Thermon(THR) - 2021 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION 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) 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 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] - Current liabilities decreased by $4,967 thousand, mainly driven by a $4,243 thousand decrease in accounts payable and a $2,324 thousand decrease in accrued liabilities[10] Condensed Consolidated Statements of Operations and Comprehensive Income Condensed Consolidated Statements of Operations and Comprehensive Income (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change ($) | 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][126] - 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][127] - 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][135] Condensed Consolidated Statements of Equity 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] - Additional paid-in capital increased by $1,013 thousand, reflecting stock compensation expense and common stock issuances from stock option exercises[14] Condensed Consolidated Statements of Cash Flows 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][154] - 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][157] - 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][158] Notes to Condensed Consolidated Financial Statements 1. Basis of Presentation and Accounting Policy Information 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] - The COVID-19 pandemic has adversely affected global demand for products and services, potentially impacting future financial performance[19] - 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] 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 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] 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] 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 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] - 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] 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 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] - Restructuring costs were primarily in the United States and Latin America ($2,063 thousand) and Canada ($858 thousand)[48] 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 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] 6. Inventories 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] 7. Goodwill and Other Intangible Assets 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] - 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][58] 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 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] 9. Long-Term Debt 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] - 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] - 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][71] 10. Related Party Transactions 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] 11. Commitments and Contingencies 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] - The company is involved in a class action application in Quebec, Canada, related to heating elements, which it intends to vigorously defend[79] - Management believes adequate reserves have been established for probable and reasonably estimable losses from legal and administrative proceedings[77] 12. Stock-Based Compensation Expense 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] - During the quarter, 71,780 stock options were granted to senior management, valued at $439 thousand using a Black-Scholes model[82] - 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][86] 13. Revenue 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][126] - 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] - 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] 14. Income Taxes 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] - As of June 30, 2020, a long-term liability of $742 thousand was established for uncertain tax positions[95] 15. Segment Information 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] 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] 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - The report includes forward-looking statements regarding industry, business strategy, plans, goals, and expectations, subject to risks and uncertainties[103][104] 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] - Approximately 67% of YTD 2021 revenues were generated from outside the United States, up from 56% in YTD 2020[109] - The company's backlog at June 30, 2020, was $109.9 million, compared to $105.4 million at March 31, 2020[112] - The COVID-19 pandemic and lower crude oil prices significantly impacted customer capital spending, leading to a 7% revenue decrease in fiscal 2020[119] - Cost reduction measures include a 10% global workforce reduction, limiting discretionary spending, and reducing the capital expenditure budget for fiscal year 2021 by $6.9 million[120][123] Results of Operations (Three-month periods ended June 30, 2020 and 2019) This section analyzes the company's operating results for Q2 2020 and 2019, detailing a 38% sales decrease, improved gross margin, and changes in expenses and net income Results of Operations (in thousands, except for rates) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change ($) | 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] - Amortization of intangible assets decreased by $1.4 million (32%) to $3.0 million, as certain intangible assets became fully amortized[129] - 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] - 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] Contractual Obligations and Contingencies 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] - 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] Liquidity and Capital Resources 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] - As of June 30, 2020, cash and cash equivalents totaled $48.2 million, with 71% held outside the United States[145] - 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] - Net cash provided by operating activities was $3.4 million for both YTD 2021 and YTD 2020[154] - 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][153] Off-Balance Sheet Arrangements 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] Effect of Inflation 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] Critical Accounting Polices 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] Recent Accounting Pronouncements 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] - 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] - 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] 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] - 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][128] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] - Approximately 67% of YTD 2021 consolidated revenue was generated by non-U.S. subsidiaries, making the company highly exposed to foreign currency fluctuations[164] - 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] - 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][170] - 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] Item 4. Controls and Procedures 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] - No material changes in internal control over financial reporting occurred during the last fiscal quarter[174] PART II — OTHER INFORMATION 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 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 3. Defaults Upon Senior Securities 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] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable[181] Item 5. Other Information This section states that there is no other information to report for the period - No other information is reported in this section[181] Item 6. Exhibits 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] - 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] - Interactive Data Files formatted in Inline eXtensible Business Reporting Language (iXBRL) are provided[185] 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]