Q3 2023 Thermon Group Holdings Inc Earnings Call

[music].

Greetings and welcome to the <unk> earnings conference call for third quarter of fiscal year 2023.

At this time all participants are in a listen only mode.

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 as a reminder, this conference is being recorded.

It is now my pleasure to introduce to you Yvonne Salem, Vice President of S. P N E and Investor Relations. Thank you Yvonne you may begin.

Thank you John good.

Morning, and thank you for attending today.

2023 third 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 in our IR website under news and events.

Helander earnings Conference call Q3, 2023.

Nicole 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 can remind you that during this call we might make certain forward looking statements regarding the company. Please refer to our annual report and most recent quarterly reports filed with the SEC for more rigs there.

Regarding our forward looking statements, including the risks and uncertainties that could impact our future.

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.

Likely yes.

President and Chief Executive Officer for these up 40, something in your remarks.

Thank you Juan and good morning, everyone and thank you for joining us today.

I wanted to begin by setting the stage with a quick overview of Fairmont for those of you who may be new to the story.

The 68 year old company, we've been tested and proven resilient across many economic cycles.

World leader in providing safe reliable and innovative mission critical industrial process heating solutions to customers in 85 countries from facilities on four continents.

Our over 1300 employees have an industry, leading safety record and are dedicated to creating value for our customers and by executing our long term strategic plan and I will provide a few examples of our strategy and action during this morning's update.

I'd like to thank all of our employees for contributing to our very strong performance this quarter and for your ongoing commitment.

Okay.

I would like to note that in the lower left of the page, where you see revenue by type for clarity and simplicity beginning this quarter, we've changed how we're showing this data. We've previously presented this data as point in time versus overtime.

Kevin Fox, our CFO will provide more detail on this revised skewing of our sales and the rationale for doing so later in the presentation.

On slide four you can see our strategic.

In order to create value for our shareholders over the long term.

Chris on three key areas first.

And our installed base second diversification.

And decarbonization.

Third.

Capital allocation.

But from a very large global installed base, which provides significant opportunity to capture recurring revenue, while driving growth across our traditional market works.

We're driving additional growth through diversification into attractive adjacencies, such as commercial rail and transit.

Beverage renewables and other end markets.

Our solutions also helped enable the transition towards sustainable energy sources.

We're expanding our digital solutions with products that utilize the industrial internet of things and support customer demand for productivity reliability efficiency and safety enhancements.

I will discuss Digitization further on today's call, while providing an update on our recent new product introductions, specifically looking at the launch.

Duo.

Because we are seeing them.

<unk> and de Carbonization, our strategic priorities.

Helping markets to capitalize on this larger opportunity with our existing Ting.

Yes.

We see significant growth over the next few decades.

Some more detail in a few moments.

Finally, we are committed to disciplined capital allocation. Our current priorities include inorganic growth through acquisitions with returns.

Weighted average cost of capital by year, three and maintaining balance sheet strength through the cycles.

Got it.

Yeah.

We're seeing a large emerging market.

Although the carbonization.

Energy use generates where ADP.

Now some gas emissions as you can see here heating represents roughly 50.

Consumption.

The energy used for heat.

It's from industrial sources to date, 95% of the heating using industry. This from hydrocarbon based heating sources with only 5%.

As well as thermal energy storage is roughly one 3 billion, which we believe is addressable with our existing technology.

By 2030, we expect this market to more than double to $2 8 billion growing at an anticipated nine 3% compounded annual growth rate.

By 2050, this market is anticipated to grow to more than $15 billion globally.

Today, we believe that <unk> has the electric resistance heating products and technology to address 80% of this global market.

Going forward, we believe <unk> has the products technology and is well poised to capitalize on this rapidly growing market opportunity.

Okay.

Moving to slide six on enabling the energy transition and V carbonization.

Here, we have a couple of examples of many of the types of opportunities. We are seeing in that space and both examples we're providing the heating technology for <unk> as part of carbon capture and storage systems to reduce scope one of them at a refinery in Kansas.

And in the agricultural project, which includes ethanol and other processing plants across the U S. Midwest.

While these represent just a couple of examples through three quarters, we have booked over $22 million in energy transition and decarbonization opportunities. This year up roughly 50% from the full year in FY 'twenty two with another quarter to go.

Moving on to slide seven with our new product development.

I'm very pleased to announce the latest edition of the Genesis duo to our market leading digital platform shown here on the right side of this slide.

This new two channel controller has features that have never before been seen in the industry and have control of this size. It offered these offers advanced control features with the ability to track historical trends is I I O N T enable with self healing mesh communications.

Has an intuitive touch screen interface and a multifunction light ring that provides a visual feedback operators. These units can be pipe mountain decentralising control and lowering total installed cost for operators.

On the left side of the slide you can see examples of new products launched over the last five years, our new product development efforts have resulted in a robust, but Saudi index, representing 28% of year to date revenues.

This pipeline of new products has created a real competitive advantage for thermo on with our controls and communications in combination with the most advanced heating technologies for demanding applications.

Turning now to slide eight for an update on diversification.

You can see here examples of recent wins illustrating our continued momentum across three of our targeted markets for diversification, including commercial food and beverage and rail and transit.

In commercial we see city ordinances driving the conversion of hydrocarbon fired boilers to electric.

In rail and transit, we're on pace to achieve 50% year over year growth with the introduction of the new Hubby Hellfire Blizzard duty.

The recently passed U S inflation reduction act is driving investments in the rail and transit sector that we believe will benefit our business going forward.

Finally in the food and beverage market, we won a $2 4 million dollar opportunity in our seed oil plant in North Carolina, and we expect revenues in our food and beverage end market to more than double in fiscal 2023 versus the prior year.

On slide nine looking at the external environment.

I would like to again emphasize the progress that we've made against our end market diversification strategy.

Here, we see an updated chart with end market mix for the trailing 12 month period, ending December 31 of 2022.

Approximately 57% of our revenue came from non oil and gas end markets compared to roughly 45% and our fiscal years 17.

In fiscal year 'twenty, three we are seeing a strong recovery in the oil and gas sector that is largely focused on maintenance combined with efforts to increase throughput and reliability on the installed base in fact, the 91% of sales to the upstream oil market, our recurring product sales to support it.

Maintaining the installed base.

We're also seeing continued progress in growing our diverse end markets and are working diligently towards our long term goal of achieving 65% to 70% non oil and gas revenue by the end of our fiscal year 2026.

We continue to see strength across the majority of our end markets. We believe the strong maintenance environment and chemicals and petrochemicals combined with customer demand for end use plastics enables those markets to grow.

Over the longer term.

The headwinds from margin pressures and increase European energy prices are partially offset by the cheaper and a blended feedstock in the U S.

In the power sector, we've seen growth moderate after revenues doubled in fiscal year 'twenty to fall and winter storm. Here. However, we believe the mid to long term drivers remain intact, which include electrification renewable energy and the rise of the middle class in Asia.

Several of the verticals that make up the strategic Adjacencies category continued to experience growth, including renewables such as hydrogen biofuels in nuclear power as mentioned earlier, we have secured over $22 million in orders this fiscal year to date up 50% compared to the full year in fiscal year <unk>.

Two.

Overall, while we're not immune to the impacts from ongoing macroeconomic turbulence.

We believe the breadth of our solutions combined with our diversification across a wide variety of geographic and end markets continues to serve us well.

Turning now to our results for the third quarter of fiscal year 2023 on slide 10.

Thermal and had another quarter of outperformance driven by our team's outstanding execution, despite ongoing macroeconomic challenges and continuing geopolitical uncertainty in Europe .

We achieved record third quarter adjusted earnings per share due to strong performance in North America, which benefited from the ongoing recovery in the oil and gas industry combined with an improving supply chain.

We've also been able to offset increased material and transportation costs with strong price realizations, while diligently managing controllable costs and continuing to make strategic investments to grow our business over the longer term.

For example, the integration of our power blanket acquisition announced during the first quarter of this fiscal year remains on track and produced $8 million of revenue at attractive margins during the quarter.

Revenue of $122 1 million was up 21% year over year, adjusted EBITDA increased over 45% year over year to $29 8 million.

With a margin of 24, 4% an increase of 390 basis points free cash flow of $17 6 million for the quarter was driven by strong earnings and customer collections. Adjusted EPS was a record 52, a share an increase of more than 40% from the prior year.

Given.

Given the strength in our backlog and incoming orders, we're raising revenue and adjusted EPS guidance for the full fiscal year.

On slide 11, you can see that our orders and backlog continued to remain strong we're very pleased with the momentum in the business. This quarter, we achieved record incoming orders of $126 million up 40% year over year, while bookings grew 22% on a trailing <unk>.

<unk> month basis, our book to Bill was 1.03 times. This represents the ninth quarter of the last 12, while we have where we have achieved a positive book to bill.

Our backlog of $160 7 million is at record levels and was up 16% year over year, excluding FX impacts.

With that I'd like to turn the call over to Kevin Our CFO for a more in depth review of our financial results Kevin.

Thanks, Bruce before we get into the detailed results I would like to highlight that we have announced our decision to withdraw from our operations in Russia. We have a dedicated slide later in the deck to walk through the impact to our financial performance and we will present the financials in the upcoming slides on an adjusted basis additional information will be available in our.

<unk> 10-Q filed later today.

Next I would like to describe the change in revenue reporting that Bruce touched on briefly at the beginning of the call as you recall, we previously reported revenue broken into two categories point in time and over time.

We found that these categories could be even more valuable to the investment community and in our view. It is important to understand whether our sales are derived from our customers capex budgets are instead from ongoing maintenance and repair spending which is typically operating expense dollars. The value of our installed base is more closely tied to spending in a less volatile.

Total operating budgets that sustain an optimized customer production, whereas customer capital spending is what builds that installed base over time, but can be more volatile as macroeconomic conditions cycle. So for this reason we will now show over time large projects defined as over time revenues greater than 500000.

Dollars, which we believe are typically funded through capex budgets.

Second the category will now be presented as overtime of small projects, which are over time revenue is less than $500000 and we believe are typically funded through opex budgets. There is no change to your point in time revenue reporting for a point of reference the average size of an over time order capturing both.

With the small and large categories and our fiscal 2023 year to date is approximately $70000 well below the $500000 threshold. We've established we hope this clarification will be helpful to all of you.

Turning to revenue on page 13, we are pleased with our overall performance this quarter as the global thermal team continued to drive profitable growth, while meeting strong customer demand.

Revenue in the third quarter was $122 million up 21% versus prior year and exceeding internal expectations sales growth in the Western Hemisphere was a result of continued deferred maintenance activity in upstream and downstream oil and gas and chemical end markets and investments driven by sustained <unk>.

Entity prices and global demand.

Our maintenance spending in the oil and gas market is growing considerably we are still focused on executing against our long term goal of market diversification.

By the end of fiscal 2026th we expect that at least 65% of total revenues will come from diversified markets other than oil and gas. We continue to see progress in our diversified end markets with rail and transit up 39% and food and beverage up 145% on a year to date basis.

<unk> revenues are up almost two X versus prior year, while smaller today than other legacy end markets. These segments represent opportunities with long term tailwind and we expect them to be a key component of their months' growth trajectory in the years ahead.

FX negatively impacted revenue by $5 million due to the stronger U S dollar, which we expect to continue to impact our business in the quarters ahead.

Reported results also include a full quarter of power blanket financials were $8 million in revenue. We are pleased that our integration of the power blanket acquisition remains on schedule for a month's revenue growth, excluding acquisitions and on a constant currency basis was 19% year over year.

Large project revenues declined 4% in the quarter due to the non recurrence of the large one time contract from the previous fiscal year. As a reminder, we believe large overtime project revenues are aligned with customer capital spending budgets and more volatile in nature, while small projects and point in time product revenues, which were up 12%.

And 36% in the corner, respectively, and 15% and 32% on a TTM basis are representative of maintenance repair and small upgrades on our installed base that help our customers maximize production uptime and efficiency.

Small projects and product revenue growth was driven by increased activity in smaller design and supply projects, particularly in downstream oil and chemical end markets small product projects and products revenue represented 78% of revenue in the current quarter.

Now for gross margins and SG&A on page 14.

Adjusted gross margins in the quarter of 45, 3% versus the reported 45% last year with a few items will call out to provide context on the improved performance in.

In the third quarter of fiscal 2023 volume contributed an increase of 460 basis points driven by the mix and small projects and product sales, we continue to be able to manage the price cost equation with favorable pricing impact this quarter of 260 basis points slightly offset by global supply.

Jane headwinds of 180 basis points, while we have seen supply chain generally improving in the last two quarters. There are still some pockets of challenges we continue to navigate operational efficiencies contributed an additional 40 basis points. Please.

Please note that the trailing 12 months in prior year quarter data includes the impact of the large one time labor contract. We discussed on our previous calls and for which onsite work was completed in May of 2022.

SG&A as a quick 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 $28 6 million or 23% of revenues versus the prior year of $19 3 million or 19% of revenue on.

On a trailing 12 month basis, SG&A was $99 million or 23, 6% of revenue up from $79 million and compared to 24% of revenue in the prior year.

Power blanket contributed an additional $2 million of expense in the quarter we.

We remain diligently focused on driving profitable growth over the longer term and our aggregate SG&A expense will continue to increase during the fourth quarter of fiscal 2023, as we invest in resources to execute our long term strategic plan.

The team has done an excellent job managing the balance between growth and profitability and we will continue to focus on maximizing the value of each dollar we invest in the business.

Moving on to page 15 for adjusted EBITDA and earnings per share.

The combination of higher volumes positive pricing contributions in a volatile environment and continuing our pursuit of operational excellence has again yielded a strong quarter of profitable growth.

This is the strength of the Fairmont business model and representative of the execution, we expect to deliver for shareholders.

Adjusted EBITDA was $29 8 million or 24, 4% of sales in the quarter adjusted EBITDA increased over 45% up over $9 million from the prior year, along with margin expansion of 390 basis points on a trailing 12 month basis. Adjusted EBITDA is now up to $86 6 million.

Along with margins of 26% an expansion of 650 basis points, a really great result for the team.

Given the strong performance in the first three quarters of the year. We are now projecting adjusted EBITDA margins of 21% to 22% for the full fiscal year.

GAAP EPS in the second quarter was 25 per share compared to 33 per share in the prior year.

Adjusted EPS was a record 52 cents per share versus last year's 37 per share for the trailing 12 month period GAAP EPS was one O three and a record adjusted EPS of $1 46 per share.

On page 16, we'll cover the updated balance sheet.

We ended the quarter with cash at $35 million that was unchanged year over year after accounting for the power blanket acquisition and adjusted EBIDTA growth resulted in a net debt to adjusted EBITDA ratio of one one times an improvement versus two two times in the prior year.

Working capital results were mixed with seasonally strong collections offset by elevated inventory associated with meeting demand for the heating season, and strategically building inventory to buffer potential supply chain disruptions, we continue to navigate an improving but not yet fully reliable supply chain environment successfully and we have observed.

She'll improvements in many areas.

Free cash flow of $17 6 million reflects 14% of revenue and 209% of net income and enabled us to pay down $11 million of debt in the quarter.

Sure.

As a reminder, our capital allocation strategy revolves around three main tenets, one we will pursue accretive strategic M&A to build our industrial process heating platform, while expanding and diversifying our addressable markets too when we execute M&A, we target return on invested capital to exceed whacked by year three.

And finally, we evaluate all of our capital allocation options, including returning capital to shareholders with our Board Finance Committee on a recurring basis in the absence of value enhancing inorganic growth. Our current priority will be to continue to pay down debt, while investing in our strategic initiatives of de carbonization Digitization.

<unk> and diversification.

A quick update on Russia on page 17.

Today, we announced the decision to withdraw our operations in Russia, and I wanted to highlight some of the items related to that event, we booked an impairment in our third quarter impacting pre tax profit by $8 3 million net income by $7 3 million and reducing GAAP EPS by <unk> 22 cents per share.

By the time the exit is complete we expect to take an additional charge of 11 to 20 and GAAP earnings per share.

We've included the income statement highlights for your reference with revenue of $7 6 million net income of negative $8 $9 million and adjusted EBITDA of negative $1 4 million as you'll observe the Russian entity was slightly below breakeven profitability on a year to date basis and we believe this decision provides clarity to our investors.

While improving financial results and the risk profile of the business additional disclosures will be available in our 10-Q that will be filed later today.

This quarter built on last quarter's positive performance with significant volume growth margin expansion and excellent free cash flow, while the outlook in Europe continues to be soft supply chain costs and lead times are improving the Fairmont team continues to execute against its short and long term plans and we see.

Unity ahead to continue to drive strong results and create value for shareholders. Many thanks to the global thermal team for the great work and commitment that enables us to deliver for our customers shareholders and our communities and with that I'll turn it back over to Bruce.

Alright, Thank you Kevin I'd like to turn now to slide 18, and our long term revenue goals.

Our goals for fiscal 2026 remain unchanged and we're very pleased that our performance through the first two years of our five year plan is on the upper range of our initial expectations. The sheer size and scale of the deep carbonization opportunity that we believe will be a secular tailwind for the next two or more.

Decades creates real opportunities for long term growth with progress on diversification is also encouraging with meaningful growth across a number of diverse end markets and finally, our advancements in new product development and the digital platform gives us a competitive advantage in the marketplace with <unk>.

Minimum across all three of these strategic initiatives underpinned by solid installed base of customers in our traditional end markets gives us confidence that our fiscal year 'twenty six financial goals are well within reach.

We continue to play place a high priority on diversifying our end markets exposure, specifically targeting industrial markets outside of the oil and gas sector, who represent 65% to 70% of revenues by the end of fiscal year 'twenty six last but not least our operational excellence combined with.

Leverage on our fixed costs will yield EBIDTA margins in the low to mid 20% range over that same period.

Turning now to slide 19, and our updated guidance for the fiscal year 2023.

We were pleased with thermo and strong performance through the third quarter of this fiscal year in spite of a number of areas of uncertainty in the macro environment. The positive momentum we are seeing in quotations bookings and backlog.

Give us confidence to raise our fiscal year 'twenty three full year revenue and adjusted EPS guidance.

We are raising fiscal 'twenty three revenue to a range of 429 million to 437 million, which represents a 22% growth over the prior year at the midpoint of the range.

We're confirming GAAP EPS guidance for the full year of $1 11 to $1 15, a share. We are also raising our adjusted EPS guidance to $1 55 to $1 59, a share for the full year, an increase of 89% over our fiscal year.

<unk> 22 in addition to the 150% growth delivered in fiscal year 'twenty one.

Finally, wrapping up on slide 20, as we've detailed today Fairmont as a world leader in providing safe reliable and innovation innovative mission critical industrial process heating solutions.

This is a high value niche market with high barriers to entry, we create which creates a significant competitive advantage our outstanding global team our diversification across a variety of end markets. Our large installed base, our aftermarket business that generates recurring revenue.

Our low capital intensity combined to create a business that is resilient across economic cycles.

We believe that Fairmont is truly well positioned to deliver profitable growth through the remainder of fiscal year, 'twenty, three and beyond and to create long term value for our shareholders.

With fit with that I'd like to turn the call back over to our moderator John for the Q&A portion of this call Jeff.

Thank you Sir we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that Youre line is in the question queue. You May press star two if he would like to remove that question from the queue and.

And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for any questions.

And our first question comes from the line of Brian Drab with William Blair. Please proceed with your question.

Hi, good morning, Thanks for taking my question.

Good morning, Brian .

Hey.

Could you go back to slide 17, just to.

Spend another minute on this.

And clarifying because there wasn't that you didn't talk about.

Russia, you didn't talk about Russia, and this way in the second quarter.

Wonder if you can.

Just clarify what the adjusted numbers are here so as the <unk>.

And how would it compare with the third quarter and for example, a gross profit margin and what's the apples to apples with.

With me are between third quarter and second quarter. So are we looking at the $41 three in Russia.

Was it 400 basis point headwind in the third quarter is that what you're saying.

Yes, Brian This is Kevin So I think when we look at the the second quarter on a gross margin basis, you were at about 45.7, I believe and so on an adjusted basis third quarter. It was 45.3 on a like for like so.

Margin sequentially was slightly down once you back out the impact of Cogs that we had to take related to the Russia exit.

That's the question, you're asking but just I guess round numbers, yes.

Non I'm just a little confused by that as he can count so that the <unk> 41.

The $45 three is comparable to that adjusted number and did you make an adjustment for <unk>.

Low margin business in Russia.

I guess in the second quarter as well when you talked about adjusted gross margin no. There's no impact in our fiscal 'twenty three second quarter, given the the Russia exit this was.

By the board. This week. So there was no impact to our second quarter fiscal results.

But you did business in Russia in the second quarter. So I'm just wondering like if you if you take Russia.

Out of out of the picture completely for all of you know any quarter in fiscal 'twenty three.

How was gross margin in this most recent quarter relative to the second quarter or is it about consistent sequentially or did it go down.

Okay. I think the question you're asking is if we look back out Russia from the second quarter, what would the results look like.

Yeah.

Yes, we can get you that walk offline.

If you were seeing given the business on an EBITDA basis, Brian it's been slightly negative year to date. So if you would take Russia out of any of the previous quarters in the fiscal year, you would see a slight improvement to profitability I believe on both the gross and EBITDA lines I think that's I think that's the question.

Yeah, I'm, just trying to get a sense for what I think everyone would be interested in a real sense for what direction gross margin.

It's Glenn because there's obviously like it.

Outstanding quarter.

There's so many.

Every headline number is positive the stock's up 2% I'm just curious.

I'm trying to.

I'm just curious why that is why the stockpile, 2% I'm thinking maybe.

The only issue I see is that it looks like gross margin.

Maybe some of the business that you had in the third quarter with lower margin business than you had in the second quarter and then how do we think about the trajectory of gross margin.

From here.

That's all I'm, just trying to get a sense for.

Second quarter gross margin in the third quarter, and where we're going from here.

Yes, Brian I think that's fair I think we can look at the gross profit or EBITDA and as he mentioned any of those metrics are increasing.

Pretty substantially on a year over year basis, you know if you want to look at things sequentially Q1, Q2, Q3, I think we certainly feel like the business is getting better that mix in the business is still very much oriented towards those smaller projects and be a point in time or products or materials revenues that certainly has a positive impact as well.

<unk> pricing 260 basis points in the quarter, so difficult for us to see with how the business is performing.

A lot of a lot of positive momentum in the business today really from a gross margin basis, and not a thats falling through down to the EBITDA and the profitability line as well so I certainly won't speak to what the investment community is doing but internally I think we feel very good about where the business is positioned not just today, but for the future as well you know raising raising the Rev.

<unk> and profit guidance I think for the third quarter in a row here I can't imagine that would be perceived negatively by the street.

Yeah got it Okay, and then can you.

I don't know if you can give any more detail on the wins that you've had in renewables. There's obviously a lot of momentum there.

Two specific questions so what types of projects.

If you can give any sort of breakdown or granularity what types of projects are in that $20 million in orders and secondly.

What can you tell us about the margins for those renewables projects, given that's going to be a growing part of the business.

Yeah.

Brian This is Bruce.

So the project wins I gave a couple of examples here.

Of some carbon capture and storage projects.

You know kind of size are those were.

The project in the Midwest was about a $900000 order in.

And process heaters with about another 9000 900000 opportunity this quarter and about a 3 million dollar opportunity for heat tracing.

The project was a pilot project in our Canadian refinery for COPD capture it was a little smaller because it was.

Our pilot project, but it was a few hundred thousand dollars.

You know as we kind of look at the types of opportunities. We're a leader in biofuels and theres quite a bit of of that bookings and our backlog for biofuel plants, particularly there's a lot of growth. We're seeing in biodiesel for example, theres also some hydrogen projects.

Most of those are.

Well there is a mix of blue ingredient hydrogen and a lot of other ones, particularly for green hydrogen or pilot projects certainly as they prove out those technologies begin to scale. Those the order size will go up pretty dramatically.

The other area, we've seen some wins in the nuclear space, we've had some nice wins with some nuclear Refurbishments in Canada.

One of only six companies in our space globally that have the intent. So we see that as a significant opportunity and again those are just illustrative.

As far as the margin profiles, there consistent with kind of what we've seen with our historical business in this space.

So certainly we think it's supportive of our current <unk>.

Margin profile going forward and certainly we will have some opportunities.

Our operational excellence programs and continuous improvement to drive margin expansion over time.

Okay. Thanks, and then last one.

I guess, maybe not something you are prepared to comment on today, but I mean your <unk>.

On the air.

They are less than 30 days away from the beginning of fiscal 'twenty four.

Have you gone through the budgeting process and forecasting process give it give us any sense for what you're expecting in terms of growth.

Revenue growth and in the next year.

Even though.

Yeah, Yeah, Yeah, so where we are in the middle of that budgeting process right now.

<unk>.

We are seeing growth in the coming year, we're not at a point, yet where we were prepared to set a range for that.

We typically do that as normal course.

During our may kind of year end earnings call and certainly we'll be prepared to share that with you at that time. However, we are seeing you can see the momentum in bookings I mean, 40% growth year over year positive book to Bill we are seeing momentum in the business and we foresee.

Continued growth in our.

And our fiscal year 'twenty four.

Okay, Thanks, lockers and Kevin.

Yeah.

Yep.

Thank you and as a reminder, if you'd like to ask a question. Please press star one.

And the next question comes from Jon Braatz with Kansas City Capital. Please proceed with your question good morning.

Bruce Kevin.

One Jonathan.

Along with several airlines.

Ryan's question.

In your.

Press release, you talked about and you're benefiting this year from deferred maintenance spending and.

I guess by definition thats deferred so when after they make those expenditures this year.

Isn't there a fall through next year.

That sort of become.

Sort of a tale.

Headwind when you look at maybe 2024 versus 2023.

You know what how important is as deferred maintenance spending Ben for you this year and in and how do you think about that next year.

Yeah. So John Great question, I mean, we certainly saw.

Oh really.

A significant contraction in maintenance spending during COVID-19, so we've seen that.

Really begin to rebound and we've seen that during the course of this year now as we look at this I mean, we're seeing a lot of small projects and we believe that theres been a significant under investment in infrastructure over the last seven or eight.

Eight years and based upon that.

And kind of the change in the capital allocation strategy.

Going forward, what we're seeing is reinvestment in existing assets, rather than really building a new greenfield. So we don't expect to see.

A big surge of Capex spending that maybe we would have seen in prior.

In prior economic cycles. However, if you look at our global footprint and the installed base, that's actually very favorable for our business. One is we are entitled to the to the recurring revenues, where we have the installed base second they tend to be.

Higher margin profile and what we believe is that these levels of spending going forward are more sustainable than what we may have seen in previous cycles, where you had some very large peaks.

In Capex spending and I would I would kind of go back to our fiscal year 19 in fiscal year 2015, so far.

Forward, we actually see.

A lot of the maintenance spending.

State being stable to slightly increasing in the in the coming fiscal year.

Okay. Thank you Kevin.

Two questions.

You mentioned this.

Because the Russian charge, all noncash and secondly, oh supply chain challenges have sort of been a.

Oh I had when I I think you mentioned 180 basis points.

You were hearing a little bit of improvement on that.

On the supply chain challenges that we've seen over the past year.

As you look into next year.

Do you see that begin to ease.

And the and improvement on the comp improvement on the gross margin front because because of that.

Yes, John maybe I'll take them in order on Russia, there was about $3 million of cash on the balance sheet that was just reclassified the rest of it from a P&L. It's a noncash entry we will see some additional impact the GAAP EPS. Once the exit is complete again that was about 11 to 20 and GAAP, but a.

Lot of technical accounting from the team there, but essentially it's all a noncash entry in Q3.

With respect to supply chain, I think youre right as we see things getting better sequentially.

I don't think we're prepared to say, it's fixed and everything is back like what it was in 2019, but I think us like many others have built those buffers in the inventory at this point and I think when we look at our inventory turns and that sequential improvement I think we expect that trend line continue to go upwards in the quarters ahead.

Yeah, I don't think I'm quite ready to say we're out of the blue there are certainly pockets that are still challenging, but it's much better today than where it was six months ago and I again, I think we expect those trends to continue going forward.

Thank you Kevin.

Welcome.

And at this time, we have reached the end of the question and answer session and I would like to turn the floor back over to Bruce Thames for any closing comments.

John Thank you and thank you all for joining here today appreciate your interest in Fairmont and enjoy the rest of your day.

Thank you everyone that does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.

Okay.

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Okay.

Okay.

Yeah.