THERMON GROUP HOLDINGS, INC. EARNINGS PRESENTATION F O U R T H Q U A R T E R F I S C A L 2 0 2 1 M A Y 2 7 , 2 0 2 1 f morio CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This investor presentation may include 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 inc ...

Financial Data and Key Metrics Changes - Revenues for Q3 totaled $79.6 million, down 21% year-over-year but up 20% sequentially [14][30] - Adjusted EBITDA was $18.5 million, down 11.2% from the prior year but up 77% sequentially [14][36] - Gross margins improved to 46.4%, an increase of 310 basis points year-over-year and 285 basis points sequentially [14][32] - Adjusted EPS was $0.30, a 7% increase from the prior year despite a 21% lower volume [15][35] Business Line Data and Key Metrics Changes - Bookings for the quarter were $71 million, down 28% year-over-year and 6% sequentially, with a book-to-bill ratio of 89% [16][31] - The revenue mix between MRO/UE and Greenfield remained at 62% and 38%, respectively [30] - Continuous improvement programs yielded $3.8 million in projected savings, close to the target of $3.9 million [11][12] Market Data and Key Metrics Changes - There are signs of improvement in end markets, particularly in chemicals and petrochemicals, with less decline in demand [19][20] - Maintenance activity has improved beyond normal seasonality, indicating pent-up demand [17][19] - The transportation sector has grown from 3% of revenues in fiscal year 2020 to over 15% of backlog at the end of Q3 [23] Company Strategy and Development Direction - The company is focused on operational improvements and aims to increase EBITDA margins by 200 to 300 basis points in FY '22 [26] - Strategic initiatives include globalization of the process and environmental business, diversification of end markets, and technology-enabled maintenance [27] - Investments in R&D are prioritized, with a focus on smart control solutions and advanced heating technologies [24] Management's Comments on Operating Environment and Future Outlook - Management believes Q3 represented the bottom in terms of trailing 12-month adjusted EBITDA, with expectations for improvement in Q4 [25][42] - The company anticipates weaker capital spending in the fourth quarter and into FY '22, particularly in the US and Latin America [17][76] - There is cautious optimism regarding recovery in end markets, particularly in power and natural gas opportunities [19][76] Other Important Information - The company generated positive cash flows of $2.9 million during Q3, enabling $5.6 million in debt repayment [18][37] - The Canadian subsidiaries received a $1.7 million pre-tax benefit from the Canadian Wage Subsidy program [29][30] - The company has a strong balance sheet with $49.6 million in cash on hand and a net debt to adjusted EBITDA ratio of 3.0 times [38] Q&A Session Summary Question: Will gross margins improve sequentially in Q4? - Management did not provide specific guidance on gross margins but indicated that continuous improvement efforts should sustain margin improvements [50] Question: How is the tubing bundles business performing? - The tubing bundles business is approximately $40 million in a normal year, with potential for growth despite current capital deferrals [53] Question: What macro factors will trigger capital spending from core customers? - Stability in commodity pricing, particularly oil prices around $60 per barrel, is seen as a potential tipping point for increased capital spending [74] Question: Will the Canadian Wage Subsidy continue into 2022? - Management does not expect the subsidy to be ongoing and will not rely on it for future planning [80] Question: What is the outlook for the CCI business? - The CCI business is expected to rebound quickly post-pandemic, benefiting from operating leverage and high margins [62][64]

[PART I — FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Thermon Group Holdings, Inc.'s unaudited condensed consolidated financial statements and accompanying notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and equity at specific dates | Metric | December 31, 2020 (Thousands) | March 31, 2020 (Thousands) | | :-------------------------------- | :----------------------------- | :-------------------------- | | Total Assets | $642,357 | $620,905 | | Total Liabilities | $262,775 | $274,466 | | Total Equity | $379,582 | $346,439 | | Cash and cash equivalents | $49,617 | $43,237 | | Accounts receivable, net | $76,612 | $92,478 | | Inventories, net | $74,153 | $60,273 | | Long-term debt | $162,906 | $169,053 | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) This section details the company's financial performance over specific periods, including sales, gross profit, and net income | Metric (Thousands) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Sales | $79,604 | $100,468 | $202,858 | $295,115 | | Gross profit | $36,960 | $43,480 | $90,010 | $126,054 | | Net income (loss) | $6,175 | $6,522 | $1,928 | $14,904 | | Basic EPS | $0.19 | $0.20 | $0.06 | $0.46 | | Diluted EPS | $0.18 | $0.20 | $0.06 | $0.45 | - Sales decreased by **21%** for the three months and **31%** for the nine months ended December 31, 2020, compared to the prior year periods[12](index=12&type=chunk) - Net income decreased by **5%** for the three months and **87%** for the nine months ended December 31, 2020, compared to the prior year periods[12](index=12&type=chunk) [Condensed Consolidated Statements of Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) This section outlines changes in the company's equity, including retained earnings and comprehensive income, over specific periods | Metric (Thousands) | December 31, 2020 | March 31, 2020 | | :----------------- | :---------------- | :------------- | | Total Equity | $379,582 | $346,439 | | Retained Earnings | $184,487 | $182,559 | | Accumulated Other Comprehensive Loss | $(35,388) | $(63,894) | - Total equity increased by **$33.1 million** from March 31, 2020, to December 31, 2020, primarily driven by a significant foreign currency translation adjustment gain of **$14.5 million** in the three months ended December 31, 2020, and **$29.2 million** for the nine months[15](index=15&type=chunk)[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity (Thousands) | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | | :----------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $15,479 | $52,355 | | Net cash used in investing activities | $(4,643) | $(6,088) | | Net cash used in financing activities | $(7,588) | $(40,923) | | Cash, cash equivalents and restricted cash at end of period | $52,311 | $39,688 | - Net cash provided by operating activities decreased by **$36.9 million** for the nine months ended December 31, 2020, primarily due to a decline in net income[19](index=19&type=chunk) - Net cash used in financing activities decreased by **$33.3 million**, reflecting lower payments on long-term debt and revolving credit facility[19](index=19&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements [Note 1. Basis of Presentation and Accounting Policy Information](index=9&type=section&id=Note%201.%20Basis%20of%20Presentation%20and%20Accounting%20Policy%20Information) This note describes the basis of financial statement presentation and significant accounting policies adopted by the company - The Company provides highly engineered industrial process heating solutions, including heat tracing, Thermon Heating Solutions (THS), and Thermon Power Solutions (TPS) brands[20](index=20&type=chunk) - The COVID-19 pandemic has adversely affected global demand for products and services, leading to an economic downturn[22](index=22&type=chunk) | Canadian Emergency Wage Subsidy (Thousands) | Three Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2020 | | :------------------------------------------ | :------------------------------ | :----------------------------- | | Subsidies Received | $979 | $5,928 | [Note 2. Fair Value Measurements](index=10&type=section&id=Note%202.%20Fair%20Value%20Measurements) This note details the fair value measurements of financial instruments, including long-term debt and derivative contracts - Long-term debt is measured at fair value using Level 2 inputs (market approach based on similar debt terms)[33](index=33&type=chunk) | Cross Currency Swap (Thousands) | Three Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2020 | | :------------------------------ | :------------------------------ | :----------------------------- | | Unrealized Mark-to-Market Losses | $1,869 | $5,319 | | Notional Amount of Foreign Currency Forward Contracts (Thousands) | December 31, 2020 | March 31, 2020 | | :---------------------------------------------------------------- | :---------------- | :------------- | | Total Notional Amounts | $19,900 | $9,803 | [Note 3. Leases](index=12&type=section&id=Note%203.%20Leases) This note provides information on the company's lease arrangements, including right-of-use assets and lease liabilities | Lease Metric | December 31, 2020 | March 31, 2020 | | :----------------------------- | :---------------- | :------------- | | Weighted average remaining lease term (Operating) | 6.1 years | 6.2 years | | Weighted average discount rate (Operating) | 4.81 % | 4.82 % | | Operating lease right-of-use assets (Thousands) | $13,527 | $16,637 | | Total lease liabilities (Thousands) | $16,975 | $19,124 | | Lease Expense (Thousands) | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | | :------------------------ | :----------------------------- | :----------------------------- | | Operating lease expense | $3,455 | $2,627 | | Future Operating Lease Payments (Thousands) | Total | Less than 1 Year | | :---------------------------------------- | :---- | :--------------- | | Total lease payments | $19,056 | $4,375 | [Note 4. Restructuring and other charges/(income)](index=15&type=section&id=Note%204.%20Restructuring%20and%20other%20charges/(income)) This note details restructuring initiatives, including workforce reductions and associated charges incurred by the company - The Company enacted restructuring initiatives, eliminating **66 positions** (three months) and **262 positions** (nine months) ended December 31, 2020[50](index=50&type=chunk) | Restructuring Charges (Thousands) | Three Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2020 | | :-------------------------------- | :------------------------------ | :----------------------------- | | Severance costs | $997 | $5,858 | | Lease impairment costs | - | $429 | | Lease abandonment charges | $144 | $191 | | Loss on sale of South Africa Business

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 September 30, 2020 OR ☐ 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) (State or other jurisdicti ...

Financial Data and Key Metrics Changes - Revenue for Q1 2021 was $56.8 million, down 35% on a constant currency basis compared to the previous year, while adjusted EBITDA decreased by 88% to $1.4 million [14][51] - Gross margins improved by 190 basis points to 42.4%, aided by Canadian Wage Subsidies [15][53] - GAAP EPS was negative $0.18, a decline from $0.04 in the prior year, while adjusted EPS was negative $0.11 compared to $0.15 [55][56] Business Line Data and Key Metrics Changes - The revenue mix shifted to 68% MRO/UE and 32% Greenfield, compared to 51% and 49% in Q1 of fiscal year 2020 [51] - Bookings for the quarter totaled $61 million, down 27% from the prior year, with a positive book-to-bill ratio of 1.07 [15][52] Market Data and Key Metrics Changes - The company’s exposure to oil and gas remains at approximately 55% to 60%, with upstream representing about 14% of fiscal year 2020 revenues [20][21] - Capital budgets are being cut by 20% to 30% due to the pandemic and oil market oversupply, particularly affecting upstream investments [22][23] Company Strategy and Development Direction - The company is focused on value preservation and cash management, having reduced SG&A by $16 million for the fiscal year, with over 75% of these reductions being structural [12][47] - Investments in research and development have more than doubled since 2015, with a focus on enhancing performance and reducing product costs [34][36] Management's Comments on Operating Environment and Future Outlook - Management noted that Q1 represents the low watermark for the year, with expectations for modest improvement in Q2 [41][42] - The company anticipates pent-up demand for products and services as restrictions ease, similar to recovery patterns observed after previous downturns [17][29] Other Important Information - The company generated $3.4 million in cash from operating activities, remaining flat compared to the prior year [19] - The balance sheet remains strong, with cash and investments improving to $48.2 million by the end of June [48][50] Q&A Session Summary Question: Why are July bookings down 33% year-over-year? - Management indicated that bookings are lumpy and affected by a second wave of COVID-19, limiting access to facilities and slowing recovery [63][65] Question: What is the trigger for bringing back SG&A expenses? - Management stated that stabilization in end markets and improved visibility would be necessary before considering reinstating temporary cost reductions [68] Question: Is the expectation for cash flow breakeven still at a 35% to 40% revenue reduction? - Management confirmed that this scenario remains conservative, accounting for depressed gross margins and working capital assumptions [75] Question: What are the expectations for revenue and gross margins moving forward? - Management expects sequential revenue improvement and believes the worst is behind them, with cost actions positively impacting gross margins [80]

[PART I — FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) Part I presents unaudited condensed consolidated financial statements, management's discussion, market risk disclosures, and controls for Q2 2020, reporting a net loss of $6.1 million due to pandemic and lower oil prices [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section provides unaudited condensed consolidated financial statements, including Balance Sheets, Statements of Operations, Equity, and Cash Flows, with notes, reflecting pandemic impacts and strategic financial management [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | Asset/Liability Category | June 30, 2020 (Unaudited) | March 31, 2020 | | :-------------------------------- | :-------------------------- | :------------- | | Cash and cash equivalents | $48,229 | $43,237 | | Accounts receivable, net | $72,827 | $92,478 | | Inventories, net | $70,030 | $60,273 | | Total current assets | $213,226 | $217,936 | | Total assets | $619,947 | $620,905 | | Accounts payable | $20,827 | $25,070 | | Total current liabilities | $55,668 | $60,635 | | Long-term debt, net | $168,671 | $169,053 | | Total liabilities | $269,485 | $274,466 | | Total equity | $350,462 | $346,439 | - Current assets decreased by **$4,710 thousand**, primarily due to a **$19,651 thousand** decrease in accounts receivable, net, partially offset by a **$9,757 thousand** increase in inventories, net, and a **$4,992 thousand** increase in cash and cash equivalents[10](index=10&type=chunk) - Current liabilities decreased by **$4,967 thousand**, mainly driven by a **$4,243 thousand** decrease in accounts payable and a **$2,324 thousand** decrease in accrued liabilities[10](index=10&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Condensed Consolidated Statements of Operations and Comprehensive Income (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change ($) | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Sales | $56,848 | $91,712 | $(34,864) | (38)% | | Cost of sales | $32,729 | $54,570 | $(21,841) | (40)% | | Gross profit | $24,119 | $37,142 | $(13,023) | (35)% | | Gross margin % | 42.4% | 40.5% | 1.9% | | | Income (loss) from operations | $(6,755) | $4,991 | $(11,746) | (235)% | | Net income (loss) | $(6,085) | $1,461 | $(7,546) | (516)% | | Basic EPS | $(0.18) | $0.05 | $(0.23) | (460)% | | Diluted EPS | $(0.18) | $0.04 | $(0.22) | (550)% | - Sales decreased by **38%** year-over-year, from **$91,712 thousand** in Q2 2019 to **$56,848 thousand** in Q2 2020, primarily due to lower crude oil prices and the COVID-19 pandemic's impact on customer capital spending[12](index=12&type=chunk)[126](index=126&type=chunk) - Despite the revenue decline, gross margin improved from **40.5% to 42.4%**, attributed to a higher proportion of higher-margin MRO/UE revenue and the positive impact of the Canadian Emergency Wage Subsidy[12](index=12&type=chunk)[127](index=127&type=chunk) - The company reported a net loss of **$6,085 thousand** for the three months ended June 30, 2020, compared to a net income of **$1,461 thousand** for the same period in 2019, resulting in a basic and diluted loss per share of **$(0.18)**[12](index=12&type=chunk)[135](index=135&type=chunk) [Condensed Consolidated Statements of Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Condensed Consolidated Statements of Equity (in thousands) | Equity Component | Balances at March 31, 2020 | Balances at June 30, 2020 | | :-------------------------------- | :------------------------- | :------------------------ | | Common Stock | $33 | $33 | | Additional Paid-in Capital | $227,741 | $228,754 | | Retained Earnings | $182,559 | $176,474 | | Accumulated Other Comprehensive Income (Loss) | $(63,894) | $(54,799) | | Total Equity | $346,439 | $350,462 | - Total equity increased by **$4,023 thousand**, primarily driven by a **$9,475 thousand** foreign currency translation adjustment gain, partially offset by a net loss of **$6,085 thousand**[14](index=14&type=chunk) - Additional paid-in capital increased by **$1,013 thousand**, reflecting stock compensation expense and common stock issuances from stock option exercises[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $3,352 | $3,399 | | Net cash used in investing activities | $(2,053) | $(1,600) | | Net cash provided by financing activities | $2,701 | $1,757 | | Effect of exchange rate changes on cash | $1,009 | $397 | | Change in cash, cash equivalents and restricted cash | $5,009 | $3,953 | | Cash, cash equivalents and restricted cash at end of period | $51,016 | $37,794 | - Net cash provided by operating activities remained stable at approximately **$3.4 million** for both periods, with working capital changes providing an **$8.4 million** increase in cash in YTD 2021, offsetting the decrease from net loss[16](index=16&type=chunk)[154](index=154&type=chunk) - Net cash used in investing activities increased by **$0.5 million** to **$2.1 million**, primarily due to higher purchases of property, plant and equipment[16](index=16&type=chunk)[157](index=157&type=chunk) - Net cash provided by financing activities increased by **$0.9 million** to **$2.7 million**, driven by proceeds from the revolving credit facility, partially offset by payments on long-term debt[16](index=16&type=chunk)[158](index=158&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) [1. Basis of Presentation and Accounting Policy Information](index=9&type=section&id=1.%20Basis%20of%20Presentation%20and%20Accounting%20Policy%20Information) This note outlines the company's business as a provider of highly engineered industrial process heating solutions, highlighting COVID-19 impact, Canadian Emergency Wage Subsidy benefits, and new accounting standard adoptions - The company is a provider of highly engineered industrial process heating solutions, including heat tracing and temporary power products, serving process industries globally[17](index=17&type=chunk) - The COVID-19 pandemic has adversely affected global demand for products and services, potentially impacting future financial performance[19](index=19&type=chunk) - Canadian operations received **$2,417 thousand** in Canadian Emergency Wage Subsidies (CEWS) during the three months ended June 30, 2020, recorded as an offset to related expenses[20](index=20&type=chunk) Cash, Cash Equivalents, and Restricted Cash (in thousands) | Cash Category | June 30, 2020 | June 30, 2019 | | :-------------------------------- | :------------ | :------------ | | Cash and cash equivalents | $48,229 | $35,269 | | Restricted cash (current) | $2,438 | $1,698 | | Restricted cash (long-term) | $349 | $827 | | Total cash, cash equivalents, and restricted cash | $51,016 | $37,794 | [2. Fair Value Measurements](index=10&type=section&id=2.%20Fair%20Value%20Measurements) This note details the company's fair value measurements for financial instruments, categorizing them into a three-level hierarchy and providing values for debt, swaps, and forward contracts - Fair value measurements are categorized into a three-level hierarchy based on input observability[26](index=26&type=chunk) Financial Liabilities Fair Value (in thousands) | Financial Liability | June 30, 2020 Carrying Value | June 30, 2020 Fair Value | March 31, 2020 Carrying Value | March 31, 2020 Fair Value | Valuation Technique | | :-------------------------------- | :----------------------------- | :----------------------- | :----------------------------- | :----------------------- | :------------------ | | Senior secured credit facility | $175,375 | $170,219 | $176,000 | $150,480 | Level 2 - Market Approach | | Revolving line of credit | $3,669 | $3,669 | $0 | $0 | Level 2 - Market Approach | - The company recorded a **$1,942 thousand** unrealized mark-to-market loss on a long-term cross-currency swap at June 30, 2020, which is reported in 'Other income and expense'[29](index=29&type=chunk) Foreign Currency Forward Contracts Notional Amounts (in thousands) | Currency | Notional Amount (June 30, 2020) | Notional Amount (March 31, 2020) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Russian Ruble | $2,248 | $1,103 | | Euro | $0 | $500 | | Canadian Dollar | $2,000 | $1,500 | | South Korean Won | $3,000 | $3,500 | | Mexican Peso | $1,500 | $2,000 | | Australian Dollar | $700 | $700 | | Great Britain Pound | $500 | $500 | | Total notional amounts | $9,948 | $9,803 | [3. Leases](index=12&type=section&id=3.%20Leases) This note details the company's lease accounting under ASC Topic 842, covering classification, asset types, lease terms, and discount rates, with a weighted-average operating lease term of 6.0 years - The company adopted ASC Topic 842 for leases effective April 1, 2019, recognizing right-of-use (ROU) assets and lease liabilities for leases longer than 12 months[36](index=36&type=chunk) - The significant majority of lease obligations are for real property (office, manufacturing, warehouse facilities, and employee housing), with terms ranging from month-to-month to ten years[37](index=37&type=chunk) Lease Metrics | Metric | June 30, 2020 | March 31, 2020 | | :-------------------------------- | :------------ | :------------- | | Weighted average remaining operating lease term (years) | 6.0 | 6.2 | | Weighted average operating discount rate | 4.81% | 4.82% | | Total ROU assets | $16,658 | $17,332 | | Total lease liabilities | $18,440 | $19,124 | Lease Expense (in thousands) | Lease Expense Category | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Operating lease expense | $1,141 | $808 | | Finance lease expense (amortization) | $77 | $59 | | Finance lease expense (interest) | $11 | $13 | | Short-term lease expense | $21 | $463 | | Net lease expense | $1,250 | $1,343 | [4. Restructuring](index=15&type=section&id=4.%20Restructuring) During Q2 2020, the company implemented restructuring initiatives, including a reduction of 111 positions, incurring $2,921 thousand in severance costs to align with declining demand - The company enacted restructuring initiatives, eliminating approximately **111** hourly and salaried positions, incurring **$2,921 thousand** in one-time severance costs during the three months ended June 30, 2020[47](index=47&type=chunk) - Restructuring costs were primarily in the United States and Latin America (**$2,063 thousand**) and Canada (**$858 thousand**)[48](index=48&type=chunk) Restructuring Activity (in thousands) | Restructuring Activity | June 30, 2020 | | :-------------------------------- | :------------ | | Beginning balance | $0 | | Costs incurred | $2,921 | | Less cash payments | $(2,301) | | Ending balance | $620 | [5. Net Income per Common Share](index=15&type=section&id=5.%20Net%20Income%20per%20Common%20Share) This note details the calculation of basic and diluted net income per common share, reporting a net loss of $(0.18) per share for Q2 2020, with common share equivalents being anti-dilutive Net Income per Common Share (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net income (loss) available to Thermon Group Holdings, Inc. | $(6,085) | $1,471 | | Weighted-average common shares outstanding (Basic) | 32,986,451 | 32,635,295 | | Basic net income (loss) per common share | $(0.18) | $0.05 | | Weighted average shares outstanding – dilutive | 32,986,451 | 33,051,923 | | Diluted net income (loss) per common share | $(0.18) | $0.04 | - For the three months ended June 30, 2020, the company incurred a net loss, making common share equivalents anti-dilutive, thus basic and diluted net loss per common share were both **$(0.18)**[53](index=53&type=chunk) [6. Inventories](index=17&type=section&id=6.%20Inventories) This note provides a breakdown of inventories, which increased by $9,757 thousand to $70,030 thousand at June 30, 2020, primarily due to increases in raw materials, work in process, and finished goods Inventories (in thousands) | Inventory Category | June 30, 2020 | March 31, 2020 | | :-------------------------------- | :------------ | :------------- | | Raw materials | $35,239 | $31,300 | | Work in process | $6,248 | $5,317 | | Finished goods | $30,261 | $25,701 | | Total inventories (gross) | $71,748 | $62,318 | | Valuation reserves | $(1,718) | $(2,045) | | Inventories, net | $70,030 | $60,273 | - Net inventories increased by **$9,757 thousand** from March 31, 2020, to June 30, 2020, reflecting higher raw materials, work in process, and finished goods, partially offset by a decrease in valuation reserves[54](index=54&type=chunk) [7. Goodwill and Other Intangible Assets](index=17&type=section&id=7.%20Goodwill%20and%20Other%20Intangible%20Assets) This note details goodwill by segment and intangible assets, noting a goodwill increase due to foreign currency translation and no impairment despite revenue decline Goodwill by Operating Segment (in thousands) | Operating Segment | Goodwill (March 31, 2020) | Foreign Currency Translation Impact | Goodwill (June 30, 2020) | | :-------------------------------- | :-------------------------- | :---------------------------------- | :------------------------- | | United States and Latin America | $62,725 | $0 | $62,725 | | Canada | $107,739 | $4,419 | $112,158 | | Europe, Middle East and Africa | $18,890 | $392 | $19,282 | | Asia-Pacific | $8,624 | $0 | $8,624 | | Total Goodwill | $197,978 | $4,811 | $202,789 | - Goodwill increased by **$4,811 thousand**, primarily due to foreign currency translation impact in Canada and EMEA[56](index=56&type=chunk) - Despite a **7%** year-over-year revenue decrease in fiscal 2020, attributed to COVID-19 and lower crude oil prices, the company's goodwill impairment assessment in Q4 2020 found no impairment[57](index=57&type=chunk)[58](index=58&type=chunk) Intangible Assets, Net (in thousands) | Intangible Asset Category | Net Carrying Amount (June 30, 2020) | Net Carrying Amount (March 31, 2020) | | :-------------------------------- | :---------------------------------- | :----------------------------------- | | Products | $44,827 | $44,529 | | Trademarks | $43,176 | $42,592 | | Developed technology | $4,761 | $4,806 | | Customer relationships | $11,196 | $12,183 | | Certifications | $442 | $436 | | Total Intangible Assets, net | $104,402 | $104,546 | [8. Accrued Liabilities](index=18&type=section&id=8.%20Accrued%20Liabilities) This note details accrued current liabilities, which decreased by $2,324 thousand to $21,433 thousand at June 30, 2020, mainly due to lower accrued employee compensation and sales tax payable Accrued Current Liabilities (in thousands) | Accrued Liability Category | June 30, 2020 | March 31, 2020 | | :-------------------------------- | :------------ | :------------- | | Accrued employee compensation and related expenses | $9,916 | $12,542 | | Accrued interest | $694 | $782 | | Customer prepayment | $1,103 | $357 | | Warranty reserve | $514 | $477 | | Professional fees | $1,901 | $2,086 | | Sales tax payable | $1,815 | $2,423 | | Other | $5,490 | $5,090 | | Total accrued current liabilities | $21,433 | $23,757 | - Accrued employee compensation and related expenses decreased by **$2,626 thousand**, and sales tax payable decreased by **$608 thousand**[62](index=62&type=chunk) [9. Long-Term Debt](index=19&type=section&id=9.%20Long-Term%20Debt) This note outlines the company's long-term debt, including a variable rate term loan B facility and a revolving credit facility, confirming compliance with all financial covenants Long-Term Debt (in thousands) | Debt Category | June 30, 2020 | March 31, 2020 | | :-------------------------------- | :------------ | :------------- | | Variable Rate Term Loan, net | $171,171 | $171,553 | | Less current portion | $(2,500) | $(2,500) | | Total long-term debt | $168,671 | $169,053 | - The company's senior secured credit facility includes a **$250,000 thousand** seven-year term loan B facility and a **$60,000 thousand** five-year senior secured revolving credit facility[64](index=64&type=chunk) - As of June 30, 2020, outstanding borrowings under the revolving credit facility were **$3,669 thousand** (Canadian Borrower), with **$53,236 thousand** available borrowing capacity[69](index=69&type=chunk) - The company was in compliance with all financial covenants of the credit facility as of June 30, 2020, including a consolidated leverage ratio of less than **3.5 to 1.0**[66](index=66&type=chunk)[71](index=71&type=chunk) [10. Related Party Transactions](index=21&type=section&id=10.%20Related%20Party%20Transactions) This note describes the company's acquisition of the remaining 12.5% equity interest in Thermon Power Solutions Inc. (TPS) from a minority shareholder for $4,508 thousand on August 1, 2019 - The company acquired the remaining **12.5%** equity interest in the TPS business unit from a minority shareholder for **$4,508 thousand** on August 1, 2019[75](index=75&type=chunk) [11. Commitments and Contingencies](index=22&type=section&id=11.%20Commitments%20and%20Contingencies) This note outlines commitments, including $10,306 thousand in letter of credit guarantees, and legal proceedings, such as a class action in Quebec, which management believes is without merit - As of June 30, 2020, the company had **$10,306 thousand** in letter of credit guarantees and performance bonds, with **$2,787 thousand** secured by cash deposits[76](index=76&type=chunk) - The company is involved in a class action application in Quebec, Canada, related to heating elements, which it intends to vigorously defend[79](index=79&type=chunk) - Management believes adequate reserves have been established for probable and reasonably estimable losses from legal and administrative proceedings[77](index=77&type=chunk) [12. Stock-Based Compensation Expense](index=22&type=section&id=12.%20Stock-Based%20Compensation%20Expense) This note details stock-based compensation, which increased to $1,133 thousand for Q2 2020, reflecting new grants of stock options, restricted stock units, and performance stock units - Stock compensation expense for the three months ended June 30, 2020, was **$1,133 thousand**, an increase from **$1,019 thousand** in the prior year[81](index=81&type=chunk) - During the quarter, **71,780** stock options were granted to senior management, valued at **$439 thousand** using a Black-Scholes model[82](index=82&type=chunk) - **177,295** restricted stock units were issued to employees with an aggregate fair value of **$2,532 thousand**, and **49,716** market-based performance stock units were issued to senior management with a fair value of **$1,060 thousand**[84](index=84&type=chunk)[86](index=86&type=chunk) [13. Revenue](index=23&type=section&id=13.%20Revenue) This note disaggregates revenue by geography and recognition timing, showing a significant 38% decrease to $56,848 thousand for Q2 2020, with declines across all segments Revenues by Geographic Segment and Recognition Timing (in thousands) | Geographic Segment | Revenues recognized at point in time (Q2 2020) | Revenues recognized over time (Q2 2020) | Total Revenues (Q2 2020) | Total Revenues (Q2 2019) | | :-------------------------------- | :--------------------------------------------- | :------------------------------------ | :----------------------- | :----------------------- | | United States and Latin America | $8,275 | $10,368 | $18,643 | $40,427 | | Canada | $13,647 | $5,666 | $19,313 | $27,252 | | Europe, Middle East and Africa | $6,814 | $2,653 | $9,467 | $13,339 | | Asia-Pacific | $4,085 | $5,340 | $9,425 | $10,694 | | Total revenues | $32,821 | $24,027 | $56,848 | $91,712 | - Total revenues decreased by **38%** year-over-year, with all reportable segments experiencing declines[90](index=90&type=chunk)[126](index=126&type=chunk) - Contract assets decreased by **$2,821 thousand** to **$7,373 thousand**, primarily due to the completion and invoicing of large projects in the United States and Latin America[92](index=92&type=chunk) - Contract liabilities decreased to **$3,408 thousand**, as the majority of liabilities at March 31, 2020, were recognized as revenue by June 30, 2020[92](index=92&type=chunk) [14. Income Taxes](index=24&type=section&id=14.%20Income%20Taxes) This note discusses income tax expense, reporting a $2,493 thousand benefit on a pre-tax loss for Q2 2020, resulting in a 29.1% effective tax rate, with anticipated GILTI tax reduction Income Tax Metrics (in thousands, except for rates) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Income (loss) before provision for income taxes | $(8,578) | $1,505 | | Income tax expense (benefit) | $(2,493) | $44 | | Effective income tax rate | 29.1% benefit | 2.9% expense | - The company expects a discrete reversal of previously recorded tax upon implementation of updated IRS rules regarding Global Intangible Low-Taxed Income (GILTI) in the quarter ending September 30, 2020[94](index=94&type=chunk) - As of June 30, 2020, a long-term liability of **$742 thousand** was established for uncertain tax positions[95](index=95&type=chunk) [15. Segment Information](index=24&type=section&id=15.%20Segment%20Information) This note disaggregates financial information by four geographic segments, all experiencing sales declines, with US-LAM shifting from operating income to a significant loss - The company operates in four reportable segments: US-LAM, Canada, EMEA, and APAC, all focused on thermal solutions for process heating[96](index=96&type=chunk) Segment Sales and Operating Income (in thousands) | Segment | Sales to External Customers (Q2 2020) | Sales to External Customers (Q2 2019) | Income (Loss) from Operations (Q2 2020) | Income (Loss) from Operations (Q2 2019) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | | United States and Latin America | $18,643 | $40,427 | $(8,728) | $1,003 | | Canada | $19,313 | $27,252 | $2,159 | $3,495 | | Europe, Middle East and Africa | $9,467 | $13,339 | $352 | $357 | | Asia-Pacific | $9,425 | $10,694 | $997 | $1,570 | | Total | $56,848 | $91,712 | $(6,755) | $4,991 | - US-LAM sales decreased by **53.9%** and shifted from an operating income of **$1,003 thousand** to an operating loss of **$8,728 thousand**[99](index=99&type=chunk) Segment Total Assets (in thousands) | Segment | Total Assets (June 30, 2020) | Total Assets (March 31, 2020) | | :-------------------------------- | :--------------------------- | :---------------------------- | | United States and Latin America | $225,781 | $239,751 | | Canada | $280,819 | $270,055 | | Europe, Middle East and Africa | $73,990 | $73,334 | | Asia-Pacific | $39,357 | $37,765 | | Total | $619,947 | $620,905 | - The company's total assets decreased slightly from **$620,905 thousand** at March 31, 2020, to **$619,947 thousand** at June 30, 2020. Total liabilities also decreased from **$274,466 thousand** to **$269,485 thousand**, while total equity increased from **$346,439 thousand** to **$350,462 thousand**[10](index=10&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Q2 2020 financial performance, highlighting a 38% revenue decrease due to COVID-19 and lower oil prices, improved gross margin from favorable sales mix and subsidies, and implemented cost reduction measures [Introduction and Special Note Regarding Forward-Looking Statements](index=28&type=section&id=Introduction%20and%20Special%20Note%20Regarding%20Forward-Looking%20Statements) This section supplements financial statements with management's discussion of Q2 2020 financial condition and results, including forward-looking statements subject to risks - This section supplements the unaudited interim condensed consolidated financial statements, providing management's discussion and analysis of financial condition and results of operations for the three months ended June 30, 2020 and 2019[102](index=102&type=chunk) - The report includes forward-looking statements regarding industry, business strategy, plans, goals, and expectations, subject to risks and uncertainties[103](index=103&type=chunk)[104](index=104&type=chunk) [Overview](index=30&type=section&id=Overview) Thermon Group Holdings, Inc. is a global leader in industrial process heating solutions, with 67% of YTD 2021 revenues from outside the U.S., facing significant impacts from COVID-19 and lower crude oil prices, leading to cost reduction measures - Thermon Group Holdings, Inc. is a global leader in highly engineered industrial process heating solutions, with a global footprint and ten manufacturing facilities across three continents[109](index=109&type=chunk) - Approximately **67%** of YTD 2021 revenues were generated from outside the United States, up from 56% in YTD 2020[109](index=109&type=chunk) - The company's backlog at June 30, 2020, was **$109.9 million**, compared to $105.4 million at March 31, 2020[112](index=112&type=chunk) - The COVID-19 pandemic and lower crude oil prices significantly impacted customer capital spending, leading to a **7%** revenue decrease in fiscal 2020[119](index=119&type=chunk) - Cost reduction measures include a **10%** global workforce reduction, limiting discretionary spending, and reducing the capital expenditure budget for fiscal year 2021 by **$6.9 million**[120](index=120&type=chunk)[123](index=123&type=chunk) [Results of Operations (Three-month periods ended June 30, 2020 and 2019)](index=34&type=section&id=Results%20of%20Operations%20(Three-month%20periods%20ended%20June%2030,%202020%20and%202019)) This section analyzes the company's operating results for Q2 2020 and 2019, detailing a 38% sales decrease, improved gross margin, and changes in expenses and net income Results of Operations (in thousands, except for rates) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change ($) | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Sales | $56,848 | $91,712 | $(34,864) | (38)% | | Gross profit | $24,119 | $37,142 | $(13,023) | (35)% | | Gross margin % | 42.4% | 40.5% | 1.9% | | | Income (loss) from operations | $(6,755) | $4,991 | $(11,746) | (235)% | | Interest expense, net | $(2,555) | $(3,719) | $1,164 | (31)% | | Income tax expense (benefit) | $(2,493) | $44 | $(2,537) | (5,766)% | | Net income (loss) available to Thermon Group Holdings, Inc. | $(6,085) | $1,471 | $(7,556) | (514)% | - Marketing, general and administrative, and engineering costs remained stable at **$26.7 million**, despite **$2.9 million** in one-time severance costs, partially offset by wage subsidy credits[128](index=128&type=chunk) - Amortization of intangible assets decreased by **$1.4 million (32%)** to **$3.0 million**, as certain intangible assets became fully amortized[129](index=129&type=chunk) - Net interest expense decreased by **$1.1 million (31%)** to **$2.6 million**, due to **$41.8 million** in voluntary principal prepayments on debt facilities during fiscal 2020[130](index=130&type=chunk) - The effective tax rate was a **29.1% benefit** on pre-tax loss in YTD 2021, compared to a **2.9% expense** on pre-tax income in YTD 2020[132](index=132&type=chunk) [Contractual Obligations and Contingencies](index=37&type=section&id=Contractual%20Obligations%20and%20Contingencies) This section details the company's significant contractual payment obligations totaling $238.3 million, primarily from a variable rate term loan due in 3-5 years, and confirms adequate reserves for legal proceedings Contractual Obligations (in thousands) | Obligation | Total | Less than 1 Year | 1 - 3 Years | 3 - 5 Years | More than 5 Years | | :-------------------------------- | :------ | :--------------- | :---------- | :---------- | :---------------- | | Variable rate term loan | $175,375 | $2,500 | $5,000 | $167,875 | $0 | | Interest payments on variable rate term loan | $36,073 | $8,532 | $16,697 | $10,844 | $0 | | Borrowings under revolving credit facility | $3,669 | $3,669 | $0 | $0 | $0 | | Operating lease obligations | $21,401 | $4,509 | $7,036 | $4,051 | $5,805 | | Information technology services agreements | $1,769 | $1,641 | $128 | $0 | $0 | | Total | $238,287 | $20,851 | $28,861 | $182,770 | $5,805 | - The company has significant contractual payment obligations totaling **$238,287 thousand**, with the largest portion (**$182,770 thousand**) due in 3-5 years, primarily from the variable rate term loan[138](index=138&type=chunk) - Management believes adequate reserves are established for legal and administrative proceedings, and their outcome is not expected to have a significant adverse effect on financial position, long-term results, or cash flows[141](index=141&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) This section outlines the company's liquidity, primarily from operations and a revolving credit facility, with $48.2 million in cash and $53.2 million available capacity, alongside reduced capital expenditures - Primary liquidity sources are cash flows from operations and funds available under the revolving credit facility[143](index=143&type=chunk) - As of June 30, 2020, cash and cash equivalents totaled **$48.2 million**, with **71%** held outside the United States[145](index=145&type=chunk) - The company had **$3.7 million** outstanding borrowings under its revolving credit facility and **$53.2 million** of available capacity as of June 30, 2020[146](index=146&type=chunk) - Net cash provided by operating activities was **$3.4 million** for both YTD 2021 and YTD 2020[154](index=154&type=chunk) - Capital expenditures budget for fiscal year 2021 was reduced by approximately **$6.9 million** compared to fiscal 2020, with an estimated investment of **$2.0 million** in property, plant and equipment[123](index=123&type=chunk)[153](index=153&type=chunk) [Off-Balance Sheet Arrangements](index=39&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of off-balance sheet arrangements or interests in variable interest entities as of June 30, 2020 - As of June 30, 2020, the company had no off-balance sheet arrangements or interests in variable interest entities[159](index=159&type=chunk) [Effect of Inflation](index=40&type=section&id=Effect%20of%20Inflation) This section states that inflation has had a minimal net impact on operating results over the past three years, as price increases offset input cost inflation - Inflation has had minimal net impact on operating results over the last three years, as price increases for products have offset inflationary increases in input costs[160](index=160&type=chunk) [Critical Accounting Polices](index=40&type=section&id=Critical%20Accounting%20Polices) This section refers to the Annual Report on Form 10-K for a detailed discussion of critical accounting policies and estimates - Critical accounting policies and estimates are discussed in the Annual Report on Form 10-K for the fiscal year ended March 31, 2020[161](index=161&type=chunk) [Recent Accounting Pronouncements](index=40&type=section&id=Recent%20Accounting%20Pronouncements) This section incorporates information on recent accounting pronouncements by reference from Note 1 of the financial statements - Information on recent accounting pronouncements is incorporated by reference from Note 1, 'Basis of Presentation and Accounting Policy Information,' in the financial statements[162](index=162&type=chunk) - The company is a global provider of highly engineered industrial process heating solutions, serving diverse markets including oil & gas, chemical processing, and power generation[109](index=109&type=chunk) - Revenues for YTD 2021 decreased by **$34.9 million (38%)** to **$56.8 million**, primarily due to lower crude oil prices and the COVID-19 pandemic's impact on customer capital spending[126](index=126&type=chunk) Revenue Type (excluding THS) | Revenue Type (excluding THS) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Greenfield | 32% | 49% | | MRO/UE | 68% | 51% | - Gross margin improved to **42.4%** in YTD 2021 from **40.5%** in YTD 2020, driven by a higher proportion of MRO/UE revenue (**68% vs. 51%**) and the Canadian Emergency Wage Subsidy[127](index=127&type=chunk) - The company implemented a reduction in force, reducing approximately **10%** of its global workforce, incurring **$2.9 million** in severance costs, and expects **$8.0 million** in annual cost reductions for fiscal year 2021[120](index=120&type=chunk)[128](index=128&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses market risks including foreign exchange, interest rates, and commodity prices, noting significant foreign currency exposure, interest rate sensitivity on variable debt, and mitigation strategies - Primary market risk exposures include foreign exchange rates, interest rates, and commodity prices[163](index=163&type=chunk) - Approximately **67%** of YTD 2021 consolidated revenue was generated by non-U.S. subsidiaries, making the company highly exposed to foreign currency fluctuations[164](index=164&type=chunk) - A **10%** appreciation of the U.S. dollar relative to the Canadian dollar would result in a net decrease in net income of **$0.1 million** for YTD 2021[165](index=165&type=chunk) - The company uses foreign currency forward contracts (notional amount of **$9.9 million** as of June 30, 2020) and a cross-currency swap to mitigate foreign currency exchange rate fluctuations[167](index=167&type=chunk)[170](index=170&type=chunk) - A **one percent** change in the interest rate on the **$175.4 million** outstanding variable rate term loan B facility would result in a **$1.7 million** increase or decrease in annual interest expense[171](index=171&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures as of June 30, 2020, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2020, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[173](index=173&type=chunk) - No material changes in internal control over financial reporting occurred during the last fiscal quarter[174](index=174&type=chunk) [PART II — OTHER INFORMATION](index=43&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) Part II provides additional information, including legal proceedings, risk factors, unregistered sales of equity securities, defaults, mine safety, and exhibits, primarily referencing previously filed reports [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates legal proceedings details by reference from Note 11, 'Commitments and Contingencies,' in the financial statements - Legal proceedings information is incorporated by reference from Note 11, 'Commitments and Contingencies,' in the financial statements[177](index=177&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2020 - No material changes have occurred from the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended March 31, 2020[178](index=178&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms no unregistered sales of the company's equity securities occurred during the three months ended June 30, 2020 - There were no unregistered sales of equity securities during the three months ended June 30, 2020[179](index=179&type=chunk) [Item 3. Defaults Upon Senior Securities](index=43&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred during the period[180](index=180&type=chunk) [Item 4. Mine Safety Disclosures](index=43&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable[181](index=181&type=chunk) [Item 5. Other Information](index=43&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report for the period - No other information is reported in this section[181](index=181&type=chunk) [Item 6. Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the quarterly report, including stock award agreements, CEO/CFO certifications, and iXBRL data files - The exhibit index lists various documents filed, including forms of employee restricted stock unit, performance stock unit, and stock option award agreements[185](index=185&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included[185](index=185&type=chunk) - Interactive Data Files formatted in Inline eXtensible Business Reporting Language (iXBRL) are provided[185](index=185&type=chunk) [SIGNATURE](index=45&type=section&id=SIGNATURE) This section contains the signature of Thermon Group Holdings, Inc. by its Chief Financial Officer, Jay Peterson, certifying the report's filing - The report is signed by Jay Peterson, Chief Financial Officer (Principal Financial and Accounting Officer) of Thermon Group Holdings, Inc., on August 6, 2020[190](index=190&type=chunk)

[Part I](index=5&type=section&id=PART%20I) [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Thermon provides global industrial process heating solutions, with recurring MRO/UE revenue and strategic acquisitions expanding its market footprint - The company operates in the estimated **$4.0 billion** industrial process heating market, serving major end markets like Oil & Gas, Chemical Processing, Power Generation, and Transportation[34](index=34&type=chunk)[35](index=35&type=chunk) - Recurring revenue from Maintenance, Repair, and Operations or Upgrades/Expansions (MRO/UE) is a key driver, representing about **60% of fiscal 2020 revenue**, excluding the THS acquisition[24](index=24&type=chunk) - Strategic acquisitions have expanded the company's product portfolio. The October 2017 acquisition of THS added environmental and process heating products, while the April 2015 acquisition of Sumac added temporary electrical power solutions[25](index=25&type=chunk)[26](index=26&type=chunk)[33](index=33&type=chunk) [Business Overview](index=5&type=section&id=Business%20Overview) - Thermon provides comprehensive industrial process heating solutions, including products (heating units, cables, power solutions), services (engineering, installation, maintenance), and software (design, control systems)[22](index=22&type=chunk) - The company serves a diverse customer base in oil & gas, chemical processing, power generation, transportation, and mining through a global network across more than 30 countries with ten manufacturing facilities on three continents[22](index=22&type=chunk) [Company History](index=6&type=section&id=Company%20History) - Founded in 1954, the company went public in May 2011 (IPO) and is listed on the NYSE under the ticker "THR"[29](index=29&type=chunk)[31](index=31&type=chunk) - Acquired a **75% interest** in Sumac in April 2015 and the remaining **25%** in fiscal 2020, holding **100%** of the equity interest[32](index=32&type=chunk) - Acquired **100%** of CCI Thermal Technologies Inc. (now THS) in October 2017 for approximately **$204.6 million USD**, expanding into advanced heating and filtration solutions[33](index=33&type=chunk) [Industry Overview](index=7&type=section&id=Industry%20Overview) Industrial Process Heating Market Size by End Market (2019 Estimate) | End Market | Estimated Revenue ($) | Market Share (%) | | :--- | :--- | :--- | | Total Market | ~$4.0 billion | 100% | | Oil & Gas | ~$1.5 billion | ~38% | | Chemical Processing | ~$560 million | ~14% | | Power Generation | ~$280 million | ~7% | | Transportation | ~$240 million | ~6% | - The global industrial process heating market is highly fragmented. Thermon believes it is one of the few providers with a global footprint and a comprehensive suite of products and services, which is preferred by large multinational customers[34](index=34&type=chunk) [Segments](index=8&type=section&id=Segments) - The company operates in four geographic reportable segments: United States and Latin America (US-LAM), Canada, Europe, Middle East and Africa (EMEA), and Asia-Pacific (APAC)[37](index=37&type=chunk) - Recent acquisitions have been integrated into these segments: THS operations are reported through US-LAM and Canada, Unitemp in EMEA, IPI in US-LAM, and Sumac (TPS) is aggregated in the Canada segment[37](index=37&type=chunk) [Products, Services and Software](index=8&type=section&id=Products%2C%20Services%20and%20Software) - Thermon offers a comprehensive range of products including electric and steam heat tracing cables, tubing bundles, control systems, and various process and environmental heaters[38](index=38&type=chunk) - The company provides extensive project services, including engineering, design, project management, and turnkey construction installation, often automated by custom software technology[51](index=51&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk) - Through acquisitions, the product line has expanded to include temporary power solutions (Thermon Power Solutions) and advanced heating/filtration systems (Thermon Heating Systems)[39](index=39&type=chunk)[54](index=54&type=chunk) [Manufacturing and Operations](index=11&type=section&id=Manufacturing%20and%20Operations) - The company operates ten manufacturing facilities across three continents, with its principal facility for flexible heating cables located in San Marcos, Texas[57](index=57&type=chunk) - In 2017, a new manufacturing facility was completed in Russia to better serve the region with local production of key products[64](index=64&type=chunk) - Critical raw materials include polymers, graphite, copper, and stainless steel. The company uses multiple suppliers for most materials to mitigate supply risk[66](index=66&type=chunk) [Competition](index=13&type=section&id=Competition) - The industrial process heating market is fragmented. Thermon's most significant competitor in the industrial electric heat tracing market is nVent Electric plc (NYSE: NVT)[74](index=74&type=chunk) - In the broader industrial process heating market, competitors vary by end-market but generally include nVent Electric, NIBE, Watlow, and Chromalox[74](index=74&type=chunk) [Item 1A. Risk Factors](index=15&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from macroeconomic factors, industry cyclicality, operational disruptions, global regulatory complexities, and stock market volatility - The COVID-19 pandemic poses a significant risk, potentially causing reduced demand, operational disruptions, and a slowdown in customer capital spending[84](index=84&type=chunk)[86](index=86&type=chunk) - A significant portion of revenue is tied to the cyclical oil and gas markets; a sustained downturn in energy prices or demand could adversely affect business, as seen with recent price volatility[88](index=88&type=chunk)[90](index=90&type=chunk) - The company has substantial indebtedness (**$176.0 million** at March 31, 2020), and debt agreements impose operating and financial restrictions that could impair financial condition[97](index=97&type=chunk) - Global operations expose the company to risks including political/economic instability, changes in trade relations and tariffs, and complex foreign laws, with approximately **59% of fiscal 2020 revenues** generated outside the U.S[91](index=91&type=chunk)[92](index=92&type=chunk) [Item 1B. Unresolved Staff Comments](index=27&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[153](index=153&type=chunk) [Item 2. Properties](index=27&type=section&id=Item%202.%20Properties) The company's headquarters are in Austin, Texas, with principal manufacturing and warehousing operations in San Marcos, Texas, and numerous other global facilities supporting international business - The company's headquarters and principal executive offices are located in Austin, Texas[155](index=155&type=chunk) - Principal manufacturing and warehousing operations are located in San Marcos, Texas. The company also has facilities in Canada, the Netherlands, France, United Kingdom, Germany, Russia, Mexico, China, Korea, Japan, India, Australia, Malaysia, Bahrain and South Africa[156](index=156&type=chunk) [Item 3. Legal Proceedings](index=28&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal proceedings, including a class action in Quebec, but does not anticipate a significant adverse financial impact - The company is involved in various legal proceedings but does not believe the outcome will have a significant adverse effect on its financial position or long-term results[426](index=426&type=chunk)[427](index=427&type=chunk) - As of March 31, 2020, the company has accrued **$3.9 million** for estimated additional costs related to the operational execution of projects[427](index=427&type=chunk) - In January 2020, a class action application was filed in Quebec, Canada related to certain heating elements manufactured by THS. The company believes the claim is without merit and is unable to estimate a possible loss at this time[428](index=428&type=chunk) [Item 4. Mine Safety Disclosures](index=28&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[158](index=158&type=chunk) [Part II](index=29&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=29&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Thermon's common stock trades on the NYSE, with no cash dividends paid since 2010 due to a focus on growth and credit facility restrictions - The company's common stock is traded on the New York Stock Exchange (NYSE) under the symbol "THR"[161](index=161&type=chunk) - The company has not declared or paid any cash dividends since April 30, 2010, and does not currently intend to, as it plans to retain earnings for business growth. Its credit facility also limits the ability to pay dividends[164](index=164&type=chunk) [Item 6. Selected Financial Data](index=31&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides a five-year financial summary, showing fiscal 2020 sales of **$383.5 million** and net income of **$11.9 million** Selected Financial Data (Fiscal Years 2016-2020) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | 2018 ($ thousands) | 2017 ($ thousands) | 2016 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | **Sales** | $383,486 | $412,642 | $308,609 | $264,130 | $281,928 | | **Gross Profit** | $161,638 | $175,940 | $143,811 | $111,931 | $131,315 | | **Income from Operations** | $32,663 | $48,509 | $32,738 | $22,444 | $36,761 | | **Net Income** | $11,936 | $23,169 | $13,219 | $14,984 | $23,650 | | **Diluted EPS** | $0.36 | $0.69 | $0.36 | $0.45 | $0.71 | | **Total Assets** | $620,905 | $655,762 | $662,477 | $454,080 | $468,677 | | **Total Debt (Principal)** | $176,000 | $206,500 | $225,000 | $81,000 | $94,500 | | **Backlog** | $105,445 | $119,956 | $159,624 | $106,880 | $81,242 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses fiscal 2020 results, noting a **7% revenue decrease** to **$383.5 million** due to project demand and market weakness, while liquidity remains strong with **$70.7 million** cash from operations - Revenue for fiscal 2020 decreased by **7%** to **$383.5 million** from **$412.6 million** in fiscal 2019, attributed to lower Greenfield project demand and weakening European markets, with a further decline in Q4 due to COVID-19 and falling oil prices[197](index=197&type=chunk)[199](index=199&type=chunk) - The sales mix (excluding THS) shifted to **40% Greenfield** and **60% MRO/UE** in fiscal 2020, compared to **49% Greenfield** and **51% MRO/UE** in fiscal 2019. Greenfield revenue is an indicator of new contracts and future MRO/UE potential[187](index=187&type=chunk)[188](index=188&type=chunk) - In response to COVID-19 uncertainty, the company took precautionary measures including limiting spending, drawing down **$30.0 million** on its credit facility (post year-end), reducing payroll expenses, and cutting the FY2021 capital expenditure budget[193](index=193&type=chunk) - Net cash from operating activities increased significantly to **$70.7 million** in fiscal 2020 from **$23.2 million** in fiscal 2019, mainly due to improved working capital management[226](index=226&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Fiscal 2020 vs. Fiscal 2019 Performance | Metric | Fiscal 2020 ($M) | Fiscal 2019 ($M) | Change (%) | | :--- | :--- | :--- | :--- | | **Revenue** | $383.5 | $412.6 | (7.0%) | | **Gross Profit** | $161.6 | $175.9 | (8.0%) | | **Gross Margin** | 42.1% | 42.6% | (0.5 pts) | | **Net Income** | $11.9 | $22.8 | (47.5%) | - The decrease in gross profit was primarily due to lower revenue and a **$4.7 million** one-time charge for operational execution expenses[200](index=200&type=chunk) - Marketing, general and administrative costs increased by **3.6%** to **$106.2 million**, attributed to planned increases to support business growth experienced in fiscal 2019[201](index=201&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) - Primary liquidity sources are cash from operations and a **$60.0 million** revolving credit facility. As of March 31, 2020, the company had **$43.2 million** in cash and no outstanding borrowings on the revolver[214](index=214&type=chunk)[216](index=216&type=chunk) - Subsequent to year-end, in April 2020, the company drew down **$41.4 million** on its revolving credit facility as a precautionary measure due to COVID-19 uncertainty[215](index=215&type=chunk) - Total outstanding principal on the term loan B facility was **$176.0 million** as of March 31, 2020. The company made voluntary prepayments of **$28.0 million** during fiscal 2020[218](index=218&type=chunk) Cash Flow Summary (Fiscal Years) | Cash Flow Activity | FY 2020 ($M) | FY 2019 ($M) | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $70.7 | $23.2 | | **Net cash used in investing activities** | ($10.0) | ($10.1) | | **Net cash used in financing activities** | ($46.5) | ($14.1) | [Critical Accounting Policies and Estimates](index=40&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Key estimates include revenue recognition (especially for long-term contracts), allowances for doubtful accounts, inventory reserves, and valuation of goodwill and other intangible assets[239](index=239&type=chunk) - Goodwill is tested for impairment annually or more frequently if indicators are present. The company performed its annual test in Q4 fiscal 2020 and determined no impairment existed, despite considering the business decline from COVID-19 and lower oil prices as an indicator[248](index=248&type=chunk)[400](index=400&type=chunk) - The company adopted new lease accounting standards (ASC 842) on April 1, 2019, resulting in the recognition of right-of-use assets and lease liabilities on the balance sheet[241](index=241&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from foreign currency fluctuations, particularly with **59%** of revenue from outside the U.S., interest rate changes on its **$176.0 million** variable-rate debt, and commodity price volatility - The company is exposed to foreign currency risk as **59% of fiscal 2020 revenue** was generated outside the U.S. The largest exposures are the Canadian Dollar and the Euro against the U.S. Dollar[270](index=270&type=chunk)[272](index=272&type=chunk) - A hypothetical **10% appreciation** of the U.S. dollar relative to the Canadian Dollar would decrease net income by **$1.2 million** for fiscal 2020[272](index=272&type=chunk) - Interest rate risk stems from the variable-rate term loan B facility, which had **$176.0 million** outstanding at March 31, 2020. A **one percent change** in the interest rate would impact annual interest expense by approximately **$1.7 million**[279](index=279&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=49&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for fiscal years 2018-2020, with KPMG LLP issuing an unqualified opinion on both financial statements and internal controls - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of the company's internal control over financial reporting as of March 31, 2020[286](index=286&type=chunk)[298](index=298&type=chunk) - The company adopted the new lease accounting standard (ASC 842) on April 1, 2019, using the modified retrospective method. This was identified as a critical audit matter due to the judgment required in its application[288](index=288&type=chunk)[292](index=292&type=chunk) [Notes to Consolidated Financial Statements](index=61&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) - Segment reporting is based on four geographic regions: US-LAM, Canada, EMEA, and APAC. For fiscal 2020, US-LAM and Canada were the largest segments by revenue, contributing **$155.5 million** and **$128.4 million**, respectively[319](index=319&type=chunk)[463](index=463&type=chunk) - The company adopted the new revenue recognition standard (ASC 606) on April 1, 2018. For fiscal 2020, approximately **59.6% of revenue** was recognized at a point in time, and **40.4%** was recognized over time[330](index=330&type=chunk)[378](index=378&type=chunk)[379](index=379&type=chunk) - As of March 31, 2020, goodwill was **$198.0 million** and net intangible assets were **$104.5 million**. No impairments were recorded in fiscal 2020, 2019, or 2018[333](index=333&type=chunk)[400](index=400&type=chunk)[401](index=401&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=93&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[469](index=469&type=chunk) [Item 9A. Controls and Procedures](index=94&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal controls over financial reporting were effective as of March 31, 2020, having remediated a prior material weakness - Management concluded that disclosure controls and procedures were effective as of March 31, 2020[470](index=470&type=chunk) - Management assessed internal control over financial reporting as effective as of March 31, 2020. This assessment was based on the COSO framework[472](index=472&type=chunk) - The company successfully remediated a material weakness in internal control over financial reporting that existed at March 31, 2019[474](index=474&type=chunk) [Item 9B. Other Information](index=94&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[475](index=475&type=chunk) [Part III](index=95&type=section&id=PART%20III) [Item 10. Directors, Executive Officers and Corporate Governance](index=95&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement, including the company's code of conduct - Information regarding directors, executive officers, and the audit committee is incorporated by reference from the 2020 Definitive Proxy Statement[478](index=478&type=chunk)[480](index=480&type=chunk) - The company has adopted a written code of business conduct and ethics that applies to all employees, officers, and directors, which is available on its website[481](index=481&type=chunk) [Item 11. Executive Compensation](index=95&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive and director compensation is incorporated by reference from the 2020 Definitive Proxy Statement - All information regarding executive compensation is incorporated by reference from the 2020 Definitive Proxy Statement[482](index=482&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=95&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference from the 2020 Proxy Statement, with **1,393,936** securities available for future issuance under equity plans - Information on security ownership is incorporated by reference from the 2020 Definitive Proxy Statement[485](index=485&type=chunk) Equity Compensation Plan Information as of March 31, 2020 | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price ($) | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | **Approved by security holders** | 550,445 | N/A | 1,393,936 | | **Not approved by security holders** | 60,002 | $5.68 | — | | **Total** | 610,447 | N/A | 1,393,936 | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=96&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the 2020 Definitive Proxy Statement - All information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2020 Definitive Proxy Statement[490](index=490&type=chunk) [Item 14. Principal Accountant Fees and Services](index=96&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the 2020 Definitive Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the 2020 Definitive Proxy Statement[492](index=492&type=chunk) [Part IV](index=98&type=section&id=PART%20IV) [Item 15. Exhibits and Financial Statement Schedules](index=98&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the annual report, including key agreements and certifications - This section lists all exhibits filed with the Form 10-K, including the Credit Agreement, equity incentive plans, and CEO/CFO certifications[495](index=495&type=chunk)[497](index=497&type=chunk) [Item 16. Form 10-K Summary](index=101&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company did not provide a Form 10-K summary - None[500](index=500&type=chunk)

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, 2019 OR ☐ 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. (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Id ...

Thermon Group Holdings, Inc. (NYSE:THR) Q2 2020 Earnings Conference Call November 5, 2019 11:00 AM ET Company Participants Jay Peterson - CFO Bruce Thames - President and CEO Kevin Fox - VP, Corporate Development Conference Call Participants Brian Drab - William Blair Jon Braatz - Kansas City Capital Operator Greetings. Welcome to Thermon Group Holdings Incorporated Second Quarter Fiscal Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer sessi ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Commission File Number: 001-35159 THERMON GROUP HOLDINGS, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 7171 Southwest Parkway, Building 300, Suite 200, Austin, Texas 78735 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 OR ...