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Hello, and welcome to the Thermon Q4 2023 Earnings Conference Call and Webcast. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Ivonne Salem, Vice President, FP&A and Investor Relations. Please go ahead, Ivonne.

Thank you, Kevin. Good morning, and thank you for joining today's fiscal 2023 fourth quarter conference call. Earlier this morning, we issued an earnings press release, which has been filed with the SEC on Form 8-K, 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, event, IR calendar, earnings, conference call Q4 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 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 may make certain forward-looking statements regarding our company. Please refer to our annual report and most recent quarterly report filed with the SEC for more information regarding our forward-looking statements, including the risks and uncertainties that could impact our future results. Our actual results 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 may be required by law. Now I would like to introduce Bruce Thames, our President and Chief Executive Officer for his opening remarks.

Thank you, Ivonne. Good morning, everyone, and thank you for joining us today. Before we talk about a record quarter and year, I'd like to start today by setting the stage with a brief overview of Thermon. 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 mission-critical industrial process heating solutions to customers in 85 countries from facilities on four continents. Our almost 1,400 employees have an industry-leading safety record and are dedicated to creating value for our customers by executing our long-term strategic plan. And I'd like to thank all of them for contributing to our record performance in fiscal 2023. I'm looking forward to seeing what we can achieve together in the years to come. On Slide 4, you can see our strategic pillars. In order to create long-term value for our shareholders, we remain focused on three key areas. First, profitably growing our installed base. Second, diversification, digitization and decarbonization. And third, disciplined capital allocation. In our first pillar, we benefit from a very large global installed base, which provides a significant opportunity to capture recurring revenues, while driving growth across our traditional and market verticals. In our second strategic pillar, we're driving additional growth through expansion into attractive adjacencies across diverse end markets. Our solutions are also enabling decarbonization through electrification and through long-term transition towards sustainable energy sources. In addition, we're expanding our digital solutions with products that utilize the industrial Internet of Things and support customer demand for enhanced productivity, reliability, efficiency and safety. Underpinning our first two strategic pillars is our commitment to disciplined capital allocation. Given the strength of our balance sheet, our current priorities include inorganic growth through bolt-on acquisitions with returns that exceed WAAC by year three and when appropriate, returning capital to shareholders. Turning to Slide 5 and an update on our diversification efforts. As you can see, we continue to make solid progress on the strategic diversification of our end markets with ongoing wins across key markets such as rail and transit, where we saw growth of 29% in the year. Commercial was also up 29% and food and beverage grew 110% in the year. In addition, we're seeing traction in other selected markets linked to long-term secular growth trends. In the alternative energy space, our revenue from nuclear power is up 16%, and our revenue from biofuels and green diesel is up 245%. We made inroads in the semiconductor end market with revenue up 15%, and our revenue from biotechnology end market is up over 200%. While the individual contributions from each of these market sectors is small today, in aggregate, they represent over $20 million of revenue in fiscal 2023, and we believe that the breadth of the total addressable market combined with our ability to grow share represents a solid growth opportunity in the years ahead. Moving now to Slide 6 on our digitization strategy, last quarter, we introduced you to the Genesis Duo, the latest addition to our market-leading digital platform, the Genesis Network. The platform provides customers with full operational awareness and supervisory control over their heat trace systems using industry-leading wireless mesh technology that connects all heat trace controllers back to the control room. This enables greater operational efficiency through increased uptime with fewer maintenance hours and costs. This quarter, as we look back at the results of fiscal 2023, it's readily apparent that the benefits of this innovative digital platform are resonating with our customers. Adoption is increasingly accelerating with a 350% year-over-year increase in new circuits in fiscal 2023 and a growing pipeline of opportunities. Using customer feedback, we continue to innovate the Genesis Network to provide expanded functionality for our customers with the latest software update released in April. Turning now to Slide 7 on enabling the energy transition. Here, you can see the rapid growth of our pipeline of opportunities and wins for projects that help enable the energy transition. This is an increasingly important part of our business, representing 8% of incoming orders in fiscal year '23, as our products and solutions support our customers in achieving their sustainability goals and contribute to overall decarbonization. On the right side of the slide, we have selected examples of our recent wins. Our innovative products and solutions are used across a variety of applications from renewable fuels to lithium-ion batteries and from carbon capture to thermal energy storage. On Slide 8, reviewing the external environment, I'd like to emphasize again the progress that we've made against our end market diversification strategy. Here, we see an updated chart with end market mix for the trailing 12 month period ending March 31, 2023. Approximately 61% of our revenue came from non-oil and gas end markets compared to roughly 45% in fiscal year '17, excluding our most recent acquisition, Powerblanket. Turning now to our full year results for fiscal year 2023 on Slide 9. Thermon achieved record revenue, adjusted EBITDA and EPS in fiscal 2023, driven by our team's continued outstanding execution despite ongoing macroeconomic volatility. Revenue of $440.6 million was up approximately 24% year-over-year, driven by strong demand in North America as well as a recent rebound in growth in Asia Pacific. More importantly, revenue from customer OpEx spending grew significantly compared to revenue from capital projects. This is indicative of greater exposure to growth of the recurring revenues from the installed base and less exposure to large upstream CapEx projects, which we believe that helps decrease the cyclicality of our business going forward. Our profitability metrics were also robust during fiscal year 2023, driven by volume and improved gross margins. Record adjusted EBITDA increased approximately 60% year-over-year to $93.3 million with a margin of 21.2%. Adjusted EBITDA margin expanded 480 basis points in fiscal 2023 due to price, volume and operational excellence initiatives. As a result, free cash flow doubled to $48.3 million in the year. Finally, we achieved record adjusted EPS of $1.56 a share, a year-over-year increase of approximately 90%. Moving to Slide 10 and our fourth quarter fiscal 2023 results. Thermon delivered another quarter of outperformance with record revenue of $122.5 million, up 19% year-over-year due to sales growth across all geographies. Record Q4 adjusted EBITDA increased 37% to $25.1 million, driven by cost management and volume growth. Adjusted EBITDA margin expanded by approximately 260 basis points to 20.5% on improved gross margins and controlled spending. Free cash flow of $21.9 million was up 66%. Adjusted EPS was $0.41 a share, an increase of more than 30% from the prior year period. If we look now to Slide 11, you can see that our orders and backlog continue to remain strong. We are very pleased with the momentum we're seeing in the business. This quarter, we achieved a record $132 million in incoming orders, up 17% year-over-year, while bookings on a trailing 12 month basis grew to $457 million, up 15%, an all-time high. Our book-to-bill was 1.08 times. This represents the tenth quarter of our last 13, where we've achieved a positive book-to-bill. Our backlog of $163 million was up 8% year-over-year, excluding FX impacts. 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 to revenue on Page 12. Performance this quarter was outstanding as the global Thermon team continued to drive profitable growth, while meeting strong customer demand. Revenue in the fourth quarter was $123 million, up 19% versus prior year and exceeding internal expectations. We delivered strong growth in all geographies due to sustained demand and maintenance activity and we are seeing green shoots in Asia with the improvement from reduced travel restrictions. While maintenance spending in the oil and gas market is the leading driver, growth in general industrial and renewable markets was robust and 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, up from 61% today and approximately 45% in fiscal 2017. FX negatively impacted revenue by $4 million due to the stronger U.S. dollar. Reported results also include Powerblanket financials were $5 million in revenue this quarter and $17 million in revenue since the acquisition in June of 2022. We are pleased that our integration of the Powerblanket deal is largely complete with the team now shifting focus to driving incremental growth through our shared channels to market and capitalizing on new product launches. Large project revenues were roughly flat in the quarter. As a reminder, we believe large overtime project revenues are aligned with customer capital spending budgets and are more cyclical in nature. Small projects and maintenance and repair revenues, which were up 31% and 24% in the quarter, respectively, and 17% and 29% on a TTM 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 maintenance and repair revenue growth was driven by increased activity in design and supply projects, particularly in downstream oil and chemical end markets. Small projects and maintenance and repair revenues represented 79% of total revenue this quarter versus large project revenues of 21%. Over the last few years, management has reduced our dependence on large upstream CapEx projects, and we are now more aligned with the maintenance spending growth this cycle. Now for gross margins and SG&A on Page 13. Gross margins in the quarter were 42.1% versus a reported 40.1% last year, representing incremental margins of over 52% due to growth in customer maintenance spending. In the fourth quarter of fiscal 2023, volume and pricing contributed an increase of 675 basis points. Supply chain headwinds were a negative 250 basis points. And while they have generally improved over the last year, there are still some pockets of challenges we continue to navigate. Year-end inventory adjustments and the impact from investments in continuous improvement contributed an additional headwind of 265 basis points. On an adjusted TTM basis, margins are up 170 basis points due to higher volume and pricing offsetting the previously mentioned headwinds. In the quarter, SG&A was $31.7 million or 26% of revenue versus the prior year of $23.5 million or 23% of revenue. On a trailing 12 month basis, SG&A was $107 million or 24% of revenue, up from $82 million and compared to 23% of revenue in the prior year, reflecting the acquisition of Powerblanket, higher variable costs within SG&A and our long-term investment in the decarbonization, digitization and diversification initiatives that we believe will drive the future growth of the business. We continue to focus on driving profitable growth, especially as we invest in the resources needed to execute our long-term strategic plan to diversify and scale the business. As you'll see on the next slide, the team has done an excellent job managing the balance between growth and profitability, and we will maximize the value of each dollar we invest in the business. Moving on to Page 14 for adjusted EBITDA and earnings per share. This year's results represent the strength of the high-margin, low asset intensity Thermon business model as we continue to deliver margin expansion in a complex operating environment. Adjusted EBITDA was $25.1 million or 21% of sales in the quarter. Adjusted EBITDA increased 37%, up almost $7 million from the prior year, along with margin expansion of 260 basis points. On a trailing 12 month basis, adjusted EBITDA is now up to $93.3 million, a new record, along with margins of 21.2%, an expansion of 480 basis points year-over-year, a really fantastic result for the team. GAAP EPS in the fourth quarter was $0.23 per share, slightly down compared to the $0.26 per share in the prior year. Adjusted EPS was $0.41 per share versus last year's $0.31 per share. For the trailing 12 month period, GAAP EPS was $1 and adjusted EPS was $1.56 per share. Last quarter, we announced the exit of our operations in Russia. And as of March 31, the entity value has been written down to a nominal amount. This resulted in an impact to GAAP EPS of $0.13 per share in Q4 '23 and $0.35 per share for the full year. We expect to complete the Russia exit by the end of the second quarter of fiscal 2024, subject to the receipt of regulatory approvals, and we do not anticipate any incremental material expenses associated with that process. On Page 15, we cover the updated balance sheet. We ended the quarter with cash at $36 million. Despite the incremental borrowings for the Powerblanket acquisition, debt was $16 million lower year-over-year and combined with the substantial EBITDA growth, this resulted in a net debt to adjusted EBITDA ratio of 0.8 times, an improvement versus 1.5 times in the prior year. We ended the quarter with lower working capital as a percentage of sales with a reduction in inventory from the elevated levels in recent quarters. We continue to navigate an improving, but not yet fully reliable supply chain environment while implementing many new operational and manufacturing changes to drive improved profitability in the quarters and years ahead. Strong free cash flow of $21.9 million reflects 18% of revenue and 278% of net income in the quarter and a total of $48 million in fiscal 2023. Our low capital investment model yields significant free cash flow annually and the combination of our very strong balance sheet with low leverage provides optionality for capital allocation going forward. In fiscal 2023, we delivered significant volume growth, operating margin expansion and excellent free cash flow conversion, while improving the strength of our balance sheet and completing our first acquisition since 2017. This represents a big step forward in our plan to build a world-class industrial technology business. While some uncertainty in the macro environment exists, we are seeing strong growth trends across all regions, supply chain costs and lead times are improving versus a year ago, and the industry-leading Thermon team continues to execute against its short- and long-term plans. We will continue to drive strong results and create value for shareholders in the years ahead. 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, hand it back to Bruce.

Thank you, Kevin. And I'd like you all to turn to Slide 16 for our guidance for fiscal year 2024. We are very pleased with the strength of our business as we move into this fiscal year. We believe the record results in fiscal 2023 have set a new baseline for us going forward. In order to continue to grow and execute our strategic initiatives, our fiscal 2024 plan includes an incremental $7 million in key investments, new product development, sales and business development. In addition, we anticipate investing approximately 3.5% to 4% of revenues in CapEx to fund strategic growth initiatives, capacity expansion and operational excellence. Looking forward, we're mindful of the higher interest rates that could lead to a slowdown in spending that may result in a recession. However, our backlog is at or near record levels, is up 5% year-over-year, and our quote volumes and incoming order rates remain robust. Based on these factors, revenue guidance for FY24 is projected to be from $455 million to $485 million for the full year, which at the midpoint represents approximately 7% growth over fiscal 2023. No M&A activity is included in these projections. For the full year, we anticipate GAAP EPS to be in the range of $1.45 a share to $1.61 a share, representing a 53% year-over-year growth at the midpoint. We expect to maintain a strong balance sheet throughout the year. Moving to Slide 17 and our long-term revenue goals. Our growth goals for fiscal 2026 remain unchanged. We're very pleased that our performance through the first two years of our five year plan is in the upper range of our initial goals with fiscal 2023, significantly exceeding our expectations. We're encouraged by the ongoing advancements we're making around diversification with important growth across multiple end markets. The continued progress of our digitization strategy with accelerating adoption of our innovative digital platform and our new product development are creating sustainable competitive advantages in the marketplace. And as we further align our sales and marketing activities to the long-term secular growth trends of the energy transition and decarbonization we expect to capture additional market share by providing our customers with products and solutions that enable them to achieve their sustainability goals. In addition to revenue growth, we believe that our operational excellence combined with leverage on our fixed costs will yield EBITDA margins in the low to mid-20% range going forward. Turning to Slide 18 and our capital allocation priorities. Our disciplined approach to capital allocation underpins our growth aspirations. First and foremost, we're committed to maintaining a healthy balance sheet across economic cycles, with a leverage target of 1.5 to 2 times under normal conditions, while continually evaluating opportunities to return capital to our shareholders. We seek to drive organic growth by investing in people, technology and continuous improvement. These investments enable us to pursue our three strategic initiatives of decarbonization, digitization and diversification. Our reinvestment in the business through research and development and new product development has resulted in a robust vitality index representing 20% of fiscal 2023 revenues. Finally, we continue to evaluate M&A opportunities against our strategic and financial criteria as a means of building our industrial heating platform while diversifying our end markets. We target accretive return on invested capital to exceed WAAC by year three. And wrapping up on Slide 19, Thermon is a leading global brand, providing safe, reliable and innovative mission-critical process heating solutions, serving high-value, diversified end markets with high barriers to entry. Our talented global team is committed to operational excellence and safely delivering results, while driving innovative product development that creates differentiated solutions in the marketplace. Our large global installed base with long-standing customers is a significant competitive advantage, resulting in a resilient aftermarket franchise that generates high-margin recurring revenue. We believe that we are very well positioned to support our clients in achieving their sustainability goals, and to capitalize on the vast opportunity associated with the energy transition and decarbonization through the electrification of industrial heat. Finally, our operating history has demonstrated that our business is resilient across economic cycles due to our high margin, low capital intensity model that generates meaningful free cash flow. As we look ahead to fiscal 2024, I'm excited about the opportunities in front of us. Through the outstanding execution by our global team and the strength of our business, Thermon is ready to continue delivering profitable growth and creating value for our shareholders in the coming year and beyond. With that, I'd like to turn this back over to our moderator, Kevin.

Thank you. We will now be conducting a question-and-answer session. Our first question today is coming from Brian Drab from William Blair. Your line is now live.

Good morning. This is Tyler on for Brian. Just to start out, looking at your gross margin in the fourth quarter, I know you explained the headwinds, but is there any reason it was down sequentially from the other quarters? Were the headwinds larger than previous quarters?

Yes, Tyler, this is Kevin. Maybe a few things to call out on the gross margin side of things. Obviously, the volume was quite strong. Pricing was still positive in the quarter. But if we really kind of reflect internally some of those inventories for the higher cost purchases in previous periods, really start to get consumed at the end of the heating season. So that was a little bit a headwind. We had some adjustments for year-end inventory. But as we think about the continuous improvement side of things, we've really been investing in the business there. We completed over 47 Kaizen events in the last year. And as you pivot from a push to a pull model through the plant, you take a look at the inventories, and there's a little bit of hit there we had in the quarter. But I think the good news here is a lot of that is behind us. And if you think about the opportunity sequentially going forward, we still have pricing power in the market. We think we've got some of those higher cost input items more or less behind us. And we certainly, given the guidance for fiscal '24, I think volume is going to be higher in the years ahead. So I think we still feel fairly positive about margins improving going forward.

Sounds good. Yes, that kind of just leads into my second question, like with the strong revenue guidance, like is there a reason that the EPS guidance is any higher? Or is there a potential for upside throughout the fiscal year?

Yes. Tyler, I think we take a look at what's going on in the world and whether it's geopolitical events in Europe or some of the discussion that's going on in Washington. There's elections up in the Western province in Canada. There's just a little bit of maybe hesitation, I think, that we're seeing from a customer standpoint that we wanted to factor into the bottom line. So I think at the end of the day, where we are here in May that would be the expectation for the year. But I think generally speaking, the guide feels good for where we are today.

Sounds good. And just touching on the maintenance spending, do you have pretty good visibility of that throughout fiscal '24 as opposed to the CapEx projects?

Yes. We get a good sense for our customers' budgets. The vast majority of them are on an annual kind of the calendar year as they look at their budgets. Particularly, if you look at some of the more traditional end markets, commodity pricing is high, the overall margins are good. They've got money to spend. And right now that we haven't seen huge CapEx spending. So what we've seen is kind of a shift of investment in -- kind of current asset base to improve throughput, uptime, reliability and maximize the assets they have in place to be able to meet kind of volume demand. So we believe the environment for ongoing maintenance is robust and expect those levels of spend to continue into this year.

And Tyler, maybe to bring it full circle then, if we think about that mix that Bruce is alluding to, as you guys are aware, that's obviously generally a higher-margin business than some of the more project-based activity.

Got it. Yes, that's all I have. Thanks for taking the questions.

Thank you.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to Bruce for any further or closing comments.

Thank you, Kevin, and thank you all for joining us today. We appreciate your interest and your investment in Thermon, and enjoy the rest of your day.