Thermon Group Holdings, Inc.

Greetings and welcome to the Thurmond Group Holdings fourth quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Yvonne Salem. Vice President of FP&A and Investor Relations. Thank you. You may begin.

Thank you, Diego. Good morning, and thank you for joining today's fiscal 2022 full-year 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 in our IR website, under News and Events, IR Calendar, Earnings Conference Call Q4 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 would like to remind you that during this call, we might make certain forward-looking statements regarding our company. Please refer to our annual report and most recently quarterly report filed with the SEC for more information regarding our forward-looking statements, including the risks and uncertainties that could impact our future results. Our actual results might differ materially from those contemplated by these forward-looking statements, and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as might be required by law. Now, I would like to introduce Bruce Thames, our President and Chief Executive Officer, for his opening remarks.

Thank you, Yvonne. Thank you all for joining our call today. We appreciate your interest and investment in Thermon. Following my remarks, Kevin Fox, our CFO, will provide more detail on the financial results for our fourth quarter of fiscal year 22 and full year. I'd like to begin by turning to slide three to reflect on our full year fiscal 22 results. Fiscal year 22 marked a year of recovering top line with solid leverage on the bottom line underpinned by strong execution by our team. Top-line revenues grew 29% in the year, while adjusted EBITDA growth of 61% expanded at more than twice the rate. Free cash flow for the year was $24.2 million, which represented 120% of net income. More importantly, we advanced our long-term strategic initiatives of diversified end markets, developing economies, and technology-enabled maintenance. During the year, we were able to achieve 44 percent growth in diversified end markets to achieve 60 percent of revenues in non-oil and gas verticals. We also saw a solid continuation of market uptake of the new Genesis network with six system purchase orders to date as customers seek to streamline and more effectively manage their assets. In addition, we launched numerous new products and software ranging from a market-leading 3D design software to products for commercial, rail and transit, and environmental heating applications. These new products were instrumental in driving the growth seen in the diversified end markets during the year. I also want to thank our teams around the globe for their commitment to safety. Fiscal year 22 marked the second consecutive year of zero lost time incidents and we were recently awarded best in class and recognized as a mentor company for our commitment to safety out of over 1,500 contractors. Thermon also advanced our commitment to sustainability and ESG during fiscal year 22. Many of our products actually reduce emissions, lower energy consumption, and shrink the carbon footprint, helping our customers create more sustainable operations. During the year, We also expanded our disclosures on a wide range of environmental and social issues, assigned clear accountability within our corporate governance structure, and increased the overall diversity of our team. Our teams accomplished all of this while facing widespread supply chain disruptions, 40-year high inflation, and a war in Ukraine. Overall, I'm very proud of this team and their achievements in fiscal year 22, and look forward to continuing to work alongside them to deliver profitable growth as we execute our strategy. Turning now to slide four on our end markets. To begin, I want to highlight the advancements we've seen in our efforts to diversify end markets during fiscal year 22. We were able to drive growth in diverse end markets by 44 percent almost three times that of traditional oil and gas end markets during the fiscal year. As a result, oil and gas now represents just 40% of our mix, while the majority of our business is driven by a wide range of diverse end markets with GDP plus growth opportunities. Some great examples include power, growing by 260%, which included the impact of winter storm Uri along the Texas Gulf Coast. We see continued opportunities in the power sector going forward, driven by the transition to electric from other traditional energy sources. We also grew rail and transit by 49% year over year, with the launch of the Hellfire Blizzard duty and expansion of our business development team. Our commercial business grew by 67%. driven by the launch of a low-smoke, zero-halogen heat tracing offering in Europe, combined with our D-profile freeze protection heating cable for the global market. Our marketing campaign and channel development in food and beverage resulted in 27% growth in the year. In addition, these efforts, we continue to see strength in the chemical and petrochemical sector, which has grown to become our largest end market. Geographically, we saw the U.S. and Canada lead the recovery in FY22, with Europe growing modestly and Asia lagging due to COVID lockdowns throughout the year. Turning now to slide four for our Q4 results. Our strategic pillars around in-market diversification, developing economies, and technology-enabled maintenance combined with strong execution have been key to our success this quarter and fiscal year. fourth quarter exceeded our revenue expectations despite the supply chain challenges that persist. Revenue finished the quarter up roughly 40% year over year at $102.6 million, driven largely by strength in North America. Excluding the one-time labor contract, which represented $12 million in revenue during the quarter, revenue grew by 24% year over year. This marks the third consecutive quarter where revenue has exceeded our expectations, highlighting continued strength in the recovery. This quarter, we also saw price increases in productivity essentially offset inflation, with $18.3 million in adjusted EBITDA for the quarter, up 214% over the prior year quarter. The balance sheet is also in very good shape with net debt to adjusted EBITDA at 1.4 times at year-end, finishing at the lower end of our projected range. We believe this positions us well to pursue inorganic growth opportunities that augment our three strategic platforms. Free cash flow was particularly strong at 13.2 million, representing 152 percent of net income for the quarter. Adjusted EPS finished the quarter at 31 cents a share, up from two cents a share in Q4 of last year as the team tactfully balanced cost management with continued investments for growth. The momentum we are seeing sets the business up well for continued success in FY23 and beyond. Turning now to slide six on orders and backlog. We continue to see strong growth in incoming orders with bookings growing 47% in the quarter and 39% over the trailing 12-month period. Excluding the one-time contract, our Q4 book to bill was a very strong 1.2 times and has been positive for seven of the last eight quarters. In addition, our quotation volume was up 76% year-over-year and 87% sequentially. Backlog is up 37% year-over-year and 7.2% sequentially. Based upon the level of activity, we continue to see opportunities to drive growth and anticipate a return of capital spending during the second half of this fiscal year. With that, I'd like to turn the call over to Kevin for a more in-depth review of our financial results. Kevin?

Thank you, Bruce. Turning now to page 7. Revenue in the fourth quarter was $102.6 million, up 40% versus prior year. The large one-time contract contributed $12 million in the quarter, so excluding that project, Thermon revenues were up 24% versus prior year. Drivers this quarter remain consistent with previous periods where we are seeing strong growth in the Western Hemisphere, with APAC slowly recovering from lockdowns and EMEA showing a year-over-year decline due to some larger projects in the prior year, and partially due to the impact of the war in Ukraine and our decision to suspend new orders and investments in our Russian operations. Fiscal 2022 revenues totaled $355.7 million, growth of 29% versus prior year. Excluding the one-time contract of $24 million, year-over-year growth was still an impressive 20%. The remaining work at year end has already been completed in our first quarter. Point-in-time revenues grew 34% in the quarter and 33% in the full fiscal year, which underscores the strength in maintenance spending across our global installed base. As a reminder, point-in-time revenues are aligned with our product or material sales, while overtime revenues, which were up 51% in the quarter and 23% year-to-date, both including the one-time contract, are representative of project work where we have engineering and installation services. Point-in-time revenues are generally reflective of material sales. These revenues traditionally carry higher margins than the overtime revenues, making the faster growth in that revenue stream a key driver of profitability today and in the future. Overtime or project revenues represented 40% of total revenue this quarter versus point-in-time or material revenues of 60%. Excluding the large one-time contract, this split was $31.69 versus $36.64 in the previous year. This will be the final quarter of disclosing the MRO-UE versus Greenfield construct. Historical information remains available in our SEC filings for comparability. Greenfield was 46% of revenues due to the large one-time contract versus MRO-UE of 54% in the quarter. On the next slide, we'll cover costs. Reported gross margins in the quarter were 40.1% versus a reported 36.6% last year. A few items to walk through to provide clarity on the year-over-year changes in the quarter. First, we back out the adjusting items from last year's quarter, totaling 3.3 million or 450 basis points, giving us a comparable base of 41.2% adjusted gross margin in the year-ago quarter. This quarter, the one-time contract with revenue of $12 million was dilutive and impacted margins by 570 basis points, giving us a comparable figure of 45.8% gross margin in fiscal 2022 fourth quarter. In this year's quarter versus prior year, we realized pricing benefits of 380 basis points, which was more than the increase in material and labor costs of 340 basis points. Volume contributed an increase of 430 basis points. Overall, we are pleased with the ability of the business to navigate through this difficult operating environment. Previously announced pricing actions continue to have a positive impact on profitability, and we are constantly evaluating our global pricing strategies. Materials availability and rising input costs remain a challenge, particularly around electronic components. but the team is proactively managing for continuity and long-term availability. We're most pleased to see the margins in the core business, excluding the one-time contract, above that historic level of 45%, and we have identified a specific set of continuous improvement projects to drive enhanced profitability in the future. As a brief reminder, we deduct depreciation from the SEC-reported selling, general, and administrative expenses to arrive at the SG&A on the slide. In the quarter, SG&A was 23.6 million, or 23% of revenue, versus a prior year of 20.6 million, or 28% of revenue, primarily driven by investments in strategic initiatives and costs on higher volume. For the full year, SG&A was slightly above 80 million, or 23% of revenue, up from 79 million, or 28% of revenue in the prior year. We remain highly focused on managing the controllable spend while investing in our business to drive profitable growth. We will continue to be disciplined as the business expands, particularly as we navigate through this uneven recovery to ensure that we have a scalable cost base over time. Now, page nine, adjusted EBITDA and earnings per share. Adjusted EBITDA was 18.3 million or 18% of sales in the quarter. Adjusted EBITDA is up $12.5 million or three times from the prior year due to non-repeating items in fiscal 2021, increased volume, and the impact of our pricing actions, but partially offset by the impact of inflationary forces for both materials and labor in our manufacturing operations. From a full year perspective, adjusted EBITDA finished at $58.5 million, representing growth of over $22 million or 61% versus the prior year. Most importantly, adjusted EBITDA margins for the year increased by 330 basis points as we were able to drive additional volume growth in the business while successfully managing our controllable spend. We believe the business still has considerable room for growth in EBITDA margins, and while the overall inflationary environment is impacting previous estimates on the timing of margin expansion, we still expect there is an incremental 300-plus basis points of improvement in the business over the next 24 months. We realized $4.4 million lower interest expense in fiscal 2022 versus prior year due to our refinancing, helping to drive significant earnings growth versus prior periods. GAAP EPS in the fourth quarter was $0.26 per share, an increase versus the prior year loss of $0.03 per share, and adjusted EPS was $0.31 per share versus last year's $0.02 per share. For the full fiscal year, GAAP EPS was $0.60 and adjusted EPS was $0.83. Quickly, on the balance sheet and cash flow on page 10. Cash ended at $41 million as we managed the timing of additional debt paydown and investments in the business with collections. Net debt to adjusted EBITDA ended the year at 1.5 times at the lower end of our guidance range as the business has improved working capital as a percentage of revenue over the past few quarters. I wanted to pause and provide a little color on our financial exposure in Russia. Revenue was approximately 5% of sales or $19 million, and the net asset exposure was roughly $9 million as of March 31st. We expect revenues to decline significantly in fiscal 2023 as we run off the current backlog, and we will continue to monitor our local exposure during that time period while complying with all applicable sanctions and regulations. Additional information will be included within our 10-K. On the right side of the page, we continue to generate positive quarterly cash flows with free cash flow of $13 million in the quarter or an increase of 13% year over year. CapEx was only $2 million and predominantly focused on maintenance, and we will see incremental capital investments in our strategic initiatives in the quarters ahead. The M&A pipeline remains robust with active discussions at various stages of the process. We believe inorganic growth will be a key contributor to achieving our long-term goal of exceeding 550 million of revenue by fiscal 2026, and any future acquisitions will be aligned with our long-term strategy of diversifying our end-market exposure, growing and developing markets, and providing technology-enabled maintenance to our installed base in the global process heating markets. Overall, I'm happy with the results and believe it to be indicative of what this team can consistently accomplish even in difficult operating environments. We remain diligently focused on what we can control and will quickly adapt as the external environment changes. If I look back at the last 24 plus months since COVID emerged, there remains a lot of volatility in the world, and we expect that to persist. Profitable growth remains the goal, and our fourth quarter and fiscal year 2022 results show that we can deliver. Customer demand is strong, our balance sheet provides ample flexibility, We have a winning strategy and, most importantly, a winning team. A special thank you to the Global Thermon team for their continued commitment every day to living our values while delivering results. And with that, I'll ask Bruce to provide an update on the progress we're making with our strategic initiatives, particularly around diversification.

Thank you, Kevin. I would like to now direct your attention to slide 11 on our strategic initiatives. As highlighted earlier, we made significant advancements in our strategic initiatives in fiscal year 22. Looking forward to fiscal year 23, there are a number of areas where we are investing to position the company for long-term success. First, we're expanding our manufacturing capabilities in the eastern hemisphere to meet lead time requirements and price points to improve our ability to profitably grow our business in developing economies. We are also adding key business development resources in these geographies to expand both our direct and channel presence to better serve. Second, our efforts on diversification have really begun to gain traction with approximately 60% of our end markets now outside of the oil and gas sector. In fiscal year 23, we continue to invest R&D dollars for new product development in rail and transit, commercial, and electrification in light industrial applications. We are also advancing our marketing efforts, growing direct sales, expanding our channels, and adding specialized business development resources in these areas to build on the momentum we have. Finally, Thermont is very well positioned to enable the energy transition with solutions that address a wide range of applications from biofuels to renewable energy. Our control and communication platform, which is central to our digital transformation around the technology-enabled maintenance initiative, continues to lead in our space. We're making continued investments in R&D to expand software capabilities for operations and business intelligence, combined with new product launches to complement the current hardware platform. We are encouraged by the very positive response by the market with six systems sold to date and goals of achieving three to five times the system adoption in fiscal year 23, fueled by a growing quotation log. It's important to note that while these systems create incremental opportunities, the real potential lies in conversion of the installed base, which is enabled by our self-healing mesh network. Underpinning these three strategic pillars is our Operational Excellence Program. Our new Senior Vice President of Operations is leading a Toyota production system transformation that will reduce waste, increase velocity, and improve asset utilization. This transformation will be instrumental in driving productivity gains to offset rising labor costs and deliver EBITDA margin expansion going forward. Turning to slide 12, I would like to highlight an example of a green hydrogen plant to illustrate where Thermon provides a breadth of technological solutions needed to enable a greener future. Currently, we are tracking over 25 million in hydrogen opportunities, which have grown by 60% since October of 2020. We have also secured the first order for a small-scale green hydrogen facility with less than five megawatt generating capacity. While nascent, we see hydrogen as a key piece of the sustainable energy mix going forward and are working with process developers to provide industry leading solutions to enable this technology. Turning now to our fiscal 2023 plan and full year guidance. Looking ahead, we are very pleased with the progress we are seeing in our business Our fiscal year 23 plan includes an incremental $6 million in key investments, new product development, sales, and business development to execute on our strategic initiatives. In addition, we anticipate approximately 3% to 3.5% in CapEx to fund vertical integration of our rail and transit supply chain while expanding manufacturing capabilities in the eastern hemisphere to support growth into developing markets. Looking forward, we see continued supply chain challenges and the risk of recession, particularly in Europe, creating some level of uncertainty. However, our backlog is up 37% year over year, and our incoming order rate remains robust. Based upon these factors, revenue guidance is projected to be from $350 million to $380 million for the full year, which at the midpoint represents 10% growth over our core business at $333 million in fiscal year 22. This forecast accounts for the suspension of new orders and investments in our Russian entity where we are focused on fulfilling existing commitments. We anticipate our process and environmental heating business to exceed pre-COVID revenues and expect a continuation of the recovery across our heat tracing product offerings which typically lags by about nine to 12 months. For the first time, we're initiating GAAP EPS guidance for the full year of 74 cents a share to 89 cents a share, representing 36% year-over-year growth at the midpoint. We anticipate operational excellence initiatives combined with price to offset any inflation to improve the overall margin profile in the business by 200 to 300 basis points in fiscal year 2023. As I look at this business, Thermon has a well-established leadership position with a broad portfolio of solutions, a large installed base of loyal customers that generates recurring revenues across industry cycles, an investment-like business model that generates strong cash flows and certifications across a wide range of industries and geographies that create significant barriers to entry. The resilience of this business, the global recognition of the brand, and the strength of this global team position Thermon very well to deliver profitable growth in fiscal year 23 and beyond. I would now like to turn the call over to our moderator, Diego, for the Q&A portion of this call.

Thank you. And ladies and gentlemen, at this time, we'll conduct our 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. Our first question comes from Brian Drab with William Blair. Please go ahead.

Good morning. This is Tyler Hooten. I'm for Brian. Could you discuss in more detail how a cyclical shift in gold demand could affect the recovery in thermons and markets for large projects? And are the continuing COVID restrictions in the East still pushing out pent-up demand even more?

Yeah, so I think, you know, kind of the latter part of your question, we do see that COVID restrictions, particularly in China, have delayed recovery there. India, we actually see in the very early stages. In South Korea, we're seeing some very positive signs, Japan, but we're seeing China lagging. And the first part of your question, if you don't mind repeating.

Yeah, I was just wondering if there is a slowdown in global demand. I'm just wondering, like, how do you see that affecting your end markets for large projects? Like, do you see it as being more defensive or do you think it would have a large impact? I know you mentioned the Europe recession, but I'm just wondering on a more global scale if activity slows down, how it would affect your large projects?

Yeah, so, well, first of all, I mean, other than this one large one-time project we've spoken to all year, which is really labor, didn't have any materials, our business has been heavily weighted towards kind of the maintenance and really pin up demand and maintenance on the installed base. So we really haven't seen a big return in CapEx since you know, kind of the recovery this past year from COVID. So I don't really, all I would see is that maybe the CapEx would move out further. As we look at our end markets and our end market mix is changing, I think it's important to note, like in certain areas, power, you know, that installed base would expect that to remain fairly strong, you know, utilities, things like that. If we think about food and beverage, some of the wins we've had recently were in areas like food oils, candies, different types of food processing, bulk food processing. And so there's still a demand. And then also in the commercial space where we've done a lot, whether that be for new buildings, for fire sprinkler safety systems, whether that be for hot water heaters, boilers, things of that nature. We are seeing some, really some changes that are driving the transition from natural gas or other means of firing boilers to electric. And we think those will kind of continue. So I think in some of the other diverse end markets where we focused, they would be more resilient during a downturn. As we look at oil and gas, we really only saw about 15% growth in oil and gas this year. And so we haven't really seen a strong rebound. What we have seen is with stronger pricing, we've seen really some spend around maintenance. But we really have seen a shift in kind of capital deployment. And as we've seen, a lot of that has been more of a focus on return capital shareholders rather than investing capex dollars. And so we're still kind of awaiting that expenditure. So some of that then could move to the right, depending on seeing what might happen.

And Taylor, this is Kevin here. Maybe just to build on that for a second, if we think about our orders and our backlog, TTM orders were about $366 million last year. I think once you exclude the large contract You know, that's supportive of a strong growth even over the next 12 months as well. And, again, if we think about where the business is performing today, excluding the contract, 69% of the revenues were on the materials or the point-in-time revenues as well. So I think we've got a few of those facts that are kind of stacking up to give us confidence in the business over the next 12 months, even in an uncertain environment given, you know, raising rates in the U.S. and et cetera.

Okay, thank you for that. And just following up, so do you see point-in-time sales having an even larger allocation of revenue than overtime sales then in fiscal year 23?

I think it would be consistent with the historical average, but certainly where we think about the relative growth rate, it would probably be biased to maybe be in a touch higher. But I think that historical average is a fair point to start with.

Okay, appreciate the color in that. And just last for me, for more modeling purposes, on the last call, you mentioned a target run rate of SG&A of 80 million, excluding depreciation. Just wondering if, you know, global growth does slow down, do you still expect that run rate to stay around 80 million for operating expenses? Or if there is some headwinds to top line, do you expect operating expenses that come down a little bit?

Yeah, Tyler, I appreciate you asking the question. I think the 80 was a target around fiscal 22, not anything going forward. Clearly, for a business that's growing 30% of revenue, you would expect incremental SG&A in the business just on a normal course basis. We ended the year with SG&A at about 23% of revenue. I think that's the right type of mark on a baseline basis. But you heard in a lot of Bruce's comments, we're investing in this business to grow. Our strategic initiatives require us to be building out capabilities in the eastern hemisphere, to be bringing in resources from a commercial standpoint to help drive growth in these new markets. And we certainly have some investments that we're going to be making in our operations that have a payback period but do require some of those upfront investments as well. So I think as we look at SG&A, 80 was not a run rate. That's an FY22 number. We came in just a touch higher than that because of investments we're making in these strategic initiatives. you know, we very, very much see the cost line as focused on value-added, profitable growth, trying to generate those incremental returns on capital. You know, I think if your question is, okay, if the market's going to roll over here, you know, we've got a very tight list of what those investments are. And if the external environment changes, you know, we would certainly recalibrate those expectations. But, Again, given what we're seeing in our backlog, given what we're seeing in our customer spending, the quotation log that Bruce quoted, I think we feel pretty good about where the business is today and obviously would be seeing an SG&A at certainly higher levels than we did in fiscal 2020.

Okay. Thank you. That's all from me. I'll pass it along.

Thanks, Tyler.

Thank you. And just a reminder to ask a question, press star 1. Our next question comes from John Bratz with Kansas City Capital. Please state your question.

Good morning, Bruce. Kevin. Good morning, John. Let's talk a little bit on the gross margin front as we go forward. Obviously, there's a lot of moving parts. You've got China issues. You've got maybe the Russian business influencing the absence of the Russian business influencing margins. And, you know, The intention or the aim is to get the margins back up to sort of that mid-40% area. But I get a sense it's going to be a little bit of a struggle here with the cost pressures and some of the other things going on. How do you see the gross margins in 2022? Yeah, John, good question.

Yeah, obviously a lot of noise over the past five quarters here. We hope we're beyond that. There'll be a little bit of this new contract in the first quarter of fiscal 23, excuse me, the large contract in fiscal 23, but that's behind us as of this call. You know, if we think about looking forward, certainly the fourth quarter when you looked on the core, if you will, 45.8%, I think that's the highest it's been in four years. I think it's indicative of things to come. Obviously that's a little bit of a higher volume quarter versus normal. But if we think about the cadence of those gross margin increases, you know, 200 to 300 basis points on the EBITDA line, I think that probably translates to gross margin pretty fairly. We might not be back all the way to 45% in the next year, given some of the challenges that we know everyone's facing around supply chains. But we certainly expect sequential improvement on the base on a year-over-year basis, if that makes sense.

Okay. So really, if you look at the operating margin, if you want to call it pressure, it's really the investments that you're making on the SG&A line that's accelerating and maybe, again, I hate to use the word pressuring, but limiting the margin improvements. It's these investments that you're making that maybe that we're that you weren't making a couple years ago or maybe last year. Am I thinking of that right?

You are, John. I noted in my comments about $6 million of incremental investments, and that's in sales resources and R&D, and all of those investments really sit in SG&A expenses, and so that's a significant piece of that kind of year-over-year, and certainly as Kevin said that we would moderate the pace of those investments if and when we see the growth picture change. I can tell you right now, the signals we're getting in our business haven't shifted. And we're really still seeing strong demand overall. But we're watching it very closely, keeping our finger on the pulse of a lot of leading indicators. And while there's some challenges looming. The really only impact we've seen has been more due to the Russia war in Ukraine and the impact on Europe. And then some of the issues in China, I think they haven't necessarily gotten any worse, but certainly we haven't seen the recovery begin there yet. So those would be the two kind of things that we are seeing and experiencing. Beyond that, we're seeing a pretty robust demand environment across a wide range of industrial verticals.

John, I would just add to that. If we think longer term, the goal is to get this business north of $550 million of revenue. Clearly, that's going to require investments organically and organically, et cetera. We think we're in a position where we can make those investments now to have a payoff, certainly, in the future. We don't think it's five years we have to wait. But in order to drive that growth, to drive that change in the end markets, these are absolute investments that we feel comfortable making at this time.

Okay. Specifically, when you look at your end markets, specifically the oil and gas end market, is there a possibility that you get a pleasant surprise in that, and that given the level of energy prices that you might see that end market increase? a little bit stronger than maybe what you might be anticipating and maybe some additional capex spending coming from that sector?

Yes, I think there could be upside there, John, from what we're currently forecasting. I think some of the quote log is indicative of the potential upside there. We only saw a bounce of about 15% last year. Overall, those end markets were down you know, 30%, 35% of, you know, kind of post-COVID. So they have not by any means fully recovered, and we certainly have not seen the CapEx spending that we would typically see at commodity prices at these levels. So I think that is one of the potential upsides that we might see in the coming fiscal year.

And, John, it might not be on the project side either. I think as we look at maintenance and utilization, I think our bias would be that that's probably where the dollars are going to get spent, just given the capital allocation priorities of those customers that have been articulated. So it might not necessarily be on the long-term project, you know, lower margin types of sales that we see. All right.

Thank you, Kevin.

Thank you. There are no further questions at this time. I'll now turn the floor back to Bruce Thames for closing remarks.

Well, again, thank you all for joining us. We appreciate your interest in Thermon and enjoy the rest of your day.

Thank you. This concludes today's conference. All parties may disconnect. Have a good day.