Thermon(THR) - 2026 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the periods ended June 30, 2025, and March 31, 2025 Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, along with detailed notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time | Metric (in thousands) | June 30, 2025 | March 31, 2025 | | :-------------------- | :------------ | :------------- | | Total Assets | $765,342 | $755,452 | | Total Liabilities | $256,032 | $260,137 | | Total Equity | $509,310 | $495,315 | | Cash and cash equivalents | $36,530 | $39,537 | | Inventories, net | $104,924 | $88,980 | Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) This statement outlines the company's financial performance over a period, showing revenues, expenses, net income, and comprehensive income | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Sales | $108,898 | $115,126 | $(6,228) | (5)% | | Cost of sales | $60,853 | $64,694 | $(3,841) | (6)% | | Gross profit | $48,045 | $50,432 | $(2,387) | (5)% | | Income from operations | $11,726 | $13,735 | $(2,009) | (15)% | | Net income | $8,581 | $8,511 | $70 | 1% | | Comprehensive income/(loss) | $25,615 | $4,601 | $21,014 | 457% | | Basic EPS | $0.26 | $0.25 | $0.01 | 4% | | Diluted EPS | $0.26 | $0.25 | $0.01 | 4% | Condensed Consolidated Statements of Equity This statement details changes in the company's equity accounts, including retained earnings, treasury stock, and accumulated other comprehensive loss | Metric (in thousands) | June 30, 2025 | March 31, 2025 | | :-------------------- | :------------ | :------------- | | Total Equity | $509,310 | $495,315 | | Retained Earnings | $350,879 | $342,298 | | Treasury Stock | $(30,155) | $(20,388) | | Accumulated Other Comprehensive Loss | $(55,795) | $(72,829) | - Foreign currency translation adjustment resulted in a gain of $17,034k for the three months ended June 30, 2025, compared to a loss of $(3,879)k for the same period in 2024[15] - Repurchase of shares under authorized program increased significantly to $(9,767)k for the three months ended June 30, 2025, from $(1,579)k in the prior year[15] Condensed Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities over a specific period | Cash Flow Activity (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | | Net cash provided by operating activities | $10,742 | $12,659 | $(1,917) | | Net cash used in investing activities | $(2,352) | $(3,904) | $1,552 | | Net cash used in financing activities | $(12,640) | $(8,002) | $(4,638) | | Change in cash, cash equivalents and restricted cash | $(2,701) | $210 | $(2,911) | Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1. Basis of Presentation This note describes the company's business, the basis of financial statement preparation, and significant accounting policies - The Company is a leading provider of highly engineered industrial process heating solutions, offering products, services, and software for comprehensive solutions[19] - Condensed consolidated financial statements are prepared in conformity with GAAP and SEC requirements for interim financial information[20] | Metric (in thousands) | June 30, 2025 | March 31, 2025 | | :-------------------- | :------------ | :------------- | | Restricted cash balance | $2,191 | $1,885 | Note 2. Acquisition This note details the acquisition of F.A.T.I., including the purchase price allocation and pro forma financial information - On October 2, 2024, the Company acquired Fabbrica Apparecchiature Termoelettriche Industriali – F.A.T.I. – S.r.l. ('F.A.T.I.'), an Italian designer and manufacturer of electrical heaters[26] - The initial purchase price was approximately $14,733k, funded with cash on hand, and is expected to strengthen the Company's market position and global production capabilities[28] Preliminary Purchase Price Allocation - F.A.T.I. (in thousands) | Asset/Liability Category | Fair Value | | :----------------------- | :--------- | | Cash | $2,278 | | Accounts receivable | $2,088 | | Inventories | $3,702 | | Property, plant and equipment | $7,580 | | Intangibles (Customer relationships, Trademarks, Developed technology) | $4,187 | | Goodwill | $2,179 | | Total fair value of assets acquired | $23,127 | | Current and non-current liabilities | $(8,394) | | Total purchase price | $14,733 | Unaudited Pro Forma Financial Information (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :---------- | :------------------------------- | :------------------------------- | | Sales | $108,898 | $118,276 | | Net income | $8,581 | $8,771 | Note 3. Fair Value Measurements This note explains the company's fair value hierarchy and provides a breakdown of financial assets and liabilities measured at fair value - The Company categorizes fair value inputs into a three-level hierarchy: Level 1 (active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[39] Financial Assets and Liabilities (in thousands) | Item | June 30, 2025 (Carrying Value) | March 31, 2025 (Carrying Value) | Valuation Technique | | :---------------------------------- | :----------------------------- | :------------------------------ | :------------------ | | Deferred compensation plan assets | $9,043 | $8,206 | Level 1 | | Foreign currency contract forwards assets | $17 | $1 | Level 2 | | Outstanding borrowings from revolving line of credit | $5,000 | $0 | Level 2 | | Outstanding principal amount of senior secured credit facility | $134,375 | $138,874 | Level 2 | | Deferred compensation plan liabilities | $8,840 | $8,030 | Level 1 | | Foreign currency contract forwards liabilities | $279 | $491 | Level 2 | Notional Amount of Foreign Currency Forward Contracts by Currency (in thousands) | Currency | June 30, 2025 | March 31, 2025 | | :-------------- | :------------ | :------------- | | Euro | $10,568 | $10,280 | | Canadian Dollar | $0 | $2,000 | | South Korean Won | $500 | $2,500 | | Mexican Peso | $2,000 | $2,000 | | Total | $13,068 | $16,780 | Note 4. Restructuring and Other Charges/(Income) This note outlines restructuring charges incurred, primarily due to a reduction-in-force plan and facility consolidation in prior periods | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | | United States and Latin America | $0 | $715 | | Canada | $0 | $1,394 | | Europe, Middle East and Africa | $0 | $0 | | Asia-Pacific | $0 | $0 | | Total Charges/(Income) | $0 | $2,109 | - Restructuring charges in Q2 2024 were due to a reduction-in-force plan and facility consolidation affecting 68 employees across US-LAM and Canada segments[43] Note 5. Net Income per Common Share This note presents the basic and diluted net income per common share, along with the weighted-average shares outstanding | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | | Basic net income per common share | $0.26 | $0.25 | | Diluted net income per common share | $0.26 | $0.25 | | Weighted-average common shares outstanding (Basic) | 33,138,914 | 33,756,172 | | Weighted-average shares outstanding (Diluted) | 33,307,644 | 34,075,020 | Note 6. Inventories This note provides a detailed breakdown of inventory categories, including raw materials, work in process, and finished goods | Inventory Category (in thousands) | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Raw materials | $65,222 | $56,281 | | Work in process | $16,052 | $12,424 | | Finished goods | $27,286 | $23,562 | | Inventories, gross | $108,560 | $92,267 | | Valuation reserves | $(3,636) | $(3,287) | | Inventories, net | $104,924 | $88,980 | Note 7. Goodwill and Other Intangible Assets This note details the company's goodwill by operating segment and the net carrying amount of various intangible assets Goodwill by Operating Segment (in thousands) | Segment | March 31, 2025 | Foreign Currency Translation Impact | June 30, 2025 | | :-------------------------- | :------------- | :---------------------------------- | :------------ | | United States and Latin America | $131,030 | $0 | $131,030 | | Canada | $106,477 | $5,467 | $111,944 | | Europe, Middle East and Africa | $20,717 | $1,765 | $22,482 | | Asia-Pacific | $6,107 | $227 | $6,334 | | Total Goodwill | $264,331 | $7,459 | $271,790 | Total Intangible Assets, Net (in thousands) | Category | June 30, 2025 (Net Carrying Amount) | March 31, 2025 (Net Carrying Amount) | | :------------------- | :---------------------------------- | :----------------------------------- | | Products | $14,237 | $14,992 | | Trademarks | $51,134 | $50,044 | | Developed technology | $20,741 | $20,972 | | Customer relationships | $27,581 | $28,299 | | Certifications | $435 | $421 | | Other | $491 | $555 | | Total | $114,619 | $115,283 | - The Company performs annual goodwill impairment tests and has found no indicators of impairment to date[49] Note 8. Accrued Liabilities This note itemizes the company's accrued current liabilities, including employee compensation, interest, and warranty reserves | Accrued Current Liabilities (in thousands) | June 30, 2025 | March 31, 2025 | | :----------------------------------------- | :------------ | :------------- | | Accrued employee compensation and related expenses | $16,365 | $20,611 | | Accrued interest | $482 | $613 | | Warranty reserves | $2,736 | $2,766 | | Professional fees | $2,456 | $3,067 | | Sales taxes payable | $3,240 | $3,201 | | Accrued litigation payable | $1,021 | $1,006 | | Other | $4,717 | $4,524 | | Total accrued current liabilities | $31,017 | $35,788 | Note 9. Debt This note provides details on the company's long-term debt facilities, including term loans and revolving credit, and compliance with covenants Long-term Debt (in thousands) | Debt Facility | June 30, 2025 | March 31, 2025 | | :------------------------------------------ | :------------ | :------------- | | U.S. Term Loan Facility due September 2026 | $58,896 | $60,873 | | Incremental Term Loan A due September 2026 | $75,063 | $77,493 | | Total term debt | $133,959 | $138,366 | | Less current portion | $(18,000) | $(18,000) | | Total long-term debt | $115,959 | $120,366 | - The Company entered into Amendment No. 3 to its Credit Agreement on December 29, 2023, providing for a new incremental term loan facility and other changes[57][58] - As of June 30, 2025, the Company had $5,000k outstanding under the Revolving Credit Facility and $94,337k of available borrowing capacity[73] - The Company was in compliance with all financial covenants of the Credit Agreement as of June 30, 2025, including a consolidated leverage ratio not exceeding 3.50:1.00 and a consolidated fixed charge coverage ratio of not less than 1.25:1.00[69] Note 10. Commitments and Contingencies This note outlines the company's involvement in legal proceedings and details outstanding letter of credit guarantees and performance bonds - The Company is involved in various legal and administrative proceedings in the ordinary course of business, for which an estimated liability has been established[74] - Letter of credit guarantees and performance bonds totaled $12,724k as of June 30, 2025, with $932k secured by cash deposits[75] - The Indian subsidiary has an additional $4,236k in non-collateralized customs bonds outstanding[75] Note 11. Revenue This note disaggregates revenues by segment and timing of recognition, and presents contract assets and liabilities Disaggregation of Revenues (in thousands) | Segment | Q2 2025 Point in Time | Q2 2025 Over Time | Q2 2025 Total | Q2 2024 Point in Time | Q2 2024 Over Time | Q2 2024 Total | | :-------------------------- | :-------------------- | :---------------- | :------------ | :-------------------- | :---------------- | :------------ | | United States and Latin America | $37,793 | $12,251 | $50,044 | $44,408 | $15,576 | $59,984 | | Canada | $23,388 | $11,766 | $35,154 | $21,608 | $16,737 | $38,345 | | Europe, Middle East and Africa | $12,734 | $4,352 | $17,086 | $4,613 | $3,229 | $7,842 | | Asia-Pacific | $4,383 | $2,231 | $6,614 | $6,137 | $2,818 | $8,955 | | Total revenues | $78,298 | $30,600 | $108,898 | $76,766 | $38,360 | $115,126 | - Revenues recognized at a point-in-time increased to 72% of total sales in Q2 2025 (from 67% in Q2 2024), while over-time sales decreased to 28% (from 33%)[110] Contract Assets and Liabilities (in thousands) | Metric | June 30, 2025 | March 31, 2025 | | :----------------- | :------------ | :------------- | | Contract assets | $16,440 | $19,188 | | Contract liabilities | $19,331 | $19,604 | Note 12. Income Taxes This note discusses the effective income tax rate and factors influencing it, including discrete tax items | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------ | :------------------------------- | :------------------------------- | | Effective income tax rate | 22.0% | 22.8% | - The lower effective tax rate in Q2 2025 was due to discrete tax items, including the release of a valuation reserve on foreign tax credits and benefits from realized stock compensation[81] - The Company is currently evaluating the impact of the 'One Big Beautiful Bill Act' enacted on July 4, 2025[83] Note 13. Segment Information This note provides financial information by reportable geographic segment, including segment profit and capital expenditures - The Company operates through four reportable geographic segments: United States and Latin America (US-LAM), Canada, Europe, Middle East and Africa (EMEA), and Asia-Pacific (APAC)[84] Segment Profit (in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | | US-LAM | $11,087 | $14,724 | | Canada | $8,692 | $8,786 | | EMEA | $1,804 | $(692) | | APAC | $(204) | $676 | | Total Segment Profit | $21,379 | $23,494 | Capital Expenditures by Reportable Segment (in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | | United States and Latin America | $1,302 | $1,447 | | Canada | $981 | $2,436 | | Europe, Middle East and Africa | $74 | $16 | | Asia-Pacific | $64 | $24 | | Total | $2,421 | $3,923 | Note 14. Subsequent Event This note describes a new credit agreement entered into after the reporting period, refinancing existing debt and providing new facilities - On July 24, 2025, the Company entered into a Second Amended and Restated Credit Agreement, replacing the prior agreement[95] - The new agreement provides for a five-year $115,000k secured revolving credit facility and a $125,000k secured term loan[95] - Proceeds from the new facilities will be used to refinance existing debt and support working capital and general corporate purposes[95] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three months ended June 30, 2025, and 2024 Introduction and Special Note Regarding Forward-Looking Statements This introduction clarifies reporting periods and highlights that forward-looking statements are subject to various risks and uncertainties - The three-month periods ended June 30, 2025, and 2024, are referred to as 'YTD 2026' and 'YTD 2025,' respectively[96] - Forward-looking statements are subject to various risks and uncertainties, including market growth, foreign operations, economic conditions, product development, competition, and acquisitions, which could cause actual results to differ materially[98][99] Business Overview and Company History This section describes the company as a global provider of industrial process heating solutions, operating through four geographic segments - Thermon Group Holdings, Inc. is a leading global provider of highly engineered industrial process heating solutions, serving diverse markets for 70 years[102] - The Company offers a full suite of products, services, and software, operating through four reportable geographic segments: US-LAM, Canada, EMEA, and APAC[102][104] Revenue Generation from Outside the United States | Period | Percentage of Total Revenues | | :------ | :--------------------------- | | YTD 2026 | 54% | | YTD 2025 | 50% | Backlog (in millions) | Date | Amount | | :------------ | :----------- | | June 30, 2025 | $252.2 | | March 31, 2025 | $240.3 | Results of Operations - Three-month periods ended June 30, 2025 and 2024 This section analyzes key financial highlights, including sales, gross profit, operating expenses, and net income for the specified periods Key Financial Highlights (in thousands, except percentages) | Metric | YTD 2026 (Q2 2025) | YTD 2025 (Q2 2024) | Change ($) | Change (%) | | :-------------------------- | :----------------- | :----------------- | :--------- | :--------- | | Sales | $108,898 | $115,126 | $(6,228) | (5)% | | Gross profit | $48,045 | $50,432 | $(2,387) | (5)% | | Gross profit margin | 44.1% | 43.8% | 30 bps | | | Selling, general and administrative expenses | $32,175 | $31,088 | $1,087 | 3% | | Income from operations | $11,726 | $13,735 | $(2,009) | (15)% | | Net income | $8,581 | $8,511 | $70 | 1% | | Effective tax rate | 22.0% | 22.8% | -80 bps | | - Sales decreased due to delayed backlog conversion and reduced customer demand (market uncertainty, tariffs), partly offset by a $6.8 million contribution from the F.A.T.I. acquisition[120] - EMEA segment sales grew significantly by $9.2 million (118%), bolstered by the F.A.T.I. Acquisition, while US-LAM, Canada, and APAC segments contracted[123] - Interest expense, net decreased by $886k (31%) due to a lower average debt balance ($136.6 million in YTD 2026 vs. $170.8 million in YTD 2025)[128] Liquidity and Capital Resources This section discusses the company's primary liquidity sources, cash flow activities, and available borrowing capacity - Primary liquidity sources are cash flows from operations and funds available under the Revolving Credit Facility[132] Liquidity Position (in thousands) | Metric | June 30, 2025 | | :-------------------------------------- | :------------ | | Cash and cash equivalents | $36,530 | | Available borrowing capacity (Revolving Credit Facility) | $94,337 | | Outstanding on Revolving Credit Facility | $5,000 | Cash Flow Summary (in thousands) | Activity | YTD 2026 (Q2 2025) | YTD 2025 (Q2 2024) | Change ($) | | :------------------------ | :----------------- | :----------------- | :--------- | | Operating activities | $10,742 | $12,659 | $(1,917) | | Investing activities | $(2,352) | $(3,904) | $1,552 | | Financing activities | $(12,640) | $(8,002) | $(4,638) | | Free Cash Flow (Non-GAAP) | $8,321 | $8,736 | $(415) | - Operating cash flows decreased primarily due to greater investments in working capital, including shoring up safety stock and building inventory for the heating season[138] - Financing cash outflows increased due to comparatively higher share repurchases in YTD 2026[141] - Expected principal payments on long-term debt in the next 12 months are approximately $6.0 million, following the July 24, 2025, Credit Agreement amendment[136] Contractual Obligations and Off-Balance Sheet Arrangements This section confirms no material changes to contractual obligations and the absence of significant off-balance sheet arrangements - There have been no material changes to the Company's contractual obligations outside the ordinary course of business during fiscal 2026[147] - The Company does not have any off-balance sheet arrangements or interests in variable interest entities, except as disclosed[147] Critical Accounting Policies This section highlights that financial statement preparation involves management estimates and judgments, referring to the annual report for detailed policies - The preparation of financial statements requires management to make estimates and judgments that affect reported amounts of assets, liabilities, revenues, and expenses[149] - For a detailed discussion of critical accounting policies and estimates, refer to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2025[149] Recent Accounting Pronouncements This section refers to the annual report for recent accounting pronouncements and notes no material impact from those not yet effective - Refer to Note 1, 'Summary of Significant Accounting Policies,' in the Annual Report on Form 10-K for discussion of recent accounting pronouncements[150] - Issued but not yet effective accounting pronouncements are not expected to have a material impact on the Company's financial position or results of operations[150] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily foreign exchange rates, interest rates, and commodity prices - Primary market risk exposures include fluctuations in foreign exchange rates, interest rates, and commodity prices[151] - Approximately 54% of YTD 2026 consolidated revenue was generated by non-U.S. subsidiaries, with largest foreign exchange exposures in Canadian Dollar and Euro[152][153] Estimated Impact of 10% USD Fluctuation on Net Income (YTD 2026, in millions) | Currency | USD Appreciation | USD Depreciation | | :-------------- | :--------------- | :--------------- | | Canadian Dollar | $(0.7) | $0.8 | | Euro | $(0.2) | $0.2 | - The Company had $13.1 million in notional foreign currency forward contracts as of June 30, 2025, to reduce exposure to exchange rate fluctuations[155] - A 1% change in interest rates would result in a $1.4 million increase or decrease in annual interest expense, based on $139.4 million in outstanding variable-rate debt as of June 30, 2025[157] - The Company uses various commodity-based raw materials but does not typically enter into long-term purchase commitments or hedging instruments to mitigate commodity price risk[158] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025[159] - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter[160] PART II — OTHER INFORMATION This part contains additional information not covered in the financial statements, including legal proceedings, risk factors, and equity security purchases Item 1. Legal Proceedings This section refers to Note 10, 'Commitments and Contingencies,' in Part I, Item 1 for information regarding legal proceedings - Refer to Note 10, 'Commitments and Contingencies,' for information on legal proceedings[162] Item 1A. Risk Factors The company states that there have been no material changes from the risk factors previously disclosed in its Annual Report on Form 10-K - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended March 31, 2025[163] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities This section reports no unregistered sales of equity securities and details the company's share repurchase activities and remaining authorization - No unregistered sales of equity securities occurred during the three months ended June 30, 2025[164] Issuer Purchases of Equity Securities (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------- | :------------------------------- | :--------------------------- | | April 2025 | 140,924 | $25.46 | | May 2025 | 34,797 | $28.50 | | June 2025 | 188,977 | $27.13 | | Total | 364,698 | $26.75 | - An additional $24.4 million was authorized for share repurchases on May 22, 2025, leaving $44.5 million remaining under the Repurchase Program as of June 30, 2025[165][166] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[167] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[168] Item 5. Other Information The company reported that none of its directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the three months ended June 30, 2025 - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the three months ended June 30, 2025[169] Item 6. Exhibits This section provides an index of all exhibits filed as part of the quarterly report, including corporate governance documents and certifications - The Exhibit Index lists various documents filed, including the Third Amended and Restated Certificate of Incorporation, forms of Restricted Stock Unit and Performance Unit Award Agreements, and certifications under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[172] - Interactive Data Files (iXBRL) are included for the cover page, condensed consolidated financial statements, and notes[172] SIGNATURES The report is duly signed on behalf of Thermon Group Holdings, Inc. by its Senior Vice President, Chief Financial Officer, and Vice President, Chief Accounting Officer - The report was signed by Jan L. Schott, Senior Vice President, Chief Financial Officer, and Greg Lucas, Vice President, Chief Accounting Officer[177][178] - The signing date of the report was August 7, 2025[177]