Q4 2021 Thermon Group Holdings Inc Earnings Call
Okay.
Greetings, ladies and gentlemen, and welcome to day their MA and group Holdings fourth quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
Question and answer session will follow the phone and presentation. If anyone should require operator assistance. During this conference. Please press star zero on your telephone keypad.
Note that this conference is being recorded.
Now I'll turn the conference over to our host Kevin Fox Chief Financial Officer. Thank you you may begin.
Thank you Diego and good morning, and thank you for joining today's fiscal 2021 and fourth quarter Conference call.
Earlier. This morning, we issued an earnings press release, which has been filed with the SEC on form 8-K and is also available on the Investor Relations section of our website. We have also updated our investor presentation, which includes a summary of our ESG achievements in fiscal 'twenty 1.
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 and 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.
To remind you that during this call we may 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 may differ materially from those contemplated by these forward looking statements and we undertake no obligation to publicly update any forward looking statement, whether as a result of new information future developments or otherwise, except as may be required by law with that we will turn to the opening comments from Bruce <unk>, our president and Chief Exec.
Dave Officer.
Thank you Kevin and good morning.
We hope everyone listening is staying safe and and in good health and we appreciate you joining our conference call and for your interest and some on.
Hey, Kevin Fox, our new CFO is here to provide additional information on our Q4 and full year financial performance. Following my remarks.
I'd like to take a few moments to reflect on a very challenging year in fiscal 2021 as.
As the year began the world and the global economy, we are faced with the worst pandemic and 100 years and by far the worst demand destruction and the history of the oil industry.
Despite the challenges I've been impressed with how this team has responded to every obstacle they kept the health and safety of our employees and customers as the top priority and we're successful in that endeavor.
In addition to having no work force transmissions of the virus, we had zero recordable and lost time incidents in the fiscal year, which is among the best and the industry.
In addition, the team was laser focused on value preservation, while serving our customers and exemplifying our core values of care commit and collaborate.
The team was able to restructure the business and reduce SG&A costs by $22 million in the year of which we believe 80% is structural.
Driving continuous improvements to achieve an additional $3.8 million and savings and our manufacturing operations.
Finally, the team remain focused on strategically positioning the business for future success in the year, we drove globalization of our process and environmental heating product lines and a heightened focus on capitalizing on the installed base of high value MRO UE revenue opportunities. We also launched 9 new.
Products ranging from the Genesis network, our wireless self healing mesh network and supervisory software to new trace heating solutions that pushed the envelope of performance and the industry.
Last but not least we revisit our strategy and light is a major global shifts underway to capitalize on 3 key opportunities developing markets and market diversification and technology enabled maintenance and we believe these and the electrification of the industry will drive growth opportunities.
This business now and in the years to come.
I would like to thank the entire therm on team around the globe are definitely balancing the immediacy of the pandemic and industry downturn with long term value creation, while putting safety and customers first.
Turning now to the full year results. We finished the year with Q4 revenues in line with expectations to deliver 276 million and FY 'twenty 1 revenue.
28% decline from fiscal year 'twenty.
While underlying operating performance was solid in the quarter. There were a number of unusual items that impacted both cost of goods sold and SG&A, resulting in EBITDA margins that fell below expectations, Kevin will provide more details on these items later in the call.
As a result, adjusted EBITDA of 37 million fell below expectations for the full year down 43 per 2.
And 2% from prior year.
Decisive actions to manage costs helped to offset the negative impact of the decline and in markets.
Throughout the year the business continued to generate cash with 22, and a half million dollars and cash flow and the fiscal year paying down 27, and $5 million and debt during the year.
Full year adjusted EPS of <unk> 34, a share was down 55% from fiscal year 'twenty.
Turning now to a discussion of our end markets.
We are beginning to see some signs of improvements and our end markets that are cause for cautious optimism.
While we have not yet returned to pre COVID-19 levels of activity, we continue to see sequential improvements and maintenance spending that are above and beyond normal seasonality. Despite the lockdowns that occurred in January as variance caused a resurgence and cases as.
As we look to the chart on page 4 of the presentation, you can see that greater than 55% of our end markets are tied to chemical and petrochemical natural gas and power.
With natural gas as a bridge fuel and the linkage of chemical petrochemical and power markets to the emergence of the middle class and developing economies.
The growth outlook across these sectors is much more robust than upstream all of which now represents 16% of our revenues.
With numerous projects in various stages of planning and execution, we are well positioned to capitalize on the shift to bio fuels as evidenced by our recent award for a biodiesel plant on the Gulf Coast.
In addition, we see significant opportunities and more diverse end markets with favorable growth potential such as rail and transit commercial and food and beverage in the coming years.
A couple of examples include our recent award for environmental heating and a copper mine and Eurasia, and and award for cab heating on a sizable transit project here in the U S.
Moving on to slide 5 of the presentation.
While orders were down 15% and the quarter from the prior year period, and 22% on a trailing 12 month basis. The book to Bill for the period was 1.05 times with backlog growing 8% year over year.
While orders and not yet and yet shown growth over the prior year period, we are seeing positive signs on our end markets with increased maintenance activity later in the quarter driven by commodity price increases relaxed restrictions, enabling access to customer facilities and the need to maintain critical assets. We also built.
Leave that winter storm, Yuri will create opportunities and Texas and along the Gulf coast as customers and the power and natural gas sectors winterize their assets in advance of the next winter heating season base.
Based upon these factors, we anticipate order growth in Q1 of fiscal year 'twenty 2 over the prior year period.
I would like to now hand, it over to Kevin Fox, our CFO to provide a more detailed review of the quarter and year financial results Kevin.
Thanks, Bruce revenue and the fourth quarter was $73.3 million, a decrease of 17% versus the previous year.
We had guided a 69 to 76 range on our previous call and we came in right and the middle of the range FX was a minor tailwind of about $1.5 million with revenues down 19% on a constant currency basis.
From a regional perspective, EMEA was the only region with year over year growth, primarily due to the continued execution on multiple large projects with all other regions contracting and the period pricing continues to be positive with our quick turn margins up year over year.
On a trailing 12 month basis therm on revenue was down 28% with FX on late half of a point headwind for the full year EMEA was flat the U S land region was down 39% year over year, with Canada, and APAC down 29, and 22% respectively.
As we think about progression through the year, we were down 37% and the first half and down 19% and the second half.
Our fiscal 'twenty, 1 was a difficult year due to the combination of the COVID-19, pandemic and disruptions to the oil and gas markets, we've seen and inflection during recent months TTM bookings showed a positive year over year growth for the first time in March and global orders and the first 6 weeks of the new quarter are trending positively across the board.
And then spending appears to be increasing as facility access restrictions are easing, particularly on the western hemisphere.
Margins came in at 37, 1% and the quarter with a few specific items to call out first we've had to increase our estimated expenses related to and operational execution and item and a non U S project, which accounted for $3.3 million of incremental expense and the period, we also incurred half a million dollars of productivity.
<unk> losses due to winter storm, Uri as our employees and operations and San Marcos, Texas were impacted by the power outages and February when adjusting for these items margins would have been 42, 4% versus Q4 of 2020 apples to apples comparison at 44, 7% a decline of 230 basis points.
When we start to analyze the business from that position, we have a few additional observations within the quarter manufacturing variances due to the rapid inventory reduction and Q4 and other expenses were approximately 260 basis point headwind accounting for that negative impacts gets us to our historical average margin.
And as a 45%, but we have yet to account for mix.
While the mix of MRO versus Greenfield and our legacy business was <unk> 67 versus <unk> 33 on notch above the traditional 60.40 split the Greenfield margins were a slight headwind in the quarter due to the timing of some larger projects being executed and.
MRO UE margins are slightly above historical averages, but not enough to offset the weaker performance and greenfield as.
And as I've mentioned earlier pricing was up and the quarter and we're closely watching price versus cost inflation appears to be gaining momentum margins and our backlog were 33, 6% at the end of March which is about 190 basis points above the average of the previous 5 quarters.
As a reminder, we had a target of $3.9 million from continuous improvement and the year and we delivered 3.8 and we expect continuous improvement initiatives to contribute approximately $2 million and fiscal 'twenty 2.
Moving to the next slide and a quick discussion on SG&A first we start with the marketing general and administrative and engineering expenses from our SEC reported figures and then we back out depreciation as well as any expense or benefit from the nonqualified deferred compensation line and.
And Q4, 'twenty, 1 SG&A by that definition was $26 million a reduction of $6.2 million from the comparison period on a run rate basis, we believe SG&A will be around $20 million per quarter. As we had a number of nonrecurring items that cumulatively impacted our reported Q4 'twenty 1 results by 2 million.
The largest of which was bad debt reserves of 0.7 million related to a specific customer.
Other items were related to various and material costs with non being larger than 250000 individually.
On a TTM basis, you can see the cost out execution in fiscal 'twenty, 1 of approximately $22 million, which excludes $8.6 of total restructuring, we expect temporary cost reductions to come back and the P&L through the year, primarily driven by more travel as economies reopen and unexpected increase of short term incentive.
And so.
It was increases will be offset by the full year impact of previous restructuring actions.
Adjusted EBITDA is on the right side of the page with Q4, 'twenty, 1 coming in at $6.2 million or 8 per cent of sales and the full year result was $36.6 million or 13, 2% of sales.
Ultimately, it's a disappointing result, despite our collective response and effort to manage through the challenges and the last year.
However, we continue to believe the business will generate gross margins at or above our historical average and with the changes to cost structure over the last year, we have significantly improved our operating position.
That combination will drive adjusted adjusted EBITDA growth in the coming quarters, even under a scenario where customer spending and takes longer to return to pre pandemic levels.
Not on the page, but we wanted to highlight GAAP EPS was negative <unk> <unk> per share and the quarter with adjusted EPS of <unk> <unk> per share on a full year basis fully diluted GAAP EPS was <unk> <unk> per share with fiscal 'twenty..1 adjusted EPS of <unk> 36 per share reconciliation tables were provided and the press release for Rep.
France.
Next slide we had previously commented it around opportunities to improve our balance sheet and working capital management and Q4, 'twenty 1 saw a significant reduction and our inventory on a sequential basis, while the inventory balances up 6% year over year and driving the overall increase in working capital.
Inventory is down 10 million since Q3 as a reminder, we generally build inventory in advance of the heating season. So we would expect this to increase slightly in coming quarters before again, reducing and the second half of the year.
Total debt was down $27.5 million and the year to $1.48.5 million driven by the organic cash flow generation inherent in our asset light business model, we completed $20 million of incremental pay down in Q4.
Net debt to adjusted EBITDA finished at 3 times. So, although we were able to reduce our debt balance the adjusted EBITDA decline kept that ratio flat to Q3, we expect the business to continue to Delever and fiscal 'twenty 2 as the recovery takes hold but we will also have the benefit of some low comp periods early and the new fiscal year.
Capex was $7.8 million, which includes a 4 million budgeted cut that was offset by some investment and our temporary power rental fleet to be prepared for a turnaround demand, particularly in Canada. During the 2021 calendar year.
We continue to monitor potential M&A opportunities, but would likely look for reduction and our leverage ratio before taking any action. Therefore optional debt pay down remains the top capital allocation priority, we still have $40 million of cash on hand, and could potentially see that number decrease in coming quarters.
Quick note on taxes, the tax rate and the quarter was impacted by the pre tax operating loss, which also enabled us to carry back previous losses and the U S region.
This along with the impact of the guilty tax rules impacted our full year results for a net tax benefit of $1.4 million.
Going forward, we expect the effective tax rate to continue to be around 27% and fiscal 'twenty 2.
Before I hand, it over to Bruce to present, an update on strategy and 'twenty 2 guidance I wanted to provide some perspective on the first few months and the new role.
While our end markets continue to be impacted by Covid, we are cautiously optimistic on fiscal 'twenty to.
Book to Bill is positive maintenance spending is starting to return our new product development process is accelerating and we have a sustainable cost structure that will drive operating leverage as volume recovers.
While there were a lot of moving parts this year and especially in Q4, our balance sheet is strong and we continue to generate cash as a result of our attractive gross margins and asset light business model my colleagues across the world are passionate and committed to achieving our goals and I've challenged the teams to simplify automate and focus on what we can control.
It's been a difficult year for all but we adapted quickly to the many changes both externally and internally that we encountered we entered the year with a renewed energy to execute on the plan for fiscal 'twenty to <unk>.
The leadership team remains focused on driving long term growth and attractive sustainable markets, improving profitability and increasing returns on our investors' capital.
Bruce with that I'll turn it back to you for an update on strategy.
Alright, Thank you Kevin.
If youll turn now to the strategy update slide.
Moving on to slide 5 and the or excuse me on this.
Presentation.
Slide 9 and the presentation.
Thank you Kevin.
Since 2015 downturn and the energy sector. This team has worked to successfully reposition therm on to capitalize on growing demand for chemicals and petrochemicals with our recent events and the shift towards de Carbonization and the board and management have revisit our strategy to capitalize on some of the transitions and.
The way.
Our focus has been on using technology to effectively mine the existing installed base, while looking for new geographies and markets to replicate the model of growing the installed base to capitalize on high value recurring revenue streams.
These efforts storm on is highly focused on on the electrification of industry that is underway, which we believe will accelerate the transition from steam and reduced on site and natural gas heating and many applications.
We see growth in developing markets, particularly in the eastern hemisphere as 1 of the significant opportunities for expansion going forward.
The emerging middle class and India, China, and other Asian countries creates growing demand for our solutions and our traditional markets for chemical and petrochemical and power.
Diversification of our end markets is the second area identified as a significant driver for growth going forward.
We are targeting goal of growing other segments of our business such that less than 40% of revenues are generated from oil and gas by the end of fiscal 2026.
The form on has participated in many of these diversified end markets historically, but more on an opportunistic basis with the expansion and the portfolio to include process and environmental heating and increased direct sales and channel focus many of these sectors represent significantly.
Greater overall opportunity.
The shift to renewable energy sources, such as Biofuels concentrated solar power and wind power all represent opportunities for growth examples of other sectors with promising growth that we have touched historically include commercial rail and transit as well as food and beverage.
Yes.
Yeah.
The third area identified is technology enabled maintenance.
We remain committed to investments and new product development that include connected and smart controls solutions advanced heating technologies and materials science.
Even with the recent downturn and customer demand, we maintained our proven strategy to invest through the cycle and spent 2.7% of revenue on R&D.
1 of our 9 product launches last year, the Justice network enables customers to improve safety and reliability, while reducing total cost of ownership with Iot capabilities. The new Genesis platform creates opportunities for recurring revenues from software as well as troubleshooting and predictive maintenance.
All of these solutions further strengthen the relationship with our customers and improve our abilities to capture recurring revenues from the installed base.
Turning now to slide 10 on guidance for fiscal 'twenty to.
Going forward, we maintain a laser focus on driving operational improvements to positively impact. The overall profitability of the business, we are committed to delivering $2 million and cost savings through continuous improvement while holding the line on SG&A expenses and the year.
We anticipate the cost savings combined with price increases will more than offset any and inflationary increases to drive meaningful EBITDA margin expansion and the year.
We also remain committed to and are investing in our strategic initiatives to drive growth and the business going forward.
With a strong pipeline of new solutions, our commitment to new product development and commercialization remained steadfast with an approximate 2.7% of revenues dedicated to these efforts and the fiscal year.
11 of the uncertainty and the current environment remains low.
We are reinstating revenue guidance for fiscal 'twenty, 2 to a range of $278 million to $295 million for the full year, Inc.
In conclusion I do not believe this quarter's results are representative of the underlying strength of our business model, nor does it change our expectations for fiscal year 'twenty 2.
And the and unusual expenses in the quarter isolated the underlying profitability and cash flow are more consistent with our historic performance, we expect to work done and fiscal year 'twenty, 1 will generate operating leverage and show significant improvements and financial performance and fiscal year 'twenty 2.
We have a talented team that remains committed to serving our customers and creating long term value for our shareholders by focusing on our operational and strategic initiatives for them on is well positioned to emerge a stronger more profitable business as our customers and end markets emerge from this pandemic.
I'd like to pause now and turn it back over to Diego for the Q&A portion of our call.
Thank you.
And at this time, we will be conducting a question and answer session.
And you would like to ask a question. Please press star 1 on your telephone keypad, a confirmation tone will indicate that your line is and the question queue you.
You May press Star followed by the number 2 key if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Scott Graham with Rosenblatt Securities. Please state your question.
Yes, hi, good morning, Bruce and Kevin.
So I was.
I was hoping that you guys would be able to unbundle, a little bit more of the $5.8 million of unusual items here and in particular, the $3.3 million on execution, which is nice.
Obviously, a really big number and.
And maybe help us understand why it happened and what we're doing to avoid that from happening going forward or is that just really and isolated situation, but even still it was large just shed some light on the $5.8 and in particular the 3.3.
Yes.
Scott This is Bruce I'll jump in on the 3.3 we had a very large time and material contract.
And that we had.
And.
And it was outside of the U S and essentially we had a warranty rework that had to be done during the winter months during COVID-19 protocols, which drove some exceptional expenses.
Unusual.
And it is 1 it's a 1 time isolated project and we we do not foresee.
This recurring going forward.
But Kevin if you want to just maybe touch on some of the other items in that $5.8 million, yeah, and Scott for their residual you've got the impact of the winter storm and there that was half familiar and the bad debt reserve for a specific customer.
And we're back to back there, there and EPC and the EMEA region, but ultimately felt like it was appropriate to reserve for that at this point and time and then really with the rest of the items and SG&A just a lot of little things, whether it's timing and whether it's.
Certain things getting resolved with just the right time to take those into the P&L. So.
As I mentioned are individually none of them were greater than 250000, and but it really just accumulation of a few things happened and here at the end of the quarter. So we look at those expenses as unusual time limited and I think as we look forward and the business and we certainly expect things to get back to a more normal stabilized performance here and there.
Okay.
Okay.
Got it and stay with us.
Yeah no.
So yeah on them.
So essentially the 5.8 goes away.
I get that.
Can you tell us the split between cost of sales and SG&A up to $5.8.
3 point, let's see now 3.3 that would have been gross margins. The residual would have been year based cost, but you need to factor in about let's call. It about 700, K and the cost as well so probably 4 versus 1.8 on Cogs versus SG&A Scott.
Okay, and 1 of the big highlights of last quarter.
Was your discussion around where you expect margins to people in 2022.
And as well as in 2023, so does your sort of goal of being up 2 to 300 basis points of <unk>.
And EBITDA margin does that sort of relate to.
The trailing 12 months through.
Zimbra quarter, and we kind of just push this quarter aside.
Making that number more like 400 plus.
EBITDA margin expectation for improvement for 2022.
Yes, Scott as I said Moss group based on this quarter.
New this is an event not a trend and our expectations on fiscal year 'twenty, 2 and the margin expansion that we shared last quarter on unchanged.
Well right, Bruce, but what I'm, saying here is that that guidance was 200 to 300 basis points. So.
Essentially what you're saying.
Right.
And I'm, saying, yes based on based on where we were as of the trailing 12 and December our view is unchanged.
Very good and your view on 'twenty 3 for EBITDA margin, 22% plus is that unchanged.
Yes, that's correct that is unchanged.
Okay. Thank you.
Yes, no problem.
Thank you. Our next question comes from Brian Drab with William Blair. Please state your question.
Hi, Thanks.
And I'm, just going to begin with MRO and like you said that I believe that youre starting to see MRO activity picking up and can you just elaborate on that I'm just opening up the slide now for the first time. So I don't know if there's some detail, but can you quantify at all.
What you've seen and M.
<unk> growth and what you're expecting.
Zero.
We've seen a nice progression through the year.
I think maybe you should count on recall back to our Q1 and MRO was off 48% and I'd like to note that this is really unusual for us and a downturn normally maintenance spending stays pretty robust, but the pandemic limited access to facilities and so we saw really.
Just on acute drop off and maintenance and as we said we believe that there is building demand for for maintenance activity that pent up demand. So we were at 48%. The progression next quarter was around 34, if I'm not mistaken.
And then 'twenty 4 I think we finished this 1 around.
2014.
So we and that's a.
Decrement to the prior year.
Particularly we saw in March and inflection, where we actually saw positive.
MRO growth year over year in the month of March the thing that really negatively impacted our fourth quarter. The most is that.
As you recall, starting January the Lockdowns, and Canada and Europe.
And now in India, all of those really impacted negatively impacted.
Those MRO sales early in the quarter, but February through March we saw.
And those gain momentum so we are seeing a nice trend in the right direction.
Okay. Thanks, Bruce and what have you seen in terms of MRO and April and May.
We are seeing that trend continue.
And maybe even gain speed.
And Brian the caveat I would have to that would just underlying maybe previous comments Bruce made around it's going to depend regionally on where things are at from an opening standpoint geographies like the U S are obviously going to be a little further ahead and places like Canada, a little further behind.
And as you start to look globally currently places like India are still struggling and so I kind of reinforces the thesis that it is not necessarily a change in underlying demand, but it's more as we view and driven by access restrictions, but certainly the first few weeks and the new year have have shown promising and areas that are opening up.
Okay, Great and then as long as we're talking about some of the regions can you breakdown.
Breakdown, what the what you saw in terms of revenue and orders and the major regions and the quarter.
Yeah.
So revenues and the quarter Brian.
U S. C were down, let's say 28, and the U S down about 23, and Canada EMEA.
And was actually up quite positively I mentioned, the large projects previously that's a plus 34 and APAC down 16 that that should get us to the down 17% and the quarter.
Okay EMEA again, sorry was what you mean I apologize 34 positive.
Plus 34, okay. Thanks and.
And then I guess.
2 more questions.
Texas free that we had in February and you mentioned that could drive demand longer term have you seen any.
Can you talk anymore about that issue and driver and are there any regulations, maybe that are going to go into place or have gone into place that could.
And drive demand for your products.
Yes.
So first of all it was a large and widespread impact and the infrastructure and it was not only power, but it also included the natural gas infrastructure.
I can tell you there are new a number of bills currently in the Texas legislature.
And that are underway, several which would really have a positive overall impact on.
Business opportunities going forward.
Can't tell you.
And is about to and I can't tell you that those will pass, but they have had a pretty significant support I do believe and the short term kind of on the near term customers are a bit.
Wait and see to see what legislation is passed.
To make sure that what they do is in compliance with with any new.
Laws or legislation that's passed.
However, we have seen some some nice business here just in the last few months.
Customers are doing some work, but we would expect that.
To gain momentum and advance of the upcoming winter season.
Okay. Thanks, and then maybe the last 1 for Kevin, but I'm just curious if you could give any comment on that.
And we get to.
At the end of fiscal 'twenty, 2 and revenue comes in you know on that.
And the range and and.
Yes, we're looking to fiscal.
Fiscal 'twenty 3 and.
Potential for you know.
The things to get better.
Let's say you get an incremental.
$50 million and revenue or something and what would the.
Incremental margins be on and that type of growth longer term, given the new cost structure like incremental EBITDA margin on.
On revenue and if things start to really improve.
You know, Brian I won't speak to the maybe the incrementals themselves, but what kind of go back to previous comments and questions around those long term outlined we've kind of put out there and if.
We think about the incremental improvements to EBITDA for the next 12 months, we think thats unchanged and certainly still having a path to that 22% to 25% range on EBITDA margins over the longer term I think I think all of that is fully intact and in front of us and when we think about the opportunity.
To go after some of these incremental strategic initiatives as well.
Are there adjacent whether it's investments on the front end of the business on the channel new product development, and we're putting those plans together as well, but I think they'll certainly be incremental and accretive to the business and we look at that 22% to 25% and type of EBITDA range over the long term.
Fully achievable still I think this quarter you know like Bruce said, its a bump on the road not not to startup and trend.
Yes, perfect. Okay. Thank you very much.
Okay.
Thanks, and once again ask a question press star 1.
Our next question comes from Jon Braatz, with Kansas City Capital. Please state your question.
Good morning, Bruce Kevin.
Good morning, John and Bruce could you talk a little bit more about.
On the subject.
Moving from maybe steam to electrification.
Heat tracing is is this being driven by cost is it being driven by ESG and you know sort of how big of an opportunity could this be.
Going forward and and and and secondarily are you.
Are you seeing the possibility of all of our conversion to <unk>.
And to electric same pricing or is it just new capital projects.
Going directly to to electrification and and.
And not using steam.
Anyway.
Whatever you can say about this that'd be great.
Yes, John Great question.
The shift from steam to electric has been underway for many years.
The last kind of market information that.
We had kind of gotten is somewhere in the mid 40% of the market was still steam.
And the balance was electric so somewhere in that range. What we believe is that the the ESG the push towards de carbonization will accelerate that trend.
And the advantages of moving to electric or it's actually more efficient you have a higher level of control and and certainly it's cleaner. So.
And and and lower maintenance and.
So those are all kind of the drivers.
And the setback would be just the initial capital outlay.
But this is a trend that's been underway, but we believe that that just kind of the shifts that we're seeing.
Globally, we will accelerate that transition.
Okay. Okay. Thank you very much.
Right.
Yeah.
Thank you that's all the questions for today I'll now turn it back to Bruce Thames for closing remarks. Thank you.
Alright, Thank you Diego and thank you all for joining the call here today, we appreciate your interest and thermal and enjoy the rest of your day.
Thanks. This concludes today's conference all parties may disconnect have a good day.