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spk00: At the same time, we are also excited to have Roberto Kuohara join the team as the new Senior Vice President of Manufacturing. Roberto brings a wealth of knowledge and experience in international manufacturing operations, Six Sigma, the Toyota production system, and operational excellence. Moving forward, he will be instrumental in expanding the capabilities and competencies within the senior leadership team that are needed to execute our strategy. I'd like to now turn to slide three and the third quarter results. There are a lot of positive things we're seeing across the business this quarter highlighted by growth in the top line, net income, bookings, and backlog. We saw solid execution by the team in the third quarter with strong top line growth as we see in markets continuing to recover. Revenue for the quarter was $100.6 million, up 26.4% over prior year, with growth largely driven by North America. In the eastern hemisphere, the market recovery has lagged in a more challenging business environment, particularly in Asia, due to COVID-19 restrictions in many countries. Net income of $11.3 million was up 82.3% over the prior year quarter, also showed strong growth. Adjusted EBITDA of $20.6 million was up 11% over prior year as supply chain challenges persisted, contributing to higher input costs. With gross margins finishing at 40.5%, a large one-time project was diluted in the quarter by approximately 250 basis points. Prices had a positive impact of 200 basis points, and we anticipate further price realization in the fourth quarter of this year. Inflation was a 300 basis point headwind as both labor and material costs continue to rise. The team has been very adept at navigating supply chain disruptions, which we believe have peaked in Q3 and appear to be improving in Q4. However, we see continued risk in both the availability of labor and material through the middle of the calendar year. The team has also done an excellent job around managing costs with SG&A at 19.2% of sales for the quarter and trending below the projected run rate for the year. Gap EPS and adjusted EPS were 33 and 37 cents per share respectively, with adjusted EPS up 23.3% from the prior year quarter. Our commitment to investing in our three long-term strategic platforms remains steadfast. And I will address these in more detail later in our call. We continue to see a strong broad-based recovery in our end markets. As a result for the third consecutive quarter, we are raising full year revenue guidance to 342 to 350 million. Turning now to the external environment and our end markets on page four. As we look across our geographies and end markets, we see activity in certain areas approaching pre-COVID levels, but we also see additional room for further recovery in Q4 and throughout fiscal year 23 as other areas lag. As we look on the chart on this page of the presentation, I would like to reinforce a couple of key points. First, roughly 52% of our end markets are outside of the oil and gas sectors. Second, greater than 55% of our end markets are 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 in developing economies, the growth outlook across these sectors is much more robust than upstream oil, which now represents just 16% of our revenues. The chemical and petrochemical sector has shown a nice recovery in maintenance spending year to date, and we are seeing capital projects that had been shelved now moving forward. In the power sector, bookings were up 60% over prior year, led by activity in the Texas Gulf Coast following winter storm Uri. We continue to win business in the rail and transit sector, with bookings up 20% over the prior year quarter. We also have a line of sight to several multi-million dollar transit opportunities in this space. As we look to strategic adjacencies, Thurmond is well positioned to play a key role in the energy transition. From wind power to biofuels to hydrogen power, our solutions are critical to safe, efficient, and reliable operation. While nascent, hydrogen power is particularly exciting with many opportunities for both blue and green hydrogen processing in our pipeline today. Moving on to slide five of the presentation. On a trailing 12-month basis, orders finished at 360 million, a level not seen since Q4 of FY20. During the current quarter, orders of 90.2 million grew 27% over the prior year period, but were down 25% sequentially due to a large one-time project secured in Q2. Backlog is up 32% year over year, and book-to-bill finished the quarter just above one when adjusting for the impact of the one-time project. As a note, we have had a positive book-to-bill in six of the last eight quarters. I'd like to now hand it over to Kevin Fox, our CFO, to provide a more detailed review of the third quarter and year-to-date financial results. Kevin?
spk04: Thank you, Bruce. We had another great quarter on the top line on page six. Revenue was up 26% versus the prior year quarter and up 12% on a trailing 12-month basis. The current quarter's revenue includes less than $1 million of benefit from foreign exchange. Revenue growth was driven by both the U.S., Latin America, and Canada regions with strong materials growth due to an increase in maintenance spending concurrent with the easing of COVID restrictions. We continue to see companies in the U.S. Gulf Coast making investments to improve infrastructure, especially power infrastructure, after both the winter storm and hurricanes from the last year. The U.S. also benefited from the impact of the large one-time contract we mentioned last quarter with almost $9 million of revenue booked in the period. We will provide these revenue figures for comparability purposes given the size and nature of the contract. In the eastern hemisphere, both EMEA and APAC declined due to the continuing impact from the pandemic and the slower recovery in certain countries. In both regions, our project business has been more impacted than materials sales. On a TTM basis, revenues are up 12% as we pass the inflection point into year-over-year growth. We are realizing the impact of price increases put in place in the second half of 2021, and as a reminder, those are most applicable to our materials business. Pricing had a positive impact of about 200 basis points overall, with the impact accelerating from the first half of the fiscal year, which is a trend we expect to continue in the fourth quarter. Reported gross margins in the quarter were 40.5% versus 46.4% in the prior year period. If we exclude the impact of the large one-time contract, margins would have been 43%, so currently the contract is about 250 basis points dilutive. Pricing was a positive impact of 200 basis points on gross margins, and we expect the accretive impact from pricing actions to continue through the year. The global supply chain challenges continue to impact our business through higher input costs, extended lead times or limited availability of raw materials, and inconsistent labor availability. The cumulative impact of those factors on manufacturing productivity was approximately 350 basis points in Q3 slightly higher than anticipated as those headwinds persist. Finally, we have the combination of a significantly decreased benefit from the Canadian emergency wage subsidy that was reported in COGS this year versus last, plus the different margin mix within projects revenue that had an impact of approximately 200 basis points versus prior year. The team continues to diligently work with our customers and suppliers to navigate the challenging environment in our industry. While we expect certain input cost headwinds and the availability of qualified labor to continue to pose challenges, the pricing actions we've taken will help offset that impact in the P&L. Now on page seven, I'll continue to focus on the overtime versus point-in-time revenues and want to confirm we will no longer be disclosing the MRO-UE framework in fiscal 23. As a reminder, the new metric includes 100% of our revenues whereas the previous construct only incorporated the legacy heat tracing business. We believe this is a more accurate representation of the two unique revenue streams, and since it is derivative from GAAP revenue recognition standards, is also a more robust framework than the previous MRO-UE disclosure. Historical information remains available in our SEC filings for comparability. 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 or project revenues represented 41% of total revenue this quarter versus point-in-time or material revenues of 59%. Excluding the large one-time contract, this split was $36.64 versus $35.65 in the previous year. Point-in-time revenues grew 25% in the quarter and 29% on a year-to-date basis, which again highlights the strong increases of our customer maintenance spending and viewed over the longer term is representative of the value of the global installed base of our business. We will continue to provide the Greenfield versus MRO-UE 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, for this SG&A metric, we deduct depreciation from the SEC-reported selling, general, and administrative expenses. In the quarter, SG&A was $19.3 million, or 19% of revenue. 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 execute on our investment plans while managing controllable spend. We started the process of funding our strategic initiatives for diversification, technology-enabled maintenance, and developing markets, and we will continue to build our product development roadmaps for the heat tracing and process heating lines. Adjusted EBITDA was 20.6 million or 20.5% of sales. This includes a deduction for a Canadian emergency wage subsidy of $200,000, and we do not believe we will have any additional benefits from this program. Adjusted EBITDA is up $2.1 million from the prior year due to increased volume and pricing, but offset by the items we've previously mentioned that impact the cost of sales. GAAP EPS was 33 cents per share, an increase versus prior year of 18 cents. and adjusted EPS was 37 cents per share versus last year's 30 cents. On page nine, the balance sheet continues to trend in the right direction as we manage the growth of our business. Cash is down 17 million year over year as we've paid down debt and improved our global cash management processes. You can see the impact on our total debt with a 22% reduction versus prior year, resulting in net debt to adjusted EBITDA of 2.2 times. We expect this to further decline to approximately 1.5 times by the end of the fiscal year, excluding the impact of any potential acquisitions. The M&A pipeline remains robust, and we have ample capacity under our new debt agreement to execute when attractive opportunities are available. Networking capital is down 4 million year-over-year, or six points as a percentage of revenue. The cash conversion cycle is down to 130 days, a year-over-year improvement of over 60 days. This is a great result given the external environment, especially around suppliers, and we're focused on continuing to improve the cash flow of our business. We continue to generate positive quarterly cash flows with free cash flow of 2.6 million in the quarter as we invested in the networking capital along with the growth of our top line. CapEx was only $700,000 and predominantly focused on maintenance, and we will likely see incremental investments in our strategic initiatives in the quarters ahead. Overall, another good quarter of financial results as we continue to grow the business. I'm pleased with the top line performance and expect we will continue to see price realization in our fourth quarter. The global team continues to respond to rising input and transportation costs while keeping our facilities operating safely and delivering for our customers. Our balance sheet is strong, our technology is winning in the market, and our people make a difference every day. I want to say a special thank you to our employees across the globe for their commitment and all the fantastic work they are doing for our customers and shareholders. And with that, I'll turn it back over to Bruce for an update on the progress we're making with our strategic initiatives.
spk00: Thank you, Kevin. I'd like to turn now to slide 10. The team is making progress in advancing our three strategic platforms to achieve our goal of $550 million in revenue by the end of fiscal 2026, while driving operational excellence to achieve EBITDA margins in the low to mid-20% range. Beginning with the developing markets, the team has built a detailed analysis by customer and in-market identifying the specific needs by country or region. We've established an initial localization roadmap that would be instrumental in growing share in these emerging economies. On our next call, we'll provide more on our plans for fiscal year 23 to meet local requirements, market lead times, and regional price points. While we have seen a delay in the overall market recovery in the eastern hemisphere, we believe there is pent-up demand that will return as economies emerge from COVID-19 restrictions. We continue to advance our diversification of end markets in the quarter as well. Recently, we have added a new business development manager for rail and transit and have launched a new Hubby Hellfire Blizzard Duty rail switch heater that has been well received by our Class 1 rail customers. We've also launched our zero halogen low smoke commercial heat tracing cable that is gaining momentum, particularly in Europe. Based upon feedback from our channel partner, we expect sales to double in the coming year. During the quarter, we have secured wins in two data centers for our commercial products. And finally, we've lost the marketing campaign in food and beverage that is yielding early results with key wins in some new applications. As you prepare to watch the Super Bowl next weekend, you may be interested to know that Thermon plays a role in providing those much needed game day essentials with 1.1 million in orders for potato chip, dressing and food oils, and brewing production operations. Our third strategic platform, technology-enabled maintenance, continues to gain momentum in the marketplace. The Genesys network, a self-healing mesh network that enables centralized control, has been successful in early customer pilot programs. The quote backlog is growing, and early adopters are seeking to expand the installations across their operations. We also have new product introductions to augment this solution set that will be announced during the first half of fiscal year 23. Looking forward to page 11, we are very pleased with the continued momentum we are seeing in our business. The Thermon team has done an excellent job in positioning this business for success during the recovery and in the energy transition that is underway. Thermon solutions are mission critical in the majority of the diverse end markets we serve. We see additional recovery in our traditional end markets in Q4 and throughout fiscal year 23 that will be augmented by our efforts to grow and expand our addressable markets. As a result, for the third consecutive quarter, we are raising our full year revenue guidance to $342 to $350 million from $330 million to $345 million, representing 24% to 27% year-over-year top line growth. While input costs continue to be a headwind on EBITDA margins, we anticipate some of these costs to be transitory and that our operational excellence programs will drive productivity gains combined with price increases to mitigate the residual impact over the next several quarters to further expand EBITDA margins. I'm personally excited about the opportunities that lie ahead. We have a resilient business model that generates strong cash flow at attractive margins, a very capable team, a sound strategy, and with covering in markets that position us well to create shareholder value over time. With that, I would like to hand it back over to our moderator for the Q&A portion. of our call.
spk01: Thank you. And ladies and gentlemen, 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 the star key followed by the number 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. Once again, to ask a question, press star 1 on your telephone keypad. We'll pause for a few moments. Another reminder, to ask a question at this time, press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. Our first question comes from John Bratz with Kansas City Capital. Please state your question.
spk03: Good morning, Bruce, Kevin. Good morning, John. Good morning, Jeff. A couple questions. Bruce, can you tell me what may be the opportunity that may be in front of you in your eastern hemisphere, Asian markets. I know the markets have been weak there, but how much, maybe they've pent up demand, new capital projects. How significant can that turnaround be when it happens?
spk00: As I look at that, John, I see it much the same as what we're now experiencing in the West. And I don't want you to walk away with the impression that there's not additional lift that we can see in the Western Hemisphere as well, in North America particularly. But yes, in the East, I would expect that recovery to look very similar. I'm certain that the demand is, there is pent-up demand there. We look at our business in Asia, it's even off a bit from last year. So when I look at kind of where we were previously, you know, I see easily, you know, 15%, 20% opportunity just in growth and recovery. In EMEA, in Europe, Middle East, Africa, I would say it maybe is, you know, more in the 10% to 15% range, but certainly some nice additional growth opportunities in the east. I also see additional running room here in the west as well.
spk03: Sure, sure. Okay, okay. And, Kevin, how much of that large project remains to be filled?
spk04: Yeah, John, so I think we've done almost $12 million year to date. If you think a little under nine this quarter, I think it was a little under three last. We think it's going to be probably north of $20 million for the year. So, you know, we're a little over halfway through that contract right now.
spk03: Okay, so still some margin headwinds in the fourth quarter. Yes, sir, correct. Okay, and then obviously you did a very good job in terms of managing the SG&A expenses. Are there anything unusual in there that might come back a little bit, or you view this ratio as sort of more of more permanent and will be with us for some time.
spk04: Yeah, John, I think more of the latter. If you think maybe roll back the clock a year or so when we obviously had to take some actions on the base cost, the intention was to get the business to a place that, you know, on a more permanent basis is starting to look like what it looks like today, essentially. There should be some operating leverage in the business as we continue to grow. But, you know, that SG&A is a percentage of sales, you know, and call it the low 20s, I think is a place where we can get to on a more permanent basis, you know, not there yet. on a year-to-date or trailing 12-months basis, but I think the future of SG&A as a percentage of sales is more representative of today than what it's been, you know, 6, 12, 18 months ago. Yep, yep.
spk03: All right. All right, Kevin, thank you much. Thanks, Jeff.
spk01: Thank you. Our next question comes from Brian Drab with William Blair. Please state your question.
spk02: Hi, thanks. Congratulations on the continued recovery here and the execution. Just, you know, first, you know, looking at slide six, I was wondering, and I think you just answered part of this question, but with these gross margin headwinds that you called out in slide six, the contract, the supply chain, emergency wage subsidy, can we just talk a little bit about, you know, the duration of these, you know, headwinds? I guess the one-time contract is going to fall off after a couple more quarters. How are you looking at that?
spk00: Yeah, Brian, this is Bruce. So the contract will largely be completed with the bulk of it by the end of this fiscal year. So, you know, while it's accreted, the EBITDA is diluted to gross margins. So, you know, that will be falling off. When I look at some of the cost increases that we've incurred here in the supply chain, and labor costs increases. As I've used some of these, I believe they're transitory. I think some of these are commodities. I think in other cases, there's been shortage of supply and there's been some price gouging, particularly in electronic components. I think as supplies return, those will normalize. So I think we'll see that come back. I do believe the labor costs are here to stay, and I think there's probably some of the material price increases that will get locked in as well. So I expect that to probably be middle of the calendar year. My glass ball is no better than yours, but I do expect to see some of that come back in a lot. And as I said earlier, we have additional pricing realization we expect during the fourth quarter. And we're certainly evaluating our opportunities to selectively increase price going forward where we see some of these residual costs landing and we need to get more price in the market. Got it.
spk02: So just kind of building on that, as you look forward to the fourth quarter and next year, Can you give us any more like directional guidance around gross margin? This fiscal year it's averaged, I know there's a lot of factors here, but it's averaged like 38 and a half percent for the first three quarters. And I guess directionally, I think you'd tell us it should be going up. Can you give us any sense for as we look forward to the next fiscal year, What's the normalized level that you think you can shoot for?
spk00: What I would expect, because of some unusual one-time expenses and the dilution of this one-time project and some of the headwinds we've seen, I would expect margins to be in the low to mid 40% range in the coming year. And some of that will depend on obviously depend on mix and how strong the capital projects come back in the coming year, and so that will have an influence. Obviously, my expectation that if it were on the lower end of that, we would see a stronger capital cycle, which would be positive for the top line. Got it. Okay.
spk02: Thanks. And then, Kevin, you're talking about OpEx in terms of percentage of sales kind of longer term. I just want to You know, get a little help if I could on modeling this in the more near term, though. You know, it's been the run rate for, you know, we look at it on an adjusted OPEX basis. So I hope my numbers kind of line up with how you can think about it. But, you know, like 28 million was kind of the old run rate, you know, plus or minus. Now we're like at 23 last couple quarters. Is this, you know, where you'd guide us to kind of, is that sustainable for the, you know, through the next four or five quarters here? Is that where we're going to be?
spk04: Yeah, I guess, Brian, the first thing is kind of the jumping off point here about, you know, we've talked about the target around $80 million for this year. That excludes the depreciation. I think that's probably the $2 million to $3 million a quarter. That's the delta between year 23 and maybe year 20. But as we think about the base costs of the business, profitable growth and operating leverage is the name of the game here. So we're going to be trying to calibrate those investments that we're making in the business, whether that's around our strategic initiatives, clearly thinking about the labor force and making sure we've got qualified, safe people who can be running the plants and everything around that nature. But we do expect there's significant operating leverage in the business. So if the top line's growing by 5%, 10%, 15%. We think the SG&A number is going to be growing at a rate that is below that to create that improved profitability in the business. So probably too early to talk about specific numbers for fiscal 23, but we certainly expect that as the business is growing, that the energy transition is kind of taking a hold. We are going to have to invest in those strategic initiatives. That is going to drive incremental costs. But the balance here is going to be to do that in a way where we're managing profitable growth at the same time. So don't really want to put a dollar against it right now. We can probably come back to that when we talk about fiscal 23 here in the next quarter. But, you know, that's generally the conversation we're having with the leadership team and the board.
spk02: Got it. Okay. And then I can't believe it's already been four years since you acquired CCI. And I was wondering if you could just talk about, you know, as you're seeing, you know, the recovery, in your business. Are you seeing that in both the, you know, I guess what you call Thermon heating systems and the legacy business, or is one performing better than the other?
spk00: Yeah, Brian, this is Bruce. Actually, if you'll recall, that business, the process and environmental heating product lines, they actually lead heat tracing kind of in the recovery they did in the last And we're seeing the same thing here. So we actually are seeing a stronger and earlier recovery in the process of environmental heating. And we expect the heat tracing business, the heat-based tracing business is recovering as well, but it's lagging by six months or so. So it's what has historically happened. It's what's happening now. So we feel good about that business and where it's going. And it's also a leading indicator of what we can expect in the legacy business.
spk02: Right. And can you say anything about what the margins are today in those businesses relative to one another?
spk00: Kevin, do you want to comment on that?
spk02: Not precisely, just like relative. Just like is one higher than the others? Yeah.
spk04: Yeah, Brian, I think relatively the THS business has always been viewed as slightly accretive versus the core. I think that trend has continued through the course of the acquisition. So I wouldn't say there's been any fundamental shift on the profile of the business between the two with the process heating being a little more attractive on the balance versus heat tracing.
spk00: It's more material sales than the project sales, which tend to be dilutive on the heat tracing side. Okay.
spk02: And then just last question, I'm just curious on the slide where you showed that 16% of revenue from upstream oil, how does that break down these days between oil sands and non-oil sands?
spk00: The bulk of that, the bulk of those revenues are actually in Canada and Eurasia in colder climates. It's not all, but I would say at least 80% or more.
spk02: Yeah. And so that's still, I mean, you're still generating revenue in the oil sands. The oil sands are not talked about as much anymore, really.
spk00: No.
spk02: Is that a lot of MRO business from previous times?
spk00: Yeah, it is a very solid recurring revenue stream in MRO UE. And it's, you know, I could go back and, you know, it's, $50 million a year largely of material sales in Canada that are linked to some of those end markets. They continue to operate and produce, and they've got to maintain those assets.
spk02: And that's still relatively higher margin business, isn't it? Very nice. Self-regulating cable. Absolutely. Yeah. Okay. Thank you very much. Yep. You're welcome.
spk01: Thank you. And ladies and gentlemen, there are no further questions at this time. I'll turn it back to Bruce Thames for closing remarks.
spk00: Well, I'd like to thank everyone for their interest in Thermon and for joining. I'd also like to just take a moment and thank our employees around the globe that each and every day serve our customers and are focused on creating value for our shareholders. I appreciate your interest. Enjoy the rest of your day.
spk01: Thank you. This concludes today's conference. All parties may disconnect. Have a good day.
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