Thermon Group Holdings, Inc.

Good morning and welcome to the Thurman Group Holdings fourth quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Yvonne Salem, Vice President, FP&A, and Investor Relations. Thank you. You may begin.

Thank you, Dara. Good morning and thank you for joining today's fiscal 2024 fourth 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 Q4 2024. 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 comfortable gap measures in the tables at the end of the earnings strategy. These non-gap measures should be considered in addition to and not as a substitute for measures of financial performance reported in accordance with gaps. I would like to remind you that during this call, we might make certain forward-looking statements regarding our companies. 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 Sainz, 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'd like to start today by thanking our global Thermon team for delivering another record year in fiscal 2024. Your dedication to advancing our strategy, serving our customers with excellence, and creating value for our shareholders is greatly appreciated. I'd also like to thank our employees for their unwavering commitment to safety. In recognition of these efforts, Thermon received the award for Canada's safest manufacturing employer of the year in 2023. Turning now to the results, we ended the fiscal year with growth across a wide range of financial metrics, including revenue, gross margin, adjusted EPS, and free cash flow compared to fiscal 2023. Throughout the year, we continue to see revenue growth on our installed base from OPEX activity associated with recurring maintenance. And as I'll cover in more detail shortly, we continue to diversify our end markets with 68% of our revenue now coming from end markets other than oil and gas. We also continue to invest in new product developments. multiple new product introductions for commercial heat tracing and heating technologies, such as our new Thermon Quantum TrueFlow heater and medium voltage boilers to further enable the electrification of industrial heat. At the end of our third quarter, we completed the acquisition of April Power, which further diversified our end markets while increasing our exposure to deprogrammatization and electrification opportunities. We also made meaningful progress in our decarbonization and digitization growth strategies, which I'll discuss in more detail later. Turning now to slide four and our strategic pillars. We continue to navigate some near-term macroeconomic uncertainty. We remain confident in our long-term strategy and the ability to drive profitable growth by focusing on our strategic pillars of properly growing our install base, decarbonization, digitization and diversification, and disciplined capital allocation. While we are growing our global install base and generating recurring revenues by expanding the products and services for mission-critical industrial process heating solutions that we provide to our more than 10,000 customers. Our technology-enabled end-to-end solutions and industry-leading portfolio give Thermon a unique highly defensible position with the ability to capture additional market share. Additionally, we're creating long-term value by executing our strategic initiatives of decarbonization, digitization, and diversification. We've made significant progress across each of these initiatives throughout fiscal 2024 by enabling the energy transition, helping our customers optimize maintenance through the enhanced controls and monitoring, by our digital solutions and continuing to diversify our end markets to reduce cyclicality and position the company for long-term growth. Our commitment to discipline capital allocation underpins the first two strategic pillars and is key to creating sustainable shareholder value. The acquisition of vapor power is expected to drive inorganic growth with anticipated returns in line with our stated M&A objectives. In addition, our board recently approved a $50 million share repurchase authorization as another way to return value to our shareholders. This is our first share repurchase program and is indicative of the board's confidence in the company's strategy and ability to deliver growth over the long term. Turning now to slide five, you can see more detail on the progress we've made over the last year on advancing our decarbonization strategy, as well as a recent example of how Thurmond is providing sustainable decarbonization solutions. Over the past year, we have grown decarbonization revenue to $34 million, an increase of 48% over fiscal 2023. During fiscal 2024, 7% of incoming orders were related to decarbonization opportunities with the sales pipeline tripling to over $250 million by year end. One of the ways in which we are growing our decarbonization business is by supplying existing thermon solutions to the growing carbon capture and storage industry. Of the current pipeline, carbon capture and storage applications represents approximately 25% of the $250 million in opportunity. The example on the right highlights our participation in a project that will capture up to 18 million metric tons of carbon dioxide per annum from biofuel facilities across the Midwest. The captured CO2 will then be transported via pipeline to permanent geologic underground storage locations. Vermont is supplying 31 flange heaters and control panels, which will enable the carbon dioxide to be compressed for transportation. Additionally, our heat tracing solutions are used to prevent damage to valves and piping after the CO2 is compressed. This is just one of the many examples of how Thermon is leveraging our existing solutions to meet customers' decarbonization and electrification needs. Turning now to slide six, I'd like to provide an update on the progress we made during fiscal 2024 on our digitization strategy. As you see here, the adoption of our Genesys network continues to be strong, with the installed base growing by over 200% during fiscal 2024, as customers look for ways to improve efficiency, productivity, safety, and reliability in their operations. The capabilities of this platform enhance our operational awareness, which creates real value for customers and differentiates Thermon. in the marketplace. As you can see on slide seven, we made tremendous progress on our in-market diversification strategy, which will help to reduce volatility through the cycle. At our first investor day in November, we introduced an updated fiscal 2026 target of reaching 70% diversified revenue or revenue from non-oil and gas-related in-markets. As a result, at the end of fiscal 2024, We've nearly achieved that target with 68 percent of our revenue derived from diversified end markets, which includes the impact of our vapor power acquisition in Q4. We continue to grow our share across key markets, such as power, up over 170 percent, food and beverage up nearly 120 percent, and commercial up almost 20 percent, all on a year-over-year basis. Turning now to slide eight and our fourth quarter fiscal 2024 results, which were in line with our expectations. Despite strong quotations of $250 million in Q3, our orders decreased 12% year-over-year to $117 million as larger CapEx spending moves to the right. On a positive note, more than 70% of incoming orders were related to diverse end markets. In the quarter, we grew revenue 4% to $128 million, driven by an increase in decarbonization and diversified revenue in the organic business that were offset by a 12% contraction in large capex spending in the quarter. Our short cycle business tied to customer op-ex spending was up 8% year-over-year, inclusive of vapor. Organically, op-ex spending was down 3%, largely related to slower activity in Canada. Vapor Power also met expectations, delivering $10.9 million in revenue at 20% EBITDA on the quarter, with a positive bill as demand for their solutions remains robust. A record Q4 cash flow of $35.1 million enabled debt pay down of $41 million, reducing our operating leverage to 1.2 times, down from 1.5 times in the prior quarter. This level of leverage remains below our stated operating range of one and a half to two times, giving us a strong balance sheet and the ability to pursue growth opportunities should they arise. Importantly, while the operating environment continues to be dynamic, we are focused on driving structural cost reductions so that we are positioned to improve profitability across a wide range of macro environments. At Investor Day, we introduced the Thermon Business System, which we are applying across the entire enterprise to sustainably deliver results and unlock value. As part of this effort, we are optimizing our manufacturing footprint to improve asset utilization through a rooftop consolidation of our Denver facility. In line with our Center of Excellence concept, our rail and transit business will be consolidated into our Sand Markets facility to increase productivity to meet growing demand. While we never take these decisions lightly, we also implemented a reduction in force during the first quarter of fiscal 2025 to align SD&A and overhead costs with business volume. Greg will discuss more about the associated Q1 restructuring charges and anticipating savings in FY25. Turning to slide nine in our four-year fiscal results, Our strategy and strong execution enabled Thermon to achieve record revenue, adjusted EBITDA, and EPS in fiscal 2024. Much of the growth was driven by our focus on diversity in markets, where revenue was up 21% year-over-year, while revenue from oil and gas market was down 3%. Revenue, adjusted EBITDA, adjusted EPS, and free cash flow were all double digits for the year. Geographically, U.S. and Latin America drove strong growth in large capex revenues during the first three quarters, up 22% year-over-year. Our channel expansion efforts also helped drive broad-based growth across the installed base in our short-cycle business, which was up 9% year-over-year. With that, I'd like to turn the call over to Greg Lucas. As we announced on April 3rd, Greg has assumed the interim roles of principal financial officer and principal accounting officer of the company as we conduct a search for a new CFO. Greg joined Thermon in 2020 as corporate controller and has been instrumental in improving our control environment and financial reporting during his tenure. Greg will now share a more in-depth review of our financial results for the quarter and the fiscal year. Greg?