Good day, ladies and gentlemen, and welcome to the Thermon Second Quarter 2015 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I will now like to turn the conference over to Sarah Alexander, General Counsel. You may begin.

Thank you, Latoya. Good morning, and thank you for joining us for today's Earnings conference call. We issued an earnings press release this morning, which had 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 be available on our 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 the company is prohibited. During this call, our comments may include forward-looking statements. These forward-looking statements are subject to risks and uncertainties, and our actual results may differ materially from the views expressed today. Some of these risks have been set forth in the press release and in our annual report on Form 10-K filed with the SEC in May. We would also 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 and revenue growth, leverage ratios, acquisitions 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 tables at the end of the earnings press release. These non-GAAP measures should be considered in addition to, and not as a substitute for, measures of financial performance reported in accordance with GAAP. And now, it's my pleasure to turn the call over to Rodney Bingham, our President and Chief Executive Officer.

Thank you, Sarah. Good morning, everyone, and thank you for joining our conference call and your continued interest in Thermon. Today, we have 2 of our Senior Vice Presidents joining me on this earnings call. Jay Peterson, our CFO, will follow me and present the financial details of FY 2015 second quarter; George Alexander, our Executive Vice President of Global Sales, will assist in the Q&A session by answering questions that pertain to global market segments and industry trends. While Jay will discuss our financial details in a moment, I'd like to touch on some of the highlights of our second quarter of 2015. First of all, let me begin by saying that we are off to a good start for this fiscal year. Q1 was good. Q2 was better. Our revenue grew 9% over prior year. Our revenue mix for the quarter was 62% MRO, 38% Greenfield. The resulting product mix produced gross margins that were 52% of sales. This strong margin quarter was driven by a favorable product mix, mostly in the revenue from the United States and the Asia Pacific business units. Our EPS grew to $0.36 per share, which is up 20% over year-on-year. Our backlog grew to almost $106 million. This was an increase of $8 million over the prior quarter and a $14 million increase over prior year's Q2. Purchase orders received were up $14.6 million over prior year and this was primarily due to the increase in the USA and the Asia Pacific regions. Quotation activity was robust with particularly strong performances in Europe and Canada. Thermon's updated pipeline of future projects increased to 587 identified opportunities for heat tracing with an estimated total value of $1.15 billion. Foreign exchange rates negatively impacted our revenue, and this was primarily attributable to the depreciation…

Thank you, Rodney. Good morning. Today, I will discuss our second quarter results, starting with orders in the revenue. Orders for the quarter totaled $87 million, that's a growth of 20% relative to Q2 of last year, and that's following a 29% increase in Q1. Our revenue this past quarter grew to $79 million, that's an increase of 9% relative to the prior year's quarter, with growth in all of our 4 major geographic segments. And note that both orders and revenue achieved record highs this past quarter. During the quarter, our Greenfield revenues grew by 8% and MRO/UE grew by 9%. And on a pro forma basis, after excluding revenue from our largest Greenfield project, total revenue grew by 17% and Greenfield revenue grew by 25%, and both of those comparisons are relative to Q2 of '14. Note that our revenue was negatively impacted by foreign exchange in the amount of $1.2 million, primarily due to the weakness in the Canadian dollar. Our backlog of confirmed orders grew to $106 million, that's an increase of 15% versus September of prior year, and our book-to-bill for this last quarter ended at 1.1. Turning to gross margins. Margin dollars this quarter grew to $41.2 million. And relative to Q2 of last year, our margins increased by 360 basis points to 52.2%. This margin increase was due to the high mix of MRO/UE at 62% of revenues and whereas Greenfield revenue totaled 38%. Margins were 47% for Greenfield and 56% for MRO/UE this past quarter. Core operating expenses for the quarter, that is SG&A, excluding D&A, totaled $19.2 million, an increase of 10% year-on-year. Our OpEx, as a percent of revenue this past quarter, was a competitive 24%, again, x-D&A. The number of full-time employees at the end of September was 856,…

[Operator Instructions] And the first question is from Charlie Brady of BMO Capital Markets.

On the orders, could you give us the breakdown Greenfield MRO. How much they were up on the order side?

Yes. Charlie, this is George. On the Greenfield orders, the -- hold on 1 second. From a -- the orders in Q2 on the Greenfield side were up 7.5%, and on the MRO aside, they were up 9.3%.

And with respect -- on the gross margin, on the prepared remarks, you gave the breakdown between Greenfield and MRO. I don't know if I've heard that before, but could you give us what it was for the quarter last year?

I do have that, Charlie. Let me send that to you in an email. I don't have it right in front of me.

And then just one more on the M&A, you talked a little bit about it last quarter. You talked about maybe something M&A within 6 months or halfway through that now as the timetable still -- has it changed any there or the opportunities had changed?

This is Rodney. We're still on target and nothing has change from our previous comments.

The next question is from Brian Drab of William Blair. Brian Drab - William Blair & Company L.L.C., Research Division: Can you talk a little bit about your expectations for gross margin, the balance of the year? This is, I think, an all-time record as far as my model shows. What do you think you can do in terms of holding that level of gross margin?

It is a long-term record for us. We do not anticipate protracted levels at this performance level. We expect growth -- further growth in Greenfield in the second half of the year. And as you know, there are significant buyout items with the Greenfield installation. Therefore, we believe, there are gross margin degradation, if you will, or lower gross margins in the second half of the year, especially relative to what we saw in this current quarter. Brian Drab - William Blair & Company L.L.C., Research Division: Can you be any -- I don't mean to press you too much. But can you be anymore specific on that, because we've introduced company a few years ago as 44%, 45% gross margin, then ticked up and we got comfortable with the high 40s, now 52%. Does degradation mean potentially back to 45% or does that mean back to 50%?

Brian, this is Rodney. Our gross margins as a percent of sales, they've outperformed our expectations, mainly due to the fact that the gross margin within the Greenfield projects themselves, which is jobs over million dollars, have performed more than our expectations mainly because of the flexible heater cable content of the overall purchase order. And so, when we look at our timeless business model that we did introduce you to it like 45%, that was based on the data that showed certain component of flexible heater cable sales. That component has increased as well as some of our other products have increased several points in margins. So for us to go back to 45%, it is possible if we had a quarter of all Greenfield and literally no MRO, but we haven't had that scenario in the last year and a half. So a couple of turns now would be expected from us, as we come into a quarter that could be heavily laden with Greenfield revenues. And also, I might mention that we are performing now in an environment without much contribution from megaprojects, which also tend to be at lower margins. So I think that going forward, we do hope that we will incorporate megaprojects again at some point in time. But right now, we're pretty much absent from our revenue. Brian Drab - William Blair & Company L.L.C., Research Division: Okay. And just to clarify, Rodney's, I think, you said a couple of turns downward would be reason what they are expecting in. Is that the same as saying a couple of percentage points down from the 52% level?

Somewhere in that area, yes. Brian Drab - William Blair & Company L.L.C., Research Division: Okay. And then can you give any color around the growth that you saw in the different geographic regions in revenue in the period, and specifically, in the Middle East as well?

We saw growth in the quarter in all 4 of the major geographic regions. The U.S., Latin America and Europe were all double-digit growth. Asia Pacific and Canada were single-digit growth. But the Middle East is a key market for us, and we are active in the business opportunities there not only from indigenous opportunities from the Middle East but we're also very active with the EPCs around the world and with orders that don't originate from the Middle East, but ultimately that's where the installed base is. Brian Drab - William Blair & Company L.L.C., Research Division: Okay. And then last if I could. What price of oil would you expect to see the SAGD projects in the oil sands potentially slowdown and clearly doesn't -- your results are indicating that you're not seeing any sign of any slowdown there, but can you talk a little bit about the potential impact of this pullback on the price of oil on that business?

Yes. As you pointed out, we aren't seeing any slowdown in the SAGD projects as a result of the oil price. And in fact, we are currently looking at business primarily a short-term issue because it's mainly a supply and demand balance at this point. We still see the demand for energy in the longer term as being strong, and so we're not -- we're still very bullish on the opportunities that we see in the oil-producing areas. Brian Drab - William Blair & Company L.L.C., Research Division: Would you say, George, of those projects around, what is it, $70 a barrel plus or minus? Were they still economical or even lower than that?

I think you got to read the same information that we do. $70 a barrel seems to be a threshold. But again, I think, there's also -- it's been pointed out in the press that there's a lot of value put on long-term investment, diversity in terms of where the investments are. And so again, we don't see that softening at this point.

The next question is from Scott Graham of Jefferies.

Just a couple things in terms of you how much of you guys have made. Jay, the plus-17% revenue, is that largely the roll off of the Kearl being excluded from that number?

Exactly. Exactly.

All right, great. And then, George, when you asked -- I think the Charlie's -- answered his question about orders, I thought that the orders were up 20% and maybe I misheard you, George, but I heard you say Greenfield up 8% and MRO up 9%.

You're correct. I made an error there. I was referring to revenue. Whenever I answered Charlie's question, I was answering it based on revenue. Revenue was up, for Greenfield, it was up 7.5% and revenue for MRO was up 9.3%. That was not orders. My mistake.

Right. Are you able to answer that question? Or is that something you'd rather not?

We generally don't break down orders from -- by Greenfield and MRO, but our backlog as noted is up quarter-over-quarter and quarter over prior year. So we are seeing, I think, a increase in Greenfield MROs.

Got it. My last question, because there've been a number of questions. You guys did a great job also, and I'm wondering what happened. And my last question is simply as alluded to earlier, there's been quite a GAAP down in the price of oil and you alluded to, Rodney, that you are seeing some delivery delays with respect to Russia more seemingly because of geopolitical unrest there. Are you seeing -- it sounds to me like you're not, but are you seeing anyone react in any way even outside of Canada, which, I think, you talked about already, in any kind of knee jerk fashion here, particularly on the smaller projects, which are easier to move around or even on the larger projects, which are fairly easy to push out. Anything that you're seeing that suggest that your customers' tone of ordering has been impacted by the decline in the price of oil?

I'll let George address Russia, if you like. And as it relates to our capital investments in the sanctions, but in other areas, we have not seen any knee-jerk reaction tracing business flow.

And, Scott, again as it relates to the price of oil, we don't believe that -- something that is going to be affected by us in the short term. This would have to be an extended -- we think anyway have to be an extended period of time where oil would have to be in the $70 or below category. And it's only -- and even then it would only affect the upstream activity, and in fact, we'd probably further enhance the downstream activity. And as it relates to Russia, we have seen some pushback, if you will. I mean, the sanctions have caused us some additional hassles as an example from in terms of getting material into the country from our importing materials into the country. But again, it's mainly due to capital projects for state-owned enterprises where financing is an issue because the sanctions certainly have had an impact on the Russian companies' ability to gain access to financing. So we've seen some of that. But again, our business in Russia based on the installed base that we have is ongoing and we're still very active there. And at some point in time, we think that's going to turn around once our leaders get there -- get on the same page.

The next question is from Jon Braatz of Kansas City capital.

Rodney, most of my questions have been answered, but just going back to the gross margins. Obviously, they've improved and you talk about the mix changing and so on as a driver. But internally, in terms of manufacturing productivity, are you driving -- are you seeing much improvement in, let's say, the manufacturing margins having a favorable impact on the overall gross margins?

Yes, we are seeing that. When we look at our overhead rates, for example, today versus a couple of years ago, yes, we are seeing improvements.

And do you think there's more to come on that front?

Nothing of any large magnitude at this present time.

Nothing more than what to volume does as you amortize indirect cost. But I mean, we are highly efficient in our manufacturing operation, specifically as it relates to our flexible heater table operations here in San Marcos. So -- but we have seen an improvement since we built the plant several years ago and workflow process improvements and so on.

[Operator Instructions] The next question is from Jeff Hammond of KeyBanc Capital Markets.

Just wanted to kind of revisit your guidance comment about the buys upwards, maybe give us a little finer tuned. And then within that, looks like your year-to-date your MRO revenues up kind of low-double digits and your Greenfield is down slightly. And as we go into the back half, it seems like comps get much tougher for MRO and much easier for UE. So I'm just wondering how to think about mix into the second half or maybe parsing those growth rates between MRO and Greenfield.

Jeff, this is George. Our year-to-date Greenfield business is up 9% and our year-to-date MRO/UE is up 4.2%. And again, going forward, we believe that we're going to average close to the 60-40 split that is our historical number. Again, where -- Q3 is going into the heating season, so normally we would expect certainly an uptick in MRO/UE revenue in Q3 because of the effects of the heating season. But we also have a strong backlog. So we think, we're going to hang in there close to that 60-40 number.

Okay. Are you -- in those year-to-date growth rates, are you excluding Kearl?

No, not.

Because first quarter, you had a much higher mix of MRO year-on-year. And even 2Q, you had a larger mix of MRO slightly.

Yes, when we look at, for example, Q2, we look at the prior 12 months performance. But just for Q2, okay. So we look at all the customers that have build in excess of $1 million over the prior 12 months and then look at that portion within the Q2 quarter. Year-to-date, we do that same thing, but it is not additive -- Q2 is not additive to our prior published Q1.

Okay. Okay. That's helpful. And then just kind of back to the gross margin. I think the thing that stuck out to me is just how high the margins were in Greenfield. So if I recall, the trend historically, it kind of been low to mid-30s. So I mean, as we go forward and we have these absence of megaprojects and maybe the smaller -- the smaller Greenfield projects, do we trend closer to the 47% this quarter or closer to that kind of low to mid-30s that you've historically had?

I think if we have significant megaprojects down the road, similar to what we had, for example, with Kearl, we will see a downward exposure. What we're seeing right now, though, is a lot of the smaller Greenfield that have more heater cable content, and that is obviously benefiting our margins of late. And in terms of the outlook over the next year, we do not have any Kearl-like projects in the outlook or at least anything of the significant level that Kearl invoiced.

Okay, and how much visibility do you have on what mix of heater cables is in the backlog and what might shift?

We have line item detail by customer, by product. So it's pretty good detail. And also, we have a CRM process where we look at what we anticipate to book over the next year or 2. So very, very good visibility of our perspective.

Okay. So you prospect no megaprojects and a pretty good mix of heater cables continues?

Yes.

The next question is from Scott Graham of Jefferies.

I did actually think of a question while you were answering me, George, and I just wanted to see from a marketing standpoint -- I know that midstream pipelines have really not been a large business for you guys, yet a lot of projects do seem to be lining up in oil and gas in the midstream. I'm just wondering what marketing efforts are going to be toward that opportunity going forward. It seems like it's an opportunity that you guys can avail yourselves of it or more of on that and hopefully, you'll tell me -- answer both questions.

Yes, that's right. Midstream transportation is not a typically one of the areas that is a significant contributor for us. But again, there is more and more attention given today to heating solutions as a means to provide the pump-ability of fluids and pipelines. So the number of opportunities in that particular market sector is actually increasing. There's been a lot of information published about the availability of some of the other options, like daily once as strength of its availability. So we are focusing on that. There's a lot of terminals activity, plants for building terminals around the world that have significant heat tracing opportunities. So we are looking to those sectors as more significant contributors going forward.

And the next question is from Madi Everett of Johnson Rice.

Can you talk or can you give us a more color as to why gross profit margins were up significantly during the quarter relative to the modest increase in MRO/UE as a percentage of total revenue?

Yes, the big driver there was when we look at the performance of Greenfield. Historically, our Greenfield margins had been in, let's say, the mid-30s to high 30s. This last quarter, they were at 47%. I think that's due to the mix of the product within Greenfield. And also something that we haven't touched on yet in this call. Over the last 2 years, we have made a concerted effort in investing in project managers to make certain that we have people driving the performance of those projects at/or above the quoted gross margin. And I think, we've seen some success in that over the last quarter or 2.

Okay. And also, can you talk about where the new awards are in the first half of fiscal '15 are coming from? Just trying to get a sense of the geographic location and industries. And are there any larger awards included or is it just a mix of smaller and mid-sized awards?

From an order perspective, if we look at where we're at in the half, we have 3 of our 4 geographies growing in total orders year-on-year with a greatest amount of the growth coming from the Americas.

And some from Asia Pacific as well, yes, those are 2 top performers.

Okay. And are these larger awards included? Or is there a mix of the smaller and mid-sized awards?

In the Americas, it's largely being driven by smaller projects and MRO/UE. Again, the impact of gas as it relates to the downstream activities for polypropylene, polyethylene type process plants has been significant. We're also seeing quite a bit of activity in the power industry as it relates to existing facilities getting ready for the upcoming heating season for the winterization process. So the Americas has been active and is mainly against smaller projects and MRO/UE, and that's usually more profitable business. So that's also something that's helping keep our margins a little higher than is what would be considered normal.

The next question is from Charlie Brady of BMO Capital Markets.

So I don't want to beat this to the death. So I'm going to anyway on the gross margin. I mean, I understand what you're saying about the Greenfield being elevated relative historic levels, but in the release you called out the impact of manufactured heating cable. Does that apply to the MRO side of the business?

To both, yes.

Okay. And then I mean, I guess, it just seems like your margin expectation seems conservative even if you go back to a 60-40 split. I mean, are you expecting 200 basis point margin decline in both sides of the Greenfield and the MRO business? Or am I missing something here, because it seems...

Historically, if you look at our business over the last decade, even over the last several years, there will be pockets, quarters, if you will, where we will hit down in the mid-40 range. I think 2 years ago, we even hit 44% for a quarter. So that is entirely possible. Again, it is predicated on the mix of heater cable versus, for example, buyout items or construction or engineering in that overall mix in that particular quarter.

And it also is impacted on where the projects are looking. I mean, it's nice to think about that the projects are created equal across the globe, but that's just not the case. I mean, it's the pricing and margins are driven by the demand and availability of manpower and so forth. And so it also depends on what geographies are contributing to the growth.

Does the U.S. -- in terms of that answer, does the U.S. tend to be on the upper end of the margin spectrum or lower or mid?

Mid to upper end.

And there are no further questions in queue at this time. I'd like to turn the call back over for closing remarks.

Well, again, thank you everyone for your interest in Thermon and joining us on the call today. And we look forward to seeing you in about 90 days.