Greetings, and welcome to the Thermon Group Holdings Inc. First Quarter Fiscal Year 2020 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kevin Fox, Vice President, Corporate Development. Thank you. You may begin.

Thank you, Donna. Good morning, and thank you for joining today's 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 ir.thermon.com. A replay of today's call will also be available via webcast after the conclusion of the call. This broadcast is the property of Thermon and any redistribution, retransmission or rebroadcast in any form without the expressed written consent of the company is prohibited. During the call, we will also discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures in the tables at the end of the earnings press release. These non-GAAP measures should be considered in addition to and not as a substitute for measures of financial performance reported in accordance with GAAP. Before I turn this call over to Bruce and Jay, I'd like to remind you that during this call, we may make certain forward-looking statements regarding our company and business that are not historical facts because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes and circumstances that are difficult to predict. 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. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical facts nor guarantees or assurances of future performance. Any forward-looking statement made by us during this call speak only as of the time at which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement whether as a result of new information, future developments or otherwise, except as may be required by law. And now it's my pleasure to introduce Bruce Thames, our President and Chief Executive Officer for his opening remarks.

Thank you, Kevin, and good morning, everyone. Thank you for joining our conference call and for your continued interest in Thermon. Today, we have Jay Peterson, our CFO, joining me on the conference call. Jay will follow me and present the financial details of our fiscal year 2020 first quarter. To begin with Q1 results. After an overachievement in revenue in Q4 of fiscal year 2019, we were pleased with the revenue generation the team delivered in Q1. We saw revenues of $91.7 million met our expectations for the quarter, an increase of 3.2% over prior year. Organically, this represented the sixth consecutive quarter of growth. While we anticipate the mix to shift toward a more historical distribution between Greenfield and MRO/UE, we continue to see a heavy mix of turnkey projects at lower gross margins that have been dilutive to the margin profile of the business. Although we did see an improvement of 111 basis points sequentially, gross margins declined by 419 basis points from the prior year quarter. While we welcome the growth in the installed base, we are taking actions to drive margin improvements in the areas we control. First, we passed on a price increase in June that ranged from 3% to 5% and is anticipated to positively impact margins in the second half of the year by 100 to 150 basis points. Secondly, we have continuous improvement initiatives underway that we expect to reduce cost of goods sold by 1% in the fiscal year. Those actions have already begun to have an impact, but will be back-end loaded to the second half of the year. In addition, our new product development efforts are focused upon creating differentiated value for our customers, while protecting and expanding the margin profile of the business. And finally, we're focused…

Thank you, Bruce. Good morning. First off, I'd like to start by discussing our Q1 financial results, then finish with guidance and a discussion on margin enhancements for the current fiscal year. First off, revenue and orders. Our revenue this past quarter totaled $91.7 million, an increase of 3.2% over the prior year's quarter and a record start for Thermon. The legacy revenue mix between MRO/UE and Greenfield was 51% and 49%, respectively, with the Greenfield mix significantly higher than in the past. FX decreased total revenue by approximately 2% and in constant currency, our top line revenue grew by over 5%. And we continue to experience positive signs of a recovery with our legacy business revenues showing growth for the sixth conservative quarter. Orders for the quarter totaled $82.8 million versus $73.8 million in the prior quarter for a growth rate of 12%. And our backlog of orders ended June at $111.5 million versus $144 million as of June of fiscal year '19 and that's a decrease of 23%. And margins and our backlog improved by 100 basis points over the last 90 days. And our book-to-bill for the quarter was negative at 0.90. Turning to gross margins. Margins were 40.5% of revenue and gross profit declined by 490 basis points. The legacy mix shift to Greenfield revenues was the significant driver of the lower-than-typical corporate margins due to their higher content of engineering and construction labor and third-party buyout items. We believe it is important to win these lower-margin projects, understanding there is a near-term dilution to our gross margins due to the margin-rich maintenance business that will occur as soon as 36 months from now. Margins from Thermon Heating Systems were accretive to our corporate margins, and we continue to be on track for this acquisition to…

[Operator Instructions]. Our first question is coming from Brian Drab of William Blair.

So first, just to clarify a couple of things. So when you give the Greenfield-MRO legacy, that's excluding THS, right?

That is correct, Brian.

Okay. And so, what is -- what was the growth or decline year-over-year in MRO/UE business on an apples-to-apples basis, I guess, just for the legacy business?

Yes. 1.3% versus the comp period, excluding THS.

So up 1.3%?

No, down 1.3%.

Down 1.3%. And so that's -- I think that you're expecting -- release as of the last report, you're expecting pretty solid, even double-digit, growth in MRO/UE for the year. Is that -- is my memory correct on that? And then, if so, why is -- what happened in this quarter? And then for the full year, do still expect MRO/UE to be up?

Yes. So Brian, this is Bruce. We do expect to see MRO/UE growth during this year. As you know, the first quarter -- our first quarter of the year is off-heating season. It's probably the most unpredictable as it relates to our MRO/UE business and it's the first quarter where we actually did see some decline in MRO/UE business. We haven't seen or heard anything from our customers that would indicate any change in behaviors. And so we remain -- we continue to believe that we'll see some -- and I didn't say -- I don't think we implied double-digit growth, but we'll see some solid mid-single-digit -- low to mid-single-digit growth in our MRO/UE business this year.

Okay. Got it. And can you be any more specific on where you think gross margin should be modeled for the balance of the year? It sounds like, clearly, some initiatives here will bring it up. But, I mean, could it be mid 40s again for the balance of the year or will we not get back to that level?

Yes. Brian, we've got a confluence of positive factors in our favor. However, if we have an inordinately large Greenfield mix, again, which is customer dependent, that could mitigate the cost reductions, pricing action and the seasonality that we see. So it's really hard to give quarterly guidance.

Even directionally, Jay? I mean, should I model 40% or 45%, is what I'm wondering. Like, I don't -- closer to 40% or closer to 45% or can't say? Even directionally up from this quarter?

Yes. I don't want to give you an exact number, but sequentially we are moving into the primetime for our legacy business.

Okay. And then, is there any way that you can give any sense for the Greenfield activity and -- just the proportion because you just kind of said, if Greenfield activity remains elevated then gross margin will be under pressure, of course. But I -- what kind of visibility do you have to that ratio for the balance of the year?

The dynamic we are seeing now and kind of what we expected coming into this year, even though we had strong order growth 12%, double-digit for the second -- it was double-digit order growth for the second consecutive quarter, we are seeing a decrease in our backlog, so we're shifting a lot of those larger products -- projects that are flushing out. And so as we go through the balance of the year, we would expect that mix to shift more towards what we've seen historically in the MRO/UE versus Greenfield mix. And so that's kind of an indicator, and I think a couple other things to note is aside from some of the initiatives we have underway to improve the gross margins within the existing business we are seeing for the second or third consecutive quarter, we've seen improvement in margins and backlog. In this past quarter, it was 100 basis points, so.

Okay. And then, Bruce, you mentioned the 90% book-to-bill. Does that imply a sequential decline in revenue in the second quarter?

No, a sequential decline -- no, we don't think so. No.

Can you talk a little bit more about it? I mean, you booked less than your billing. I guess, it's just that the backlog -- the point, I guess, is that backlog is at a healthy level that's going -- a lot of that will...

The backlog is healthy to support our revenue forecast, that's what I would say, for the balance of the year, which we projected 2% to 4% growth. We're right in the middle of that in the first quarter. I don't see anything going forward that would make us believe differently.

Got it. And then, just to clarify. You didn't change, Jay, how you're reporting adjusted EPS, right? You're just reminding us that, that's how you're reporting your adjusted EPS, correct?

That is correct, Brian.

[Operator Instructions]. We are showing no additional questions in queue at this time. I would like to turn the floor back over to management for any additional or closing comments.

All right. Thank you, Donna. Again, I would like to thank everyone for joining the call today, and for your interest in Thermon. Enjoy the rest of your day.

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