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Thermon Group Holdings Inc (THR -0.52%)
Q3 2019 Earnings Conference Call
Jan. 30, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Greetings, and welcome to the Thermon Group's Holdings Third Quarter Fiscal 2019 Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Sarah Alexander, General Council for Thermon Group Holdings. Please go ahead, Sarah.
Sarah Alexander -- General Council and Investor Relations
Thank you, Kevin. Good morning and thank you all 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 www.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. Any redistribution, retransmission or rebroadcast in any form without the expressed written consent of the company is prohibited.
During this call, our comments may include forward-looking statements, which are subject to risks and uncertainties. We do not intend to update these statements unless we're required to do so under applicable securities laws, and our actual results may differ materially from the views expressed today. Some of these risks have been set forth in the earnings press release and in our quarterly and annual reports filed with the SEC. 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, revenue growth, profitability, leverage ratio, acquisition, synergies and various other aspects of our business.
During the call, we will also discuss some items that do not conform to generally accepted accounting principles. We 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.
And now, it's my pleasure to turn the call over to Bruce Thames, our President and Chief Executive Officer.
Bruce Thames -- Executive Vice President and Chief Operating Officer
Thank you, Sarah. 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 2019 third quarter. To begin, we continue to see the positive impacts of investments made during the industry downturn directly translate into improved operating results and expanding market share. Despite a very warm start to the heating season, our team drove broad-based organic growth of the installed base across our business lines.
On a trailing 12-month basis, this business delivered $84.4 million in adjusted EBITDA, approaching the previous record set in fiscal year 2015, when oil was $100 a barrel and there were very large oil sands projects under way. We've been able to accomplish this by expanding our addressable market, diversifying into adjacent markets and differentiating our offering. These efforts drove strong third quarter revenue growth in our Greenfield business, which is key to growing the installed base to capture future MRO/UE revenues. An accelerated rate of project execution drove revenues of $119.4 million in the quarter, up 20% year-over-year on a pro forma basis with organic growing 28.6%, excluding FX.
Inorganically, we saw Thermon Heating Systems finish at $23.6 million in revenue, up 2.5% on a pro forma basis with EBITDA remaining on track with our base case for the acquisition. We saw an unusually high mix of Greenfield versus MRO/UE of 45% to 55%, as compared to a 38% versus 62% mix respectively, in our Q3 of fiscal 2018. This mix negatively impacted margins by 300 basis points over the prior year quarter, as Greenfield volume grew by nearly 50%. MRO/UE revenues also grew by 11.2% year-over-year, despite a warmer start to the heating season.
Project execution and price realization more than offset the impacts of tariffs during the quarter as project margins and electrical margins expanded by 80 basis points and 70 basis points, respectively over the prior year. The incremental volume drove strong adjusted EBITDA growth in the overall business at $26 million in the quarter, an increase of 20% over prior year. Operational improvements drove improved leverage on operating expenses in the quarter to achieve 21.8% EBITDA margins. Most notably, we were able to achieve this leverage while simultaneously implementing an ERP and an HRIS system and increasing our investments in research and development.
Our GAAP EPS of $0.29 per share compared to $0.02 a share in the third quarter of fiscal 2018. Adjusted EPS of $0.40 a share increased 14% over the prior year quarter. Thermon Heating Systems contributed $0.08 a share in adjusted EPS in the quarter, when fully burdened with the associated debt. We continue to generate positive cash flow and EBITDA growth to drive lower net debt to EBITDA. Since the acquisition, net debt to EBITDA has been reduced from 3.4 times to 2.3 times over a 14-month period. Our first priority for capital allocation remains debt reduction to position the business to take advantage of future growth opportunities.
Bookings for the quarter of $105.6 million were down 6% year-over-year on a pro forma basis. On a trailing 12-month basis bookings are at $371 million. The backlog of $136 million is also down 19% over prior year, due to the strong shipments during the quarter. Looking forward, we saw a very large increase in quotations which were up 82% over prior year. We also saw the project pipeline grow to a record level of $1.4 billion with over 1,300 active opportunities over the next three to five years.
From a market perspective, upstream activity in the shale plays has been steady, but there we see some uncertainty with operators due to oil price volatility. The chemical and petrochemical sectors have shown continued strength, which has been instrumental in driving growth over the last five quarters. Combined cycle power projects are showing steady single digit growth as natural gas continues to be the fuel of choice for power generation. Midstream activity particularly in LNG is driving some very large project opportunities globally that should extend over the next several years. Transportation has been active in the US and Canada with a number of multi-year transit contracts being awarded that help moderate the seasonality in the energy sector.
Turning now to look geographically, North America continues to show strength in fiscal 2019, that began in the second half of our fiscal 2018. We're seeing growth continue to gain momentum in fiscal 2019 led by chemical and petrochemical spending. Pent-up demand in maintenance and upgrade expansions has led to robust spending across growth -- North America and is anticipated to continue at this pace. In Eastern Hemisphere, we continue to see larger projects in backlog move forward through the first three quarters of fiscal 2019. We do expect growth to moderate in this hemisphere during Q4 and early fiscal '20. We continue to invest in our research and development capabilities to accelerate execution of our project and technology roadmaps.
During the quarter, we launched the new CompuTrace Power Management software module. This addition to our VisiTrace 3D software platform streamlines and automates the design of power distribution and electrical load management for heat tracing systems. This new tool aids modular construction programs by automating the design process to ensure optimal designs that reduce material and design labor costs, while improving project schedules. In the coming months, we will announce three more new product launches as promised at the beginning of this fiscal year.
Looking forward, we're pleased with the business performance through the first three quarters of this fiscal year. The sustained positive momentum and project activity over the last five quarters has led us to increase our full year guidance for the third consecutive quarter. The new fiscal year 2019 revenue forecast will be increased to $396 million to $402 million, an increase of 28% to 30% over fiscal year 2018. No M&A is comprehended in these revenue projections. We are currently building our plans for fiscal year 2020 and we'll provide an update during the earnings call scheduled in May.
I'll now turn the call over to Jay Peterson, our CFO to address the details of our Q1 fiscal 2019 financial performance. Jay ?
Jay Peterson -- Chief Financial Officer
Thank you, Bruce. Good morning. I will start by discussing our record Q3 results and then turn to review of our updated guidance for this fiscal year. First off, revenue and orders. Our revenue was a record this past quarter and totaled $119 million, that's an increase of 29% over the prior year's quarter. Organic revenue in constant currency totaled $98.5 million and that grew by 28%. FX decreased our organic revenue by approximately 3%, and M&A revenue that is from the CCI acquisition grew 47%. And on a pro forma basis, our total revenue grew by 20%. Organic Greenfield revenue grew by 49% over the prior year quarter and was 45% of the revenue mix. The organic MRO/UE revenue grew by 11% and amounted to 55% of the organic revenue mix. And the above Greenfield mix was 5% higher than our typical historical performance. We continue to experience positive signs of a recovery with our organic revenues growing double-digits for the fifth consecutive quarter.
And in addition, Thermon Heating Systems revenue increased slightly on a pro forma basis. Orders for the quarter totaled $106 million versus $105 million in the prior quarter. And our backlog of orders ended December at $136 million versus $168 million, as of December of last year and that's a decrease of 19%. And FX negatively impacted our backlog by $5.3 million. Our book-to-bill for the quarter was negative at 0.89 and this was primarily due to the acceleration of Greenfield project revenues from Q4 into Q3.
And moving on to gross margins and gross profit. Margins were 43% of revenue and gross profit grew by 20% on a GAAP basis. The organic mix shift to Greenfield contributed to the lower than typical corporate margins, due to the higher content of engineering and construction labor and third-party buyout items. Margins from Thermon Heating Systems were accretive to our corporate margins and on a pro forma basis, gross profit dollars grew by 10.1%. And while we have experienced cost increases attributable to the recent tariffs, we have been able to pass these increases along to our customers and we have not seen any impact to our gross margins due to tariffs.
Moving on to operating expenses. Core operating expenses for the quarter, that is SG&A, and this excludes depreciation and amortization of intangibles and any transaction-related expenses, totaled $25.8 million for the quarter versus $21.6 million in the prior year, that's an increase of 19.6%. And on a pro forma basis, our core spending increased from $23.1 million to $25.8 million, or a 11.6% and that compares to a 20% increase in revenue. Our OpEx as a percent of revenue was 21.6% and again that excludes depreciation and amortization and any transaction-related expenses. And that's an improvement of 170 basis points from the prior year level of 23.3%. And this spending improvement was concurrent with a 12% increase in organic research and development spending related to future project, product offerings, a successful implementation of a corporatewide HRIS system and the very tailend of an organic ERP implementation.
Now switching to earnings. GAAP EPS for the quarter totaled $0.29 a share compared to the prior year quarter of $0.02 and that's an increase of $0.27 per share. Thermon Heating Systems contributed a gain of $0.04 a share to our GAAP EPS and that is on a fully burdened basis, inclusive of all incremental interest expense. Adjusted EPS and this is defined by GAAP EPS less amortization expenses and any one-time transaction-related charges totaled $0.40 a share relative to $0.35 a share in the prior year quarter. And we will continue to communicate this adjusted EPS construct in the future, due to the high level of non-cash amortization expense running through our income statement. And at present, we are expensing $5.5 million per quarter, or $0.12 per share or approximately $0.48 a share on an annual basis or non-cash amortization.
EBITDA grew by 20% versus the comparison quarter and EBITDA as a percent of revenue was 21.8%. EBITDA totaled $25.9 million this past quarter and trailing 12-month EBITDA, on a pro forma basis totaled a near record of $84.4 million and that's an increase of 25% over the trailing 12-month, as of December 2017. And on to the balance sheet and capital allocation, our cash and investments balance at the end of December improved to $33 million. The most significant use of cash for the quarter was the $20 million increase in our accounts receivable balance, due to the high level of December shipments. CapEx for the first three quarters of the year totaled $7.2 million or 2.4% of revenue.
Recall our net debt to EBITDA ratio was 3.4X at the time of the October '17 CCI acquisition. Through continued growth in EBITDA and continued reduction in our net debt, we have delevered the business to 2.3X, all within a 14 month period. And lastly, our capital allocation priority and this is in the absence of any near-term M&A transactions is to continue to reduce our debt through optional debt repayments. Taxes, our tax rate for the third quarter was 29.9% and we continue to work with our tax advisors on potential strategies to reduce our income tax exposure.
And finally 2019 guidance, a couple of points I would like to mention. First off, we are planning top line revenue to be in the $396 million to $402 million range in this fiscal year. And lastly, we expect to reduce our net debt to EBITDA leverage to approximately 2.0X over the balance of the year.
And I would now like to turn the call back over to Kevin to moderate our question-and-answer session. Kevin?
Questions and Answers:
Operator
Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions) Our first question is coming from Charley Brady from SunTrust. Your line is now live.
Patrick Wu -- SunTrust Robinson Humphrey, Inc. -- Analyst
Good morning, guys. This is actually Patrick Wu standing in for Charley. Thanks for taking my question. Can you hear me? Okay.
Bruce Thames -- Executive Vice President and Chief Operating Officer
Yes. Good morning, Patrick.
Patrick Wu -- SunTrust Robinson Humphrey, Inc. -- Analyst
Good morning. So just on gross margin, I mean, I understand that the mix of Greenfield obviously is higher in the quarter, so that SKUs are down a bit. But can you provide some granularity on how your margin looks like now in the backlog relative to this point a year ago. And I guess how -- you mentioned that the pricing as you guys were able to offset some of tariffs. How are the pricing trends looking for the new projects coming in and I guess, we can start with that then.
Jay Peterson -- Chief Financial Officer
So the gross margins in the backlog are essentially flat with what they were in -- at the end of Q2. We have not seen any significant mix of the projects in the backlog nor the inherent pricing. So it's essentially flat quarter-on-quarter.
Patrick Wu -- SunTrust Robinson Humphrey, Inc. -- Analyst
Okay. I think you might have mentioned in the very beginning of your commentary and I may have missed the numbers, but in the past, you have given how gross margins for Greenfield and MRO/UE have moved within the quarter. Can you shed a little bit of light on that or maybe just restate the numbers that you mentioned. And I mean, given the variability of Greenfield mix from quarter-to-quarter, this will be helpful and to see how you guys think about gross margin on a forward basis?
Jay Peterson -- Chief Financial Officer
Sure, Patrick. So that in the past the guidance we have provided and articulated on Greenfield gross margins was a range of 30% to 40% and correspondingly MRO/UE gross margins would be in a range of 50% to 60%. In this past quarter, the main driver to our margin change year-on-year was not the specific gross margins, but it was really nearly a 5X differential in the growth rate of Greenfield relative to MRO/UE. I can't say that for both Greenfield and MRO/UE they were on the lower end of the range I just mentioned, but for competitive reasons we're not going to disclose the exact percentages.
Patrick Wu -- SunTrust Robinson Humphrey, Inc. -- Analyst
Okay. I'll pass the line. I'll hop back in queue. Thank you.
Jay Peterson -- Chief Financial Officer
Thanks, Patrick.
Operator
Thank you. Our next question is coming from Brian Drab from William Blair. Your line is now alive.
Brian Paul Drab -- William Blair & Company -- Analyst
Hi, Good morning. Thanks for taking my questions.
Bruce Thames -- Executive Vice President and Chief Operating Officer
Good morning, Brian.
Jay Peterson -- Chief Financial Officer
Good morning, Brian.
Brian Paul Drab -- William Blair & Company -- Analyst
So, Jay maybe just to clarifying the organic revenue growth. When you're saying organic and you made it clear in the press release, you're just saying let's take THS out of the calculation completely and that's where you get the $95.8 million and that compares to $76.6 million last year or thereabouts, is that right?
Jay Peterson -- Chief Financial Officer
Yeah. The exact numbers for organic, I can give it to you on a constant currency basis, $97.9 million versus $76.6 million, FX impacted that number by $2.2 million.
Brian Paul Drab -- William Blair & Company -- Analyst
Right. So I've got -- I got that.
Jay Peterson -- Chief Financial Officer
Okay.
Brian Paul Drab -- William Blair & Company -- Analyst
Thank you. Yeah. So when I'm thinking about organic, this is just like a housekeeping item really, but can you tell us how much revenue THS would have recorded in terms of acquisition revenue in this quarter versus two months that are inorganic or in the organic calculation?
Jay Peterson -- Chief Financial Officer
Yeah. In actually the way, we've done this was to break it out. Okay.
Brian Paul Drab -- William Blair & Company -- Analyst
I understand. Yeah.
Jay Peterson -- Chief Financial Officer
So that might be a little bit...
Brian Paul Drab -- William Blair & Company -- Analyst
That's why I do it the other way.
Jay Peterson -- Chief Financial Officer
Okay. $23.6 million for the quarter.
Brian Paul Drab -- William Blair & Company -- Analyst
Right.
Jay Peterson -- Chief Financial Officer
For the two months in the prior period $16.0 million. If we do a pro forma three months in both quarters, it's $23.6 million versus $23 million or 3% growth for THS.
Brian Paul Drab -- William Blair & Company -- Analyst
$23 million in third quarter of '18.?
Jay Peterson -- Chief Financial Officer
That is correct, Brian.
Brian Paul Drab -- William Blair & Company -- Analyst
Okay. Got it. Okay. And so in this period, what was the revenue in THS in October? Just to close the books on this?
Jay Peterson -- Chief Financial Officer
I don't have that exact number for the month, Brian, sorry.
Brian Paul Drab -- William Blair & Company -- Analyst
Okay. The only reason I'm asking is just because I'd like to know what revenue from THS I would put into my organic calculation versus --?
Jay Peterson -- Chief Financial Officer
Yeah, I can get that for you.
Brian Paul Drab -- William Blair & Company -- Analyst
Right.
Jay Peterson -- Chief Financial Officer
Let me shoot you an email with that.
Brian Paul Drab -- William Blair & Company -- Analyst
Okay. So maybe stepping back, bigger picture it sounds like some revenue was recognized earlier than expected or some pulled in the third quarter from fourth quarter and can you talk about that and why the implied guidance? I think the big question today right is going to be, you did $119 million in the third quarter and your guidance implies around $102 million, $103 million for the fourth quarter, which is below the street estimates and why is that -- what's going on there?
Bruce Thames -- Executive Vice President and Chief Operating Officer
So yeah. Brian. This is Bruce. We did see a lot -- I mean, we've talked about this since in prior calls, kind of the opportunity we saw coming into this fiscal year. And if you recall, we've seen a very protracted kind of backlog materialization during the downturn and we began to see that, really begin to come in and so we saw it is protracted as 18 months, historically that backlog conversion has been more in the 12 month range. We're now seeing that normalize. And so when you look at timing of projects, we had seen customers delaying, deferring and so that would affect timing of revenue quarter-to-quarter. We actually saw that really accelerate. And really the last couple of quarters, which has led to a much heavier Greenfield mix. So it's really just a project timing issue. We do continue to see this carrying over into next year -- next quarter, excuse me, and so we do see revenues -- just timing of revenues being stronger in Q3 than in Q4. Quite frankly that's more in line with our historical seasonality and certainly the MRO revenues, based upon the weather, the heating season will positively or negatively impact those as well, but we feel very confident in the fourth quarter revenue forecast that we've projected.
Brian Paul Drab -- William Blair & Company -- Analyst
Okay. It seems like a bit -- I know there is seasonality here, but it seems like a pretty big step down if you hold MRO. If MRO was constant from third quarter to fourth quarter, you'd have to go from $51 million in Greenfield down to $34 million. And $34 million, that's what you did in the first quarter or $33.5 million. That's -- I know you didn't give these numbers for the fourth quarter. I'm just wondering, would you -- does that even make sense that the fourth quarter given all the momentum in the building pipeline would be in line with first quarter Greenfield?
Bruce Thames -- Executive Vice President and Chief Operating Officer
No, no. I think you've mistaken, what we would expect is not the amount of Greenfield and it would be at the expense of the MRO/UE. We would expect revenues to be more normalized in that 60/40 range to our historical.
Brian Paul Drab -- William Blair & Company -- Analyst
Yeah. Okay. So would you expect MRO/UE steps down sequentially then I guess what we're -- would that implies -- is that -- why would that be.
Bruce Thames -- Executive Vice President and Chief Operating Officer
It was typically what we see in the seasonality of this business, didn't necessarily occur exactly that way last year, but certainly if you look over time that's been what we've experienced.
Brian Paul Drab -- William Blair & Company -- Analyst
Yeah. Okay. Yeah, I see it, and I know that. It just seems like a pretty big step down given the momentum and given your comment that you got off to a slow start in the heating season in the third quarter, but I was trying to piece...
Bruce Thames -- Executive Vice President and Chief Operating Officer
Certainly, the weather that we're seeing right now could have a very positive impact on that forecast.
Brian Paul Drab -- William Blair & Company -- Analyst
Yeah. I would think so, it's negative 50 windshield when I walked -- went out this morning.
Bruce Thames -- Executive Vice President and Chief Operating Officer
Yeah. That can definitely have with a very positive impact to the forecast that's been proven.
Brian Paul Drab -- William Blair & Company -- Analyst
All right. I'm going to let others ask questions and I'm going to follow up later today. Thanks very much.
Bruce Thames -- Executive Vice President and Chief Operating Officer
All right. Thank you.
Jay Peterson -- Chief Financial Officer
Thank you, Brian.
Operator
Thank you. Our next question today is coming from Martin Malloy from Johnson Rice. Your line is now live.
Martin Whittier Malloy -- Johnson Rice & Co. -- Analyst
Good morning.
Bruce Thames -- Executive Vice President and Chief Operating Officer
Hi, Marty. Good morning.
Martin Whittier Malloy -- Johnson Rice & Co. -- Analyst
Congratulations on a strong quarter there.
Jay Peterson -- Chief Financial Officer
Thank you.
Bruce Thames -- Executive Vice President and Chief Operating Officer
Thank you. It's been a good year.
Martin Whittier Malloy -- Johnson Rice & Co. -- Analyst
My first question is about Canada and with the curtailment for oil sands in Alberta. How is that impacting? What you're seeing from your customers, if it, is it all?
Bruce Thames -- Executive Vice President and Chief Operating Officer
Yeah. We've talked about this over the last several years. Certainly, the takeaway capacity in the oil sands has really negatively impacted the price of Alberta crude. It has been really at a $30 a barrel discount to West Texas Intermediate. Certainly that varies, but so that has had a big impact to investments, so essentially what we've seen is we've been able to drive these business levels with really the lack of kind of those -- large capital projects that we saw in Canada during the early 2010 to 2015 time frame.
What we have seen is based on the installed base our baseline MRO revenues in Canada have virtually doubled from say the mid-2000s, the '05, '07 timeframe and that's really due to the much larger installed base there. So historically, you might look back and revenues would have been $25 million to $30 million on an MRO/UE basis and now, we're generating revenues in kind of the mid-50s to $60 million range in our Canadian operations. So I guess just that broadly characterizes what we've seen.
Martin Whittier Malloy -- Johnson Rice & Co. -- Analyst
Okay. Thank you. And then just with your -- the improvement that you're seeing in the net debt ratio. Could you maybe speak to, if you look out six, 12 months, do you think you're going to be in a position to be more active in looking at acquisitions.
Jay Peterson -- Chief Financial Officer
Yes, yes we do. We have a pipeline of acquisitions and the idea is to grow our business both organically and inorganically. And if we were to lever up again, we believe based on history now that we can delever in a rather rapid pace assuming we were to do an acquisition in the next 12 months, so the answer is yes, Marty.
Martin Whittier Malloy -- Johnson Rice & Co. -- Analyst
Great. Thank you very much.
Jay Peterson -- Chief Financial Officer
Thank you.
Bruce Thames -- Executive Vice President and Chief Operating Officer
Thank you.
Operator
Thank you. Your next question is coming from Scott Graham from BMO Capital Markets. Your line is now live.
Kath Yang -- BMO Capital Markets -- Analyst
Hi. This is Kath Yang (ph) for Scott.
Jay Peterson -- Chief Financial Officer
Hi, Kathia. How are you?
Kathia, Good morning.
Kath Yang -- BMO Capital Markets -- Analyst
Good. How are you guys doing ?
Bruce Thames -- Executive Vice President and Chief Operating Officer
Doing well.
Kath Yang -- BMO Capital Markets -- Analyst
So on the Greenfield, what is really driving the acceleration. Can you provide any more color on that ?
Bruce Thames -- Executive Vice President and Chief Operating Officer
Again, I kind of go back to timing. What we had seen really is a lot of these projects particularly are petrochemical related. And as we saw the increase in oil prices, we saw some pretty big disparities between the price of say natural gas liquids things like propane, ethane things like that and naphtha as a feedstock and so that price differential has really made the economics pretty compelling. And even though we've seen crude prices come fall here from the mid-60s to the to low-50s. We're still seeing those are pretty compelling economically for these operators. So those have been, really probably the largest driver behind just pace of execution.
Kath Yang -- BMO Capital Markets -- Analyst
And Bruce, if I'm not mistaken you said that you expect this to continue right until next year ?
Bruce Thames -- Executive Vice President and Chief Operating Officer
Yes. So, and again, I go back to historically, we've seen kind of backlog conversion in that 12 month range. It had been as protracted as 18 months and we're now seeing that more normalized.
Kath Yang -- BMO Capital Markets -- Analyst
So if these are lower gross margin, how should we look at gross margin in 4Q and then going forward. Can you provide any color on that?
Bruce Thames -- Executive Vice President and Chief Operating Officer
So the biggest -- I mean one of the biggest impacts that we've seen to gross margins historically is really mix. And we have -- we have seen a large project -- and I want to clarify that our backlog is largely projects. There's only one or two weeks of kind of MRO/UE sitting in that. So once we look at margins and backlog, they've been relatively flat. And so really it's the mix of that we see in any given quarter that has the greatest impact on our absolute margins. I had noticed -- I had noted in my script that we have seen some improvement just in project execution and as a result, we've been able to see about a 70 basis point or 80 basis point improvement year-over-year and just our project margins. And as we look within our products sales, we're seeing our electrical margins improve similarly. So those are some positive signs really on just the project execution as well as price realization to offset the negative impacts we've seen from tariffs.
Kath Yang -- BMO Capital Markets -- Analyst
Just my last question, why have orders slowed -- the growth?
Bruce Thames -- Executive Vice President and Chief Operating Officer
The order intake is lumpy because of these projects. Our baseline MRO business actually increased 11% year-over-year, which was a very positive sign. So it's kind of low-double digit growth year-over-year. It was just significantly overshadowed by the revenue growth we saw in Greenfield, which was up literally 50% year-over-year. So as we look forward certainly, we watch this. We kind of look on a trailing 12. The good news that we've seen is our quota activity really rose significantly during the past quarter and it was broad-based and a lot of that we're seeing some nice quota activity really in both hemispheres.
And as we look at our project pipeline which is really our opportunities that we're tracking that have process heating content over the next three to five years, we've actually seen that grow to over $1.4 billion and we've seen the number of projects grow to over 1,300. So that's a new record level for us. One of the particular areas we've seen some very nice growth has been in LNG, and we do see some major projects on the horizon that would generate some significant opportunities to grow both Greenfield, as well as growing the installed base over the next three years.
Kath Yang -- BMO Capital Markets -- Analyst
Okay. Thank you very much.
Bruce Thames -- Executive Vice President and Chief Operating Officer
Thank you.
Operator
Thank you. (Operator Instructions) Our next question is coming from Charley Brady, a follow up from SunTrust. Your line is now live.
Patrick Wu -- SunTrust Robinson Humphrey, Inc. -- Analyst
Thanks, again guys. This is Patrick Wu again. So I just want to triangulate your comments on margins and this sounds like obviously the backlog, the margins at a backlog are pretty similar to last year levels. Given the organic growth that you saw in the quarter, I would have imagined that the margins will be higher. I understand that Greenfield is a bigger mix. Would you say it's fair to surmise then that a labor cost is becoming a bigger impact to gross margins and are you seeing any further strain in that regard moving out?
Bruce Thames -- Executive Vice President and Chief Operating Officer
Well. No, we don't see labor costs as being strained. However, we are seeing more labor within our contracts, but as far as the labor cost eroding margins that has not been the case.
Patrick Wu -- SunTrust Robinson Humphrey, Inc. -- Analyst
Okay. And you gave some good color on the SG&A expenses in the quarter. It's a pretty significant drop-off in terms of as a percentage of sales versus even the prior quarter and the prior year. Is this really a one-time thing for the quarter or are you seeing a broader -- was it more broader function of your ability to integrate the adjust better to reduce cost on a more permanent basis. How sustainable is this lower level of SG&A costs as a percentage of sales at least ?
Jay Peterson -- Chief Financial Officer
So one thing to call out, Patrick and that is in the downturn we purposefully made certain investments such that we could grow the business faster. Once the downturn ended and we saw an uptick and that's exactly where we're at right now. And we believe by and large this level will be sustainable. It will grow with revenue, but it will not grow near or anywhere near the rate of revenue increase in the future.
Patrick Wu -- SunTrust Robinson Humphrey, Inc. -- Analyst
Got it. Thanks, guys.
Operator
Thank you. Our next question is a follow up from Brian Drab from William Blair. Your line is now live.
Bruce Thames -- Executive Vice President and Chief Operating Officer
Hi, Brian.
Operator
Brian perhaps your phone is on mute? If there are no further questions, I'll turn the floor back over to management for any further or closing comments.
Bruce Thames -- Executive Vice President and Chief Operating Officer
All right. Thank you, Kevin. I'd like to take this opportunity to thank our Thermon employees around the globe for their commitment to serving our customers and creating shareholder value. They truly really make the Thermon difference and I'd also like to thank everyone for joining this call for your interest in Thermon. Have a great day.
Operator
Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.
Duration: 43 minutes
Call participants:
Sarah Alexander -- General Council and Investor Relations
Bruce Thames -- Executive Vice President and Chief Operating Officer
Jay Peterson -- Chief Financial Officer
Patrick Wu -- SunTrust Robinson Humphrey, Inc. -- Analyst
Brian Paul Drab -- William Blair & Company -- Analyst
Martin Whittier Malloy -- Johnson Rice & Co. -- Analyst
Kath Yang -- BMO Capital Markets -- Analyst
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