Full Year 2022 Thermon Group Holdings Inc Earnings Call
Greetings and welcome to the <unk> Group Holdings fourth quarter 2022 earnings Conference call. 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.
Please note that this conference is being recorded.
I will now turn the conference over to our host Yvonne Salem, Vice President of S. P N E and Investor Relations. Thank you you may begin.
Thank you. Thank you Dan good morning, and thank you for joining today's fiscal 2022 full year conference call earlier. This morning, we issued an earnings press release really is which has been filed with the SEC on form 8-K, and it's also available on the Investor Relations section of our Montney. Additionally, this law.
<unk> conference call can be found in our IR website under news and events IR calendar earnings Conference call Q4 2022 during.
During the call we will discuss some items that did 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 report.
In accordance with GAAP I.
I would 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 recently 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 statement, whether as a result of new information future developments or otherwise, except as may be required by law now I'd like to introduce Bruce Thames.
Our president and Chief Executive Officer for his opening remarks.
Thank you Ivan.
Thank you all for joining our call today, we appreciate your interest and investment in thermal and following my remarks, Kevin Fox, Our CFO will provide more detail on the financial results for our fourth quarter of fiscal year, 'twenty, two and full year.
I'd like to begin by turning to slide three to reflect on our full year fiscal 'twenty two results.
Fiscal year 'twenty, two marked a year of recovering topline with solid leverage on the bottom line underpinned by strong execution by our team.
Topline revenues grew 29% in the year, while adjusted EBITDA growth of 61% <unk>.
Expanded at more than twice the rate.
Free cash flow for the year was $24 2 million, which represented 120% of net income.
More importantly, we advanced our long term strategic initiatives of diversified end markets developing economies and technology enabled maintenance.
During the year were able to achieve 44% growth in diversified end markets to achieve 60% of revenues in non oil and gas verticals. We also saw continued a solid continuation of market uptake of the new Genesis network with six system purchase orders to date as COO.
Customers seek to streamline and more effectively manage their assets.
In addition, we launched numerous new products and software ranging from our market, leading <unk> design software to products for commercial rail and transit and environmental heating applications.
These new products were instrumental in driving the growth seen in the diversified end markets during the year.
I also want to thank our teams around the globe for their commitment to safety fiscal year 'twenty. Two marked the second consecutive year of zero lost time incidents and we were recently awarded best in class and recognized as a mentor company for our commitment to safety out of over 1500 contractors.
<unk> also advanced our commitment to sustainability and ESG during fiscal year 'twenty two.
Many of our products actually reduce emissions lower energy consumption and shrink the carbon footprint, helping our customers create more sustainable operations.
During the year, we also expanded our disclosures on a wide range of environmental and social issues assign clear accountability within our corporate governance structure and increase the overall diversity of our team.
Our teams accomplished all of this while facing widespread supply chain disruptions 40 year high inflation and a war in Ukraine.
Overall, I'm very proud of this team and their achievements in fiscal year 'twenty, two and look forward to continuing to work alongside them to deliver profitable growth as we execute our strategy.
Turning now to slide four on our end markets.
So again I want to highlight the advancements we've seen in our efforts to diversify end markets during fiscal year 'twenty two.
We were able to drive growth in diverse end markets by 44% almost three times that of traditional oil and gas end markets during the fiscal year.
As a result oil and gas now represents just 40% of our mix well. The majority of our business is driven by a wide range of diverse end markets with GDP plus growth opportunities some.
Some great. Examples include power growing by 260%, which included the impact of Winter Storm Yuri along the Texas Gulf Coast, We continued and we see continued opportunities in the power sector going forward drew.
Driven by the transition to electric from other traditional energy sources.
We also grew rail and transit by 49% year over year with the launch of the Hellfire Blizzard duty.
And.
Expansion of our business development team, our commercial business grew by 67% driven by the launch of a low smoke zero allergen heat tracing offering in Europe .
Combined with our deep profile frees protection heating cable for the global market.
Our marketing campaign in channel development, and food and beverage resulted in 27% growth in the year. In addition, these efforts we continue to see strength in the chemical and petrochemical sector, which has grown to become our largest end market.
Geographically, we saw the U S and Canada lead the recovery in FY 'twenty, two with Europe growing modestly in Asia lagging due to Covid lockdowns throughout the year.
Turning now to slide four for our Q4 results.
Our strategic pillars around end market diversification developing economies and technology enabled maintenance combined with strong execution have been key to our success this quarter and fiscal year.
Fourth quarter exceeded our revenue expectations, despite the supply chain challenges that persist.
Revenue finished the quarter up roughly 40% year over year at $102 6 million driven largely by strength in North America.
Excluding the one time labor contract, which represented $12 million in revenue during the quarter revenue grew by 24% year over year.
This marks the third consecutive quarter, where revenue has exceeded our expectations highlighting continued strength in the recovery.
This quarter. We also saw price increases in productivity <unk>, essentially offset inflation with $18 3 million, an adjusted EBIDTA for the quarter up 214% over the prior year quarter.
The balance sheet is also in very good shape with net debt to adjusted EBITDA at one four times at year end, finishing at the lower end of our projected range.
We believe this positions us well to pursue inorganic growth opportunities that augment our three strategic platforms.
Free cash flow was particularly strong at $13 2 million, representing a 152% of net income for the quarter.
Adjusted EPS finished the quarter at 31 cents a share up from two cents a share in Q4 of last year as the team tactfully balanced cost management with continued investments for growth.
The momentum we are seeing sets the business up well for continued success in FY 'twenty three and beyond.
Turning now to slide six on orders and backlog.
We continue to see strong growth in incoming orders with bookings growing 47% in the quarter and 39% over the trailing 12 month period.
Excluding the one time contract our Q4 book to Bill was a very strong 1.2 times and has been positive for seven of the last eight quarters. In addition, our quotation volume was up 76% year over year and 87% sequentially.
Backlog is up 37% year over year, and seven 2% sequentially.
Based upon the level of activity, we continue to see opportunities to drive growth and anticipate a return of capital spending during the second half of this fiscal year.
With that I'd like to turn the call over to Kevin for a more in depth review of our financial results Kevin.
Thank you Bruce turning now to page seven revenue in the fourth quarter was $102 6 million up 40% versus prior year. The large one time contract contributed $12 million in the quarter. So excluding that project Fairmont revenues were up 24% versus prior year.
Drivers this quarter remained consistent with previous periods, where we are seeing strong growth in the western hemisphere with APAC slowly recovering from Lockdowns and EMEA showing a year over year decline due to some larger projects in the prior year and partially due to the impact of the war in Ukraine, and our decision to suspend new orders and.
And our Russian operations.
2022 revenues totaled $355 7 million growth of 29% versus prior year, excluding the one time contract of 24 million year over year growth was still an impressive 20%. The remaining work at year end has already been completed in our first quarter.
Point in time revenues grew 34% in the quarter and 33% in the full fiscal year, which underscores the strengths in maintenance spending across our global installed base. As a reminder point in time revenues are aligned with our product our material sales, while overtime revenues, which were up 51% in the quarter and 23% year.
To date, both including the one time contract are representative of project work, where we have engineering and installation services.
Point in time revenues are generally reflective of material sales. These revenues traditionally carry higher margins than the overtime revenues, making the faster growth in that revenue stream, a key driver of profitability today and in the future.
Overtime or project revenues represented 40% of total revenue this quarter versus point in time, our material revenues of 60%. Excluding the large one time contract. This split was 31 69 versus 36 64 in the previous year.
This will be the finer final quarter of disclosing the MRO UE versus Greenfield construct historical information remains available in our SEC filings for a comparability greenfield.
Greenfield was 46% of revenues due to the large one time contract versus MRO UE, a 54% in the quarter.
On the next slide will cover costs.
Reported gross margins in the quarter were 41% versus the reported 30 36, 6% last year.
[noise] items to work through to provide clarity on the year over year changes in the quarter first we back out the adjusting items from last year's quarter totaling $3 3 million or 450 basis points, giving us a comparable base of 41, 2% adjusted gross margin in the year ago quarter.
This quarter, the one time contract with revenue of $12 million was dilutive and impacted margins by 570 basis points, giving us a comparable figure of 45, 8% gross margin in fiscal 2020 to fourth quarter.
In this year's quarter versus prior year, we realized pricing benefits of 380 basis points, which was more than the increase in material and labor costs of 340 basis points.
Volume contributed an increase of 430 basis points.
Overall, we are pleased with the ability of the business to navigate through this difficult operating environment previously announced pricing actions continue to have a positive impact on profitability and we are constantly evaluating our global pricing strategies materials availability and rising input costs remain a challenge, particularly around electronic <unk>.
Ponant, but the team is proactively managing for continuity and long term availability. We're most pleased to see the margins in the core business. Excluding the one time contract above that historic level of 45% and we have identified a specific set of continuous improvement projects to drive enhanced profitability in the future.
As a brief reminder, we deduct depreciation from the SEC reported selling general and administrative expenses to arrive at the SG&A on the slide in the quarter SG&A was $23 6 million or 23% of revenue versus the prior year of $20 6 million or 28% of revenue.
Really driven by investments in strategic initiatives and costs on higher volume.
For the full year, SG&A was slightly above $80 million or 23% of revenue up from $79 million or 28% of revenue in the prior year.
We remain highly focused on managing the controllable spend while investing in our business to drive profitable growth. We will continue to be disciplined as the business expands, particularly as we navigate through this uneven recovery to ensure that we have a scalable cost base over time.
Now page nine adjusted EBITDA and earnings per share.
Adjusted EBITDA was $18 3 million or 18% of sales in the quarter. Adjusted EBITDA is up $12 5 million or three times from the prior year due to non repeating items in fiscal 2021 increased volume and the impact of our pricing actions, but partially offset by the impact of inflationary forces for both materials.
And labor in our manufacturing operations.
From a full year perspective, adjusted EBITDA finished at $58 5 million representing growth of over 22 million or 61% versus the prior year.
Most importantly, adjusted EBITDA margins for the year increased by 330 basis points as we were able to drive additional volume growth in the business, while successfully managing our controllable spend.
We believe the business still has considerable room for growth and EBITDA margins and while the overall inflationary environment is impacting previous estimates on the timing of margin expansion. We still expect there is an incremental 300 plus basis points of improvement in the business over the next 24 months.
We realized 4.4 million lower interest expense in fiscal 2022 versus prior year due to our refinancing helping to drive significant earnings growth versus prior periods GAAP EPS in the fourth quarter was 26 cents per share an increase versus the prior year loss of three cents per share and adjusted EPS.
<unk> 31 per share versus last year's <unk> <unk> per share for the full fiscal year GAAP EPS was <unk> 60 in adjusted EPS was <unk> 83.
Quickly on the balance sheet and cash flow on page 10.
Cash ended at $41 million as we manage the timing of additional debt pay down and investments in the business with collections net debt to adjusted EBITDA ended the year at 1.5 times at the lower end of our guidance range as the business has improved working capital as a percentage of revenue over the past few quarters.
I wanted to pause and provide a little color on our financial exposure in Russia revenue was approximately 5% of sales or $19 million and the net asset exposure was roughly 9 million as of March 31, we.
We expect revenues to decline significantly in fiscal 'twenty 'twenty three as we run off the current backlog and we will continue to monitor our local exposure during that time period, while complying with all applicable sanctions and regulations.
<unk> information will be included within our 10-K.
The right side of the page, we continue to generate positive quarterly cash flows with free cash flow of $13 million in the quarter or an increase of 13% year over year Capex was only $2 million and predominantly focused on maintenance and we will see incremental capital investments in our strategic initiatives in the quarters ahead the.
M&A pipeline remains robust with active discussions at various stages of the process. We believe inorganic growth will be a key contributor to achieving our long term goal of exceeding $550 million of revenue by fiscal 2026, and any future acquisitions will be aligned with our long term strategy of diversifying our end market exposure.
You're growing and developing markets and providing technology enabled maintenance to our installed base and the global process heating markets.
Overall, I'm happy with the results and believe it to be indicative of what this team can consistently accomplish even in difficult operating environments. We remain diligently focused on what we can control and we will quickly adapt as the external environment changes if I look back at the last 24 plus months since Covid emerged there remains a.
A lot of volatility in the world and we expect that to persist.
Profitable growth remains the goal and our fourth quarter and fiscal year 2022 results show that we can deliver.
Customer demand is strong our balance sheet provides ample flexibility we have a winning strategy and most importantly, a winning team a special thank you to the global thermal team for their continued commitment everyday to living our values, while delivering results and with that I'll ask Bruce to provide an update on the progress, we're making with our strategic initiatives, particularly.
Kelly around diversification.
Thank you Kevin I.
I would like to now direct your attention to slide 11 on our strategic initiatives as highlighted earlier, we made significant advancements in our strategic initiatives in fiscal year 'twenty two looking forward to fiscal year 'twenty. Three there were a number of areas, where we're investing to position the company for long term success.
First we're expanding our manufacturing capabilities in the eastern hemisphere to meet lead time requirements and price points to improve our ability to profitably grow our business in developing economies.
We are also adding key business development resources in these geographies to expand both our direct and channel presence to better serve.
Second our efforts on diversification have really begun to gain traction with approximately 60% of our end markets now outside of the oil and gas sector in fiscal year 'twenty. Three we continue to invest R&D dollars for new product development, and rail and transit commercial and electrification and light.
Industrial applications were also advancing our marketing efforts growing direct sales expanding our channels and adding specialized business development resources in these areas to build on the momentum we have.
Finally, Vermont is very well positioned to enable the energy transition with solutions that address a wide range of applications from biofuels to renewable energy.
Our controlling communication platform, which is central to our digital transformation around the technology enabled maintenance initiative continues to lead in our space, We're making continued investments in R&D to expand software capabilities for operations and business intelligence.
Combined with new product launches to complement the current hardware platform.
We are encouraged by the very positive response by the market with six systems sold to date and goals of achieving three to five times the system adoption in fiscal year 'twenty three fueled by growing quotation log.
It's important to note that while these systems create incremental opportunities.
The real potential lies in conversion of the installed base, which is enabled by our self healing mesh network.
Underpinning these three strategic pillars is our operational excellence program.
Our new senior Vice President of operations is leading a Toyota production system transformation that will reduce waste increase velocity and improve asset utilization.
This transformation will be instrumental in driving productivity gains to offset rising labor costs and deliver EBITDA margin expansion going forward.
Turning to slide 12, I would like to highlight an example of a green hydrogen plant to illustrate where thermal provides a breadth of technological solutions needed to enable a greener future.
Currently we are tracking over $25 million in hydrogen opportunities, which have grown by 60% since October of 2020.
We have also secured the first order for a small scale green hydrogen facility with less than five megawatt generating capacity, while nascent we see hydrogen as a key piece of this sustainable energy mix going forward and are working with process developers to provide industry leading solutions to enable this to.
Technology.
Turning now to our fiscal 2023 plan and full year guidance.
Looking ahead, we are very pleased with the progress we're seeing in our business our fiscal year 'twenty. Three plan includes an incremental $6 million in key investments new product development sales and business development to execute on our strategic initiatives. In addition, we anticipate approximately three years.
To 3.5% and Capex to from vertical integration of our rail and transit supply chain, while expanding manufacturing capabilities in the eastern hemisphere to support growth into developing markets looking forward.
We see continued supply chain challenges and the risk of recession, particularly in Europe , creating some level of uncertainty how.
However, our backlog is up 37% year over year and our incoming order rate remains robust based upon these factors revenue guidance is projected to be from 350 million to $380 million for the full year, which at the midpoint represents 10% growth over our <unk>.
Core business at 333 million in fiscal year 'twenty two.
This forecast accounts for the suspension of new orders and investments in our Russian entity, where we are focused on fulfilling existing commitments.
We anticipate our process and environmental heating business to exceed pre COVID-19 revenues and expect a continuation of the recovery across our heat tracing product offerings, which typically lags by about nine to 12 months.
For the first time, we're initiating GAAP EPS guidance for the full year of 74 census year to 89 cents, a share representing 36% year over year growth at the midpoint.
We anticipate operational excellence initiatives combined with price to offset any inflation to improve the overall margin profile in the business by 200 to 300 basis points in fiscal year 2023.
As I look at this business Thurman has a well established leadership position with a broad portfolio of solutions, a large installed base of loyal customers that generates recurring revenues across industry cycles and investment light business model that generates strong cash flows.
And certifications across a wide range of industries and geographies that creates significant barriers to entry the resilience of this business. The global recognition of the brand and the strength of this global team position therm on very well to deliver profitable growth in fiscal year 'twenty three.
And beyond.
I would now like to turn the call over to our moderator Diego for the Q&A portion of this call.
Thank you.
And ladies and gentlemen at this time, we will conduct a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate that your line is in the question queue.
You May press the Star key followed by the number two 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 Brian Drab with William Blair. Please go ahead.
Good morning. This is Tyler on for Brian could you discuss in more detail, how a cyclical shift in global demand could affect a recovery and four months end markets for large projects and are the continuing COVID-19 restrictions and the east still pushing out pent up demand even more.
Yeah, So I think kind of the latter part of your question.
We do see that COVID-19 restrictions, particularly in China.
Have have delayed recovery there.
India, we actually see in the very early stages.
South Korea, we're seeing some very positive signs in Japan.
But we're seeing China lagging.
And the first part of your question, if you don't mind repeating.
Yeah I was just wondering if there is a slowdown in global demand.
Wondering like how do you see that affecting your end markets for large projects like do you see it as being more defensive or do you think it would have a large impact I know you mentioned Europe recession, but I'm just wondering on a more global scale.
Activity slows down how it would affect your large projects.
Yeah, So well first of all I mean other than this one large one time project, we've spoken to all year, which was really labor didn't have any materials.
We our business has been heavily weighted towards kind of the the maintenance and.
Really pent up demand and maintenance on the installed base. So we really haven't seen a big return in Capex.
Since.
Kind of the recovery of this past year.
From Covid, So I don't really I, all I would see is that maybe the capex would move out further as we look at our end markets in our end market mix is changing I think it's important to note like in certain areas power.
That installed base, we'd expect that to remain fairly strong utilities things like that if we think about food and beverage you know some of the wins, we've had recently where we.
We're in areas like food oils.
And these different types of food processing bulk food processing and so there's still a demand.
And I would and then also in the commercial space, where we've done a lot whether that be in.
For new buildings for.
Fire safety.
Fire sprinkler safety systems, whether that be for hot water heaters.
Boilers things of that nature, we are seeing some.
Really some changes that are driving the transition from.
From natural gas or other means of firing boilers to electric and and we think those will we'll kind of continue so I think in some of the other diverse end markets, where we focus.
They would be more resilient during a downturn as we look at oil and gas, we really only saw about 15% growth in oil and gas this year.
And so we haven't really seen a strong rebound.
What we have seen it was stronger pricing we've seen.
But really some spend around maintenance.
But we really have seen a shift in kind of capital deployment as we've seen a lot of that has been more of a focus on return capital to shareholders rather than investing capex dollars and so we're still kind of awaiting that expenditure. So some of that then could move to the right depending on seeing what.
Might happen.
And Tyler this is Kevin here, maybe just to build on that for a second if we think about our orders in our backlog you know TTM orders were about $366 million last year I think once you exclude the large contract yeah. That's supportive of our strong growth even over the next 12 months as well and again, if we think about where the business is performing today, excluding the contract.
69% of the revenues who are on the the materials or the point in time revenues as well. So I think we've got a few of those facts that are kind of stacking up that give us confidence in the business over the next 12 months, even in a you know.
In uncertain environment, given our you know raising rates in the U S and et cetera.
Okay. Thank you for that and just following up so do you see point in time sales, having an even larger allocation of revenue then overtime sales than in fiscal year 'twenty three.
I think it would be consistent with the historical average, but certainly where we think about the relative growth rate. It would probably be bias to maybe being a touch higher but I think that historical average is a fair point to start.
Okay I appreciate the color on that and just last for me for more modeling purposes on the last call you mentioned, a target run rate of SG&A of $80 million excluding depreciation.
I'm just wondering if you know.
Global growth does slow down do you still expect that run rate will stay around 80 million for operating expenses or if there is.
Some headwinds to top line do you expect operating expenses that come down a little bit.
Yes, Tyler I appreciate you asking the question I think the 80 was a target around fiscal 'twenty two not anything going forward.
Nearly for a business that's growing 30% of revenue you would expect incremental SG&A in that business just on a normal course basis. We ended the year with SG&A at about 23% of revenue I think that's the right type of Mark on a baseline basis, but you heard in a lot of Bruce's comments, we're investing in this business to grow our <unk>.
Strategic initiatives require us to be building out capabilities in the eastern hemisphere ought to be bringing in resources from a commercial standpoint to help drive growth in these new markets and we certainly have some investments that we're going to be making in our operations that have a payback period, but do require some of those upfront investments as well. So I think as we look at it.
SG&A you know 80 was not a run rate that's in FY 'twenty. Two number we came in just a touch higher than that because of investments we're making in these strategic initiatives. So we very very much see the cost line is focused on value added profitable growth trying to generate those incremental returns on capital.
Think about if your question is okay. If the market's going to rollover here, we've got a a very tight list of what those investments are and if the external environment changes, we would certain REIT recalibrate those expectations, but again, given what we're seeing in our backlog given what we're seeing in our customer spending in the quotation log that Bruce quoted I think we feel.
Pretty good about where the businesses today, and obviously would be seeing in SG&A at certainly a higher cost than we did in fiscal 'twenty.
Okay. Thank you that's all for me I'll pass it along.
Thanks Tyler.
Thank you and just a minor to ask a question press star one.
Our next question comes from Jon Braatz, with Kansas City Capital. Please state your question.
Bruce Kevin.
Good morning, John .
Talk a little bit about on the <unk>.
Most margin front as we go forward, obviously, there's a lot of moving parts, you've got China issues, you've got maybe the Russian business. So influencing March the absence of the Russian Division.
Business influencing margins.
And.
And you know the intention or the aim is to get the margins back up to sort of that mid 40, 40% area.
But I.
I get a sense, it's going to be a little bit of a struggle here with the cost pressures and some of the other things going on.
How do you how do you see the margins the gross margins. So you know in 2022.
2020 point, yes, John Good question, Yeah, obviously, a lot of noise over the past five quarters here. We hope we're we're beyond that there'll be a little bit of this new contract in the first quarter of fiscal 'twenty three excuse me the large contract in fiscal 'twenty three but that's that's behind US as of this call. If we think about looking forward certainly the fourth quarter when you looked on the.
The core if you will at 45, 8% I think that's the highest it's been in four years I think it's indicative of things to come obviously, that's a little bit of a higher volume quarter versus normal, but if we think about the cadence of those gross margin increases two to 300 basis points on the EBIDTA line I think that probably translates to.
The gross margin pretty pretty fairly we might not be back all the way to 45% in the next year given some of the challenges that we know everyone's facing around supply chain, but we certainly expect sequential improvement on the base on a year over year basis, if that if that makes sense. Okay. So really what.
If you look at the margin.
Operating margin.
If you want to call it pressure, it's it's really.
The investments that you're making on the SG&A line and that's that's accelerating and maybe again I don't I hate to use the word pressure, but the limiting the margin improvement. So it sees these investments that you're making that maybe if it were that you werent, making a couple of years.
Maybe last year.
Thinking of that right.
You are John I noted in my comments about $6 million of incremental investments.
That's in sales resources in R&D and all of those investments really sit.
In SG&A expenses and and so that's a that's a significant piece of that kind of year over year.
And certainly as Kevin said that we would moderate the pace of those investments if we see if and when we see the the growth picture change.
I can tell you right now the signals, we're getting R&R business.
Haven't shifted and we're really still seeing strong demand overall.
And but we're watching it very closely we are keeping our finger on the pulse of the a lot of leading indicators.
And while there's some challenges looming the really only impact we've seen has been more due to Russia.
Russia War in Ukraine.
And the impact on Europe , and then some of the issues in China, I think they havent necessarily gotten any worse, but certainly we haven't seen the recovery begin there yet so those would be the two kind of things that we are seeing and experiencing beyond that we're seeing a pretty robust demand environment.
Across a wide range of Av.
Industrial verticals.
John I would just I would just add to that if we think longer term. The goal is to get this business north of $550 million of revenue clearly that's going to require investments organically inorganically et cetera.
We think we're in a position where we can make those investments now to have a pay off certainly in the future. We don't think it's five years, we have to wait.
But in order to drive that growth to drive that change in the end markets. These are absolutely investments that we feel comfortable making at this time, okay. Specifically when you look at your end markets, specifically oil and gas end market.
Is there a possibility that you get a pleasant surprise in that in that.
Given that we give.
Given the level of energy prices that you.
You might see that end market, a little bit stronger than maybe what you might be anticipating and maybe some additional capex spending coming from that sector.
Yes, I think there could be upside there John from what we're currently forecasting.
Think some of the quote log is indicative of the potential upside there. We only saw a balance of about 15% last year overall those end markets were down.
No 30, 35% of kind of post <unk>.
Host Covid.
So they have not by any means fully fully recovered and we certainly have not seen.
The capex spending that we would typically see.
Commodity prices at these levels. So I think that is one of the potential upsides that we might see in the coming fiscal year.
And John it might not be on the project side, either I think as we look at maintenance and utilization.
Our bias would be is that that's probably where the dollars are going to get spend just given the capital allocation priorities of those customers that have been articulated so it might not necessarily be on a long term project of lower margin types of sales that we see.
Alright, Thank you Kevin.
Okay.
Thank you there are no further questions at this time.
I'll now turn the floor back to Bruce Thames for closing remarks.
Well again, thank you all for joining US we appreciate your interest in <unk> and enjoy the rest of your day.
Thank you. This concludes today's conference all parties may disconnect have a good day.