Q3 2024 Thermon Group Holdings Inc Earnings Call
Greetings and welcome to the thermal group Holdings third quarter 2024 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. This conference is being recorded I will now turn the conference over to Yvonne Taylor Vice President of F. P N E and Investor Relations. Thank you you may begin.
Thank you there.
And thank you for joining today's fiscal 2024 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 it's 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 I Our calendar earnings conference call Q3, 'twenty 'twenty four.
On 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 it reported in accordance with GAAP.
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 recent quarterly report filed with the FCC for more information regarding our forward looking statements.
The risks and uncertainties that could impact our future results are.
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 would like to introduce Bruce Thames, Our President and Chief Executive Officer, where he is opening very much.
Well, thank you and good morning, everyone and thank you for joining us year to date.
I'd like to start with a quick introduction of thermal and especially for those of you who might be new to our story.
The diversified industrial technology company, we're a 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 technology is agnostic and our solutions are instrumental and enabling a wide range of applications.
The diverse end markets, including the energy transition through de Carbonization and electrification.
As we begin this call I'd.
I'd like to thank our team around the globe for their commitment to serving our customers with excellence and another quarter of strong performance I would also like to welcome the vapor power employees to the thermal team and look forward to their contributions to our success going forward.
Let's turn now to slide four on our strategic pillars as.
As we discussed at our inaugural Investor Day in November, we're creating sustainable value through the execution of our long term strategy that is based on three pillars first.
Possibly growing the installed base second.
Carbonization, Digitization and diversification and third disciplined capital allocation.
Over the past 69 years, we've developed a substantial global installed base by delivering mission critical industrial process heating technology and solutions to our customers.
Although these solutions represent less than 1% of the initial capital cost of a process facility. They are critical to ensuring safe reliable and efficient operations. This enables us to drive growth across our traditional end market verticals increased recurring revenues and expand margins through <unk>.
Operational excellence.
We're generating additional growth through our long term strategic initiatives of de carbonization, Digitization and diversification.
Serving as a key enabler of the energy transition through electrification that de carbonization, our innovative solutions drive energy efficiency facilitate a circular economy and assist our customers in achieving their sustainability objectives.
Through our digital solutions, we also help our customers optimize maintenance through enhanced controls and monitoring.
Our core technologies, coupled with our decarbonization and digitalization solutions are supporting our efforts to diversify our end markets and we're making meaningful progress towards our goal of having approximately 70% of our revenues come from outside of oil and gas by the end of fiscal 2020.
Yeah.
Our commitment to a disciplined capital allocation strategy is foundational to the first two pillars.
Our strong balance sheet gives us the flexibility to reinvest in our business for organic growth and positions us to pursue strategic bolt on acquisitions that align with our financial objectives.
Vapor powers, a great example that strategy in action, which we'll discuss more in more detail later.
After completion of that acquisition, our leverage remains on the lower end of our stated goal of one and a half to two times net debt to EBITDA.
Yeah.
Turning now to slide five you can see our continued progress in executing our diversification strategy with approximately 66% of our trailing 12 months revenues coming from diversified end markets.
T M basis oil and gas revenues up 9%, while revenues from diverse end markets are up 26% most.
Most notably we've seen significant success in the food and beverage end market with revenue growth of 209% over the past year.
Our market share in rail and transit is also expanded significantly with revenue up 28% year over year, along with commercial market, where revenue was up 18%.
Of particular note is the 55% year over year growth in the renewables in market underscoring our Mas role in facilitating the energy transition the.
The expansion in the renewables market reflects increasing activity across alternative fuels hydrogen and ammonia applications. This quarter approximately 4% of revenues were associated with de carbonization applications with the pipeline of opportunities growing to over $200 million.
We continue to see strong activity in the U S power sector, particularly across the southern states as power generations.
Power generators winterize their assets.
Genesis network has become the system of choice that power generators used to provide operational awareness during winter weather events. In fact, the most recent winter storm here in Texas.
Very different outcome from winter storm here back in 2021 as utility companies were able to remain operational with no significant disruptions to service. This is a testament to the work our teams have done to help our customers operate safely and reliably during extreme weather conditions.
Turning now to slide six I'd like to discuss a great example of our third strategic pillar and action, where we were able to use the strength of our balance sheet to fund inorganic growth to augment and accelerate our organic growth initiatives. Our recent acquisition of vapor power marks a six.
Difficult step forward in advancing our strategy for profitable growth through de carbonization and diversification as we outlined at our Investor day, we evaluate potential acquisition opportunities based on four criteria and vapor power meets all four first it aligns with our long term strategy.
By diversifying our addressable markets with approximately 75% of revenues from the food and beverage commercial and general industrial sectors, and very little exposure to oil and gas.
Second it expands our portfolio to include electrical resistance electrode and Super critical CT tube boilers, as well as steam generators, the electric bores and electrode steam generators provide customers the ability to generate hot water and steam with improved control and efficiency in our comps.
Footprint, while eliminating greenhouse gas emissions on site.
The supercritical CT tube boilers are used in specialty applications, such as plastics recycling, where processes require extremely high temperature and pressure steam buying.
By incorporating these products into our portfolio, we are enhancing our exposure to high growth electrification and decarbonization opportunities over the next 20 to 30 years.
As you can see here this business has grown at an 18% compounded annual growth rate over the last five years with an adjusted EBITDA margin profile of approximately 20%.
In addition, the business had over 70% of calendar 2024 revenue predict projections in backlog as of January 1st a level significantly above historical averages.
By implementing the Fairmont business system. We believe we can further improve the EBITDA margin profile to meet our stated goal of 24% over the next 24 months.
As importantly, we anticipate the acquisition to have a near term positive impact to results and be accretive to GAAP EPS in the first 12 months.
Although not included in the economics in collaboration with the skilled team at Viper power at least five new qualified opportunities and then identified through thermal market channels with each valued at over $1 billion.
Based upon the initial feedback we feel well positioned to win one or more of these opportunities going forward.
We believe the combination of these two businesses further positions <unk> to play a pivotal role in accelerating the transition to cleaner energy sources across a diverse range of global end markets.
As noted earlier, our balance sheet remains at the lower end of our stated leverage goes at one five times net debt to adjusted EBITDA. Following this acquisition.
As a result, we have both the financial capacity and management bandwidth to execute on additional opportunities in our pipeline that may become actionable.
Turning now to slide seven which details the case study illustrating how baker power and thermal and have complementary technologies for various applications. In this example paper power provides engineered solutions to solve challenging customer problems, while supporting our long term strategy.
Here, we see a Korean customer.
Customer of Green Chemical company is designing and constructing our plastics recycling plant to convert waste plastics to feedstock for chemical and petrochemical production vapor power provides supercritical boilers that generate steam extreme pressures and temperatures to convert the plastics back into the original each.
Stock to be used for production of other plastics and chemicals by using paper power module attic supercritical steam generator, the customer is able to deliver steam at extremely high temperatures and pressures in a very compact footprint to breakdown our crack the waste plastic into the original building blocks. These.
Alex could then be used to produce virgin plastic or other chemicals in a true circular economy.
On the same project therm honest, providing over 13000 meters of heat tracing temperature maintenance and freeze protection for the process transfer lines. There are also numerous applications at a process facility of this type where calorie tech immersion heaters are required.
Turning now to slide eight and our third quarter fiscal 2024 results. This quarter. The thermal team generated record revenue of $136 4 million, an increase of 12% year over year, driven by double digit growth in U S Europe and Asia, while the Canadian market.
Contracted 5% year over year in the quarter, we continue to see strong year over year revenue growth from large capex projects and resilience opex activity associated with regarding maintenance.
Our profitability continue to grow with adjusted EBITDA up 2% year over year to $37 million. This was largely due to volume growth price and productivity.
On an adjusted basis, we saw gross margins declined by 319 basis points from the prior year as volume growth was offset by a lower margin mix and material sales due to an exceptionally warm fall and weakness in the Canadian market with a negative impact of 446 basis.
Points in the quarter.
Free cash flow improved by $4 6 million year over year due to improving dsos and inventory reductions GAAP EPS was <unk> 46 cents a share an increase of 86% over the prior year period.
Finally, our bookings were down 1% year over year and the book to Bill ratio was 0.91 times in the quarter on a TTM basis. Our book to Bill is one times and our bookings are 488 million, which represents 12% year over year growth supporting our full year forecasts.
Cost.
With that I'd like to turn the call over to Kevin for more in depth review of our financial results Kevin.
Thanks, Bruce moving to the Q3 fiscal 'twenty 'twenty four financial performance on slide nine.
The global thermal team continued to deliver strong results during the third quarter, even against challenging year over year comps and ongoing impacts from an exceptionally warm fall as a reminder.
Third fiscal quarter is typically our strongest due to seasonality.
Customer demand remained steady with incoming orders up $124 million in the quarter roughly flat year over year.
Demand continued to be strong across the U S. Latin America, and EMEA, while spending was down in other regions, particularly in Canada.
In terms of our end market orders, we saw the highest rate of growth in the food and beverage sector during the quarter with customer demand also expanding across the power renewables rail and transit and commercial end markets.
Year to date orders for de Carbonization totaled $28 million and our year to date orders in diversified end markets was 72% of the total indicative of sustained execution against our initiatives to diversify the business into less cyclical end markets.
Trailing 12 month orders were 488 million, excluding vapor power, which we believe supports our updated full year revenue guidance.
Revenue in the third quarter was $136 million a year over year increase of 12%, primarily driven by power chemicals and commercial activity.
Latin America continues to be our strongest performing region in fiscal 2024 with three of our four regional units reported double digit revenue growth.
There was no impact in the quarter from the vapor power acquisition to reported revenues.
Large project revenue reached 34 million up 26% from the prior year, while small projects and maintenance and repairs revenue totaled $103 million up 8%.
Over the trailing 12 months, 75% of our revenues came from customer opex spending indicative of the mix of our business shifting away from more cyclical customer capex spending.
Bruce provided some additional details on the paper power acquisition and I wanted to add that if we updated our diversification metric to include vapor power on a pro forma basis, we would have approximately 69% of trailing 12 months revenue sourced from diversified end markets, which is just shy of our goal of 70% by.
The end of fiscal 2026.
Adjusted EBITDA increased by 2% year over year to $31 million with an adjusted EBITDA margin of 22, 5% in the quarter.
Adjusted EBITDA margins decreased due to a pronounced mix shift within our point in time sales.
Product lines, most impacted by a seasonally warmer winter and both heat tracing and environmental heating saw slower than anticipated volume growth.
Shifting a higher percentage of revenues in the quarter to comparatively lower margin product lines and projects with that shortfall dropping to the bottom line.
Operator: Greetings. Welcome to the Thurmond Group Holdings third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.
A downturn in Canada also impacted our mix this quarter as is typically the most profitable of our four regions spending remains in line with expectations as we continue to focus incremental investments on our de carbonization, digitization and diversification strategic initiatives, while moderating overall spending levels to the right.
Operator: The question and answer session will follow the formal presentation. If anyone should require assistance during the conference, please press star zero on your telephone. Please note, this conference is being I will now turn the conference over to Yvonne Salem, Vice President of FP&A and Investor Relations. Thank you.
Incoming orders.
Adjusted diluted EPS was <unk> 59 cents in the quarter or year over year increase of 13%.
Yvonne Salem: Thank you, Darren. Good morning, and thank you for joining today's Fiscal 2024 third quarter conference call. Earlier this morning, we issued an earnings press release, which has been filed with the SEC on Form 8K, and it's 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 Q3 2024. During the call, we will discuss some items that do not conform to generally accepted accounting principles.
On a quick modeling note. We are currently estimating a 23 cents per share impact from amortization in fiscal year 2024.
Through the first three quarters of our fiscal year, we have achieved profitable growth by executing our plan and that's ongoing macroeconomic volatility as evidenced by this quarter's results. While we believe the negative impact from the product mix shift will continue in our fourth quarter. We also believe that our long term strategy to diversify the business will continue to deliver profitable growth in this.
You too.
On slide 10, we will cover the updated balance sheet, which represents the preliminary acquired balance sheet, including vapor power.
Yvonne Salem: We have reconciled those items to the most comparable gap measures in the tables at the end of the earnings press release. However, these non-gap 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 might make certain forward-looking statements regarding our company. Please refer to our annual report and most recent quarterly report filed with the SEC for more information regarding our forward-looking statements, including the risks and uncertainties that could impact our future results. Our actual results 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 might be required by law. Now, I would like to introduce Bruce Thames, our President and Chief Executive Officer, for his opening remarks. Well, thank you all and good morning everyone, and thank you for joining us here today. Now, I'd like to start with a quick introduction to Thurmon, especially for those of you who may be new to our story.
At the end of the quarter cash stood at $55 million.
This represented a year over year increase of 57% with about half of that due to acquired cats from paper.
Total debt for the quarter increased 61% to $213 million, which was also related to the acquisition of paper power.
We expect the incremental interest expense to be approximately $1.6 million per quarter.
This increase resulted in a net debt to adjusted EBITDA ratio of one five times compared to 1.1 times in the prior year period.
This ratio was within our long term target range of one five to two times and we still have significant capacity for further growth should additional opportunities emerge.
Working capital was $190 million in the quarter, an increase of approximately 24% due to the acquisition of eight repower volume growth of large projects that extend its typical collection cycles and some payments related to strategic inventory, reducing a pea in the quarter.
Working capital as a percentage of trailing 12 month sales with higher coming in at 39%.
Please see note two and the 10-Q, we will issue later today for additional details on the paper power acquisition.
Turning to cash flow net income in the third quarter was $16 million up 88% year over year Capex spend was $2 million in free cash flow was $22 million, reflecting a nice upturn in the free cash flow generation of the business as we enter into the seasonally stronger periods for cash conversion, particularly on the back of a strong first half of our fiscal 2020.
Bruce A. Thames: As a diversified industrial technology company, we're a 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 technology is agnostic, and our solutions are instrumental in enabling a wide range of applications across diverse end markets, including the energy transition through decarbonization and electrification. As we begin this call, I'd like to thank our Tharmon team around the globe for their commitment to serving our customers with excellence and another quarter of strong performance. I would also like to welcome the Vapor Power employees to the Thermon team and look forward to their contributions to our success going forward. Let's turn now to slide four on our strategic pillar.
Four.
We are pleased with our strong performance in the first three quarters of fiscal 2024, we continue to experience growth across end markets and regions, while absorbing some headwinds from a product mix in Canada, which is a testament to the resiliency of our business model.
Ahead of the last quarter of fiscal 2024, and beyond we will continue to control costs, while we remain committed to achieving our long term targets, we outlined at our Investor day.
Finally, I would like to extend my gratitude to the entire three month team for their hard work dedication to our customers and commitment to delivering long term value for our shareholders and with that I'll turn it back over to Bruce.
Bruce A. Thames: As we discussed at our inaugural Investor Day in November, we're creating sustainable value through the execution of our long-term strategy that is based on three pillars. First, Profitably Growing, The Installed Band. Second, decarbonization, digitization, and diversification, and third, disciplined capital allocation. Over the past 69 years, we've developed a substantial global installed base by delivering mission-critical industrial process heating technology and solutions to our customers. Although these solutions represent less than one percent of the initial capital costs of a process facility, they are critical to ensuring a safe, reliable, and efficient operation.
Ladies and gentlemen, turning now to slide 11, as we enter the last quarter of our fiscal year, we're adjusting our full year revenue guidance for fiscal 2024.
Revenue guidance is being increased from a range of 478 million to $498 million to a range of 490 million to $500 million for the full year, implying 12% growth at the midpoint of the range.
Adjusted EPS guidance is being lowered from $1 84 to $1 94 per share to a range of $1 76 to $1 84 per share.
Bruce A. Thames: This enables us to drive growth across our traditional in-market verticals, increase recurring revenues, and expand margins through operational equity. We're generating additional growth through our long-term strategic initiatives of decarbonization, digitization, and diversification, serving as a key enabler of the energy transition through electrification and decarbonization. Our innovative solutions drive energy efficiency, facilitate a circular economy, and assist our customers in achieving their sustainability objectives. Furthermore, through our digital solutions, we also help our customers optimize maintenance through enhanced controls and monitoring. Our core technologies, coupled with our decarbonization and digitization solutions, are supporting our efforts to diversify our end markets, and we're making meaningful progress towards our goal of having approximately 70 percent of our revenues come from outside of oil and gas by the end of fiscal 2026. Our commitment to a disciplined capital allocation strategy is foundational to the first two pillars. Our strong balance sheet gives us the flexibility to reinvest in our business for organic growth and positions us to pursue strategic bolt-on acquisitions that align with our financial objectives. Vapor Power is a great example of that strategy, which we'll discuss in more detail later.
This revised guidance takes into account the success we've had in the first three quarters of our fiscal year combined with the contribution of the vapor power acquisition, while factoring in the negative impact that both the weaker Canadian macroeconomic conditions and exceptionally warm winter has had.
On gross margins, while these two factors create a near term headwind. We believe the weather was an anomaly in the mid to long term growth drivers remain intact. Our strategy is working and we remain confident in achieving our fiscal year 'twenty six strategic goals.
As we conclude today outside twill, we'd like to leave you with the following key points.
<unk> stands out as a leading global brands provided mission critical process heating technology and solutions across diverse end markets, our operational excellence innovative products and differentiated solutions are significant competitive advantages and create sustainable value for all of our stakeholders.
Our extensive global installed base and long standing customer relationships, rather resilient aftermarket franchise that generates high margin recurring revenue.
Through our existing technology, we're well positioned to capture the vast opportunity tied to the energy transition and decarbonization through the electrification of industrial eat with.
With a strong balance sheet, featuring low leverage and high gross margins, coupled with our capital light business model thermometer remains resilient through economic cycles, providing significant flexibility and optionality.
Bruce A. Thames: After completion of that acquisition, our leverage remains on the lower end of our stated goal of one and a half to two times net debt to EBITDA. Turning now to slide 5, you can see our continued progress in executing our diversification strategy with approximately 66% of our trailing 12-month revenue coming from diversified end markets, on a TTM basis, oil and gas revenues up 9%. While revenues from diverse end markets are up 26%. Most notably, we've seen significant success in the food and beverage end market with revenue growth of 209% over the past year. Our market share in rail and transit has also expanded significantly, with revenue up 28% year-over-year, along with the commercial market, where revenue was up 18%. Of particular note is the 55% year-over-year growth in the renewables end market, underscoring Ther The expansion in the renewables market reflects increasing activity across alternative fuels, hydrogen, and ammonia applications.
As evidenced by the vapor power acquisition, we're able to deploy the cash generated to expand our portfolio of heating solutions diversified end markets and increase our exposure to opportunities around de carbonization, and the energy transition to deliver growth above and beyond the organic business.
In closing I'd like to once again, thank the entire <unk> team with exceptional performance unwavering commitment to safety and dedication to fulfilling our customers' needs looking ahead through the last quarter of fiscal 2024 and beyond I'm excited about the collective achievements, we can attain as we continue to deliver.
<unk> sustained profitable growth to create value for our shareholders.
Operator, we'd now like to take questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.
Bruce A. Thames: This quarter, approximately 4% of revenues were associated with decarbonization applications, with the pipeline of opportunities growing to over 200 million. We continue to see strong activity in the U.S. power sector, particularly across the southern states, as power generators winterize their assets. The Genesis Network has become the system of choice that power generators use to provide operational awareness during winter weather events. In fact, the most recent winter storm here in Texas had a very different outcome from winter storm Yuri back in 2021, as utility companies were able to remain operational with no significant disruptions to service.
One moment, please while we poll for your questions.
Our first questions come from the line of Brian Drab with William Blair. Please proceed with your questions.
Hi, good morning, Thanks for taking my question.
Good morning, Brett.
I just first wanted to ask.
In the third quarter revenue came in above the street expectations, but my.
Forecast.
And you know by about $7 million and then for the for the full year you raised the guidance midpoint by about $7 million.
So.
And then we've got the vapor power acquisition.
Bruce A. Thames: This is a testament to the work our teams have done to help our customers operate safely and reliably during extreme weather conditions. Turning now to slide six, I'd like to discuss a great example of our third strategic pillar in action, where we were able to use the strength of our balance sheet to fund inorganic growth to augment and accelerate our organic growth. Our recent acquisition of Vapor Power marks a significant step forward in advancing our strategy for profitable growth through decarbonization and diversification. As we outlined at our investor day, we evaluate potential acquisition opportunities based on four criteria, and Vapor Power meets all four. First, it aligns with our long-term strategy by diversifying our addressable markets with approximately 75% of revenues from the food and beverage, commercial, and general industrial sectors and very little exposure to oil and gas.
To incorporate for the fourth quarter.
So I'm just trying to my first question I guess, it's just you know didn't didn't your third quarter revenue.
<unk> beat your expectation or listening to the call today I'm just wondering it sounded like maybe at the third quarter actually didn't even.
It actually meet your internal expectations for for revenue.
Hey, Ryan this is Kevin maybe a couple of pieces there I'll walk you through and maybe starting with Q3, we were right in line with volume expectations on the third quarter, but both in Iberia. So we're alluding to is that product mix was a little bit shifted towards some of the lower margin products, there and some of the weakness in Canada out of the warmer winter.
We're up there as well combining to drive those gross margins down, but if we focus on revenue for a second we were we were right on budget in the third quarter.
The street kind of had the Q3 and Q4 roughly flat between the two but that's a little inconsistent with the normal seasonality that we see with Q3 being a peak and then Q4 being sequentially down so last.
Bruce A. Thames: Second, it expands our portfolio to include electrical resistance, electrode, and supercritical cold tube blowers, as well as steam generators. Electric boilers and electrode steam generators provide customers with the ability to generate hot water and steam with improved control and efficiency in a compact footprint while eliminating greenhouse gas emissions on site. The supercritical cool tube boilers are used in specialty applications, such as plastics recycling, where processes require extremely high temperatures and pressure steam.
Last year was maybe a little bit of an anomaly in fourth quarter, but if we think about that revenue flowing through to the guide I'm a couple of pieces. There I would point you to as well, we think vapor is going to be about $10 million to $12 million in the fourth quarter.
So if you look at the midpoint the guidance about plus seven so organically, maybe thinking Q4 is going to be a little bit softer than expectations and a lot of that is really being driven by Canada.
I know there are few pieces there, but just wanted to kind of get that out for you as you guys triangulate the the back half of the year.
Mhm no. That's helpful. So I mean, the third third quarter volume.
Roughly in line with your expectation.
Bruce A. Thames: By incorporating these products into our portfolio, we're enhancing our exposure to high-growth electrification and decarbonization opportunities over the next 20 to 30 years. As you can see here, this business has grown at an 18 percent compounded annual growth rate over the last five years with an adjusted EBITDA margin profile of approximately 20 percent. In addition, the business had over 70 percent of its calendar 2024 revenue projections in backlog as of January 1st, a level significantly above its historical average. By implementing the Thermon business system, we believe we can further improve the EBITDA margin profile to meet our stated goal of 24% over the next 24 months. As importantly, we anticipate the acquisition to have a near-term positive impact on results and be accretive to GAP EPS in the first 12 months.
You've got.
10, or 12 from from vapor and U S.
We have raised the guidance midpoint by seven so that I can see there's a little softness in there maybe you know call. It five or 7 million that you took out of the fourth quarter is that.
Yes, Youre right.
Yeah Okay.
Yes, Thank you, okay and Ah.
At.
The backlog has.
Ticked down slightly you know sequentially the last couple of quarters.
Can you give us any view.
Viewed.
Maybe it's too early but I mean, I know you must be working on the budget.
For fiscal 'twenty five but.
Are there any major projects maybe in fiscal 2025.
Have some visibility too and you know what what would you say you know to someone who's got any.
A concern that you know backlog is it's been ticking down a little bit.
Yeah, Brian This is Bruce just I'll make a couple comments on kind of our backlog and how.
Bruce A. Thames: Although not included in the economics, in collaboration with the skill team at Vapor Power, at least five new qualified opportunities have been identified through Thermon market channels, with each value at over $1 million. Based upon initial feedback, we feel well positioned to win one or more of these opportunities going forward. We believe the combination of these two businesses further positions Thermon to play a pivotal role in accelerating the transition to cleaner energy sources across a diverse range of global end markets. As noted earlier, our ballot sheet remains at the lower end of our stated leverage goals at one and a half times net debt to adjusted EBITDA following this acquisition. As a result, we have both the financial capacity and management bandwidth to execute on additional opportunities in our pipeline that may become actionable.
This quarter, we saw bookings contract about.
1% year over year, so that certainly was a factor in our volumes were up pretty substantially.
It's a couple of things that we've seen happen one is as we've implemented our operational excellence programs, our lead times and.
Many if not most of our products and our market, leading and so we're seeing that backlog.
Come down just because of the velocity in our factories. So that's a piece of it.
Certainly the incoming order rates being.
Being below kind of our shipment level, that's the other component of seeing that backlog decline.
As we look.
A couple of things to note our quote activity was extremely strong during the quarter, we quoted $248 million of opportunities anything over 200 is really strong for our business and we have a pipeline a pipeline of opportunities.
Bruce A. Thames: Turning now to slide 7, which details a case study illustrating how vapor power and thermon have complementary technologies for various applications. In this example, Vapor Power provides engineering solutions to solve challenging customer problems while supporting our long-term strategy. Here we see a customer, a Korean chemical company, is designing and constructing a plastics recycling plant to convert waste plastics into feedstock for chemical and petrochemical production. VaporPower provides a supercritical boiler that generates steam at extreme pressures and temperatures to convert the plastics back into the original feedstock to be used for the production of other plastics and chemicals. By using the VaporPower Modulatic Supercritical Steam Generator, the customer is able to deliver steam at extremely high temperatures and pressures in a very compact footprint to break down or crack the waste plastics into the original building. These products can then be used to produce original plastic or other chemicals in a true circular economy. On this same project, Thermon is providing over 13,000 meters of heat tracing to provide temperature maintenance and freeze protection for the process transfer line. There are also numerous applications in a process facility of this type where calorie-tech immersion heaters are required.
Fleet growth.
So you know as we look ahead, we are seeing some you know we did.
Specced County, and our plan to see a deceleration of growth coming into the fourth quarter and.
But I think the.
What we've seen in Canada has probably been weaker than what we had originally expected and certainly as we go into next year.
We're looking for.
Bob.
Overall activity to begin the.
Pick up and certainly we would think the weather itself wasn't a problem.
Hey, Brian if I may add maybe a little color just on end markets as well if you think about the split between oil and gas versus maybe the diversified end markets on.
On an orders basis oil and gas has actually declined year to date, but the diversified markets are up.
If you kind of think about it in orders rates that sent that still double digit growth rate year to date, we're seeing fairly substantial growth on those diversification initiatives and that's right in line with the strategy as well site I think out a little bit of softness in the back half that was expected maybe the weather's pushing that a little less than where we expected or wanted to be but I think if we look to the future of <unk>.
Bruce alluded to the pipelines up the quotes or op margin in backlog is still a historically healthy maybe a little bit off the peak, but we're still seeing some really attractive leading indicators of the business.
Bruce A. Thames: Turning now to slide eight and our third quarter fiscal 2024 results. This quarter, the Thermon team generated record revenue of $136.4 million, an increase of 12% year-over-year driven by double-digit growth in the U.S., Europe, and Asia, while the Canadian market contracted 5% year-over-year. In the quarter, we continued to see strong year-over-year revenue growth from large CapEx projects and resilient OpEx activity associated with recurring maintenance. Our profitability continued to grow with adjusted EBITDA of 2% year-over-year to $30.7 million. This was largely due to volume growth, price, and productivity. However, on an adjusted basis, we saw gross margins decline by 319 basis points from the prior year as volume growth was offset by a lower margin mix in material sales due to an exceptionally warm fall and weakness in the Canadian market with a negative impact of 446 basis points in the quarter. Free cash flow improved by 4.6 million year-over-year due to improving DSOs and inventory reduction. GAP EPS was $0.46 this year, an increase of 86% over the prior year period. Finally, our bookings were down 1% year-over-year, and the book-to-bill ratio was 0.91 times in the quarter.
So I mean, I guess to wrap it up we see slower growth next year organically, but with the vapor power acquisition, it really positions us to deliver some nice growth in the coming year.
Slower growth in fiscal 'twenty five then in 'twenty four.
Can you put numbers on that for.
No no we're building knock out we'll do that.
Okay, but the 'twenty fiscal 'twenty four you'd end up with what what type of organic revenue growth.
Uh huh.
At the midpoint I guess I need to look at package. The release, if you said that.
Tony is that organic.
12% is at the midpoint and then back out about 2% for Viper. So now we're talking about 10% organic growth and 24 roughly.
Right. So okay, so coming off somewhat.
From a very high level got it okay, yes, yes correct.
Okay and then last question for me for now is is there anything you can say about the gross margin that you're expecting in the fourth.
<unk> fourth quarter and sorry, if you said it already.
I think Brian if we look at the product mix that we saw in Q3, I think we would expect that to be fairly consistent with where we are the drivers in Canada macro that's not going to reverse all of a sudden I'm sorry, I think the gross margins in Q4, if you think about the guide implies something fairly consistent.
Kevin: On a TTM basis, our book-to-bill is 1 times, and our bookings are $488 million, which represents 12% year-over-year growth, supporting our full-year forecast. With that, I'd like to turn the call over to Kevin for a more in-depth review of our financial results.
In Q4, as we saw in Q3.
Got it okay. Thank you Bob.
Thank you Brett.
Thank you our next questions come from the line of Jon Braatz with Kansas City Capital. Please proceed with your questions.
Kevin: Thanks, Bruce. Moving to the Q3 fiscal 2024 financial performance on slide nine, the Global Thermon team continues to deliver strong results during the third quarter, even against challenging year-over-year comps and ongoing impacts from an exceptionally warm fall. As a reminder, the third fiscal quarter is typically our strongest due to seasonality. Customer demand remains steady, with incoming orders of $124 million in the quarter roughly flat year-over-year.
Good morning, Bruce Good morning, Kevin.
Bruce could you touch a little bit more on Canada U U the weakness there obviously, you talk a little bit about weather.
But is it merely weather or is there anything beyond that that might have legs into 'twenty, five and let's say beyond.
We are seeing.
Kevin: Demand continued to be strong across the U.S., Latin America, and EMEA, while spending was down in other regions, particularly in Canada. In terms of our end market orders, we saw the highest rate of growth in the food and beverage sector during the quarter, with customer demand also expanding across the power, renewables, rail, and transit, and commercial end markets. Year-to-date orders for decarbonization totaled 28 million, and our year-to-date orders in diversified end markets were 72% of the total, indicative of sustained execution against our initiative to diversify the business into less cyclical end markets, trailing 12-month orders for 488 Melvin, excluding vapor-powered, which we believe supports our updated full-year revenue guide. Revenue in the third quarter was $136 million, a year- U.S. Latin America continues to be our strongest-performing region in fiscal 2024, with three of our four regional units reporting double-digit revenue growth. There was no impact in the quarter from the vapor power acquisition on reported revenue.
Just a weaker macroeconomic backdrop in Canada, they've got some very restrictive fiscal policies.
I think inflation, there's been a little stickier.
And the impact of.
Higher interest rates I think is.
Affected their consumer more just based on some of the structure of <unk>.
Their mortgages and the like so.
We do expect that to be a headwind in the Canadian market, but certainly we.
We believe that our business as we position it with our with our strategy.
We are executing and.
Go back to the point, we've been able to grow our bookings in spite of.
Just some weakness that we've seen there over the last couple of quarters, we have seen that business decelerate.
We've still been able to generate growth so well I think it's going to be a little bit of a headwind as we said on the organic growth going forward. So we expect slower growth rates organically, but our ability to acquire vapor power and have the capacity for potentially additional M&A is going to generate.
Kevin: Large project revenue reached $34 million, up 26% from the prior year, while small projects and maintenance and repairs revenue totaled $103 million, up 8%. Over the traveling 12 months, 75% of our revenues came from customer OPEC spending, indicative of the mix of our business shifting away from more cyclical customer cap expectations. Bruce provided some additional details on the vapor power acquisition, and I wanted to add that if we updated our diversification metric to include vapor power on a pro forma basis, we would have approximately 69% of trailing 12 months revenue sourced from diversified end markets, which is just shy of our goal of 70% by the end of fiscal 2020. Adjusted EBITDA increased by 2% year-over-year to $31 million, with an adjusted EBIT Adjusted EBITDA margins decreased due to a pronounced mix shift within our point-in-time sales.
So nice growth in our fiscal 2025.
Okay. Okay.
Paper power.
The numbers you showed in terms of revenue growth and margin improvement.
Yeah.
Pretty nice huh.
We've done a good job and when you look across let's say the boiler industry in general.
Oh, what are they and I assume that they are probably growing faster than <unk>.
The industry the industry what are they doing differently.
Sure.
That sets them apart and differentiate themselves and.
Would you think that that type of growth that you've seen 18% on the top line.
Would you would you think that would would be able to be continued.
Yeah, So listen that's a great question.
Kevin: Product lines most impacted by a seasonally warmer winter in both heat tracing and environmental heating saw slower than anticipated volume growth, shifting a higher percentage of revenues in the quarter to comparatively lower-margin product lines and projects, with that shortfall dropping to the bottom. The downturn in Canada also impacted our mix this quarter, as it is typically the most profitable of our four regions. Spending remains in line with expectations as we continue to focus incremental investments on our decarbonization, digitization, and diversification strategic initiatives while moderating overall spending levels to the rate of incoming orders. Adjusted diluted EPS was $0.59 in the quarter, a year-over-year increase of 13%.
How they achieve that growth will first of all.
Paper power actually has some very kind of niche unique.
Products that they offer and I mentioned some of those.
Here on the coal and one is the electrode.
Orders in steam generators.
As well as their electric resistance boilers.
In addition is that they have.
Gas fired co two super critical steam generators, niesr generating steam at extremely high temperatures and pressures in all of these are really very compact packages and so.
If you look back at that growth a lot of that's been driven by growth in their electrical boiler.
Kevin: On a quick modeling note, we are currently estimating a $0.23 per share impact from amortization in fiscal year 2020. Through the first three quarters of our fiscal year, we have achieved profitable growth by executing our plan and addressing ongoing macroeconomic volatility, as evidenced by this quarter's results. While we believe the negative impact from the product mix shift will continue in our fourth quarter, we also believe that our long-term strategy to diversify the business will continue to deliver profitable growth. On slide 10, we will cover the updated balance sheet, which represents the preliminary acquired balance sheet, including VAPR. At the end of the quarter, cash stood at $55 million. This represented a year-over-year increase of 57%, with about half of that due to cash acquired from vapor. Total debt for the quarter increased 61% to $213 million, which was also related to the acquisition of Aiken.
And their revenue from electric blowers has virtually doubled over that more than doubled over that period of time, and we see that being driven by electrification and these electric boilers are really the best technology for electrification of steam which has traditionally been generated with <unk>.
Hydrocarbon fired heaters. So this really gives.
Customers the ability to eliminate their emissions on site by converting traditional gas fired boilers steam generators to electric so that's a big trend that we see continuing quite frankly.
For the next couple of decades.
The other thing or the Super go ahead no go.
Go ahead Bruce.
The supercritical.
The gas fired supercritical steam.
Generators those are used for the specialty applications, which you know I illustrated here for plastics recycling were extremely high temperatures and pressures are required in this case to take waste plastics back those back down to their constituent parts that can then be used.
Kevin: We expect the incremental interest expense to be approximately $1.6 million per quarter. This increase resulted in a net debt to adjusted EBITDA ratio of 1.5 times compared to 1.1 times in the prior year period. This ratio is within our long-term target range of one and a half to two times, and we still have significant capacity for further growth should additional opportunities emerge. Working capital was $190 million in the quarter, an increase of approximately 24% due to the acquisition of APR power, the volume growth of large projects that extends typical collection cycles, and some payments related to strategic inventory reducing AP in the quarter. Working capital as a percentage of trailing 12 month sales was higher, coming in at 39. Please see note two in the tent queue we will issue later today for additional details on the vapor power acquisition.
And so for the petrochemical and chemical maintenance actions so.
Really truly bringing that back down to the raw material feedstock. So those are some pretty unique products and applications and that's really enabled them to grow above and beyond maybe what you would see in a typical.
Gas for gas fired at hydrocarbons fired boiler this so that.
That's really how it fits with our strategy and certainly we believe we can drive double digit growth with that business going forward.
Kevin: Turning to cash flow, net income in the third quarter was $16 million, up 88% year-over-year. CapEx spend was $2,000,000, and free cash flow was $25,000, reflecting a nice upturn in the free cash flow generation of the business as we enter into the seasonally stronger periods for cash conversion, particularly on the back of the strong first half of our fiscal 2024. We are pleased with our strong performance in the first three quarters of fiscal 2024. We continue to experience growth across end markets and regions while absorbing some headwinds from our product mix in Canada, which is a testament to the resiliency of our business model. Looking ahead to the last quarter of fiscal 2024 and beyond, we will continue to control costs while we remain committed to achieving the long-term targets we outlined in our investment plan. Finally, I would like to extend my gratitude to the entire Thermon team for their hard work, dedication to our customers, and commitment to delivering long-term value for our shareholders. And with that, I'll turn it back over to Bruce. Thank you, Kevin. Turning now to slide 11.
By plugged that into the global thermal on well first of all we bet.
We believe that will continue to independent of what we do at Starwood, but we are also seeing very early signs that our third party channels are bringing more opportunities that they've not seen previously so that represents upside to the.
The growth model and then on the other side of that our operational excellence program by implementing a thermo business system. We believe there are some low hanging fruit, there where we can drive incremental.
EBITDA margins from that business say over the next 24 months. So that's that's really what we see with this business.
And it's really well positioned and fits our strategy quite well Bruce would you would you say there you know.
In terms of the electrification efforts at the paper that they're sort of a step ahead of everybody as such such that if I need a electric boiler.
Are there going to be one of the first calls I make.
Yes without question, particularly within a certain range of sizes and temperatures and pressures. They are they are very well respected and have a really nice.
Bruce A. Thames: As we enter the last quarter of our fiscal year, we're adjusting our full-year revenue guidance for fiscal 2024. Revenue guidance is being increased from a range of $478 million to $498 million to a range of $490 million to $500 million for the full year, implying 12% growth at the midpoint of the range. Adjusted EPS guidance is being lowered from $1.84 to $1.94 per share to a range of $1.76 to $1.84 per share.
Portfolio.
Solution so absolutely.
Alright, Thank you very much.
Thank you.
Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Mr. Bruce <unk>, President and CEO for closing remarks.
Alright, Thank you, Brian and Bruce and thank you all for your interest in thermal and thank you for joining us here today.
And enjoy the rest of your day.
Thank you that does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.
Bruce A. Thames: This revised guidance takes into account the success we've had in the first three quarters of our fiscal year, combined with the contribution of the Vapor Power Acquisition, while factoring in the negative impact that both the weaker Canadian macroeconomic conditions and the exceptionally warm winter have had on gross margins. While these two factors create a near-term headwind, we believe the weather was an anomaly, and the mid- to long-term growth drivers remain intact. Our strategy is working, and we remain confident in achieving our fiscal year 26 strategic goal. As we conclude today on slide 12, we'd like to leave you with the following key points. Thermon stands out as a leading global brand providing mission-critical process heating technology and solutions across diverse end markets.
Yeah.
[music].
Okay.
Bruce A. Thames: Our operational excellence, innovative products, and differentiated solutions are significant competitive advantages and create sustainable value for all of our stakeholders. Our extensive global installed base and longstanding customer relationships drive a resilient aftermarket franchise that generates high-margin recurring revenue. Through our existing technology, we're well positioned to capture the vast opportunity tied to the energy transition and decarbonization through the electrification of industrial heat. With a strong balance sheet featuring low leverage and high gross margins, coupled with our capitalized business model, Thermon remains resilient through economic cycles, providing significant flexibility and optionality. As evidenced by the vapor power acquisition, we're able to deploy the cash generated to expand our portfolio of heating solutions, diversify our markets, and increase our exposure to opportunities around decarbonization and the energy transition to deliver growth above and beyond the organic business. In closing, I'd like once again to thank the entire Therm-On team for their exceptional performance, unwavering commitment to safety, and dedication to fulfilling our customers' needs.
Operator: Looking ahead to the last quarter of fiscal 2024 and beyond, I'm excited about the collective achievements we can attain as we continue to deliver sustained profitable growth to create value for our shareholders. Operator, we'd now like to take questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone. The confirmation tone will indicate your line. You may press star 2 if you would like to remove your..., participants using speaker equipment it may be necessary to pick up your headset before pressing the start button. One moment, please, while we poll for your... Our first questions come from the line of Brian Drab with William Blair. Hi, good morning.
Brian Drab: Thanks for taking my question. Morning, Brian. Morning, Brian. I just first wanted to ask, you know, in the third quarter, revenue came in above the street expectations of my forecast, and you know by about seven million and then you know for the for the full year you raise the guidance midpoint by about seven million so and then we've got the vapor power acquisition to incorporate for the fourth quarter so I'm just trying to my first question I guess is just you know did did your third quarter revenue beat your expectation or because listening to the call today I'm just wondering it sounded like maybe the third quarter actually didn't even actually meet your internal expectation for revenue. Hey Ryan, this is Kevin.
Kevin: Maybe a couple pieces there I'll walk you through, and maybe start with Q3. We were right in line with volume expectations for the third quarter. What both you and I, Bruce, are alluding to is that product mix was a little bit shifted towards some of the lower margin products there and some of the weakness in Canada. The warmer winter up there as well combined to drive those gross margins down. But if we focus on revenue for a second, we were right on budget in the third quarter. I know the street kind of had Q3 and Q4 roughly flat between the two, but that's a little inconsistent with the normal seasonality that we see with Q3 being a peak and then Q4 being sequentially down. So last year was maybe a little bit of an anomaly in the fourth quarter.
Kevin: But if we think about that revenue flowing through to the guide, a couple pieces there I would point out as well. We think vapor is going to be about 10 to 12 million in the fourth quarter. So if you look at the midpoint, yeah, the guide's about plus seven.
Kevin: So organically, we're maybe thinking Q4 is going to be a little bit softer than expectations, and a lot of that's really being driven by Canada. So I know there are a few pieces there, but just wanted to kind of get that out for you as you guys triangulate the back half of the year. No, that's helpful.
Brian Drab: So, I mean, third-quarter volume, you know, roughly in line with your expectation, and then you... You've got 10 or 12 from bumper, and you raised the guidance midpoint by 7, so I can see there's a little softness in there. Maybe call it 5 or 7 million that you took out of the fourth quarter. Yeah, you're right, Ari. Yeah. OK. Yeah, thank you.
Brian Drab: Okay. And, you know, the backlog has ticked down to slightly, you know, sequentially, in the last couple quarters. Um, can you give us any, you know, view, maybe it's too early, but I mean, I know you must be working on the budget, uh, for fiscal 25, but, you know, are there any major projects maybe in fiscal 2025 that you have some visibility to and.. What would you say to someone who's got any concern about the backlog breaking down a little bit? Yeah, Brian, this is Bruce.
Bruce A. Thames: Just I'll make a couple of comments on kind of our backlog. And, you know, this quarter, we saw bookings contract by about 1% year over year. So, you know, that certainly was a factor in our volumes being pretty substantial. And so a couple of things that we've seen happen. One is that as we've implemented our operational excellence program, our lead times for many, if not most of our products are now market-
Bruce A. Thames: And so, we're seeing that backlog come down just because of the losses in our factories. So, that's a piece of it. Certainly, the incoming order rates being, you know, below kind of our shipment level, that's the other complaint, of seeing that backlog decline. As we look, a couple of things to note, you know, our quote activity was extremely strong during the quarter. We quoted $248 million in opportunities.
Bruce A. Thames: Anything over 200 is really strong for our business, and we have a pipeline of opportunities that has actually grown. So, you know, as we look ahead, we are seeing some, you know, we did expect, kind of, in our plan, a deceleration of growth coming into the fourth quarter. And, you know, but I think what we've seen in Canada has probably been weaker than what we had originally expected. And certainly, as we go on to next year, we're looking for, you know, kind of the overall activity to begin to kind of pick up. And certainly, we would think the weather itself was an anomaly.
Kevin: Hey, Brian, I might add maybe a little color just on end markets as well. If you think about the split between oil and gas versus maybe the diversified end markets, on an orders basis, oil and gas has actually declined year to date, but the diversified markets are up. And, you know, if you kind of think about it, an orders rate that's in that double-digit growth rate year to date, we're seeing fairly substantial growth on those diversification initiatives. And that's right in line with the strategy as well. So I think, yeah, a little bit of softness in the back half that was expected.
Kevin: Maybe the weather is pushing that a little less than we expected or wanted to be, but I think if we look to the future, as Bruce alluded to, the pipelines are up, the quotes are up, margin, and backlog are still historically healthy, maybe a little bit off the peak, but we're still seeing some really attractive leading indicators. So, I mean, I guess to wrap it up, we see slower growth next year organically, but with the vapor power acquisition, it really positions us to deliver some nice growth in the coming year. Full growth in fiscal 25, then in 24. Can you put numbers on that for me? No, no, we're building the boat. We'll do that.
Brian Drab: Nice. Yeah, okay, but in fiscal 24, you'd end up with what type of organic revenue growth at? the midpoint.
Kevin: I guess I need to look back at the release if you said that twenty-four percent. I think twelve percent is at the midpoint and then back out about two percent for vapor. So we're talking about ten percent organic growth in twenty-four roughly. Right, okay, so coming off somewhat from a very high level. Okay, yes, yes, correct. Okay, and then the last question for me for now is, is there anything you can say about the gross margin that you're expecting in the fourth quarter? Sorry if you said that already. I think, Brian, if we look at the product mix that we saw in Q3, I think we would expect that to be fairly consistent with where we are, you know, the drivers in Canada macro, that's not going to reverse all of a sudden. I'm sorry, but I think the gross margins in Q4, if you think about the guide, implies something fairly consistent in Q4 as we saw in Q3.
Brian Drab: Got it, okay. Thank you both. Thank you, Brad. Thank you. Our next questions come from the line of John Bratz with Kansas City Capitol. Morning Bruce, morning Kevin.
John Bratz: Good morning, John. Bruce, could you touch on Canada a little bit more, the weakness there? Obviously, you talk a little bit about weather. But is it merely weather, or is there something beyond that that might have legs into 25 and, let's say, beyond? We are seeing just a weaker macroeconomic backdrop in Canada, you know; they've got some very restrictive fiscal policies. I think inflation there has been a little stickier, and the impact of their higher interest rates, I think, has affected their consumers more just based on some of the structure of their mortgages and the like.
Bruce A. Thames: So, you know, we do expect that to be a headwind in the Canadian market, but certainly, we believe that, as we position it with our strategy, we are executing, and, you know, I'll go back to the point, we've been able to grow our bookings in spite of just some weakness that we've seen there over the last couple of quarters. We have seen that business decelerate, and we've still been able to generate growth. So, while I think it's going to be a little bit of a headwind, as we said, on organic growth going forward, so we expect slower growth rates organically, but our ability to acquire vapor power and have the capacity for potentially additional M&A is going to generate some nice growth in our fiscal 2025. Okay, okay. On vapor power. The numbers you showed in terms of revenue growth and margin improvement. Yeah, it's pretty nice.
John Bratz: They've done a good job. And when you look across, let's say, the boiler industry in general, what are they, and I assume they're probably growing faster than the industry? What are they doing differently that sets them apart and differentiates them?
John Bratz: Would you think that type of growth that you've seen, 18% on the top line? Would you think that it would be able to be continued? Yeah, so that's a great question and I think, you know, how they achieved that growth. Well, first of all, you know, Vapor Power actually has some very kind of niche, unique products that they offer. And I mentioned some of those, you know, on the call.
Bruce A. Thames: And one is the electrode boilers and steam generators, as well as their electric resistance boilers. And then, in addition, they have gas-fired cool-tube supercritical steam generators, which generate steam at extremely high temperatures and pressures. And all of these are really very compact packages.
Bruce A. Thames: And so if you look back at that growth, a lot of that's been driven by growth in their electrical boilers. And their revenue from electric boilers has virtually doubled, more than doubled, over that period of time. And we see that being driven by electrification. And these electrode boilers are really the best technology for electrification of steam, which has traditionally been generated with hydrocarbon-fired heaters.
Bruce A. Thames: So this really gives, you know, customers the ability to eliminate their emissions on site by converting traditional gas-fired boilers and steam generators to electric. So that's a big trend that we see continuing, quite frankly, for the next couple of decades. The other thing with a superpower—go ahead. No, go ahead, Bruce. The supercritical, the gas-fired supercritical steam generators, those are used for the specialty applications, which, you know, I illustrated here for plastics recycling, where extremely high temperatures and pressures are required, in this case, to take waste plastics and then crack those back down to their constituent parts that can then be used and sold for petrochemical and chemical manufacturing.
Bruce A. Thames: So really, truly bringing that back down to the raw material and feedstock. So those are some pretty unique products and applications, and that's really enabled them to grow above and beyond maybe what you would see in a typical, you know, gas-fired or hydrocarbon-fired boiler business. So that's really how it fits with our strategy, and certainly, we believe we can drive double-digit growth with that business going forward by plugging it into the global Thermon network. Well, first of all, we believe that we'll continue to grow independent of what we do as Thermon, but we are also seeing very early signs that our Thermon channels are bringing more opportunities that they've not seen previously. So that represents an upside to the growth model.
Bruce A. Thames: And then on the other side of that, our operational excellence program by implementing the Thermon business system, we believe there's some low-hanging fruit there where we can drive incremental margins from that business, say, over the next 24 months. So that's really what we see with this business. And it's really well-positioned and fits our strategy quite well. Bruce, would you say that, you know, in terms of electrification efforts at VAPR, they're sort of a step ahead of everybody, such that if I need an electric boiler, they're going to be one of the first calls I make? With it, yes, without question, particularly within a certain range of sizes and temperatures and pressures, they are, they are very well respected and have a really nice portfolio of solutions.
John Bratz: So, absolutely. Okay. All right. Thank you very much. Thank you. Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Mr. Bruce, president and CEO. All right.
Bruce A. Thames: Thank you, Brian, and thank you all for your interest in Thermon. Thank you for joining us here today, and enjoy the rest of your day. Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day. Please leave a like and a subscribe for more great content from Oxford Learning Sense! Stay safe and stay well!