Thermon Group Holdings, Inc.
Q2 2015 Earnings Call Transcript

Published: 4 Nov 2015

[Operator:]

Good day, ladies and gentlemen and welcome to the Thermon Second Quarter 2016 Earnings Conference Call. At this time all participant lines are in a listen only mode to reduce background noise but later, we will be conducting a question-and-answer session, instructions will follow at that time. [Operator Instructions] I would now like to introduce your first speaker for today Sarah Alexander. You have the floor ma’am.

[Sarah Alexander:]

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 website after the conclusion of this call. This broadcast is the property of Thermon. Any redistribution, retransmission or rebroadcast in any form without the express written consent of Thermon is prohibited. Please note during this call our comments may include forward-looking statements. These forward-looking statements are based upon limited information available today which is subject to change. There also subject to risks and uncertainties and our actual results may differ materially from the views expressed on this call. Some of these risks have been set forth in the press release and in our annual report on form 10-K filed with the SEC in June. 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, forecast, projections, estimates, leverage ratios, acquisitions, 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’ve reconciled those items to the most comparable GAAP measures in the table 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 is my pleasure to turn the call over to Rodney Bingham, our President and Chief Executive Officer.

[Rodney Bingham:]

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 management team members joining me on this earnings call Jay Peterson, our CFO, will present the financial details of our FY-2016 second quarter and Bruce Thames our Executive Vice President and Chief Operating Officer will follow me in the presentation and assist in the Q&A session. Now I’d like to touch on some of the highlights for our Q2. Our revenues were around $70 million and this included a negative FX impact of $6.4 million as the dollar strengthened against the Euro, Russian and Canadian currencies. Acquisitions added $7.8 million of revenue in the quarter. It is important to note that except for our Canadian operation, which is challenged by the price of oil. All three of our other geographic regions showed year-on-year revenue growth on organic basis. This excludes the impact of currency and acquisitions. New orders were down year-over-year, but up sequentially over prior quarter, upstream opportunities in the oil sands region was the main contributing factor to this downward trend. Our backlog of $82 million was down year-over-year, but up over prior quarter. The impact of FX accounted for 7.6 of this year-on-year decline. Our project pipeline of identified opportunities still remained strong at $1.1 billion with a total number of projects actually increasing. We’ve successfully completed our third acquisition industrial process insulators. This addition expands our service capabilities in the U.S. Gulf Coast and enhances our ability to deliver complete thermal solutions to more of our customers in a robust market sector. We plan to continue our strategic investment initiatives that will launch new products and design software that will enhance our value proposition to our customers. While we believe that our FY’2016 will be a profitable year of investment, our strategy is to have these new product and service platforms in place to position the company for future growth opportunities. We still believe there is a global demand for energy, chemicals and power will increase over the next several decades. We also believe that our customers will continue to make investments to support these future increases in demand for energy and petrochemicals. While our revenue from the upstream sector continues to be challenged, lower oil and gas prices have helped to stimulate the construction of downstream processing plants and power generation facilities. As we stated in the press release, the foreign currency headwinds and decline in opportunities in the Canadian oil sands have negatively impacted our business more than we initially anticipated. We are therefore advising our fiscal 2016 revenue guidance to reflect the top line percentage decline of mid-to-high single digits as compared to prior year. We are still actively managing costs while investing for future growth. We will experience some near-term pressure on EPS results in FY’2016. We’re continuing to pursue strategic acquisitions that strengthen our organic business model and increase our investable market space. 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. And again thank you for joining us today. Now Bruce Thames our Chief Executive Officer will share some of those perspectives he [indiscernible] since joined Thermon.

[Bruce Thames:]

Thank you, Rodney. Since joining Thermon I have spent the last five months listening to and learning from season leadership, our employees and our customers. My time has also been spent focusing on the integration of IPI, key initiatives to improve operating performance, positioning the company for future and managing cost particularly in Canada in a difficult environment. Although our end markets in financial results have been impacted by lower oil prices and a strong dollar. It is reassuring to see the timeless business model and proactive cost management delivered over 26% adjusted EBITDA margins and strong cash flows in the quarter despite lower revenues. It’s also reassuring to see that our business outside of Canada has performed well in a very difficult environment. More importantly the last five months have solidified my confidence in the longer term viability of our business and growth opportunities in our end market. Due to the commitment of our employees the breadth of our product lines in global footprint we operate from a position of strength in this space. Long-term drivers for this business also remain intact with the emerging middleclass in developing countries continuing to drive demand growth for chemicals, power and energy. This combined with tightening environmental regulations continues to generate demand growth for electrical tracing and environmental omissions monitoring solutions. Without question, we are going to encounter choppy waters ahead as the impact of lower oil prices shake out across the industry. Recurring revenues from our installed base the diversity of our end markets in geographic distribution of our customers provide a natural hedge and position us well to weather the storm. In the interim, we will continue to invest in a promising product pipeline to fuel organic growth and expand our M&A activity consistent with our strategy while aggressively managing cost in underperforming units. Now, I’d like to hand it over to Jay Peterson our CFO to provide financial results for the quarter. Jay.

[Jay Peterson:]

Thank you, Bruce. Good morning, this morning I will discuss our second quarter results starting off with top line revenue. Our revenue this past quarter totaled $69.9 million and that’s a decrease of 12% relative to the prior year’s quarter. One point I’d like to make as a testimony to the continued strength of our business model, our adjusted EBITDA as a percent of revenue was a healthy 26% in a very difficult macro environment, this decline in revenue is attributable to the strong U.S. dollar and reduced capital spend in the Canadian oil sands. It’s important to note, our organic revenue in constant currency totaled $68.6 million and excluding Canada our organic revenue would have actually grown 10% year-on-year. FX negatively impacted our revenue by $6.4 million and for the quarter M&A contributed $7.8 million in revenue. Orders for the quarter grew 19% from $63.9 million in Q1 to $75.8 million and our backlog of orders grew through to $82 million and that’s 8% higher than June of 2015 and our books to bill was a positive 1.08. Due to our backlog was negatively impacted by $8 million that’s on a year-on-year basis to specifically to currency and we’ll call that typically only 40% of our orders are ever resident in our backlog. In terms of gross margins, margin dollars this past quarter totaled $33.3 million compared to Q2 of fiscal year 2015, our margins decreased 450 basis points to 47.7%. And this margin decrease was due to a relatively high mix of lower margin construction revenue and a correspondingly lower mix of product sales. Also I’d like to note that the gross margin impact from the three acquired companies was a negative 1% in the fiscal quarter. In terms of operating expense, our total operating expenses for the quarter that is SG&A excluding D&A and any transaction related expenses totaled $16.4 million and that’s down significantly from the prior year number of $19.2 million. The majority of this spending reduction was in our Canadian affiliate where we’ve reduced our spending to be an alignment with anticipated revenue over the near future. The spending reductions on a worldwide basis will save approximately $5 million over the next 12 years. And year-on-year our organic spend decreased by 11% and that excludes amortization and the lumpy incentive accrual. The number of full-time employees at the end of the September was 982 that’s up 15% from the headcount of one year ago, and the driver of this increase was the three recently announced acquisitions. And parenthetically excluding M&A our headcount would have actually declined year-on-year by 2%. In terms of interest and taxes, our interest expense totaled 878K versus $1.1 million a year ago that’s a decrease of 18% and that number will continue to decrease over the next 12 months. Our effective tax rate for the quarter was 30% and we are estimating a rate of 29.6% for the fiscal year. In terms of earnings, GAAP net income for the quarter totaled $7 million versus $11.7 million in Q2 of last year. Our GAAP EPS totaled $0.21 versus $0.36 in the prior year. The combined effects of FX translation and transaction impacts reduced our EPS by $0.02 in this last quarter. Our adjusted EPS amounted to $0.26 a share and the $0.05 in adjustments relate to a $1.3 million in contingent consideration and earn out if you will anticipated to be paid to the seller of the Sumac business, a 600K restructuring charge in the quarter and 300K in expense relating to our August refinancing of our term loan. Our adjusted EBITDA totaled $18.6 million this past quarter below the prior year performance of $22 million. And as mentioned previously EBITDA as a percent of revenue was a strong 26% in Q2. Since March of this last year, we have closed three acquisitions and all three were EPS accretive and added $0.03 in earnings over the first half of the year. Our cash balance was $62 million at the end of Q2. That's a year-on-year decrease of $20 million and this balance was after paying down approximately $14 million in debt and funding on a net basis $30 million for the purchase of the three acquired companies. Leverage at the end of September on a net debt basis was near a historical low of 0.6% and that’s down from over 4% back in 2010. CapEx amounted to a total of $2.9 million and that’s provoked sustaining and expansion capital or approximately 4% of revenue. This percentage is slightly higher than typical due to capital invested in our rental pool at Thermon Power Systems and the recent expansion of our warehouse and two bundle operation here in San Marcos. And lastly, our conversion ratio for the quarter was a robust 96% consistent with fiscal year 2015's performance. I would now like to turn the call back over to Andrew to moderate our question-and-answer session.

[Operator:]

[Operator Instructions] Our first question comes from the line of Kathryn Thompson from Thompson Research Group. Your line is open.

[Rodney Bingham:]

Good morning Kathryn.

[Operator:]

Kathryn Thompson we’re not getting any audio from your line. Please check your mute button.

[Steven Ramsey:]

Hello, can you hear me now?

[Operator:]

We can hear you now. Thank you.

[Rodney Bingham:]

Yes.

[Steven Ramsey:]

Great, thanks. This is Steven on for Kathryn. Couple of questions here, would you expect Greenfield as a percentage of sales to stay below the 40% level through the remainder of 2016 and would you expect because of that gross margin to push up to the higher end of the historical range?

[Rodney Bingham:]

Yes, we think if you look back to history through various cycles we’ve been in, the 60-40 number on a more for attracted period of time is still a good number to model for our business going forward. And could you repeat the second part of the question please?

[Steven Ramsey:]

Is Greenfield were to stay kind of at a lower level of these through 2016. Would you expect gross margins to push towards the higher end of the historical range?

[Jay Peterson:]

Yes, there is a lot of contributors in that, everything else being constant if we only had an MRO business obviously we would have much higher gross margins, but I think what I would do is go back to our timeless business model where we talk about the 60-40 split with our gross margins at 45%. And as previously mentioned, we will endeavor to drive margins above that 45% through cost management. So that is the guidance I’d give you at this time.

[Steven Ramsey:]

Great, thanks. And then my last question just kind of two here on acquisitions. How much of your backlog comes from acquisitions and have to companies that you’ve acquired have they seen sales growth year-over-year?

[Jay Peterson:]

Yes, in terms of the backlog question, it’s a rather de minimis number for us. I believe it’s about $2 million round numbers at present at the end of September. And yes we do expect these businesses to grow. We are very happy with the performance of all three of them Canada [ph] least some are off to a little bit better start than others but right now based on their EBITDA performance, revenue profile in the fact that they’re accretive, we are happy right where they’re added this five minutes.

[Steven Ramsey:]

Great, thank you guys.

[Jay Peterson:]

Thank you.

[Rodney Bingham:]

Thank you.

[Operator:]

Our next question comes from the line of Bhupender Bohra from Jefferies.

[Bhupender Bohra:]

Hey good morning guys.

[Rodney Bingham:]

Good morning.

[Bhupender Bohra:]

Hey so Jay, I just want to go through the core sales guidance I mean the you guys actually lowered the guidance from up to mid single to now you’re expecting that’s a total sales down mid-to-high single, can you talk about the confidence which make that number, let’s talk about like acquisition and how much is FX off the total number here?

[Jay Peterson:]

Yeah, let me give you, let’s call it a hypothetical right now, Rodney mentioned that mid-to-high single digit decline and as you know there is – things are pretty dynamic right now, we’ve got three new businesses, FX is obviously a big headwind then lastly with oil prices, but in terms of a hypothetical, let’s we were to take the midpoint of the mid-to-high single digit decline, one rough perspective on that is a 13% decline for organic in constant currency and having said that I’d immediately like to call out that we are seeing ex-Canada with full year actually having grow – 2% grow on a constant currency basis, M&A will be in the 10% to 11% to 12% growth bracket and FX at present we see let’s say a 6% to 7% decline and you do the math on that Bhupender and it’s roughly a 7.5% decline, which again is the midpoint of what Rodney mentioned and you get that’s hypothetical there is…

[Bhupender Bohra:]

Right, so, 7.5% let’s take the midpoint that actually includes your 10% to 11% acquisition assumption right?

[Rodney Bingham:]

Yes, it does Bhupender,

[Bhupender Bohra:]

Right and then you take on the FX that gives you I believe the initial guidance was like about negative 2% so this kind of it’s a big delta that organic, so now let’s talk about like what actually move the needle here like I mean we were definitely going into the quarter, Canada was weak, like last quarter you did actually talk about the spending in Canada to be weaker, I think it was decline like 40% to 50%. We are looking at project revenue this quarter down 20%, if you can just talk about what move the needle here?

[Bruce Thames:]

This is Bruce, Bhupender. Yes, the biggest things here are as we came into the year and as we gone through the first half the thing that is fallen short or been significantly greater impact from our original expectations have really been in Canada and FX rates. And so, Canada has been softer and we expected to see a significant impact in the Greenfield, obviously on the capital side but what we have also seen is as you know our MRO and our UE is actually a combination of our baseline business and smaller upgrades and expansions and we kind of differentiate that at the million dollars and orders of the million dollars and below. What we are seeing is that UE component of Canada being very soft as well and so that’s impacting our incoming order rates and that is much more slow business that’s not typically reflected in backlog. And so, that’s been the bigger part of the decline there which we did not anticipate at this level and then of course FX has continued and actually gotten worse since our last earnings call. So, those two things are really the largest two drivers for the decline.

[Bhupender Bohra:]

Okay and last question on SG&A line, we saw the number actually moved from 18 – what it was like 17 to 16 point something this quarter, you’re taking cost down from in Canada and would that be a good run rate to assume in the back half of this fiscal year?

[Rodney Bingham:]

Yes it would, at the time being that would be the guidance we would give on that Bhupender.

[Bhupender Bohra:]

I think $16 million like in the back half of this year, that’s – are we taking cost down more than what we have seen this quarter in Canada?

[Rodney Bingham:]

The majority of the expenses were realized, expense reductions were realized in the quarter, it could go down slightly, but as Bruce mentioned we are going to continue to monitor our order intake and if we have to adjust expenses based on lower orders in the future we will certainly do that.

[Bhupender Bohra:]

Okay and can you remind us like how big Canada right now is in terms of revenue for you guys?

[Rodney Bingham:]

Rough number it’s 60 million.

[Bhupender Bohra:]

Okay, and one more follow-on actually on the capital allocation, now with the cash you have through the acquisitions and where the stock is today going into some revenue headwinds in this back half, how do you feel about like share repurchases here?

[Bruce Thames:]

Yeah, Bhupender this is Bruce, just as a team we’re reviewing all of our options, but I would like to reiterate our first priority is to reinvest in the business, we still see opportunities within in and around our core markets and on our core product lines, we’re looking for the best way to deliver shareholder value, I would like to point to the acquisitions we’ve made thus far and say they’ve been a good news for capital, they’ve been accretive to earnings year-to-date and that would be our first and primary use but we’re definitely evaluate all options.

[Bhupender Bohra:]

Thank you, guys.

[Bruce Thames:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Charley Brady from SunTrust Robinson. Your line is open.

[Charley Brady:]

Hey thank, good morning folks.

[Rodney Bingham:]

Good morning, Charley

[Jay Peterson:]

Good morning, Charley

[Charley Brady:]

Hey just in terms of the project pipeline, I don’t know if you quantify, you said it was more projects in the pipeline, could you quantify the number of projects in the pipeline now or what the delta is versus what it was?

[Jay Peterson:]

The last previous quarter, the number of projects was around 680 something plus or minus of it and now they, as of the end of this quarter it was about 750, 720 somewhere like that, shows the increase of the number of projects, the total estimated amount of the opportunities was still at $1.1 million which pretty much flat from the prior quarter.

[Charley Brady:]

Right, okay, thanks. And I guess just could you, how much was Canada down in the quarter?

[Jay Peterson:]

In USD?

[Charley Brady:]

Yeah.

[Jay Peterson:]

68%

[Rodney Bingham:]

For the quarter and this is inclusive of the acquired companies, it was down 55% in Q2.

[Charley Brady:]

Including the acquisitions, correct, you said.

[Rodney Bingham:]

That’s right.

[Charley Brady:]

And APEX headwinds on that?

[Rodney Bingham:]

Yes, that would be a GAAP number as reported.

[Charley Brady:]

Do you have it in constant Canadian currency how much it was down?

[Rodney Bingham:]

Yeah, I do, let me get a call on that.

[Charley Brady:]

Okay. I’ll talk to you offline on that. I guess as I look after the guidance was down, you’re hypothetical that you put out there and that moves helpful but [indiscernible] down 13 organic, what your expectation and how much of that you got a backlog, of how much that backlog is going to flow through the rest of this year and really how much of that backlog did any of it stretch out on 12 months, or is it a full 12 month backlog?

[Rodney Bingham:]

Yes, history would tell us that we burn through the great majority of our backlog in 12 months. There could be some outliers that flow into period beyond that, but the majority of that will burn off or invoice within the next 12 months, the great majority.

[Charley Brady:]

Are you seeing projects, did you take anything out of backlog this quarter?

[Rodney Bingham:]

The project pipeline is a dynamic document as it is done on a weekly or a by weekly basis, so it’s constantly moving adding and subtracting a project come on and off through our system.

[Charley Brady:]

All right, fair enough. Thanks.

[Operator:]

Thank you. Our next question comes from the line of Jeff Hammond from Keybanc Capital Markets, your line is open.

[Jeff Hammond:]

Hey, good morning guys.

[Rodney Bingham:]

Good morning Jeff.

[Jay Peterson:]

Good morning Jeff

[Jeff Hammond:]

So, maybe on the – if you are saying organic, you are thinking it’s down low double digits, can you maybe speak – bifurcate that to how you are thinking about MRO/UE versus Greenfield from a revenue decline, it seems like first quarter MRO was much more challenge than Greenfields step down, so maybe just give us a little more color or within the guidance change, how much is Greenfield versus MRO/UE?

[Rodney Bingham:]

For the balance of the year, I would go back with 60/40 number and recall that our orders in backlog have been up over the last quarter and that gives us some perspective on getting back to the 60/40 split MRO to Greenfield.

[Jeff Hammond:]

Okay, so that would imply that MRO was under a lot more pressure in the back half to get the 60/40 because you front half of the year you have been running more like 64 last year, you are running 64 on the second half.

[Rodney Bingham:]

Yes, to get back…

[Jeff Hammond:]

Does it right when you think about it?

[Rodney Bingham:]

Yes, to get back to the 60/40, yes.

[Jeff Hammond:]

And then that puts a fair bit of pressure on the margins?

[Rodney Bingham:]

Yes, one other component to talk about in there is the UE component resident and MRO, that has lower gross margins, so we kind of have a mix, within the mix that will significantly impact our margins.

[Jay Peterson:]

Jeff the other thing that is probably add an additional new arc [ph], when you look at the Greenfield the MRO/UE mix is we see higher amount of construction I think we call that out and that is also contributing to the lower margins within Greenfield. So those are the dynamics that refer back to what Jay was referring to the 60-40 model.

[Jeff Hammond:]

Yes. So it seems like within all that kind of a step down to 45% it seems more reasonable as we get into the back half?

[Rodney Bingham:]

As we said that would be, but let’s call that the low watermark for guidance and we’re doing early possible to dry that number up.

[Jeff Hammond:]

And then I think you said you’re thinking about 2% organic growth for ex-Canada for the year.

[Rodney Bingham:]

That is correct, on a full year basis.

[Jeff Hammond:]

Yes, how are you thinking about that three months ago?

[Rodney Bingham:]

Well Canada is worse today than we thought several months ago.

[Jeff Hammond:]

Right, right the 2% is ex-Canada. So is anything changed in that 2%? Have you seen weakening elsewhere?

[Rodney Bingham:]

No not really.

[Jeff Hammond:]

Okay, and then just you mentioned the acquisition some going better than others. Can you talk about the outliers to the good or bad and what’s driving that?

[Rodney Bingham:]

Not at this time just some of these companies we had two months and some just a couple of months more than that. So we really need a little more runaway to better understand their performance and their capabilities, but I would tell you that on a margin basis we’re happy were that at this point in time their margin percentage relative to EBITDA is quite similar to the corporate average may be three or four points off and we’re happy with that at this point.

[Jeff Hammond:]

Okay, great. And then just final one on MRO. It seems like all the weakness thus far in MRO has really been more on the upgrade expansion, but what you seen on your strict MRO business our people destocking and our people trying, as they do maintenance repair being more careful not to rip off the heat tracing and may be just how are you seeing things the same or depth in MRO.

[Rodney Bingham:]

We are seeing actually in particularly in the U.S. and Europe our MRO sales were up year-over-year, the real starkness in MRO has largely been in Canada and it is the upgrade in expansion that capital fees of that which we believe is most impacted.

[Jeff Hammond:]

Okay. Thanks guys.

[Rodney Bingham:]

All right. Thank you.

[Operator:]

Thank you. Our next question comes from line of Jon Braatz from Kansas City Capital. Your line is open.

[Jon Braatz:]

Hi, good morning everyone.

[Rodney Bingham:]

Good morning.

[Jay Peterson:]

Good morning.

[Jon Braatz:]

Most of my questions have been answered, but Jay you had mentioned that in your commentary that you’ve reduced the Canadian spending I guess SG&A by 11%, I think year-over-year. Is that correct?

[Jay Peterson:]

Yes, let me just get that exact number, okay?

[Jon Braatz:]

And I guess what I’m asking was that, was that in local currency or is that a GAAP number?

[Jay Peterson:]

Yes, what the comment was that is a GAAP number and that was 11% reduction on an organic spend basis, so that would exclude the M&A component.

[Jon Braatz:]

Okay, okay. Assuming that Canada doesn’t comeback or stay soft for an extended period of time. What else might you be looking at in terms of further reducing cost and limiting the impact Canada is having. Is there anything more you can do?

[Rodney Bingham:]

Yes there is, but right now we have two problems at the businesses space, one is Canada, we believe we have right sized our spending to the opportunity over the next year. The second is FX, we’re always looking to manage costs and if we see a degradation in other geographies we will manage costs in those geographies appropriately.

[Jon Braatz:]

Okay, if I don’t know [Indiscernible] but if the currency of the Canadian dollar would stabilize here at these levels over the next six months, there is a currency headwind soften a little bit?

[Rodney Bingham:]

Yes it will.

[Jay Peterson:]

Yes.

[Jon Braatz:]

Okay.

[Jay Peterson:]

Yes, it will Jon.

[Jon Braatz:]

All right. Thank you very much.

[Jay Peterson:]

Thank you.

[Rodney Bingham:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Josh Berman from William Blair. Your line is open.

[Josh Berman:]

Hi, good morning.

[Rodney Bingham:]

Good morning Josh.

[Jay Peterson:]

Good morning.

[Josh Berman:]

First thing you comment on your outlook for some specific investments you’ve talked about in the past in terms of the new controller and some other opportunities?

[Rodney Bingham:]

Yes, we do have a number of different new product developments in our pipeline and we would expect those to be launched between the fourth quarter of fiscal 2016 through mid year of 2017.

[Josh Berman:]

Great, okay thanks. And then if you remind just providing a little more color on the $5 million of savings, I think you said from cutting OpEx in Canada, have all those – have those actions already been executed and is – are we going to start to see the impact of that right away or is this going to take the full [indiscernible] all that savings?

[Jay Peterson:]

Yeah, let me clarify the $5 million was over a worldwide basis not just Canada, the majority of those were in Canada and it was people discretionary spending, certain facilities that we’ve decided to close and all of that has been executed that was executed in the second quarter you will see a small tail on - a tail of decreased expenses but the majority of them were realized in Q2.

[Josh Berman:]

Okay, thank you.

[Jay Peterson:]

Thanks Josh Operator [Operator Instruction] We will hold for one more moment to see if anyone else wants to queue up. And that looks like all the questioners that we have in the queue at this time. So I’d like to turn the call back over to management for closing remarks.

[Rodney Bingham:]

Okay, once again I’ll appreciate everybody’s participation and interest in Thermon and we look forward to seeing you on our next earnings call. Thank you.

[Operator:]

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program, and you may now disconnect your telephone lines at this time. Everyone, have a great day.