UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December 31, 2022~~June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 001-35159

THERMON GROUP HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware			27-2228185
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

7171 Southwest Parkway, Building 300, Suite 200, Austin, Texas 78735

(Address of principal executive offices) (zip code)

(512) 690-0600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

THR

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒ No

As of ~~February 1,~~August 2, 2023, the registrant had ~~33,503,561~~33,687,209 shares of common stock, par value $0.001 per share, outstanding.

THERMON GROUP HOLDINGS, INC.

QUARTERLY REPORT

FOR THE QUARTER ENDED ~~DECEMBER 31, 2022~~JUNE 30, 2023

TABLE OF CONTENTS


			Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of ~~December 31~~June 30, 2023 ~~, 2022~~ and March 31, ~~2022~~202 3			2
Condensed Consolidated Statements of Operations and Comprehensive ~~Income/(Loss)~~Income for the three ~~and~~ ~~nine~~months ended ~~December~~ 3 1 ,June 30, 2023 and 2022 ~~and 2021~~			3
Condensed Consolidated Statements of Equity for the three ~~and nine~~ months ended ~~December 31, 2022~~June 30 , 202 3 and ~~2021~~202 2			4
Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~December 31~~June 30 , ~~2022~~202 3 and ~~2021~~202 2			65
Notes to Condensed Consolidated Financial Statements			76
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2017
Item 3. Quantitative and Qualitative Disclosures About Market Risk			3125
Item 4. Controls and Procedures			3227
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			3328
Item 1A. Risk Factors			3328
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			3328
Item 3. Defaults Upon Senior Securities			3328
Item 4. Mine Safety Disclosures			3328
Item 5. Other Information			3328
Item 6. Exhibits			3328
EXHIBIT INDEX			3429
SIGNATURE			3530

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Thermon Group Holdings, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share and per share data)


		December 31, 2022		March 31, 2022			June 30, 2023		March 31, 2023
		(Unaudited)					(Unaudited)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	35,363	$	41,445	Cash and cash equivalents	$	33,174	$	35,635
Accounts receivable, net of allowances of $3,344 and $2,177 as of December 31, 2022, and March 31, 2022, respectively		92,380		95,305
Accounts receivable, net of allowances of $2,695 and $2,682 as of June 30, 2023, and March 31, 2023, respectively						Accounts receivable, net of allowances of $2,695 and $2,682 as of June 30, 2023, and March 31, 2023, respectively	91,628		97,627
Inventories, net	Inventories, net	91,418		71,650		Inventories, net	92,892		82,132
Contract assets	Contract assets	16,597		19,626		Contract assets	22,174		16,272
Prepaid expenses and other current assets	Prepaid expenses and other current assets	15,981		11,786		Prepaid expenses and other current assets	15,474		16,138
Income tax receivable	Income tax receivable	1,469		4,626		Income tax receivable	240		3,138
Total current assets	Total current assets	$	253,208	$	244,438	Total current assets	$	255,582	$	250,942
Property, plant and equipment, net of depreciation and amortization of $67,024 and $63,954 as of December 31, 2022, and March 31, 2022, respectively		61,039		66,039
Property, plant and equipment, net of depreciation and amortization of $69,377 and $67,450 as of June 30, 2023, and March 31, 2023, respectively						Property, plant and equipment, net of depreciation and amortization of $69,377 and $67,450 as of June 30, 2023, and March 31, 2023, respectively	64,799		63,288
Goodwill	Goodwill	221,195		212,754		Goodwill	221,908		219,612
Intangible assets, net	Intangible assets, net	96,162		94,908		Intangible assets, net	92,645		93,970
Operating lease right-of-use assets	Operating lease right-of-use assets	10,377		10,534		Operating lease right-of-use assets	12,835		13,570
Deferred income taxes	Deferred income taxes	778		1,211		Deferred income taxes	679		688
Other non-current assets	Other non-current assets	7,336		6,785		Other non-current assets	8,677		7,559
Total assets	Total assets	$	650,095	$	636,669	Total assets	$	657,125	$	649,629
Liabilities	Liabilities					Liabilities
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	30,003	$	33,567	Accounts payable	$	28,315	$	27,330
Accrued liabilities	Accrued liabilities	28,234		26,971		Accrued liabilities	31,740		39,364
Current portion of long-term debt	Current portion of long-term debt	10,219		7,929		Current portion of long-term debt	10,315		10,222
Borrowings under revolving credit facility	Borrowings under revolving credit facility	24,500		—		Borrowings under revolving credit facility	22,500		14,500
Contract liabilities	Contract liabilities	9,780		8,010		Contract liabilities	8,505		8,483
Lease liabilities	Lease liabilities	3,506		3,624		Lease liabilities	3,394		3,364
Income taxes payable	Income taxes payable	3,570		897		Income taxes payable	5,283		6,809
Total current liabilities	Total current liabilities	$	109,812	$	80,998	Total current liabilities	$	110,052	$	110,072
Long-term debt, net	Long-term debt, net	97,574		120,431		Long-term debt, net	80,356		87,710
Deferred income taxes	Deferred income taxes	12,531		17,943		Deferred income taxes	11,495		12,084
Non-current lease liabilities	Non-current lease liabilities	9,642		9,659		Non-current lease liabilities	12,014		12,479
Other non-current liabilities	Other non-current liabilities	9,032		8,434		Other non-current liabilities	9,259		8,296
Total liabilities	Total liabilities	$	238,591	$	237,465	Total liabilities	$	223,176	$	230,641
Commitments and contingencies (Note 10)	Commitments and contingencies (Note 10)					Commitments and contingencies (Note 10)
Equity	Equity					Equity
Common stock: $0.001 par value; 150,000,000 authorized; 33,495,287 and 33,364,722 shares issued and outstanding at December 31, 2022 and March 31, 2022, respectively		$	33	$	33
Common stock: $0.001 par value; 150,000,000 authorized; 33,680,965 and 33,508,076 shares issued and outstanding at June 30, 2023 and March 31, 2023, respectively						Common stock: $0.001 par value; 150,000,000 authorized; 33,680,965 and 33,508,076 shares issued and outstanding at June 30, 2023 and March 31, 2023, respectively	$	33	$	33
Preferred stock: $0.001 par value; 10,000,000 authorized; no shares issued and outstanding	Preferred stock: $0.001 par value; 10,000,000 authorized; no shares issued and outstanding	—		—		Preferred stock: $0.001 par value; 10,000,000 authorized; no shares issued and outstanding	—		—
Additional paid in capital	Additional paid in capital	238,399		234,549		Additional paid in capital	239,413		239,860
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(56,423)		(38,906)		Accumulated other comprehensive loss	(53,630)		(58,100)
Retained earnings	Retained earnings	229,495		203,528		Retained earnings	248,133		237,195
Total equity	Total equity	$	411,504	$	399,204	Total equity	$	433,949	$	418,988
Total liabilities and equity	Total liabilities and equity	$	650,095	$	636,669	Total liabilities and equity	$	657,125	$	649,629

The accompanying notes are an integral part of these condensed consolidated financial statements

Thermon Group Holdings, Inc.

Condensed Consolidated Statements of Operations and Comprehensive ~~Income/(Loss)~~Income (Unaudited)

(Dollars in thousands, except share and per share data)


		Three Months Ended December 31, 2022		Three Months Ended December 31, 2021		Nine Months Ended December 31, 2022		Nine Months Ended December 31, 2021			Three Months Ended June 30, 2023		Three Months Ended June 30, 2022
Sales	Sales	$	122,110	$	100,613	$	318,109	$	253,090	Sales	$	106,889	$	95,442
Cost of sales	Cost of sales	71,660		59,866		184,508		154,084		Cost of sales	59,580		58,217
Gross profit	Gross profit	50,450		40,747		133,601		99,006		Gross profit	47,309		37,225
Operating expenses:	Operating expenses:									Operating expenses:
Selling, general and administrative expenses	Selling, general and administrative expenses	30,889		22,099		83,046		66,820		Selling, general and administrative expenses	28,654		24,403
Deferred compensation plan expense/(income)	Deferred compensation plan expense/(income)	464		292		(499)		610		Deferred compensation plan expense/(income)	273		(660)
Amortization of intangible assets	Amortization of intangible assets	2,367		2,187		7,072		6,613		Amortization of intangible assets	2,387		2,268
Restructuring and other charges/(income)	Restructuring and other charges/(income)	2,668		—		2,668		(414)		Restructuring and other charges/(income)	581		—
Income/(loss) from operations		14,062		16,169		41,314		25,377
Income from operations										Income from operations	15,414		11,214
Other income/(expenses):	Other income/(expenses):									Other income/(expenses):
Interest expense, net	Interest expense, net	(1,877)		(842)		(4,120)		(5,029)		Interest expense, net	(1,584)		(835)

Other income/(expense)	Other income/(expense)	659		(627)		(592)		(3,517)		Other income/(expense)	341		(916)
Income/(loss) before provision for income taxes		12,844		14,700		36,602		16,831
Income tax expense/(benefit)		4,419		3,430		10,637		5,424
Net income/(loss)		$	8,425	$	11,270	$	25,965	$	11,407
Income before provision for income taxes										Income before provision for income taxes	14,171		9,463
Income tax expense										Income tax expense	3,233		2,907
Net income										Net income	$	10,938	$	6,556

Comprehensive income/(loss):
Net income/(loss)		$	8,425	$	11,270	$	25,965	$	11,407
Comprehensive income:										Comprehensive income:
Net income										Net income	$	10,938	$	6,556
Foreign currency translation adjustment	Foreign currency translation adjustment	5,403		(413)		(17,560)		(3,843)		Foreign currency translation adjustment	4,457		(5,152)
Other miscellaneous income/(loss)		(75)		(96)		43		(109)
Comprehensive income/(loss)		$	13,753	$	10,761	$	8,448	$	7,455
Net income/(loss) per common share:
Other miscellaneous income										Other miscellaneous income	13		2
Comprehensive income										Comprehensive income	$	15,408	$	1,406
Net income per common share:										Net income per common share:
Basic	Basic	$	0.25	$	0.34	$	0.78	$	0.34	Basic	$	0.33	$	0.20
Diluted	Diluted	$	0.25	$	0.33	$	0.77	$	0.34	Diluted	$	0.32	$	0.20
Weighted-average shares used in computing net income/(loss) per common share:
Weighted-average shares used in computing net income per common share:										Weighted-average shares used in computing net income per common share:
Basic	Basic	33,493,540		33,340,000		33,457,048		33,292,614		Basic	33,566,732		33,399,868
Diluted	Diluted	33,879,733		33,658,104		33,756,218		33,481,964		Diluted	33,862,939		33,567,284

The accompanying notes are an integral part of these condensed consolidated financial statements

Thermon Group Holdings, Inc.

Condensed Consolidated Statements of Equity (Unaudited)

(Dollars in thousands)


		Common Stock Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings/ (Loss)		Accumulated Other Comprehensive Income/(Loss)		Total			Common Stock Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss)		Total
Balances at March 31, 2022		33,364,722	$	33	$	234,549	$	203,528	$	(38,906)	$	399,204
Balances at March 31, 2023													Balances at March 31, 2023	33,508,076	$	33	$	239,860	$	237,195	$	(58,100)	$	418,988

Issuance of common stock as deferred compensation to employees	Issuance of common stock as deferred compensation to employees	30,352	—		—		—		—		—		Issuance of common stock as deferred compensation to employees	73,345	—		—		—		—		—
Issuance of common stock as deferred compensation to executive officers	Issuance of common stock as deferred compensation to executive officers	64,294	—		—		—		—		—		Issuance of common stock as deferred compensation to executive officers	93,826	—		—		—		—		—
Issuance of common stock as deferred compensation to directors	Issuance of common stock as deferred compensation to directors	8,766	—		—		—		—		—		Issuance of common stock as deferred compensation to directors	5,718	—		—		—		—		—
Stock compensation expense	Stock compensation expense	—	—		1,193		—		—		1,193		Stock compensation expense	—	—		1,238		—		—		1,238
Repurchase of employee stock units on vesting	Repurchase of employee stock units on vesting	—	—		(552)		—		—		(552)		Repurchase of employee stock units on vesting	—	—		(1,685)		—		—		(1,685)

Net income/(loss)		—	—		—		6,556		—		6,556
Net income													Net income	—	—		—		10,938		—		10,938
Foreign currency translation adjustment	Foreign currency translation adjustment	—	—		—		—		(5,152)		(5,152)		Foreign currency translation adjustment	—	—		—		—		4,457		4,457
Other	Other	—	—		—		1		2		3		Other	—	—		—		—		13		13

Balances at June 30, 2022		33,468,134	$	33	$	235,190	$	210,085	$	(44,056)	$	401,252

Issuance of common stock as deferred compensation to employees		5,544	—		—		—		—		—

Issuance of common stock as deferred compensation to directors		9,930	—		—		—		—		—
Stock compensation expense		—	—		1,251		—		—		1,251
Repurchase of employee stock units on vesting		—	—		(34)		—		—		(34)
Net income/(loss)		—	—		—		10,984		—		10,984
Foreign currency translation adjustment		—	—		—		—		(17,811)		(17,811)
Balances at June 30, 2023													Balances at June 30, 2023	33,680,965	$	33	$	239,413	$	248,133	$	(53,630)	$	433,949

Other		—	—		—		—		116		116
Balances at September 30, 2022		33,483,608	$	33	$	236,407	$	221,069	$	(61,751)	$	395,758

Issuance of common stock as deferred compensation to employees		512	—		—		—		—		—

Issuance of common stock as deferred compensation to directors		11,167	—		—		—		—		—
Stock compensation expense		—	—		1,994		—		—		1,994
Repurchase of employee stock units on vesting		—	—		(2)		—		—		(2)
Net income/(loss)		—	—		—		8,425		—		8,425
Foreign currency translation adjustment		—	—		—		—		5,403		5,403
Other		—	—		—		1		(75)		(74)
Balances at December 31, 2022		33,495,287	$	33	$	238,399	$	229,495	$	(56,423)	$	411,504


		Common Stock Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings/ (Loss)		Accumulated Other Comprehensive Income/(Loss)		Total			Common Stock Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss)		Total
Balances at March 31, 2021		33,225,808	$	33	$	231,322	$	183,436	$	(35,919)	$	378,872
Issuance of common stock in exercise of stock options		8,100	—		97		—		—		97
Balances at March 31, 2022													Balances at March 31, 2022	33,364,722	$	33	$	234,549	$	203,528	$	(38,906)	$	399,204

Issuance of common stock as deferred compensation to employees	Issuance of common stock as deferred compensation to employees	23,858	—		—		—		—		—		Issuance of common stock as deferred compensation to employees	30,352	—		—		—		—		—
Issuance of common stock as deferred compensation to executive officers	Issuance of common stock as deferred compensation to executive officers	42,326	—		—		—		—		—		Issuance of common stock as deferred compensation to executive officers	64,294	—		—		—		—		—
Issuance of common stock as deferred compensation to directors	Issuance of common stock as deferred compensation to directors	7,368	—		—		—		—		—		Issuance of common stock as deferred compensation to directors	8,766	—		—		—		—		—
Stock compensation expense	Stock compensation expense	—	—		1,178		—		—		1,178		Stock compensation expense	—	—		1,193		—		—		1,193
Repurchase of employee stock units on vesting	Repurchase of employee stock units on vesting	—	—		(548)		—		—		(548)		Repurchase of employee stock units on vesting	—	—		(552)		—		—		(552)

Net income/(loss)		—	—		—		(340)		—		(340)
Net income													Net income	—	—		—		6,556		—		6,556
Foreign currency translation adjustment	Foreign currency translation adjustment	—	—		—		—		4,195		4,195		Foreign currency translation adjustment	—	—		—		—		(5,152)		(5,152)
Other	Other	—	—		—		—		(64)		(64)		Other	—	—		—		1		2		3

Balances at June 30, 2021		33,307,460	$	33	$	232,049	$	183,096	$	(31,788)	$	383,390

Issuance of common stock as deferred compensation to employees		10,687	—		—		—		—		—
Issuance of common stock as deferred compensation to executive officers		7,344	—		—		—		—		—
Issuance of common stock as deferred compensation to directors		8,352	—		—		—		—		—
Stock compensation expense		—	—		1,246		—		—		1,246
Repurchase of employee stock units on vesting		—	—		(14)		—		—		(14)
Net income/(loss)		—	—		—		477		—		477
Foreign currency translation adjustment		—	—		—		—		(7,625)		(7,625)
Balances at June 30, 2022													Balances at June 30, 2022	33,468,134	$	33	$	235,190	$	210,085	$	(44,056)	$	401,252

Other		—	—		(1)		1		51		51
Balances at September 30, 2021		33,333,843	$	33	$	233,280	$	183,574	$	(39,362)	$	377,525

Issuance of common stock as deferred compensation to employees		52	—		—		—		—		—
Issuance of common stock as deferred compensation to directors		8,004	—		—		—		—		—
Stock compensation expense		—	—		275		—		—		275

Net income/(loss)		—	—		—		11,270		—		11,270
Foreign currency translation adjustment		—	—		—		—		(413)		(413)
Other		—	—		—		(1)		(96)		(97)
Balances at December 31, 2021		33,341,899	$	33	$	233,555	$	194,843	$	(39,871)	$	388,560

The accompanying notes are an integral part of these condensed consolidated financial statements

Thermon Group Holdings, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)


		Nine Months Ended December 31, 2022		Nine Months Ended December 31, 2021			Three Months Ended June 30, 2023		Three Months Ended June 30, 2022
Operating activities	Operating activities					Operating activities
Net income/(loss)		$	25,965	$	11,407
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Net income						Net income	$	10,938	$	6,556
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	14,557		15,349		Depreciation and amortization	4,439		4,895
Amortization of deferred debt issuance costs	Amortization of deferred debt issuance costs	230		495		Amortization of deferred debt issuance costs	86		77

Loss on extinguishment of debt		—		2,569
Impairment of property, plant, and equipment	Impairment of property, plant, and equipment	367		—		Impairment of property, plant, and equipment	(22)		—
Stock compensation expense	Stock compensation expense	4,438		2,699		Stock compensation expense	1,238		1,193
Deferred income taxes	Deferred income taxes	(4,186)		(878)		Deferred income taxes	(753)		(682)
Reserve for uncertain tax positions, net	Reserve for uncertain tax positions, net	36		58		Reserve for uncertain tax positions, net	—		19
(Gain)/loss on long-term cross currency swap		—		(1,391)
Remeasurement (gain)/loss on intercompany balances	Remeasurement (gain)/loss on intercompany balances	134		(556)		Remeasurement (gain)/loss on intercompany balances	(389)		(414)
Loss on sale of business, net of cash surrendered		—		310
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:			0		Changes in operating assets and liabilities:			0
Accounts receivable	Accounts receivable	1,145		(15,471)		Accounts receivable	7,043		1,323
Inventories	Inventories	(18,047)		(6,137)		Inventories	(10,652)		(9,830)
Contract assets		4,447		(6,287)
Contract assets and liabilities						Contract assets and liabilities	(5,596)		8,829
Other current and non-current assets	Other current and non-current assets	(695)		(3,293)		Other current and non-current assets	(1,256)		(531)
Accounts payable	Accounts payable	(4,066)		15,221		Accounts payable	1,000		3,485
Accrued liabilities and non-current liabilities	Accrued liabilities and non-current liabilities	1,433		(824)		Accrued liabilities and non-current liabilities	(6,546)		(5,977)
Income taxes payable and receivable	Income taxes payable and receivable	5,847		475		Income taxes payable and receivable	1,338		2,917
Net cash provided by/(used in) operating activities		$	31,605	$	13,746
Net cash provided by operating activities						Net cash provided by operating activities	$	868	$	11,860
Investing activities	Investing activities					Investing activities
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(5,173)		(2,920)		Purchases of property, plant and equipment	(2,801)		(1,617)
Sale of rental equipment	Sale of rental equipment	163		235		Sale of rental equipment	12		63

Cash paid for acquisitions, net of cash acquired	Cash paid for acquisitions, net of cash acquired	(35,299)		—		Cash paid for acquisitions, net of cash acquired	—		(35,339)

Net cash provided by/(used in) in investing activities	Net cash provided by/(used in) in investing activities	$	(40,309)	$	(2,685)	Net cash provided by/(used in) in investing activities	$	(2,789)	$	(36,893)
Financing activities	Financing activities					Financing activities
Proceeds from Term Loan A		—		140,425
Proceeds from revolving credit facility	Proceeds from revolving credit facility	34,500		15,959		Proceeds from revolving credit facility	8,000		32,000
Payments on long-term debt and revolving credit facility	Payments on long-term debt and revolving credit facility	(27,121)		(171,862)		Payments on long-term debt and revolving credit facility	(7,765)		(8,654)
Issuance costs associated with revolving line of credit and long term debt		—		(1,248)

Proceeds from exercise of stock options		—		97
Repurchase of employee stock units on vesting	Repurchase of employee stock units on vesting	(588)		(562)		Repurchase of employee stock units on vesting	(1,685)		(552)
Payments on finance leases	Payments on finance leases	(62)		(96)		Payments on finance leases	(403)		(31)
Net cash provided by/(used in) financing activities	Net cash provided by/(used in) financing activities	$	6,729	$	(17,287)	Net cash provided by/(used in) financing activities	$	(1,853)	$	22,763
Less: Net change in cash balances classified as assets held-for-sale						Less: Net change in cash balances classified as assets held-for-sale	1,012		—
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(754)		(821)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	271		1,031
Change in cash, cash equivalents and restricted cash	Change in cash, cash equivalents and restricted cash	(2,729)		(7,047)		Change in cash, cash equivalents and restricted cash	(2,491)		(1,239)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	43,931		42,450		Cash, cash equivalents and restricted cash at beginning of period	38,520		43,931
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	41,202	$	35,403	Cash, cash equivalents and restricted cash at end of period	$	36,029	$	42,692

The accompanying notes are an integral part of these condensed consolidated financial statements

Thermon Group Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

1. Basis of Presentation

Thermon Group Holdings, Inc. and its direct and indirect subsidiaries are referred to collectively as “we,” “our,” or the “Company” herein. We are one of the largest providers of highly engineered industrial process heating solutions for process industries. We offer a full suite of products (heating units, heating cables, ~~temporary power solutions, tubing bundles,~~ industrial heating blankets and ~~chillers)~~related products, temporary power solutions and tubing bundles), services (engineering, installation and maintenance services) and software (design optimization and wireless and network control systems) required to deliver comprehensive solutions to some of the world's largest and most complex projects.

Our condensed consolidated financial statements are prepared in conformity with generally accepted accounting principles in the United States ("GAAP") and the requirements of the United States Securities and Exchange Commission ("SEC") for interim financial information. Accordingly, the accompanying condensed consolidated financial statements do not include all disclosures required for full annual financial statements and should be read in conjunction with our audited consolidated financial statements and notes thereto for the fiscal year ended March 31, ~~2022~~2023 ("fiscal ~~2022"~~2023"). In our opinion, the accompanying condensed consolidated financial statements reflect all adjustments considered necessary to present fairly our financial position at ~~December 31, 2022~~June 30, 2023 and March 31, ~~2022,~~2023, and the results of our operations for the three ~~and nine~~ months ended ~~December 31, 2022~~June 30, 2023 and ~~2021.~~

~~Impact of the COVID-19 Pandemic and General Economic Environment~~

~~The COVID-19 pandemic and the measures being taken~~2022. Certain prior year amounts have been reclassified to address and limit the spread of the virus have adversely affected the economies and financial markets of many countries, resulting in an economic downturn that negatively impacted, and may continue to negatively impact, global demand for our products and services. We are still experiencing effects of lockdowns in certain parts of Asia, which are impacting our results in our Asia-Pacific ("APAC") segment. The effect of loosening pandemic restrictions outside of APAC, alongconform with pent-up demand from periods of stagnant lockdown and uncertainty have combined to strengthen customer demand from most regions we serve, especially in North America. During periods of the pandemic we have experienced, and may experience in the future, a decline in the demand of our products and services or disruptions in raw materials or labor required for manufacturing that has in the past, and may in the future, materially and negatively impact our business, financial condition, results of operation and overall financial performance. We have experienced increased costs across our global supply chain as we focus on meeting growing demand from our customers. In certain circumstances, we have had issues with a lack of availability of certain raw materials as well as increases in costs of our raw materials due to: use of alternate suppliers, higher freight costs, increased lead times, and expedited shipping. We have also had to increase our inventory of certain items to ensure availability in the face of supply chain disruptions. We continue to monitor the pandemic restrictions and other effects the pandemic may have on our business.

On April 11, 2020, the Canadian government officially enacted the Canadian Emergency Wage Subsidy (the “CEWS”) for the purposes of assisting employers in financial hardship due to the COVID-19 pandemic and of reducing potential layoffs of employees.

We recorded no transactions related to CEWS for the three and nine months ended December 31, 2022. We recorded $199 and $1,448 related to CEWS to "Cost of sales" in our condensed consolidated statement of operations for the three and nine months ended December 31, 2021. We recorded $4 and $504 related to CEWS to "Selling, general and administrative expenses" in our condensed consolidated statement of operations for the three and nine months ended December 31, 2021. We anticipate no benefit from the CEWS program in the fiscalcurrent year ~~ending March 31, 2023 ("fiscal 2023"), as the program ended in October 2021.~~presentation.

Use of Estimates

Generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. While management has based its assumptions and estimates on the facts and circumstances existing at ~~December 31, 2022,~~June 30, 2023, actual results could differ from those estimates and affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities and the corresponding revenues and expenses as of the date of the financial statements. The operating results for the three ~~and nine~~ months ended ~~December 31, 2022,~~June 30, 2023, are not necessarily indicative of the results that may be achieved for fiscal ~~2023.~~2024.

Restricted Cash and Cash Equivalents

The Company maintains restricted cash related to certain letter of credit guarantees and performance bonds securing performance obligations. The following table provides a reconciliation of cash, cash equivalents, and restricted cash included in prepaid expenses and other current assets and restricted cash included in other non-current assets reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the statements of cash flows.


		December 31, 2022		December 31, 2021			June 30, 2023		March 31, 2023
Cash and cash equivalents	Cash and cash equivalents	$	35,363	$	32,566	Cash and cash equivalents	$	33,174	$	35,635
Restricted cash included in prepaid expenses and other current assets	Restricted cash included in prepaid expenses and other current assets	5,813		2,496		Restricted cash included in prepaid expenses and other current assets	2,772		2,859
Restricted cash included in other non-current assets	Restricted cash included in other non-current assets	26		341		Restricted cash included in other non-current assets	83		26
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	41,202	$	35,403	Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	36,029	$	38,520

Amounts shown in restricted cash included in prepaid expenses and other current assets and other non-current assets represent those required to be set aside by a contractual agreement, which generally contain cash deposits pledged as collateral on performance bonds and letters of credit. Additionally, due to the uncertain nature of whether we can repatriate certain funds from our Russian subsidiary, we have classified $3,084 of the cash and cash equivalents held in our Russian subsidiary as restricted cash and included the related balance in prepaid expenses and other current assets. Amounts shown in restricted cash in other non-current assets represent such agreements that require a commitment term longer than one year.

Recent Accounting Pronouncements

Business Combinations - In October 2021, the FASB issued Accounting Standards Update ("ASU") 2021-08, - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers~~(ASC 805)~~. ~~ASU 2021-08~~This update requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in ~~Topic~~Accounting Standards Codification, or "ASC," 606. Under this ~~"Topic~~"ASC 606 approach," the acquirer applies the revenue model as if it had originated the contracts. This is a departure from the current requirement to measure contract assets and contract liabilities at fair value. The ASU is effective for all public business entities in annual and interim periods ~~with fiscal years~~ starting after December 15, 2022, and early adoption is permitted. We ~~are still evaluating~~adopted this ~~ASU~~standard on April 1, 2023, and ~~will consider early~~the adoption ~~with future acquisitions, if any.~~did not have a material impact on our consolidated financial statements.

2. Acquisition

Powerblanket

On May 31, 2022 (the "Acquisition Date"), Thermon Holding Corp., as buyer, acquired 100% of the issued and outstanding equity interests of Powerblanket (“Powerblanket”) from Glacier Capital LLC, as seller (the "Acquisition"). Powerblanket is a leading North American supplier of heated blankets built upon patented heat spreading ~~technology and portable industrial chillers.~~technology. The Acquisition increases our exposure to growing industrial and commercial end-markets through its freeze protection, temperature control and flow assurance solutions. We have integrated Powerblanket into our United States and Latin America ("~~US-LAM"~~US-LAM") reportable segment. ~~From the period May 31, 2022 to December 31, 2022, Powerblanket contributed $11,848 in Sales and $1,302 in~~ ~~Net income/(loss) to our consolidated operating results. For the three months ended~~ ~~December 31, 2022, Powerblanket contributed $7,881 in Sales and $2,000 in~~ ~~Net income/(loss) to our consolidated operating results.~~

The initial purchase price for the Acquisition was $35,000, subject to an adjustment for net working capital acquired at closing. Subsequent to the Acquisition Date, and commensurate with the purchase agreement, we increased the purchase price by $299 for net working capital acquired. We financed the Acquisition through the use of our Revolving Credit Facility as well as cash on hand. Powerblanket's revenue structure does not result in material contract assets or liabilities.

Acquisition Costs

In accordance with GAAP, costs incurred to complete the Acquisition are expensed as incurred. Total acquisition costs, which represent transaction costs, legal fees, and third-party professional fees were $278, of which $126 were ~~incurred~~recognized in fiscal 2023. No costs related to the ~~nine months ended December 31, 2022. No acquisition costs were incurred~~Acquisition have been recognized in ~~the three months ended December 31, 2022.~~fiscal 2024. Acquisition costs are reflected in "Selling, general and administrative expenses" in our condensed consolidated statement of operations and comprehensive ~~income/(loss).~~income.

Purchase Price Allocation

We have accounted for the Acquisition according to the business combinations guidance found in ASC 805, - Business Combinations, henceforth referred to as acquisition accounting. Acquisition accounting requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. We used primarily Level 2 inputs to allocate the purchase price to the major categories of assets and liabilities shown below, with the exception of the ~~contract-~~

~~based~~contract-based intangible asset, which was valued using Level 3 inputs. For valuing the customer relationships intangible asset, we used a common income-based approach called the multi-period excess earnings method; for the trademarks and developed technology intangible assets, we used a relief-from-royalty method; and for the contract-based intangible asset, we used the with and without method. The carrying values of inventories, property, plant and equipment as well as leased assets approximated their respective fair ~~values. During~~values at the ~~measurement period, if new information is obtained about facts and circumstances that existed as~~time of the Acquisition Date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date, we will revise the preliminary purchase price allocation. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments had been completed on the Acquisition Date. The impact of all changes that do not qualify as measurement period adjustments will be included in current period earnings.closing.


Purchase Price Allocation
	Amortization Period (years)	Fair Value
Accounts receivable		$	1,267
Inventories		3,545
Property, plant and equipment		391
Other current assets		290
Other non-current assets		954
Intangibles:
Customer relationships	9.8	3,301
Trademarks	9.8	3,397
Contract-based	5.0	1,280
Developed technology	15.8	5,189
Goodwill		18,620
Total fair value of assets acquired		$	38,234
Accounts payable		(1,098)
Accrued liabilities		(637)
Other liabilities		(1,200)
Total fair value of liabilities acquired		$	(2,935)
Purchase Price		$	35,299

Unaudited Pro Forma Financial Information

The following unaudited pro forma results of operations assume that the Acquisition occurred at the beginning of the periods presented. These unaudited pro forma results are presented for informational purposes only and are not necessarily

indicative of what the actual results of operations would have been if the Acquisition had occurred at the beginning of the periods presented, nor are they indicative of future results of operations. The pro forma results presented below are adjusted for the removal of acquisition and other related costs of ~~$286~~$126 which were incurred in our first fiscal quarter ended June 30, 2022.

in thousands, unaudited Three Months Ended December 31, 2022 Three Months Ended December 31, 2021 Nine Months Ended December 31, 2022 Nine Months Ended December 31, 2021
Sales $ 122,110 $ 107,443 $ 319,973 $ 265,350
Net Income/(loss) 8,425 12,623 25,588 13,438


	Three Months Ended June 30, 2023		Three Months Ended June 30, 2022
Sales	$	106,889	$	97,324
Net income	10,938		6,162

3. Fair Value Measurements

Fair Value

We measure fair value based on authoritative accounting guidance, which defines fair value, establishes a framework for measuring fair value, and expands on required disclosures regarding fair value measurements.

Inputs are referred to as assumptions that market participants would use in pricing the asset or liability. The use of inputs in the valuation process are categorized into a three-level fair value hierarchy.

•Level 1 — uses quoted prices in active markets for identical assets or liabilities we have the ability to access.

•Level 2 — uses observable inputs other than quoted prices in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•Level 3 — uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment.

Financial assets and liabilities with carrying amounts approximating fair value include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities. The carrying amount of these financial assets and liabilities approximates fair value because of their short maturities. At ~~December 31, 2022~~June 30, 2023 and March 31, ~~2022,~~2023, no assets or liabilities were valued using Level 3 criteria, except for those acquired in our recent acquisition of Powerblanket, discussed in Note 2, "Acquisition."

Information about our financial assets and liabilities is as follows:


		December 31, 2022				March 31, 2022						June 30, 2023				March 31, 2023
		Carrying Value		Fair Value		Carrying Value		Fair Value		Valuation Technique		Carrying Value		Fair Value		Carrying Value		Fair Value		Valuation Technique
Financial Assets
Financial Assets:											Financial Assets:
Deferred compensation plan assets	Deferred compensation plan assets	$	6,020	$	6,020	$	5,391	$	5,391	Level 1 - Active Markets	Deferred compensation plan assets	$	7,304	$	7,304	$	6,350	$	6,350	Level 1 - Active Markets
Foreign currency contract forwards assets	Foreign currency contract forwards assets	80		80		105		105		Level 2 - Market Approach	Foreign currency contract forwards assets	13		13		60		60		Level 2 - Market Approach
Financial Liabilities
Financial Liabilities:											Financial Liabilities:
Outstanding borrowings from revolving line of credit	Outstanding borrowings from revolving line of credit	$	24,500	$	24,500	$	—	$	—	Level 1 - Active Markets	Outstanding borrowings from revolving line of credit	$	22,500	$	22,500	$	14,500	$	14,500	Level 2 - Active Markets
Outstanding principal amount of senior secured credit facility	Outstanding principal amount of senior secured credit facility	108,279		108,521		129,000		128,355		Level 2 - Market Approach	Outstanding principal amount of senior secured credit facility	91,045		90,818		98,361		98,115		Level 2 - Market Approach
Deferred compensation plan liabilities	Deferred compensation plan liabilities	5,416		5,416		4,837		4,837		Level 1 - Active Markets	Deferred compensation plan liabilities	6,615		6,615		5,671		5,671		Level 1 - Active Markets
Foreign currency contract forwards liabilities	Foreign currency contract forwards liabilities	76		76		—		—		Level 2 - Market Approach	Foreign currency contract forwards liabilities	41		41		26		26		Level 2 - Market Approach

At ~~December 31, 2022~~June 30, 2023 and March 31, ~~2022,~~2023, the fair value of our long-term debt is based on market quotes available for issuance of debt with similar terms. As the quoted price is only available for similar financial assets, the Company concluded the pricing is indirectly observable through dealers and has been classified as Level 2.

Additionally, we acquired certain assets and liabilities as disclosed in Note 2, "Acquisition" at fair value according to purchase price accounting.

Deferred Compensation Plan

The Company provides a non-qualified deferred compensation plan for certain highly compensated employees where payroll contributions are made by the employees on a pre-tax basis. Included in “Other non-current assets” in the condensed consolidated balance sheets at ~~December 31, 2022~~June 30, 2023 and March 31, ~~2022~~2023 were ~~$6,020~~$7,304 and ~~$5,391,~~$6,350, respectively, of deferred compensation plan assets held by the Company. Deferred compensation plan assets (mutual funds) are measured at fair value on a recurring basis based on quoted market prices in active markets (Level 1). The Company has a corresponding liability to participants of ~~$5,416~~$6,615 and ~~$4,837~~$5,671 included in “Other non-current liabilities” in the condensed consolidated balance sheets at ~~December 31, 2022~~June 30, 2023 and March 31, ~~2022,~~2023, respectively. Deferred compensation plan expense/(income) is included as such in the condensed consolidated statement of operations, and therefore is excluded from "Selling, general and administrative expenses." Deferred compensation plan expense/(income) was ~~$464~~$273 and ~~$292~~$(660) for the three months ended ~~December 31,~~June 30, 2023 and 2022, ~~and 2021, respectively, and $(499) and $610 for the nine months ended December 31, 2022 and 2021,~~ respectively. Expenses and income from our deferred compensation plan were offset by unrealized gains and losses for the deferred compensation plan included in "Other income/expense" on our condensed consolidated statements of operations and comprehensive ~~income/(loss).~~income. Our unrealized losses and (gains) on investments were ~~$(484)~~$(283) and ~~$(314),~~$637, respectively, for the three months ended ~~December 31,~~June 30, 2023 and 2022, ~~and 2021, respectively, and $450 and $(620) for the nine months ended December 31, 2022 and 2021,~~ respectively.

Trade Related Foreign Currency Forward Contracts

We transact business in various foreign currencies and have established a program that primarily utilizes foreign currency forward contracts to address the risk associated with the effects of certain foreign currency exposures. Under this program, increases or decreases in our foreign currency exposures are offset by gains or losses on the forward contracts to mitigate foreign currency transaction gains or losses. These foreign currency exposures arise from intercompany transactions as well as third party accounts receivable or payable that are denominated in foreign currencies. Our forward contracts generally have terms of 30 days. We do not use forward contracts for trading purposes or designate these forward contracts as hedging instruments pursuant to ASC 815. We adjust the carrying amount of all contracts to their fair value at the end of each reporting period and unrealized gains and losses are included in "Other income/~~expense"~~(expense)" on our condensed consolidated statements of operations and comprehensive ~~income/(loss).~~income. These gains and losses are designed to offset gains and losses resulting from

settlement of receivables or payables by our foreign operations which are settled in currency other than the local transactional currency. The fair value is determined by quoted prices from active foreign currency markets (Level 2). Fair value amounts for such forward contracts on our condensed consolidated balance sheets are either classified as accounts receivable, net or accrued liabilities depending on whether the forward contract is in a gain (accounts receivable, net) or loss (accrued liabilities) position. Our ultimate realized gain or loss with respect to currency fluctuations will depend on the currency exchange rates and other factors in effect as the contracts mature. As of ~~December 31, 2022~~June 30, 2023 and March 31, ~~2022,~~2023, the notional amounts of forward contracts were as follows:


Notional amount of foreign currency forward contracts by currency	Notional amount of foreign currency forward contracts by currency					Notional amount of foreign currency forward contracts by currency
		December 31, 2022		March 31, 2022			June 30, 2023		March 31, 2023

Euro		$	1,000	$	—

Canadian Dollar	Canadian Dollar	—		4,000		Canadian Dollar	$	2,500	$	4,500
South Korean Won	South Korean Won	—		2,250		South Korean Won	1,500		1,500

Mexican Peso		1,500		—
Australian Dollar		—		1,000

Chinese Renminbi						Chinese Renminbi	1,500		500

Great Britain Pound						Great Britain Pound	—		500

Total notional amounts	Total notional amounts	$	2,500	$	7,250	Total notional amounts	$	5,500	$	7,000

Foreign currency gains or losses related to our forward contracts in the accompanying condensed consolidated statements of operations and comprehensive ~~income/(loss)~~income were a gain of ~~$102~~$173 and a loss of ~~$(637)~~$(296) in the three months ended ~~December 31,~~June 30, 2023 and 2022, ~~and 2021, respectively, and losses of $(510) and $(861) for the nine months ended December 31, 2022 and 2021,~~ respectively. Gains and losses from our forward contracts were offset by transaction gains or losses incurred with the settlement of transactions denominated in foreign currencies. For the three months ended ~~December 31,~~June 30, 2023 and 2022, ~~and 2021,~~ our net foreign currency transactions resulted in a gain of ~~$193~~$25 and ~~losses~~a loss of ~~$(949)~~$(359), ~~respectively, and losses of~~ ~~$(140)~~ ~~and~~ ~~$(1,634)~~ ~~in the nine months ended~~ ~~December 31, 2022 and 2021~~.respectively.

4. Restructuring and Other Charges/(Income)

~~Impairment and other~~Fiscal 2024 charges/(income)

InAs a result of the ~~third quarter~~continued impact of ~~fiscal 2023, we identified a triggering event in our EMEA reportable segment. Given the continuing depressed economic conditions resulting from~~ the Russo-Ukrainian war, including the sanctions related thereto, the Company ~~conducted~~commenced a strategic assessment of its operations in its Russian subsidiary ~~and we concluded that there was uncertainty in whether~~on January 31, 2023, our board of directors authorized the Company ~~could realize significant future economic benefits. Therefore,~~to withdraw from its operations in the Russian Federation (the “Russia Exit”), through a planned disposition of its Russian subsidiary. In fiscal 2023, we ~~recorded~~moved the assets related to our Russian subsidiary into a separate asset group deemed as "assets held-for-sale," and wrote down the related net assets to a nominal value. In the first quarter of fiscal 2024, pursuant to requirements to remeasure the assets-held-for-sale, we recognized a total charge related to the Russia Exit of ~~$8,334~~$581 recorded to "Restructuring and other charges/(income)" on our condensed consolidated statement of operations and comprehensive income.

All charges described above were recorded in ~~the three months ended December 31, 2022. The charges~~our Europe, Middle East and Africa ("EMEA") reportable segment.

Restructuring and other charges/(income) by reportable segment were ~~comprised of the following:~~as follows:

~~Charge~~ Three Months Ended June 30, 2023

~~Financial statement impact~~

~~Amount~~Three Months Ended June 30, 2022

~~Increase in Current Expected Credit Loss, or "CECL," allowance for credit loss for certain accounts receivable~~United States and Latin America

~~Accounts receivable, net; Selling, general and administrative expenses~~

~~835~~—

—

~~Increase in inventory reserves~~Canada

~~Inventories, net; Cost of sales~~—

~~4,831~~—

~~Contract asset adjustment~~Europe, Middle East and Africa

~~Contract assets; Restructuring and other charges/(income)~~581

~~327~~—

~~Prepaid expenses and other current assets adjustment~~Asia-Pacific

~~Prepaid expenses and other current assets, Income tax receivable; Restructuring and other charges/(income)~~—

~~1,477~~

~~Impairment of Property, plant and equipment, net~~

~~Property, plant and equipment, net; Restructuring and other charges/(income)~~

~~367~~

~~Impairment of Operating lease right-of-use assets~~

~~Operating lease right-of-use assets; Restructuring and other charges/(income)~~

~~389~~

~~Impairment of Other non-current assets~~

~~Deferred income taxes, Other non-current assets; Restructuring and other charges/(income)~~

~~108~~—

~~8,334~~581

—

All charges described above were recorded in our Europe, Middle East and Africa ("EMEA") reportable segment, with the exception of $241 of cost of sales from an increase in inventory reserves in our Canada reportable segment. Additionally,

~~we reclassified $3,084 of cash in our Russian subsidiary to restricted cash due to due to the uncertain nature of whether we can repatriate certain funds from our Russian subsidiary.~~

The Company will continue to evaluate sales to international customers with a presence in the Russian Federation and engage in those sales to the extent permissible with various international sanctions.

Please refer to Note 7, "Goodwill and Other Intangible Assets," for more information on impairment, and Note 14, "Subsequent Events," for more information regarding the Company's operations in the Russian Federation.

~~Fiscal 2022 charges/(income)~~

In the nine months ended December 31, 2021, we recorded $(103) for severance-related activity in our Canadian segment, which was recorded to "Restructuring and other charges/(income)" in our condensed consolidated statements of operations and comprehensive income/(loss). Additionally, we recorded $(311) in cash receipts related to receivables existing prior to the sale of our South Africa business, which was completed in fiscal 2021.

~~Restructuring and other charges/(income) by reportable segment were as follows:~~

Three Months Ended December 31, 2022 Three Months Ended December 31, 2021 Nine Months Ended December 31, 2022 Nine Months Ended December 31, 2021
United States and Latin America $ — $ — $ — $ (46)
Canada — — — (186)
Europe, Middle East and Africa(1)
2,668 — 2,668 (182)
Asia-Pacific — — — —
$ 2,668 $ — $ 2,668 $ (414)

(1) - these charges relate to the Company's Russian subsidiary and were included in "Restructuring and other charges/(income)" on our condensed consolidated statement of operations and comprehensive income/(loss). See the section labeled "Impairment and other charges/(income)" above for a full detail of charges.

5. Net ~~Income/(Loss)~~Income per Common Share

The reconciliations of the denominators used to calculate basic and diluted net ~~income/(loss)~~income per common share for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2023 and 2022, ~~and 2021,~~ respectively, are as follows:

Three Months Ended December 31, 2022 Three Months Ended December 31, 2021 Nine Months Ended December 31, 2022 Nine Months Ended December 31, 2021
Basic net income/(loss) per common share
Net income/(loss) $ 8,425 $ 11,270 $ 25,965 $ 11,407
Weighted-average common shares outstanding 33,493,540 33,340,000 33,457,048 33,292,614
Basic net income/(loss) per common share $ 0.25 $ 0.34 $ 0.78 $ 0.34


	Three Months Ended June 30, 2023		Three Months Ended June 30, 2022
Basic net income per common share
Net income	$	10,938	$	6,556
Weighted-average common shares outstanding	33,566,732		33,399,868
Basic net income per common share	$	0.33	$	0.20


		Three Months Ended December 31, 2022		Three Months Ended December 31, 2021		Nine Months Ended December 31, 2022		Nine Months Ended December 31, 2021			Three Months Ended June 30, 2023		Three Months Ended June 30, 2022
Diluted net income/(loss) per common share
Net income/(loss)		$	8,425	$	11,270	$	25,965	$	11,407
Diluted net income per common share										Diluted net income per common share
Net income										Net income	$	10,938	$	6,556
Weighted-average common shares outstanding	Weighted-average common shares outstanding	33,493,540		33,340,000		33,457,048		33,292,614		Weighted-average common shares outstanding	33,566,732		33,399,868
Common share equivalents:	Common share equivalents:									Common share equivalents:
Stock options	Stock options	7,858		271		2,545		1,660		Stock options	21,664		—
Restricted and performance stock units	Restricted and performance stock units	378,335		317,833		296,625		187,690		Restricted and performance stock units	274,543		167,416
Weighted average shares outstanding – dilutive (1)	Weighted average shares outstanding – dilutive (1)	33,879,733		33,658,104		33,756,218		33,481,964		Weighted average shares outstanding – dilutive (1)	33,862,939		33,567,284
Diluted net income/(loss) per common share		$	0.25	$	0.33	$	0.77	$	0.34
Diluted net income per common share										Diluted net income per common share	$	0.32	$	0.20

(1) For the three months ended ~~December 31,~~June 30, 2023 and 2022, zero and ~~2021, 28,499 and 45,099 equity awards, respectively and for the nine months ended December 31, 2022 and 2021, 39,517 and 139,843~~179,882 equity awards, respectively, were not included in the calculation of diluted net ~~income/(loss)~~income per common share, as they would have had an anti-dilutive effect.

The number of common share equivalents, which includes options and both restricted and performance stock units, is computed using the treasury stock method. With regard to the performance stock units, we assume that the associated performance targets will be met at the target level of performance for purposes of calculating diluted net ~~income/(loss)~~income per common share until such time that it is probable that actual performance will be above or below target.

6. Inventories

Inventories consisted of the following:


		December 31, 2022		March 31, 2022			June 30, 2023		March 31, 2023
Raw materials	Raw materials	$	60,605	$	41,389	Raw materials	$	60,341	$	53,845
Work in process	Work in process	5,483		6,294		Work in process	6,183		5,338
Finished goods	Finished goods	32,601		25,802		Finished goods	32,570		29,511
		98,689		73,485			99,094		88,694
Valuation reserves	Valuation reserves	(7,271)		(1,835)		Valuation reserves	(6,202)		(6,562)
Inventories, net	Inventories, net	$	91,418	$	71,650	Inventories, net	$	92,892	$	82,132

7. Goodwill and Other Intangible Assets

The carrying amount of goodwill by operating segment as of ~~December 31, 2022,~~June 30, 2023, is as follows:

United States and Latin America Canada Europe, Middle East and Africa Asia-Pacific Total
Balance as of March 31, 2022 $ 62,725 $ 122,318 $ 19,087 $ 8,624 $ 212,754
Goodwill acquired(1)
18,620 — — — 18,620
Foreign currency translation impact — (9,465) (714) — (10,179)
Balance as of December 31, 2022 $ 81,345 $ 112,853 $ 18,373 $ 8,624 $ 221,195

~~(1) - Refer to Note 2, "Acquisition," for more information on the goodwill acquired through our recent acquisition of Powerblanket.~~


	United States and Latin America		Canada		Europe, Middle East and Africa		Asia-Pacific		Total
Balance as of March 31, 2023	$	81,345	$	112,945	$	18,679	$	6,643	$	219,612

Foreign currency translation impact	—		2,500		13		(217)		2,296
Balance as of June 30, 2023	$	81,345	$	115,445	$	18,692	$	6,426	$	221,908

Goodwill is tested for impairment on an annual basis and between annual tests if indicators of potential impairment exist. We perform a qualitative analysis to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If required, we also perform a quantitative analysis using the income approach, based on discounted future cash flows, which are derived from internal forecasts and economic expectations, and the market approach, which is based on market multiples of guideline public companies. The most significant inputs in the Company's quantitative goodwill impairment tests are projected financial information, the weighted average cost of capital and market multiples for similar transactions. Our annual impairment test is performed during the fourth quarter of our fiscal year.

In the fourth quarter of fiscal 2022, we identified the disruptions to our business from the ongoing Russo-Ukrainian war as an indicator of potential impairments in our EMEA reporting unit. We performed our annual goodwill, intangible and tangible impairment assessments including our indefinite life trademarks. Based on the goodwill impairment assessment, there was no impairment of goodwill, intangible or tangible assets or our indefinite life trademarks as of the respective reporting periods.

In the third quarter of fiscal 2023, we identified a triggering event in our EMEA reportable segment. The depressed economic conditions resulting from the Russo-Ukrainian war as well as the related sanctions were contributing factors in our decision to test our EMEA reportable segment under ASC 350 and ASC 360. Based on the results of our quantitative goodwill impairment assessment, there was no impairment of goodwill or intangible assets. We did, however, segregate our Russian subsidiary as a new asset group for long-lived asset impairment-testing purposes and determined that the assets relating to our Russian subsidiary were not recoverable under ASC 360. We recorded an impairment charge of $756, which includes Property, plant and equipment, net as well as Operating lease right-of-use assets. Refer to Note 4," Restructuring and Other Charges/(Income)," for more information.

Separately, in the first quarter of fiscal 2023, we added $18,620 of goodwill as part of our recent acquisition of Powerblanket, which is discussed further in Note 2, "Acquisition." The newly acquired goodwill is allocated to our US-LAM segment. We believe the goodwill acquired in this recent acquisition represents synergies from combining operations in addition to the already identifiable assets. We anticipate being able to deduct goodwill for tax purposes.

We will continue to monitor our reporting units' goodwill and asset valuations and test for potential impairments, as appropriate. If overall economic conditions, our key end markets, or factors specific to the Company deteriorate significantly, it could negatively impact the Company's future impairment tests.

Our total intangible assets consisted of the following:


		Gross Carrying Amount at December 31, 2022		Accumulated Amortization		Net Carrying Amount at December 31, 2022		Gross Carrying Amount at March 31, 2022		Accumulated Amortization		Net Carrying Amount at March 31, 2022			Gross Carrying Amount at June 30, 2023		Accumulated Amortization		Net Carrying Amount at June 30, 2023		Gross Carrying Amount at March 31, 2023		Accumulated Amortization		Net Carrying Amount at March 31, 2023
Products	Products	$	61,510	$	(31,780)	$	29,730	$	66,669	$	(29,445)	$	37,224	Products	$	62,922	$	(35,656)	$	27,266	$	61,560	$	(33,344)	$	28,216
Trademarks	Trademarks	47,288		(1,888)		45,400		45,222		(1,517)		43,705		Trademarks	47,705		(2,175)		45,530		47,427		(2,031)		45,396
Developed technology	Developed technology	14,831		(6,297)		8,534		9,946		(5,933)		4,013		Developed technology	14,926		(6,764)		8,162		14,862		(6,520)		8,342
Customer relationships	Customer relationships	113,041		(102,105)		10,936		113,413		(103,900)		9,513		Customer relationships	114,122		(103,880)		10,242		113,259		(102,743)		10,516
Certifications	Certifications	439		—		439		453		—		453		Certifications	443		—		443		441		—		441
Contract-based		1,280		(157)		1,123		—		—		—
Other														Other	2,277		(1,275)		1,002		1,280		(221)		1,059
Total	Total	$	238,389	$	(142,227)	$	96,162	$	235,703	$	(140,795)	$	94,908	Total	$	242,395	$	(149,750)	$	92,645	$	238,829	$	(144,859)	$	93,970

8. Accrued Liabilities

Accrued current liabilities consisted of the following:


		December 31, 2022		March 31, 2022			June 30, 2023		March 31, 2023
Accrued employee compensation and related expenses	Accrued employee compensation and related expenses	$	17,529	$	16,235	Accrued employee compensation and related expenses	$	12,183	$	17,709
Accrued interest	Accrued interest	472		277		Accrued interest	3		414
Customer prepayments	Customer prepayments	74		405		Customer prepayments	67		89
Warranty reserves	Warranty reserves	931		557		Warranty reserves	966		758
Professional fees	Professional fees	3,001		2,540		Professional fees	2,429		2,696
Sales taxes payable	Sales taxes payable	2,633		2,758		Sales taxes payable	3,612		4,301

Accrued litigation payable(1)						Accrued litigation payable(1)	5,750		5,880
Other~~(1)~~	Other~~(1)~~	3,594		4,199		Other~~(1)~~	6,730		7,517
Total accrued current liabilities	Total accrued current liabilities	$	28,234	$	26,971	Total accrued current liabilities	$	31,740	$	39,364

(1) - ~~Included in Other are~~The Company has insurance receivables recorded to Prepaid expenses and other current assetson our condensed consolidated balance sheets relating to and materially offsetting the accrued ~~warranty-related costs of $1,996 and $2,523, respectively, associated with the operational execution of a US-LAM project that was completed previously.~~litigation payable noted above.

9. Debt

Long-term debt consisted of the following:

December 31, 2022 March 31, 2022
Variable Rate Term Loan A due September 2026, net of deferred debt issuance costs of $486 and $640 as of December 31, 2022, and March 31, 2022, respectively $ 107,793 $ 128,360
Less current portion (10,219) (7,929)
Total long-term debt $ 97,574 $ 120,431


	June 30, 2023		March 31, 2023
Variable Rate Term Loan A due September 2026, net of deferred debt issuance costs of $374 and $429 as of June 30, 2023, and March 31, 2023, respectively	$	90,671	$	97,932
Less current portion	(10,315)		(10,222)
Total long-term debt	$	80,356	$	87,710

Senior Secured Credit Facilities

On September 29, 2021, Thermon Group Holdings, Inc., as a credit party and a guarantor, Thermon Holding Corp. ~~(“THC” or the “U.S.~~(the “US Borrower”) and Thermon Canada Inc. (the “Canadian Borrower” and together with ~~THC,~~the US Borrower, the “Borrowers”), ~~as borrowers,~~ entered into an Amended and Restated Credit Agreement ~~(the “Credit Agreement”)~~ with several banks and other financial institutions or entities from time to time ~~(the “Lenders”)~~ and JPMorgan Chase Bank, N.A., as Administrative Agent, ~~(the “Agent”~~("the Agent"), which was further amended on November 19, ~~2021.~~2021 and March 7, 2023.

The Credit Agreement is an amendment and restatement of that certain Credit Agreement dated October 30, 2017, by and among Borrowers, the lenders party thereto and JPMorgan Chase Bank, N.A. as administrative agent (the “Prior Credit Agreement”), and provides for the following credit facilities described below (collectively, the “Facilities”).

•Revolving Credit Facility: A USD $100,000 ~~five-year~~five-year secured revolving credit facility made available to the U.S. Borrower. The Revolving Credit Facility includes sub-limits for letters of credit and swing-line loans (the “Revolving Credit Facility”).

•U.S. Term Loan Facility: A USD $80,000 ~~five-year~~five-year secured term loan A (the “U.S. Term Loan”) made available to the U.S. Borrower (the “U.S. Term Loan Facility”); and

•Canadian Term Loan Facility: A CAD $76,182 ~~five-year~~five-year term loan A (the “Canadian Term Loan” and, together with the U.S. Term Loan, the “Term Loans”) made available to the Canadian Borrower (the “Canadian Term Loan Facility,” and together with the U.S. Term Loan Facility, the “Term Loan Facilities”).

Proceeds of the Facilities were used at closing to repay and refinance the Borrowers’ existing indebtedness under the Prior Credit Agreement and pay all interest, fees and expenses related thereto, and thereafter are expected to be used for working capital and general corporate purposes.

The Credit Agreement allows for incremental term loans and incremental revolving commitments in an amount not to exceed USD $100,000.

Maturity and Repayment

Each of the Facilities terminates on September 29, 2026. ~~Commencing January 1, 2022, each~~Each of the Term Loans will amortize as set forth in the table below, with payments on the first day of each January, April, July and October, with the balance of each Term Loan Facility due at maturity.


Installment Dates	Original Principal Amount
January 1, 2022 through October 1, 2022	1.25	%
January 1, 2023 through October 1, 2024	1.88	%
January 1, 2025 through July 1, 2026	2.50	%

Guarantees

The U.S. Term Loan and the obligations of the U.S. Borrower under the Revolving Credit Facility are guaranteed by the Company and all of the U.S. Borrower’s current and future wholly owned domestic material subsidiaries (the “U.S. Subsidiary Guarantors”), subject to certain exceptions. The Canadian Term Loan is guaranteed by the Company, the U.S. Borrower, the U.S. Subsidiary Guarantors and each of the wholly owned Canadian material subsidiaries of the Canadian Borrower, subject to certain exceptions.

Security

The U.S. Term Loan and the obligations of the U.S. Borrower under the Revolving Credit Facility are secured by a first lien on all of the assets of the Company, the U.S. Borrower and the U.S. Subsidiary Guarantors, including 100% of the capital stock of the U.S. Subsidiary Guarantors and 65% of the capital stock of the first tier material foreign subsidiaries of the Company, the U.S. Borrower and the U.S. Subsidiary Guarantors, subject to certain exceptions. The Canadian Term Loan is secured by a first lien on all of the assets of the Company, the U.S. Borrower, the U.S. Subsidiary Guarantors, the Canadian

Borrower and the material Canadian subsidiaries of the Canadian Borrower, including 100% of the capital stock of the Canadian Borrower’s material Canadian subsidiaries.

~~Interest Rates and Fees~~

The U.S. Borrower will have the option to pay interest on the U.S. Term Loan and borrowings under the Revolving Credit Facility at a base rate, plus an applicable margin, or at a rate based on LIBOR plus an applicable margin. The Canadian Borrower will have the option to pay interest on the Canadian Term Loan at a prime rate, plus an applicable margin, or at a rate based on the Canadian Dollar Offered Rate, or "CDOR," plus an applicable margin.

Under the applicable Facilities, the margin for base rate loans and Canadian prime rate loans is 62.5 basis points and the applicable margin for LIBOR loans and CDOR loans is 162.5 basis points; provided that, following the completion of one full fiscal quarter after the closing date, the applicable margins will be determined based on a leverage-based performance grid.

In addition to paying interest on outstanding principal under the Revolving Credit Facility, the U.S. Borrower is required to pay a commitment fee in respect of unutilized revolving commitments of 0.25% per annum, provided that, following the completion of one full fiscal quarter after the closing date, the commitment fee will be determined based on a leverage-based performance grid.

~~Voluntary Prepayment~~

The Borrowers will be able to voluntarily prepay the principal of the loans outstanding under each of the Facilities without penalty or premium (subject to breakage fees) at any time in whole or in part.

~~Mandatory Prepayment~~

~~Each Borrower is required to repay its respective Term Loan with certain asset sale and insurance proceeds and certain debt proceeds.~~

~~Debt Issuance Costs~~

In the second quarter of fiscal 2022, we incurred fees to third parties in connection with our entry into the Credit Agreement described above. The debt issuance costs of $1,265 were capitalized and will be amortized over the life of the Credit Agreement. Additionally, we recognized a loss on debt extinguishment of $2,569, which was recorded to Other income/(expense) on our condensed consolidated statements of operations and comprehensive income/(loss).

Financial Covenants

In connection with the Credit Agreement, the Company is required, on a consolidated basis, to maintain certain financial covenant ratios. On the last day of any period of four fiscal quarters ending during a period set forth below, the Company must maintain a consolidated leverage ratio that does not exceed the ratios for such period set forth below (each of which ratios may be increased by 0.50:1.00 for each of the four fiscal quarters following certain acquisitions at the election of the U.S. Borrower):


Fiscal Quarter Ending						Consolidated Leverage Ratio
~~September 30, 2021, through September 30, 2022~~						~~3.75:1.00~~
December 31, 2022, and each fiscal quarter thereafter						3.50:1.00

In addition, on the last day of any period of four fiscal quarters ending on or after September 30, 2021, the Company must maintain a consolidated fixed charge coverage ratio of not less than 1.25:1.00. As of ~~December 31, 2022,~~June 30, 2023, we were in compliance with all financial covenants of the Credit Agreement and there is no material uncertainty about our ongoing ability to comply with our covenants.

Other Covenants

The Credit Agreement contains restrictive covenants (in each case, subject to certain exclusions) that limit, among other things, the ability of the Company and its subsidiaries (including the Borrowers) ~~to:~~

•to incur additional ~~indebtedness;~~

•indebtedness, grant ~~liens;~~

•liens, make fundamental ~~changes;~~

•changes, sell ~~assets;~~

•assets, make restricted ~~payments;~~

•payments, enter into sales and ~~leasebacks;~~

•leasebacks, make ~~investments;~~

•investments, prepay certain ~~indebtedness;~~

•indebtedness, enter into transactions with ~~affiliates;~~affiliates, and

•enter into restrictive agreements.

The covenants are subject to various baskets and materiality thresholds, with certain of the baskets to the restrictions on the repayment of subordinated or unsecured indebtedness, restricted payments and investments being available only when the Company’s pro forma leverage ratios are less than a certain level.

The Credit Agreement contains certain customary representations and warranties, affirmative covenants and events of default, including, among other things, payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, certain events under ERISA, judgment defaults, actual or asserted failure of any guaranty or security documents to be in full force and effect and change of control. If such an event of default occurs, the Agent will be entitled to take various actions, including the termination of the commitment for the Revolving Credit Facility, the acceleration of amounts due under the Credit Agreement and certain other actions that a secured creditor is customarily permitted to take following a default.

At ~~December 31, 2022,~~June 30, 2023, we had ~~$24,500~~$22,500 in outstanding borrowings under the Revolving Credit Facility. We had ~~$73,655~~ $75,588 of available borrowing capacity thereunder after taking into account the borrowing base and ~~$1,845 o~~f $1,912 of outstanding letters of credit and the outstanding borrowings under the Revolving Credit Facility as of ~~December 31, 2022.~~June 30, 2023. The Term Loans bear interest at the ~~LIBOR rate~~Secured Overnight Financing Rate ("SOFR"), or ~~CDOR rate,~~Canadian Dollar Offer Rate ("CDOR"), as applicable, in each case plus an applicable margin dictated by our leverage

ratio (as described above). The interest rates on the Term Loan Facilities on ~~December 31, 2022~~June 30, 2023 were ~~5.93%~~6.62% for the Canadian Term Loan Facility, 6.45%~~5.42%~~ for the U.S. Term Loan Facility, and ~~5.63%~~6.45% for the U.S. Revolving Credit Facility. Interest expense has been presented net of interest income on our condensed consolidated statements of operations and comprehensive ~~income/(loss).~~income.

10. Commitments and Contingencies

Legal Proceedings and Other Contingencies

We are involved in various legal and administrative proceedings that arise from time to time in the ordinary course of doing business. Some of these proceedings may result in fines, penalties or judgments being assessed against us, which may adversely affect our financial results. In addition, from time to time, we are involved in various disputes, which may or may not be settled prior to legal proceedings being instituted and which may result in losses in excess of accrued liabilities, if any, relating to such unresolved disputes. As of ~~December 31, 2022, management believes that adequate reserves~~June 30, 2023, we have ~~been~~ established ~~for any probable and reasonably estimable losses.~~an estimated liability associated with the aforementioned disputes. Expenses related to litigation reduce operating income. We do not believe that the outcome of any of these proceedings or disputes would have a significant adverse effect on our financial position, long-term results of operations, or cash flows. It is possible, however, that charges related to these matters could be significant to our results of operations or cash flows in any one reporting period.

In January 2020, the Company received service of process in a class action application in the Superior Court of Quebec, Montreal, Canada related to certain heating elements previously manufactured by ~~THS~~Thermon Heating Systems and incorporated into certain portable construction heaters sold by certain manufacturers. The Company believes this claim is without merit and intends to vigorously defend itself against the claim. While the Company continues to dispute the allegations,

in March 2021, it reached an agreement in principle with the plaintiff and other defendants to resolve this matter without admitting to any liability; such agreement remains subject to the agreement of the parties on the terms of a definitive settlement agreement. Settlement of this matter on the agreed terms will require the Company to contribute an amount that would not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. The settlement is subject to, among other things, approval by the Superior Court.

Letters of Credit and Bank Guarantees

At ~~December 31, 2022,~~June 30, 2023, the Company had in place letter of credit guarantees and performance bonds securing certain performance obligations of the Company. These arrangements totaled ~~$29,742.~~$25,073. Of this amount, ~~$1,259~~$1,204 is secured by cash deposits at the Company’s financial institutions and an additional ~~$1,845~~$1,912 represents a reduction of the available amount of the Company's short-term and long-term revolving lines of credit. In addition to the arrangements totaling ~~$29,742,~~$25,073, our Indian subsidiary also has ~~$4,383~~$4,423 in non-collateralized customs bonds outstanding to secure the Company's customs and duties obligations in India.

11. Revenue

Disaggregation of Revenue

We disaggregate our revenue from contracts with customers by geographic location, as well as revenues recognized at point in time and revenues recognized over time, as we believe these best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

Revenue recognized at a point-in-time based on when control transitions to the customer is generally related to our product sales. Point-in-time revenue does not typically require engineering or installation services. Revenue recognized over time occurs on our projects where engineering or installation services, or a combination of the two, are required. We recognize revenue related to such projects in a systematic way that reflects the transfer of goods or services, or a combination of goods and services, to the customer.

Disaggregation of revenues from contracts with customers for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2023 and 2022 ~~and 2021~~ is as follows:

Three Months Ended December 31, 2022 Three Months Ended December 31, 2021
Revenues recognized at point in time Revenues recognized over time Total Revenues recognized at point in time Revenues recognized over time Total
United States and Latin America $ 34,762 $ 24,988 $ 59,750 $ 19,695 $ 30,132 $ 49,827
Canada 32,725 10,446 43,171 25,358 5,696 31,054
Europe, Middle East and Africa 6,643 4,582 11,225 7,896 5,041 12,937
Asia-Pacific 4,268 3,696 7,964 4,654 2,141 6,795
Total revenues $ 78,398 $ 43,712 $ 122,110 $ 57,603 $ 43,010 $ 100,613


		Nine Months Ended December 31, 2022						Nine Months Ended December 31, 2021							Three Months Ended June 30, 2023						Three Months Ended June 30, 2022
		Revenues recognized at point in time		Revenues recognized over time		Total		Revenues recognized at point in time		Revenues recognized over time		Total			Revenues recognized at point in time		Revenues recognized over time		Total		Revenues recognized at point in time		Revenues recognized over time		Total
United States and Latin America	United States and Latin America	$	82,627	$	70,150	$	152,777	$	50,565	$	52,360	$	102,925	United States and Latin America	$	29,891	$	23,606	$	53,497	$	23,116	$	22,477	$	45,593
Canada	Canada	83,512		26,638		110,150		64,490		16,938		81,428		Canada	24,522		10,801		35,323		25,131		7,064		32,195
Europe, Middle East and Africa	Europe, Middle East and Africa	17,811		12,993		30,804		21,218		23,148		44,366		Europe, Middle East and Africa	5,393		4,288		9,681		5,907		4,129		10,036
Asia-Pacific	Asia-Pacific	15,565		8,813		24,378		15,810		8,561		24,371		Asia-Pacific	5,339		3,049		8,388		4,632		2,986		7,618
Total revenues	Total revenues	$	199,515	$	118,594	$	318,109	$	152,083	$	101,007	$	253,090	Total revenues	$	65,145	$	41,744	$	106,889	$	58,786	$	36,656	$	95,442

Performance Obligations

At ~~December 31, 2022,~~June 30, 2023, revenues to be recorded associated with our open performance obligations totaled ~~$164,653.~~$178,059. Within this amount, approximately ~~$14,276~~$15,588 will be earned as revenue in excess of one year. We expect to recognize the remaining revenues associated with unsatisfied or partially satisfied performance obligations within 12 months.

Contract Assets and Liabilities

As of ~~December 31, 2022~~June 30, 2023 and March 31, ~~2022,~~2023, contract assets were ~~$16,597~~$22,174 and ~~$19,626,~~$16,272, respectively. There were no losses recognized on our contract assets for the ~~nine~~three months ended ~~December 31,~~June 30, 2023 and 2022, ~~and 2021, except as described in Note 4,~~ "Restructuring and Other Charges/(Income)." As of ~~December 31, 2022~~June 30, 2023 and March 31, ~~2022,~~2023, contract liabilities were ~~$9,780~~$8,505 and ~~$8,010,~~$8,483, respectively. The majority of contract liabilities at March 31, ~~2022~~2023 will be recognized as revenue in fiscal ~~2023.~~2024. We typically recognize revenue associated with our contract liabilities within 12 months.

12. Income Taxes

Our effective income tax rate was ~~29.1%~~22.8% and ~~32.2%~~30.7% for the ~~nine~~three months ended ~~December 31,~~June 30, 2023 and 2022, ~~and 2021,~~ respectively. ~~In connection with~~During the ~~strategic assessment related to our Russian subsidiary,~~three months ended June 30, 2022, the Company ~~released accrued withholding taxes on earning repatriations for~~recorded a discrete tax ~~benefit~~expense of ~~$1,033 during~~$376 related to the ~~nine months ended December 31, 2022. We do not expect to generate further tax benefits in Russia. During the nine months ended December 31, 2021, the Company recorded discrete tax expenses~~foreign exchange impact of ~~$301 related to~~estimated withholding taxes in ~~Canada and $430 related to an increase in withholding tax rate in~~ our ~~Russian~~ subsidiary.

As of ~~December 31, 2022,~~June 30, 2023, we have established a long-term liability for uncertain tax positions in the amount of ~~$943.~~$981. As of ~~December 31, 2022,~~June 30, 2023, the tax years for the fiscal years ended March 31, ~~2017~~2018 through March 31, ~~2022,~~2023, remain open to examination by the major taxing jurisdictions.

13. Segment Information

We maintain four reportable segments based on four geographic countries or regions in which we operate: (i) United States and Latin America ("US-LAM"), (ii) Canada, (iii) Europe, Middle East and Africa ("EMEA") and (iv) Asia-Pacific ("APAC"). Within our four reportable segments, our core products and services are focused on the following markets: chemical and petrochemical, oil, gas, power generation, commercial, food and beverage, rail and transit, and other, which we refer to as our "key end markets." We offer a full suite of products (heating units, heating cables, industrial heating blankets and related products, temporary power solutions and tubing bundles), services (engineering, installation and maintenance services)

and software (design optimization and wireless and network control systems) required to deliver comprehensive solutions to some of the world's largest and most complex projects. Profitability within our segments is measured by operating income. Profitability can vary in each of our reportable segments based on the competitive environment within the region, the level of corporate overhead, such as the salaries of our senior executives and the level of research and development and marketing activities in the region, as well as the mix of products and services. For purposes of this note, revenue is attributed to individual countries or regions on the basis of the physical location and jurisdiction of organization of the subsidiary that invoices the material and services.

Total sales to external customers, inter-segment sales, depreciation expense, amortization expense, income from operations, property, plant and equipment, net and total assets for each of our four reportable segments are as follows:

Three Months Ended December 31, 2022 Three Months Ended December 31, 2021 Nine Months Ended December 31, 2022 Nine Months Ended December 31, 2021
Sales to External Customers:
United States and Latin America $ 59,750 $ 49,827 $ 152,777 $ 102,925
Canada 43,171 31,054 110,150 81,428
Europe, Middle East and Africa 11,225 12,937 30,804 44,366
Asia-Pacific 7,964 6,795 24,378 24,371
$ 122,110 $ 100,613 $ 318,109 $ 253,090
Inter-Segment Sales:
United States and Latin America $ 10,041 $ 8,588 $ 32,783 $ 29,424
Canada 5,386 2,616 12,042 7,555
Europe, Middle East and Africa 279 295 935 1,137
Asia-Pacific 749 313 1,561 930
$ 16,455 $ 11,812 $ 47,321 $ 39,046
Depreciation Expense:
United States and Latin America $ 1,113 $ 1,396 $ 3,700 $ 4,331
Canada 1,096 1,245 3,396 3,967
Europe, Middle East and Africa 94 101 283 305
Asia-Pacific 35 43 106 133
$ 2,338 $ 2,785 $ 7,485 $ 8,736
Amortization Expense:
United States and Latin America $ 588 $ 295 $ 1,587 $ 885
Canada 1,724 1,858 5,354 5,624
Europe, Middle East and Africa 21 23 62 71
Asia-Pacific 34 11 69 33
$ 2,367 $ 2,187 $ 7,072 $ 6,613
Income/(Loss) from Operations:
United States and Latin America $ 8,338 $ 6,728 $ 26,055 $ 4,832
Canada 13,005 7,312 25,781 15,136
Europe, Middle East and Africa (5,963) 2,026 (7,526) 6,464
Asia-Pacific 1,142 683 2,888 3,107
Unallocated:
Stock compensation (1,994) (275) (4,438) (2,698)
Public company costs (466) (305) (1,446) (1,464)
$ 14,062 $ 16,169 $ 41,314 $ 25,377

1915


		December 31, 2022		March 31, 2022			Three Months Ended June 30, 2023		Three Months Ended June 30, 2022
Property, Plant and Equipment, Net:
Sales to External Customers:						Sales to External Customers:
United States and Latin America	United States and Latin America	$	30,325	$	31,919	United States and Latin America	$	53,497	$	45,593
Canada	Canada	27,830		30,686		Canada	35,323		32,195
Europe, Middle East and Africa	Europe, Middle East and Africa	2,312		2,796		Europe, Middle East and Africa	9,681		10,036
Asia-Pacific	Asia-Pacific	572		638		Asia-Pacific	8,388		7,618
		$	61,039	$	66,039		$	106,889	$	95,442
Total Assets:
Inter-Segment Sales:						Inter-Segment Sales:
United States and Latin America	United States and Latin America	$	270,565	$	241,421	United States and Latin America	$	8,381	$	6,214
Canada	Canada	286,847		296,459		Canada	4,732		3,406
Europe, Middle East and Africa	Europe, Middle East and Africa	58,394		67,608		Europe, Middle East and Africa	389		2,686
Asia-Pacific	Asia-Pacific	34,289		31,181		Asia-Pacific	1,111		1,473
		$	650,095	$	636,669		$	14,613	$	13,779
Depreciation Expense:						Depreciation Expense:
United States and Latin America						United States and Latin America	$	1,056	$	1,346
Canada						Canada	911		1,152
Europe, Middle East and Africa						Europe, Middle East and Africa	47		93
Asia-Pacific						Asia-Pacific	38		36
							$	2,052	$	2,627
Amortization Expense:						Amortization Expense:
United States and Latin America						United States and Latin America	$	611	$	400
Canada						Canada	1,743		1,835
Europe, Middle East and Africa						Europe, Middle East and Africa	22		21
Asia-Pacific						Asia-Pacific	11		12
							$	2,387	$	2,268
Income from Operations:						Income from Operations:
United States and Latin America						United States and Latin America	$	12,281	$	11,553
Canada						Canada	3,538		4,076
Europe, Middle East and Africa						Europe, Middle East and Africa	334		(2,641)
Asia-Pacific						Asia-Pacific	907		(63)
Unallocated:						Unallocated:
Stock compensation						Stock compensation	(1,238)		(1,193)
Public company costs						Public company costs	(408)		(518)
							$	15,414	$	11,214


	June 30, 2023		March 31, 2023
Property, Plant and Equipment, Net:
United States and Latin America	$	32,880	$	31,918
Canada	28,961		28,369
Europe, Middle East and Africa	2,344		2,366
Asia-Pacific	614		635
	$	64,799	$	63,288
Total Assets:
United States and Latin America	$	267,487	$	261,781
Canada	286,462		287,221
Europe, Middle East and Africa	59,940		57,680
Asia-Pacific	43,236		42,947
	$	657,125	$	649,629

Capital expenditures for our reportable segments were as follows:


		Three Months Ended December 31, 2022		Three Months Ended December 31, 2021		Nine Months Ended December 31, 2022		Nine Months Ended December 31, 2021			Three Months Ended June 30, 2023		Three Months Ended June 30, 2022
Capital Expenditures:	Capital Expenditures:									Capital Expenditures:
United States and Latin America	United States and Latin America	$	350	$	171	$	1,773	$	811	United States and Latin America	$	1,827	$	243
Canada	Canada	1,042		566		3,042		1,833		Canada	910		1,285
Europe, Middle East and Africa	Europe, Middle East and Africa	65		92		197		223		Europe, Middle East and Africa	33		81
Asia-Pacific	Asia-Pacific	102		36		161		53		Asia-Pacific	31		8
		$	1,559	$	865	$	5,173	$	2,920		$	2,801	$	1,617

~~14. Subsequent Events~~

As a result of the continued impact of the Russo-Ukrainian war, including sanctions related thereto, the Company conducted a strategic assessment of its operations in the Russian Federation, and, on January 31, 2023, the board of directors of the Company (the “Board”) authorized the Company to withdraw from its operations in the Russian Federation (the “Russia Exit”) through a planned disposition of its Russian subsidiary. Consequently, in addition to the loss described in Note 4, "Restructuring and Other Charges/(Income)," the Company could recognize an additional $4 million to $7 million of loss. We expect to complete the Russia Exit by the first quarter of our fiscal 2024, subject to the receipt of regulatory approval by the government of the Russian Federation and certain lenders under the Company's Facilities.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction and Special Note Regarding Forward-Looking Statements

Management’s discussion and analysis of our financial condition and results of operations is provided as a supplement to the unaudited condensed consolidated financial statements and accompanying notes thereto for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2023 and 2022 ~~and 2021~~ to help provide an understanding of our financial condition, changes in our financial condition and results of our operations. In this quarterly report, we refer to the three month periods ended ~~December 31,~~June 30, 2023 and 2022 ~~and 2021~~ as "Interim ~~2023"~~2024" and "Interim ~~2022,~~2023," ~~respectively. Accordingly, we refer to the nine-month periods ended December 31, 2022 and 2021 as “YTD 2023” and “YTD 2022,”~~ respectively. The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, our unaudited condensed consolidated financial statements and related notes included in Item 1 above.

This quarterly report includes forward-looking statements within the meaning of the U.S. federal securities laws in addition to historical information. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding our industry, business strategy, plans, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words "anticipate," "assume," "believe," "budget," "continue," "contemplate," "could," "should," "estimate," "expect," "intend," "may," "plan," "possible," "potential," "predict," "project," "will," "would," "future," and similar terms and phrases are intended to identify forward-looking statements in this quarterly report.

Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our financial condition, results of operations and cash flows. These forward-looking statements include, but are not limited to, statements regarding: (i) our plans to strategically pursue emerging growth opportunities, including strategic acquisitions, in diverse regions and across industry sectors; (ii) our plans to secure more new facility project bids; (iii) our ability to generate more facility maintenance, repair and operations or upgrades or expansions revenue, from our existing and future installed base; (iv) our ability to timely deliver backlog; (v) our ability to respond to new market developments and technological advances; (vi) our expectations regarding energy consumption and demand in the future and its impact on our future results of operations; (vii) our plans to develop strategic alliances with major customers and suppliers; (viii) our expectations that our revenues will

increase; (ix) our belief in the sufficiency of our cash flows to meet our needs for the next year; (x) our ability to integrate acquired companies and successfully divest certain businesses, including our Russia business; (xi) our ability to successfully achieve synergies from acquisitions; and (xii) our ability to make required debt repayments.

Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to identify all of these factors, they include, among others, (i) ~~the outbreak of a global pandemic, including the current pandemic (COVID-19 and its variants); (ii)~~ general economic conditions and cyclicality in the markets we serve; ~~(iii)~~(ii) future growth of energy, chemical processing and power generation capital investments; ~~(iv)~~(iii) our ability to operate successfully in foreign countries; (iv) the outbreak of a global pandemic, including COVID-19 and its variants; (v) our ability to successfully develop and improve our products and successfully implement new technologies; (vi) competition from various other sources providing similar heat tracing and process heating products and services, or alternative technologies, to customers; (vii) our ability to deliver existing orders within our backlog; (viii) our ability to bid and win new contracts; (ix) the imposition of certain operating and financial restrictions contained in our debt agreements; (x) our revenue mix; (xi) our ability to grow through strategic acquisitions; (xii) our ability to manage risk through insurance against potential liabilities (xiii) changes in relevant currency exchange rates; (xiv) tax liabilities and changes to tax policy; (xv) impairment of goodwill and other intangible assets; (xvi) our ability to attract and retain qualified management and employees, particularly in our overseas markets; (xvii) our ability to protect our trade secrets; (xviii) our ability to protect our intellectual property; (xix) our ability to protect data and thwart potential cyber-attacks; (xx) a material disruption at any of our manufacturing facilities; (xxi) our dependence on subcontractors and third-party suppliers; (xxii) our ability to profit on fixed-price contracts; (xxiii) the credit risk associated to our extension of credit to customers; (xxiv) our ability to achieve our operational initiatives; (xxv) unforeseen difficulties with expansions, relocations, or consolidations of existing facilities; (xxvi) potential liability related to our products as well as the delivery of products and services; (xxvii) our ability to comply with foreign anti-corruption laws; (xxviii) export control regulations or sanctions; (xxix) changes in government administrative policy; (xxx) the current geopolitical instability in Russia and Ukraine and related sanctions by the U.S. and Canadian governments and European Union; (xxxi) environmental and health and safety laws and regulations as well as environmental liabilities; ~~and~~ (xxxii) climate change and related regulation of greenhouse ~~gases~~gases; and (xxxiii) those factors listed under Item 1A, “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2022,~~2023, filed with the Securities and Exchange Commission (the “SEC”) on May ~~26, 2022,~~25, 2023, and in any subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K or other filings that we have filed or may file with the SEC. Any one of these factors or a combination of these factors could materially affect our future results of operations and could influence whether any forward-looking statements contained or incorporated by reference in this quarterly report ultimately prove to be accurate.

Our forward-looking statements are not guarantees of future performance, and actual results and future performance may differ materially from those suggested in any forward-looking statements. We do not intend to update these statements unless we are required to do so under applicable securities laws.

Business Overview and Company History

We are one of the largest providers of highly engineered industrial process heating solutions for process industries. For over 65 years, we have served a diverse base of thousands of customers around the world in attractive and growing markets, including chemical and petrochemical, oil, ~~and~~ gas, power generation, commercial, food and beverage, rail and transit, and other, which we refer to as our "key end markets." We offer a full suite of products (heating units, heating cables, ~~temporary power solutions, tubing bundles,~~ industrial heating blankets and ~~chillers)~~related products, temporary power solutions and tubing bundles), services (engineering, installation and maintenance services) and software (design optimization and wireless and network control systems) required to deliver comprehensive solutions to some of the world's largest and most complex projects. With a legacy of innovation and continued investment in research and development, Thermon has established itself as a technology leader in hazardous or classified areas, and we are committed to developing sustainable solutions for our customers. We serve our customers through a global network of sales and service professionals and distributors in more than 30 countries and through our ~~eight~~nine manufacturing facilities on ~~three~~two continents. These global capabilities and longstanding relationships with some of the largest multinational oil, ~~and~~ gas, chemical processing, power and engineering, procurement and construction ("EPC") companies in the world have enabled us to diversify our revenue streams

and opportunistically access high growth markets worldwide. During ~~YTD~~Interim 2024 and Interim 2023, approximately 54% and ~~YTD 2022, approximately 55% and 59%~~57%, respectively, of our revenues were generated from outside of the United States.

Revenue. Our revenues are derived from providing customers with a full suite of innovative and reliable process heating solutions, including advanced heating and filtration solutions for industrial and hazardous area applications. Revenue recognized at a point in time based on when control transitions to the customer is generally related to our product sales. Point in time revenue does not typically require engineering or installation services. Revenue recognized over time occurs on our projects where engineering or installation services, or a combination of the two, are required. We recognize revenue related to such projects in a systematic way that reflects the transfer of goods or services, or a combination of goods and services, to the customer.

We believe that our pipeline of planned projects, in addition to our backlog of signed purchase orders, provides us with some visibility into our future revenue. Historically, we have experienced few order cancellations, and the cancellations that have occurred in the past have not been material compared to our total contract volume or total backlog. The small number of order cancellations is attributable in part to the fact that a large portion of our solutions are ordered and installed toward the end of large project construction. Our backlog at ~~December 31, 2022,~~June 30, 2023, was ~~$164.7~~$178.1 million, as compared to ~~$156.2~~$163.3 million at March 31, ~~2022.~~2023. The timing of recognition of revenue out of backlog is not always certain, as it is subject to a variety of factors that may cause delays, many of which are beyond our control (such as customers' delivery schedules and levels of capital and maintenance expenditures). When delays occur, the recognition of revenue associated with the delayed project is likewise deferred.

Cost of sales. Our cost of sales primarily includes the costs of raw material items used in the manufacturing of our products, costs of ancillary products that are sourced from external suppliers and construction labor cost. Additional costs of revenue include contract engineering costs directly associated to projects, direct labor costs, shipping and handling costs, and other costs associated with our manufacturing/fabrication operations. The other costs associated with our manufacturing/fabrication operations are primarily indirect production costs, including depreciation, indirect labor costs, warranty-related costs, and the costs of manufacturing support functions such as logistics and quality assurance. Key raw material costs include polymers, copper, stainless steel, insulating material, and other miscellaneous parts related to products manufactured or assembled as part of our heat tracing solutions. Raw material costs have been stable in the past; however, we face challenges from time to time with temporary shortages related to the global supply chain issues that have persisted since COVID-19 pandemic in certain raw materials as well as an increase in costs of these materials due to use of alternate suppliers, higher freight costs, increased lead times, expedited shipping and other inflationary factors. We cannot provide any assurance that we will continue to mitigate temporary raw material shortages or be able to pass along such cost increases, including the potential impacts of tariffs or supply chain challenges, to our customers in the future, and if we are unable to do so, our results of operations may be adversely affected.

Operating expenses. Our selling, general and administrative expenses ("SG&A") are primarily comprised of compensation and related costs for sales, marketing, pre-sales engineering and administrative personnel, plus other sales related expenses as well as other costs related to research and development, insurance, professional fees, the global integrated business information system, and provisions for bad debts. In addition, our deferred compensation expense includes a non-qualified deferred compensation plan for certain highly compensated employees where payroll contributions are made by the employees on a pre-tax basis. The expense/income associated with our deferred compensation plan is titled "Deferred compensation plan expense/(income)" on our condensed consolidated statements of operations and comprehensive ~~income/(loss).~~income.

Key drivers affecting our results of operations. Our results of operations and financial condition are affected by numerous factors, including those described under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2022,~~2023, filed with the SEC on May ~~26, 2022,~~25, 2023, and in any subsequent Quarterly Reports on Form 10-Q that we have filed or may file with the SEC, including those described below. These factors include the following:

•Impact of product mix. Typically, our customers require our products as well as our engineering and construction services. The level of service and construction needs affect the profit margin for each type of revenue.

We tend to experience lower margins from our design optimization, engineering, installation and maintenance services, which are typically large projects tied to our ~~customers~~customers' capex budgets and are comprised of more than $0.5 million in total revenue. For clarity, we will refer to these as "Over time large projects." Our results of operations in recent years have been impacted by the various construction phases of Over time large projects. We are typically designated as the heat tracing provider of choice by the project owner. We then engage with multiple

contractors to address incorporating various heat tracing solutions throughout the overall project. Our largest projects may generate revenue for several quarters. In the early stages of an Over time large project, our revenues are typically realized from the provision of engineering services. In the middle stages, or the material requirements phase, we typically experience the greatest demand for our heat tracing cable, at which point our revenues tend to accelerate. Revenues tend to decrease gradually in the final stages of a project and are generally derived from installation services and demand for electrical panels and other miscellaneous electronic components used in the final installation of heat tracing cable, which we frequently outsource from third-party manufacturers.

Projects which do not require installation and maintenance services are smaller in size and representative of maintenance, repairs and small upgrades necessary to improve efficiency and uptime. These small projects are typically tied to our customers operating expense budgets with improved profit margins, and are generally less than $0.5 million in total revenue. We will refer to such projects as "Over time small projects."

The most profitable of our sales are derived from selling our heating products, for which we recognize revenue at a point in time. We also tend to experience lower margins from our outsourced products, such as electrical switch gears and transformers, than we do from our manufactured products. Accordingly, our results of operations are impacted by our mix of products and services.

We estimate that Point in time and Over time revenues have each made the following contribution as a percentage of total revenue in the periods listed:


		Three Months Ended December 31,				Nine months ended December 31,					Three months ended June 30,
		2022		2021		2022		2021				2023		2022
Point in time	Point in time	64	%	57	%	63	%	60	%	Point in time		61	%	62	%
Over time:	Over time:	36	%	43	%	37	%	40	%	Over time:		39	%	38	%
Small projects	Small projects	14	%	15	%	15	%	16	%	Small projects		14	%	15	%
Large projects	Large projects	22	%	28	%	22	%	24	%	Large projects		25	%	23	%

Our Over time revenue includes (i) products and services which are billed on a time and materials basis, and (ii) fixed fee contracts for complex turnkey solutions. For our time and materials service contracts, we recognize revenues as the products and services are provided over the term of the contract and have determined that the stated rate for installation services and products is representative of the stand-alone selling price for those services and products.

Our turnkey projects, or fixed fee projects, offer our customers a comprehensive solution for heat tracing from the initial planning stage through engineering/design, manufacture, installation and final proof-of-performance and acceptance testing. Turnkey services also include project planning, product supply, system integration, commissioning and on-going maintenance. Turnkey solutions, containing multiple deliverables, are customer specific and do not have an alternative use and present an unconditional right to payment, and thus are treated as a single performance obligation with revenues recognized over time as work progresses.

For revenue recognized under fixed fee turnkey contracts, we measure the costs incurred that contribute towards the satisfaction of our performance obligation as a percentage of the total cost of production (the “cost-to-cost method”), and we recognize a proportionate amount of contract revenue, as the cost-to-cost method appropriately depicts performance towards satisfaction of the performance obligation. Changes to the original cost amount may be required during the life of the contract and such estimates are reviewed on a regular basis. Sales and gross profits are adjusted using the cumulative catch-up method for revisions in estimated contract costs. Reviews of estimates have not generally resulted in significant adjustments to our results of operations.

Point in time revenue represents goods transferred to customers at a point in time and is recognized when obligations under the terms of the contract with the customer are satisfied; generally this occurs with the transfer of control upon shipment.

•Cyclicality of end-users' markets. Demand for our products and services depends in large part upon the level of capital and maintenance expenditures of our customers and end users, in particular those in the energy, oil, gas, chemical processing and power generation industries, and firms that design and construct facilities for these industries. These customers' expenditures historically have been cyclical in nature and vulnerable to economic downturns. Large projects historically have been a substantial source of revenue growth, and large project revenues tend to be more cyclical than maintenance and repair revenues. A sustained decrease in capital and maintenance spending or in new facility construction by our customers could have a material adverse effect on the demand for our products and services and our business, financial condition and results of operations.

•Acquisition strategy. In recent years, we have been executing on a strategy to grow the Company through the acquisition of businesses that are either in the process heating solutions industry or provide complementary products and solutions for the markets and customers we serve. Refer to Note 2, "Acquisition," for more discussion of our recent acquisition.

Recent Developments

As a result of the continued impact of the Russo-Ukrainian war, including the sanctions related thereto, the Company ~~conducted~~commenced a strategic assessment of its operations in the Russian Federation, and, on January 31, 2023, ~~the Board~~our board of directors authorized the Company to withdraw from its operations in the Russian Federation (the ~~"Russia Exit"~~“Russia Exit”)., through a planned disposition of its Russian subsidiary. As previously disclosed, in fiscal 2023, we recorded total charges of $12.6 million related to the Russia Exit as well as $0.2 million in transaction costs to prepare for the disposal of the subsidiary. In the first quarter of

fiscal 2024, we recorded an additional $0.6 million of charges associated with the Russia Exit. We expect to ~~execute~~complete the Russia Exit ~~by the first~~in our second fiscal quarter ~~of our fiscal 2024. However, the Russia Exit is~~2024, subject to the receipt of the requisite regulatory ~~approval by~~approvals.

The Company continues to invest in our three long-term strategic initiatives. First, we expect to diversify our revenues into adjacent markets like commercial, food & beverage, transportation and other non-oil and gas industries where we can continue to differentiate our offerings through quality, safety and customer service, while also aligning Thermon’s strategy around the ~~government of~~energy transition toward a more sustainable global economy. Second, we anticipate a multi-decades investment trend to emerge based on the ~~Russian Federation and certain lenders under the Company's Facilities. As a result, the timing of the Russia Exit is uncertain. Refer~~rapidly increasing desire for industrial customers to ~~Note 4, "Restructuring and Other Charges/(Income)" and Note 14, "Subsequent Events" for more information.~~

On May 31, 2022, our subsidiary Thermon Holding Corp., as buyer, acquired Powerblanket, (“Powerblanket”), from Glacier Capital LLC, as seller (the "Acquisition"). Powerblanket is a leading North American supplier of heated blankets built upon patented heat spreading technology, and portable industrial chillers. The purchase priceelectrify equipment to reduce their carbon footprint, which represents an opportunity for the ~~acquisition was $35.3 million. Refer~~Company to ~~Note 2, "Acquisition," for~~leverage its leading expertise in heat transfer engineering solutions. We believe that Thermon's expertise will be a key factor in a successful, sustainable transition, and we expect to invest in additional resources to quickly respond to changing customer demand. Finally, we expect to continue expanding our technology-enabled maintenance solutions, like our recently launched Genesis Network, which helps our customers more ~~information.~~

~~The COVID-19 pandemic~~efficiently and safely monitor and maintain their heating systems by utilizing our software, analytics, hardware and process heating maintenance expert services. Our efforts to diversify the ~~measures being taken~~business's end markets are starting to ~~address~~show early signs of success through increased customer engagement in diversified end markets such as rail and ~~limit~~transit, food and beverage, commercial and power. Additionally, we are continuing to receive orders from key customers related to our recently launched Genesis Network technology, with the ~~spread~~number of installed circuits using Genesis Network accelerating in the ~~virus have adversely affected~~most recent fiscal year. We are benefiting from the ~~economies and financial markets of many countries, resulting in an economic downturn that negatively impacted, and may continue to negatively impact,~~increasing global demand for our products and services. We are still experiencing effects of lockdowns in Asia, which are impacting our results in our APAC segment. The effect of loosening pandemic restrictions outside of APAC, along with pent-up demand from periods of stagnant lockdown and uncertainty have combined to strengthen customer demand from most regions we serve, especiallysolutions, particularly in North America. During periods of the pandemic we experienced, and we may in the future experience, a decline in the demand of our products and services or disruptions in raw materials or labor required for manufacturing that has in the past, and may in the future, materially and negatively impact our business, financial condition, results of operation and overall financial performance. We continue to monitor the pandemic restrictions and other effects the pandemic may have on our business.

2421

Results of Operations - Three-month periods ended ~~December 31,~~June 30, 2023 and 2022 ~~and 2021~~

The following table sets forth our unaudited condensed consolidated statements of operations for the three months ended ~~December 31, 2022 and 2021 and indicates the amount of change and percentage change between periods.~~

(Dollars in thousands) Three Months Ended December 31, Increase/(Decrease)
2022 2021 $ %
Consolidated Statements of Operations Data:
Sales $ 122,110 $ 100,613 $ 21,497 21 %
Cost of sales 71,660 59,866 11,794 20 %
Gross profit 50,450 40,747 9,703 24 %
Operating expenses:
Selling, general and administrative expenses 30,889 22,099 8,790 40 %
Deferred compensation plan expense/(income) 464 292 172 59 %
Amortization of intangible assets 2,367 2,187 180 8 %
Restructuring and other charges/(income) 2,668 — 2,668 nm
Income/(loss) from operations 14,062 16,169 (2,107) (13) %
Other income/(expenses):
Interest expense, net (1,877) (842) (1,035) 123 %
Other income/(expense) 659 (627) 1,286 (205) %
Income/(loss) before provision for income taxes 12,844 14,700 (1,856) (13) %
Income tax expense/(benefit) 4,419 3,430 989 29 %
Net income/(loss) $ 8,425 $ 11,270 $ (2,845) (25) %
As a percent of sales: Change in basis points
Gross profit 41.3 % 40.5 % 80 bps
Selling, general and administrative expenses 25.3 % 22.0 % 330 bps
Income/(loss) from operations 11.5 % 16.1 % -460 bps
Net income/(loss) 6.9 % 11.2 % -430 bps
Effective tax rate 34.4 % 23.3 %

~~Three Months Ended December 31, 2022 (“Interim 2023”) Compared to the Three Months Ended December 31, 2021 (“Interim 2022”)~~

~~Revenues~~. Revenues increased in Interim 2023 primarily due to strong performance in our Canada and US-LAM reportable segments, which grew revenues $12.1 million, or 39%, and $9.9 million, or 20%, respectively, compared to Interim 2022. Revenues in these segments were bolstered in part by strong demand in our upstream and downstream Oil and Gas end markets. Additionally, our recent acquisition of Powerblanket in the US-LAM segment contributed $7.9 million in revenue growth in Interim 2023. In our APAC segment, revenues increased by $1.2 million, or 17%, compared to Interim 2022. Revenues in APAC benefited from some recovering business activity coming off of the effects of extended COVID-19-related lockdowns in the region. Revenue in our EMEA segment contracted in Interim 2023, with a decline of $(1.7) million, or (13)%, compared to Interim 2022. Impacting revenue in EMEA were the effects of the Russo-Ukrainian war to our Russian subsidiary, as well as the overall recessionary environment which resulted in fewer projects and less volume and consequently, greater competition. Separately, revenue was negatively impacted in Interim 2023~~by foreign exchange rates by $5.2 million as the U.S. dollar strengthened relative to the Company's foreign currency-denominated operations.~~

Point in time revenues in Interim 2023 were $78.4 million, or 64%, of total sales, while Over time revenues were $43.7 million, or 36%. This compares to 57% Point in time revenues and 43% Over time revenues in Interim 2022. Refer to the "Overview" section above for definitions of Point in time and Over time revenue.

~~Gross profit and margin.~~ The higher gross profit in Interim 2023 is primarily attributable to strong Point in time and Over time sales in our US-LAM and Canada segments coupled with improved gross margin due to customer price increases and operational efficiencies. These positive drivers were partially offset by $4.8 million, or 396 bps, associated with the charges in our Russian subsidiary in addition to incremental costs from global supply chain challenges. Refer to Note 4, "Restructuring and Other Charges/(Income)" for more information regarding the charges in our Russian subsidiary.

~~Selling, general and administrative expenses~~. The increase in SG&A expenses in Interim 2023 was driven by greater sales activity resulting in higher salaries & benefits, performance-based incentive compensation, sales commissions, as well as increased travel and marketing costs. Additionally, the acquisition of Powerblanket added approximately $2.0 million of incremental SG&A expenses not present in Interim 2022. SG&A as a percent of sales was 25.3% in Interim 2023 versus 22.0% in Interim 2022. This increase in SG&A as a percent of sales was attributable in part to greater stock compensation expense associated with performance-based shares and higher bad debt expense, which includes $0.8 million related to the charges in our Russian subsidiary.

~~Deferred compensation plan expense/(income).~~ The increase in deferred compensation plan expense in Interim 2023 is attributable in part to increases in compensation deferred by certain employees as well as market fluctuations in the underlying balances as compared to Interim 2022. To note, this compensation plan expense/(income) is materially offset in other income/(expense) where the Company records market gains/(losses) on the related investment assets. Refer to Note 3, "Fair Value Measurements," for more information.

~~Amortization of intangible assets.~~ Amortization of intangible assets in Interim 2023 increased over Interim 2022, as we began to amortize more intangible assets following our acquisition of Powerblanket in the first fiscal quarter of the 2023. Please refer to Note 2, "Acquisition," for more information regarding our acquisition.

~~Restructuring and other charges/(income).~~ ~~Restructuring and other charges/(income) was $2.7 million in Interim~~June 30, 2023 and ~~zero in Interim 2022. Refer to Note 4, "Restructuring and Other Charges/(Income)" for more information.~~

~~Interest expense, net.~~ The increase in interest expense is primarily due to a higher average interest rate during Interim 2023, which was approximately 5% versus approximately 2% during Interim 2022. See Note 9, "Debt," for additional information on our long-term debt.

~~Other income/(expense).~~ The increase in other income is primarily due to foreign currency gains, net in Interim 2023 versus losses, net in Interim 2022. The remaining variance is attributable to relatively more gains on the Company's non-qualified deferred compensation plan than in the prior year due to market fluctuations. These gains are materially offset by increased deferred compensation plan expense/(income) as noted above.

~~Income tax expense/(benefit).~~ ~~Our effective tax rate was 34.4% and 23.3% in Interim 2023 and Interim~~ 2022, ~~respectively. The increase in rate is almost entirely due to the Company's decision to exit its operations in the Russian Federation. During Interim 2023, we recorded a total pretax charge of $8,334 for which the Company does not anticipate receiving any tax benefits, except for releasing~~ ~~$1.0 million in Interim 2023 related to estimated withholding taxes at our Russian subsidiary. Refer to Note 12, “Income Taxes,” for additional detail.~~

~~Net income/(loss).~~ ~~The change in net income/(loss) is explained by the changes noted in the sections above.~~

~~Results of Operations - Nine-month periods ended December 31, 2022 and 2021~~

~~The following table sets forth our unaudited condensed consolidated statements of operations for the nine months ended December 31, 2022 and 2021,~~ respectively, and indicates the amount of change and percentage change between periods.


(Dollars in thousands)	(Dollars in thousands)	Nine Months Ended December 31,						Increase/(Decrease)				(Dollars in thousands)	Three Months Ended June 30,						Increase/(Decrease)
		2022			2021			$		%			2023			2022			$		%
Consolidated Statements of Operations Data:	Consolidated Statements of Operations Data:											Consolidated Statements of Operations Data:
Sales	Sales	$	318,109		$	253,090		$	65,019	26	%	Sales	$	106,889		$	95,442		$	11,447	12	%
Cost of sales	Cost of sales	184,508			154,084			30,424		20	%	Cost of sales	59,580			58,217			1,363		2	%
Gross profit	Gross profit	133,601			99,006			34,595		35	%	Gross profit	47,309			37,225			10,084		27	%
Operating expenses:	Operating expenses:											Operating expenses:
Selling, general and administrative expenses	Selling, general and administrative expenses	83,046			66,820			16,226		24	%	Selling, general and administrative expenses	28,654			24,403			4,251		17	%
Deferred compensation plan expense/(income)	Deferred compensation plan expense/(income)	(499)			610			(1,109)		(182)	%	Deferred compensation plan expense/(income)	273			(660)			933		(141)	%
Amortization of intangible assets	Amortization of intangible assets	7,072			6,613			459		7	%	Amortization of intangible assets	2,387			2,268			119		5	%
Restructuring and other charges/(income)	Restructuring and other charges/(income)	2,668			(414)			3,082		(744)	%	Restructuring and other charges/(income)	581			—			581		nm
Income/(loss) from operations		41,314			25,377			15,937
Income from operations												Income from operations	15,414			11,214			4,200
Other income/(expenses):	Other income/(expenses):											Other income/(expenses):
Interest expense, net	Interest expense, net	(4,120)			(5,029)			909		(18)	%	Interest expense, net	(1,584)			(835)			(749)		90	%

Other income/(expense)	Other income/(expense)	(592)			(3,517)			2,925		(83)	%	Other income/(expense)	341			(916)			1,257		(137)	%
Income/(loss) before provision for income taxes		36,602			16,831			19,771		117	%
Income tax expense/(benefit)		10,637			5,424			5,213		96	%
Net income/(loss)		$	25,965		$	11,407		$	14,558	128	%
Income before provision for income taxes												Income before provision for income taxes	14,171			9,463			4,708		50	%
Income tax expense												Income tax expense	3,233			2,907			326		11	%
Net income												Net income	$	10,938		$	6,556		$	4,382	67	%

As a percent of sales:	As a percent of sales:							Change in basis points				As a percent of sales:							Change in basis points
Gross profit	Gross profit	42.0		%	39.1		%	290 bps				Gross profit	44.3		%	39.0		%	530 bps
Selling, general and administrative expenses	Selling, general and administrative expenses	26.1		%	26.4		%	-30 bps				Selling, general and administrative expenses	26.8		%	25.6		%	120 bps
Income/(loss) from operations		13.0		%	10.0		%	300 bps
Net income/(loss)		8.2		%	4.5		%	370 bps
Income from operations												Income from operations	14.4		%	11.7		%	270 bps
Net income												Net income	10.2		%	6.9		%	330 bps

Effective tax rate	Effective tax rate	29.1		%	32.2		%					Effective tax rate	22.8		%	30.7		%

~~Nine~~Three Months Ended ~~December 31, 2022~~June 30, 2023 (“~~YTD 2023”~~Interim 2024”) Compared to the ~~Nine~~Three Months Ended ~~December 31, 2021~~June 30, 2022 (“~~YTD 2022”~~Interim 2023”)

Revenues. Revenue increased in ~~YTD 2023~~Interim 2024 compared to ~~YTD 2022~~Interim 2023 due to strong performance in our US-LAM and Canada segments. US-LAM revenue increased ~~$49.9~~$7.9 million, or ~~48%~~17%, while Canada revenue increased ~~$28.7~~$3.1 million, or ~~35%~~10%. ~~Revenues~~Also contributing to the increase was the APAC segment, which experienced sales growth of $0.8 million, or 10%. Across our end markets, the increase in ~~these segments were bolstered in part~~revenue was driven by strong demand in both oil and gas as well as our ~~upstream~~diversified end markets such as renewables, food and ~~downstream Oil~~beverage, and ~~Gas end markets. Additionally, our recent acquisition of Powerblanket in the US-LAM segment contributed $12.0 million in revenue growth in YTD 2023.~~rail and transit. These increases were partly offset by contraction in our EMEA segment, with a decrease in revenue of ~~$(13.6)~~$(0.4) million, or ~~(31)~~(4)%~~. Revenue in our APAC segment was flat compared to YTD 2022. The ongoing effects of~~, impacted by the ~~Russo-Ukrainian war as well as the overall recessionary environment impacted the results in EMEA, while lingering COVID-19 lockdowns and their effects has delayed recovery in APAC.~~Russia Exit. Separately, revenue was negatively impacted in ~~YTD 2023~~Interim 2024 by foreign exchange rates byof approximately ~~$11.2~~$2.1 million.

Point in time revenue and Over time revenue comprised ~~63%~~61% and ~~37%~~39% of sales in ~~YTD 2023,~~Interim 2024, respectively, and ~~60%~~62% and ~~40%~~38% in ~~YTD 2022,~~Interim 2023, respectively.

Gross profit and margin. Gross profit increased ~~$34.6~~$10.1 million on greater sales volumes and greater profitability with gross margin improving by ~~290~~530 bps. ~~We delivered increased sales~~In Interim 2023, margins were negatively impacted by a large project in ~~both Over time sales as well as Point~~our US-LAM segment that is no longer present in ~~time sales during YTD 2023, while more profitable point in time sales grew as a percent of the mix. Furthermore, YTD 2023~~Interim 2024. Interim 2024 gross margin was ~~augmented~~enhanced by ~~improved gross margin due to~~ customer price increases as well as operational efficiencies. ~~However, these positive drivers were partially offset by $4.8 million, or 152 bps, associated with the charges in our Russian subsidiary, as well~~

2722

as incremental costs from global supply chain challenges. Separately, gross margin in YTD 2022 was diluted, in part, by warranty costs associated with the operational execution of a large project in our US-LAM segment that was completed in a prior year, which was somewhat offset by benefits from the Canadian Emergency Wage program ("CEWS"). Refer to Note 1, "Basis of Presentation," for more information on CEWS. Refer to Note 4, "Restructuring and Other Charges/(Income)" for more information regarding the charges in our Russian subsidiary.

Selling, general and administrative expenses. Selling, general and administrative expenses increased ~~$16.2~~$4.3 million in ~~YTD 2023~~Interim 2024 compared to ~~YTD 2022~~Interim 2023 driven mainly by ~~costs~~expenses associated with greater sales activity, ~~resulting in increased~~including higher headcount and salaries, advertising, and ~~benefits, incentive pay, commissions,~~ travel and ~~marketing costs. In addition, costs increased in YTD 2023 due to the acquisition of Powerblanket. However, SG&A~~entertainment expenses, as ~~a percent of sales decreased by 30 bps, which is attributable to continued sales growth coupled with prudent cost management.~~well as professional fees.

Deferred compensation plan expense/(income). Deferred compensation plan expense/(income) generated income in ~~YTD 2023~~Interim 2024 due to market fluctuations in the underlying balances owed to employees. This compensation plan expense/(income) is materially offset in other income/(expense), where the Company recorded market gains/(losses) on related investment assets. Refer to Note 3, "Fair Value Measurements," for more information.

Restructuring and other charges/(income). Restructuring and other charges/(income) was ~~$2.7~~$0.6 million in ~~YTD 2023~~Interim 2024 and ~~(0.4) million~~zero in ~~YTD 2022.~~Interim 2023. The activity in Interim 2024 was due to the Russia Exit. Refer to Note 4, "Restructuring and Other Charges/(Income)" for more information.

Amortization of intangible assets. Amortization of intangible assets increased slightly in ~~YTD 2023~~Interim 2024 as compared to ~~YTD 2022,~~Interim 2023, as we ~~began~~recorded the first full quarter of amortization related to ~~amortize more intangible assets following~~ our acquisition of ~~Powerblanket in the first fiscal quarter of the 2023.~~Powerblanket. Activity within these accounts is driven by periodic straight-line amortization of our acquired intangibles.

Interest expense, net. Interest expense, net ~~decreased~~increase in ~~YTD 2023~~Interim 2024 as compared to ~~YTD 2022~~Interim 2023 due primarily to higher average interest rates (6.14% in Interim 2024 versus 2.35% in Interim 2023), partially offset by a lower average ~~outstanding principal.~~debt balance ($113.2 million in Interim 2024 versus $139.9 million in Interim 2023). Refer to Note 9, "Debt," for more information on our outstanding debt.

Other income/(expense). The ~~decrease~~change in Other income/(expense) in YTD 2023 was primarily due to the debt extinguishment costs recognized in YTD 2022 that were absent in YTD 2023, as well as greater losses, net on foreign currency transactions in YTD 2022. The remaining changeInterim 2024 is attributable to market fluctuations in the underlying investments associated with our non-qualified deferred compensation plan. These unrealized gains and losses on investments were materially offset by deferred compensation plan expense/(income) as noted above.

Income taxes. Income tax expense was ~~$10.6~~$3.2 million in ~~YTD 2023~~Interim 2024 on pre-tax income of ~~$36.6~~$14.2 million compared to income tax expense of ~~$5.4~~$2.9 million in ~~YTD 2022~~Interim 2023 on pre-tax income of ~~$16.8~~$9.5 million, an increase of ~~$5.2~~$0.3 million in income tax expense. Our effective tax rate was ~~29.1%~~22.8% and ~~32.2%~~30.7% in ~~YTD~~Interim 2024 and Interim 2023 ~~and YTD 2022,~~, respectively. ~~The YTD~~During Interim 2024, the Company benefited from stock compensation that vested in excess of the original grant date fair value. During Interim 2023 ~~rate was impacted by~~, we recorded a discrete tax expense of $0.4 million related to the ~~charges~~foreign exchange impact of estimated withholding taxes in our Russian subsidiary. ~~Specifically, during~~ Additionally, Interim 2023 wwas impacted by a higher state tax burden associated with a large project active at that time in our US-LAM segment.~~e recorded a total pretax charge of $8,334 for which the Company does not anticipate receiving any tax benefits, except for releasing~~ $1.0 million in Interim 2023 related to estimated withholding taxes at our Russian subsidiary. During YTD 2022, we recorded discrete tax items totaling $0.7 million primarily related to withholding taxes in Canada and Russia.

Net ~~income/(loss).~~income. The change in net ~~income/(loss)~~income is explained by the changes noted above.

Contingencies

See Note 10, "Commitments and Contingencies," to our unaudited condensed consolidated financial statements included above in Part I, Item 1. Financial Statements (Unaudited) of this quarterly report, which is hereby incorporated by reference into this Item 2.

2823

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations and funds available under our revolving credit facility. Our primary liquidity needs are to finance our working capital, capital expenditures, debt service needs and potential future acquisitions.

At ~~December 31, 2022,~~June 30, 2023, we had ~~$35.4~~$33.2 million in cash and cash equivalents. We manage our global cash requirements by maintaining cash and cash equivalents at various financial institutions throughout the world where we operate. Approximately ~~$9.4~~$7.9 million, or ~~27%~~24%, of these amounts were held in domestic accounts with various institutions and approximately ~~$26.0~~$25.3 million, or ~~73%~~76%, of these amounts were held in accounts outside of the United States with various financial institutions. While we require cash needs at our various foreign operations, excess cash is available for distribution to the United States through intercompany dividends or debt reduction in Canada. We had $3.6 million of cash and cash equivalents held in our Russian subsidiary at December 31, 2022. Due to the uncertain nature of whether we can repatriate certain funds from our Russian subsidiary, $3.1 million was classified as restricted and therefore, not included in the cash and cash equivalents balance noted above. Please refer to Note 1, "Basis of Presentation," for more information regarding our restricted cash.

Generally, we seek to maintain a cash and cash equivalents balance between $30.0 and $40.0 million. We will encounter periods where we may be above or below this range, due to, for example, inventory buildup for anticipated seasonal demand in fall and winter months, related cash receipts from credit sales in months that follow, debt maturities, restructuring activities, larger capital investments, severe and/or protracted economic downturns, acquisitions, or some combination of the above activities. The Company continues to manage its working capital requirements effectively through optimizing inventory levels, doing business with credit-worthy customers, and extending payments terms with its supplier base.

Future Cash Requirements

Our future capital requirements depend on many factors as noted throughout this report. We believe that, based on our current level of operations and related cash flows, plus cash on hand and available borrowings under our revolving credit facility, we will be able to meet our liquidity needs for the next twelve months and the foreseeable future. We had ~~$24.5~~$22.5 million of borrowings outstanding on our revolving credit facility at ~~December 31, 2022. The $24.5 million was borrowed to support the acquisition of Powerblanket.~~June 30, 2023. Although subject to change and not required by our Credit Facility, we intend to pay back the outstanding balance within the next twelve months. Please refer to Note 2, "Acquisition," for more information regarding our acquisition.

For fiscal ~~2023,~~2024, we expect our capital expenditures to approximate ~~2.0%~~3.5% to ~~2.5%~~4.0% of revenue. Additionally, we expect to pay ~~$10.2~~$10.3 million in principal payments on our long-term debt, as well as ~~$3.5~~$3.4 million related to our leased assets in the next twelve months. See further details in Note 9, "Debt," in Part I, Item 1. Financial Statements (Unaudited) of this quarterly report. We also have payment commitments of ~~$3.4~~$1.8 million, mostly related to long-term information technology contracts, of which ~~$2.0~~$1.8 million are due within the next twelve months.

~~Strategic Investments~~

~~Our long term plan includes investments in three key areas as we look to profitably grow the Company beyond its existing installed base.~~

First, we expect to diversify our revenues into adjacent markets like commercial, food & beverage, transportation and other non-oil and gas industries where we can continue to differentiate our offerings through quality, safety and customer service, while also aligning Thermon’s strategy around the energy transition toward a more sustainable global economy.

Second, we anticipate a multi-decades investment trend to emerge based on the rapidly increasing desire for industrial customers to electrify equipment to reduce their carbon footprint, which represents an opportunity for the Company. Thermon's process heating expertise will be a key factor in a successful, sustainable transition, and we expect to invest in additional resources to quickly respond to changing customer demand.

Finally, we will continue expanding our technology-enabled maintenance solutions, like our recently launched Genesis Network, which helps our customers more efficiently and safely monitor and maintain their heating systems by utilizing our software, analytics, hardware and process heating maintenance expert services.

These three initiatives will include incremental investments, as evidenced by our investment in our legacy business as well as our recent acquisition of Powerblanket, over a multi-year period, that we expect will result in a more diversified, sustainable, and profitable company over time.

Discussion and Analysis of Cash Flows


		Nine months ended December 31,
		(Dollars in thousands)							Three months ended June 30,
		2022		2021		Increase/(Decrease)			2023		2022		Increase/(Decrease)
Total cash provided by/(used in):	Total cash provided by/(used in):							Total cash provided by/(used in):
Operating activities	Operating activities	$	31,605	$	13,746	$	17,859	Operating activities	$	868	$	11,860	$	(10,992)
Investing activities	Investing activities	(40,309)		(2,685)		(37,624)		Investing activities	(2,789)		(36,893)		34,104
Financing activities	Financing activities	6,729		(17,287)		24,016		Financing activities	(1,853)		22,763		(24,616)

Free Cash Flow:(1)	Free Cash Flow:(1)							Free Cash Flow:(1)
Cash provided by operating activities	Cash provided by operating activities	$	31,605	$	13,746	$	17,859	Cash provided by operating activities	$	868	$	11,860	$	(10,992)
Less: Cash used for purchases of property, plant, and equipment	Less: Cash used for purchases of property, plant, and equipment	(5,173)		(2,920)		(2,253)		Less: Cash used for purchases of property, plant, and equipment	(2,801)		(1,617)		(1,184)
Plus: Sales of rental equipment	Plus: Sales of rental equipment	163		235		(72)		Plus: Sales of rental equipment	12		63		(51)
Free Cash Flow	Free Cash Flow	$	26,595	$	11,061	$	15,534	Free Cash Flow	$	(1,921)	$	10,306	$	(12,227)

(1) "Free Cash Flow" is a non-GAAP financial measure, which we define as net cash provided by operating activities less cash used for the purchase of property, plant, and equipment, net of sales of rental equipment and proceeds from sales of land and buildings. Free Cash Flow is one measure management uses internally to assess liquidity. Our calculation may not be comparable to similarly titled measures reported by other companies.

Operating Cash Flows

Operating cash flows ~~increased~~decreased in ~~YTD 2023~~Interim 2024 as compared to ~~YTD 2022~~Interim 2023 primarily due to ~~an increase~~investment of cash in ~~net income of $14.6 million and less investments in net~~ working capital accounts of ~~$6.4~~approximately $15 million, ~~partly~~particularly related to investments in inventories, changes in timing of

billings on certain contracts in our contract assets, and timing and payment of vendor invoices, partially offset by ~~relatively less non-cash items~~higher net income of ~~$3.1~~approximately $4 million.

Investing Cash Flows

Cash used in investing ~~increased~~decreased in ~~YTD 2023~~Interim 2024 as compared to ~~YTD 2022~~Interim 2023 primarily due to the ~~acquisition of~~cash paid to acquire Powerblanket ~~for $35.3 million on May 31, 2022.~~recorded in Interim 2023 with no similar activity in Interim 2024, slightly offset by higher capital expenditures in Interim 2024. Refer to Note 2, "Acquisition," for more information. Additionally, we increased our capital expenditures by $2.3 million in YTD 2023 as compared to YTD 2022, mostly for machinery and equipment, including Temporary Power Solutions rental assets, as well as information technology assets.

Financing Cash Flows

Financing cash flows ~~increased~~decreased in ~~YTD~~Interim 2024 versus Interim 2023 ~~versus YTD 2022~~ primarily due to the ~~drawdown on~~borrowings for our ~~Revolving Credit Facility~~acquisition of Powerblanket in ~~the amount of $32.0 million, of which we paid back $7.5 million~~Interim 2023 with no similar activity in ~~YTD 2023. The Revolving Credit Facility borrowings were used to acquire Powerblanket, as mentioned above.~~Interim 2024.

Credit Facilities

On September 29, 2021, Thermon Group Holdings, Inc. (the “Company”), as a credit party and a guarantor, and its subsidiaries Thermon Holding Corp. (“THC” or the “U.S. Borrower”) and Thermon Canada Inc. (the “Canadian Borrower” and together with THC, the “Borrowers”), as borrowers, entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with several banks and other financial institutions or entities from time to time (the “Lenders”) and JPMorgan Chase Bank, N.A., as Administrative Agent (the “Agent”).

The Credit Agreement is an amendment and restatement of that certain Credit Agreement dated October 30, 2017 by and among Borrowers, the lenders time to time party thereto and JPMorgan Chase Bank, N.A. as administrative agent (the “Prior Credit Agreement”), and provides for the credit facilities described in Note 9, "Debt," in Part I, Item 1. Financial Statements (Unaudited) of this quarterly report.

~~We had $24.5 million of borrowings outstanding on our Revolving Credit Facility at December 31, 2022.~~

Other Non-GAAP Financial Measures

In addition to evaluating our cash flow generation based upon operating, investing, and financing activities, the Company believes that the non-GAAP measure used in this section may provide investors and key stakeholders with another important perspective regarding our performance. The Company does not intend for this non-GAAP metric to be a substitute for the related GAAP measure, nor should it be viewed in isolation and without considering all relevant GAAP measurements. Moreover, our calculation may not be comparable to similarly titled measures reported by other companies.

We define “Free Cash Flow” as net cash provided by operating activities less cash used for the purchase of property, plant, and equipment, net of sales of rental equipment as well as proceeds from sales of land and buildings. This metric should not be interpreted to mean the remaining cash that is available for discretionary spending, dividends, share repurchases, acquisitions, or other purposes, as it excludes significant, mandatory obligations, such as principal payments on the Company’s long-term debt facility. Free cash flow is one measure that the Company uses internally to assess liquidity.

Free Cash Flow totaled ~~$26.6~~$(1.9) million for ~~YTD 2023~~Interim 2024 as compared to ~~$11.1~~$10.3 million for ~~YTD 2022,~~Interim 2023, the drivers of which are explained above under ~~"Results~~"Discussion and Analysis of ~~Operations.~~Cash Flows."

Contractual Obligations and Off-Balance Sheet Arrangements

There have been no material changes outside the ordinary course of business in the Company’s contractual obligations during ~~YTD 2023.~~Interim 2024. The Company does not have any off-balance sheet arrangements or any interest in entities commonly referred to as variable interest entities, which include special purpose entities and other structured finance entities. See the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, ~~2022,~~2023, filed on May ~~26, 2022,~~25, 2023, for further details.

Critical Accounting Polices

Our condensed consolidated financial statements are prepared in conformity with GAAP. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2022,~~2023, filed with the SEC on May ~~26, 2022,~~25, 2023, for a discussion of the Company’s critical accounting policies and estimates.

Recent Accounting Pronouncements

See Note 1, “Basis of Presentation,” to our unaudited condensed consolidated financial statements and accompanying notes thereto included above in Item 1. Financial Statements (Unaudited) of this quarterly report for information on recent accounting pronouncements, which is hereby incorporated by reference into this Item 2.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our primary market risk exposures are the effect of fluctuations in foreign exchange rates, interest rates and commodity prices.

Foreign currency risk relating to operations. We transact business globally and are subject to risks associated with fluctuating foreign exchange rates. Approximately ~~55%~~54% of our ~~YTD 2023~~Interim 2024 consolidated revenue was generated by sales from our non-U.S. subsidiaries. Our non-U.S. subsidiaries generally sell their products and services in the local currency, but obtain a significant amount of their products from our manufacturing facilities located elsewhere, primarily the United States, Canada and Europe. Significant changes in the relevant exchange rates could adversely affect our margins on foreign sales of products. Our non-U.S. subsidiaries incur most of their expenses (other than intercompany expenses) in their local functional currency. These currencies include the Canadian Dollar, Euro, British Pound, ~~Russian Ruble,~~ Australian Dollar, South Korean Won, Chinese Renminbi, Indian Rupee, Mexican Peso, and Japanese Yen.

During ~~YTD 2023,~~Interim 2024, our largest exposures to foreign exchange rates consisted primarily of the Canadian Dollar ~~the Euro,~~ and the ~~Russian Ruble.~~Euro. The market risk related to the foreign currency exchange rates is measured by estimating the potential impact of a 10% change in the value of the U.S. dollar relative to the local currency exchange rates. The rates used to perform this analysis were based on a weighted average of the market rates in effect during the relevant period. A 10% appreciation of the U.S. dollar relative to the Canadian dollar would result in a net decrease in net income of ~~$1.7~~$0.5 million for ~~YTD 2023.~~Interim 2024. Conversely, a 10% depreciation of the U.S. dollar relative to the Canadian dollar would result in a net increase in net income of ~~$2.0~~$0.6 million for ~~YTD 2023.~~Interim 2024. A 10% appreciation of the U.S. dollar relative to the Euro would result in a ~~$0.1 million~~nominal decrease in net income. Conversely, a 10% depreciation of the U.S. dollar relative to the Euro would result in a ~~$0.1 million net~~nominal increase in net income for YTD 2023. Given a net loss for our Russian subsidiary in YTD 2023, a 10% appreciation of the U.S. dollar relative to the Ruble would result in a $0.9 million increase in net income. Conversely, a 10% depreciation of the U.S. dollar relative to the Ruble would result in a net decrease in net income of approximately $1.1 million for YTD 2023.Interim 2024.

The geographic areas outside the United States in which we operate are generally not considered to be highly inflationary. Nonetheless, these foreign operations are sensitive to fluctuations in currency exchange rates arising from, among other things, certain intercompany transactions that are generally denominated in U.S. dollars rather than their respective functional currencies. The net impact of foreign currency transactions on our condensed consolidated statements of operations and comprehensive ~~income/(loss)~~income were ~~losses~~gains of ~~$(0.1) million~~a nominal amount and ~~$(1.6)~~a loss of $0.3 million in ~~YTD~~Interim 2024 and Interim 2023, ~~and YTD 2022,~~ respectively.

As of ~~December 31, 2022,~~June 30, 2023, we had approximately ~~$2.5~~$5.5 million in notional forward contracts to reduce our exposure to foreign currency exchange rate fluctuations with respect to currencies. These forward contracts were in place to offset in part the foreign currency exchange risk to intercompany payables due from our foreign operations to be settled in U.S. dollars. As of ~~December 31, 2022,~~June 30, 2023, the Company could not secure foreign currency contracts to reduce exposure to the Russian Ruble. See Note 3, “Fair Value Measurements” to our unaudited condensed financial statements included above in Item 1. Financial Statements (Unaudited) of this quarterly report for further information regarding our foreign currency forward contracts.

We estimate that our sales were negatively impacted by ~~$11.2~~$2.1 million in ~~YTD 2023~~Interim 2024 when compared to foreign exchange translation rates that were in effect in ~~YTD 2022.~~Interim 2023. Foreign currency impact on revenue is calculated by comparing actual current period revenue in U.S. dollars to the theoretical U.S. Dollar revenue we would have achieved based on the weighted-average foreign exchange rates in effect in the comparative prior periods for all applicable foreign currencies. At each balance sheet date, we translate our assets and liabilities denominated in foreign currency to U.S. dollars. The balances of our foreign equity accounts are translated at their historical value. The difference between the current rates and the historical rates are posted to our currency translation account and reflected in the shareholders’ equity section of our condensed consolidated balance sheets. The unrealized effects of foreign currency translations were gains of $4.5 million and losses of ~~$17.6 million and $3.8~~$5.2 million in ~~YTD~~Interim 2024 and Interim 2023, ~~and YTD 2022,~~ respectively. The ~~comparative decrease in YTD 2023 foreign currency translation losses~~change between the years is primarily due to the ~~weakening~~strengthening of the Canadian dollar and Euro relative to the U.S. dollar as compared to ~~YTD 2022.~~Interim 2023. Foreign currency translation gains or losses are reported as part of comprehensive income or loss in the condensed consolidated statements of operations and comprehensive ~~income/(loss).~~income. Foreign currency transactions gains and losses are included in net income or loss as part of other income and expense in the condensed consolidated statements of operations and comprehensive ~~income/(loss).~~income.

Interest rate risk and foreign currency risk relating to debt. Borrowings under our Term Loan Facilities and the Revolving Credit Facility incur interest expense that is variable in relation to the ~~LIBOR~~SOFR and CDOR rate. As of ~~December 31, 2022,~~June 30, 2023, we had ~~$108.3~~$91.0 million of outstanding principal under our Term Loan Facilities and ~~$24.5~~$22.5 million in borrowings under the Revolving Credit Facility. The interest rates on the Term Loan Facilities on ~~December 31, 2022~~June 30, 2023 were ~~5.93%~~6.62% for the Canadian Term Loan Facility, ~~5.42%~~6.45% for the U.S. Term Loan Facility, and ~~5.63%~~6.45% for the U.S. Revolving Credit Facility. Based on the outstanding borrowings, a 1% change in the interest rate would result in a $1.1 million increase or decrease, as applicable, in our annual interest expense.

Commodity price risk. We use various commodity-based raw materials in our manufacturing processes. Generally, we acquire such components at market prices and do not typically enter into long-term purchase commitments with suppliers or hedging instruments to mitigate commodity price risk. As a result, we are subject to market risks related to changes in commodity prices and supplies of key components of our products. Raw material costs have been stable historically; however,

in recent periods we have experienced, and may continue to experience, various shortages in certain raw materials as well as an increase in costs of these materials due to: use of alternate suppliers, higher freight costs, increased lead times, and expedited shipping. We cannot provide any assurance that we will continue to mitigate temporary raw material shortages or be able to pass along such cost increases, including the potential impacts of tariffs or supply chain challenges, to our customers in the future, and if we are unable to do so, our results of operations may be adversely affected.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this quarterly report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, these disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

3227

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2022,~~2023, filed with the SEC on May ~~26, 2022.~~25, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of our equity securities during the three months ended ~~December 31, 2022.~~June 30, 2023.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~On January 31,~~Securities Trading Plans of Directors and Executive Officers

During the three months ended June 30, 2023, none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the ~~board~~purchase or sale of ~~directors of~~THR securities that was intended to satisfy the Company amended and restated the Company’s bylaws to include language related to Rule 14a-19 as promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (“Rule 14a-19”) and make certain related changes. The changes effected by the amendment and restatement of the Company’s bylaws (as so amended and restated, the “Amended and Restated Bylaws”) include, without limitation, the following:

•~~update the advance notice provisions for director nominations requiring stockholders using a universal proxy card to comply with the advance notice requirements~~affirmative defense conditions of Rule ~~14a-19;~~

•~~require stockholders using a universal proxy card to confirm, upon the Company’s request, compliance with Rule 14a-19; and~~

•~~provide that the Company will disregard proxies solicited by stockholders using a universal proxy card if such stockholder fails to comply with the requirements of Rule 14a-19.~~

The Amended and Restated Bylaws are effective January 31, 2023. The foregoing description of the Amended and Restated Bylaws is qualified in its entirety by the full text of the Amended and Restated Bylaws, a copy of which is filed as Exhibit 3.1 hereto and is incorporated by reference herein.10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

Item 6. Exhibits

See Exhibit Index below for a list of exhibits filed as part of this quarterly report, which Exhibit Index is incorporated herein by reference.

3328

EXHIBIT INDEX


Exhibit Number						Description


~~3.1~~						Amended and Restated Bylaws of Thermon Group Holdings, Inc.*

31.1						Certification of Bruce Thames, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2						Certification of Kevin Fox, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1						Certification of Bruce Thames, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2						Certification of Kevin Fox, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

101						Interactive Data Files formatted in Inline eXtensible Business Reporting Language (iXBRL) pursuant to Rule 405 of Regulation S-T: (i) the cover page, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Operations and Comprehensive ~~Income/(Loss),~~Income, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements*

104						Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)*

__________________________________

* Filed herewith

3429

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	THERMON GROUP HOLDINGS, INC. (registrant)
Date: ~~February 2,~~August 3, 2023	By:	/s/ Kevin Fox
	Name:	Kevin Fox
	Title:	Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)

3530


in thousands, unaudited	Three Months Ended December 31, 2022		Three Months Ended December 31, 2021		Nine Months Ended December 31, 2022		Nine Months Ended December 31, 2021
Sales	$	122,110	$	107,443	$	319,973	$	265,350
Net Income/(loss)	8,425		12,623		25,588		13,438