Thermon Group Holdings, Inc. (NYSE:THR) Q2 2024 Earnings Call Transcript

Jonathan Braatz: Kevin, you spoke about it earlier about an improvement in free cash flow in the second half. And I was sort of thinking that maybe free cash flow for the year would be around 75% of net income. And I don’t want to throw – I don’t want to put you on a spot, but are you thinking that that’s still a possibility to get that level of free cash flow?

Kevin Fox: I think maybe I’ll avoid the relative percentage kind of answer. But I think when we look at where the business is today, particularly with the growth in the projects, there’s some timing differences on the accounting, given we’re in a percentage of completion mode there. You’ll see in the other working capital, there was about, I think, a $10 million, $11 million negative in the quarter. All of that was invoiced in October, which is going to give us a chance to collect here in the third quarter. So there are a few of those just unique things from an accounting perspective that are maybe driving a little bit of the cash flow weaker this quarter. It could be a little stronger next quarter. I think [indiscernible] we feel really good about the ability to collect.

Inventory turns are starting to trend in the right direction when we look at the velocity with which that is taking place. And then, certainly, when we think about the BPO side of things, that’s going and trending in the right direction as well. Jon, it’s important to keep in mind the seasonality of the business. Our second quarter is really where we’ve got that inventory built on a quarter-over-quarter basis, so it’s roughly flat, right? We think we’ve got the right inventory in the right place at the right time to be responsive to customers there. And so, we try to look at that on a TTM basis, that working capital as a percentage of sales over a little bit of a longer time horizon as we’re thinking about driving the productivity, the operational excellence in the business.

Keeping that factored in is important. So I think we feel pretty good about the back half in summary. Obviously, we’ve got to execute, but the business is growing. It shouldn’t be a surprise to anybody that there’s a little bit of a build in net working capital here as we continue to grow plus 20%.

Operator: At this time, I would like to turn the call back over to Bruce Thames for closing remarks.

Bruce Thames: All right. Thank you, Latania, and thank you all for joining today and thank you for your interest in Thermon. We look forward to updating you again at our Investor Day and during our next quarter earnings call. Enjoy the rest of your day.

Operator: Thank you. This does conclude today’s audio teleconference and webcast. You may disconnect your lines at this time and have a great day.