Greetings, ladies and gentlemen, and welcome to the Thermon Group Holdings First Quarter Fiscal 2023 Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to our host, Ivonne Salem, Vice President, FP&A and Investor Relations. Thank you. You may begin..

Thank you, Diego. Good morning, and thank you for joining today's fiscal 2023 first 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 and Events, IR Calendar, Earnings Conference Call Q1 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 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 may differ materially from those contemplated by those forward-looking statements, and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as 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 today.

Thermon had an excellent quarter to start our fiscal year with better-than-anticipated organic sales growth, record Q1 revenue and bookings, exceptional operating leverage and year-over-year margin expansion that illustrates the momentum we carried into Q1 from the strong finish to our fiscal year '22.

Our team executed extremely well in the quarter despite supply chain challenges that persist to serve our customers with commitment and grow our market share. These results were largely driven by continued investments and a winning strategy, strong execution by our Thermon team around the globe and fiscal discipline around cost management.

As part of that growth strategy, we acquired Powerblanket on May 31, which contributed approximately $1 million to the top line in the month of June. We'll provide more details on the acquisition later in this call.

We're seeing strength in North America and a recovery in oil and gas maintenance spending driving $95.4 million in revenue, a first quarter record, growing by 34% over the prior year quarter.

More importantly, we saw the team deliver strong operating leverage as compared to the prior year quarter with adjusted EBITDA more than doubling to $16.6 million and more than 3x the rate of our revenue growth.

Free cash flow for the quarter was particularly strong at $10.3 million, which represented the second consecutive quarter of free cash flow over 150% of net income. Adjusted EPS was $0.25 a share in the quarter, bringing the trailing 12-month adjusted EPS to $1.05 a share for the business, an increase of 31% from the prior quarter.

While we are seeing a weakening outlook in Europe and FX headwinds, we're raising revenue and EPS guidance for the full fiscal year given the strong performance and strong backlog in the business. Turning now to Slide 4 on our end markets and the external environment.

To begin, I want to reemphasize the progress we've achieved in our end market diversification strategy during our fiscal year '22 with just 40% of revenues tied to oil and gas during the year.

As we begin our fiscal year '23, our investment in Powerblanket accelerates these efforts to diversify with roughly 85% of the newly acquired revenues being outside of the oil and gas sector. These products have a wide range of applications in end markets like commercial, construction, food and beverage and general industrial.

Turning to our other end markets. We see strength across a wide range of verticals. In chemical and petrochemical, higher demand has enabled manufacturers to pass on price increases to offset higher input costs with continued growth, although at a lower rate in the second half of this fiscal year.

Much of the spending in this sector is related to maintenance and improving utilization and throughput with some investments in new capacity. While not at the pace seen in fiscal year '22, we see additional opportunities in the power sector following legislation from Winter Storm Uri, particularly along the Texas Gulf Coast.

We've also received multiple orders for maintenance and refurbishment of a nuclear power plant. Going forward, we expect the power sector growth to be driven by the transition to electric from other traditional energy sources as well as the emerging middle class in the developing world.

Rail and transit, although small, remains a growing part of our business with recent wins in multiyear transit projects and new product launches in Class 1 rail driving growth.

While nascent, we're also seeing a number of opportunities in green hydrogen emerge and a transition from gas-fired heat exchangers to electrical and heavier industrial applications that is beginning in Europe. A significant recovery in oil and gas spending appears to be underway, particularly related to upstream and downstream maintenance.

These investments are also focused upon debottlenecking, utilization and throughput. Here in the chart, we see that the upstream represents roughly 17% of our end market with 90% of that revenue tied to recurring materials on the installed base.

These assets will continue to produce relatively stable revenues at attractive margins for many years to come. Geographically, in the U.S. and Latin America and Canada remains robust. The Eastern Hemisphere is lagging due to some impact in the war in Ukraine and higher energy costs as well as COVID-19 lockdowns.

Turning now to Slide 5 on orders and backlog. We continue to see strong growth on record Q1 orders of $103 million, with bookings growing 43% in the quarter and 44% over the trailing 12-month period. Excluding the onetime contract, our book-to-bill was a healthy 1.16x and has been positive for 8 of the last 9 quarters.

Although down sequentially, our quotation volume was up 52% year-over-year, showing continued strength in overall customer activity. Backlog of $165 million is up 39% year-over-year on a constant-currency basis and grew 6% sequentially.

Backlog is within $400,000 of a record level that was achieved in our fiscal year 2019, which was also a record year for revenue and adjusted EBITDA. With that, I'd like to now turn the call over to Kevin for a more in-depth review of our financial results.

Kevin?.

Thanks, Bruce. Turning to Page 6. Before I jump into the specifics, I want to note we are very pleased with the financials this quarter, and it's a reflection of the global team's commitment to driving profitable growth while meeting a level of customer demand that remained elevated past the typical timing of the heating season.

We believe demand, particularly in North America, was driven by elevated levels of maintenance this spring and early summer after deferrals in the 2020 to 2021 time frame. Revenue in the first quarter was $95 million, up 34% versus prior year and exceeding internal expectations.

The large onetime labor contract contributed $1 million in new orders and $7 million in revenue in the quarter. So excluding that project, Thermon revenues were up 24% versus prior year. As mentioned on our previous call, on-site work for this contract was completed in May. FX impacted revenue by a negative $2.9 million due to the stronger U.S.

dollar, which we expect to continue to impact our business in the quarters ahead.

Revenue is significantly higher in both the U.S., Latin America and Canada regions this year versus last, with both regions seeing elevated materials demand from our installed base where we realized the combined $14 million of incremental material sales in North America.

While we typically see the seasonality effect in our process heating business begin to taper off in late March, we observed elevated daily order rates for those products through June, helping to drive the revenue outperformance in the period.

We continue to see progress in our diversified end markets with power up 85% and food and beverage up 19% year-over-year.

While maintenance spending in the oil and gas markets is growing considerably, we are keeping our global sales teams focused on executing against our long-term goal to drive the exposure to diversified markets of at least 65% of total revenues by the end of our fiscal 2026.

Reported results include 1 month of Powerblanket financials worth approximately $1 million of revenue in this period. Thermon's overall organic growth was 33% year-over-year. We will discuss more about the Powerblanket acquisition in a few slides, but we are off to a good start and very excited to have them as part of the Thermon team going forward.

Point in time revenues grew 34% in the quarter and 33% in the trailing 12 months, which underscores the strength in maintenance spending across our global installed base.

As a reminder, point in time revenues are aligned with our product or material sales, while over time revenues, which were up 25% in the quarter and 28% on a TTM basis, both including the onetime contract, are representative of project work where we have engineering and installation services.

Over time, our project revenues represented 38% of total revenue this quarter versus point in time or material revenues of 62%. Excluding the large onetime labor contract, this split was 33% and 67%, respectively. Now for gross margins and SG&A on Page 7. Reported gross margins in the quarter are 39% versus a reported 37.3% last year.

There are a few moving pieces in the gross margins to call out. In the first quarter fiscal 2023, the onetime contract had revenue of $7 million and was dilutive to margins by 260 basis points, giving us a comparable figure of 41.6% gross margin in FY '23 versus a reported Q1 in fiscal '22 of 37.3%, yielding an expansion of over 400 basis points.

Volume contributed an increase of 490 basis points driven by the strong point in time sales in the Western Hemisphere. We continue to be able to manage the price/cost equation with this quarter being a de minimis 20 basis points headwind compared to last quarter's positive 30 basis points, so essentially flat over the last 180 days.

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 $21.8 million or 23% of revenue versus the prior year of $18.3 million or 26% of revenue.

On a trailing 12-month basis, SG&A was slightly above $85 million or 22% of revenue, up from $78 million or 27% of revenue in the prior year. We remain highly focused on managing the controllable spend while investing in our business to drive profitable growth.

However, we will continue to be disciplined with investing in the business for the long term, and our aggregate SG&A dollars will increase during the balance of fiscal 2023.

We've continued the practice of detailed spend reviews to ensure we are directing capital towards the highest returning investments that will help us to scale and diversify the business.

With some economic clouds on the horizon, most notably in Europe near term, we want to ensure we are positioning the business for success and attractive profitability through the cycle. Moving on to Page 8 for adjusted EBITDA and earnings per share.

The combination of high customer demand, execution within our installed base, managing the price/cost equation in a volatile environment and proactively focusing on base cost management has yielded very positive bottom line results this quarter.

This is the strength of the Thermon business model and representative of the execution we expect from the team as we deliver on our strategic objectives. Adjusted EBITDA was $16.6 million or 17% of sales in the quarter. Adjusted EBITDA has more than doubled and is up $8.5 million from the prior year along with margin expansion of 600 basis points.

On a trailing 12-month basis, adjusted EBITDA is now up to $67 million along with margins of 17.6%, an expansion of 280 basis points. Powerblanket's business is quite seasonal, and it is not expected to meaningfully contribute to adjusted EBITDA growth until heating season begins later this year.

As a reminder, we are still projecting a 200 to 300 basis point expansion in adjusted EBITDA margins from fiscal 2022 16.4%, and our first quarter results are a solid step forward towards achieving that goal in fiscal 2023.

GAAP EPS in the first quarter was $0.20 per share, an increase versus the prior year loss of $0.01 per share, and adjusted EPS was $0.25 per share versus last year's $0.04 per share. For the trailing 12-month period, GAAP EPS was $0.80 and adjusted EPS was $1.05. On Page 9, we'll cover the updated balance sheet.

Cash ended at $40 million as we used a combination of available cash and additional borrowings for the purchase of Powerblanket. Our balance sheet remains strong.

And after accounting for the acquisition, net debt to adjusted EBITDA ended the quarter at 1.7x, providing the financial flexibility necessary to execute our plans in a still uncertain global economic environment.

M&A remains an attractive capital allocation option, which we believe will play a key role in continuing to diversify the business over the next few years.

Working capital results were mixed as the strong collections we typically see in the quarter following heating seasons completion was offset by strategic investments in our inventory, particularly raw materials to buffer disruptions we've seen in the supply chain.

On the right side of the page, we continue to generate positive quarterly cash flows with free cash flow of $10.3 million in the quarter. CapEx was $1.6 million and predominantly focused on maintenance.

We have a few larger investments in our CapEx budget and expect to invest over $10 million this year as we begin to invest in our strategic initiatives and conclude some maintenance activities. A quick update on Powerblanket on Page 10.

With the acquisition of Powerblanket this quarter, we wanted to pause for a few minutes on the deal, which we are very happy to have as part of the team. Powerblanket was about $17 million of revenue last year with 85% of those revenues from customers outside of the oil and gas markets.

For their April to June quarter of calendar 2022, revenues were up 15% year-over-year. The business has a set of patents around heat spreading technology, and we believe we can build upon that technology with a high temperature application.

The Powerblanket leadership team has been incredibly engaged in planning and we are off to a great start with integration. The team is already delivering against our growth plan in the North American distribution network, and we had Thermon solutions on their e-commerce portal within 48 hours of closing.

We purchased the business for $35 million or approximately 10x trailing EBITDA on a pro forma basis using cash and borrowings, as mentioned earlier. We believe that 10 months of financial results we will report in fiscal 2023 will contribute an additional $18 million of revenue, which will be factored into our guidance going forward.

EBITDA margins are accretive to the Thermon business and the deal is expected to be accretive to GAAP EPS in fiscal 2023. This quarter was a great start to the year with record revenues and significant incremental margin expansion.

While the external environment may be choppy in places, weak demand in Europe is of particular concern and supply chains are nowhere near the pre-COVID levels of cost or lead times the Thermon team continues to execute against its short- and long-term plans, and there is considerable runway ahead to improve results from here.

I want to thank our team for the collaboration that enables us to deliver for our customers, shareholders and the broader communities where we live and work. And with that, I'll pass it along to Bruce for an update on our strategic initiatives..

Thank you, Kevin. I'd like to now direct your attention to Slide 11 on our strategic initiatives. In our fiscal year '23 plan, we have investments of roughly $6 million in incremental SG&A expense and $4 million in CapEx to drive growth across these 3 strategic platforms in the fiscal year.

To capitalize on developing markets, we're expanding our manufacturing capabilities in India to meet lead times and price points for process and environmental heaters in a very fragmented Asia Pacific market.

While we're off to a slow start in the first quarter due to COVID lockdowns, we anticipate 20% to 30% top line growth across the region in this fiscal year. As noted last quarter, our efforts on diversification have really begun to gain traction with approximately 60% of our end markets now outside of the oil and gas sector.

The initial focus on food and beverage, commercial and rail and transit expands our addressable market by over $1 billion. A new business development manager has been hired to cover the European market where we can leverage our relationships with large OEMs in the transit sector.

And we continue to invest in research and development dollars for rail and transit and commercial applications with new product launches planned later this fiscal year. Technology-enabled maintenance, our third strategic platform for growth, capitalizes on the digital transformation underway.

We've recently updated our Genesis Network software to monitor and manage third-party controllers which opens up a wider range of brownfield opportunities. We've also secured our first Genesis Network order in the Middle East and based upon the pipeline of opportunities anticipate tripling systems sales this year -- this fiscal year.

Turning now to Slide 12 to illustrate how Thermon solutions are enabling a more sustainable and cleaner future. There are a wide range of Thermon solutions that enable customers to improve their environmental footprint by lowering both Scope 1 and 2 emissions.

On the left, we see the EnviroDyne-patented Methane Destruction Unit that converts fugitive methane emissions to CO2 and water, reducing the greenhouse gas effect by 25x. These units are 95% efficient, and we have orders for the first 20 to be installed in the field.

This technology helps customers reduce their Scope 1 emissions and are economically attractive due to the impact of the lower emissions and associated carbon tax savings. On the right, we see an example of 3 40-year-old gas-fired heaters in a sulfur recovery unit that were replaced with 3 Caloritech heaters.

These replacement heaters lower both Scope 1 emissions on-site and reduce operating costs due to the increased control and energy efficiency of the electrical unit. There's a large installed base of hydrocarbon fuel heaters across a wide range of industries that are being evaluated for conversion to electric.

While early in the transition, we believe there is a sizable market opportunity to enable this transition in the coming years. Moving on to Slide 13 and our 5-year strategic plan. In this chart, we see the impact of COVID-19 on the business in fiscal year '21, which is the base year of our 5-year strategic plan.

Subsequently, we see growth in fiscal year '22 that was driven by the early stages of recovery in our end markets and successful execution of our strategic initiatives.

With a revised forecast for the fiscal year, we believe the fiscal year '23 revenue estimate of $380 million to $405 million as being on track to achieve our fiscal year '26 growth objectives.

As part of our diversification efforts, we are also targeting industrial markets outside of the oil and gas sector to represent 65% to 70% of revenues by the end of fiscal year '26. Finally, we expect operational excellence, combined with leverage on our fixed costs, returning EBITDA margins to the low to mid-20% range over that same period.

Turning now to an update on our fiscal 2023 full year guidance. Looking forward, there are a number of areas of uncertainty in the current macro environment with supply chain challenges, FX headwinds and weakening demand in Europe.

However, the positive momentum we are seeing in quotations, bookings and backlog give us confidence to raise our fiscal year '23 full year revenue and EPS guidance which includes the impact of Powerblanket, our recent acquisition.

Fiscal '23 revenue is being raised to $380 million to $405 million, which represents 10% growth over the prior year at the midpoint of the range. Excluding the onetime contract in our fiscal year '22, core growth is 17% over the prior year.

We anticipate productivity gains from operational excellence initiatives, combined with price to offset inflation for the remainder of the year to improve the EBITDA margin profile in the business by 200 to 300 basis points.

GAAP EPS guidance for the full year is being raised to $0.85 a share to $0.97 a share, an increase of 52% at the midpoint over the prior year. We are also initiating adjusted EPS guidance of $1.07 a share to $1.19 a share for the full year, an increase of 37% over our fiscal year '22 on top of the 150% growth delivered in the prior year.

As I look at this business, Thermon has a well-established leadership position with a broad portfolio of solutions, a large installed base of loyal customers that generates recurring revenues across industry cycles, an [investmentalized] business model that generates strong cash flows and certifications across a wide range of industries and geographies that create significant barriers to entry.

The resilience of this business, the global recognition of the brand and the strength of this global team positioned Thermon very well to deliver profitable growth in our fiscal '23 and beyond. I'd like to now turn the call back over to our moderator, Diego, for the Q&A portion of our call. Thank you..

[Operator Instructions] Our first question comes from Jon Braatz with Kansas City Capital..

Can I get a little bit more color on your revenue expectations? Bruce, you talked about some of the pluses and some of the negatives. And I guess a couple of questions.

Number one, how much of a headwind is Europe at this point? And what might it take to change or to see some improvement in the European business?.

Yes. So Europe is down modestly year-over-year. It's really the only area where we've seen any contraction in Asia is roughly flat. We obviously are seeing the impact of the war on Ukraine as well as higher energy prices and just some uncertainty in depressed demand. So certainly, we expect that.

We're kind of projecting some of these revenue shortfalls going forward. But our revised forecast factors in just the strength that we're seeing in the Western Hemisphere, U.S., Latin America as well as Canada. Our business levels are quite robust.

And we're also seeing really a recovery in that oil and gas spending that we talked about last quarter, Jon, as being the potential upside to this fiscal year. And certainly, in the first quarter, we've got a great start to that..

Bruce, you talked about the strength in the maintenance spending in oil and gas and maybe elsewhere.

What kind of legs does that have to kind of continue on for -- the maintenance spending continuing on for another 3, 4 quarters? And then what would your expectation be about maybe some additional capital spending in the oil and gas industry and some new projects moving forward?.

Yes, that's a great question. So Jon, I think as we look at the oil and gas sector, we're seeing very different behaviors in this cycle, a lot more fiscal discipline around new investments in CapEx and really a focus on return to shareholders.

And so what we've seen here is with just the demand recovery, and this is upstream as well as downstream, we just see a lot of this maintenance spending and that's been deferred for a couple of years. So I think there's some activity there.

But a lot of what's really driving the, just the groundswell of activity is really focusing around maximizing the assets that they currently have and debottlenecking, throughput, utilization, those types of investments to really get the most out of the capital investments that are on the ground.

So just I think given the demand -- kind of the tight supply-demand picture that we see, and that's really being exacerbated by the war in Ukraine, we anticipate this remaining relatively strong going forward even if there is some slowing of demand maybe on the heels of a recession.

So we think this is a fairly -- going to be fairly resilient for several quarters to come..

Okay. Okay. One last question, Bruce. Obviously, there's a lot of talk these days about controlling methane releases and so on. And obviously, you talked a little bit about EnviroDyne, and you got an initial 20 units ordered. Two things.

Number one, how big can this business be? And what are we talking about in terms of revenue on 20 orders? How significant is that?.

I mean it's less than $1 million. So it's not a huge order, but a question around how big this could be. These are really targeted for use in more remote areas. A lot of this would be in gathering systems, particularly where you don't have the availability of electricity and you have fugitive emissions from smaller sources.

So this is kind of where this plays best. And so if you kind of think about it, carbon tax is one of the things that -- and certainly, a push to reduce Scope 1 emissions are really what's driving this, both economically and just from a from ethical and environmental standards perspective. So this could be a sizable opportunity.

There's certainly competing technologies, and it's not clear what would win today. But this really has some distinct advantages over some of the other alternatives, particularly in remote areas where electricity and some other infrastructure for carbon capture and sequestration may not be available..

Our next question comes from Brian Drab with William Blair..

So the revenue upward revision, just to be clear, so the upward revision is about like a $17 million to $18 million related to Powerblanket and $10 million organic.

Is that how to think about that?.

Yes, Brian, you're right on. We think about Powerblanket, that's the 10 months of revenue we'll consolidate for our fiscal '23 plus the -- call it, the outperformance in first quarter as well..

Right, right. And then you had a nice gross margin improvement, like 250 basis points or so year-over-year.

How sustainable is that, do you think, as you move through the year? Are we going to maybe be at a run rate of 200 or 300 basis points above gross margin that we saw in fiscal '22 potentially?.

So Brian, I think when we look at gross margin, leveraging the fixed costs, and clearly, when we see an environment where volume is going to be higher, we should have some of that fall to the bottom line with gross margins. I think you've seen over the past couple of quarters, we've been able to manage that value gap, the price/cost equation.

I think we expect to be able to continue to do that through the year.

And I think really what we would point to and where we expect to see some additional value in the gross margins is really the continuous improvement initiatives, the operational transformation that Roberto, since he's joined the team, is really getting a lot of traction, a lot of excitement in the plants.

And I don't want to put a number on it specifically, but we certainly think there's more opportunity to come related to the continuous improvement efforts as well..

Brian, I would also add to that. As we've completed the large onetime contract this quarter, it's labor only and it's single-digit margins.

So as we see that drop off, we envision the mix in the next 3 quarters to be significantly better over what we experienced last year, and we also -- I believe that's going to contribute to the gross margin expansion in the next 3 quarters..

How big a headwind to gross margin was that 1 project?.

Kevin, do you have that?.

Yes, it's significant, Brian. If you think about all in, it was about $31 million of revenue that started in Q2 of last year. The bulk of it was Q4 and then this Q1. But at the end of the day, as Bruce mentioned, that was a pretty low-margin contract. And so as we lap those comps, there's certainly some upside just on the reported margins as well..

Okay. And then you mentioned on the last call, I think it was, that Russia was about -- running at about like $5 million in revenue per quarter thereabouts, and then that was going to run off.

How much revenue was there from Russia in the first quarter? And how does that run off in terms of timing?.

Yes. I think the numbers you may have been referencing were more kind of the business last year. We have roughly about close to $20 million in backlog in Russia. We expect that to kind of run off over the next 18 months.

I think we did roughly $3 million in revenue in the first quarter, and we would expect somewhere in maybe $8 million to $10 million in revenue in the fiscal year as we execute on those contracts..

Okay. And then maybe just the last couple of questions. The orders were down sequentially from $113 million last quarter to $103 million. But is that largely seasonality? Or is that start -- are we starting to see impact from Europe? And so that's my first question..

Yes. So Brian, I mean you know this business. We're very seasonal. By far, our Q1 is the weakest incoming order rates in the business. And these -- and I would really point to you, quite frankly, sequential bookings and revenue don't really tell you much in this business.

You really have to factor it over the prior year just due to the seasonality because it is so pronounced. So I would really point you to the relative improvements year-over-year and not the sequential order rates. And I would -- that's for every quarter because it depends.

Some are over under and you can really be misled both directions if you look at sequentials just due to seasonality..

And Brian, when we look at orders, the TTM numbers where we focus, that's, I think, in the $395 million range at this point. So it kind of puts you right in the middle of the guide as well..

Got it. Okay.

Can you -- lastly, can you just talk at all about what you saw in terms of year-over-year change in orders for North America, Europe and Asia?.

Yes. So really, the bulk, like we said, of the activity was not only revenue, but the incoming order rates were really in the Western Hemisphere. U.S. and Latin America, very strong and really a broad base of industrials. And Canada as well, really a lot of strength.

Asia, the incoming order rate was solid, but the back -- the kind of the pipeline and the opportunities are building in Europe. We do see some weakness year-over-year. And a big part of that's having Russia fall off.

So some of that we anticipated, but as we've really suspended the oil and gas orders in that legal entity, so certainly, that's a headwind for Europe when we just look at year-over-year comparisons.

But we're focused on really driving the incoming order rates in Western Europe particularly to really drive our results and performance this fiscal year..

Okay. And just sneaking in one last one. On interest expense, it's become relatively minor.

Now is that -- is what we saw in terms of interest expense in the first quarter and tax rate for that matter similar to what we should expect for the subsequent quarters in this fiscal '23?.

Yes. I mean, Brian, you've obviously got rising interest rate environment. So as the base goes up, that will accrue through. But I think you can factor in those types of changes that we don't have control over. But I think it's generally indicative of what we expect over the next couple of quarters..

Yes.

And tax rate, too?.

Oh, sorry. Yes, same. No changes on tax rate. I think we're still at 26% for the year..

Got it. Okay. I'm seeing 29% effective tax rate in the model that we plugged in today. Is that -- was that higher than what you're expecting for the rest of the year? Maybe I just have a typo..

No, I can double check that with you off-line, Brian, but I think for the total year, we're still at 26%. I think we had some discrete items related to the European operations that might be driving it in the quarter. But let me double check with that, and we can follow up with you off-line..

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

Thank you. Well, thank you all for joining our call today. We appreciate your interest and investment in Thermon. Enjoy the rest of your day..

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