Thermon Group Holdings Inc (THR) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Thermon earnings conference call Q4 2013. At this time all participants are in a listen only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

(Operator Instructions)

As a reminder, today's conference call is being recorded. And now I would like to turn the conference over to your host Ms. Sarah Alexander, Director Investor Relations. Please go ahead.

Thank you, Allie. Good morning and thank you for joining us for today's earnings conference call. We issued an earnings press release this morning which has been filed with the SEC on Form 8-K and is also available on the Investor Relations section of our Web site at www.thermon.com. A replay of today's call will be available on our Web site beginning two hours after the conclusion of this call. This broadcast is the property of Thermon. Any redistribution, retransmission or rebroadcast is in any form without the express written consent of the Company is prohibited.

During this call, our comments may include forward-looking statements. These forward-looking statements are subject to risks and uncertainties and our actual results may differ materially from the views expressed today. Some of these risks have been set forth in this press release and in our annual report on Form 10-K that will be filed with the SEC in the next several days. We also would like to advise you that all forward-looking statements made on today's call are intended to fall within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements may include, among others, our outlook for future performance and revenue growth, leverage ratios, acquisitions and various other aspects of our business.

During the call, we will also discuss some items that do not conform to Generally Accepted Accounting Principles, including adjusted EPS and adjusted EBITDA. We have reconciled those items to the most comparable GAAP measures in the tables in the earnings release. Adjusted EBITDA and adjusted EPS should be considered in addition to, and not a substitute for, income from operations, net income, net income per share and other measures of financial performance reported in accordance with GAAP. And now, it's my pleasure to turn the call over to Rodney Bingham, our President and Chief Executive Officer.

Thank you, Sarah. Good morning, everyone. Thank you for joining our conference call and your continued interest in Thermon. Today, we have two of our Senior Vice Presidents joining me on this earnings call. Jay Peterson, our CFO, will follow me and present the financial details of our fiscal year 2013 fourth-quarter and year-end. George Alexander, our Executive Vice President of Global Sales, will assist in the Q&A session by answering questions that pertain to global market segments and our industry trends.

For those of you who are not familiar with Thermon, we are a leading global provider of thermal solutions. We serve the oil, gas, chemical and power generation industries. Our heat tracing systems provide freeze protection and temperature control for piping, vessels and instrumentation. These mission-critical systems ensure the continuous and safe operation of industrial facilities. While Jay will discuss our financial details in a moment, I would like to touch on a few highlights.

Our fiscal year 2013 revenue of $284 million was the highest in our history. This includes an FX negative impact on our fiscal year revenue of slightly over $7 million. With a constant currency scenario, our growth would have been 7%. Jay will also address record breaking GAAP EPS and free cash flow achievements later on. Our operations, engineering and construction personnel did an outstanding job of processing this record level of business that had never before been achieved by Thermon. We are extremely proud of their dedication and commitment.

Our revenue mix for the fourth quarter was 43% Greenfield, 57% MRO, UE. The fiscal year split was 42% Greenfield, 58% MRO. This was slightly higher than our historical Greenfield average of 40%. Gross margins for the quarter were 45% of sales. While these margins were slightly lower than our previous quarter, they are consistent with our historical average of approximately 45% of sales. This reduction was due to product and project mix, basically it was a good quarter for Greenfield revenues as we closed out several jobs. Backlog as of March 31 was $95.2 million, this was down slightly as we had that increasing Greenfield billings we just spoke up as well as some softness in new orders.

We have completed our new control panel and skid fabrication facilities in our San Marcos plant. We also completed a move to our new office in Houston, Texas. This more than doubled our engineering work space and panel shop footprint. These two infrastructure build outs put us in excellent position to accommodate future growth and increase our operational efficiencies. Our global footprint continues to penetrate our targeted end markets of oil, gas, chemical and power, and results still projecting long-term organic growth in these areas.

We are excited about our record-breaking year. We have grown our business despite unfavorable foreign currency headwinds and soft markets in the US and Europe. Fiscal year 2014 is forecasted as another record-breaking year for Thermon revenue, as we see continued growth potential in all four of our major geographic areas. Our guidance for FY 2014 is mid single-digit growth rate. Historically, Q1 is our lowest revenue quarter as it immediately follows the winter heating season. That will likely be the case in 2014. Our plan is to build momentum throughout the fiscal year so that we reach our projected growth rate.

We are beginning to see increased activity in the United States related to the shale oil and gas development. This also includes downstream petrochemical projects along the Gulf Coast. The Canadian oil sands continue to be strong, even in the face of slow down of capital spending. Thermon's pipeline is still robust and we are anticipating increased MRO revenue in 2014 due to the larger install base. Emerging markets in Latin America, Europe and Asia-Pacific continue to see growth in mining, oil gas and power.

Our management team would like to thank our employees throughout our global organization for their hard work and dedication. We would also like to thank our customers, investors and advisors for their support and confidence. Thank you again for joining us today. Jay Peterson, our CFO, will now address the details of our financial performance for Q4 and year-end fiscal year 2013.

Thank you, Rodney, good morning. I would like to start off by discussing our fiscal year results, followed by Q4 results and then conclude with several guidance points for fiscal year 2014. First off, let's start with revenue. Our top line revenue grew 4% in fiscal year '13 to a total of $284 million. Our highest growth areas were Asia PAC and Canada, both with double-digit growth. Our revenue was negatively impacted from foreign currency translation by approximately $7 million this past year. And pro forma, excluding the FS impact, our top line growth would amount to 7%. And major currencies impacting our revenue this year were the euro and the Canadian dollar.

In terms of gross margins, for the past year they were 46.8% versus prior year of 48.5% and that's a decrease of 170 basis points. And margins were negatively impacted by a strong Greenfield mix and that mix increased from 39% in the prior year to 42% in this current year and as previously discussed, two strategic projects. In terms of operating expense, expenses for the fiscal year declined from $65.5 million to $62 million and that excludes management fees in fiscal year '12 and depreciation. And, as a percent of revenue, that was 22%.

Earnings for the year from a GAAP EPS perspective increase from $0.40 per share to $0.85 per share. And note that our GAAP earnings were negatively impacted by approximately $0.02 a share from the combined effects of foreign exchange when considering both translation and transaction impacts. And our adjusted EPS grew from $0.85 a share to $0.91 a share this past year. And please refer to the table in our earnings press release for the details on these adjustments. We also grew free cash flow to $1.10 a share from a prior year use of cash of $0.19 a share. And in aggregate, we generated $35 million in free cash flow and that's defined as cash flow from operations less capital investments. And that's versus a use of cash of approximately $6 million in the prior year. EBITDA totaled $72.4 million this past year, or 25% of revenue.

Let's turn to the balance sheet. Our cash balance at the end of March was $43.8 million, compared to $21.5 million in the prior year period and that's an increase of 104%. Our net debt position and leverage continues to decrease. One year ago, March, our net debt was $117.7 million, and at the end of March, it was $74 million, or a 37% reduction. And, regarding our net debt leverage, as we ended '13, our debt to EBITDA leverage was one times EBITDA versus almost 1.7 in the prior year. And for our manufacturing business, we continue to run a highly capital efficient operation. For the fiscal year, our CapEx spending totaled $6.3 million, and that includes both maintenance and growth capital, or 2.2% of revenues. And lastly, year on year, our stockholders equity increased by 17%.

Let's now focus on Q4. Revenue for the past quarter grew to a Q4 record of $71.7 million, an increase of 3% over the prior year's quarter. Orders for the quarter totaled $59 million, and our trailing 12 month order activity totaled $260 million. Our backlog of orders ended March at $95.2 million, versus $117 million at the end of Q4 fiscal year '12. That's a decrease of 19%. The primary reason for that decline year on year was due to the execution of Greenfield orders in our backlog. Margins for the quarter were $31.9 million and on a relative basis, our margins declined to 44.5% and again that's due to the high mix of Greenfield revenues. Our MRO, UE mix for Q4 was 57% of revenues this quarter, whereas Greenfield totaled 43%.

In terms of OpEx and headcount, our core operating expenses for the quarter, and that is SG&A, and that excludes depreciation and amortization, totaled $16.5 million, an increase of $400,000 from the prior year. Our operating expense as a percent of revenue this past quarter was a competitive 23%. And again, that includes D&A. The number of full-time employees at the end of March was 821 and that's up from 755 as of calendar 2012. And over 91% of these additions were in production, sales, R&D, and engineering and all directly relate to managing our top line growth. GAAP net income for the quarter totaled $5.6 million, compared to a prior year of $6.3 million and this decline again was attributable to our strong mix of Greenfield revenues impacting our Q4 margins. Our EBITDA totaled $15.7 million this past quarter and that's down from the prior year's performance of $18.1 million. And EBITDA as a percent of revenue was 22% this past quarter.

Let's now turn to guidance. Several guidance points we'd like to offer. First off, we are planning for top line revenue growth in the mid single digits for fiscal year '14. Next point, we will see a significant decrease in our interest expense and due to our recent financing, we will share save somewhere around $7.5 million, or $0.23 a share on a pre-tax basis. And the last point as a result of our lower debt service requirements in the United States associated with this recent refinancing, we expect to adopt a permanent foreign investment policy with regard to our foreign subsidiary earnings. And in future periods we will no longer expect to accrue the estimated incremental tax on the earnings of our subsidiaries, foreign subsidiaries. And accordingly, we expect that our effective tax rate will decrease from 35% this past year to the low 30% range in fiscal year '14. And this reduced tax rate will save the Company, and this is based on fiscal year '13 earnings, approximately $2 million a year in income taxes or, $0.06 a share.

I would now like to turn the call back over to Allie to moderate our Q&A session. Allie?

(Operator Instructions)

Brian Drab, William Blair.

Good morning, congratulations on a solid year.

Thanks, Brian.

The first question is just around the guidance or revenue growth and, Rodney, I think that you indicated in your comments that growth might start off a little slow and improve as we move through the year. Did I interpret that correctly?

Yes, you did.

Okay, and -- so, in the oil sands, regarding your comment on the oil sands, you said that even though capital expenditures there is -- has come off a bit, you expect to see strength in the oil sands. Can you kind of reconcile that for us?

Yes, let me let George field that question.

Brian, Canada, as we mentioned in the call, had a very strong year in fiscal year '13 and the projections going into '14 continue to be strong. This is the -- largely as a result of the project base there that is around the SAGD or in situ projects. There has been some slowdown in some of the capital spends there but unfortunately for us, the customers base that we're strongly positioned with our still projecting a strong environment for capital spending and then also, as we mentioned in the call, the MRO activity in our Canadian operations appears to be very strong in terms of growth because of the significantly larger install base there.

Brian, let me just add one thing to George's comments about Canada. There's been a lot of press about one of the major upgraders being canceled, which it was, which does not have any effect on our numbers, either before or going forward. But, something not publicized as much is they are still continuing, like some courts still continuing to go with projects like partial upgraders like the Fort Hills upgrader where they are partially upgrading the bitumen and still getting it in the pipeline with obviously lower cost up in the Fort McMurray area for extraction. So I just wanted to add that part to what George had to say.

Okay, great. And is there a particular reason why you win the business on those projects that seem to be continuing -- the smaller scale upgraders versus the larger scale? Or, is it just the partners that you're working with?

Well, we'd like to believe it's because our value package that we offer is getting the attention of the customer and we're maintaining a loyalty base there. But, it's, it is true that you have to be in the right place at the right time and we feel like we are.

Okay so, in Canada, is it safe to assume you're expecting your revenue to be up in fiscal 2014 versus your revenue in Canada in fiscal 2013?

That's correct.

Okay. And, can you -- maybe this is a question for Jay -- can you tell me what the order growth or decline was? I'm not sure if I have that growth rate yet? In the fourth quarter?

In the fourth quarter, I do have what the orders were. I'm not certain I have the comparative to the prior year right at my fingertips.

I have the 59, right, for the quarter? I'm not sure if I have --

59 is correct. Relative to the prior year, it was $84 million and obviously those are some very lumpy numbers based on when we get a large Greenfield project or when we don't.

Okay. Okay. And that is what we would expect to recover in the back half of this fiscal -- coming fiscal year?

Yes.

Okay. And can you give us any sense and then, this is the last question, expectation for split between Greenfield and MRO in 2014?

We're planning 60, 40 MRO to Greenfield.

Okay, all right. Thanks allow.

Thanks, Brian.

Brett Linzey, KeyBanc Capital Markets.

Hi, good morning, guys. Just given where the current leverage of the balance sheet is and your recent debt refi, what is your expectation in terms of returning cash back to shareholders, free cash flow is still strong there, between dividends and share buybacks?

Yes, good point. First off, though, we believe this continues to be a growth business and we're going to have hopefully another record year in fiscal year '14. So, our primary use of cash will be to reinvest back into our operations. We also have talked about M&A. In the past, and we have a defined process where we're looking for prudent acquisitions inorganically grow our business, we will also continue to pay down bank debt and do we have the wherewithal to pay a dividend or possibly a share repurchase program. We do but really those three focus areas that I mentioned are going to be the primary use of our cash going forward.

Given the capital intensity of the business, it seems like the needs there are maybe a little bit smaller. Are there specific investments that you're going to be planning for in fiscal '14?

From the CapEx perspective, we are planning on 1% for maintenance capital and also 1% of revenues for expansion capital. However, there are some growth areas that we look to handle, to add sales, talent and engineering talent, international growth areas.

Yes, we have both geographic growth potential in the emerging markets that we're going to be continuing to invest in relative to our business and we also have some product areas that we're looking to grow, continue to grow that we're going to be looking at the possibility of capacity expansions.

Okay, that's helpful and in terms of SG&A, maybe a little bit higher than we had expected, was there anything transitory or true up in nature in the quarter that distorted that number? And how should we think about SG&A as a percent of sales in the fiscal '14?

We, as I mentioned, we have hired a fair number of people to execute the business that we're going to generate next year. From a planning perspective, I would utilize what we call our timeless business model and that is gross margins at 45% of revenues, SG&A at 20% and that excludes depreciation and amortization and then on a bottom-line EBITDA basis, that would be a return of 25% of revenues on an EBITDA basis, exactly what we performed this last year.

Okay, so you think the hiring is adequate to -- within the Q4 period and that should normalize into '14?

Yes, we do. We do have kind of a laser focus on certain skills we're going to higher in fiscal year '14, but it would be based on our plans it would be a much smaller number than what we hired in fiscal year '13.

Okay, great. That's helpful. Thanks a lot, guys.

Thank you.

Scott Graham, Jefferies.

Hi, good morning. So, MRO was down full-year and I'm just wondering if you guys can comment on that.

Scott, that's something that is a very important part of our business, as you know. It was down primarily in the US and in Europe were the two areas where it was down. We didn't have a particularly hard winter in the US, again in the area, especially in the areas where the facilities are outdoors. And so, I can't give you a precise answer on that other than the geographies that where it was down but we don't anticipate that to continue. As we said before, we already are seeing the general activity in the US is trending upward so we're bullish on that.

Okay. Great, thank you, George. The sales being up in your four regions, I'm particularly interested in outside of Canada, because that question was already answered, you're getting that your sales optimism of up all four regions is coming from your customers, yes?

Yes, that's correct. In the US, as Rodney mentioned in his presentation, much of it is tied to the activity that is in the shale oil and gas arena, both in terms of the upstream and the downstream sector. The other area in the US that's very active is in power, combined cycle, which is also related to cheap gas. The uptick in activity in Asia is -- continues to be linked to capital spending, that's going on in the emerging markets. And, that also includes the Middle East and I would just maybe remark, again, to consider the fact that we track our business based on where the purchase order is, where the purchase order is placed. So, in Asia Pacific, much of the capital projects that Greenfield projects that we win, that may come from an EPC that is located in Asia Pacific but the project is destined for the Middle East, as an example, or the LNG market that's also very significant in terms of it's activity at this point.

Okay. That helps. Thanks. If -- I don't remember, Jay, what the 4Q last year orders were, up or down versus the year before. The 84 seems like a fairly high number. Do you know what the comparable was for 2011 on that 84 in the orders?

Yes, I can give you -- if you just bear with me just a second. Scott, I'm going to have to -- I'll send you an e-mail off-line.

That's fine.

If memory serves we had a very, very strong year in Q4 orders so I think you have a difficult comp period that we were wrestling against.

Okay. I will look forward to that e-mail. And, I know that this is kind of asking the same question, different slice, George and Rodney, but the fact that your backlog has kind of successively come down all four quarters of this year with the biggest trough in the fourth quarter this obviously being attributable to the weakness in the orders. Are you seeing your order book build now? Even though you're expecting second half better than first half of fiscal '14, is that book building out on the OE side, the Greenfield side?

So this is George. Yes, we're seeing some positive movement there.

Okay. Now, last question is, you guys have a much larger sales capacity in front of you. One of the things this was going to do is enable you to bid on projects that you were not able to bid on before and I'm just kind of wondering how that is going, what is the market with your customers? What are they saying about your capabilities now and is that rewarding you in new business?

Okay, that's kind of a two-part answer, Scott. It's Rodney. Business that we -- the capacity expansion gave us the opportunity to latch onto a couple of years ago was some private label groups in adjacent markets like the commercial marketplace. We're still participating in that business at this point. However, we also added a lot of operational efficiencies. Jay may have the exact numbers, but our inventory level is down significantly as a result of our increased capacity. Also too, we have finished and went through a winter heating season where we virtually had zero disruptions in terms of material flow into our sales channels. We had an excellent year and we're able to hit on-time deliveries at higher percentage than we had over the last several years. So, we've decreased inventory, increased order shipment rates and frequency, as well as still been able to maintain the adjacent market push of commercial. And we're going to continue to do that because we have the capacity to fill that market channel as we go forward.

That's -- I appreciate that, Rodney. What I was also trying to get to is that there are a number of, what the EPC's are calling, mega projects that are coming down the pipe and I was wondering with these projects expected to be green lighted over the next 12 months, would you expect that capacity expansion to enable you to more effectively bid on that business?

Yes. Absolutely.

Are there things that you are seeing right now that fortify that answer?

The things we're seeing right now, as I said before, we're seeing an uptick in terms of Greenfield activity, both from the near-term perspective which is the quoting and so forth, but also basically in working with our customers in the longer-term, if you will. Longer-term meaning 12 to 24 months out. So, yes, as you know, Scott, we would have had a difficult time growing our business at all if we didn't have this additional capacity. So, this additional capacity does enable us to one, aggressively pursue these projects and secondly, it also enables us to support a growing MRO market.

Thank you very much, appreciate your time.

Thank you, Scott.

Thanks, Scott.

Martin Malloy, Johnson Rice.

Good morning. In terms of Canada, can you talk about is there any difference for you in SAGD versus mining projects, whether it be on the MRO, UE side or the Greenfield side for sales?

In terms of the volume, you mean or the potential?

Yes, as we see more and more SAGD and less mining go forward, is that positive or negative for you?

On an individual project basis, the in situ or SAGD process is smaller than one associated with a full upgrader but again, the number of projects is what is encouraging about the number of well pads, the number of well sites is significant and the projections are that the development of those resources is going forward. Those are funded and many of them are underway and so, in total, we're seeing an opportunity for growth there. But yes, if you look at it on an individual project basis, the spend is less on the SAGD.

Okay. All right. And then on the backlog side, after four quarters of sequential decline, do you think that we'll start to see, in the first quarter of fiscal '14, backlog will be higher at the end of the quarter?

Yes, we believe so based on some of the activity that we've seen over the last 60 days.

Okay. And then, you mentioned in terms of uses of cash, possibly moving into some adjacent areas, can you -- is there any help you can give us in terms of what those adjacent areas might be?

I think, Jay covered that, where we are focused on growing our business where the opportunity is and that -- much of that opportunity is international, it's in areas where we are going to continue to invest in our organization, albeit at a lower rate in '14 than last year. So, first and foremost, we're going to continue to use the cash that we generate to grow our business and organically and as has been the case, we're still very much part of our strategy to take advantage of any acquisition opportunities that are prudent and make sense based on our growth strategy.

Okay. Thank you.

Thanks, Marty.

Charley Brady, BMO Capital.

Good morning, guys.

Morning, Charley.

I also want to clarify something on the gross margin. You're forecasting a better mix of MRO in fiscal '14 but you're forecasting a gross margin of 45% which would be a year-over-year decline, so I'm just trying to square those two figures?

Yes, our timeless business model is 45%, that's obviously predicated on mix. We will do our best to beat that, however, from a modeling perspective, we would -- we're giving out that conservative guidance at 45%. Is there upward exposure to that number? Yes. Yes. We believe so. But, from a conservative perspective, the 45% number is what we believe would be prudent.

Okay, just with respect to then the fourth quarter of '13 gross margin of 44.5%, on the Q3 call you guys had guided to I think the language was similar to -- the fourth quarter should be similar to third-quarter which would imply a 45.5% gross margin and you were about halfway through the quarter roughly at that point in time. I'm just trying to understand, given that a lot of the business is OE, is a function of some of the after market business, didn't materialize or slipped out of Q4 that you anticipated would hit in Q4? Or, is there something else that was the mix of OE, the margin within the OE larger than expected?

Yes, that's a good question, Charley. Our Greenfield can vary in gross margins. Some of these projects are in the 20% range, some are in the 30% range or higher. And there's a fair amount of variability, all predicated on the level of third-party buy out items and that's often times the dynamic that we're wrestling with when we try to plan or forecast.

That's helpful. I want to go back to the prior comment you made about the backlog on the back of Marty's question, did I hear you correctly that you expect backlog at the end of Q1 '14 to be higher than end of fiscal year '13?

Yes, yes we do. Knock on wood.

That would imply a pretty significant order intake in Q1 and you just commented that you had some soft orders in Q4. Is there some slippage into Q1 that would make that a pretty strong order quarter?

No, we just think the general demand and the general consensus we're hearing from our affiliates.

And the other thing is, again, that in terms of the backlog value, that is primarily Greenfield activity and so again, we are seeing an uptick and we're optimistic about our position on those Greenfield projects.

That's good to hear. One more and I'll get back in the queue. With regard to the debt, changing the debt structure, are there any charges or expenses being taken in fiscal Q1 related to that?

Yes, yes there will be, Charley. We're working with our auditors at present and also we have not gotten a lot of the exact builds in from our legal team who worked on not but there will be a one-time charge relating to that activity. One favorable piece from an EPS perspective, however, is that the debt issuance costs for the refinancing will be substantially lower compared to what we were previously amortizing from the bond issuance costs. I don't have an exact number but my gut tells me it will be about 50% lower going forward than what we were amortizing in the past.

Okay, that's great. Thanks very much.

Rich Wesolowski, Sidoti.

Good morning, everybody. The activity around domestic refining and gas to liquids and heavy process in general has been bustling for a year or two now and I heard your bullish outlook for the future, but I would have guessed that there would have already been plenty of tracing work to do and I'm wondering what has muffled that translation or maybe the timing of that work so far?

The timing of it, peak pricing activity is towards the end of the development of the field, the shale gas field or the shale oil activity. We have seen some uptick in the areas that have been going on for the past year, again it also needs to be or is advantageous for us for the activity to be in a cold climate so some of activity in Texas is not nearly as valuable as the activity in a cold environment.

Right. Does the low in sales growth from the pace that you were on in '11 and '12 prompt you to revisit your multi-year sales target of $400 million to $500 million?

No, we don't believe so.

Okay, I would assume then there's going to be re-acceleration somewhere out there in -- beyond fiscal '14?

Yes. That is our current thought.

Are there any regions that you would guess at this point of course, you're looking pretty far out, but that would drive that?

I'm sorry, the Middle East. We have made some significant investments in the Middle East over the last 12 to 18 months. Also we're seeing a rebound, as George mentioned earlier, in the US and we believe certain pockets in Europe will perform better over the next several years than they have over the last year or two.

The other significant area is -- of growth and activity is the LNG market. And again, that manifests itself in the EPC centers around the world as opposed to at the site location. That is also a very robust area that we see a lot of growth in going forward.

Okay, and lastly you had a higher share of the Greenfield activity in fiscal '13 but I thought there was an open question as to whether there was a favorable margin offset from your higher throughput in your expanded plan. Did you see that in '13 and if not, would you expect to in 2014?

No, nothing of any major significance and for one reason, the incremental depreciation was rather modest with that investment. It was about $75,000 per quarter and also it's a rather labor unintensive business. Labor is such a small component of our manufacturing process that's there is -- there are efficiencies but we're not talking about 200 or 300 basis points, it's much more minor than that.

Right, okay, I appreciate the time. Best of luck in fiscal '14.

Thank you.

Thank you.

(Operator Instructions)

Glenn Primack, PEAK6.

Good morning. What do you think your present market share is today and then how much share between you and Raychem or what do they call themselves, Raychem Tyco, Pentair have these days in the heat tracer market?

On a global basis, and focusing on a design supply or materials only basis, we believe that our market share is somewhere in the neighborhood of 20% versus 20% to 25% on a global basis and again, it varies from region to region. The two main players are obviously us and Pentair. We do have regional competition that, as we've noted in our presentation, that is generally not global but concentrated in a particular area.

Okay and in terms of the additional people, are you finding people potentially from there since there's been some change with ownership or where are you finding your new sales operations people that you're bringing in to grow the international business?

Well, we are finding from non-competitors. We're finding in all areas that we are going into new geographies, as well as established geographies in areas hat we fill are still growing. Parts of Europe, Canada, so on but in terms of the other guys, that's not been a source of recruitment for us.

Okay. And then in the new product areas, would you get into -- are there any connector type opportunities on your cable? Or, is it pretty much you're using your R&D innovation and making maybe need cabling with --

Well a major component of our value proposition besides parts is the engineering design side.

Okay.

That's extremely important in terms of being able to service the major customers expectations, the Shell's, the Exxon's, the Chevron's of the world expect full engineering services, a complete line of products and global footprint. So it's a holistic type of solution that really separates the tiers of the heat tracing world.

Okay. So, then your investment that you're making in people and support that's you're pretty much following your customers around the world and making sure that you have the people to satisfy the potential demand yet to come?

That's correct.

Is that fair to say?

It's a combination of local assets on the ground, as well as developing and providing corporate support on major multi-national projects. It's a combination of both of those sort of strategies in terms of building employees.

Keep in mind, that again our focus is both on the end-user in our business, as well as the EPC's and while many of the end users are US or Canadian or Western European, there's also a significant number of players in the emerging markets that we're also very much focused on and working with.

I'm guessing that the end customer's has you expect in there the EPC is not really going to mess around too much in terms of potentially changing out for some other piece of cable?

That would be a safe assumption, yes.

Okay. And then, on the gross margin side, are you expecting to see any benefit at all in terms of your raw material costs?

We don't --

Still holding flat?

We're planning for those to be flat this coming year.

Okay. All right, so, you have $0.06 from tax that will help you out, $0.20 from tax from the interest savings, right? Is that --

That is correct.

And then there's probably another $0.20 or so, if I just wanted -- in terms of getting a cash type number on there, the tax effect, the amortization?

Not $0.20, we've got about $4.4 million on the balance sheet for amortization.

Okay.

It might be, I don't know, $0.02, $0.03 maybe we'd probably be leaning into that number.

Okay. All right. And, so, you're just -- you probably -- it's probably easier for you to budget annually, if you have your three year plan in place versus quarterly, at all, right? Just given big, lumpy projects and whenever this chemical stuff kind of hits on the -- that we have all been hearing about and seeing some ammonia plants and this and that, that you might know what year but you don't know what quarter. Is that safe to assume?

Yes, because our backlog that we track is obviously mostly Greenfield projects. It rarely contains an MRO or smalltime projects as those tend to shift within a week or month. Those large Greenfield projects go up to four years. And, the installation of the heat tracing, which obviously is a combination of the design of the heat tracing, is dependent upon the constructability schedules of the mechanical contractors. So, as that project chronology unfolds, there is some lumpiness in terms of quarter to quarter and then as we like to joke in terms of Q4 to Q5, it slips into another fiscal year. So, when you're doing projects that our multi-year to develop and furnish, you have that lumpiness that we just have to deal with.

Okay. Great. I think that's it for me. If I have anything else I'll probably call back. Appreciate your time.

Thank you very much.

Thanks, Glenn.

And I'm showing no further questions at this time. I would like to turn the conference back over to Mr. Rodney Bingham for closing remarks.

Okay, once again thank you for those still on for your continued interest in Thermon. We are looking forward to another growth year coming up and we've got a lot of exciting, new possibilities in our future and again, we look forward to servicing not only our customers but also meeting expectation of our investors. So once again, thank you very much.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.