Thermon Group Holdings Inc (THR) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2018 Thermon Earnings Conference Call. (Operator Instructions) I would now like to introduce General Counsel, Ms. Sarah Alexander. Please go ahead.

Thank you, Andrew. 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 website at www.thermon.com. A replay of today's call will also be available via webcast after the conclusion of the call. This broadcast is the property of Thermon. Any redistribution, retransmission or rebroadcast in any form without the expressed 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 the press release and in our annual report on Form 10-K to be filed with the SEC at the end of May. 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, revenue growth, profitability, leverage ratios, acquisitions, acquisition synergies 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. 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. And now, it's my pleasure to turn the call over to Bruce Thames, our President and Chief Executive Officer.

Thank you, Sarah. Good morning, everyone. Thank you for joining our conference call and for your continued interest in Thermon. Today, we have Jay Peterson, our CFO, joining me on the conference call. Jay will follow me and present the financial details of our fiscal 2018 first quarter.

To begin with an overview of the financials. Overall, Q1 results are below our expectations and are certainly not representative of the performance this business is capable of delivering. Revenues were projected to be down in Q1 due to normal seasonality, weak U.S. greenfield, and project timing in the Eastern Hemisphere. However, revenues of $51.7 million declined more than anticipated for the quarter and were down 18% year-over-year. On a positive note, margins improved by 480 basis points due to lower greenfield sales and a higher mix of MRO/UE at 28% and 72%, respectively. Tighter execution on greenfield projects also contributed to the margin improvement during the quarter.

In addition, MRO revenue -- MRO/UE revenues were up 3.6% year-over-year, driven largely by Canada. After 4 consecutive quarters of historically low but stable margins, we saw approximately a 300 basis point improvement in our margins and backlog during Q1. Backlog margin levels remain 4% to 5% below averages in advance of the downturn. The geographic mix shift to business from North America to the Eastern Hemisphere and highly competitive greenfield pricing continue to generate near-term margin headwind.

Despite the positive book-to-bill of 107% and a steady quote success rate, first quarter bookings were soft at $55 million due largely to weak demand. Backlog of $110 million was up 16% year-over-year and 3% consecutively. We continue to see backlog in EMEA and Asia at record levels with a number of notable projects currently in engineering design. Backlog remains low in the Western Hemisphere, but we have begun to see modest improvements in Canada over the last 2 quarters.

Both GAAP and adjusted EPS finished at $0.01 per share versus the prior year of $0.08 per share. From a market perspective, we're seeing the oil and gas sector remains challenging with lower capital spending and continued maintenance deferral, particularly downstream. We continue to see some activity in the shale plays as a positive sign, but these areas are not process heating-intensive and offer less opportunity. We have seen an increase in the natural gas activity, particularly in Canada, that has helped stabilize and improve the outlook there.

Both chemical and petrochemical sectors remain active, although the majority of projects -- of new large projects are coming from the Eastern Hemisphere. The U.S. ethylene builds are progressing, but we have seen a lull in construction activity as a number of projects are nearing completion and others are in early stages of construction. Combined cycle power projects are steady, particularly in the U.S. We're also seeing a number of -- a growing number of opportunities in our alternative energy, such as concentrated solar power and biofuels.

Geographically, revenue was down across all regions, with the exception of Canada, which grew 20% over prior year. Despite the record finish to fiscal 2017 and a record backlog, the Eastern Hemisphere began the year with a very slow start relative to expectations and prior year. However, given the current backlog and project schedules, this region has good visibility to achieving the plan for the fiscal year, with material shipments beginning in Q2 and accelerating in the second half of fiscal 2018.

After a difficult 2 years, the first quarter results in Canada were very positive, with a 76% year-over-year growth in MRO/UE. We're also seeing the release of some pent-up demand as customers are proceeding with activity on quotes that have been open for the last 12 to 18 months. We'll watch closely to see if the incoming order rates continue at these levels into Q2 and beyond.

Weaknesses in the U.S. and Latin America greenfield projects were anticipated in Q1, but results fell below expectations. On a very positive note, we saw significant margin improvements in the quarter, driven by higher MRO mix and better execution in turnkey projects. With the backlog at a near-term low and poor visibility on larger greenfield opportunities, the U.S. and Latin America will be dependent upon short cycle business opportunities through Q3. We see this region as presenting the greatest risk to our fiscal 2018 revenue plan. Due to the current environment, we have taken additional measures to reduce costs in the U.S. We anticipate the annualized impact of these actions will result in a $1.9 million reduction in SG&A and a $700,000 in lower manufacturing and direct labor costs.

The number of opportunities within our project pipeline remains relatively stable at over 800 identified projects, and the total value has declined to approximately $900 million.

Looking forward, we continue to focus on new product development to position the business for future success. We'll share more information following product launches throughout the year. We are confident the investments underway will deliver differentiated solutions to our customers, provide a defensible market position for Thermon and create real shareholder value.

I'm also pleased to announce that our facility in Russia is now fully operational and is well- positioned to better serve a growing customer base in the region. Our M&A pipeline remains active, and we continue a disciplined approach to pursuing opportunities that are closely aligned with our strategy. We continue to focus on several potentially actionable opportunities, one of which that can close within this fiscal year.

Looking forward, the strong backlog provides line of sight to achieve our revenue plans in the Eastern Hemisphere. However, the lower incoming order levels in Q1 are cause for concern, particularly in the U.S., where the backlog is lower from a historical basis. As a result, we are revising our guidance downward to reflect a low- to mid-single-digit revenue decline for fiscal 2018. Based upon the status of projects in engineering, we anticipate the backlog to begin to materialize in Q2 and accelerate in H2. We are watching maintenance in UE spending very closely as another indicator of a recovery. Any improvements in the incoming order rates will provide upside to the current projections.

I remain confident that the current environment is cyclical. Our business model is sound. We have a strong team and are positioning the business for future success. Thank you, again, for joining us today. Jay Peterson, our CFO, will now address the details of our financial performance for Q1 fiscal 2018. Jay?

Thank you, Bruce. Good morning. I would like to start by discussing our Q1 financial results, and then conclude with updated revenue guidance for the balance of fiscal year 2018. First off, revenue. We are disappointed in our 18% revenue decline for the quarter, with 3 of our geographies experiencing declines.

Our Canadian business unit, however, due to a 76% increase in maintenance spending, grew total revenues by 20%, the largest growth for this geography in the past 24 months. Although Europe and Asia declined for the quarter, we believe there's adequate backlog and order activity for these 2 geographies to achieve their business objectives this fiscal year.

Our U.S. business is a concern due to a lower-than-anticipated order rate and current backlog. FX currency translation negatively impacted our revenue by approximately 1% in the quarter.

Our MRO/UE mix for Q1 was 72% of revenues, whereas greenfield totaled 28%. Greenfield revenues declined by 47% in the quarter due to continued delays in capital spending, whereas MRO/UE grew by 4%.

Orders for the quarter totaled $55.1 million versus $77.5 million in the prior year quarter for a decline of 29%. Our backlog of orders ended June at $110.2 million versus $95.4 million at the end of June 2016, and this is an increase of 15.5%. And we are continuing to experience a protraction in the turns in our backlog. Approximately 18 to 24 months ago, our backlog would typically turn within 12 months. At present, due to a continued depression in capital spending, our turns have increased to 15 to 18 months.

In the quarter, our book-to-bill was positive at 170%, attributed -- 107%, attributed to the protraction in the turns of our backlog.

Turning to gross margins. Margins improved by 480 basis points this past quarter due to the mix shift in MRO and a significant increase in greenfield margins due to more favorable pricing and cost measures enacted last fiscal year.

For the quarter, greenfield margins increased by 1,100 basis points over the prior period, whereas MRO/UE margins declined by 100 basis points.

In terms of operating expenses and headcount, core OpEx for the quarter, that is SG&A, and this excludes depreciation, amortization and transaction-related expenses, totaled $17.6 million versus $17.7 million in the prior year quarter, equating to a decline of 6%. Due to our current financial performance in the U.S., we experienced a reduction in force in July, saving approximately $2.6 million annually. Our OpEx as a percent of revenue was 34%. And again, this excludes depreciation and amortization. The number of full-time employees at the end of June was 970 versus 984 as of calendar June 2016.

Turning to earnings. GAAP EPS for the quarter totaled $0.01 compared to a prior year of $0.08 or a decline of 82%, and there were no noted adjustments to earnings in the quarter. Free cash flow EPS totaled $0.11 in the quarter versus a negative performance one year ago.

Our EBITDA totaled $7 million this past quarter. And EBITDA as a percent of revenue was 13.6%, well below our historical levels and what we anticipate to deliver in future quarters. Note that our EBITDA was positively impacted by the companies we acquired back in fiscal year 2016.

Our cash balance ended at $87.5 million this past quarter. Over the prior 12 months, we decreased our debt balance by $15 million, concurrent with growing our cash and investment balance by $15 million. And note that starting on April 1, our amortization of our term loan increased to $20.25 million a year, and this is up from $13.5 million in the prior year.

Finally, turning to guidance. We are lowering our guidance to a low- to mid-single-digit decline for fiscal year '18 based on our much slower start than anticipated when we established our budgets back in March. In addition, if we are not able to execute to our financial objectives this quarter, we will continue to manage our expenses to protect earnings. I would now like to turn the call over to Andrew to moderate our Q&A session. Andrew?

(Operator Instructions) And our first question comes from the line of Scott Graham with BMO Capital Markets.

So you reported your fourth quarter in late May, so you had to have a decent idea of the shipment activity. And then you had a riff in July, so it suggests to me that you guys were kind of hoping for a bounce back in June rather than getting more out in front of that on the cost side. Is that a fair characterization?

No, Scott. We had line of sight to Q1 revenues. The big problem we had was -- were move outs in the Eastern Hemisphere. The Western Hemisphere largely hit their revenue numbers. We had shortfalls in the U.S. that were offset by Canada. But these were a number of major projects where we had shipment delays, many of them customer driven, that moved out of the quarter. And these moved very late in the period to a tune of $4 million to $5 million. And so that is more characteristic. If you look at the reductions that we took in July, those were more related to the weaker backlog in the U.S. and the lower-than-anticipated incoming order rates. So those were kind of the decision points or the things that impacted the results.

Okay, that's very clear. Next question is you made, over the last couple of years, a lot of investments outside of North America to kind of bolster your presence and generate revenues there. Is it possible that maybe we should have increased more in North America at the same time because your competitor is saying that their business is actually improving, still down, but improving. And it doesn't sound like you guys are really saying that. So can you just talk about why your North American businesses -- U.S. business, I want to say, north -- your U.S. business is struggling as it is?

Well, first of all, I do think we're maintaining share in the Western Hemisphere. The -- if you look at -- we're going to talk about the competition, look at how they characterize their business, they're actually down 13% year-over-year in this quarter and they're about almost down 15% year-to-date. So I wouldn't characterize that as being flat. They do split those out and say major projects versus not. The reality is we lump it all together. So I'm not sure I agree with your assessment of how well they are or are not doing relative to us. When we look at it, they're going to be -- they're down 13.5% year-to-date, roughly.

Yes, I did say that. That's okay. Could you tell us the amortization, how that kind of rolls -- that increase in the amortization, how that rolls through the P&L?

Yes. It is a cash amortization. Our term loan amortization increased on April 1 up to 15% of the original principal balance, that was up to $20.25 million from $13.5 million. That is the cash amortization. In terms of the P&L impact, it will actually have a slightly favorable impact to the P&L, only because the balance will be decreasing faster and subsequent future interest payments -- interest expense will be slightly lower.

I might need to hear that one more time, Jay. But I think I get a little bit of the gist of it. Those are all my questions.

I'll shoot you an email, okay?

Sounds good.

And our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets.

So just back to the kind of the concern or weakness in the U.S., like where are you seeing the weakness? What's kind of surprising you? And as you kind of dive deeper and talk to customers, what kind of unlocked some of that weakness?

Part of the -- we're seeing a lull in petrochemical activity. We have a number of projects that are in backlog -- well, they are in backlog as we've noticed, historically down. Those won't execute until -- we should see those begin to materialize in Q3 and Q4 of this year. So that's certainly hurt us in the first quarter. I guess what we're not seeing, customers are generally saying spending levels should improve in the current fiscal year. We're not really seeing that materialize. Or we certainly didn't see that in the incoming order rate in Q1.

Okay. And then just given kind of the shortage of greenfield projects as you kind of go and bid, what are you seeing from a pricing standpoint?

It's been very competitive for the last 1.5 years to 2 years, so I don't think that's changed. I did note in my comments that our margins in backlog have improved by about 300 basis points. That's a big move in a positive direction. They're still down from a historical perspective. So I guess we have -- for 4 quarters, we had been stable, margins and backlog. We're now beginning to see some improvement. I don't think we have any real pricing leverage today, but we are seeing some modest improvements in pricing.

Okay. And then last one. Looks like you filed an S-3. Maybe just talk about -- you mentioned deals in the pipeline. What do you think your balance sheet capacity is? And are there deals in the pipeline that will require you to kind of go outside and just kind of debt finance?

We've looked at several different financing scenarios, everything from a term loan A to a term loan B, which would actually reduce -- significantly reduce our amortization. In terms of the leverage, we would be in the 3 to 3.5 range. Preferably, we would not be going any higher than that. That would be the upper range. And then with our cash generation, I would say a year thereafter, it would be down by 0.5 turn, maybe a little more.

And our next question comes from the line of Charley Brady with SunTrust.

Can you quantify in the U.S. how much the order rate is down and which sales were down? I know you can't quantify it. I guess will you quantify is the better question.

Yes. As we said before, we had a very difficult performance in the U.S. orders in the quarter. We're down 48% and revenue in the quarter was down 22%.

And let me just qualify, we're -- our order -- incoming order rate was about 20% below our expectations. Last year, we had a major project booking in the U.S., which made that difference year-over-year pretty pronounced. But again, that order rate from last year was significantly above our anticipated incoming order rates to sustain that business or grow that business.

In terms of the gross margin expectation for the year, I don't know if I missed it, if you quantified it or not, but what -- if you haven't, what is your expectation for gross margin? And I guess I'm trying to square up. Obviously, it was skewed upward by the mix this quarter. But now, you're going to start rolling out some of the backlog in a more heavier fashion, particularly in the back half of the year. So I'm trying to really square up, do you expect that margin to still be skewed up by the MRO business or does it kind of come back down to a little more normalized level, given the greenfield is going to probably tick up in the certainly back half of the year?

Yes, we're anticipating the latter to occur. Very seldom we ever had such a strong MRO mix that we experienced this last quarter.

Should we -- and could we expect gross margin to be up year-on-year, given that the greenfield backlog margin is up a few hundred basis points?

Conceivably, yes.

Our next question comes from the line of Josh Pokrzywinski with Wolfe Research.

Can you just talk a little bit about the refinery turnaround season, how that's looking for the fall and maybe square that up with what you saw in the quarter? I get that the U.S. -- maybe the summertime isn't the best indicator of how that's looking, but we have heard, I guess, mixed reports, both positive and negative, on U.S. refining activity and how that's looking. How much did that play a role into the quarter and how are you thinking about that into your second quarter?

Yes. I mean of course, this is peak travel season, so it's not turnaround season for refineries, particularly so. But in the fall, we have heard there's quite a few turnarounds that are planned. And certainly, we would anticipate an uptick and some benefit. Really, the seasonality related to that is part of that is turnaround and a lot -- a significant part of that will be as we enter the heating season as well. So we would expect normally to see a pickup in our MRO sales in Q2 and Q3, particularly.

Have you heard any -- about any disruption or pushout in that or reduction in scope? I guess I'm thinking of it from the aspects of other folks who provide service into those markets, or other equipment suppliers that the order book for the fall season is looking a bit lighter, a bit pushed out relative to normal. Have you seen any of that agita in your order book or is this, well, kind of like a normal season to you guys?

We have not -- we're not as heavily dependent upon turnarounds, but we have not seen any big changes. We actually have seen an increase in the maintenance activity in Canada, and that's largely related to the fact that a number of these facilities, we've been -- we've grown our installed base there tremendously over the last 8 to 10 years. And a lot of those facilities are now becoming -- are coming up on just the 3- to 5-year maintenance cycle. And so we have seen a pick up in activity there. In the U.S., it has not been -- we've not seen an increase, but we don't have any reason to believe it would be significantly lower than what we've experienced in the last couple of years.

Got you. And then just one last one. I think a lot of mixed data or I guess, more downbeat tone out of the folks supplying into the power gen space. Is that something that you guys saw on the order book this quarter in North America?

We -- it's steady, but it has slowed somewhat. But we still are seeing a number of combined cycle power project opportunities. I also noted, it's kind of alternative power we're seeing internationally. We're seeing a number of concentrated solar power plants. And they represent a pretty significant opportunity for electrical heat tracing when you look at the design and operation of those facilities. So we've actually seen some of those in Eastern Hemisphere particularly.

Your next question comes from the line of Brian Drab with William Blair.

Maybe this first one is for Jay. But on the guide for down low single to mid-single digits revenue for the year, how much impact are you modeling from FX in that forecast?

Right now, 0 and no impact from FX.

Okay. And -- so if you can just help me model here. I'm looking at the balance of the year really being about the same as second quarter, third quarter, fourth quarter revenue forecast, the same to get you to that low -- same as it was in your previous guide to get to the low- single to mid-single decline. So is it fair to say that you're not to-date modifying your guidance based on anything in the balance of the year, you're just lowering it for the first quarter miss?

Yes. That's correct, Brian. We really see the -- with the backlog we have, and we have stated a couple of times, a lot of these projects are in engineering. We're getting to a phase of design where they're beginning to release materials into production (inaudible) that are already in production. This quarter, we'll start to see those shipments late in this quarter and then they'll begin to accelerate into Q3 and Q4. So we really see -- year-over-year, we see -- in the Q4 -- the first quarter was a big misstep, shortfall. We had some move outs, but we really see fairly flat for the balance of the year relative to last year.

Okay. And then as you look at that forecast and think about the buckets of greenfield and MRO/UE, you actually had -- there's growth, right, in MRO/UE, like 3% growth this quarter. Is that right? I don't know if I -- if this model is completely updated, but are you forecasting growth for MRO for the full year?

Our assumptions are more conservative in that number, so we would expect that to be flat year-over-year. And that's one reason I had noted, if we see an uptick in the incoming order rate going into Q2 and beyond, it would provide upside to our current forecast.

Okay. So roughly, we're seeing flat for MRO. But greenfields, the component that will clearly be down for the year?

Yes.

For the full year?

Correct.

Okay. Okay. And then can you just help me understand, maybe just a quick review of the cost cuts that you've announced prior to this call and the impact of those? And then secondly, on this $1.9 million, when does that fully hit the P&L? That's an annual run rate, right? And when do -- when did that $1.9 million completely take effect? And then thirdly, how much more could you take out, if you had to?

Yes. To answer the latter question first, in fiscal year 2018, of the $1.9 million, we believe we will realize $1.5 million of that $1.9 million, approximately 75% of it. There will also be, in this current fiscal year, approximately $600,000 worth of cost reductions. And previously, we announced approximately a little over $6 million reductions in SG&A and cost, approximately equally split. We've certainly seen the cost reductions favorably impact our margins over the last several months and quarters. The expense reductions are a little muted in terms of some underutilization of engineering resource. And those -- many of those resources were addressed in July. To answer your third question, if we do not see improved financial performance and achieving our objectives, we will be looking at resource reductions in the next 90 days.

Okay. And then I think this was mentioned on the last call, I'll go back to that transcript, but the Russian facility, I think, you said doesn't add significant amount of cost. Jay, can you just review that? How big is that facility again, maybe in terms of like square feet, if you have that? And how much does that add to the P&L in terms of depreciation and other costs?

Yes. The entire build was budgeted at $1 million, not capital. We spent like, I think, approximately $700,000 or so in aggregate. So we did completely under-spend it. Don't know the exact figures at this moment.

How big is that? Is this just one building?

It's one building, about 11,000 square feet, about 10,000 of manufacturing square footage and about 1,000 square feet of office [space].

Your next question comes from the line of Martin Malloy with Johnson Rice.

I wanted to ask about the pickup that you saw in Canada and how sustainable you think that is. I know that during the quarter, well, I believe there was a fire at a Suncor plant that accelerated things, like quite a bit of maintenance at that facility. And is that -- was it more of onetime event related to that, or do you see a sustainable pickup now that this facility has been online for 5-plus years?

So yes, good -- great question. The Suncor fire, we actually did see some positive impact of that to our business within our temporary fire solutions. So we did see some increased rentals there. But the reality is a lot of the increase we did see in that first quarter was, as I noted, some pent-up demand for opportunities we have quoted over the last 12 to 18 months. And there's really a couple of things. We're seeing some maintenance activity that has really been deferred, so we're seeing some of that happen and a lot of that's related just to the age of these facilities that have come online over the last 8 to 10 years. In addition to that, we have seen a pickup in some of the gas activity in British Columbia. And we suspect that that's tied to just increased production in anticipation of an LNG facility in the coming years. So just building up capacity there. So that's kind of the types of things we've seen. Is it sustainable? We're watching that closely. They're -- we have some general -- some cautious optimism that there is some level of sustainability to what we're seeing further into the year.

Great. And then just a follow-up question on the U.S. market, maybe trying to get a little bit better flavor for the current bidding activity out there and the outlook. It seems like there's still a number of petrochemical projects that are under construction and slated to come online in 2018, '19, '20. How is the bidding environment now as you look out maybe the next 12 to 18 months versus where it was the previous 12 to 18 months here?

It's pretty similar, as far as just you look at the level of competition. There are fewer projects to be had, so they are being bid very competitively. A lot of the larger ethylene units and some of the associated process facilities, in many cases, have already been bid and awarded or are in backlog and are being executed. So not to say there aren't additional opportunities coming. The ones we do see are a little further out in the -- into late in our fiscal year or a first quarter of the calendar '18 and beyond.

And we have a follow-up question from the line of Charley Brady from SunTrust.

Just to follow-up on the comment about the pushout you saw from Eastern Hemisphere in Q1. I mean is it -- can you give us a sense of confidence level that deals don't get pushed out further? Was this the -- have you kind of locked down the timing of when that shipment is going to go?

Yes. A lot of that is related to just our customers and timing and expectations. So we've, at least, begun to see -- and we know what stage things are in engineering. We've begun to see a shift. We now have a lot of information that we're waiting on, so the designs are progressing and accelerating. We're now beginning to get customers to put -- beginning to push us for deliveries. So we are seeing an acceleration in kind of the need from customers related to a number of those projects, not necessarily -- that's not a broader -- a statement about the market but more about the specific projects and backlog.

Okay. And then, Jay, tax rate expectation for the year? Are we still 25% to 27%?

Yes. I think it'll be a little bit lower than that, Charles, in the 20 -- let's say, 24% to 25% range.

Your next question comes from the line of Shawn Boyd with Next Mark Capital.

I just need to go back to gross margin for a second and I didn't -- I might have missed it earlier, but help me on sustainability. I got the makeshift particularly to this and if I understood it correctly, some -- the good margins on particular greenfield projects as we roll into the December quarter here for the rest of the year, do you think you can (inaudible) of this level, or should we think about that backdown?

Yes. I think there's 2 dynamics there. One is that the mix for maintenance at 72%, that is pretty much unprecedented, and we don't believe that is sustainable. In terms of gross margin, we still do see pricing pressures. We do see a slight increase in the backlog gross margin, but the margins this last quarter were robust but above historical ranges for greenfield. And we believe margins will be exposed downward for the balance of the year.

Okay. So greenfield in particular, you would expect to come back to where we've been over the past few quarters?

Yes.

Okay. And then on the expense reductions what you've announced before today, and the additional $1.9 million, you gave some additional color as to how much of that hit fiscal year. But if I can come at it kind of a different way and as to say -- and really what I'm getting -- I'm trying to parse it between cost of goods sold and OpEx. And I'm looking at a company that's got about $22 million in quarterly OpEx once we're fully implemented, which, I guess, this happened pretty early in the quarter, should be Q3 -- excuse me, should be September quarter, certainly, December. Is that $22.3 more like $21.5? What's your -- how much is the delta on your operating expense?

The OpEx piece will be $1.5 million over the next approximately 9 quarters, so about 500k.

Nine months.

Nine months. I'm sorry. Or approximately $500k per quarter.

And I'm showing no further questions at this time. So with that, I would like to turn the call back over to President and CEO, Bruce Thames, for closing remarks.

Thank you all for joining on the call today. We do appreciate your interest and investments in Thermon, and thank you. Have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.