Thermon Group Holdings, Inc.

Greetings.

Welcome to the Thurmond Earnings Conference call for quarter two of 2022. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And please note that this conference is being recorded. I'll now turn the conference over to your host, Kevin Fox, Chief Financial Officer. You may begin.

Thank you, John. Good morning, and thank you for joining today's fiscal 2022 second quarter conference call. Earlier this morning, we issued an earnings press release, which has been filed with the SEC on Form 8K and is also available on the investor relations section of our website. Additionally, the slides for this conference call can be found on our IR website under news events, IR calendar, earnings conference call Q2 2022. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures in the tables at the end of the earnings press release. These non-GAAP measures should be considered in addition to and not as a substitute for measures of financial performance reported in accordance with GAAP. I'd like to remind you that during this call, we may make certain forward-looking statements regarding our company. Please refer to our annual report and most recent quarterly report filed with the SEC for more information regarding our forward-looking statements, including the risks and uncertainties that could impact our future results. Our actual results may differ materially from those contemplated by these forward-looking statements, and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law. Now, I'd like to turn the call over to Bruce Thames, our President and Chief Executive Officer, for his opening remarks.

Bruce Thames Thank you, Kevin, and good morning. We hope everyone listening is staying safe and in good health. We appreciate you joining our conference call and for your interest in Thermon. Kevin Fox, our CFO, is here to provide additional details on our Q2 financial performance following my remarks. Turning now to the second quarter results. Overall, we're very pleased with the momentum that is building in the market through the first two quarters of the year. We were particularly pleased with a sharp increase in quotations, up 63% over prior year, followed by robust order growth of 59% year-over-year, a historical record which included a large one-time labor and third-party material contract booking in excess of $20 million. Revenues were up 18% over the prior year period on a constant currency basis. Backlog at quarter end was $155 million. up 31 percent over prior year and 34 percent sequentially. As a result, we are raising guidance for the second consecutive quarter this year. The team has also continued to be disciplined around cost management with SG&A at 25 percent of sales and in line with annual spending projections. As we continue to invest in our strategic initiatives, We are seeing a growing quotation log for our new Genesis network and have secured our second order. Just as a reminder, this is an IOT-enabled wireless self-healing mesh network and supervisory software that provides real-time situational awareness to operators. It is a key part of the technology-enabled maintenance strategic platform. Other strategic platforms include developing markets and diversification of end markets. All three of these strategic initiatives will be addressed later in this call. Our efforts to address labor shortages and overcome supply chain challenges resulted in a sequential improvement in productivity and utilization over the first quarter, which were masked by 1.2 million in COGS related to operational execution on an isolated project completed late in FY20. The impact to gross margins was 150 basis points in the quarter. While the team has taken actions to largely mitigate labor shortages, supply chain disruptions have broadened and become more acute. Our team has been very adept at navigating these challenges to minimize the impact on our customers, but we have seen temporary shortages of raw materials, higher costs due to material price inflation, material substitutions, and higher transportation costs. The team continues to work to further improve the resiliency in our supply chain to deliver the exceptional level of service our customers have come to expect from the Thermon brand. These issues combine to negatively impact gross margins by approximately 410 basis points in the quarter. We are seeing pricing power in the marketplace and believe the price increases enacted late in Q1 began to have an effect late in Q2 and will largely offset inflationary increases in the second half of this fiscal year. Despite the global supply chain challenges in the quarter and associated lower gross margins, the team delivered $11.4 million in adjusted EBITDA, up $1 million from prior year on $81.3 million in revenue. Adjusted EPS was $0.12 a share in the quarter, flat versus the prior year quarter. Turning now to discussion of our end markets. We are seeing an acceleration of the positive momentum in our end markets that began late in Q4 of FY21 and is gaining speed as we enter this heating season. While we have not yet returned to the pre-COVID levels of activity, we are seeing business levels in the second half of the year approach pre-COVID levels in certain regions as maintenance spending continues to show positive signs of recovery, particularly in North America. As we look to the chart on page four of the presentation, I would like to reinforce a couple of key points. First, roughly 52 percent of our end markets are outside of the oil and gas sectors. Second, greater than 55 percent of our end markets are tied to chemical, petrochemical, natural gas, and power. With natural gas as a bridge fuel and the chemical, petrochemical, and power markets being driven by the emergence of the middle class and developing economies, The growth outlook across these sectors is much more robust than upstream oil, which represents now only 16 percent of our revenues. We're also seeing positive signs of growth across all our in-market verticals. The investments in downstream appear to be skewed towards renewables, and we secured just under 6 million in additional biofuels projects during the quarter from a long list of projects in the pipeline. Working with process technology owners, our team has been focused on building expertise in the hydrogen market. This quarter, we have secured another order for a pilot green hydrogen plant in Europe to add to our growing list of wins. While not yet a material part of our business, we have multiple opportunities in the production of blue and green hydrogen that are expected to close by fiscal year end. As a growing part of our business, we also secured over 4 million in additional multi-year rail and transit contracts at attractive margins during the quarter. Currently, over 14 million of our backlog is related to rail and transit in North America with some significant opportunities on the horizon. Moving on to slide five of the presentation. On a trailing 12-month basis, orders of 341 million exceeded the prior year period for the first time in five quarters. During the current quarter, orders of 121 million grew 59% over the prior year period, exceeding FY20 pre-COVID levels, and were up 66% sequentially. Book-to-bill was strong at 1.14 times, with backlog up 31% over the prior year period. As a note, we have had a positive book to bill in six of the last seven quarters. Higher quotation activity and increase in incoming orders and growing backlog, particularly in larger capital projects, are very positive signs that CapEx is recovering across many of our end markets that will likely translate into bookings later in the fiscal year with execution beginning in fiscal year 23. We are also seeing the positive effects following winter storm URI in Texas and along the Gulf Coast as customers in the power and natural gas sectors are taking actions to address winterization in advance of the next heating season. We've also seen other states like Pennsylvania pass winterization legislation in response to the impact winter storm URI had on the Texas power infrastructure. I would like to now hand it over to Kevin Fox, our CFO, to provide a more detailed review of the quarter and first half financial results. Kevin?

Thank you, Bruce. Revenue growth was again strong this quarter, plus 22% versus the prior year quarter and down 2% on a trailing 12-month basis. Current quarter includes a $2 million tailwind from FX. Revenues were up in three of our four regions, with the U.S., Latin America, Canada, and EMEA regions all greater than 25% above prior year, while our smallest region in APAC contracted by 13% due to the continued impact from COVID-related government lockdowns in India and lower project volume. We booked a contract worth over $20 million in the quarter with a large multinational chemicals customer for labor and third-party materials. This one-time project contributed over $3 million of revenue in the current period. We will continue to provide revenue figures until the contract is complete to ensure appropriate year-over-year comparisons both this year and next. While margins for these types of contracts are typically on the lower end of our desired range, we have already secured incremental materials and maintenance work on site, and this is another example of how Thurmond's broad offering grows a value-added relationship. When viewed in the aggregates, Relationships like these enhance our installed base and drive profitable growth for the company. On a TTM basis, revenues are down 2% as we start to emerge from the COVID-induced drop. Pricing increases went into effect in our fiscal second quarter, but typically take 60 days to implement within our network, so we expect to see the impact of that hit in our second half. While we are happy to see the business inflecting off last year's lows, we are not yet back to pre-COVID levels, and still have plenty of room to run in this recovery. We are seeing the beginning of customer spending in Texas related to Winter Storm URI maintenance and upgrades, and with the passage of Senate Bill 3 and the standards soon to be finalized by the Public Utilities Commission and the Railroad Commission, we believe there is a multi-year investment cycle ahead. Purported gross margins in the quarter were 39% driven by a few discrete items. First, We continue to see the impact of the global supply chain challenges and inflation in our business through higher commodity prices, labor shortages, longer lead times or limited availability of raw materials, and the cumulative impact of those factors on manufacturing productivity. Cumulatively, these factors impacted gross margins by approximately 410 basis points in Q2. Second, In the quarter, we had multiple large contracts with lower-than-expected margins, including the large one-time project mentioned earlier, which impacted gross margins by another 210 basis points. Finally, we took a charge in cost of goods sold related to operational execution on an isolated project completed in fiscal year 20 for 1.2 million or 150 basis points in the quarter as we near completion of that on-site work. We will also disclose charges to cost of goods sold as an immaterial correction to prior periods of $0.4 million and $1.6 million in Q4-21 and Q1-22, respectively, in our 10-Q this afternoon related to the same project. These charges reflect an identified error due to underreported rework costs and due to a lack of properly designed controls and policies represent a material weakness in our internal control over financial reporting. We are in the process of implementing enhanced controls over reserves for large project rework and anticipate remediation prior to the end of our current fiscal year. As we look forward to the second half of the year, we expect the gross margins will continue to be impacted by the one-time project, but our underlying business will remain strong. We expect incremental demand from the top line will drive improved productivity in manufacturing. Price increases will begin to offset supply chain challenges and our heating season typically produces a favorable mix of materials revenue that are accretive to the bottom line. On the next page, we wanted to draw your attention to a different disaggregation of revenue available in Note 10 of our quarterly filing, as we believe it is an improvement over the Greenfield versus MRO-UE framework that was introduced for last decade's IPO. This also has the benefit of including 100% of our revenues, whereas the previous construct only incorporated the legacy heat tracing business. Revenues recognized over time are generally representative of project work where we have engineering and installation services, whereas point-in-time revenues are more aligned with product or material-only sales. Overtime revenues represented 38% of total revenue this quarter versus point-in-time revenues of 62%. Point-in-time revenues grew 40% in the quarter and 37% on a year-to-date basis, which again highlights the acceleration of our customer spending and viewed over the longer term is representative of the value of the global installed base we have built since our inception. We will continue to provide Greenfield versus MROUE mix through the end of the year, which was 39% Greenfield and 61% MROUE versus 36% and 64% respectively in the prior year. On page 8, we look at SG&A. As a reminder, we deduct depreciation from SEC-reported selling, general, and administrative expenses to get to the presentation we have on this slide. In the quarter, SG&A was $20.4 million, or 25% of revenue. The current quarter includes $1.4 million from bad debt expense, mostly in our EMEA region. On a run rate basis, we are below our target of approximately 80 million that we projected at the start of the year. The team continues to manage expenses while investing in our strategic initiatives for diversification, technology-enabled maintenance, and developing markets. R&D spending is yielding positive results as we recently announced the Thermon Envirodyne Methane Destruction Unit, which converts harmful methane emissions to water vapor and carbon dioxide in a safe process. This is an example of how we are taking action to invest in a more sustainable future for our customers. Adjusted EBITDA was $11.4 million or 14.1% of sales. This includes a deduction for our Canadian emergency wage subsidy of over $700,000 and an add-back for our debt refinancing of $2.6 million Adjusted EBITDA is up $1 million from prior year due to the items impacting cost of sales, but with heating season beginning, we believe that the combination of higher volumes and continued cost discipline will yield improved in profitability in the second half of the year. Gap EPS was $0.01 per share, a decrease versus prior year, and adjusted EPS was $0.12 per share. On the next page, I wanted to update a balance sheet and cash flow. We completed our debt refinancing in September, and I wanted to thank our lender group for their collaboration and support. We refinanced our previous Term B into a Term A facility consisting of 80 million USD, a Canadian equivalent of 60 million USD, and an expanded 100 million revolving credit facility. The new debt has no floor, and the current pricing grid puts the blended cost around 1.875% versus a previous cost of 4.75%. yielding a cashed interest expense savings of over $4 million per year. The interest expense savings is the equivalent of 12 cents per share. By placing some of the debt in Canada, we may be able to realize additional tax benefits. The net debt to EBITDA Covenant is currently 3.75 times, but will be reduced to 3.5 times as of the quarter ending December 31, 2022. We also have an acquisition holiday in the event it is required as we evaluate our inorganic growth options. With the quarter results, net debt to adjusted EBITDA as of September 30th was 2.3 times versus a prior year of three times. We continue to generate positive quarterly cash flows with free cash flow of $6.8 million in the quarter. CapEx was only $1.1 million in line with expectations. Our second half is generally a stronger generator of cash, and we expect this year to be no different. There are no changes to our capital allocation priorities, and we will continue to pay down debt while we evaluate potential inorganic growth opportunities. Combination of the heating season and positive quote, order, and revenue trends supports our expectations for better volume in the second half, and we expect to see the impact of new pricing offset rising input costs. We will continue to manage our base cost while investing in our strategic initiatives, and we now have the capital structure that provides a lower cost of funds with the flexibility to opportunistically pursue inorganic growth. I'll turn it back over to Bruce as we wanted to provide an update on how we view the long-term growth opportunity for the business.

Thank you, Kevin. I'd like you to now turn to slide 10 as we move forward. In addition to growth in our base business, we see developing markets, diversification of end markets, and technology-enabled maintenance as strategic platforms to drive growth above and beyond that of our traditional end markets. Looking at developing markets, developing countries are projected to grow at a rate three times greater than that of developed countries over the next 10 years. To capitalize on this opportunity, we plan on leveraging our geographic footprint augmented by localization to compress lead times and achieve regional price points while meeting any local content requirements. The second opportunity, diversification of end markets, is potentially the most important of our three strategic platforms. The addition of process and environmental heating to our solution set to complement heat tracing has created opportunities to build meaningful positions in more diverse end markets. The three markets we are initially targeting are commercial, food and beverage, and rail and transit. While we have participated in these markets historically, we are expanding our market channels, enhancing our product portfolio, and building sales tools and training to grow our share. Technology-enabled maintenance leverages our digital genesis network and control platform, providing real-time situational awareness to streamline maintenance, while improving the safety, productivity, and reliability of customer assets. We see additional revenue opportunities from the sale of hardware, subscription-based software, and online services enhancing our abilities to capture the full value of MRO opportunities. Above and beyond these three strategic initiative growth platforms, Our operational excellence program is targeted to drive an incremental 1.5 to 2 percent in productivity gains on an annual basis. While we also anticipate leveraging SG&A to grow at half the rate of the top line to expand EBITDA margins over the next several years. We continue to target EBITDA margins in the 22 percent range in fiscal 2023. Turning now to slide 11. As we look forward to FY26, we see a solid path for both top-line growth and EBITDA margin expansion for this business. First, we believe that we are well-positioned to grow and gain share as our end markets recover over the next 24 months. Second, our strategic initiatives will provide additional opportunities to drive growth above and beyond that of our historical end markets. Finally, our ability Our ability to generate cash and a strong balance sheet will fund inorganic growth opportunities to augment our organic efforts across the three strategic platforms. As a result, we see a clear path to more than double this business over the next five years while expanding EBITDA margins, creating significant value for shareholders. You can also see the impact of these efforts to our projected in-market mix with approximately 65 percent of our end markets being outside of the oil and gas sectors. We will continue to provide updates on our efforts and the corresponding results in the coming quarters. Turning now to guidance for the remainder of the fiscal year 22. Going forward, we're pleased with how well Thurmond is positioned to capitalize on a recovery that is well underway. We're seeing much more robust end markets that have given us confidence to raise revenue guidance range for the second time this year, from $293 million to $308 million to a new range of $330 million to $345 million. We believe the world is adapting to the new environment with COVID-19 variants and that the limiting factor in the second half of the year will be largely related to the supply chain. However, our teams are focused on supply chain resiliency to minimize any impact on our customers and the business. Our proven business model combined with our unique and long-standing customer relationships continue to demonstrate our ability to generate strong cash flow through the cycle. We have a sound strategy to drive top-line growth and expand EBITDA margins in growing and diverse end markets. We have a very talented team that remains committed to serving our customers while repositioning this business to create long-term value for our shareholders. Looking ahead, Thermon has a very bright future. I would like to pause now and turn it back over to John for the Q&A portion of our call.

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 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 keys. One moment, please, while we poll for questions. Our first question comes from the line of Brian Drab with William Blair. You may proceed with your question.

Hi, Bruce and Kevin. Thanks for taking my question. Good morning.

Good morning, Brad.

Good morning. Can you maybe just elaborate on what some of the products you have for the renewables market, what some of those specific applications of your products are? Obviously, that's great that you touched on it today. I'd just like to hear a little bit more about the outlook there and when does that market start to really generate meaningful revenue? I mean, it sounds like it already is beginning to.

Yeah, so I spoke specifically to biofuels. And really, it's many of our traditional products. Even though you're processing organic matter, you're converting that into, you know, biodiesel is one of the most common products there. And so the production processes are very similar. So we use really the same types of products we would use in a typical say, refining applications, so certainly heat tracing, as well as immersion heaters. And then in some cases, depending on the location of the facilities, you know, and the climate, we might also provide environmental heating. So that would be kind of biofuels. If we're looking at other renewables, particularly around wind, those would tend to be immersion heaters, as well as as well as forced air heaters for typically warming the oil in the sump for the nacelle for wind, and then also heating the nacelle itself. So those would be kind of the two applications in winds. In solar, applications tend to be less.

Okay, and hydrogen plants, is that some of the similar technologies?

Oh, yeah, so hydrogen, yeah, so hydrogen, we actually use a lot of immersion heating for those processes to basically split the water molecule into its component parts, hydrogen and oxygen. So those are used pretty extensively in that process.

In those end markets, do you typically bump into, I guess, the same competitors that you would in your traditional markets as well?

That's correct.

Okay. You mentioned the $20 million order. Congratulations on that. And it sounds like the $3 million was recognized. What is the timing of the balance, recognition of the balance of that revenue, and is there – potentially more beyond that, and what's the overall gross margin, do you think, for that opportunity?

Yeah, so we've projected, you know, 15 to 20 million within the fiscal year. There are definitely additional opportunities above and beyond that, and we would expect those to be at a better, you know, a better margin profile. Just to note, We actually have already supplied all the direct materials, heat tracing panels and all of that to this customer. This is just kind of some final work around installation, but we see opportunities in pre-commissioning and really during the commissioning process and then post-startup for additional revenues. The margin profile on labor and material is on the lower end of our expected range in projects.

And Brian, this is Kevin. Maybe just to round out on the timing between 3Q and 4Q, maybe half and half. I don't think there's a bias either way between the balance of the year. There maybe could be a little more in 3Q versus not, but it's on the margins.

Just to make sure I understand, so the materials have been delivered, but it's just that you're going to recognize revenue as it's installed? Is that what it is, or

We sold the material outright. We sold the material outright. That was recognized two or three years ago. So this is just final stages of construction pre-commissioning and startup.

So this is service and installation revenue that you're recognizing now? Correct. Okay. And so when you say lower end of the range, like lower end of the greenfield range, like this could be like? 25, 30% gross margin type revenue.

Brian, when we think of the range of the spectrum, there's probably even a lower end of that where some projects get done. Um, and especially with the content here, not having any of the materials, um, you should think the lower end of the range.

I gotcha. I gotcha. Um, right. It's a lot of service here in installation. I, right. I understand. Um, and then, yeah. And then, uh, Right, I wasn't thinking about it correctly for a second, but I got you. So the end markets, I just wanted to see if you could give any more granularity on this. Could I ask it this way? Could you kind of rank order the impact or like the strength of the end markets that you saw in the quarter, you know, including, you know, petrochem, as much granularity as you can give, like petrochem, you know, midstream, downstream, oil and gas, et cetera?

Yeah, so... When I kind of rank it, chemical, petrochemical, by far the strongest. We've seen there's a tightness in supply. Resin prices literally have doubled. So we're really starting to see those facilities really return to more pre-COVID levels of maintenance activity. And we're also seeing capital projects that had been shelved for some period of time now being pulled down and being advanced. So that's been really the strongest. And I would rank second would be power. We've also seen some pretty strong maintenance spending and recovering power. Some of that's related to, you know, here in North America and Texas particularly and related to the winter storm last year. but also just overall strong demand in the power sector. And certainly, if we look at power more broadly, we see significant opportunities in the eastern hemisphere as power demand growth is expected to grow pretty significantly over the next several years. I think beneath that, I would look to kind of natural gas midstream and LNG opportunities. Those also are kind of being resurrected as we're seeing more demand for natural gas. I think it actually is actually up above pre-COVID levels, and that's actually driving requirements for more liquefaction and gasification of LNG in order to meet kind of global demand. So those would be kind of the top markets as far as where we see the strongest opportunities. I noted you know, rail and transit renewables, those actually have some really nice opportunities. It's small, but certainly growing part of our business. And then, you know, I would say upstream is probably the weakest sector, although we are seeing some maintenance, not much in the way of CapEx.

Great. Thanks. And I'm just going to ask one more. Gross margin is big headwind right now for a number of factors, but can, and I know you commented, I just want to make sure that I have all the details understood correctly, but can you just forecast, you know, get in as much granularity as you're willing to give, you know, what you're expecting for gross margin next couple quarters and even into next year as things normalize, hopefully? Okay.

Yeah, Brian, this is Kevin. I think on margins, you know, you've seen the pieces. We've got 150 basis points on the charge in the quarter. You know, that kind of gets you back above the 40 range. And then we outlined, I think, roughly 600 basis points, you know, 200 there due to the large projects, another 400-ish due to the supply chain. You know, we think pricing is going to have an impact on the supply chain side of things in the second half. So You know, we certainly think there's a path back to those, you know, traditional historical 45% type of margins. But I think as we spoke to the large contract, you know, that's going to be a drag on margins here just given the structure of that. So there's a little bit of, you know, pluses from a supply chain being offset by pricing. Having more volume should increase productivity. But you've got a little bit of a drag back here in the next two quarters or so on the large projects. I would say longer term, I think we remain confident that this is a business that structurally can generate margins on average above 45%. And if you think about where SG&A is trending to date, we think about that kind of low 20% EBITDA. We think we're on a path there. And certainly, the business is not there today. So we think there's some pretty strong operating leverage here, not just in the next six months, but the next 18, 24, 36 months as the business continues to grow. So you know, without getting into the specifics on gross margins, again, I think you can kind of work your way through some of the supply chain challenges with pricing, but we'll have a little bit of lag here in the next two quarters just due to that large one-time project as that gets completed.

Got it. So I'll let you go after I just make sure. What I just heard, in my mind, I'm hearing like maybe mid, like 45-ish is doable with price increases, but maybe a couple hundred basis point headwind related to the large project or projects in the second half, and then beyond that, 45 is attainable, and 45 plus even longer term.

You're in the right tip code, Brian. Yeah, absolutely. That's the caution.

Okay. Thank you.

As a reminder, we are in the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. And you may press star 2 if you would like to remove your question from the queue. One moment, please, while we pull for more questions. Our next question comes from the line of John Bratz with Kansas City Capital. You may proceed with your question.

Good morning, Bruce. Kevin. Good morning, John. Good morning, John. Returning to the gross margin and the sort of the 400 basis point drag because of supply chain issues and pricing and so on, With everything else being equal and nothing gets worse, would you think by the end of this fiscal year that you're back to fully recovering that 400 basis points? Or do you need more time, so to speak?

Yeah, John, I guess embedded in the question, if I kind of think about it more broadly, is a little bit of a call on how transitory inflation actually is. But I think when we look at the vast majority of that 400, I think we feel really good about pricing in the market right now. There's a ton of demand out there, and I think when we look at the ability to meet it, maybe it's three-quarters of the way, maybe a little bit more gets home related to pricing in the second half. I certainly don't want to be making a call on inflation when others aren't able to do that at the Fed and other experts in the field, if you will. But I think we feel pretty good on pricing's ability in the second half to mitigate that, and ultimately that's going to drive some of the recovery in the second half of the year.

Okay. And did you say, Kevin, that in the second half there will be a small charge related to the project that's been causing some difficulty?

So we took the charge in this current quarter, John. That's roughly $1.2 million. What I was alluding to is we're going to have immaterial corrections in prior periods. So that would be Q4-21, that's roughly $400,000. And then Q1 of 22, that was another $1.2 million. So no future charges that we expect at this time related to that project. All right.

And Bruce, in terms of renewables and green energy, There's been a lot of talk about carbon capture, carbon sequestration, and so on. Is there opportunity in that area for Thermon?

Yes, there is. There certainly is applications of our technology there, and we are connected to those customers and those opportunities. Also, you heard Kevin mention about our methane destruction unit. It's actually one of the kind of myriad of solutions that are out there, but it really has a great application in kind of oil and gas gathering fields where carbon capture is really not a viable solution, and it converts... natural gas or methane, it converts that to CO2 and water. So that's actually even another opportunity when we start looking at, you know, carbon capture and reduction.

Okay. All right. Okay. Very good. And, Bruce, do you think, I know you made reference to it, but do you think there will be anything coming out of the regulations regarding the Texas state bill that that will begin to impact Thurmond to any significant degree? Are there big changes on the horizon as a result of that bill?

We already are seeing, you know, part of our order growth this year was directly related to improvements in the infrastructure to winterize assets. So we're already seeing the impact of that in our business. Okay. All right.

All right. Thanks very much. Appreciate it.

Thank you.

At this time, we have reached the end of the question and answer session, and I will now turn the call back over to Bruce for any closing remarks.

All right. Thank you, John. And thank you all for joining here today. Appreciate your interest in Thermon, and enjoy the rest of your day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.