Thermon - Q3 2024

Transcript

Operator (participant)

Greetings. Welcome to the Thermon Group Holdings third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to Ivonne Salem, Vice President of FP&A and Investor Relations. Thank you. You may begin.

Ivonne Salem (VP of FP&A and Investor Relations)

Thank you, Darren. Good morning, and thank you for joining today's fiscal 2024 third quarter conference call. Earlier this morning, we issued an earnings press release, which has been filed with the SEC on Form 8-K, and it's also available on the Investor Relations section of our website. Additionally, the slides for this conference call can be found in our IR website under News and Events, IR Calendar, Earnings Conference Call Q3 2024. 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 might make certain forward-looking statements regarding our company. Please refer to our annual report and most recent quarterly report filed with the SEC for more information regarding our forward-looking statements, including the risks and uncertainties that could impact our future results. Our actual results might differ materially from those contemplated by these forward-looking statements, and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments, or otherwise, except as might be required by law. Now, I would like to introduce Bruce Thames, our President and Chief Executive Officer, for his opening remarks.

Bruce Thames (President and CEO)

Well, thank you, Ivonne, and good morning, everyone, and thank you for joining us here today. Now, I'd like to start with a quick introduction of Thermon, especially for those of you who may be new to our story. As a diversified industrial technology company, we're a world leader in providing safe, reliable, and innovative, mission-critical industrial process heating solutions to customers in 85 countries from facilities on four continents. Our technology is agnostic, and our solutions are instrumental in enabling a wide range of applications across diverse end markets, including the energy transition through decarbonization and electrification. As we begin this call, I'd like to thank our Thermon team around the globe for their commitment to serving our customers with excellence and another quarter of strong performance.

I would also like to welcome the Vapor Power employees to the Thermon team and look forward to their contributions to our success going forward. Let's turn now to slide four on our strategic pillars. As we discussed at our inaugural Investor Day in November, we are creating sustainable value through the execution of our long-term strategy that is based on three pillars. First, profitably growing the installed base. Second, decarbonization, digitization, and diversification. Third, disciplined capital allocation. Over the past 69 years, we've developed a substantial global installed base by delivering mission-critical industrial process heating technology and solutions to our customers. Although these solutions represent less than 1% of the initial capital costs of a process facility, they are critical to ensuring safe, reliable, and efficient operations.

This enables us to drive growth across our traditional end market verticals, increase recurring revenues, and expand margins through operational excellence. We're generating additional growth through our long-term strategic initiatives of decarbonization, digitization, and diversification. Serving as a key enabler of the energy transition through electrification and decarbonization, our innovative solutions drive energy efficiency, facilitate a circular economy, and assist our customers in achieving their sustainability objectives. Through our digital solutions, we also help our customers optimize maintenance through enhanced controls and monitoring. Our core technologies, coupled with our decarbonization and digitization solutions, are supporting our efforts to diversify our end markets, and we're making meaningful progress towards our goal of having approximately 70% of our revenues come from outside of oil and gas by the end of fiscal 2026. Our commitment to a disciplined capital allocation strategy is foundational to the first two pillars.

Our strong balance sheet gives us the flexibility to reinvest in our business for organic growth and positions us to pursue strategic bolt-on acquisitions that align with our financial objectives. Vapor Power is a great example of that strategy in action, which we'll discuss in more detail later. After completion of that acquisition, our leverage remains on the lower end of our stated goal of 1.5x-2x Net Debt to EBITDA. Turning now to slide five, you can see our continued progress in executing our diversification strategy, with approximately 66% of our trailing 12-month revenue coming from diversified end markets. On a TTM basis, oil and gas revenue is up 9%, while revenues from diverse end markets are up 26%.

Most notably, we've seen significant success in the food and beverage end market, with revenue growth of 209% over the past year. Our market share in rail and transit has also expanded significantly, with revenue up 28% year-over-year, along with the commercial market, where revenue was up 18%. Of particular note is the 55% year-over-year growth in the renewables end market, underscoring Thermon's role in facilitating the energy transition. The expansion in the renewables market reflects increasing activity across alternative fuels, hydrogen, and ammonia applications. This quarter, approximately 4% of revenues were associated with decarbonization applications, with the pipeline of opportunities growing to over $200 million. We continue to see strong activity in the U.S. power sector, particularly across the southern states, as power generators winterize their assets.

The Genesis network has become the system of choice that power generators use to provide operational awareness during winter weather events. In fact, the most recent winter storm here in Texas had a very different outcome from Winter Storm Uri back in 2021, as utility companies were able to remain operational with no significant disruptions to service. This is a testament to the work our teams have done to help our customers operate safely and reliably during extreme weather conditions. Turning now to slide six, I'd like to discuss a great example of our third strategic pillar in action, where we were able to use the strength of our balance sheet to fund inorganic growth to augment and accelerate our organic growth initiatives. Our recent acquisition of Vapor Power marks a significant step forward in advancing our strategy for profitable growth through decarbonization and diversification.

As we outlined at our Investor Day, we evaluate potential acquisition opportunities based on four criteria, and Vapor Power meets all four. First, it aligns with our long-term strategy by diversifying our addressable markets, with approximately 75% of revenues from the food and beverage, commercial, and general industrial sectors and very little exposure to oil and gas. Second, it expands our portfolio to include electrical resistance, electrode, and supercritical coil tube boilers, as well as steam generators. The electric boilers and electrode steam generators provide customers the ability to generate hot water and steam with improved control and efficiency in a compact footprint, while eliminating greenhouse gas emissions on site. The supercritical coil tube boilers are used in specialty applications, such as plastics recycling, where processes require extremely high temperature and pressure steam.

By incorporating these products into our portfolio, we're enhancing our exposure to high growth, electrification, and decarbonization opportunities over the next 20-30 years. As you can see here, this business has grown at an 18% compounded annual growth rate over the last five years, with an Adjusted EBITDA margin profile of approximately 20%. In addition, the business had over 70% of calendar 2024 revenue projections in backlog as of January first, a level significantly above historical averages. By implementing the Thermon business system, we believe we can further improve the EBITDA margin profile to meet our stated goal of 24% over the next 24 months. As importantly, we anticipate the acquisition to have a near-term positive impact to results and be accretive to GAAP EPS in the first 12 months.

Although not included in the economics, in collaboration with the skilled team at Vapor Power, at least five new qualified opportunities have been identified through Thermon market channels, with each valued at over $1 million. Based upon initial feedback, we feel well positioned to win one or more of these opportunities going forward. We believe the combination of these two businesses further positions Thermon to play a pivotal role in accelerating the transition to cleaner energy sources across a diverse range of global end markets. As noted earlier, our balance sheet remains at the lower end of our stated leverage goals at 1.5x net debt to Adjusted EBITDA following this acquisition. As a result, we have both the financial capacity and management bandwidth to execute on additional opportunities in our pipeline that may become actionable.

Turning now to slide seven, which details a case study illustrating how Vapor Power and Thermon have complementary technologies for various applications. In this example, Vapor Power provides engineered solutions to solve challenging customer problems while supporting our long-term strategy. Here we see a customer, a Korean chemical company, is designing and constructing a plastics recycling plant to convert waste plastics to feedstock for chemical and petrochemical production. Vapor Power provides a supercritical boiler that generates steam at extreme pressures and temperatures to convert the plastics back into the original feedstock to be used for production of other plastics and chemicals. By using the Vapor Power modular supercritical steam generator, the customer is able to deliver steam at extremely high temperatures and pressures in a very compact footprint to break down or crack the waste plastics into the original building blocks.

These products can then be used to produce virgin plastic or other chemicals in a true circular economy. On this same project, Thermon is providing over 13,000 meters of heat tracing to provide temperature maintenance and freeze protection for the process transfer lines. There are also numerous applications in a process facility of this type where Caloritech immersion heaters are required. Turning now to slide eight and our third quarter fiscal 2024 results. This quarter, the Thermon team generated record revenue of $136.4 million, an increase of 12% year-over-year, driven by double-digit growth in the U.S., Europe, and Asia, while the Canadian market contracted 5% year-over-year. In the quarter, we continue to see strong year-over-year revenue growth from large CapEx projects and resilient OpEx activity associated with recurring maintenance.

Our profitability continued to grow, with Adjusted EBITDA up 2% year-over-year to $30.7 million. This was largely due to volume growth, price, and productivity. On an adjusted basis, we saw gross margins decline by 319 basis points from the prior year, as volume growth was offset by a lower margin mix in material sales due to an exceptionally warm fall and weakness in the Canadian market, with a negative impact of 446 basis points in the quarter. Free cash flow improved by $4.6 million year-over-year due to improving DSOs and inventory reductions. GAAP EPS was $0.46 a share, an increase of 86% over the prior year period. Finally, our bookings were down 1% year-over-year, and the book-to-bill ratio was 0.91x in the quarter. On a TTM basis, our book-to-bill is 1x, and our bookings are $488 million, which represents 12% year-over-year growth, supporting our full year forecast. With that, I'd like to turn the call over to Kevin for a more in-depth review of our financial results. Kevin?

Kevin Fox (CFO)

Thanks, Bruce. Moving to the Q3 fiscal 2024 financial performance on slide nine. The global Thermon team continued to deliver strong results during the third quarter, even against challenging year-over-year comps and ongoing impacts from an exceptionally warm fall. As a reminder, the third fiscal quarter is typically our strongest due to seasonality. Customer demand remained steady, with incoming orders of $124 million in the quarter, roughly flat year-over-year. Demands continued to be strong across U.S., Latin America, and EMEA, while spending was down in other regions, particularly in Canada. In terms of our end market orders, we saw the highest rate of growth in the food and beverage sector during the quarter, with customer demand also expanding across the power, renewables, rail and transit, and commercial end markets.

Year-to-date orders for decarbonization totaled $28 million, and our year-to-date orders in diversified end markets was 72% of the total, indicative of sustained execution against our initiative to diversify the business into less cyclical end markets. Trailing 12-month orders were $488 million, excluding Vapor Power, which we believe supports our updated full-year revenue guidance. Revenue in the third quarter was $136 million, a year-over-year increase of 12%, primarily driven by power, chemicals, and commercial activity. U.S. Latin America continues to be our strongest performing region in fiscal 2024, with three of our four regional units reporting double-digit revenue growth. There was no impact in the quarter from the Vapor Power acquisition to reported revenues.

Large project revenue reached $34 million, up 26% from the prior year, while small projects and maintenance and repairs revenue totaled $103 million, up 8%. Over the trailing twelve months, 75% of our revenues came from customer OpEx spending, indicative of the mix of our business shifting away from more cyclical customer CapEx spending. Bruce provided some additional details on the Vapor Power acquisition, and I wanted to add that if we updated our diversification metric to include Vapor Power on a pro forma basis, we would have approximately 69% of trailing twelve months revenue sourced from diversified end markets, which is just shy of our goal of 70% by the end of fiscal 2026. Adjusted EBITDA increased by 2% year-over-year to $31 million, with an Adjusted EBITDA margin of 22.5% in the quarter.

Adjusted EBITDA margins decreased due to a pronounced mix shift within our point-in-time sales. Product lines most impacted by a seasonally warmer winter in both heat tracing and environmental heating, saw slower than anticipated revenue volume growth, shifting a higher percentage of revenues in the quarter to comparatively lower margin product lines and projects, with that shortfall dropping to the bottom line. The downturn in Canada also impacted our mix this quarter, as it is typically the most profitable of our four regions. Spending remains in line with expectations as we continue to focus incremental investments on our decarbonization, digitization, and diversification strategic initiatives, while moderating overall spending levels to the rate of incoming orders.

Adjusted diluted EPS was $0.59 in the quarter, a year-over-year increase of 13%. On a quick modeling note, we are currently estimating a $0.23 per share impact from amortization in fiscal year 2024. Through the first three quarters of our fiscal year, we have achieved profitable growth by executing our plan amidst ongoing macroeconomic volatility, as evidenced by this quarter's results. While we believe the negative impact from the product mix shift will continue in our fourth quarter, we also believe that our long-term strategy to diversify the business will continue to deliver profitable growth in the future. On Slide 10, we will cover the updated balance sheet, which represents the preliminary acquired balance sheet, including Vapor Power. At the end of the quarter, cash stood at $55 million.

This represented a year-over-year increase of 57%, with about half of that due to acquired cash from Vapor. Total debt for the quarter increased 61% to $213 million, which was also related to the acquisition of Vapor Power. We expect the incremental interest expense to be approximately $1.6 million per quarter. This increase resulted in a net debt to Adjusted EBITDA ratio of 1.5x, compared to 1.1x in the prior year period. This ratio is within our long-term target range of 1.5x-2x, and we still have significant capacity for further growth should additional opportunities emerge.

Working capital was $190 million in the quarter, an increase of approximately 24% due to the acquisition of Vapor Power, the volume growth of large projects that extends typical collection cycles, and some payments related to strategic inventory, reducing AP in the quarter. Working capital as a percentage of trailing 12-month sales was higher, coming in at 39%. Please see note two in the 10-Q we will issue later today for additional details on the Vapor Power acquisition. Turning to cash flow. Net income in the third quarter was $16 million, up 88% year-over-year.

CapEx spend was $2 million, and free cash flow was $22 million, reflecting a nice upturn in the free cash flow generation of the business as we enter into the seasonally stronger periods for cash conversion, particularly on the back of the strong first half of our fiscal 2024. We are pleased with our strong performance in the first three quarters of fiscal 2024. We continue to experience growth across end markets and regions while absorbing some headwinds from our product mix in Canada, which is a testament to the resiliency of our business model. Looking ahead to the last quarter of fiscal 2024 and beyond, we will continue to control costs while we remain committed to achieving the long-term targets we outlined at our Investor Day. Finally, I would like to extend my gratitude to the entire Thermon team for their hard work, dedication to our customers, and commitment to delivering long-term value for our shareholders. With that, I'll turn it back over to Bruce.

Bruce Thames (President and CEO)

Thank you, Kevin. Turning now to slide 11. As we enter the last quarter of our fiscal year, we're adjusting our full year revenue guidance for fiscal 2024. Revenue guidance is being increased from a range of $478 million-$498 million, to a range of $490 million-$500 million for the full year, implying 12% growth at the midpoint of the range. Adjusted EPS guidance is being lowered from $1.84-$1.94 per share, to a range of $1.76-$1.84 per share.

This revised guidance takes into account the success we've had in the first three quarters of our fiscal year, combined with the contribution of the Vapor Power acquisition, while factoring in the negative impact that both the weaker Canadian macroeconomic conditions and exceptionally warm winter have had on gross margins. While these two factors create a near-term headwind, we believe the weather was an anomaly and the mid to long-term growth drivers remain intact. Our strategy is working, and we remain confident in achieving our fiscal year 2026 strategic goals. As we conclude today on slide 12, we'd like to leave you with the following key points. Thermon stands out as a leading global brand, providing mission-critical process heating technology and solutions across diverse end markets. Our operational excellence, innovative products, and differentiated solutions are significant competitive advantages and create sustainable value for all of our stakeholders.

Our extensive global installed base and long-standing customer relationships drive a resilient aftermarket franchise that generates high margin, recurring revenue. Through our existing technology, we're well positioned to capture the vast opportunity tied to the energy transition and decarbonization through the electrification of industrial heat. With a strong balance sheet featuring low leverage and high gross margins, coupled with our capital-light business model, Thermon remains resilient through economic cycles, providing significant flexibility and optionality.

As evidenced by the Vapor Power acquisition, we're able to deploy the cash generated to expand our portfolio of heating solutions, diversify our end markets, and increase our exposure to opportunities around decarbonization and the energy transition to deliver growth above and beyond the organic business. In closing, I'd like to once again thank the entire Thermon team for their exceptional performance, unwavering commitment to safety, and dedication to fulfilling our customers' needs. Looking ahead to the last quarter of fiscal 2024 and beyond, I'm excited about the collective achievements we can attain as we continue to deliver sustained, profitable growth to create value for our shareholders. Operator, we'd now like to take questions.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for your questions. Our first questions come from the line of Brian Drab with William Blair. Please proceed with your questions.

Brian Drab (Partner and Equity Research Analyst of Industrial Technology)

Hi, good morning. Thanks for taking my questions.

Bruce Thames (President and CEO)

Good morning, Brian. Go ahead.

Brian Drab (Partner and Equity Research Analyst of Industrial Technology)

I just first wanted to ask, you know, in the third quarter, revenue came in above the street expectations, but my forecast and, you know, by about $7 million. And then, you know, for the full year, you raised the guidance midpoint by about $7 million. So, and then we've got the Vapor Power acquisition to incorporate for the fourth quarter. So I'm just trying to, my first question, I guess, is just, you know, did your third quarter revenue beat your expectation or? Because listening to the call today, I'm just wondering, it sounded like maybe the third quarter actually didn't even actually meet your internal expectation for revenue.

Kevin Fox (CFO)

Hey, Brian, this is Kevin. Maybe a couple pieces there I'll walk you through and maybe starting with Q3. We were right in line with volume expectations on the third quarter. What both and I, Bruce, are alluding to is that product mix was a little bit shifted towards some of the lower margin products there, and some of the weakness in Canada, the warmer winter up there as well, combined to drive those gross margins down. But if we focus on revenue for a second, we were right on budget in the third quarter.

I know the street kind of had the Q3 and Q4 roughly flat between the two, but that's a you know a little inconsistent with the normal seasonality that we see with Q3 being a peak and then Q4 being sequentially down. So last year was maybe a little bit of an anomaly in fourth quarter. But if we think about that revenue flowing through to the guide, a couple pieces there I would point you to as well. We think Vapor is going to be about $10 million-$12 million in the fourth quarter. And so if you look at the midpoint, yeah, the guide's about +7. So organically, we're maybe thinking that Q4 is going to be a little bit softer than expectations, and a lot of that's really being driven by Canada. So I know there are a few pieces there, but just wanted to kind of get that out for you as you guys triangulate the back half of the year.

Brian Drab (Partner and Equity Research Analyst of Industrial Technology)

No, that's helpful. So I mean, third quarter volume, you know, roughly in line with your expectation, and then you've got, you know, 10 or 12 from Vapor, and you know, raised the guidance midpoint by 7. So, you know, I can see there's a little softness in there, maybe, you know, call it $5 million or $7 million that you took out of the fourth quarter. Am I right?

Kevin Fox (CFO)

Yeah, you're right.

Bruce Thames (President and CEO)

Yeah.

Brian Drab (Partner and Equity Research Analyst of Industrial Technology)

Yeah. Thank you. Okay. And, you know, the backlog has ticked down slightly, you know, sequentially the last couple quarters. Can you give us any, you know, view, maybe it's too early, but, I mean, I know you must be working on the budget for fiscal 2025, but, you know, are there any major projects maybe in fiscal 2025 that you have some visibility to? And, you know, what would you say, you know, to someone who's got any, you know, concern that, you know, backlog has been ticking down a little bit?

Bruce Thames (President and CEO)

Yeah, Brian, this is Bruce. Just, I'll make a couple of comments on kind of our backlog. And, you know, this quarter, we saw bookings contract about 1% year-over-year. So, you know, that certainly was a factor in our volumes for pretty substantially. And so a couple of things that we've seen happen, one is as we've implemented our operational excellence programs, our lead times in many, if not most of our products, are now market leading. And so, we're seeing that backlog, you know, come down just because of the velocity in our factories. So that's a piece of it. Certainly the incoming order rates being, you know, being below kind of our shipment level, that's the other component of seeing that backlog decline.

As we look, a couple of things to note, you know, our quote activity was extremely strong during the quarter. We quoted $248 million of opportunities. Anything over 200 is really strong for our business, and we have a pipeline, our pipeline of opportunities, has actually grown. So, you know, as we look ahead, we are seeing some. You know, we did expect, kind of in our plan to see a deceleration of growth coming into the fourth quarter. And, you know, but I think what we've seen in Canada has probably been weaker than what we had originally expected. Certainly, as we go on to next year, we're looking for, you know, kind of, the overall activity to begin to kind of pick up, and certainly, we would think the weather itself was an anomaly.

Kevin Fox (CFO)

Hey, Brian, I might, I might add maybe a little color just on end markets as well. If you think about the split between oil and gas versus maybe the diversified end markets, on an orders basis, oil and gas has actually declined year-to-date, but the diversified markets are up. And, you know, if you kind of think about it, an orders rate that's in that, you know, still double digit growth rate year-to-date, we're seeing fairly substantial growth on those diversification initiatives, and that's right in line with the strategy as well. So I think, yeah, a little bit of softness in the back half that was expected. Maybe the weather's pushing that a little less than where we expected or want it to be. But I think if we look to the future, as Bruce alluded to, the pipeline's up, the quotes are up, margin and backlog are still historically healthy, maybe a little bit off the peak, but we're still seeing some really attractive leading indicators in the business.

Bruce Thames (President and CEO)

Yeah. So, I mean, I guess to wrap it up, we see slower growth next year organically, but with the Vapor Power acquisition, it really positions us to deliver some nice growth in the coming year.

Brian Drab (Partner and Equity Research Analyst of Industrial Technology)

Slower growth in fiscal 2025 than in 2024. Could you put numbers on that for.

Bruce Thames (President and CEO)

No, no, we're building.

Brian Drab (Partner and Equity Research Analyst of Industrial Technology)

We're not done.

Bruce Thames (President and CEO)

We'll do that next. Yeah.

Brian Drab (Partner and Equity Research Analyst of Industrial Technology)

Okay. But the fiscal 2024, you'd end up with what type of organic revenue growth at the midpoint? I guess I need to look back at the release if you said that.

Bruce Thames (President and CEO)

Sure.

Brian Drab (Partner and Equity Research Analyst of Industrial Technology)

Is that organic?

Bruce Thames (President and CEO)

I think 12% is at the midpoint, and then, you know, you back out about 2% for Vapor. So, you know, we're talking about 10% organic growth in 2024, roughly.

Brian Drab (Partner and Equity Research Analyst of Industrial Technology)

Right. So, okay, so coming off somewhat, from a very high level. I got it. Okay.

Bruce Thames (President and CEO)

Yes, yes. Correct.

Brian Drab (Partner and Equity Research Analyst of Industrial Technology)

Okay. And then last question from me for now is, is there anything you can say about the gross margin that you're expecting in the fourth quarter? And sorry if you said it already.

Kevin Fox (CFO)

I think, Brian, if we look at the product mix that we saw in Q3, I think we would expect that to be fairly consistent with where we are. You know, the drivers in Canada, macro, that's not going to reverse all of a sudden. I think the gross margins in Q4, if you think about the guide, imply something fairly consistent in Q4 as we saw in Q3.

Brian Drab (Partner and Equity Research Analyst of Industrial Technology)

Got it. Okay. Thank you both.

Kevin Fox (CFO)

Thank you, Brian.

Operator (participant)

Thank you. Our next question has come from the line of Jon Braatz with Kansas City Capital. Please proceed with your questions.

Jon Braatz (Partner and Senior Research Analyst)

Morning, Bruce. Morning, Kevin.

Bruce Thames (President and CEO)

Morning, Jon.

Jon Braatz (Partner and Senior Research Analyst)

Bruce, could you touch a little bit more on Canada? The weakness there. Obviously, you talk a little bit about weather, but is it merely weather, or is there anything beyond that that might have legs into 2025 and let's say, beyond?

Bruce Thames (President and CEO)

We are seeing just a weaker macroeconomic backdrop in Canada. You know, they've got some very restrictive fiscal policies. I think inflation there has been a little stickier, and the impact of their higher interest rates, I think, has you know, affected their consumer more, just based on some of the structure of kind of their mortgages and the like. So, you know, we do expect that to be a headwind in the Canadian market, but certainly, we believe that, you know, our business as we positioned it with our strategy, we are executing.

You know, I go back to the point, we've been able to grow our bookings in spite of just some weakness that we've seen there over the last couple of quarters. We have seen that business decelerate, and we've still been able to generate growth. So while I think it's going to be a little bit of a headwind, as we said, on the organic growth going forward, so we expect slower growth rates organically, but our ability to acquire Vapor Power and have the capacity for potentially additional M&A is going to generate some nice growth in our fiscal 2025.

Jon Braatz (Partner and Senior Research Analyst)

Okay. Okay. On Vapor Power, the numbers you showed in terms of revenue growth and margin improvement, it's pretty nice. They've done a good job. And when you look across, let's say, the boiler industry in general, I assume they're probably growing faster than the industry. What are they doing differently that sets them apart and differentiates themselves? And would you think that that type of growth that you've seen, 18%, on the top line, would you think that would be able to be continued?

Bruce Thames (President and CEO)

Listen, that's a great question. And I think, you know, how have they achieved that growth? Well, first of all, you know, Vapor Power actually has some very kind of niche, unique products that they offer, and I mentioned some of those, you know, here on the call. And one is the electrode boilers and steam generators, as well as their electric resistance boilers. And then in addition they have gas-fired coil tube supercritical steam generators. And these are generating steam at extremely high temperatures and pressures. And all of these are really very compact packages. And so, if you look back at that growth, a lot of that's been driven by growth in their electrical boiler lines.

Their revenue from electric boilers has virtually more than doubled over that period of time, and we see that being driven by electrification. These electrode boilers are really the best technology for electrification of steam, which has traditionally been generated with hydrocarbon-fired heaters. So this really gives you know, customers the ability to eliminate their emissions on site by converting traditional gas-fired boilers and steam generators to electric. So that's a big trend that we see continuing, quite frankly, for the next couple of decades. The other thing with the super. Go ahead.

Jon Braatz (Partner and Senior Research Analyst)

No, go ahead, Bruce.

Bruce Thames (President and CEO)

The supercritical, the gas-fired supercritical, steam generators, those are used for the specialty applications, which, you know, I illustrated here for plastics recycling, where extremely high temperatures and pressures are required, in this case, to take waste plastics and then crack those back down to their constituent parts that can then be used and sold for, you know, petrochemical and chemical manufacturing. So, really, truly bringing that back down to the raw material and feedstock. So those are some pretty, unique, products and applications, and that's really enabled them to grow above and beyond maybe what you would see in a typical, you know, gas-fired or hydrocarbon-fired, boiler business.

So, that's really how it fits with our strategy, and certainly, we believe we can drive double-digit growth with that business going forward, by plugging that into the global Thermon network. Well, first of all, we believe that will continue to grow independent of what we do as Thermon, but we are also seeing very early signs that our Thermon channels are bringing more opportunities that they've not seen previously. So that represents upside to the growth model. And then on the other side of that, our operational excellence program, by implementing the Thermon business system, we believe there's some low-hanging fruit there, where we can drive incremental EBITDA margins from that business, say, over the next 24 months. So that's really what we see with this business, and it's really well positioned and fits our strategy quite well.

Jon Braatz (Partner and Senior Research Analyst)

Bruce, would you say that, you know, in terms of electrification efforts at Vapor, that they're sort of a step ahead of everybody, such that if I need a electric boiler, they're gonna be one of the first calls I make?

Bruce Thames (President and CEO)

Yes, without question, particularly within a certain range of sizes and temperatures and pressures, they are, very well respected and have a really nice portfolio of solutions. So absolutely.

Jon Braatz (Partner and Senior Research Analyst)

Okay. All right. Thank you very much.

Bruce Thames (President and CEO)

Thank you.

Operator (participant)

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Mr. Bruce Thames, President and CEO, for closing remarks.

Bruce Thames (President and CEO)

All right. Thank you, Brian, and listen, thank you all for your interest in Thermon. Thank you for joining us here today, and enjoy the rest of your day.

Operator (participant)

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.