over-year to $22 million with a margin of 21.8% and increase of 770 basis points. Free cash flow of negative 1.3 million for the quarter was impacted by short-term investments we made in inventory to address global supply chain constraints. Nonetheless, adjusted EPS was a record 38 cents a share, an increase of more than 200% from the prior year period. While global macroeconomic turbulence is ongoing, We're raising revenue and EPS guidance for the full fiscal year, given our robust performance in the first half and a continued strong backlog in the business. On slide eight, you can see that our orders and backlog continue to remain strong. Year-over-year orders were up 3%, excluding a one-time labor contract, while bookings grew 18% on a trailing 12-month basis. Book-to-bill was 0.95 times, Our backlog of $160.8 million was up 3% year-over-year, excluding FX impacts. With that, I'd like to now turn the call over to Kevin for a more in-depth review of our financial results. Kevin?