Earnings Call Transcript - THR Q2 2021

Operator, Operator

Greetings, and welcome to the Thermon Group Holdings, Inc. Second Quarter Fiscal 2021 Earnings Conference Call. It is now my pleasure to introduce your host, Mr. Kevin Fox, Vice President, Corporate Development. Thank you, sir. Please go ahead.

Kevin Fox, Vice President, Corporate Development

Thank you, Diana. Good morning, and thank you for joining today's fiscal 2021 second quarter conference call. Earlier this morning we issued an earnings press release, which has been filed with the SEC on Form 8-K and is also available on the Investor Relations section of our website. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures in the tables at the end of the earnings press release. These non-GAAP measures should be considered in addition to and not as a substitute for measures of financial performance, reported in accordance with GAAP. I'd like to remind you that during this call we may make certain forward-looking statements regarding our company. Please refer to our annual report and most recent quarterly report filed with the SEC for more information regarding our forward-looking statements including the risks and uncertainties that could impact our future results. Our actual results may differ materially from those contemplated by these forward-looking statements and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as maybe required by law. And now I'll ask Bruce Thames, our President and Chief Executive Officer for his opening comments.

Bruce Thames, President and CEO

Thank you, Kevin, and Good morning. We hope everyone listening is staying safe and in good health. We appreciate you joining our conference call and for your interest in Thermon. Jay Peterson, our CFO, is with me and will provide additional information on our Q2 financial performance following my remarks. Since our Q1 call, the Thermon team has remained focused on the safety and security of our employees, customers, suppliers and the communities in which we live. As a supplier to critical infrastructure, we remain open for business and have focused on supporting our customers around the globe. As we look across the world, our teams and our customers are adapting to the new normal. In many locations, we continue to suspend business travel, work from home where possible and follow the applicable local health protocols. I'd like to thank our Thermon employees around the globe for their commitment to our customers and our shareholders through these challenging times. Our employees are incredibly resilient and have quickly adapted to this new way of working. I especially want to thank our front-line employees that have continued to be onsite, serving our customers each and every day throughout this pandemic. Their commitment to our core values of care, commitment and collaboration as well as our industry-leading safety performance is both admirable and appreciated. With the uncertainties surrounding this pandemic, our team has remained focused on value preservation and cash management. In Q1, the team took decisive action to reduce SG&A by $16 million in the fiscal year and just over $17 million on an annualized basis. During the second quarter, the team has further reduced expressed SG&A spending by an additional $9 million in the fiscal year, and we expect this reduction to continue on an annualized basis going forward. In addition, we have reduced manufacturing overhead by an additional $6 million, including a rooftop consolidation that will improve absorption on lower volume in Q4 and beyond. Many of these savings are the result of the work this team has done over the last 4 years to improve the systems, processes and tools to generate efficiencies and unlock scale from engineering to back office processes. We also believe we are well on track to deliver the $3.9 million in continuous improvement cost savings through our manufacturing operations. We believe these changes have fundamentally repositioned the business to be more profitable during the downturn and generate meaningful operating leverage during the recovery. It is important to note that these cost reductions were made while preserving investments in key areas that will help drive future growth, such as front line sales, resources to drive globalization of the process and environmental heating product lines and new product development. I'd like to turn now to our Q2 results. Overall, we were pleased with the improvements we are seeing in the business during Q2. We believe our Q1 represented a quarterly bottom in terms of both revenue and EBITDA. Our second quarter showed sequential improvement in many areas with revenue of $66.4 million. While down 35% from a record prior-year quarter, revenue grew 17% sequentially. We did see shipment delays due to logistics and supply chain shortages in some key electrical components that negatively impacted the top line during the quarter. Adjusted EBITDA of $10.5 million was down 50% from prior year but up 66% or $9.1 million from Q1 on improved volume and cost reduction actions. Gross margins for the quarter were 43.6%, down 57 basis points from prior year but up 120 basis points sequentially. We continue to benefit from the receipt of the Canadian Emergency Wage Subsidy, which has been excluded from the adjusted numbers. GAAP and adjusted EPS were $0.06 a share and $0.12 a share, respectively, during the quarter, showing positive momentum on the sequential volume growth and cost reduction efforts. We were pleased with bookings for the quarter at $75.7 million, which were down 18% from prior year but up 25% sequentially relative to the Q1 27% shortfall to prior year. This represented a sequential double-digit improvement even when adjusted for seasonality. Our book to bill of 1.14 was positive for the third consecutive quarter with backlog growing by 8% sequentially and 16% year-over-year. In addition, margins in backlog improved by 420 basis points during the quarter on a positive mix of business. We continue to see weakness in our MRO business due to safety measures our customers have implemented in an effort to prevent the spread of the virus. Many have suspended project-based maintenance activities to limit the number of contractors onsite and manage cash. We did see sequential improvement in our Q2 quick turn business of 14% when compared to Q1 on a relative basis to prior year quarters. While we do expect to see further sequential improvement in Q3, we believe the deferral of maintenance is building pent-up demand that will create incremental opportunities for MRO/UE as COVID-19 restrictions ease. We anticipate capital spending to be weaker in the second half of the year, particularly in the U.S. and Latin America, representing a headwind in the near term. We continue to generate positive cash flows from our operations of $9.3 million during the second quarter, which enabled $4.4 million in debt repayment, and we see further opportunities to free up an additional $10 million in cash from the balance sheet by year-end. Turning now to a discussion of our end markets. The oversupply of oil resulting from the Saudi-Russia dispute, combined with the unprecedented decline in demand due to COVID-19 lockdowns, has had a profound impact on our customers and end markets. However, we are seeing that some customers are better positioned to weather the storm. Upstream, which represents approximately 14% of our revenues and integrated oil companies, have been the hardest hit. Chemical companies and customers with more exposure to natural gas have seen much less decline in demand and commodity pricing has been more resilient. We also see strength in agrochemicals as well as capital investments in nitrogen and ammonia processing plants for fertilizers. As we look forward, there are a number of fundamental shifts underway. Thermon is well-positioned to capitalize on the transition to natural gas as a bridge fuel with LNG projects moving forward. The shift to renewables also creates opportunities for our business in biogas and biofuels. We are currently executing a sizable biodiesel project in the U.S. with many more projects in various stages of planning in the U.S. and across Europe. We also see numerous oil to chemical projects creating future opportunities where producers and refiners are seeking growth markets for their capacity as demand for transportation fuels stagnates. Growing demand for power across Asia and other emerging markets will also create additional opportunities for our business going forward. Finally, tightening environmental regulations that require lower sulfur fuels and higher cafe standards drive demand for a wide range of thermal solutions as well. Turning now to transportation. Transportation represents around 3% of our revenues in fiscal year 2020 and is a growing segment of our business that offers an opportunity to diversify our end markets. After securing two large orders in light rail in the last two quarters, we continue to see large transit opportunities that will expand the installed base in the U.S. and Canada to generate stable recurring revenues. We also see additional opportunities to grow our presence in the less cyclical end markets, such as food and beverage, to further diversify our revenue streams going forward. Turning now to our investments in research and development. We continue to invest in new product development that creates value for our customers and differentiates thermal solutions in the marketplace. Key areas of investment include connected and smart control solutions, heating technologies and material science. We were excited to recently announce the new Genesis network, which extends our leadership position in smart connected control solutions. This introduction builds upon the technology platform of our Genesis control or by creating a plant-wide ecosystem employing a self-healing mesh network with an IOT gateway and browser-based supervisory software. The combined system, which is backwards compatible, enables operators to have real-time operational awareness to improve the safety, reliability, and efficiency of their processes. The mesh network also lowers total installed cost while enabling brownfield locations to be cost effectively upgraded to the newest technology. The Genesis server represents Thermon's first subscription-based operational software platform that will create opportunities for future product and service revenue streams from the installed base. While visibility is improving, we continue to experience near-term uncertainty due to the number of variables influencing our end markets. As a result, we remain focused on managing the five key priorities communicated last quarter. They are: first, the safety of our employees and customers; second, aligning the cost structure to the level of incoming business; third, driving continuous improvement programs to achieve the targeted $3.9 million in savings during the fiscal year; fourth, cash management; and fifth, investing for future growth. Executing on these five priorities will position the business to perform during this downturn and more importantly profitably grow as our end markets recover. Looking forward, given the current level of uncertainty, we do not intend to provide formal guidance for fiscal 2021 at this time. We do believe that Q1 represented the quarterly bottom in terms of revenue and earnings due to COVID-19 restrictions that were in place, combined with the normal seasonality of our business. With Q2 revenues down 35% from prior year and bookings down 18%, we expect the revenue shortfall to prior year to begin to moderate in Q3 and Q4. We also expect the cost reductions to begin to have a meaningful impact on bottom line performance in the back half of the year with decremental margins in the 25% to 30% range. As a result, we anticipate a small step down in trailing 12-month EBITDA in Q3, representing a bottom with trailing 12-month EBITDA expansion in Q4 on lower volume. The actions we have taken this year have positioned the business to deliver a 100 basis points or more of EBITDA margin expansion during a downturn, and the team is hard at work to build a path to deliver similar or greater margin expansion in the subsequent year. We continue to actively manage the business while remaining focused on executing on our strategic, operational, and financial plans. As we look ahead, I want to emphasize the strength and resilience of our business model and our ability to drive EBITDA and generate cash through the cycle. We have a talented team that remains committed to serving our customers and creating value for our shareholders. By focusing on the priorities outlined, Thermon is well positioned to emerge a stronger, more profitable business as our customers and end markets adapt to the next normal. With that, I'd like to pause here and hand it over to Jay for a more detailed review of the financials.

Jay Peterson, CFO

Thank you, Bruce. Good morning. In light of the protracted, depressed capital spending environment, our focus continues to be on value preservation in addition to funding specific strategic investments. During the quarter, we recorded $2 million of restructuring costs related to the Q2 cost. And we expect these cost-out actions, including the Q1 reduction in force, to reduce SG&A to approximately $34 to $35 million for the second half of this fiscal year. And we believe approximately 80% of these reductions are structural in nature and will provide incremental operating leverage when growth returns. And since May of this year, we have reduced our SG&A by approximately 24% from $100 million down to $76 to $77 million. Also during Q2, our Canadian subsidiaries qualified for and received a $1.4 million benefit from the Canadian Emergency Wage Subsidy program, and $400,000 of this benefit was recorded under the cost of sales while the remainder impacted SG&A. While we have faced significant challenges in our P&L related to COVID-19 and the sustained decline in oil prices, our balance sheet remains strong. Our cash and investments balance at the end of September improved by $51.4 million. We also paid down $4.4 million in debt and generated $7.2 million in free cash flow, marking our ninth consecutive quarter of positive free cash flow. Our CapEx spend for the second quarter totaled $2 million, net inclusive of both growth and maintenance capital. We expect fiscal '21 CapEx to be approximately $4.6 million, a year-on-year reduction of 54%. Our net debt EBITDA ratio was 2.9x at the end of Q2. Lastly, our capital allocation priority is to continue to reduce our debt through continued optional debt repayment, and we remain confident in our current liquidity and ability to generate cash during this fiscal year. We plan to pay down additional debt in the second half of this year. Regarding M&A, our pipeline remains strong; however, due to our current leverage position, we do not anticipate any acquisitions in the near term. Now turning to revenue and orders. Our revenue this past quarter totaled $66.4 million, up sequentially by 17% and down by 35% against the prior year quarter and was in line with our expectations for Q2. Our legacy revenue mix between MRO/UE and greenfield was 64% and 36%, respectively, versus 53% and 47% in Q2 of fiscal year '20, and FX decreased total revenue by $1.1 million in the quarter. In constant currency, our revenue declined by 34%. Orders for the quarter totaled $75.7 million, up sequentially by 25%. Relative to the prior year quarter, our orders declined by 18%, an improvement from the Q1 decrease of 27%. Our backlog of orders ended September at $118.7 million, the highest level in the last 18 months albeit under depressed revenues and due to cost-out actions and higher margin projects. We have seen our backlog margins improve to 33.4%, a 420 basis point improvement on a sequential basis. Our book to bill for the quarter was positive at 1.14, marking the third consecutive quarter of a positive book to bill. In terms of gross margins, margins were 43.6%, although down by 57 basis points compared to the prior year comp period, they were up sequentially by 114 basis points, positively impacted by 63 basis points due to the Canadian Emergency Wage Subsidy program. Gross profit in the quarter declined by $16.5 million, attributable to the volume and revenue decline of 35%. Looking forward to the second half of this fiscal year, we expect gross margins to improve by 100 basis points or more due to the benefits of cost reductions even in light of the anticipated reduction in year-on-year volumes and an increase in the mix of our high margin on both a gross and net construct maintenance business. Moving on to OpEx. Operating expenses for the quarter, which is SG&A and excludes depreciation and amortization of intangibles, totaled $21 million versus $25.4 million in the prior year. SG&A expenses included $2 million of restructuring costs. Normalized for the Canadian Wage Subsidy program and the restructuring charge, our SG&A on a pro forma basis totaled $19.9 million. As mentioned earlier, we expect our second half SG&A to be in the $34 to $35 million range, inclusive of the recent spending reduction actions. Going forward, we would anticipate incremental spending in travel and other expenses to grow as volume returns. GAAP EPS for the quarter totaled $0.06 a share compared to the prior year quarter of $0.21, a decline of $0.15 a share. Adjusted EPS, as defined by GAAP less amortization expenses and any one-time charges, totaled $0.12 a share relative to $0.29 a share in the prior year quarter. Versus the prior year comparison period, adjusted EBITDA declined by 50% and adjusted EBITDA as a percent of revenue improved to 16%, an increase of 1,300 basis points versus the prior sequential quarter. Adjusted EBITDA totaled $10.5 million this past quarter. Free cash flow was positive for the quarter by $7.2 million, as I said before, our ninth consecutive quarter of positive free cash flow, and we remain confident in our ability to generate cash and service debt going forward. For Q2 of 2021, we generated pretax income of $1.2 million and recorded a tax benefit of $627,000. This benefit was due to U.S. Treasury regulations that provided updated guidance to the tax reform law of 2017 and the associated GILTI tax rules, resulting in the reversal of $1.4 million of previously recorded GILTI tax. For the remainder of fiscal year '21 and the out years, we expect our tax rate to be 26% on a consolidated basis. In the quarter, cash grew by $3.1 million to $51.4 million, and we generated $9.2 million from working capital. Over the last 12 months, we have paid down $30.3 million in debt. Lastly, given the continued impact of COVID-19 on our end markets, we will not be providing formal top-line guidance at this time. I would like to reiterate that we will continue to manage what we can control, including our operating expenses, cost reduction efforts, continuous improvement initiatives, and the continued management of our working capital. I would now like to turn the call back over to Donna to moderate our Q&A session.

Scott Graham, Analyst

Very well done, very good execution.

Bruce Thames, President and CEO

Thank you.

Scott Graham, Analyst

I do have a couple of more 40,000-foot questions and then maybe a couple of 5,000-footers. As you look at the market right now and I'm certainly speaking largely oil and gas, and frankly even maybe even more specifically greenfield, it does look like Brent is sort of landlocked at this $40 level. What are your customers saying that means for their greenfield or capital spending, where it bottoms? In other words, right, so if it's down this year in the calendar year, but will it be down again next year because of that level?

Bruce Thames, President and CEO

Yes. There is still considerable uncertainty regarding capital spending among our customers. However, some customers are significantly more affected than others. To illustrate, during the last downturn in the oil and gas sector around 2014-2015, Thermon benefited from investments in oil sands. Back then, upstream accounted for a much larger share of our business, approximately 2.5 times more than it does now. We have since repositioned our business to focus more on gas, chemicals, and petrochemicals, allowing us to achieve growth in these areas following the last downturn, rather than relying on upstream spending. I anticipate that oil prices will continue to significantly influence upstream operators and integrated oil companies. On the other hand, some chemical companies, particularly in regions affected by supply disruptions from hurricanes in Louisiana, have seen price increases and may experience healthier cash flows and capital investments moving forward. That’s how I would characterize the situation, but I cannot provide a specific quantification.

Scott Graham, Analyst

That's fine. I think we're all waiting for that answer. If we look at your backlog right now, the number looks good. But could you quantify how much of the backlog from six months ago was planned to be shipped and wasn't? How much of the backlog increase was unplanned, specifically regarding delays in shipments versus what you originally expected?

Jay Peterson, CFO

Yes. Scott, a rather minor amount, okay, less than $5 million. Recall, we are very late cycle with our projects where the last oftentimes 1% or 2% or 3% of the activities needed to do the full commissioning. So a rather, rather minor amount and we have not seen a significant protraction in the execution of our backlog at this point in time.

Scott Graham, Analyst

Okay. So let me just connect those two dots, the question that Bruce answered and the question you just answered, Jay. Thank you. To this end, in the past, you guys have in greenfield been about 2 to 3 quarters behind general purpose capital spending in oil and gas, again, on the greenfield side. And do you guys see anything different this cycle again notwithstanding when capital spending improves? But has that extended? Do you think that you will still be in that 2 to 3 quarter lag when CapEx bottoms?

Bruce Thames, President and CEO

Scott, this is Bruce again. I expect it to be similar. During the last downturn, we did see timelines move out. Normally, our backlog is executed in 12 months, but we saw that extend to as much as 18. Looking ahead, I anticipate that we will lag behind the CapEx recovery by about 2 to 4 quarters due to our position in the cycle. However, I want to highlight an important difference in our business. The environmental and process heating products, which account for about 25% of our revenues, are in an earlier stage of recovery. Those products declined more sharply, and we expect them to recover sooner. This shift is crucial to consider when evaluating our business going forward.

Scott Graham, Analyst

Yes. Last question, and this may be for Jay. Jay, could you provide details on the specific cost reductions for this quarter? I believe you mentioned annualized numbers related to SG&A and cost of goods sold. What were the specific benefits for this quarter? Do you have that information?

Jay Peterson, CFO

Yes. For SG&A, we exited last year for SG&A approximately $100 million, slightly over $100 million. In Q2, we discussed that the reduction would go down to $88 million, and we are now viewing somewhere between $76 million and $77 million for the year. So Q1 was $12 million and then add another $1 million-ish, maybe 2 million for this current quarter. In Q2, we've gone from $25 million to a pro forma basis of $19.9 million excluding the Canadian Wage Subsidy and the restructuring charge.

Scott Graham, Analyst

So that would be the operative number in the second quarter, right, Jay, that 6 million?

Jay Peterson, CFO

Yes.

Scott Graham, Analyst

And then on the cost of sales side?

Jay Peterson, CFO

We have identified $1.8 million in overhead-related cost reductions for this fiscal year, with the expectation that over the next twelve months, this will increase to $3.8 million. Of this amount, $1.8 million will be realized in the upcoming period. Bruce discussed the strategic sourcing and cost reduction initiatives, which will add to the overhead cost reductions I just mentioned.

Operator, Operator

Our next question is coming from Joe Aiken of William Blair.

Joseph Aiken, Analyst

This is Joe on for Brian. So I guess I'll start. I'm curious if you could just talk in a little more detail about any large project activity you're seeing right now. You mentioned a couple of projects you're working on. Are there still some large projects being bid on in those markets or anything to highlight?

Bruce Thames, President and CEO

There are certainly fewer capital projects out there. I mean we expected that coming into this year, and that's certainly reflected in our incoming order rates. The larger projects that we see today tend to be in the Eastern Hemisphere. We see particularly weakness in the near term in the larger projects in the U.S. and Latin America and, to a lesser extent, in Canada. So right now, the overall capital spending without question is down in the 25% to 30% range from what we had seen a year ago.

Joseph Aiken, Analyst

Okay. And can you just clarify for me kind of the order trends, how that trended through the quarter? I think in the first quarter call, you said it was down 33% in July. And did you say that ended up being down 18% for the full quarter? Is that right?

Bruce Thames, President and CEO

Yes, that's correct. We observed an improvement in the incoming order rate during the quarter compared to the previous one. It's important to note that we have seen progress in our quick turn business, which serves as a proxy for our MRO business and is the most profitable segment of our revenue from the installed base. We are experiencing some sequential improvements in this area, which is promising, although these figures are still significantly lower than the levels we saw in the previous year.

Joseph Aiken, Analyst

Okay. And did you say what your incoming order rates on October order?

Bruce Thames, President and CEO

I have not mentioned it. I did say we expected to see some sequential improvements in our quick turn business and that we have seen. But as I mentioned also during the script, we do expect headwinds in the capital projects in the back half of this year, particularly in the U.S. and Latin America.

Joseph Aiken, Analyst

Okay. So just to stick on that for a second. So sequential improvement, will that be compared with the full quarter incoming rate of down 18% sequential improvement from that?

Bruce Thames, President and CEO

You have to understand that's both maintenance and capital, so that would not be a good way to look at it. I see a sequential improvement on our maintenance incoming order rates, and I see weakness in the capital. Yes, that 100 basis point improvement or more was on an annual basis.

Joseph Aiken, Analyst

Okay. Okay and okay. And would you expect more of that to come in the fourth quarter compared to third?

Bruce Thames, President and CEO

Yes, some of these cost-cutting measures take time. The timing of how costs are accounted for in manufacturing absorption doesn't occur immediately.

Operator, Operator

Our next question is coming from Jon Braatz of Kansas City Capital.

Jonathan Braatz, Analyst

Bruce, could you talk a little bit more about some of the alternative energy projects, biodiesel, biogas? I'm curious what type of content – heat-tracing content is on a project like that? How does that compare to a petrochemical plant or a refinery or what have you?

Bruce Thames, President and CEO

It certainly depends on the size of the processing facility; that certainly has great influence. But for example, I think it's important to note, historically, refineries have been heavily weighted towards steam. When you move towards things like biodiesel, they are almost exclusively electric. So that's a big shift or transition from steam to electric that we see. And maybe for those of you an update, it's around 48% steam, 52% electric when we look at the markets globally. A big part of that's been in refining. As we look at, let's say, a biodiesel plant that I had mentioned, those may range from $0.5 million to $2 million in total heat tracing content, and that's almost exclusively electric heat tracing. There are additional opportunities in the process of heating and temporary power, which are not included in the numbers I just shared.

Jonathan Braatz, Analyst

Are there any other types of alternative energy projects? There's been quite a bit of discussion about hydrogen, and I'm not sure if heat tracing is necessary for hydrogen. But are there any projects beyond biodiesel and biogas?

Bruce Thames, President and CEO

There are other opportunities. The one that really is real today is concentrated solar power. Those are pretty significant when it comes to heat-tracing opportunities, and we've done a number of those projects around the globe. We don't play much in the photovoltaic solar today. Limited opportunities in wind. But those are at least a couple of examples. Hydrogen, it's a little early there. Certainly, that would be an area that we would continue to explore as that becomes a greater part of the overall energy mix. We think that's probably beyond the 5 to 10-year mark.

Jonathan Braatz, Analyst

Sure, sure. Would you say concentrated solar power, do you mean utility-sized projects?

Bruce Thames, President and CEO

Absolutely.

Jonathan Braatz, Analyst

You've made significant reductions in costs. When revenues come back, potentially to previous levels, how do you see your margins performing compared to the past? They were in the high 20% range. Considering a return to more normalized revenues and the cost savings you've implemented, do you think we could exceed that 20% margin in a favorable environment?

Jay Peterson, CFO

We are. Recall back 4 or 5 years ago, when a lot of the upgraders in Canada were happening, and by the way, we are not planning for that to reoccur. We had EBITDA oftentimes at the 25% range going forward. We think it will be somewhere in the 22% to 25% range once we see upticks in volume.

Operator, Operator

Our final question today is coming from Andreas Nicholas of Evercore ISI.

Unidentified Analyst, Analyst

So definitely understand where you're coming from on not providing new guidance for the remainder of fiscal year. There's just a lot of uncertainty out there and the recent resurgence of COVID in Europe, for example, is just one of many reasons that would give people pause. I guess this is more just a qualitative question for you. But as leadership of companies operating globally in the industrial and energy markets, what kind of things would you need to see take place in your markets or what you're seeing in your data order for you to feel confidence in providing and reinstating that near-term forward outlook?

Bruce Thames, President and CEO

Yes, we are looking ahead to the coming quarters. Even though our visibility is improving just one quarter later, there is still some uncertainty regarding the resurgence of COVID and its potential impacts on various factors. We would like to see rates under control and more stability in the demand environment from our end customers. Managing COVID to more acceptable levels will be crucial for us to gain better visibility and provide future guidance.

Unidentified Analyst, Analyst

Okay. I hear you on that. If we move on to, let's say, some of the inroads that you've made in the digital area and some of your new products, how do you think about ensuring that you're able to capture some of that value that's being provided to the customer, whether in terms of greater efficiencies for them or savings? Or is that just increasingly viewed as table stakes in your sector these days? Just curious kind of how you can capture some of those?

Bruce Thames, President and CEO

Some of these technologies are available in other areas of the industry, but we are leading the way in our field. We have seen a significant increase in demand from our customers for these types of solutions, and since COVID-19, the need for these technologies has accelerated. Looking ahead, we've introduced our first subscription-based operational software for managing asset bases. This also creates opportunities to generate additional revenue through services related to the installed base, including online and virtual services for predictive maintenance and troubleshooting, as well as on-site maintenance opportunities, which will boost MRO sales. I believe this is much more than just following industry trends; we are genuinely ahead of the curve and see substantial opportunities to increase revenue from our current customers. There are real value propositions in how this can positively influence our customers' asset management.

Operator, Operator

At this time, I'd like to turn the floor back over to management for closing comments.

Bruce Thames, President and CEO

All right. Thank you, Donna. I would like to thank you all again for joining us today and appreciate your interest in Thermon, and enjoy the rest of your day. Thank you.

Operator, Operator

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time, and have a wonderful day.