Thermon Group Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 1, 2024

There are 6 speakers on the call.

Operator

Greetings. Welcome to the Thermon Group Holdings Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to Yvonne Salem, Vice President of FP and A and Investor Relations. Thank you. You may begin.

Speaker 1

Thank you, Darren. Good morning and thank you for joining today's Fiscal 20 24 Third Quarter Conference Call. Earlier this morning, we issued an earnings press release, which has been filed with the SEC on Form 8 ks and is 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 2024. During the call, we will discuss some items that do not conform to generally accepted accounting principles.

Speaker 1

We have reconciled those items to the most comparable 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 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.

Speaker 1

Now, I would like to introduce Bruce Thames, our President and Chief Executive Officer, for his opening remarks.

Speaker 2

Well, thank you, Yvonne, and good morning, everyone, and thank you for joining us here today. Now, I'd like to start with a quick introduction of Thermon, especially for those of you who may be new to our story. As a diversified industrial technology company, we're a world leader in providing safe, Reliable and innovative mission critical industrial process heating solutions to customers in 85 countries from facilities on 4 continents. Our technology is agnostic and our solutions are instrumental in enabling a wide range of applications across diverse end markets including the energy transition through decarbonization and electrification. As we begin this call, I'd like to thank our Thermon team around the globe for their commitment to serving our customers with excellence and another quarter of strong performance.

Speaker 2

I would also like to welcome the Vapor Power employees to the Thermon team and look forward to their contributions to our success going forward. Let's turn now to Slide 4 on our strategic pillars. As we discussed at our inaugural Investor Day in November, we are creating sustainable value through the execution of our long term strategy It is based on 3 pillars. 1st, profitably growing the installed base. 2nd, decarbonization, digitization and diversification and third, disciplined capital allocation.

Speaker 2

Over the past 69 years, we've developed a substantial global installed base by delivering mission critical industrial heating technology and solutions to our customers. Although these solutions represent less than 1% of the initial capital costs Of a process facility, they are critical to ensuring safe, reliable and efficient operations. This enables us to drive growth across our traditional end market verticals, increase recurring revenues and expand margins through operational excellence. We're generating additional growth through our long term strategic initiatives of decarbonization, digitization and diversification, Serving as a key enabler of the energy transition through electrification and decarbonization, our innovative solutions drive geefficiency, facilitate a circular economy and assist our customers in achieving their sustainability objectives. Through our digital solutions, we also help our customers optimize maintenance through enhanced controls and monitoring.

Speaker 2

Our core technologies coupled with our decarbonization and digitization solutions are supporting our efforts to diversify our end markets And we're making meaningful progress towards our goal of having approximately 70% of our revenues come from outside of oil and gas by the end of fiscal 2026. Our commitment to a disciplined capital allocation strategy is foundational to the first two pillars. Our strong balance sheet gives us the flexibility to reinvest in our business for organic growth and positions us to pursue strategic bolt on acquisitions that align with our financial objectives. Vapor Power is a great example of that strategy in action, which we'll discuss in more detail later. After completion of that acquisition, our leverage remains on the lower end of our stated goal of 1.5x to 2x net debt to EBITDA.

Speaker 2

Turning now to Slide 5, you can see our continued progress in executing our diversification strategy with approximately 66% of our trailing 12 month revenue coming from diversified end markets. On a TTM basis, oil and gas revenue is up 9%, While revenues from diverse end markets are up 26%, most notably, we've seen significant success in the food and beverage end market with revenue growth of 2 0 9 percent over the past year. Our market share in rail and transit has also expanded significantly with revenue up 28% year over year, along with commercial market where revenue was up 18%. Of particular note is the 55% year over year growth in the renewables end market, underscoring Thermo's role In facilitating the energy transition, the expansion in the renewables market reflects increasing activity across alternative fuels, Hydrogen and ammonia applications. This quarter approximately 4% of revenues were associated with decarbonization applications with the pipeline of opportunities growing to over 200,000,000.

Speaker 2

We continue to see strong activity in the U. S. Power sector, particularly across the Southern States as power generations As power generators winterize their assets, the Genesis network has become the system of choice that power generators use to provide operational awareness during winter weather events. In fact, the most recent winter storm here in Texas had a very different outcome from Winter Storm Yuri back in 2021 as utility companies were able to remain operational with no significant disruptions to service. This is a testament to the work our teams have done to help our customers operate safely and reliably during extreme weather conditions.

Speaker 2

Turning now to Slide 6, I'd like to discuss a great example of our 3rd strategic pillar in where we were able to use the strength of our balance sheet to fund inorganic growth to augment and accelerate our organic growth initiatives. Our recent acquisition of Vapor Power marks a significant step forward in advancing our strategy for profitable growth through decarbonization and diversification. As we outlined at our Investor Day, we evaluate potential acquisition opportunities based on 4 criteria and Vapor Power meets all 4. 1st, it aligns with our long term strategy by diversifying our addressable markets with approximately 75% of revenues from the food and beverage, commercial and general industrial sectors and very little exposure to oil and gas. 2nd, it expands our portfolio to include electrical resistance, electrode and supercritical cold tube blowers as well as steam generators.

Speaker 2

The electric boilers and electrode steam generators provide customers the ability to generate hot water and steam with improved control and efficiency in a compact footprint while eliminating greenhouse gas emissions on-site. The supercritical pool tube blowers are used in specialty applications, such as plastics recycling, where processes require extremely high temperature and pressure steam. By incorporating these products into our portfolio, We're enhancing our exposure to high growth electrification and decarbonization opportunities over the next 20 to 30 years. As you can see here, this business has grown at an 18% compounded annual growth rate over the last 5 years with an adjusted EBITDA margin profile of approximately 20%. In addition, the business had over 70% of calendar 2024 revenue projections in backlog as of January 1, a level significantly above historical averages.

Speaker 2

By implementing the Thermon business system, we believe we can further improve the EBITDA margin profile to meet our stated goal of 24% over the next 24 months. As importantly, we anticipate the acquisition to have a near term positive impact to results and be accretive to GAAP EPS in the 1st 12 months. Although not included in the economics, in collaboration with the skilled team at Vapor Power, at least 5 new qualified opportunities have been identified through Thermon market channels with each value at over $1,000,000 Based upon initial feedback, we feel well positioned to win 1 or more of these opportunities going forward. We believe the combination of these two businesses further positions Thermon to play a pivotal role in accelerating the transition to cleaner energy sources across a diverse range of global end markets. As noted earlier, our balance sheet remains at the lower end of our stated leverage goals 1.5x net debt to adjusted EBITDA following this acquisition.

Speaker 2

As a result, we have both the financial capacity and management bandwidth to execute on additional opportunities in our pipeline that may become actionable. Turning now to Slide 7, which details a case study illustrating how Vapor Power and Thermon have complementary technologies for various applications. In this example, Vapor Power provides engineered solutions to solve challenging customer problems while supporting our long term strategy. Here we see a Korean a customer of Korean chemical company is designing and constructing a plastics recycling plant waste plastics to feedstock for chemical and petrochemical production. Vapor power provides a supercritical boiler that generates steam at extreme pressures and temperatures to convert the plastics back into the original feedstock to be used for production of other plastics and chemicals.

Speaker 2

By using the vapor powered modulatic supercritical steam generator, The customer is able to deliver steam at extremely high temperatures and pressures in a very compact footprint to break down or crack the waste plastics into the original building blocks. These products can then be used to produce virgin plastic or other chemicals in a true circular economy. On this same project, Thermon is providing over 13,000 meters of heat tracing to provide temperature maintenance and freeze protection for the process transfer lines. There are also numerous applications in a process facility of type where CalorieTech Immersion Heaters are required. Turning now to Slide 8 and our Q3 fiscal 2024 results.

Speaker 2

This quarter, the Thermon team generated record revenue of $136,400,000 an increase of 12% year over year, driven by double digit growth in the U. S, Europe and Asia, while the Canadian market contracted 5% year over year. In the quarter, We continue to see strong year over year revenue growth from large CapEx projects and resilience OpEx activity associated with recurring maintenance. Our profitability continued to grow with adjusted EBITDA up 2% year over year to $30,700,000 This was largely due to volume growth, price and productivity. On an adjusted basis, we saw gross margins decline by 3 19 basis points from the prior year As volume growth was offset by a lower margin mix in material sales due to an exceptionally warm fall and weakness in the Canadian market with a negative impact of 4.46 basis points in the quarter.

Speaker 2

Free cash flow improved by $4,600,000 year over year due to improving DSOs and inventory reductions. GAAP EPS was $0.46 a share, an increase of 86% over the prior year period. Finally, our bookings were down 1% year over year and the book to bill ratio was 0.91 times in the quarter. On a TTM basis, our book to bill is 1 times And our bookings are $488,000,000 which represents 12% year over year growth supporting our full year forecast. With that, I'd like to turn the call over to Kevin for a

Speaker 3

more in-depth review of our financial results. Kevin? Thanks, Bruce. Moving to the Q3 fiscal 2024 financial performance on Slide 9. The global Thermon team continued to deliver strong results in the Q3, even against challenging year over year comps and ongoing impacts from an exceptionally warm fall.

Speaker 3

As a reminder, The 3rd fiscal quarter is typically our strongest due to seasonality. Customer demand remained steady with incoming orders of $124,000,000 in the quarter, roughly flat year over year. Demand continued to be strong across U. S, Latin America and EMEA, while spending was down in other regions, particularly in Canada. In terms of our end market orders, we saw the highest rate of growth in the food and beverage sector during the quarter with customer demand also expanding across power, renewables, rail and transit and commercial end markets.

Speaker 3

Year to date orders for decarbonization totaled $28,000,000 And our year to date orders in diversified end markets was 72% of the total, indicative of sustained execution against our initiative to diversify the business into less cyclical end markets. Trailing 12 month orders were 488 Melbourne, excluding Vapor Power, which we believe supports our updated full year revenue guidance. Revenue in the 3rd quarter was 136,000,000 year over year increase of 12%, primarily driven by power, chemicals and commercial activity. U. S.

Speaker 3

Latin America continues to be our strongest performing region fiscal 2024 with 3 of our 4 regional units reporting double digit revenue growth. There was no impact in the quarter The Vapor Power acquisition to reported revenues. Large project revenue reached $34,000,000 up 26% from the prior year, While small projects and maintenance and repairs revenue totaled $103,000,000 up 8%. Over the trailing 12 months, 75% of our revenues came from customer OpEx spending, indicative of the mix of our business shifting away from more cyclical customer CapEx spending. Bruce provided some additional details on the Vapor Power acquisition and wanted to add that if we updated our diversification metric To include Vapor Power on a pro form a basis, we would have approximately 69% of trailing 12 months revenue sourced from diversified end markets, which is just shy of our goal of 70% by the end of fiscal 2026.

Speaker 3

Adjusted EBITDA increased by 2% year over year to $31,000,000 with an adjusted EBITDA margin of 22.5% in the quarter. Adjusted EBITDA margins decreased due to a pronounced mix shift within our point in time sales. Product lines most impacted by a Seasonally warmer winter in both heat tracing and environmental heating saw slower than anticipated volume growth, Shifting a higher percentage of revenues in the quarter to comparatively lower margin product lines and projects with that shortfall dropping to the bottom line. The downturn in Canada also impacted our mix this quarter as it is typically the most profitable of our 4 regions. Spending remained in line with expectations as we continue to focus incremental investments on our and diversification strategic initiatives, while moderating overall spending levels to the rate of incoming orders.

Speaker 3

Adjusted diluted EPS was $0.59 in the quarter, a year over year increase of 13%. On a quick modeling note, we are currently estimating a $0.23 per share impact from amortization in fiscal year 2024. Through the 1st 3 quarters of our fiscal year, we have achieved profitable growth by executing our plan amidst ongoing macroeconomic volatility as evidenced by this quarter's results. While we believe the negative impact from the product mix shift will continue in our Q4, we also believe that our long term strategy to diversify the business will continue to deliver profitable growth in the future. On Slide 10, we will cover the updated balance sheet, which represents the preliminary acquired balance sheet including Vapor Power.

Speaker 3

At the end of the quarter, cash stood at $55,000,000 This represented a year over year increase of 57%, with about half of that due to acquired cash from Vapor. Total debt for the quarter increased 61 percent to $213,000,000 which was also related to the acquisition of Vapor Power. We expect the incremental interest expense to be approximately $1,600,000 per quarter. This increase resulted in a net debt to adjusted EBITDA ratio of 1 point 5 times compared to 1.1 times in the prior year period. This ratio is within our long term target range of 1.5 to 2 times And we still have significant capacity for further growth should additional opportunities emerge.

Speaker 3

Working capital was $190,000,000 in the quarter, an increase of approximately 24% due to the acquisition of Vapor Power, the volume growth of large projects that extends typical collection cycles and some payments related to strategic inventory reducing AP in the quarter. Working capital as a percentage of trailing 12 month sales was higher coming in at 39 Please see Note 2 in the 10 Q we will issue later today for additional details on the Vapor Power acquisition. Turning to cash flow. Net income in the 3rd quarter was $16,000,000 up 88% year over year. CapEx spend was 2,000,000 free cash flow was $22,000,000 reflecting a nice upturn in the free cash flow generation of the business as we enter into the seasonally stronger periods for cash conversion, particularly on the back of the strong first half of our fiscal 2024.

Speaker 3

We are pleased with our strong performance in the 1st 3 quarters of fiscal 2024. We continue to experience growth across end markets and regions, while absorbing some headwinds from our product mix in Canada, which is a testament to the resiliency of our Looking ahead to the last quarter of fiscal 2024 and beyond, we will continue to control costs, while we remain committed to achieving the long term targets we outlined at our Investor Day. Finally, I would like to extend my gratitude to the entire Thermo team for their hard work, dedication to our customers and commitment to delivering long term value for our shareholders. And with that, I'll turn it back over to Bruce.

Speaker 2

Thank you, Kevin. Turning now to Slide 11. As we enter the last quarter of our fiscal year, we're adjusting our full year revenue guidance for fiscal 2024. Revenue guidance is being increased from a range of $478,000,000 to $498,000,000 to a range of $490,000,000 to $500,000,000 for the full year, implying 12% growth at the midpoint of the range. Adjusted EPS guidance is being lowered from $1.84 to $1.94 per share to a range of 1.76 to $1.84 per share.

Speaker 2

This revised guidance takes into account the success we've had in the 1st 3 quarters of our fiscal year, Combined with the contribution of the Vapor Power acquisition while factoring in the negative impact that both the weaker Canadian economic conditions and exceptionally warm winter have had on gross margins. While these two factors create a near term headwind, We believe the weather was an anomaly and the mid to long term growth drivers remain intact. Our strategy is working and we remain confident in achieving our fiscal year 'twenty six strategic goals. As we conclude today on Slide 12, we'd like to leave you with the following key points. Thermon stands out as a leading global brand providing mission critical process heating technology and solutions across diverse end markets.

Speaker 2

Our operational excellence, innovative products and differentiated solutions are significant competitive advantages and create sustainable value for all of our stakeholders. Our extensive global installed base and long standing customer relationships drive a resilient aftermarket franchise that generates high margin recurring revenue. Through our existing technology, we're well positioned to capture the vast opportunity tied to the energy transition and decarbonization through the electrification of industrial heat. With a strong balance sheet featuring low leverage and high gross margins coupled with our capital light business model, Thermon remains resilient through economic cycles, providing significant flexibility and optionality. As evidenced by the Vapor power acquisition, we're able to deploy the cash generated to expand our portfolio of heating solutions, diversify our end markets and increase our exposure to opportunities around decarbonization and the energy transition to deliver growth above and beyond the organic business.

Speaker 2

In closing, I'd like to once again thank the entire Thermon team for their exceptional performance, unwavering commitment to safety and dedication to fulfilling our customers' needs. Looking ahead through the last quarter of fiscal 2024 and beyond, I'm excited about the collective achievements we can attain as we continue to deliver sustained profitable growth to create value for our shareholders. Operator, we'd now like to take questions.

Operator

Thank you. We will now be conducting a question and answer session. Our first questions come from the line of Brian Drab with William Blair. Please proceed with your questions.

Speaker 4

Hi, good morning. Thanks for taking my questions.

Speaker 2

Good morning, Brett. Good morning, Brett.

Speaker 4

I just First wanted to ask, in the Q3, revenue came in above the Street expectations above my forecast and by about $7,000,000 And then for the full year, you raised the guidance midpoint by about $7,000,000 So and then we've got the Vapor Power acquisition to incorporate for the 4th quarter. So I'm just trying to my first question, I guess, is just did your 3rd quarter revenue beat your expectation? Or Listening to the call today, I'm just wondering, it sounded like maybe the Q3 actually didn't even actually meet your internal expectation for revenue?

Speaker 3

Hey, Ryan, this is Kevin. Maybe a couple of pieces there I'll walk you through and maybe starting Q3, we were right in line with volume expectations on the Q3. What both and I, Bruce, are alluding to is that products mix was a little bit shifted toward Some of the lower margin products there and some of the weakness in Canada, the warmer winter up there as well combined to drive those gross margins down. But we focus on revenue for a second, we were right on budget in the Q3. I know the Street kind of had the Q3 and Q4 roughly flat between the two, but that's a little inconsistent with the normal seasonality that we see with Q3 being a peak and then Q4 being sequentially down.

Speaker 3

So Last year was maybe a little bit of an anomaly in Q4. But if we think about that revenue flowing through to the guide, A couple of pieces there I would point you to as well. We think vapor is going to be about $10,000,000 to $12,000,000 in the Q4. And so if you look at the midpoint, yes, the guide is about plus So organically, we're maybe thinking that Q4 is going to be a little bit softer than expectations and a lot of that's really being driven by Canada. So I know there are a few pieces there, but just wanted to kind of get that out for you as you guys triangulate the back half of the year.

Speaker 4

No, that's helpful. So I mean, 3rd quarter volume roughly in line with your expectation and then you've got 10 or 12 from vapor and Raise the guidance midpoint by 7, so I could see there's a little softness in there, maybe call it $5,000,000 or $7,000,000 that you took out of the 4th quarter. Is that Yes, you're right. Yes, okay. Yes, thank you.

Speaker 4

Okay. And The backlog has ticked down to slightly sequentially the last couple of quarters. Can you give us any view, maybe it's too early, but I mean, I know You must be working on the budget for fiscal 2025, but are there any major projects maybe in fiscal 2025 That you have some visibility to and what would you say to someone who's got any concern that backlog has been ticking down a little bit.

Speaker 2

Yes, Brian, this is Bruce. Just I'll make a couple of comments On kind of our backlog, and this quarter, we saw bookings contract about 1% year over year. So that certainly was a factor in our volumes were pretty substantially. So a couple of things that we've seen happen. One is as we've implemented our operational excellence programs, Our lead times in many, if not most of our products are now market leading.

Speaker 2

And so we're seeing that backlog come down just because of the velocity in our factories. So that's a piece of it. Certainly, the incoming order rates Being below kind of our shipment level, that's the other component of seeing that backlog decline. As we look, a couple of things to note, our quote activity was extremely strong During the quarter, we quoted $248,000,000 of opportunities. Anything over $200,000,000 is really strong for our business.

Speaker 2

And we have a pipeline, our pipeline of opportunities has actually grown. So as we look ahead, We are seeing some we did expect kind of in our plan to see a deceleration Of growth coming into the Q4, but I think what we've seen in Canada has probably been weaker than what we had originally expected. And certainly as we go on to next year, we're looking for kind of the Overall activity that began to kind of pick up and certainly we would think the weather itself was an anomaly.

Speaker 3

Hey, Brian. I might add maybe a little color just on end markets as well. If you think about the split between oil and gas versus maybe the diversified end markets, On an orders basis, oil and gas has actually declined year to date, but the diversified markets are up. And if you kind of think about it in orders rate that's in that still double digit growth rate year to date. We're seeing fairly substantial growth on those diversification initiatives and that's right in line with the strategy as well.

Speaker 3

So I think, yes, a little bit of softness in the back half that was expected. Maybe the weather is pushing that a little less than where we expected or want it to be. But I think if we look to the future, as Bruce alluded to, the pipeline is up, the quotes are up, margin and backlog are still historically healthy, maybe a little bit off the peak, But we're still seeing some really attractive leading indicators in the business.

Speaker 2

Yes. So I mean, I guess to wrap it up, we see slower growth next year organically. But with the Vapor Power acquisition, it really positions us to deliver some nice growth in the coming year.

Speaker 4

Slower growth in fiscal 'twenty five than in 'twenty four. Can you put numbers on that for

Speaker 2

No, no, we're building the boat. We'll do that in May.

Speaker 4

Okay. But the fiscal 'twenty four, you'd end up with what type organic revenue growth at the midpoint, I guess I need to look back at the release if you said that.

Speaker 2

I think 12% is at the midpoint and then you back out about 2% from vapor. We're talking about 10% organic growth in 'twenty four roughly.

Speaker 4

Right. Okay. So coming off somewhat From a very high level. I got

Speaker 5

it. Okay.

Speaker 2

Yes, yes, correct.

Speaker 4

Okay. And then last question From me for now, is there anything you can say about the gross margin that you're expecting in the Q4? And sorry if you said it already.

Speaker 3

I think, Brian, if we look at the product mix that we saw in Q3, I think we would expect that to be fairly consistent With where we are, the drivers in Canada macro, that's not going to reverse all of a sudden. I'm sorry, I think the gross margins in Q4, if you think about the guide, it implies something fairly consistent in Q4 as we saw in Q3.

Speaker 4

Got it. Okay. Thank you both.

Speaker 3

Thank you, Brad.

Operator

Thank you. Our next questions come from the line of John Braatz with

Speaker 5

Bruce, could you touch a little bit more On Canada, the weakness there, obviously, you talk a little bit about weather. But is it merely weather or is there anything beyond that, that might have legs into 'twenty five and let's say beyond?

Speaker 2

We are seeing just a weaker Macroeconomic backdrop in Canada, they've got some very restrictive fiscal policies. I think inflation there has Then a little stickier in the impact of their higher interest rates, I think, has affected their consumer more just based on some of the structure of kind of their mortgages and the like. So we do expect that to be a headwind in the Canadian market, but certainly We believe that our business as we positioned it with our strategy, we are executing and go back to the point, we've been able to grow our bookings in spite of just some weakness that we've seen there Over the last couple of quarters, we have seen that business decelerate, and we've still been able to generate growth. So while I think it's going to be a little bit of a headwind, as we said, on the organic growth going forward. So we expect slower growth rates Organically, but our ability to acquire Vapor Power and have the capacity for potentially additional M and A is going to generate Some nice growth in our fiscal 2025.

Speaker 5

Okay. Okay. On Vapor Power, The numbers you showed in terms of revenue growth and margin improvement, it's Nice. They've done a good job. And when you look across, let's say, the boiler industry in general, What are they and I assume they're probably growing faster than the industry.

Speaker 5

What are they doing differently that sets them apart and differentiates themselves? And Would you think that that type of growth that you've seen 18% on the top line, Would you think that would be able to be continued?

Speaker 2

Yes. So listen, that's a great question. And I think How they achieve that growth? Well, first of all, Vapor Power actually has some very kind of Niche unique products that they offer and I mentioned some of those here on the call And one is the electro boilers and steam generators, as well as their electric resistance boilers. And then in addition is they have gas fired cool tube supercritical steam generators, and these are generating steam at extremely high temperatures and pressures.

Speaker 2

And all of these are really very compact packages. And so If you look back at that growth, a lot of that's been driven by growth in their electrical boiler lines. And Their revenue from electric bores has virtually doubled over that more than doubled over that period of time. And we see that being driven by electrification. And these electro bores are really the best technology for electrification of steam, which has traditionally been generated with hydrocarbon fired heaters.

Speaker 2

So this really gives customers, the ability to eliminate their emissions on-site by converting traditional gas fired boilers, steam generators to electric. So that's a big trend that we see continuing quite frankly for the next couple of decades. The other thing was a super go ahead.

Speaker 5

No, go ahead, Bruce.

Speaker 2

The super critical the gas fired Supercritical steam generators, those are used for the specialty applications, which I illustrated here for plastics recycling where extremely high temperatures and pressures are required, in this case, to take waste plastics and then back down to their constituent parts that can then be used and sold for petrochemical and chemical manufacturing. So really, truly bringing that back down to the raw material and feedstock. So Those are some pretty unique products and applications, and that's really enabled them to grow above and beyond Maybe what you would see in a typical gas fired, hydrocarbon fired boiler business. So That's really how it fits with our strategy and certainly we believe we can drive double digit growth with that business going forward By plugging that into the global Thermon network, well, first of all, we that's We believe that we'll continue to grow independent of what we do at Thermon, but we are also seeing very early signs that our Thermon channels are bringing more opportunities that they've not seen previously. So that represents upside to the growth model.

Speaker 2

And then on the other side of that, our operational excellence program by implementing the Thermon Business System, We believe there's some low hanging fruit there where we can drive incremental EBITDA margins from that business, say over the next 24 months. So That's really what we see with this business and it's really well positioned and fits our strategy quite well.

Speaker 5

Bruce, would you say that in terms of electrification efforts at Vapor that they're sort of a step ahead of everybody such that If I need an electric boiler, they're going to be one of the first calls I make?

Speaker 2

Yes, without question, particularly within a certain range of sizes and temperatures and pressures, they are very well respected and have a really nice portfolio of solutions. So, absolutely.

Speaker 5

Okay. All right. Thank you very much.

Speaker 2

Thank you.

Operator

Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Mr. Bruce Taines, President and CEO for closing remarks.

Speaker 2

All right. Thank you, Brian. And Lisa, thank you all for your interest in Thermo. Thank you for joining us here today and enjoy the rest of your day.

Operator

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

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Earnings Conference Call
Thermon Group Q3 2024
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