Thermon Group Holdings, Inc.

Greetings and welcome to the Thurmond Earnings Conference call for third quarter fiscal year 2023. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And as a reminder, this conference is being recorded. It is now my pleasure to introduce to you Yvonne Salem, Vice President of FP&A and Investor Relations. Thank you, Yvonne. You may begin.

Thank you, John. Good morning, and thank you for joining today's fiscal 2023 third quarter conference call. Earlier this morning, we issued an earnings press release, which has been filed with the SEC on Form 8K, and it's also available on the investor relations section of our website. Additionally, the slides for this conference call can be found in our IR website under News and Events, IR Calendar, Earnings Conference Call Q3 2023. 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 gap 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 might make certain forward-looking statements regarding our company. Please refer to our annual report and most recent quarterly report filed with the SEC for more information regarding our forward-looking statements. including the risks and uncertainties that could impact our future results. Our actual results might differ materially from those contemplated by these forward-looking statements, and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments, or otherwise, except as might be required by law. Now, I would like to introduce you our President and Chief Executive Officer for this opening remarks.

Thank you Yvonne and good morning everyone and thank you for joining us today. I wanted to begin by setting the stage with a quick overview of Thermon for those of you who may be new to the story. As a 68 year old company, we've been tested and proven resilient across many economic cycles. We're a world leader in providing safe, reliable, and innovative mission-critical industrial process heating solutions to customers in 85 countries from facilities on four continents. Our over 1,300 employees have an industry-leading safety record and are dedicated to creating value for our customers and by executing our long-term strategic plan, And I will provide a few examples of our strategy in action during this month's morning's update. I'd like to thank all of our employees for contributing to our very strong performance this quarter and for your ongoing commitment to . I would like to note that in the lower left of the page where you see revenue by type, for clarity and simplicity, beginning this quarter, we've changed how we're showing this data. We previously presented this data as point in time versus over time. Kevin Fox, our CFO, will provide more detail on this revised split of our sales and the rationale for doing so later in the presentation. On slide four, you can see our strategic. In order to create value for our shareholders over the long term, we focused on three key areas. First, our installed base. Second, diversification and decarbonization. And third, capital allocation from a very large global installed base, which provides significant opportunity to capture recurring revenue while driving growth across our traditional in-market verticals. We're driving additional growth through diversification into attractive adjacencies such as commercial, rail and transit, food and beverage, renewables, and other end markets. Our solutions also help enable the transition towards sustainable energy sources. We're expanding our digital solutions with products that utilize the industrial internet of things and support customer demand for productivity, reliability, efficiency, and safety enhancements. I will discuss digitization further on today's call while providing an update on our recent new product introductions, specifically looking at the launch duo. Because we are seeing a opportunity in decarbonization, our strategic priority is developing markets to capitalize on this larger opportunity with our existing technology. We see significant growth over the next few decades in more detail in a few moments. Finally, we're committed to disciplined capital allocation. Our current priorities include inorganic growth through acquisitions with returns weighted average cost of capital by year three and maintaining balance sheet strength through the cycle. We're seeing a large emerging market decarbonization. Energy use generates over 80% of gas emissions. As you can see here, heating represents roughly 50% of the energy consumption of the energy used for heat is from industrial sources. Today, 95% of the heating used in industry is from hydrocarbon-based heating sources with only 5% of as well as thermal energy storage is roughly 1.3 billion, which we believe is addressable with our existing technology. By 2030, we expect this market to more than double to 2.8 billion, growing at an anticipated 9.3% compounded annual growth rate. By 2050, this market is anticipated to grow to more than 15 billion globally. Today, we believe that Thermon has the electric resistance heating products and technology to address 80% of this global market. Going forward, we believe Thermon has the products, technology, and is well poised to capitalize on this rapidly growing market opportunity. Moving to slide six on enabling the energy transition and decarbonization. Here we have a couple of examples of many of the types of opportunities we are seeing in this space. In both examples, we're providing the heating technology for amine re-boilers as part of carbon capture and storage systems to reduce scope at a refinery in Canada and an agricultural project which includes ethanol and other processing plants across the US Midwest. While these represent just a couple of examples through three quarters, we have booked over $22 million in energy transition and decarbonization opportunities this year, up roughly 50% from the full year in FY22, with another quarter to go. Moving on to slide seven with our new product development. I'm very pleased to announce the latest addition of the Genesis Duo to our market-leading digital platform shown here on the right side of this slide. This new two-channel controller has features that have never before been seen in the industry in a controller of this size. It offers advanced control features with the ability to track historical trends, is IIoT-enabled with self-healing mesh communications, has an intuitive touchscreen interface, and a multifunction light ring that provides visual feedback to operators. These units can be pipe-mounted, decentralizing control, and lowering total installed costs for operators. On the left side of the slide, you can see examples of new products launched over the last five years. Our new product development efforts have resulted in a robust Vitality Index representing 28% of year-to-date revenues. This pipeline of new products has created a real competitive advantage for ThermOn with our controls and communications in combination with the most advanced heating technologies for demanding applications. Turning now to slide eight for an update on diversification. You can see here examples of recent wins illustrating our continued momentum across three of our targeted markets for diversification, including commercial, food and beverage, and rail and transit. In commercial, we see city ordinances driving the conversion of hydrocarbon-fired boilers to electric. In rail and transit, we're on pace to achieve 50% year-over-year growth with the introduction of the new hubby hellfire blizzard duty. The recently passed U.S. Inflation Reduction Act is driving investments in the rail and transit sector that we believe will benefit our business going forward. Finally, in the food and beverage market, we want a $2.4 million opportunity in a seed oil plant in North Carolina, and we expect revenues in our food and beverage in-market to more than double in fiscal 2023 versus the prior year. On slide nine, looking at the external environment, I would like to again emphasize the progress that we've made against our in-market diversification strategy. Here we see an updated chart with in-market mix for the trailing 12-month period ending December 31st of 2022. Approximately 57% of our revenue came from non-oil and gas in markets compared to roughly 45% in our fiscal year 17. In fiscal year 23, we are seeing a strong recovery in the oil and gas sector that is largely focused on maintenance. combined with efforts to increase throughput and reliability on the installed base. In fact, 91% of sales to the upstream oil market are recurring product sales to support and maintain the installed base. We're also seeing continued progress in growing our diversity in markets and are working diligently towards our long-term goal of achieving 65% to 70% non-oil and gas revenue by the end of our fiscal year 2026. We continue to see strength across the majority of our end markets. We believe the strong maintenance environment in chemicals and petrochemicals, combined with customer demand for end-use plastics, enables those markets to grow over the longer term. The headwinds from margin pressures and increased European energy prices are partially offset by the cheaper and abundant feedstock in the U.S. In the power sector, we've seen growth moderate after revenues doubled in fiscal year 22 following winter storm Yuri. However, we believe the mid- to long-term drivers remain intact, which include electrification, renewable energy, and the rise of the middle class in Asia. Several of the verticals that make up the strategic adjacencies category continue to experience growth including renewables such as hydrogen, biofuels, and nuclear power. As mentioned earlier, we have secured over $22 million in orders this fiscal year to date, up 50% compared to the full year in fiscal year 22. Overall, while we're not immune to impact from ongoing macroeconomic turbulence, we believe the breadth of our solutions combined with our diversification across a wide variety of geographic and in markets continues to serve us well. Turning now to our results for the third quarter of fiscal year 2023 on slide 10. Thurmond had another quarter of outperformance driven by our team's outstanding execution, despite ongoing macroeconomic challenges and continuing geopolitical uncertainty in Europe. We achieved record third quarter adjusted earnings per share, due to strong performance in North America, which benefited from the ongoing recovery in the oil and gas industry combined with an improving supply chain. We've also been able to offset increased material and transportation costs with strong price realizations while diligently managing controllable costs and continuing to make strategic investments to grow our business over the longer term. For example, The integration of our power blanket acquisition announced during the first quarter of this fiscal year remains on track and produced $8 million of revenue at attractive margins during the quarter. Revenue of $122.1 million was up 21% year-over-year. Adjusted EBITDA increased over 45% year-over-year to $29.8 million with a margin of 24.4% and increase of 390 basis points. Free cash flow of $17.6 million for the quarter was driven by strong earnings and customer collections. Adjusted EPS was a record 52 cents a share, an increase of more than 40% from the prior year period. Given the strength in our backlog and incoming orders, we're raising revenue and adjusted EPS guidance for the full fiscal year. On slide 11, you can see that our orders and backlog continue to remain strong. We're very pleased with the momentum in the business. This quarter, we achieved record incoming orders of $126 million, up 40% year over year, while bookings grew 22% on a trailing 12-month basis. Our book-to-bill was 1.03 times. This represents the ninth quarter of the last 12 where we have achieved a positive book to build. Our backlog of 160.7 million is at record levels and was up 16% year-over-year, excluding FX impacts. With that, I'd like to turn the call over to Kevin, our CFO, for a more in-depth review of our financial results. Kevin?

Thanks, Bruce. Before we get into the detailed results, I would like to highlight that we have announced our decision to withdraw from our operations in Russia. We have a dedicated slide later in the deck to walk through the impact to our financial performance, and we will present the financials in the upcoming slides on an adjusted basis. Additional information will be available in our 10Q filed later today. Next, I would like to describe the change in revenue reporting that Bruce touched on briefly at the beginning of the call. As you recall, we previously reported revenue broken into two categories, point in time and over time. We found that these categories could be even more valuable to the investment community, and in our view, it is important to understand whether our sales are derived from our customers' CapEx budgets or instead from ongoing maintenance and repair spending, which is typically operating expense dollars. The value of our installed base is more closely tied to spending in less volatile operating budgets that sustain and optimize customer production, whereas customer capital spending is what builds that installed base over time, but can be more volatile as macroeconomic conditions cycle. So for this reason, we will now show overtime large projects defined as overtime revenues greater than $500,000, which we believe are typically funded through CapEx budgets. A second category will now be presented as overtime small projects, which are overtime revenues less than $500,000 and we believe are typically funded through OPEX budgets. There is no change to point-in-time revenue reporting. For a point of reference, the average size of an overtime order capturing both the small and large categories in our fiscal 2023 year-to-date is approximately $70,000. well below the $500,000 threshold we've established. We hope this clarification will be helpful to all of you. Turning to revenue on page 13. We are pleased with our overall performance this quarter as the Global Thermon team continue to drive profitable growth while meeting strong customer demand. Revenue in the third quarter was $122 million, up 21% versus prior year and exceeding internal expectations. Sales growth in the Western Hemisphere was a result of continued deferred maintenance activity in upstream and downstream oil and gas and chemical and markets, and investments driven by sustained commodity prices and global demand. While maintenance spending in the oil and gas market is growing considerably, we are still focused on executing against our long-term goal of market diversification. By the end of fiscal 2026, we expect that at least 65% of total revenues will come from diversified markets other than oil and gas. We continue to see progress in our diversified end markets with rail and transit up 39% and food and beverage up 145% on a year-to-date basis. Renewables revenues are up almost 2x versus prior year. While smaller today than other legacy end markets, these segments represent opportunities with long-term tailwinds, and we expect them to be a key component of Thurmond's growth trajectory in the years ahead. FX negatively impacted revenue by $5 million due to the stronger U.S. dollar, which we expect to continue to impact their business in the quarters ahead. Reported results also include a full quarter of power blanket financials worth $8 million in revenue. We are pleased that our integration of the power blanket acquisition remains on schedule. Thurmond's revenue growth, excluding acquisitions and on a constant currency basis, was 19% year-over-year. Large project revenues declined 4% in the quarter due to the non-recurrence of the large one-time contract from the previous fiscal year. As a reminder, we believe large overtime project revenues are aligned with customer capital spending budgets and more volatile in nature, while small projects and point-in-time product revenues, which were up 12% and 36% in the corner, respectively, and 15% and 32% on a TCM basis, are representative of maintenance, repair, and small upgrades on our installed base that help our customers maximize production, uptime, and efficiency. Small projects and product revenue growth was driven by increased activity in smaller design and supply projects particularly in downstream oil and chemical end markets. Small projects and products revenue represented 78% of revenue in the current quarter. Now for gross margins and SG&A on page 14. Adjusted gross margins in the quarter are 45.3% versus a reported 40.5% last year, with a few items we'll call out to provide context on the improved performance. In the third quarter of fiscal 2023, volume contributed an increase of 460 basis points, driven by the mix in small projects and product sales. We continue to be able to manage the price-cost equation with favorable pricing impact this quarter of 260 basis points, slightly offset by global supply chain headwinds of 180 basis points. While we have seen supply chains generally improving in the last two quarters, there are still some pockets of challenges we continue to navigate. Operational efficiencies contributed an additional 40 basis points. Please note that the trailing 12-month and prior year quarter data includes the impact of the large one-time labor contract we discussed on our previous calls and for which onsite work was completed in May of 2022. SG&A. As a quick reminder, we deduct depreciation from the SEC-reported selling general and administrative expenses to arrive at the SG&A on the slide. In the quarter, SG&A was $28.6 million, or 23% of revenues versus the prior year of $19.3 million, or 19% of revenue. On a trailing 12-month basis, SG&A was $99 million, or 23.6% of revenue, up from $79 million and compared to 24% of revenue in the prior year. Power Blanket contributed an additional $2 million of expense in the quarter. We remain diligently focused on driving profitable growth over the longer term, and our aggregate SG&A expense will continue to increase during the fourth quarter of fiscal 2023 as we invest in resources to execute our long-term strategic plan. The team has done an excellent job managing the balance between growth and profitability, and we will continue to focus on maximizing the value of each dollar we invest in the business. Moving on to page 15 for adjusted EBITDA and earnings per share. The combination of higher volumes, positive pricing contributions in a volatile environment, and continuing our pursuit of operational excellence has again yielded a strong quarter of profitable growth. This is the strength of the Thermon business model and representative of the execution we expect to deliver for shareholders. Adjusted EBITDA was 29.8 million, or 24.4% of sales in the quarter. Adjusted EBITDA increased over 45%, up over 9 million from the prior year, along with margin expansion of 390 basis points. On a trailing 12-month basis, adjusted EBITDA is now up to 86.6 million, along with margins of 20.6% and expansion of 650 basis points, a really great result for the team. Given the strong performance in the first three quarters of the year, we are now projecting adjusted EBITDA margins of 21 to 22% for the full fiscal year. GAAP EPS in the second quarter was $0.25 per share compared to $0.33 per share in the prior year. Adjusted EPS was a record $0.52 per share versus last year's $0.37 per share. For the 12-month period, GAAP EPS was 103 and a record adjusted EPS of 146 per share. On page 16, we'll cover the updated balance sheet. We ended the quarter with cash at $35 million. Debt was unchanged year over year after accounting for the power blanket acquisition, and adjusted EBITDA growth resulted in a net debt to adjusted EBITDA ratio of 1.1 times, an improvement versus 2.2 times in the prior year. Working capital results were mixed with seasonally strong collections offset by elevated inventory associated with meeting demand for the heating season and strategically building inventory to buffer potential supply chain disruptions. We continue to navigate an improving but not yet fully reliable supply chain environment successfully, and we have observed sequential improvements in many areas. Free cash flow of $17.6 million reflects 14% of revenue and 209% of net income and enabled us to pay down $11 million of debt in the quarter. As a reminder, our capital allocation strategy revolves around three main tenets, one, we will pursue accretive strategic M&A to build our industrial process heating platform while expanding and diversifying our addressable markets. Two, when we execute M&A, we target return on invested capital to exceed WAC by year three. And finally, we evaluate all of our capital allocation options, including returning capital to shareholders, with our board's finance committee on a recurring basis. In the absence of value-enhancing inorganic growth, Our current priority will be to continue to pay down debt while investing in our strategic initiatives of decarbonization, digitization, and diversification. A quick update on Russia on page 17. Today we announced the decision to withdraw our operations in Russia, and I wanted to highlight some of the items related to that event. We booked an impairment in our third quarter impacting pre-tax profit by 8.3 million, net income by 7.3 million, and reducing GAAP EPS by 22 cents per share. By the time the exit is complete, we expect to take an additional charge of 11 to 20 cents in GAAP earnings per share. We've included the income statement highlights for your reference, with revenue of 7.6 million, net income of negative $8.9 million, and adjusted EBITDA of negative 1.4 million. As you'll observe, the Russian entity was slightly below break-even profitability on a year-to-date basis, and we believe this decision provides clarity to our investors while improving financial results and the risk profile of the business. Additional disclosures will be available in our 10Q that will be filed later today. This quarter built on last quarter's positive performance with significant volume growth, margin expansion, and excellent free cash flow. While the outlook in Europe continues to be soft, supply chain costs and lead times are improving, The Thermon team continues to execute against its short and long-term plans, and we see opportunity ahead to continue to drive strong results and create value for shareholders. Many thanks to the global Thermon team for the great work and commitment that enables us to deliver for our customers, shareholders, and our communities. And with that, I'll turn it back over to Bruce.

All right. Thank you, Kevin. I'd like to turn now to slide 18 in our long-term revenue goals. Our goals for fiscal 2026 remain unchanged, and we're very pleased that our performance through the first two years of our five-year plan is on the upper range of our initial expectations. The sheer size and scale of the decarbonization opportunity that we believe will be a secular tailwind for the next two or more decades creates real opportunities for long-term growth. The progress on diversification is also encouraging with meaningful growth across a number of diverse end markets. And finally, our advancements in new product development and the digital platform give us a competitive advantage in the marketplace. The momentum across all three of these strategic initiatives, underpinned by a solid installed base of customers in our traditional end markets, gives us confidence that our fiscal year 26 financial goals are well within reach. We continue to place a high priority on diversifying our end markets exposure, specifically targeting industrial markets outside of the oil and gas sector to represent 65% to 70% of revenues by the end of fiscal year 26. Last but not least, our operational excellence combined with leverage on our fixed costs will yield EBITDA margins in the low to mid 20% range over that same period. Turning now to slide 19 and our updated guidance for the fiscal year 2023. We are pleased with Thermon's strong performance through the third quarter of this fiscal year. In spite of the number of areas of uncertainty in the macro environment, the positive momentum we are seeing in quotations, bookings, and backlog give us confidence to raise our fiscal year 23 full-year revenue and adjusted EPS guidance. We are raising fiscal 23 revenue to a range of $429 million to $437 million, which represents a 22% growth over the prior year at the midpoint of the range. We're confirming GAAP EPS guidance for the full year of $1.11 to $1.15 a share. We are also raising adjusted EPS guidance to $1.55 to $1.59 a share for the full year an increase of 89% over our fiscal year 22, in addition to the 150% growth delivered in fiscal year 21. Finally, wrapping up on slide 20. As we detailed today, Thurmond is a world leader in providing safe, reliable, and innovative mission-critical industrial process heating solutions. This is a high-value niche market with high barriers to entry, which creates a significant competitive advantage. Our outstanding global team, our diversification across a variety of end markets, our large installed base, our after-profit business that generates recurring revenue, and our low capital intensity combine to create a business that is resilient across economic cycles. We believe that Thermon is truly well positioned to deliver profitable growth through the remainder of fiscal year 23 and beyond, and to create long-term value for our shareholders. With that, I'd like to turn the call back over to our moderator, John, for the Q&A portion of this call. John?

Thank you, sir. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone 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 that question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for any questions. And our first question comes from the line of Brian Drab with William Blair. Please proceed with your question.

Hi, good morning. Thanks for taking my question.

Good morning, Brian.

Hey, could you go back to slide 17 just to spend another minute on this and clarifying because there wasn't a, you didn't talk about Russia, you didn't talk about Russia in this way in the second quarter. I'm just wondering if you can just clarify what the adjusted numbers are here. So is the And how would it compare with the third quarter, for example, a gross profit margin? What's apples to apples between third quarter and second quarter? Are we looking at the 41.3 and Russia was a 400 basis point headwind in the third quarter? Is that what you're saying?

Yeah, Brian, this is Kevin. So I think when we look at the second quarter on a gross margin basis, you were at about 45.7, I believe. And so on an adjusted basis, third quarter, it was 45.3 on a like for like. So margin sequentially was slightly down once you back out the impact of COGS that we had to take related to the Russia exit. I think that's the question you're asking, but just please make sure I'm responsible to do it.

Yeah, no, I'm just a little confused by it, as you can tell. So the 45.3 is comparable to that adjusted number. And did you make an adjustment for low margin business in Russia, I guess, in the second quarter as well when you talked about adjusted gross margin?

No, there's no impact in our fiscal 23 second quarter given the Russia exit. This was – approved by the board this week. So there was no impact to our second quarter fiscal results.

But you did business in Russia in the second quarter. So I'm just wondering, if you take Russia out of the picture completely for all of any quarter in fiscal 23, how was gross margin in this most recent quarter relative to the second quarter? Was it about consistent sequentially or did it go down?

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

Yeah.

Yeah, we can get you that walk-off line. Given the business on an EBITDA basis, Brian, it's been slightly negative year to date. So if you would take Russia out of any of the previous quarters in the fiscal year, you would see a slight improvement to profitability, I believe, on both the gross and EBITDA lines. I think that's the question, not yet.

Yeah, I'm just trying to get a sense for what I think everyone would be interested, you know, a real sense for what direction gross margin is going. Because this looks obviously like an outstanding quarter. There's so many, you know, every headline number is positive. The stock's up 2%. I'm just curious. I'm trying to, you know, I'm just curious why that is, why the stock is up 2%. I'm thinking maybe The only issue I see is that it looks like gross margin, maybe some of the business that you had in the third quarter was lower margin business than you had in the second quarter. And then how do we think about the trajectory of gross margin from here? That's all. I'm just trying to get a sense for gross margin in the third quarter and where we're going from here.

Yeah, Brian, I think that's fair. I think we can look at gross profits or EBITDA. As you mentioned, any of those metrics are increasing you know, pretty substantially on a year-over-year basis. You know, if you want to look at things sequentially, Q1, Q2, Q3, I think we certainly feel like the business is getting better. You know, that mix in the business is still very much oriented towards those smaller projects and the point in time or product or materials revenues. That certainly has a positive impact as well. Pricing, 260 basis points in the quarter. So, you know, difficult for us to see with how the business is performing A lot of positive momentum in the business today, really, from a gross margin basis, and a lot of that's falling through down to EBITDA and the profitability line as well. I certainly won't speak to what the investment community is doing, but internally, I think we feel very good about where the business is positioned, not just today, but for the future as well, raising the revenue and profit guidance. I think for the third quarter in a row here, I can't imagine that would be perceived negatively by the street.

Yeah, got it. Okay. And then can you, I don't know if you can give any more detail on the wins that you've had in renewables. There's obviously a lot of momentum there. Two specific questions. So what types of projects, if you can give any sort of breakdown or granularity, what types of projects are in that 20 million in orders? And secondly, what can you tell us about the margins for those renewables projects, given that's going to be a growing part of the business?

Yeah, Brian, this is Bruce. So the project wins, you know, I gave a couple examples here, you know, of some carbon capture and storage projects. Those, you know, kind of size of those were the project in the Midwest was about a $900,000 order in process heaters with about another 900,000 opportunity this quarter. and about a $3 million opportunity for heat tracing. The project was a pilot project in a Canadian refinery for CO2 capture. It was a little smaller because it was a pilot project, but it was a few hundred thousand dollars. As we look at the types of opportunities, we're a leader in biofuels, and there's quite a bit of that looking in our backlog. For biofuel plants, particularly, there's a lot of growth we're seeing in biodiesel, for example. There's also some hydrogen projects. Most of those are, well, there's a mix of blue and green hydrogen, and a lot of the ones, particularly for green hydrogen, are pilot projects. Certainly, as they prove out those technologies and begin to scale those, the order size will go up pretty dramatically. The other area we've seen some wins is in the nuclear space. We've had some nice wins with some nuclear refurbishments in Canada. We're one of only six companies in our space globally that have the NSTMP. So we see that as a significant opportunity. And again, those are just illustrative. As far as the margin profiles, they're consistent with kind of what we've seen with our historical business in this space. So certainly we think it's supportive of our current margin profile going forward. And certainly we will have some opportunities, some of our operational excellence programs and continuous improvement to drive margin expansion over time.

Okay, thanks. And then the last one, and this is I guess maybe not something you're prepared to comment on today, but I mean you're only You're less than 30 days away from the beginning of fiscal 24. Have you gone through the budgeting process and forecasting process? Give us any sense for what you're expecting in terms of growth, revenue growth in the next year, even like in a range? Yeah.

Yeah, so we're in the middle of that budgeting process right now. We are seeing growth in the coming year. we're not at a point yet where we're prepared to set a range for that. We typically do that as normal course during our May kind of year-end earnings call, and certainly we'll be prepared to share that with you at that time. However, we are seeing, you can see the momentum in bookings, I mean, 40% growth year-over-year, positive book-to-bill. We are seeing momentum in the business, and we foresee continued growth in our fiscal year 24. Okay.

Thanks a lot, Bruce and Kevin. Thanks, Brad.

Thank you. And as a reminder, if you'd like to ask a question, please press star 1. And the next question comes from John Bratz with Kansas City Capital. Please proceed with your question.

Good morning, Bruce, Kevin. Good morning, John. Along the lines of Brian's question, in your press release, you talk about you're benefiting this year from deferred maintenance spending. And I guess by definition, it's deferred. So after they make those expenditures this year, is there a fall through next year, or does that sort of become – sort of a headwind when you look at maybe 2024 versus 2023. How important has deferred maintenance spending been for you this year, and how do you think about that next year?

Yeah, so, John, great question. I mean, we certainly saw a really significant contraction in maintenance spending during COVID, so we've seen that really begin to rebound. And we've seen that during the course of this year. Now, as we look at this, I mean, we're seeing a lot of small projects, and we believe that there's been a significant underinvestment in infrastructure over the last seven or eight years. And based upon that, and kind of the change in the capital allocation strategy going forward, What we're seeing is reinvestment in existing assets rather than really building a new greenfield. So we don't expect to see a big surge of CapEx spending that maybe we would have seen in prior economic cycles. However, if you look at our global footprint in the installed base, it's actually very favorable for our business, one. is we're entitled to the recurring revenues where we have the installed base. Second, they tend to be higher margin profile. And what we believe is these levels of spending going forward are more sustainable than what we may have seen in previous cycles where you had some very large peaks in CapEx spending. And I would kind of go back to our fiscal year 19 in fiscal year 2015. So going forward, we actually see a lot of the maintenance spending being stable to slightly increasing in the coming fiscal year.

Okay, thank you. Kevin, two questions. Maybe you mentioned this. Is the Russian charge all non-cash? And secondly, supply chain challenges have sort of been a ahead when I think you mentioned 180 basis points. You know, we're hearing a little bit of improvement on the supply chain challenges that we've seen over the past year. As you look into next year, do you see that begin to ease and improvement on the gross margin front because of that?

Yeah, John, maybe I'll take him in order. On Russia, there was about $3 million of cash on the balance sheet that was just reclassified. The rest of it from a P&L, it's a non-cash entry. We will see some additional impact, the GAAP EPS, once the exit is complete. Again, that was about $0.11 to $0.20 in GAAP, but a lot of technical accounting from the team there, but essentially it's all a non-cash entry in Q3. With respect to supply chain, I think you're right. I think we see things getting better sequentially. I don't think we're prepared to say it's fixed and everything is back like what it was in 2019. But I think us, like many others, have built those buffers in the inventory at this point. And I think when we look at our inventory turns and that sequential improvement, I think we expect that trend line continue to go upwards in the quarters ahead. I don't think I'm quite ready to say we're out of the blue. There are certainly pockets that are still challenging, but it's much better today than where it was six months ago. And again, I think we expect those trends to continue going forward. Okay. Thank you, Kevin. Welcome.

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

John, thank you. And thank you all for joining here today. Appreciate your interest in Thermon. Enjoy the rest of your day.

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