Q2 2022 Thermon Group Holdings Inc Earnings Call
[music].
Greetings.
Welcome to the Fairmont earnings conference call for quarter two of 2022.
At this time all participants are in a listen only mode.
A 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.
And please note that this conference is being recorded.
I will now turn the conference over to your host Kevin Fox Chief Financial Officer, you May begin.
Thank you John Good morning, and thank you for joining today's fiscal 2022 second 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. Additionally, the slides for this conference call can be found on our IR website under.
News events IR calendar earnings conference call Q2 2022.
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 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.
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 now I'd like to turn the call over to Bruce <unk>, our president and Chief Executive.
Officer for his opening remarks.
Thank you Kevin and good morning, we hope everyone listening is staying safe and in good health and we appreciate you joining our conference call and for your interest in <unk>, Kevin Fox. Our CFO is here to provide additional details on our Q2 financial performance following my remarks.
Turning now to the second quarter results overall, we're very pleased with the momentum that is building in the market through the first two quarters of the year.
We were particularly pleased with the sharp increase in quotations are up 63% over prior year, followed by robust order growth of 59% year over year, a historical record, which included a large one time labor and third party material contract bookings in excess of 20 million revs.
<unk> were up 18% over the prior year period on a constant currency basis backlog at quarter end was $155 million up 31% over prior year and 34% sequentially.
As a result, we are raising guidance for the second consecutive quarter. This year. The team has also continued to be disciplined around cost management with SG&A at 25% of sales and in line with annual spending projections.
As we continue to invest in our strategic initiatives, we are seeing a growing quotation log for our new Genesis network and have secured our second order just as a reminder, this is an Iot enabled wireless self healing mesh network and supervisory software that <unk>.
<unk> real time situational awareness to operators. It is a key part of the technology enabled maintenance strategic platform.
Other strategic platforms include developing markets and diversification of end markets. All three of these strategic initiatives will be addressed later in this call.
Our efforts to address labor shortages and overcome supply chain challenges resulted in a sequential improvement in productivity and utilization over the first quarter, which were masked by $1 2 million in Cogs related to operational execution on an isolated project completed late in FY 'twenty the impact to gross margins.
150 basis points in the quarter, while the team has taken actions to largely mitigate labor shortages and supply chain disruptions have broadened and become more acute our team has been very adept at navigating these challenges to minimize the impact on our customers, but we have seen temporary shortages of raw materials.
Higher costs due to material price inflation material substitutions and higher transportation costs.
The team continues to work to further improve the resiliency in our supply chain to deliver the exceptional level of service our customers have come to expect from the thumb on brand. These issues combined to negatively impact gross margins by approximately 410 basis points in the quarter.
We are seeing pricing power in the marketplace and believe the price increases enacted late in Q1 began to have an effect late in Q2 and will largely offset inflationary increases in the second half of this fiscal year.
Despite the global supply chain challenges in the quarter and associated lower gross margins. The team delivered 11 4 million in adjusted EBITDA up $1 million from prior year on $81 3 million in revenue adjusted EPS.
EPS was <unk> 12, a share in the quarter flat versus the prior year quarter.
Yes.
Turning now to a discussion of our end markets.
We're seeing an acceleration of the positive momentum in our end markets that began late in Q4 of FY 'twenty, one and is gaining speed as we enter this heating season.
While we have not yet returned to the pre COVID-19 levels of activity, we are seeing business levels in the second half of the year approach pre COVID-19 levels in certain regions as maintenance spending continues to show positive signs of recovery, particularly in North America.
As we look to the chart on page four of the presentation I would like to reinforce a couple of key points first roughly 52% of our end markets are outside of the oil and gas sectors.
Second greater than 55% of our end markets are Todd to chemical petrochemical natural gas and power with natural gas as a bridge fuel and the chemical petrochemical and power markets being driven by the emergence of the middle class in developing economies the growth outlook across these sectors is much more robust.
Upstream oil, which represents now only 16% of our revenues.
We're also seeing positive signs of growth across all our end market verticals the investments in downstream appear to be skewed towards renewables and we secured just under $6 million and additional biofuels projects during the quarter from a long list of projects in the pipeline.
Working with process technology owners, our team has been focused on building expertise in the hydrogen market.
This quarter, we have secure secured another order for a pilot green hydrogen plant in Europe to add to our growing list of wins.
While not yet a material part of our business, we have multiple opportunities in the production of Blue and green hydrogen that are expected to close by fiscal year end.
As a growing part of our business. We also secured over $4 million in additional multiyear rail and transit contracts at attractive margins during the quarter currently over $14 million of our backlog is related to rail and transit in North America with some significant opportunities on the horizon.
Moving on to slide five of the presentation.
On a trailing 12 month basis orders of $341 million exceeded the prior year period for the first time in five quarters.
During the current quarter orders of $121 million grew 59% over the prior year period exceeding FY 'twenty pre COVID-19 levels and were up 66% sequentially.
Book to Bill was strong at one four times with backlog up 31% over the prior year period as a note. We have had a positive book to bill in six of the last seven quarters.
Higher quotation activity and increase in incoming orders and growing backlog, particularly in larger capital projects are very positive signs that capex is recovering across many of our end markets that will likely translate into bookings later in the fiscal year with execution beginning in fiscal year 'twenty three.
We are also seeing the positive effects following winter storm year in Texas, and along the Gulf Coast as customers in the power and natural gas sectors are taking actions to address weatherization in advance of the next heating season we.
We've also seen other states like Pennsylvania past winter <unk> legislation in response to the impact Winter Storm you already had on the Texas power infrastructure.
I would like to now hand, it over to Tim Fox, our CFO to provide a more detailed review of the quarter and first half financial results Kevin.
Thank you Bruce revenue growth was again strong this quarter, plus 22% versus the prior year quarter and down 2% on a trailing 12 month basis current quarter includes a $2 million tailwind from FX revenues were up in three of our four regions with the U S. Latin America, Canada, and EMEA regions, all greater than 20%.
5% above prior year, while our smallest region in APAC contracted by 13% due to the continued impacts from Covid related government Lockdowns in India and lower project volume.
We booked a contract worth over $20 million in the quarter with a large multinational chemicals customer for labor and third party materials.
Onetime projects contributed over $3 million of revenue in the current period, we will continue to provide revenue figures until the contract is complete to ensure appropriate year over year comparisons. Both this year and next while margins for these types of contracts are typically on the lower end of our desired range, we have already secured incremental materials and <unk>.
<unk> work on site and this is another example of how <unk> broad offering grow as a value added relationship when viewed in the aggregate relationships like these enhance our installed base and drive profitable growth for the company.
On a TTM basis revenues are down 2% as we start to emerge from the Covid induced trough pricing increases went into effect in our fiscal second quarter, but typically takes 60 days to implement within our network. So we expect to see the impact of that hit in our second half.
While we are happy to see the business inflicting off last year's lows, we are not yet back to pre COVID-19 levels and still have plenty of room to run in this recovery.
We are seeing the beginning of customer spending in Texas related to winter storm, Yuri maintenance and upgrades and with the passage of Senate Bill three and the standards soon to be finalized by the public Utilities Commission and the Railroad Commission. We believe there is a multi year investment cycle ahead.
Reported gross margins in the quarter were 39% driven by a few discrete items first we continue to see the impact of the global supply chain challenges and inflation in our business through higher commodity prices labor shortages longer lead times or limited availability of raw materials and the cumulative impact of those facts.
There's on manufacturing productivity.
Cumulatively these factors impacted gross margins by approximately 410 basis points in Q2.
In the quarter, we had multiple large contracts with lower than expected margins, including the large one time project mentioned earlier, which impacted gross margins by another 210 basis points.
Finally, we took a charge in cost of goods sold related to operational execution on an isolated project completed in fiscal year 'twenty for $1 2 million or 150 basis points in the quarter as we near completion of that onsite work.
We will also disclose charges to cost of goods sold as an immaterial corrections to prior periods of <unk> 4 million and $1 6 million in Q4 dollars 21 in Q1 'twenty two respectively. In our 10-Q. This afternoon related to the same project. These charges reflect an identified errors due to underreported.
Rework costs and due to a lack of properly designed controls and policies represent a material weakness in our internal control over financial reporting.
We're in the process of implementing enhanced controls over reserves for large project rework and anticipate remediation prior to the end of our current fiscal year.
As we look forward to the second half of the year, we expect that gross margins will continue to be impacted by the onetime project, but our underlying business will remain strong we expect incremental demand from the top line will drive improved productivity and manufacturing price increases will begin to offset supply chain challenges and our heating cease.
And typically produces a favorable mix of materials revenue that are accretive to the bottom line.
On the next page we wanted to draw your attention to a different disaggregation of revenue available in note 10 of our quarterly filing as we believe it is an improvement over the greenfield versus MRO UE framework that was introduced for last decades. IPO. This also has the benefit of including a 100% of our revenues.
Whereas the previous construct only incorporated the legacy heat tracing business.
Revenues recognized over time are generally representative of project work, where we have engineering and installation services, whereas point in time revenues are more aligned with product or material only sales overtime revenues represented 38% of total revenue this quarter versus point in time revenues of 62%.
Point in time revenues grew 40% in the quarter and 37% on a year to date basis, which again highlights the acceleration of our customer spending and viewed over the longer term is representative of the value of the global installed base, we have built since our inception.
We will continue to provide greenfield versus MRO mix through the end of the year, which was 39% Greenfield and 61% MRO versus.
<unk> 36, and <unk> 64, respectively in the prior year.
On page eight we look at SG&A as a reminder, we deduct depreciation from SEC reported selling general and administrative expenses to get to the presentation. We have on this slide in the quarter SG&A was 20 $24 million or 25% of revenue. The current quarter includes one.
$4 million from bad debt expense, mostly in our EMEA region on a run rate basis, we are below our target of approximately $80 million that we projected at the start of the year. The team continues.
Can use to manage expenses, while investing in our strategic initiatives for diversification technology enabled maintenance and developing markets.
R&D spending is yielding positive results as we recently announced the Fairmont Envirodyne methane destruction unit, which converts harmful methane emissions to water vapor and carbon dioxide NSF process.
This is an example of how we are taking action to invest in a more sustainable future for our customers.
Adjusted EBITDA was $11 4 million or 14, 1% of sales. This includes a deduction for our Canadian emergency wage subsidy of over 700000, and an add back for our debt refinancing of $2 6 million.
Adjusted EBITDA is up $1 million from prior year due to the items impacting cost of sales, but with heating season, beginning we believe that the combination of higher volumes and continued cost discipline will yield improved in profitability in the second half of the year.
GAAP EPS was <unk> 10 per share a decrease versus prior year and adjusted EPS was <unk> 12 per share.
On the next page wanted to update our balance sheet and cash flow, we completed our debt refinancing in September and I wanted to thank our lender group for their collaboration and support we refinanced our previous term b and to a term a facility consisting of $80 million USD Canadian equivalent of $60 million USD and an.
And at $100 million revolving credit facility, the new debt has no floor and the current pricing grid puts the blended cost around 175% versus our previous cost of $4, 75%, yielding a cash interest expense savings of over $4 million per year.
The interest expense savings as the equivalent of <unk> 12 per share by.
By placing some of the debt in Canada, we may be able to realize additional tax benefits.
Net debt to EBITDA Covenant is currently 375 times, but will be reduced to three five times as of the quarter ending December 31, 2022. We also have an acquisition holiday in the event. It is required as we evaluate our inorganic growth options.
With the quarter results net debt to adjusted EBITDA as of September 30 was two three times versus the prior year of three times, we continue to generate positive quarterly cash flows with free cash flow of $6 8 million in the quarter.
Capex was only $1 1 million in line with expectations. Our second half is generally a stronger generator of cash and we expect this year to be no different there are no changes to our capital allocation priorities and we will continue to pay down debt, while we evaluate potential inorganic growth opportunities.
Combination of the heating season, and positive quote order and revenue trends supports our expectations for better volume in the second half and we expect to see the impact of new pricing offset rising input costs.
We will continue to manage our base cost while investing in our strategic initiatives and we now have the capital structure that provides a lower cost of funds with the flexibility to opportunistically pursue inorganic growth.
I'll turn it back over to Bruce as we wanted to provide an update on how we view the long term growth opportunity for the business.
Thank you Kevin.
Now turn to slide 10, as we move forward. In addition to growth in our base business, we see developing markets diversification of end markets and technology enabled maintenance as strategic platforms to grow.
To drive growth above and beyond that of our traditional end markets looking at developing markets developing countries are projected to grow at a rate three times greater than that of developed countries over the next 10 years to capitalize on this opportunity we plan on leveraging our geographic footprint augmented by localization.
<unk> to compress lead times and achieve regional price points, while meeting any local content requirements.
The second opportunity diversification of end markets is potentially the most important of our three strategic platforms. The addition of process and environmental heating to our solution set to complement heat tracing has created opportunities to build meaningful positions in more diverse end markets.
Three markets. We are initially targeting our commercial food and beverage and rail and transit while we have participated in these markets historically, we're expanding our market channels enhancing our product portfolio and building sales tools and training to grow our share.
Technology enabled maintenance Leverages, our digital Genesis network and control platform, providing real time situational awareness to streamline maintenance, while improving the safety productivity and reliability of customer assets.
We see additional revenue opportunities from the sale of hardware subscription based software and online services enhancing our abilities to capture the full value of MRO opportunities.
Above and beyond these three strategic initiative growth platforms.
Our operational excellence program is targeted to drive an incremental one 5% to 2% and productivity gains on an annual basis.
While we also anticipate leveraging SG&A to grow at half the rate of the topline to expand EBITDA margins over the next several years, we continue to target EBITDA margins in the 22% range in fiscal 2023.
Turning now to slide 11.
As we look forward to FY 'twenty six we see a solid path for both top line growth and EBITDA margin expansion for this business first we believe there we were well positioned to grow and gain share as our end markets recover over the next 24 months second our strategic initiatives will provide additional opportunities.
To drive growth above and beyond that of our historical end markets.
Finally ability our ability.
Our ability to generate cash and a strong balance sheet will fund inorganic growth opportunities to augment our organic efforts across the three strategic platforms. As a result, we see a clear path to more than double this business over the next five years, while expanding EBITDA margins, creating.
<unk> value for shareholders.
You can also see the impact of these efforts to our projected end market mix with approximately 65% of our end markets being outside of the oil and gas sectors.
We will continue to provide updates on our efforts and the corresponding results in the coming quarters.
Turning now to guidance for the remainder of the fiscal year 'twenty two.
Going forward, we're pleased with how well firm honest position to capitalize on a recovery that is well underway. We're seeing much more robust in markets that have given us confidence to raise revenue guidance range for the second time this year from 293 million to $308 million to a new range of three <unk>.
Third $30 million to $345 million.
We believe the world is adapting to the new environment with COVID-19 variance.
And that the limiting factor in the second half of the year will be largely related to the supply chain.
However, our teams are focused on supply chain resiliency to minimize any impact on our customers and the business.
Our proven business model combined with our unique and long standing customer relationships continue to demonstrate our ability to generate strong cash flow through the cycle.
We have a sound strategy to drive topline growth and expanded EBITDA margins in growing and diverse end markets. We have a very talented team that remains committed to serving our customers. While repositioning this business to create long term value for our shareholders. Looking ahead Fairmont has a very.
Bright future.
I would like to pause now and turn it back over to John for the Q&A portion of our call.
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One moment, please while we poll for questions.
Okay.
Our first question comes from the line of Brian Drab with William Blair. You May proceed with your question.
Hi, Bruce and Kevin Thanks for taking my question.
Good morning, Good morning, Brian.
Good morning.
Can you maybe just elaborate on what some of the products you have for the renewables market what some of those specific applications of your products are.
Uh huh.
That's great that you touched on it today I'd just like to.
If youre a little bit more about the outlook, there and when when does that start.
Market start to really generate meaningful revenue I mean, it sounds like it already has been getting too.
Yes.
Spoke specifically to Biofuels.
And we really it's many of our traditional.
Products, even though you are processing organic matter, you're converting that into.
Biodiesel is one of the most common products there and so the the.
The production processes are very similar so we use really the same types of products. We would use a typical say refining applications. So certainly heat tracing as well as immersion heaters and then in some cases, depending on the location.
Facilities.
In the climate, we might also provide environmental heating so that would be kind of biofuels. If we're looking at other renewables, particularly around.
Wind those would tend to be immersion heaters as well as.
As well as a forced air.
<unk>.
For.
Typically warming the the oil in the salt for the ne sale for wind and then also awarded warming heating the ne cell itself. So those would be kind of the two applications in wind and solar applications tend to be less.
Hydrogen plant.
Some of the similar Oh, yes, so hydrogen yes.
Yes, so hydrogen we actually use a lot of emerging heating.
For the for.
For those processes to basically split.
The water molecule into its component parts.
<unk> in an oxygen so.
Those are used pretty extensively in that process.
And in those end markets typically bump into the I guess the same competitors that you would in your traditional markets as well.
That's correct.
Okay.
You mentioned the $20 million order congratulations on that.
Sounds like 3 million was recognized what is the timing of the balance.
Recognition of the balance of that revenue.
There are potentially more beyond that and whats. The overall gross margin do you think for that opportunity.
Yes so.
We projected.
<unk> $15 million to $20 million within the fiscal year.
There are definitely additional opportunities above and beyond that.
And we would expect those to be at or better.
A better margin profile.
Just to note, we actually have already supplied all the direct materials heat tracing panels and all of that to this customer. This is just kind of some.
Final work around installation, but we see opportunities in pre commissioning.
And.
And really during the commissioning process and then post startup for additional revenues.
The margin profile of labor and material is on the lower end of our <unk>.
The expected range and product projects.
And Brian This is Kevin maybe just to round out on the timing between <unk> and <unk>, maybe half and half I don't think theres a bias either way between the balance of the year, there maybe could be a little more than <unk> versus not but it's on the margins.
So just to make sure I understand the materials have been delivered.
It's just that youre going to recognize revenue as it's installed is what it is.
We sold the material outright we sold the material outright that was recognized three years two or three years ago. So this is just final stages pre commissioning.
Construction pre commissioning and startup.
So this is like this is service and installation revenue that you're recognizing now.
Correct.
Okay great.
When you say lower end of the range of like lower end of the Greenfield range like this can be like.
25, 30% gross margin type revenue.
Brian when we think of the range of the spectrum, there's probably even a lower end of that where some projects get done.
And especially with the content here and not having any of the materials.
Should things lower end of the range.
I gotcha.
Alright, Thats, a lot of service and installation right I understand.
Got it and then yes and then.
Alright, I wasn't thinking about correct me if I got you so the.
And markets I just wanted to see if you could give any more granularity on this can I ask it this way could you kind of rank order the impact.
The strength of the end markets that you saw in the in the quarter.
Including Petro can.
Granularity you can give like Petro Chem.
Midstream downstream oil and gas et cetera.
Yeah.
Yes so.
<unk>.
Kind of ragged chemical petrochemical, but by far the strongest we've seen.
There's a tightness in supply resin prices are literally have doubled.
So we're really starting to see.
Those those facilities really returned to more pre COVID-19 levels of maintenance activity and.
And we're also seeing capital projects that had been shelved.
For some period of time, now being pulled down and being advance. So that's been really the strongest and I was ranked second would be power.
We've also seen some pretty strong maintenance spending and recovering power some of thats related to.
Here in North America in Texas, particularly in related to the winter storm last year, but also just overall.
Strong demand in the power sector.
And certainly if we look at power more broadly we see significant opportunities in the eastern hemisphere.
As power demand growth is expected to grow pretty significantly over the next several years.
I think beneath that we would I would.
Look to kind of a natural gas midstream and LNG opportunities those.
Also our kind of being resurrected as we're seeing.
More demand for natural gas I think you'd actually is actually up above.
Pre COVID-19 levels, and Thats actually driving requirements for more liquefaction in gasification of LNG and.
In order to meet kind of global demand. So those would be kind of the top markets as far as where we see the strongest opportunities I noted rail and transit renewables those actually have.
Some really nice opportunities its small, but certainly growing.
Part of our business and then.
And I would say upstream is probably the weakest sector. Although we are seeing some maintenance not much in the way of Capex.
Great. Thanks.
I am just to ask one more.
Gross margin.
Big headwind right now for a number of factors, but and.
And I know you commented I just want to make sure that.
Have all the details understood correctly, but can you just forecast.
As much granularity as youre willing to give what youre expecting for gross margin.
Next couple of quarters, and even into next year as things normalize hopefully.
Brian This is Kevin I think on margins.
<unk> seen that PSA is we've got a 150 basis points on the charge in the quarter that kind of gets you back above the 40 range and then we outlined I think roughly 600 basis points.
200, there due to the large projects and other 400 S due to the supply chain.
We think pricing is going to have an impact on the supply chain side of things in the second half. So we certainly think there's a path back to those traditional historical 45% type of margins, but I think as we spoke to the large contract that's going to be a drag on margins here.
Just given the structure of that so there's a little bit of pluses from a supply chain being offset by pricing, having more volume should increase productivity, but you've got a little bit of a drag back here in the next two quarters or so on the large project I would say longer term I think we remain confident that this is a business that struck.
Shirley can generate margins on average above 45% and if you think about where SG&A is trending to date.
Think about that kind of low low 20% EBITDA, we think we're on a path there and certainly the business is not there today. So we think there is some pretty strong operating leverage here not just in the next six months, but the next 18 to 24 to 36 months as the business continues to grow so without getting into specifics on gross margins again, I think you can kind of work your way through some of the.
Supply chain challenges with pricing, but we will have a little bit of lag here in the next two quarters just due to the large one time project as that gets completed.
Got it.
I'll, let you go after I just make sure I would I just heard.
In my mind I'm hearing like maybe mid.
$40 45 ish.
Doable with price increases, but maybe a couple of hundred basis point headwind related to the large projects or projects in the second half and then beyond that 45 million.
Attainable at 45, plus even longer term.
You are in the right difficult Brian.
Yes, absolutely.
Okay.
Thank you.
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One moment, please while we pull for more questions.
Our next question comes from the line of Jon Braatz with Kansas City Capital You May proceed with your question.
Bruce Kevin.
Good morning, John Jeff returning to the gross margin.
The 400 basis point drop.
Because of the supply chain issues in price and pricing and so on.
Everything else being equal nothing nothing gets worse would you think by the end of this fiscal year that you're back to a fully recovering that 400 basis points.
Okay.
Do you need more time so to speak.
Yes, John I guess embedded in the question if I kind of think about it more broadly is a little bit of a call on how transitory inflation actually is but.
But I think when we look at the vast majority of that 400, I think we feel really good about pricing in the market right now.
There is a ton of demand out there and I think when we when we look at the ability to.
To meet it.
It may be it.
Three quarters of the way, maybe a little bit more gets home related to pricing in the second half I, certainly don't want to be making a call on inflation when other others aren't able to do that at the fed and other.
Experts in the field, if you will but I think we feel pretty good on pricing ability in the second half two to mitigate that and ultimately that's going to drive some of the recovery in the second half of the year, Okay and did you say Kevin.
In the second half.
A small charge related to the <unk>.
Project that's been.
Causing some difficulty.
So we took the charge in this current quarter, John that's roughly $1 2 million. What I was alluding to is we're going to have immaterial corrections in prior periods. So that would be Q4 'twenty. One that's roughly 400000, and then Q1 of 'twenty two that was another $1 2 million so no no future.
Does that we expect at this time related to that project Alright, alright.
And Bruce in terms of renewables and Green energy.
And there's been a lot of talk about.
Carbon capture carbon sequestration and so on.
Is there opportunity in that area for Thurman.
Yes, there is there certainly is applications of our technology there.
And we are.
We are connected to those customers and those opportunities.
Also you heard Kevin mentioned about our methane destruction unit.
Actually.
One of the kind of myriad of solutions that are out there, but it really has a great application.
<unk>.
Kind of.
Our oil and gas gas.
Gathering fields and where.
Where carbon capture is really not a viable solution and it converts natural gas methane it converts that too.
Cotwo and water.
So that's actually even another opportunity when we start looking at Karl.
Carbon capture and reduction Okay, alright, okay, very good and and Bruce do you.
I know you talked you made reference to it but.
Do you think there will be anything.
Coming out of those.
The regulations regarding the Texas state.
That will.
Begin to impact third month.
Any significant degree is.
Are there big changes on the horizon as a result of that bill.
We already are seeing.
Part of our order growth this year was directly related to.
To improvements in the infrastructure to winter as asset so we're already seeing the impact of that in our business. Okay.
Okay, Alright, alright, thanks, very much I appreciate it.
Thank you Scott.
At this time, we have reached the end of the question and answer session and I will now turn the call back over to Bruce for any closing remarks.
Alright, Thank you John.
Thank you all for joining here today appreciate your interest in <unk> and enjoy the rest of your day.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.