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What changed in Thermon Group Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Thermon Group Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+222 added−277 removedSource: 10-K (2023-05-25) vs 10-K (2022-05-26)

Top changes in Thermon Group Holdings, Inc.'s 2023 10-K

222 paragraphs added · 277 removed · 168 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

43 edited+10 added−17 removed69 unchanged
Biggest changeOur quarterly operating results may fluctuate based on the cyclical pattern of industries to which we provide heat tracing solutions and the seasonality of demand for our heat tracing products. Most of our heat tracing customers perform preventative maintenance prior to the winter season, typically making our second and third fiscal quarters the largest for related revenue.
Biggest changeMost of our heat tracing customers perform preventative maintenance prior to the winter season, typically making our second and third fiscal quarters the largest for related revenue. However, revenues from projects are not seasonal and depend on the capital spending environment and project timing.
Markets The major end markets that drive demand for process heating include chemical and petrochemical, up-, mid- and downstream oil, gas, power generation, commercial and rail and transit. We believe there are attractive long-term trends in each of these end markets. • Chemical and Petrochemical.
Markets The major end markets that drive demand for process heating include chemical and petrochemical, up-, mid- and downstream oil, gas, power generation, commercial and rail and transit. We believe there are attractive long-term trends in each of these end markets.
At the heart of our culture are our core values of Care, Commit and Collaborate. Our Board of Directors (the "Board") provides important oversight on certain human capital matters through its Human Capital Management and Compensation Committee (the "HCMC Committee").
At the heart of our culture are our core values of Care, Commit and Collaborate. Our board of directors provides important oversight on certain human capital matters through its Human Capital Management and Compensation Committee (the "HCMC Committee").
Seasonality 8 Demand for our products depends in large part upon the level of capital and maintenance expenditures by many of our customers and end-users, in particular those customers in the oil, gas, refining, chemical processing and transportation markets. These customers' expenditures historically have been cyclical in nature and vulnerable to economic downturns.
Seasonality Demand for our products depends in large part upon the level of capital and maintenance expenditures by many of our customers and end-users, in particular those customers in the oil, gas, refining, chemical processing and transportation markets. These customers' expenditures historically have been cyclical in nature and vulnerable to economic downturns.
Process heating is in the production and transmission of gas in upstream, midstream, and downstream applications. Despite recent market volatility, gas markets have remained resilient over the last twelve months, 4 especially as a feedstock for petrochemical plants, and represent a significant and growing addressable market for our value added solutions.
Process heating is in the production and transmission of gas in upstream, midstream, and downstream applications. Despite recent market volatility, gas markets have remained resilient over the last twelve months, especially as a feedstock for petrochemical plants, and represent a significant and growing addressable market for our value-added solutions.
From time to time, we could be subject to requests for information, notices of violation, and/or investigations initiated by environmental regulatory agencies relating to our operations and properties. Violations of 6 environmental and health and safety laws can result in substantial penalties, civil and criminal sanctions, permit revocations, and facility shutdowns.
From time to time, we could be subject to requests for information, notices of violation, and/or investigations initiated by environmental regulatory agencies relating to our operations and properties. Violations of environmental and health and safety laws can result in substantial penalties, civil and criminal sanctions, permit revocations, and facility shutdowns.
Factors that may impact process heating demand in chemical and petrochemical end markets include the rapid industrialization of the developing world, a shift in base chemical processing operations to low-cost feedstock regions, a transition of Western chemical processing activities from commodity products to specialty products and environmental compliance. • Gas.
Factors that may impact process heating demand in chemical and petrochemical end markets include the rapid industrialization of the developing world, a shift in base chemical 4 processing operations to low-cost feedstock regions, a transition of Western chemical processing activities from commodity products to specialty products and environmental compliance. • Gas.
For over 65 years, we have served a diverse base of thousands of customers around the world in attractive and growing markets, including chemical and petrochemical, oil, gas, power generation, commercial, rail and transit, and other, which we refer to as our "key end markets." We offer a full suite of products (heating units, heating cables, temporary power solutions and tubing bundles), services (engineering, installation and maintenance services) and software (design optimization and wireless and network control systems) required to deliver comprehensive solutions to some of the world's largest and most complex projects.
For over 65 years, we have served a diverse base of thousands of customers around the world in attractive and growing markets, including chemical and petrochemical, oil, gas, power generation, commercial, rail and transit, and other, which we refer to as our "key end markets." We offer a full suite of products (heating units, heating cables, tubing bundles, heated blankets, and temporary power solutions), services (engineering, installation and maintenance services) and software (design optimization and wireless and network control systems) required to deliver comprehensive solutions to some of the world's largest and most complex projects.
Accordingly, we require all employees to sign a nondisclosure agreement to protect our trade secrets, 5 business strategy and other proprietary information. We rely on registered and unregistered trademarks in the United States and abroad and have many recognized brand names.
Accordingly, we require all employees to sign a nondisclosure agreement to protect our trade secrets, business strategy and other proprietary information. We rely on registered and unregistered trademarks in the United States and abroad and have many recognized brand names.
We differentiate ourselves from local providers by maintaining a global footprint, a full suite of products and services and a track record with some of the largest multinational energy, chemical processing, power and EPC companies in the world.
We differentiate ourselves from local providers by 5 maintaining a global footprint, a full suite of products and services and a track record with some of the largest multinational energy, chemical processing, power and EPC companies in the world.
Our Safety Record Any loss of life or serious injury in the workplace is unacceptable. We did not have any fatal incidents at any of our facilities or job sites in fiscal 2022. We primarily track two key safety indicators in monitoring our safety efforts, total recordable incident rate (“TRIR”) and lost-time incident rate (“LTIR”).
Our Safety Record Any loss of life or serious injury in the workplace is unacceptable. We did not have any fatal incidents at any of our facilities or job sites in fiscal 2023. We primarily track two key safety indicators in monitoring our safety efforts, total recordable incident rate (“TRIR”) and lost-time incident rate (“LTIR”).
We hold regular talks and events on key safety topics, including reporting all injuries, hazards, near-misses, and case management to prevent reoccurrence. We also participate in industry groups, within and outside the manufacturing, construction, and energy sectors, to share safety best practices and collaborate to address safety concerns.
We hold regular talks and events on key safety topics, including reporting all injuries, hazards, near-misses, and case management to prevent recurrence. We also participate in industry groups, within and outside the manufacturing, construction, and energy sectors, to share safety best practices and collaborate to address safety concerns.
Marketing Our direct sales force is focused on positioning us with major end-users and EPC companies during the development phase of Greenfield projects with the goal of providing reliable, cost-effective process heating solutions.
Marketing Our direct sales force is focused on positioning us with major end-users and EPC companies during the development phase of large projects with the goal of providing reliable, cost-effective process heating solutions.
We serve our customers through a global network of sales and service professionals and distributors in more than 30 countries and through our nine manufacturing facilities on three continents.
We serve our customers through a global network of sales and service professionals and distributors in more than 30 countries and through our nine manufacturing facilities on two continents.
Pre-insulated tubing products are manufactured in our facilities in San Marcos and the Netherlands and are primarily made to the individual customer’s specifications.
Pre-insulated tubing products are manufactured in our facilities in San Marcos, Texas and Pijnacker, the Netherlands and are primarily made to the individual customer’s specifications.
Some products also serve the transportation sector with both radiant and convection-style heating; • Filtration (branded as “3L Filters”) - provides highly specialized filtration solutions for the most stringent environments, including the nuclear industry; and • Rail and Transit (branded as “Hellfire,” "Velocity," “ArcticSense” and others) - provides heating applications to both rolling stock (rail cars) and rail infrastructure (track and switch). 2 Project Services As a manufacturer and global expert in process heating solutions, our EPC and end-user customers often rely on Thermon to deliver a range of project services, which may include: • Engineering and design; • Procurement and project management services; • Turnkey construction installation; • Recurring facility assessment or audit; and • Maintenance services.
Some products also serve the transportation sector with both radiant and convection-style heating; • Filtration (branded as "3L Filters") - provides highly specialized filtration solutions for the most stringent environments, including the nuclear industry; and • Rail and Transit (branded as "Hellfire," "Velocity," "ArcticSense" and others) - provides heating applications to both rolling stock (rail cars) and rail infrastructure (track and switch). 2 Project Services As a manufacturer and global expert in process heating solutions, our EPC and end-user customers often rely on Thermon to deliver a range of project services, which may include: • Engineering and design; • Procurement and project management services; • Turnkey construction installation; • Recurring facility assessment or audit; and • Maintenance services.
Most of our heat tracing products are manufactured in our facility in San Marcos, Texas, including flexible heating cables, control systems and tubing bundles. Process Heating products are primarily manufactured at our Canadian facilities. We have smaller manufacturing locations in the Netherlands and Russia, and we have small assembly operations in Pune, India and Houston, Texas.
Most of our heat tracing products are manufactured in our facility in San Marcos, Texas, including flexible heating cables, control systems and tubing bundles. Process Heating products are primarily manufactured at our Canadian facilities. We have smaller manufacturing locations in Salt Lake City, Utah, the Netherlands, and we have small assembly operations in Pune, India and Houston, Texas.
Process heating is required for hospitals, hospitality/lodging, universities and secondary education, and light industrial facilities to provide freeze protection, temperature regulation, process control, and supporting laboratory environments. The electrification of heating products and removal of combustion-based heating solutions in urban areas drives demand for our products. • General Industries and Other.
Process heating is required for hospitals, hospitality/lodging, universities and secondary education, and light industrial facilities to provide freeze protection, temperature regulation, process control, and supporting laboratory environments. The electrification of heating products and removal of combustion-based heating solutions in urban areas drives demand for our products. • Energy Transition/Decarbonization.
Process Heating THS develops, designs and manufactures the following high quality and durable advanced industrial heating and filtration solutions, including the following categories: • Environmental heating (branded as “Ruffneck,” "Norsemen," and “Catadyne”) - provides electric or gas-powered space heating for both hazardous and non-hazardous areas; • Process heating (branded as “Caloritech”) - provides highly engineered heating products to multiple end-markets with the purpose of heating and maintaining a process fluid at specified temperatures.
Process Heating Thermon Heating Systems, or "THS," develops, designs and manufactures the following high quality and durable advanced industrial heating and filtration solutions, including the following categories: • Environmental heating (branded as "Ruffneck," "Norsemen," and "Catadyne") - provides electric or gas-powered space heating for both hazardous and non-hazardous areas; • Process heating (branded as "Caloritech") - provides highly engineered heating products to multiple end-markets with the purpose of heating and maintaining a process fluid at specified temperatures.
Our diversity statistics include the following as of March 31, 2022, (based on self-reporting at the date of hire): 25.0% of our employees worldwide identify as females; 23.9% of our employees in the U.S. identify as female; and 47.1% of our employees in the U.S. identify as a racial or ethnic minority.
Our diversity statistics include the following as of March 31, 2023, (based on self-reporting at the date of hire): 25.6% of our employees worldwide identify as female; 25.9% of our employees in the U.S. identify as female, and 48.1% of our employees in the U.S. identify as a racial or ethnic minority.
In addition to our broad-based programs, we use targeted equity-based grants with vesting conditions to facilitate retention of key personnel, particularly those with critical domain expertise necessary to deliver on the long-term strategic initiatives of the Company.
In addition to our broad-based programs, we use targeted equity-based grants with vesting conditions to facilitate retention of key personnel, particularly those with critical domain expertise necessary to deliver on the long-term strategic initiatives of the Company. Employee Retention Thermon was impacted by the post-pandemic-era trend of voluntary employee departures.
Our revenue derived from industrial process heating products typically experiences more pronounced seasonality than our legacy heat tracing business, with a noticeable increase in revenue and profitability typically beginning in the third fiscal quarter and continuing during the winter months through the end of the fourth fiscal quarter. 9
Our operating expenses remain relatively consistent with some variability related to the overall headcount of the Company. 8 Our revenue derived from industrial process heating products typically experiences more pronounced seasonality than our legacy heat tracing business, with a noticeable increase in revenue and profitability typically beginning in the third fiscal quarter and continuing during the winter months through the end of the fourth fiscal quarter. 9
Despite our training and compliance programs, no assurances can be made that we will be found to be operating in full compliance with, or be able to detect every violation of, any such laws.
Our policies mandate compliance with all applicable laws and regulations, including the recent economic sanctions. Despite our training and compliance programs, no assurances can be made that we will be found to be operating in full compliance with, or be able to detect every violation of, any such laws.
Our fiscal year differs from the period covered by the AON study, but we believe it is the best proxy to benchmark against. We are committed to reducing our voluntary turnover and management will continue to work to that end. Approximately 0.8% of our global employees are covered by a collective bargaining agreement.
Our fiscal year differs from the period covered by the BLS study, but we believe it is the best proxy to benchmark against. We are committed to reducing our voluntary turnover. Approximately 0.3% of our global employees are covered by a collective 7 bargaining agreement.
In fiscal 2022, we continued the diversity initiatives initiated in fiscal 2021 and added diversity metrics that directly affect the short-term incentive payments for our executive officers. These metrics are specific to our U.S. salaried workforce and include, increasing diversity in candidate interview slates; decreasing new hire turnover of diverse talents; and increasing overall diversity.
In fiscal 2023, we expanded diversity metrics already in place that directly affect the short-term incentive payments for Vice Presidents, in addition to our executive officers. These metrics are specific to our U.S. and Canadian salaried workforce and include increasing diversity in candidate interview slates; decreasing new hire turnover of diverse talents; and increasing overall diversity.
We know we have more to do when it comes to increasing the representation of historically underrepresented groups within our global workforce, and we are taking action to ensure Thermon is an employer of choice for diverse candidates.
We know we have more to do when it comes to increasing the representation of historically underrepresented groups within our global workforce, and we are taking action to ensure Thermon is an employer of choice for diverse candidates. Talent Development The Company supports and invests in talent development and provides continuing education opportunities and professional development for our employees.
Certain environmental laws, including the Comprehensive Environmental Response, Compensation, and Liability Act, impose joint and several liability for cleanup costs, without regard to fault, on persons who have disposed of or released hazardous substances into the environment. In addition, we could become liable to third parties for damages resulting from the disposal or release of hazardous substances into the environment.
Certain environmental laws, including the Comprehensive Environmental Response, Compensation, and Liability Act, impose joint and several liability for cleanup costs, without regard to fault, on persons who have disposed of or released 6 hazardous substances into the environment.
Thermon Power Solutions is a product line that provides temporary power distribution and lighting products that are primarily fabricated at a facility in Fort McMurray, Alberta, Canada. Thermon transportation heating products are assembled at our facilities in Edmonton, Alberta and Denver, Colorado. This includes both solutions for rail car heating and rail track heating.
Thermon Power Solutions is a product line that provides temporary power distribution and lighting products that are primarily fabricated at a facility in Fort McMurray, Alberta, Canada. Thermon transportation heating products are assembled at our facilities in Edmonton, Alberta and Denver, Colorado. We are also expanding assembly capabilities at our San Marcos, Texas facility.
Our temporary power systems provide portable, flexible, and hazardous area rated electrical connection systems and LED lighting that provide the power infrastructure for workers in construction zones and projects for industrial plants and facilities.
Our temporary power systems provide portable, flexible, and hazardous area rated electrical connection systems and LED lighting that provide the power infrastructure for workers in construction zones and projects for industrial plants and facilities. Our heated blankets are built upon patented heat spreading technology and we also offer portable industrial chillers.
Our sales agents may maintain "safety stocks" of core products to service the immediate maintenance and repair requirements of customers who are time-sensitive and cannot wait for delivery from one of the central distribution centers. In the United States, a network of representatives maintain safety stocks of core products.
Inventory is typically shipped from these distribution centers directly to customers, the construction site or our regional sales agents or distributors. Our sales agents may maintain "safety stocks" of core products to service the immediate maintenance and repair requirements of customers who are time-sensitive and cannot wait for delivery from one of the central distribution centers.
Some of our sites are affected by soil and groundwater contamination relating to historical site operations, which could require us to incur expenses to investigate and remediate the contamination in compliance with environmental laws.
In addition, we could become liable to third parties for damages resulting from the disposal or release of hazardous substances into the environment. Some of our sites are affected by soil and groundwater contamination relating to historical site operations, which could require us to incur expenses to investigate and remediate the contamination in compliance with environmental laws.
In addition to salaries, these programs (which vary by country and region) include annual bonuses for all regular full and part time employees globally, a 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, flexible work schedules, employee assistance programs, tuition assistance, and scholarship programs for children and grandchildren of employees.
Benefits vary by country and region, but our U.S. and Canadian employees have a retirement plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, flexible work schedules (where appropriate), employee assistance programs, tuition assistance, and scholarship programs for children and grandchildren of employees.
While the demand forecast for oil can be unpredictable, e.g., the COVID impact on transportation fuels, we have a sizable installed base that provides recurring revenue, especially in the downstream refining market. • Power Generation.
Process heating is used to facilitate the exploration, production, processing, transportation and distribution of oil and oil-based energy products in upstream, midstream, and downstream oil applications. While the demand forecast for oil can be unpredictable, we have a sizable installed base that provides recurring revenue, especially in the downstream refining market. • Power Generation.
Compensation and Benefits We provide competitive compensation and benefits programs to help meet the needs of our employees and to attract and retain talent.
Compensation and Benefits We provide competitive compensation and benefits programs to help meet the needs of our employees and to attract and retain talent. In addition to salaries, all regular full and part-time employees globally have an opportunity to earn an annual short-term incentive.
In Canada, 3 customers are serviced from the five manufacturing locations in Calgary, Edmonton, Fort McMurray, Orillia and Oakville. In Europe, customers are serviced from the central distribution center in the Netherlands. In Asia, safety stock of materials are kept in Yokohama, Japan; Seoul, Korea; Shanghai, China; Pune, India; and Melbourne, Australia.
In the United States, a network of representatives maintain safety stocks of core products. In Canada, customers are serviced from the five manufacturing locations in Calgary, Edmonton, Fort McMurray, Orillia and Oakville. In Europe, customers are serviced from the central distribution center in the Netherlands.
Our competitors vary by end-market, but generally we view nVent Electric, NIBE, Watlow and Spirax Sarco as competitors in various areas across the spectrum of end-markets we now serve. Industrial process heating providers differentiate themselves through value-added services, long-term customer relationship management and the ability to provide a full range of solutions.
Industrial process heating providers differentiate themselves through value-added services, long-term customer relationship management and the ability to provide a full range of solutions.
We also contracted with 105 contingent workers as of March 31, 2022. Our 12-month rolling voluntary turnover rate as of March 31, 2022, was 16.0% compared to the 2021 manufacturing industry average of 10.4% according to Aon 2021 Salary Increase and Turnover Study – Second Edition.
We also contracted with 131 contingent workers at March 31, 2023. Our 12-month rolling voluntary turnover rate as of March 31, 2023, was 17.7% compared to the 2022 U.S. manufacturing industry average of 27.7% according to the U.S. Bureau of Labor Statistics ("BLS") Job Openings and Labor Turnover Survey.
Following the THS acquisition in October 2017, we entered the broader industrial process heating market. The industrial process heating market, which includes industrial heat tracing, tends to be fairly fragmented with several smaller companies serving discrete local markets with limited offerings.
The industrial process heating market, which includes industrial heat tracing, tends to be fairly fragmented with several smaller companies serving discrete local markets with limited offerings. Our competitors vary by end-market, but generally we view nVent Electric, NIBE, Watlow and Spirax Sarco as competitors in various areas across the spectrum of end-markets we serve.
In addition, quarterly revenues for the heat tracing business are impacted by the level and timing of large Greenfield projects that may be occurring at any given time, such as the several large, one-time projects which contributed to revenue in fiscal 2022.
In addition, quarterly revenues for the heat tracing business are impacted by the significance and timing of large projects that may occur at any given time. Our quarterly operating results may fluctuate based on the cyclical pattern of industries to which we provide heat tracing solutions and the seasonality of demand for our heat tracing products.
Safety stocks are also warehoused in Moscow, Russia and Mexico City, Mexico. Thermon aims to have inventory available close to the customer to fulfill urgent needs. Customers We serve a broad base of large multinational customers, many of which we have served for more than 60 years. We have a diversified revenue mix with thousands of customers.
Customers We serve a broad base of large multinational customers, many of which we have served for more than 65 years. We have a diversified revenue mix with thousands of customers. None of our customers represented more than 10% of total revenue in fiscal 2023, 2022, or 2021.
Our TRIR increased from 0.07 in fiscal 2021 to 0.27 in fiscal 2022 and our LTIR stayed at 0.00, the same as fiscal 2021. We are proud of our superior safety rating in both the manufacturing and construction industries.
Our TRIR increased from 0.3 in fiscal 2022 to 0.4 in fiscal 2023 and our LTIR increased from 0.0 to 0.1 in the same periods.
These aid in accident prevention, which we believe is critical to incident avoidance and supports our superior safety rating in the industry. COVID-19 Response Throughout fiscal 2022, we remained operational in order to support our customers while still supporting and protecting our employees.
These aid in accident prevention, which we believe is critical to incident avoidance and supports our superior safety rating in the industry. Workforce Breakdown At March 31, 2023, we employed 1,405 employees, of which 42.3% were located in the US-LAM, 36.8% in Canada, 9.1% located in EMEA, and 11.7% located in APAC.
This includes the global and growing market for liquefied natural gas (LNG) compression and regasification facilities. • Oil. Process heating is used to facilitate the exploration, production, processing, transportation and distribution of oil and oil-based energy products in upstream, midstream, and downstream oil applications.
This includes the global and growing market for liquefied natural gas (LNG) compression and regasification facilities, which has been accelerated by the war in Ukraine and the resulting need for Europe to reduce reliance on Russian oil and gas. • Oil.
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On April 30, 2010, an investor group led by entities affiliated with CHS Capital LLC ("CHS") and two other private equity firms, acquired Audax's controlling interest in us.
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We are a leading expert in temperature control that provides patented standard and custom-made heating products, world-class industrial chillers and cooling wraps, and we operate an industrial heating e-commerce website.
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In May 2011, we completed the initial public offering ("IPO") of our common stock, and our common stock became listed on The New York Stock Exchange under the ticker symbol "THR." In October 2017, we, through a wholly-owned subsidiary, acquired 100% of the equity interests of CCI Thermal Technologies Inc. and certain related real estate assets for $262.4 million CAD (approximately $204.6 million USD at the exchange rate as of October 30, 2017) in cash.
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This includes both solutions for rail car heating and rail track heating.
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Through this acquisition, we formed a new business line, Thermon Heating Systems ("THS"), which is engaged in industrial process heating, focused on the development and production of advanced heating and filtration solutions for industrial and hazardous area applications and is headquartered in Oakville, Ontario, Canada.
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Our heated blankets and certain chiller blankets and related products are manufactured and shipped at our Salt Lake City, Utah facility, which also serves as our headquarters for the recently acquired Powerblanket brand. 3 Our primary distribution centers are located in San Marcos, Texas; Calgary, Alberta; and Pijnacker, the Netherlands.
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Our primary distribution centers are located in San Marcos, Texas; Edmonton, Alberta; Pijnacker, the Netherlands; and Moscow, Russia. Inventory is typically shipped from these distribution centers directly to customers, the construction site or our regional sales agents or distributors.
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In Asia, safety stock of materials are kept in Yokohama, Japan; Seoul, Korea; Shanghai, China; Pune, India; and Melbourne, Australia. Safety stocks are also warehoused in Mexico City, Mexico. Thermon aims to have inventory available close to the customer to fulfill urgent needs.
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None of our customers represented more than 10% of total revenue in fiscal 2022, 2021, or 2020. Customers typically purchase our products when constructing a new facility, which we refer to as Greenfield projects, or when performing MRO/UE on a facility's existing heat-traced pipes or upgrading or expanding a current facility.
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In addition, our products are increasingly being leveraged in energy transition markets as industry looks to electrification as a means of decarbonizing operations. The primary energy transition end markets and applications include, but are not limited to, biofuels, hydrogen, thermal energy storage, and carbon capture. • Chemical and Petrochemical.
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Since the escalation of the Russo-Ukrainian war in February 2022, many countries in which we operate have imposed significant economic sanctions upon Russia and certain individuals and entities with connections to the Russian government. These sanctions are evolving rapidly and have become significantly more stringent over time.
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Regulatory and societal pressures and cost competitiveness are increasingly leading our customers to invest in decarbonization technologies that help reduce their carbon emissions. Electrification of process heating is a trend we are benefiting from across all of our existing end markets noted above, and the adoption of new technologies is providing additional opportunities in new end markets.
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Violations of these sanctions can result in significant penalties and civil and criminal liabilities. Our policies mandate compliance with all applicable laws and regulations, including the recent economic sanctions.
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Examples include, but are not limited to, biofuels, hydrogen, thermal energy storage, and carbon capture. The primary drivers for our existing products are the direct electrification of carbon-intensive products, the reduction of greenhouse gas emissions, and more competitive total installed cost. • General Industries and Other.
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At the beginning of the COVID-19 pandemic, we immediately mobilized our office employees to a work-from-home environment and ensured that our essential manufacturing and field construction employees were kept safe with proper personal protective equipment.
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We use a robust performance management by objective process that identifies goals and reinforces the Company's values through an evaluation process twice per year. Furthermore, the ‘Level Up’ job structure for direct labor employees yielded a number of promotions which is key to the upskilling of our workforce and aided in the retention of our workforce.
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In addition, we deployed new safety policies and guidelines based on recommendations from the World Health Organization, the Centers for Disease Control and Prevention, as well as local health organizations. Our ability to ensure business continuity and employee welfare and safety was the result of the Company’s early planning, and a well-designed enterprise business continuity plan.
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In the U.S. alone, more than four million people left their jobs each month in calendar year 2022 according to the U.S. Bureau of Labor Statistics. Thermon’s global voluntary turnover in fiscal 2023 was up 10.7% over the prior year. As a result, the Company implemented new strategies to improve retention and career satisfaction.
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This plan was led by our Critical Response Team, which is comprised of senior leadership who collaborated with designated site leaders around the globe to implement COVID-19 specific polices and guidelines that addressed the regional requirements of the population.
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These strategies included improvements in direct labor and research & development wages and benefits, targeted compensation pools, and career path development for direct labor and our accounting department.
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In fiscal 2022, we offered a vaccine incentive to our employees in the U.S. and Canada to encourage them to get vaccinated against COVID-19 and report their vaccination status to help ensure business continuity. 7 Workforce Breakdown On March 31, 2022, we employed 1,227 employees, of which 39.4% were located in the U.S. and Latin America, 35.8% in Canada, 11.6% located in Europe, the Middle East, and Africa ("EMEA"), and 13.2% located in Asia-Pacific ("APAC").
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Talent Development In fiscal 2022, the Company expanded its talent review program to include not only the executives and their direct reports, but also the next level of employees. This program identifies emerging leaders and high-potential employees, succession planning, and development plans for select employees.
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Certain employees from this program were selected and enrolled in a targeted development program and assigned an executive mentor. Additionally, the Company created and implemented the “Level Up” job structure for direct labor employees in the U.S.
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This program sets forth a transparent career path with clear roles, levels, minimum pay rates, and provides employees with information and tools to manage their career at Thermon. Furthermore, the Company uses a robust performance management by objective process that identifies goals and reinforces the Company's values through an evaluation process twice per year.
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For the 2022 benefit year in the U.S., Thermon discounted the health insurance premiums for our lower wage workers without increasing premiums for other employees, increased the 401(k) match, implemented a wellness program, expanded paid maternity leave, and introduced paid parental leave and family creation benefits for employees.
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Employee Retention To address our employees’ desire for work-life balance, we implemented a remote work policy for employees who can do their work remotely or in a hybrid capacity. Additionally, the Company undertook a series of market reviews by location and implemented compensation adjustments where necessary.
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However, revenues from Greenfield projects are not seasonal and depend on the capital spending environment and project timing. Our operating expenses remain relatively consistent with some variability related to the overall headcount of the Company.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

47 edited+3 added−5 removed151 unchanged
Biggest changeFurther escalation of geopolitical tensions related to the war, including increased trade barriers or restrictions on global trade, could result in, among other things, cyberattacks, supply disruptions, lower customer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain.
Biggest changeAs a result of the continued impact of the Russo-Ukrainian war, including the sanctions related thereto, the Company commenced a strategic assessment of its operations in Russia, and, on January 31, 2023, the board of directors authorized the Company to withdraw from its operations in the Russian Federation, through a planned disposition of its Russian subsidiary. 18 Further escalation of geopolitical tensions related to the war, including increased trade barriers or restrictions on global trade, could result in, among other things, cyberattacks, supply disruptions, lower customer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain.
Conducting business outside the U.S. subjects us to additional risks that may impact our revenues, profitability or cash flows or increase our liabilities, including the following: • changes in a specific country's or region's political, social or economic conditions, particularly in emerging markets; • changes in trade relations between the United States, Canada or Europe and foreign countries in which our customers and suppliers operate, including protectionist measures such as tariffs, import or export licensing requirements and trade sanctions; • restrictions on our ability to own or operate subsidiaries in, expand in and, if necessary, repatriate cash from, foreign jurisdictions; • exchange controls and currency restrictions; • the burden of complying with numerous and potentially conflicting legal requirements; • potentially negative consequences from changes in U.S. and foreign tax laws; • difficulty in staffing and managing (including ensuring compliance with internal policies and controls) geographically widespread operations; • different regulatory regimes controlling the protection of our intellectual property; • difficulty in the enforcement of contractual obligations in non-U.S. jurisdictions and the collection of accounts receivable from foreign accounts; and • transportation delays or interruptions.
Conducting business outside the U.S. subjects us to additional risks that may impact our revenues, profitability or cash flows or increase our liabilities, including the following: • changes in a specific country's or region's political, social or economic conditions, particularly in emerging markets; 10 • changes in trade relations between the United States, Canada or Europe and foreign countries in which our customers and suppliers operate, including protectionist measures such as tariffs, import or export licensing requirements and trade sanctions; • restrictions on our ability to own or operate subsidiaries in, expand in and, if necessary, repatriate cash from, foreign jurisdictions; • exchange controls and currency restrictions; • the burden of complying with numerous and potentially conflicting legal requirements; • potentially negative consequences from changes in U.S. and foreign tax laws; • difficulty in staffing and managing (including ensuring compliance with internal policies and controls) geographically widespread operations; • different regulatory regimes controlling the protection of our intellectual property; • difficulty in the enforcement of contractual obligations in non-U.S. jurisdictions and the collection of accounts receivable from foreign accounts; and • transportation delays or interruptions.
Our corporate governance documents include provisions: • authorizing our board of directors, without further action by the stockholders, to issue blank check preferred stock; • limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting; • requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; • authorizing our board of directors, without stockholder approval, to amend our amended and restated bylaws; • limiting the determination of the number of directors on our board of directors and the filling of vacancies or newly created seats on our board of directors to our board of directors then in office; and • subject to certain exceptions, limiting our ability to engage in certain business combinations with an "interested stockholder" for a three-year period following the time that the stockholder became an interested stockholder.
Our corporate governance documents include provisions: • authorizing our board of directors, without further action by the stockholders, to issue blank check preferred stock; 20 • limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting; • requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; • authorizing our board of directors, without stockholder approval, to amend our amended and restated bylaws; • limiting the determination of the number of directors on our board of directors and the filling of vacancies or newly created seats on our board of directors to our board of directors then in office; and • subject to certain exceptions, limiting our ability to engage in certain business combinations with an "interested stockholder" for a three-year period following the time that the stockholder became an interested stockholder.
If we were to experience a breach of our systems and were unable to protect sensitive data, such a breach could, among other things: • risk exposing our confidential manufacturing processes and other trade secreted information that may lead to new and increased entrants and competitors in our business or cause other damage to the business; • expose our customers' facilities and projects to increased safety and security risk; • materially damage business partner and customer relationships; • impact our reputation in the markets in which we compete for business; • adversely impact our financial results and expose us to potential risk of loss or litigation; and/or • require us to incur substantial costs or require us to change our business practices.
If we were to experience a breach of our systems and were unable to protect sensitive data, such a breach could, among other things: • risk exposing our confidential manufacturing processes and other trade secreted information that may lead to new and increased entrants and competitors in our business or cause other damage to the business; • expose our customers' facilities and projects to increased safety and security risk; 15 • materially damage business partner and customer relationships; • impact our reputation in the markets in which we compete for business; • adversely impact our financial results and expose us to potential risk of loss or litigation; and/or • require us to incur substantial costs or require us to change our business practices.
To the extent our customers, particularly our energy and industrial customers, are subject to any of these or other similar proposed or newly enacted laws and regulations or impacted by the change in energy prices due to such laws and regulations, we are exposed to risks that the additional costs incurred by customers to comply with such laws and regulations or that the deterioration of customers’ financial results as a result of changing energy prices could impact our customers’ ability or desire to continue to 19 operate at similar levels in certain jurisdictions as historically seen or as currently anticipated, which could negatively impact their demand for our products and services.
To the extent our customers, particularly our energy and industrial customers, are subject to any of these or other similar proposed or newly enacted laws and regulations or impacted by the change in energy prices due to such laws and regulations, we are exposed to risks that the additional costs incurred by customers to comply with such laws and regulations or that the deterioration of customers’ financial results as a result of changing energy prices could impact our customers’ ability or desire to continue to operate at similar levels in certain jurisdictions as historically seen or as currently anticipated, which could negatively impact their demand for our products and services.
Substantial indemnity claims may exceed the 17 amount of insurance we maintain and could have a material adverse effect on our reputation, business, financial condition or results of operations. We operate in many different jurisdictions and we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws. The U.S.
Substantial indemnity claims may exceed the amount of insurance we maintain and could have a material adverse effect on our reputation, business, financial condition or results of operations. We operate in many different jurisdictions and we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws. The U.S.
We extend credit to customers in conjunction with our performance under fixed-price contracts which subjects us to potential credit risks. We typically agree to allow our customers to defer payment on projects until certain milestones have been met or until the projects are substantially completed, and customers typically withhold some portion of amounts due to us as retainage.
We extend credit to customers in conjunction with our performance under fixed-price contracts which subjects us to potential credit risks. 16 We typically agree to allow our customers to defer payment on projects until certain milestones have been met or until the projects are substantially completed, and customers typically withhold some portion of amounts due to us as retainage.
Recent years have seen a substantial increase in the global enforcement of anti-corruption laws, with more frequent voluntary self-disclosures by companies, aggressive investigations and enforcement proceedings by both the DOJ and the SEC resulting in record fines and penalties, increased enforcement activity by non-U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals.
Recent years have seen a substantial increase in the global enforcement of anti-corruption laws, with more frequent voluntary self-disclosures by companies, aggressive investigations and enforcement proceedings by both the DOJ and the SEC resulting in record fines and 17 penalties, increased enforcement activity by non-U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals.
We have limited experience in acquiring or integrating other businesses or making investments or undertaking joint ventures with others. It may be difficult for us to complete transactions quickly and to integrate acquired operations efficiently into our current business operations. It may also be difficult for us to identify suitable acquisition candidates, which may inhibit 13 our growth rate.
We have limited experience in acquiring or integrating other businesses or making investments or undertaking joint ventures with others. It may be difficult for us to complete transactions quickly and to integrate acquired operations efficiently into our current business operations. It may also be difficult for us to identify suitable acquisition candidates, which may inhibit our growth rate.
For example, a client may require us to provide a bond or letter of credit to protect the client should we fail to perform under the terms of the contract. If we fail to secure 12 adequate financial arrangements or required governmental approvals, we may not be able to pursue particular projects, which could adversely affect our profitability.
For example, a client may require us to provide a bond or letter of credit to protect the client should we fail to perform under the terms of the contract. If we fail to secure adequate financial arrangements or required governmental approvals, we may not be able to pursue particular projects, which could adversely affect our profitability.
Our current or future indebtedness could impair our financial condition and reduce the funds available to us for other purposes. Our debt agreements impose certain operating and financial restrictions, with which failure to comply could result in an event of default that could adversely affect our results of operations. We have substantial indebtedness.
Our current or future indebtedness could impair our financial condition and reduce the funds available to us for other purposes. Our debt agreements impose certain operating and financial restrictions, with which failure to comply could result in an event of default that could adversely affect our results of operations. 12 We have substantial indebtedness.
Our future revenue depends in part on our ability to bid and win new contracts. Our failure to effectively obtain future contracts could adversely affect our profitability. Our future revenue and overall results of operations require us to successfully bid on new contracts and, in particular, contracts for large Greenfield projects, which are frequently subject to competitive bidding processes.
Our future revenue depends in part on our ability to bid and win new contracts. Our failure to effectively obtain future contracts could adversely affect our profitability. Our future revenue and overall results of operations require us to successfully bid on new contracts and, in particular, contracts for large projects, which are frequently subject to competitive bidding processes.
We require user names and passwords as well as multi-factor authentication ("MFA") in order to access our information technology systems. These security measures are subject to potential third-party security breaches, employee error, malfeasance and faulty password management, 15 among other limitations.
We require user names and passwords as well as multi-factor authentication ("MFA") in order to access our information technology systems. These security measures are subject to potential third-party security breaches, employee error, malfeasance and faulty password management, among other limitations.
This may occur for various reasons, including errors in estimates or bidding, changes in availability and cost of labor and raw materials and unforeseen technical and logistical challenges, including with managing our geographically widespread operations and use of third party subcontractors, suppliers 16 and manufacturers in many countries.
This may occur for various reasons, including errors in estimates or bidding, changes in availability and cost of labor and raw materials and unforeseen technical and logistical challenges, including with managing our geographically widespread operations and use of third party subcontractors, suppliers and manufacturers in many countries.
In addition, in recent years, global equity markets have experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons often unrelated to 20 their operating performance.
In addition, in recent years, global equity markets have experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons often unrelated to their operating performance.
An increase in severe weather patterns could result in damages to or loss of our manufacturing facilities, impact our ability to conduct our operations and/or result in a disruption of our customers’ operations. In addition, volatility in weather patterns could exacerbate the cyclicality of demand for our heating products.
An increase in severe weather patterns could result in damages to or loss of our manufacturing facilities, impact our ability to conduct our 19 operations and/or result in a disruption of our customers’ operations. In addition, volatility in weather patterns could exacerbate the cyclicality of demand for our heating products.
If we fail to replace completed or canceled large Greenfield projects with new order volume of the same magnitude, our backlog will decrease and our future revenue and financial results may be adversely affected.
If we fail to replace completed or canceled large projects with new order volume of the same magnitude, our backlog will decrease and our future revenue and financial results may be adversely affected.
In addition, we may not be able to continue to obtain insurance at commercially reasonable rates or may be faced with liabilities not covered by insurance, such as, but not limited to, environmental contamination, conflicts, or terrorist attacks.
In addition, 13 we may not be able to continue to obtain insurance at commercially reasonable rates or may be faced with liabilities not covered by insurance, such as, but not limited to, environmental contamination, conflicts, or terrorist attacks.
Factors that might cause our operating results to vary from quarter to quarter include, but are not limited to: • general economic conditions and cyclicality in the end markets we serve; • the effects of the ongoing COVID-19 pandemic or other global pandemics, conflicts, or catastrophes; • future growth of energy and chemical processing capital investments; • a material disruption at any of our manufacturing facilities; • delays in our customers' projects for which our products are a component; • the timing of completion of large Greenfield projects; • costs associated with regulatory compliance; • competition from various other sources providing similar heat tracing products and services, or other alternative technologies, to customers; and • the seasonality of demand for MRO/UE orders, which is typically highest during our second and third fiscal quarters.
Factors that might cause our operating results to vary from quarter to quarter include, but are not limited to: • general economic conditions and cyclicality in the end markets we serve; • the effects of the ongoing COVID-19 pandemic or other global pandemics, conflicts, or catastrophes; • future growth of energy and chemical processing capital investments; • a material disruption at any of our manufacturing facilities; • delays in our customers' projects for which our products are a component; • the timing of completion of large projects; • costs associated with regulatory compliance; • competition from various other sources providing similar heat tracing products and services, or other alternative technologies, to customers; and • the seasonality of demand for maintenance orders, which is typically highest during our second and third fiscal quarters.
The severity and longevity of the COVID-19 pandemic may cause customers to suspend their decisions on using our products and/or services and give rise to significant changes in regional and global economic conditions that could delay or interfere with the capital spending of our customers, which could have a material impact on our consolidated business, results of operations and financial condition in our fiscal year ending March 31, 2023 and beyond.
The severity and longevity of such pandemic may cause customers to suspend their decisions on using our products and/or services and give rise to significant changes in regional and global economic conditions that could delay or interfere with the capital spending of our customers, which could have a material impact on our consolidated business, results of operations and financial condition in our fiscal year ending March 31, 2023 and beyond.
Finally, COVID-19 could negatively affect our internal controls over financial reporting as a portion of our workforce is required to work from home, potentially requiring new processes, procedures, and controls. An economic downturn due to the COVID-19 pandemic has in the past resulted, and could in the future result in reduced demand for our products and services.
Finally, a pandemic could negatively affect our internal controls over financial reporting as a portion of our workforce is required to work from home, potentially requiring new processes, procedures, and controls. An economic downturn due to a global pandemic has in the past resulted, and could in the future result in reduced demand for our products and services.
Although Greenfield project revenues, which provide for an ongoing stream of future high-margin MRO/UE revenues, are critical to our long-term success and growth, a revenue mix higher in lower-margin Greenfield project revenues relative to historical levels could adversely affect our gross margins and results of operations. Our business strategy includes growth and product diversification through strategic acquisitions.
Although project revenues, which provide for an ongoing stream of future high-margin maintenance revenues, are critical to our long-term success and growth, a revenue mix higher in lower-margin project revenues relative to historical levels could adversely affect our gross margins and results of operations. Our business strategy includes growth and product diversification through strategic acquisitions.
The COVID-19 coronavirus pandemic has caused significant volatility in the global economy.
The COVID-19 pandemic has caused significant volatility in the global economy.
In addition, changes in the operations of our suppliers in response to COVID-19 may also result in disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other finished product components, transportation, workforce or other manufacturing and distribution capability.
In addition, changes in the operations of our suppliers in response to a pandemic may also result in disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other finished product components, transportation, workforce or other manufacturing and distribution capability.
Changes in our operations around the world in response to COVID-19 or employee illnesses resulting from the pandemic may result in inefficiencies or delays, including delays in sales and product development efforts, delays to our strategic plans, and additional costs related to business continuity initiatives, that cannot be fully mitigated through succession planning, employees working remotely or teleconferencing technologies.
Changes in our operations around the world in response to a global pandemic or employee illnesses resulting therefrom may result in inefficiencies or delays, including delays in sales and product development efforts, delays to our strategic plans, and additional costs related to business continuity initiatives, that cannot be fully mitigated through succession planning, employees working remotely or teleconferencing technologies.
Although Greenfield project revenues, which provide for an ongoing stream of future high-margin MRO/UE revenues, are critical to our success and growth, increased Greenfield project revenues can adversely affect our gross margin. Typically, both Greenfield and MRO/UE customers require our products as well as our engineering and construction services.
Although large project revenues, which provide for an ongoing stream of future high-margin revenues, are critical to our success and growth, increased large project revenues can adversely affect our gross margin. Typically, both large project and maintenance customers require our products as well as our engineering and construction services.
If we are unable to continue operating successfully in one or more foreign countries, it may have an adverse effect on our business and financial condition. For fiscal 2022, approximately 57% of our revenues were generated outside of the United States, and approximately 24% were generated outside of North America.
If we are unable to continue operating successfully in one or more foreign countries, it may have an adverse effect on our business and financial condition. For fiscal 2023, approximately 56% of our revenues were generated outside of the United States, and approximately 21% were generated outside of North America.
The dollar amount of backlog as of March 31, 2022 was $156.2 million. The timing of our recognition of revenue out of our backlog is subject to a variety of factors that may cause delays, many of which, including fluctuations in our customers' delivery schedules, are beyond our control and difficult to forecast.
The dollar amount of backlog as of March 31, 2023 was $163.3 million. The timing of our recognition of revenue out of our backlog is subject to a variety of factors that may cause delays, many of which, including fluctuations in our customers' delivery schedules, are beyond our control and difficult to forecast.
Dollar overall strengthened in relation to the principal non-U.S. currencies from which we derive revenue, which negatively impacted revenue by $1.7 million. Any further appreciation in the U.S. Dollar relative to such non-U.S. currencies could continue to have a significant negative impact on our results of operations in future periods. We also bid for certain foreign projects in U.S.
Dollar overall weakened in relation to the principal non-U.S. currencies from which we derive revenue, which positively impacted revenue by $5.9 million. Any further appreciation in the U.S. Dollar relative to such non-U.S. currencies could continue to have a significant negative impact on our results of operations in future periods. We also bid for certain foreign projects in U.S.
Accordingly, our gross margins are impacted by our mix of products and services. Although our product mix varies from period to period due to a variety of factors, during fiscal year ended March 31, 2022, Greenfield revenue accounted for approximately 38% of our total revenue.
Accordingly, our gross margins are impacted by our mix of products and services. Although our product mix varies from period to period due to a variety of factors, during fiscal year ended March 31, 2023, project-related revenue accounted for approximately 37% of our total revenue.
We cannot provide assurance that current sanctions or potential future changes in sanctions will not have a material impact on our operations in Russia and the Ukraine or on our financial results. At March 31, 2022, backlog associated with our Russian affiliate was $15.2 million.
We cannot provide assurance that current sanctions or potential future changes in sanctions will not have a material impact on our operations in the region or on our financial results. At March 31, 2023, backlog associated with our Russian affiliate was $12.1 million.
Dollar could adversely affect our results of operations. During fiscal 2022, the value of the U.S. Dollar overall weakened in relation to the principal non-U.S. currencies from which we derive revenue, which positively impacted revenue by $5.9 million. During fiscal 2021, the value of the U.S.
Dollar could adversely affect our results of operations. During fiscal 2023, the value of the U.S. Dollar overall strengthened in relation to the principal non-U.S. currencies from which we derive revenue, which negatively impacted revenue by $15.1 million. During fiscal 2022, the value of the U.S.
Competition for qualified management and key technical and sales personnel in our industry is intense. Our ability to successfully operate and grow our global business and implement our strategies is largely dependent on the efforts, abilities and services of our senior management and other key employees.
Our ability to successfully operate and grow our global business and implement our strategies is largely dependent on the efforts, abilities and services of our senior management and other key employees.
The current geopolitical instability in Russia and Ukraine and related sanctions by the U.S. and Canadian governments and European Union against certain companies and individuals may hinder our ability to conduct business with potential or existing customers and vendors in these countries and may otherwise adversely affect our global business and results of operations. 18 We derived approximately 5%, 8%, and 4% of our revenue from our subsidiary incorporated in Russia in the fiscal years ended March 31, 2022, 2021 and 2020, respectively.
The current geopolitical instability in Russia and Ukraine and related sanctions by the U.S. and Canadian governments and European Union against certain companies and individuals may hinder our ability to conduct business with potential or existing customers and vendors in these countries and may otherwise adversely affect our global business and results of operations.
Please refer to the section entitled "Forward-Looking Statements." Risks Related to Our Business and Industry Macroeconomic and Industry Risks The outbreak of a global pandemic, including the current pandemic caused by the novel strain of coronavirus (COVID-19) and its variants, and the measures taken in response thereto could have an adverse effect on our business, results of operations and financial condition.
The outbreak of a global pandemic, such as the pandemic caused by the novel strain of coronavirus (COVID-19) and its variants, and the measures taken in response thereto could have an adverse effect on our business, results of operations and financial condition.
Department of State, Customs and Border Protection, Bureau of Industry and Security (“BIS”), Office of Anti-Boycott Compliance (“OAC”) and Office of Foreign Asset Control (“OFAC”), as well as the counterparts of these agencies in foreign countries.
Department of State, Customs and Border Protection, Bureau of Industry and Security (“BIS”), Office of Anti-Boycott Compliance (“OAC”) and Office of Foreign Asset Control (“OFAC”), as well as the counterparts of these agencies in foreign countries. Since the commencement of the Russo-Ukranian war in 2022, many of these regulations have expanded significantly and become increasingly complex.
Continued significant volatility in the energy industry could further decrease demand for some of our products and services and adversely affect our business, financial condition and results of operations. 10 A significant portion of our revenue historically has been generated by end-users in the oil and gas markets where we serve all three major categories of customers in the petroleum industry - upstream exploration/production, midstream transportation and downstream refining.
A significant portion of our revenue historically has been generated by end-users in the oil and gas markets where we serve all three major categories of customers in the petroleum industry - upstream exploration/production, midstream transportation and downstream refining.
In recent years, we have experienced suspensions or delays in large capital projects within the energy sector, especially in the upstream exploration and production sector, and most notably in the United States and Canada.
In recent years, we have experienced suspensions or delays in large capital projects within the energy sector, especially in the upstream exploration and production sector, and most notably in the United States and Canada. The impact on oil and gas commodity markets has further been impacted by the Russo-Ukrainian war.
The payment of substantial additional taxes, penalties or interest resulting from any assessments could adversely impact our results of operations, financial condition and cash flows.
The payment of substantial additional taxes, penalties or interest resulting from any assessments could adversely impact our results of operations, financial condition and cash flows. We have significant goodwill and other intangible assets and future impairment of our goodwill and other intangible assets could have a material negative impact on our financial results.
The Russo-Ukrainian war has negatively impacted our operations, sales, and future growth prospects in that region. The U.S., Canada, and European Union and other governments have imposed sanctions restricting companies from conducting business with specified Russian, Belarusian and Ukrainian individuals and companies.
The U.S., Canada, and European Union and other governments have imposed sanctions restricting companies from conducting business with specified Russian, Belarusian and Ukrainian individuals and companies.
The COVID-19 pandemic could also have the effect of heightening other risks described elsewhere in these Risk Factors. The markets we serve are subject to general economic conditions and cyclical demand, which could harm our business and lead to significant shifts in our results of operations from quarter to quarter that make it difficult to project long-term performance.
Please refer to the section entitled "Forward-Looking Statements." Risks Related to Our Business and Industry Macroeconomic and Industry Risks The markets we serve are subject to general economic conditions and cyclical demand, which could harm our business and lead to significant shifts in our results of operations from quarter to quarter that make it difficult to project long-term performance.
Suspensions and delays in large capital projects within the energy sector, especially in the United States and Canada, have adversely affected our results of operations in recent years.
Suspensions and delays in large capital projects within the energy sector, especially in the United States and Canada, have adversely affected our results of operations in recent years. Continued significant volatility in the energy industry could further decrease demand for some of our products and services and adversely affect our business, financial condition and results of operations.
At March 31, 2022, we had $129.0 million of outstanding indebtedness.
At March 31, 2023, we had $98.4 million of outstanding indebtedness.
We have significant goodwill and other intangible assets and future impairment of our goodwill and other intangible assets could have a material negative impact on our financial results. 14 We test goodwill and indefinite-life intangible assets for impairment on an annual basis, and more frequently if circumstances warrant, by comparing the estimated fair value of each of our reporting units to their respective carrying values.
We test goodwill and indefinite-life intangible assets for impairment on an annual basis, and more frequently if circumstances warrant, by comparing the estimated fair value of each of our reporting units to their respective carrying values. As of March 31, 2023, our goodwill and other intangible assets balance was $313.6 million, which represented 48% of our total assets.
Our future success will depend upon our continued investment in research and development of new products, improvement and enhancement of our existing product offerings and our ability to continue to achieve new technological advances in the process heating industry.
Business Risks If we are unable to successfully develop and improve our products and successfully implement new technologies in the markets that we serve and develop solutions for diversified new markets, our business and results of operations could be adversely affected. 11 Our future success will depend upon our continued investment in research and development of new products, improvement and enhancement of our existing product offerings and our ability to continue to achieve new technological advances in the process heating industry.
In addition, the imposition of trade restrictions, economic sanctions or embargoes by the United States or foreign governments could adversely affect our future sales and results of operations. 11 Business Risks If we are unable to successfully develop and improve our products and successfully implement new technologies in the markets that we serve and develop solutions for diversified new markets, our business and results of operations could be adversely affected.
In addition, the imposition of trade restrictions, economic sanctions or embargoes by the United States or foreign governments could adversely affect our future sales and results of operations.
Because of the significance of our goodwill and other intangible assets, any future impairment of these assets could have a material adverse effect on our financial results. If we lose our senior management or other key employees or cannot successfully execute succession plans, our business may be adversely affected.
Long-term declines in projected future cash flows could result in future goodwill and other intangible asset impairments. Because of the significance of our goodwill and other intangible assets, any future impairment of these assets could have a material adverse effect on our financial results.
Removed
The impact on oil and gas commodity markets has further been impacted by the public safety measures instituted by governments and businesses to mitigate the spread of COVID-19 and the Russo-Ukrainian war.
Added
A global pandemic could also have the effect of heightening other risks described elsewhere in these Risk Factors.
Removed
As of March 31, 2022, our goodwill and other intangible assets balance was $307.7 million, which represented 48% of our total assets. Long-term declines in projected future cash flows could result in future goodwill and other intangible asset impairments.
Added
If we lose our senior management or other key employees or cannot successfully execute succession plans, our business may be adversely affected. 14 Competition for qualified management and key technical and sales personnel in our industry is intense.
Removed
While we believe that the sanctions currently do not preclude us from conducting business with all of our current customers or vendors in Russia, the sanctions imposed by the international community have greatly restricted us from engaging with them.
Added
We derived approximately 2%, 5%, and 8% of our revenue from our subsidiary incorporated in Russia in the fiscal years ended March 31, 2023, 2022 and 2021, respectively. The Russo-Ukrainian war has negatively impacted our operations, sales, and future growth prospects in that region.
Removed
In response to the war and in compliance with certain sanctions, we have paused new investments in and new orders by our Russian affiliate, as we continue to evaluate our operations in the region.
Removed
If we are unable to conduct business with new or existing customers or vendors or pursue business opportunities in Russia or Ukraine, or conduct our business in the ordinary course and timely fulfill customer orders outside of Russia and Ukraine due to these or related factors, our business, including revenue, profitability and cash flows, and operations could be adversely affected.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed2 unchanged
Biggest changeAll our reportable segments utilize our San Marcos, Texas facilities. In addition, we have offices and/or manufacturing and assembly locations in Houston, Texas, Denver, Colorado, Canada, the Netherlands, France, United Kingdom, Germany, Russia, Mexico, China, Korea, Japan, India, Australia, Malaysia, and Bahrain. All our manufacturing facilities are registered to International Organization for Standardization (ISO) 9001 quality standards.
Biggest changeAll our reportable segments utilize our San Marcos, Texas facilities. In addition, we have offices and/or manufacturing and assembly locations in Houston, Texas, Denver, Colorado, Canada, Salt Lake City, Utah, the Netherlands, France, United Kingdom, Germany, Russia, Mexico, China, Korea, Japan, India, Australia, and Bahrain. All our manufacturing facilities are registered to International Organization for Standardization (ISO) 9001 quality standards.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+1 added−0 removed4 unchanged
Biggest changeMarch 31, 2017 March 31, 2018 March 31, 2019 March 31, 2020 March 31, 2021 March 31, 2022 Thermon Group Holdings, Inc. $ 100.00 $ 107.53 $ 117.61 $ 72.31 $ 93.52 $ 77.74 iShares Russell 2000 Index $ 100.00 $ 111.96 $ 114.31 $ 87.03 $ 169.54 $ 159.12 S&P 600 SmallCap 600 Energy $ 100.00 $ 76.74 $ 59.64 $ 12.09 $ 35.25 $ 56.17 The information in this "Stock Performance" section shall not be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act. 23 Dividend Policy Since our initial public offering in May 2011, we have not declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our common stock.
Biggest changeMarch 31, 2018 March 31, 2019 March 31, 2020 March 31, 2021 March 31, 2022 March 31, 2023 Thermon Group Holdings, Inc. $ 100.00 $ 109.37 $ 67.25 $ 86.97 $ 72.29 $ 111.20 iShares Russell 2000 Index $ 100.00 $ 102.11 $ 77.74 $ 151.44 $ 142.13 $ 125.48 S&P 600 SmallCap 600 Energy $ 100.00 $ 77.72 $ 15.75 $ 45.94 $ 73.19 $ 67.48 The information in this "Stock Performance" section shall not be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act.
We currently intend to retain earnings to finance the growth and development of our business and for working capital and general corporate purposes. We also use our cash to make unscheduled principal repayments on our debt over and above the required amounts.
We intend to retain earnings to finance the growth and development of our business and for working capital and general corporate purposes. We also use our cash to make unscheduled principal repayments on our debt over and above the required amounts.
The plotted points in the line graph are based on the closing price on the last trading date of the fiscal year. The values assume an initial investment of $100 was made in our common stock and the respective indexes on March 31, 2017 (the last day of fiscal 2017), and assumes the reinvestment of dividends, as applicable.
The plotted points in the line graph are based on the closing price on the last trading date of the period. The values assume an initial investment of $100 was made in our common stock and the respective indexes on March 31, 2018 (the last day of our fiscal 2018), and assumes the reinvestment of dividends, as applicable.
Issuer Purchases of Equity Securities None. Recent Sales of Unregistered Securities None. 24
Issuer Purchases of Equity Securities None. Recent Sales of Unregistered Securities None. 23
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The common stock of the Company trades on the NYSE under the symbol "THR." On May 25, 2022, the closing sale price of our common stock, as reported by the NYSE, was $15.51.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The common stock of the Company trades on the NYSE under the symbol "THR." On May 24, 2023, the closing sale price of our common stock, as reported by the NYSE, was $22.94.
As of May 25, 2022, there were approximately 15 holders of our common stock of record.
As of May 24, 2023, there were approximately 15 holders of our common stock of record.
Added
Dividend Policy 22 Since our initial public offering in May 2011, we have not declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

52 edited+38 added−84 removed23 unchanged
Biggest changeNote that our calculation of Adjusted EPS, Adjusted EBITDA, Adjusted Net Income, and Free Cash Flow may not be comparable to similarly titled measures reported by other companies. 35 The following table reconciles net income to Adjusted EBITDA for the periods presented: Year Ended March 31, 2022 2021 2020 Net income available to Thermon Group Holdings, Inc. $ 20,092 $ 877 $ 11,938 Interest expense, net 5,815 10,185 14,027 Income tax expense/(benefit) 8,333 (1,521) 5,142 Depreciation and amortization 20,205 20,722 28,275 EBITDA (non-GAAP) $ 54,445 $ 30,263 $ 59,382 Stock-based compensation 3,803 3,728 4,960 Income/(loss) attributable to non-controlling interest — — (2) Restructuring and other charges/(income) (414) 8,623 — Loss on debt extinguishment 2,569 — — Canadian Emergency Wage Subsidy (1,952) (6,412) — Adjusted EBITDA (non-GAAP) $ 58,451 $ 36,202 $ 64,340 The following table reconciles net income to Adjusted Net Income and Adjusted EPS for the periods presented: Year ended March 31, 2022 2021 2020 Net income available to Thermon Group Holdings, Inc. $ 20,092 $ 877 $ 11,938 Acceleration of unamortized debt costs — 510 756 Tax expense/(benefit) for impact of rate reduction in foreign jurisdictions 505 332 (1,231) Withholding tax on dividend related to debt amendment 301 — — Amortization of intangible assets 8,790 9,445 17,773 Restructuring and other charges/(income) (414) 8,623 — Loss on debt extinguishment 2,569 — — Canadian Emergency Wage Subsidy (1,952) (6,412) — Tax effect of financial adjustments (1,999) (2,450) (4,447) Adjusted net income (non-GAAP) $ 27,892 $ 10,925 $ 24,789 Adjusted-fully diluted earnings per common share (non-GAAP) $ 0.83 $ 0.33 $ 0.75 Fully-diluted common shares - non-GAAP basis (thousands) 33,515 33,341 33,149 The following table reconciles cash provided by/(used in) operating activities to Free Cash Flow: Year Ended March 31, (dollars in thousands) 2022 2021 2020 Cash provided by/(used in) operating activities $ 28,754 $ 30,289 $ 70,726 Less: Cash provided by/(used for) purchases of property, plant, and equipment (5,220) (8,132) (10,855) Plus: Sales of rental equipment 689 300 603 Plus: Proceeds from the sale of property, plant and equipment — — 242 Free Cash Flow (non-GAAP) $ 24,223 $ 22,457 $ 60,716 36
Biggest changeNote that our calculation of Adjusted EPS, Adjusted EBITDA, Adjusted Net Income, and Free Cash Flow may not be comparable to similarly titled measures reported by other companies. 32 The following table reconciles net income/(loss) to Adjusted EBITDA for the periods presented: Year Ended March 31, (Dollars in thousands) 2023 2022 2021 Net income/(loss) $ 33,666 $ 20,092 $ 877 Interest expense, net 5,871 5,815 10,185 Income tax expense/(benefit) 15,567 8,333 (1,521) Depreciation and amortization 19,231 20,205 20,722 EBITDA (non-GAAP) $ 74,335 $ 54,445 $ 30,263 Stock-based compensation 5,954 3,803 3,728 Transaction-related costs 335 — — Restructuring and other charges/(income) 3,693 (414) 8,623 Impairment and other charges/(income) 8,945 — — Loss on debt extinguishment — 2,569 — Canadian Emergency Wage Subsidy — (1,952) (6,412) Adjusted EBITDA (non-GAAP) $ 93,262 $ 58,451 $ 36,202 The following table reconciles net income/(loss) to Adjusted Net Income and Adjusted EPS for the periods presented: Year ended March 31, (Dollars in thousands, except per share data) 2023 2022 2021 Net income/(loss) $ 33,666 $ 20,092 $ 877 Acceleration of unamortized debt costs — — 510 Tax expense/(benefit) for impact of rate reduction in foreign jurisdictions — 505 332 Withholding tax on dividend related to debt amendment — 301 — Amortization of intangible assets 9,447 8,790 9,445 Transaction-related costs 335 — — Restructuring and other charges/(income) 3,693 (414) 8,623 Impairment and other charges/(income) 8,945 — — Loss on debt extinguishment — 2,569 — Canadian Emergency Wage Subsidy — (1,952) (6,412) Tax effect of financial adjustments (3,307) (1,999) (2,450) Adjusted net income (non-GAAP) $ 52,779 $ 27,892 $ 10,925 Adjusted-fully diluted earnings per common share (non-GAAP) $ 1.56 $ 0.83 $ 0.33 Fully-diluted common shares - non-GAAP basis (thousands) 33,746 33,515 33,341
Commencing January 1, 2022, each of the Term Loans will amortize as set forth in the table below, with payments on the first day of each January, April, July and October, with the balance of each Term Loan Facility due at maturity.
Commencing January 1, 2022, each of the Term Loans will amortize as set forth in the table below, with payments due on the first day of each January, April, July and October, with the balance of each Term Loan Facility due at maturity.
Additionally, we are continuing to receive orders from key customers related to our recently launched Genesis Network technology, which helps our customers more efficiently and safely monitor and maintain their heating systems by utilizing our software, analytics, hardware and process heating maintenance expert services. We are benefiting from the increasing global demand for our solutions, particularly in North America.
Additionally, we are continuing to receive orders from key customers related to our recently launched Genesis Network technology, which helps our customers more efficiently and safely monitor and maintain their heating systems by utilizing our software, analytics, hardware and process heating maintenance expert services. We are benefiting from the increasing global demand for our solutions, particularly in North America. Revenue.
Additional costs of sales include contract engineering cost directly associated to projects, direct labor cost, shipping and handling costs, and other costs associated with our manufacturing/fabrication operations. The other costs associated with our manufacturing/fabrication operations are primarily indirect production costs, including depreciation, indirect labor costs, warranty-related costs and the costs of manufacturing support functions such as logistics and quality assurance.
Additional costs of sales include contract engineering costs directly associated to projects, direct labor costs, shipping and handling costs, and other costs associated with our manufacturing/fabrication operations. The other costs associated with our manufacturing/fabrication operations are primarily indirect production costs, including depreciation, indirect labor costs, warranty-related costs and the costs of manufacturing support functions such as logistics and quality assurance.
Installment Dates Original Principal Amount January 1, 2022 through October 1, 2022 1.25 % January 1, 2023 through October 1, 2024 1.88 % January 1, 2025 through July 1, 2026 2.50 % Future capital requirements Our future capital requirements depend on many factors as noted throughout this report.
Installment Dates % of Original Principal Amount January 1, 2022 through October 1, 2022 1.25 % January 1, 2023 through October 1, 2024 1.88 % January 1, 2025 through July 1, 2026 2.50 % Future capital requirements Our future capital requirements depend on many factors as noted throughout this report.
As of March 31, 2022, management believes that adequate reserves have been established for any probable and reasonably estimable losses. Expenses related to litigation reduce operating income. We do not believe that the outcome of any of these proceedings or disputes would have a significant adverse effect on our financial position, long-term results of operations, or cash flows.
As of March 31, 2023, management believes that adequate reserves have been established for any probable and reasonably estimable losses. Expenses related to litigation reduce operating income. We do not believe that the outcome of any of these proceedings or disputes would have a significant adverse effect on our financial position, long-term results of operations, or cash flows.
It is possible, however, that charges related to these matters could be significant to our results of operations or cash flows in any one accounting period. For information on legal proceedings, see Note 15, "Commitments and Contingencies" to our consolidated financial statements contained elsewhere in this annual report, which is hereby incorporated by reference into this Item 7.
It is possible, however, that charges related to these matters could be significant to our results of operations or cash flows in any one reporting period. For information on legal proceedings, see Note 15, "Commitments and Contingencies" to our consolidated financial statements contained elsewhere in this annual report, which is hereby incorporated by reference into this Item 7.
Cost of sales. Our cost of sales includes primarily the cost of raw material items used in the manufacture of our products, cost of ancillary products that are sourced from external suppliers and construction labor cost.
Cost of sales. Our cost of sales includes primarily the cost of raw material items used in the manufacture of our products, cost of ancillary products that are sourced from external suppliers and construction labor costs.
Refer to the reconciliation of cash provided by/(used in) operating activities to Free Cash Flow under "Non-GAAP Financial Measures" below. We define “Free Cash Flow” as net cash provided by operating activities less cash used for the purchase of property, plant, and equipment, net of sales of rental equipment as well as proceeds from sales of land and buildings.
Refer to the reconciliation of cash provided by/(used in) operating activities to Free Cash Flow under "Non-GAAP Financial Measures" above. We define “Free Cash Flow” as net cash provided by operating activities less cash used for the purchase of property, plant, and equipment, net of sales of rental equipment as well as proceeds from sales of land and buildings.
Adjusted EPS, Adjusted EBITDA, and Adjusted Net Income should be considered in addition to, not as substitutes for, income from operations, net income, net income per share, and other measures of financial performance reported in accordance with GAAP. We provide Free Cash Flow as a measure of our liquidity.
Adjusted EPS, Adjusted EBITDA, and Adjusted Net Income should be considered in addition to, not as substitutes for, income from operations, net income, net income per share, and other measures of financial performance reported in accordance with GAAP. We provide Free Cash Flow as one measure of our liquidity.
Free Cash Flow (Non-GAAP) In addition to evaluating our cash flow generation based upon operating, investing, and financing activities, the Company believes that the non-GAAP measure used in this section may provide investors and key stakeholders with another important perspective regarding our performance.
Free Cash Flow (Non-GAAP) In addition to evaluating our cash flow generation based upon operating, investing, and financing activities, the Company believes that Free Cash Flow as used in this section may provide investors and key stakeholders with another important perspective regarding our performance.
We believe that, based on our current level of operations and related cash flows, plus cash on hand and available borrowings under our revolving credit facility, we will be able to meet our liquidity needs for the next 12 months and the foreseeable future. For fiscal 2023, we expect our capital expenditures to approximate 3.0% to 3.5% of revenue.
We believe that, based on our current level of operations and related cash flows, plus cash on hand and available borrowings under our revolving credit facility, we will be able to meet our liquidity needs for the next 12 months and the foreseeable future. For fiscal 2024, we expect our capital expenditures to approximate 3.5% to 4.0% of revenue.
On March 31, 2022, we had in place standby letters of credit, bank guarantees and performance bonds totaling $9.8 million to back our various customer contracts. In addition, our 30 Indian subsidiary also has $4.8 million in customs bonds outstanding. Refer to Note 15, "Commitments and Contingencies" for more information on our letters of credit and bank guarantees.
On March 31, 2023, we had in place standby letters of credit, bank guarantees and performance bonds totaling $30.8 million to back our various customer contracts. In addition, our Indian subsidiary also has $4.4 million in customs bonds outstanding. Refer to Note 15, "Commitments and Contingencies" for more information on our letters of credit and bank guarantees.
Our selling, general, and administrative expenses are primarily comprised of compensation and related costs for sales, marketing, pre-sales engineering and administrative personnel, as well as other sales related expenses and other costs related to research and development, insurance, professional fees, the global integrated business information system, and provisions for bad debts. Key drivers affecting our results of operations.
Our selling, general, and administrative expenses ("SG&A") are primarily comprised of compensation and related expenses for sales, marketing, pre-sales engineering and administrative personnel, as well as other sales related expenses and other expenses related to research and development, insurance, professional fees, the global integrated business information system, and provisions for bad debts. Key drivers affecting our results of operations.
"Adjusted Net Income" and "Adjusted fully diluted earnings per share" ("Adjusted EPS") represents net income attributable to Thermon before costs related to acceleration of unamortized debt costs, the tax benefit from income tax rate reductions in certain foreign jurisdictions, amortization of intangible assets, the income tax effect on any non-tax adjustments, costs associated with our restructuring and other income/(charges), and income related to the Canadian Emergency Wage Subsidy, per fully-diluted common share in the case of Adjusted EPS.
"Adjusted Net Income" and "Adjusted fully diluted earnings per share" ("Adjusted EPS") represents net income attributable to Thermon before costs related to acceleration of unamortized debt costs, the tax benefit from income tax rate reductions in certain foreign jurisdictions, withholding tax on dividend related to the debt amendment, amortization of intangible assets, transaction-related costs, the income tax effect on any non-tax adjustments, costs associated with our restructuring and other income/(charges), other impairment charges/(income), loss on debt extinguishment, and income related to the Canadian Emergency Wage Subsidy, per fully-diluted common share in the case of Adjusted EPS.
Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements. In addition, we do not have any interest in entities referred to as variable interest entities, which include special purpose entities and other structured finance entities. Critical Accounting Policies and Estimates The preparation of our financial statements in accordance with U.S.
In addition, we do not have any interest in entities commonly referred to as variable interest entities, which include special purpose entities and other structured finance entities. Critical Accounting Policies and Estimates The preparation of our financial statements in accordance with U.S.
Additionally, we will be required to pay $7.9 million in principal payments and approximately $2.8 million in interest payments on our long-term debt in the next 12 months. Our estimate of interest expense above was derived from our variable interest rates at March 31, 2022, and 31 is subject to change.
Additionally, we will be required to pay $10.2 million in principal payments and approximately $7.0 million in interest payments on our long-term debt in the next 12 months. Our estimate of interest expense above was derived from our variable interest rates at March 31, 2023, and is subject to change.
See Note 11, “Long-Term Debt—Senior Secured Credit Facility” to our consolidated financial statements and accompanying notes thereto included in Item 8 of this annual report for additional information on our senior secured term loan and revolving credit facilities, which is hereby incorporated by reference into this Item 7.
Senior secured credit facility See Note 12, “Long-Term Debt” to our consolidated financial statements and accompanying notes thereto included in Item 8 of this annual report for additional information on our senior secured term loan and revolving credit facilities, which is hereby incorporated by reference into this Item 7.
Although these estimates are based on management's best knowledge of current events and actions that may impact the company in the future, actual results may be materially different from the estimates. Revenue recognition . Please refer to Note 4.
Although these estimates are based on management's best knowledge of current events and actions that may impact the company in the future, actual results may be materially different from the estimates. Revenue recognition .
Liquidity and Capital Resources Our primary sources of liquidity are cash flows from operations and funds available under our revolving credit facility. Our primary liquidity needs are to finance our working capital, capital expenditures, debt service needs and potential future acquisitions. Cash and cash equivalents. At March 31, 2022, we had $41.4 million in cash and cash equivalents.
Liquidity and Capital Resources 29 Our primary sources of liquidity are cash flows from operations and funds available under our revolving credit facility. Our primary liquidity needs are to finance our working capital, capital expenditures, debt service needs and potential future acquisitions. Cash and cash equivalents. At March 31, 2023, we had $35.6 million in cash and cash equivalents.
Fiscal Year Ended March 31, Increase/(Decrease) (dollars in thousands) 2022 2021 $ % Consolidated Statements of Operations Data: Sales $ 355,674 $ 276,181 $ 79,493 29 % Cost of sales 215,556 159,309 56,247 35 % Gross profit 140,118 116,872 23,246 20 % Operating expenses: Selling, general and administrative expenses 93,054 89,834 3,220 4 % Deferred compensation plan expense/(income) 283 1,564 (1,281) (82) % Amortization of intangible assets 8,790 9,445 (655) (7) % Restructuring and other charges/(income) (414) 8,623 (9,037) (105) % Income/(loss) from operations 38,405 7,406 30,999 419 % Other income/(expenses): Interest expense, net (5,815) (10,185) 4,370 (43) % Other income/(expense) (4,165) 2,135 (6,300) (295) % Income/(loss) before provision for income taxes 28,425 (644) 29,069 (4514) % Income tax expense/(benefit) 8,333 (1,521) 9,854 (648) % Net income/(loss) $ 20,092 $ 877 $ 19,215 2191 % As a percent of sales: Gross profit 39.4 % 42.3 % -290 bps Selling, general and administrative expenses 26.2 % 32.5 % -630 bps Income/(loss) from operations 10.8 % 2.7 % 810 bps Net income/(loss) 5.6 % 0.3 % 530 bps Effective tax rate 29.3 % (236.2) % Year Ended March 31, 2022 ("fiscal 2022") Compared to the Year Ended March 31, 2021 ("fiscal 2021") Revenue.
The change in net income/(loss) is explained by the changes noted in the sections above. 28 Fiscal Year Ended March 31, Increase/(Decrease) (Dollars in thousands) 2022 2021 $ % Consolidated Statements of Operations Data: Sales $ 355,674 $ 276,181 $ 79,493 29 % Cost of sales 215,556 159,309 56,247 35 % Gross profit 140,118 116,872 23,246 20 % Operating expenses: Selling, general and administrative expenses 93,054 89,834 3,220 4 % Deferred compensation plan expense/(income) 283 1,564 (1,281) (82) % Amortization of intangible assets 8,790 9,445 (655) (7) % Restructuring and other charges/(income) (414) 8,623 (9,037) (105) % Income/(loss) from operations 38,405 7,406 30,999 419 % Other income/(expenses): Interest expense, net (5,815) (10,185) 4,370 (43) % Other income/(expense) (4,165) 2,135 (6,300) (295) % Income/(loss) before provision for income taxes 28,425 (644) 29,069 (4514) % Income tax expense/(benefit) 8,333 (1,521) 9,854 (648) % Net income/(loss) $ 20,092 $ 877 $ 19,215 2191 % As a percent of sales: Gross profit 39.4 % 42.3 % -290 bps Selling, general and administrative expenses 26.2 % 32.5 % -630 bps Income/(loss) from operations 10.8 % 2.7 % 810 bps Net income/(loss) 5.6 % 0.3 % 530 bps Effective tax rate 29.3 % (236.2) % Year Ended March 31, 2022 ("fiscal 2022") Compared to the Year Ended March 31, 2021 ("fiscal 2021") See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022 filed with the SEC on May 26, 2022 for a discussion of the results of operations in fiscal 2022 as compared to fiscal 2021.
"Adjusted EBITDA" represents net income attributable to Thermon before interest expense (net of interest income), income tax expense, depreciation and amortization expense, stock-based compensation expense, income attributable to non-controlling interests, costs associated with our restructuring and other income/(charges), and income related to the Canadian Emergency Wage Subsidy.
"Adjusted EBITDA" represents net income attributable to Thermon before interest expense (net of interest income), income tax expense, depreciation and amortization expense, stock-based compensation expense, impairment and other charges/(income), loss on debt extinguishment, costs associated with our restructuring and other income/(charges), and income related to the Canadian Emergency Wage Subsidy.
Year Ended March 31, 2021 ("fiscal 2021") Compared to the Year Ended March 31, 2020 ("fiscal 2020") See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K/A for the fiscal year ended March 31, 2021 filed with the SEC on May 27, 2021 for a discussion of net cash provided by operating activities, net cash used in investing activities and net cash provided by (used in) financing activities in fiscal 2021 as compared to fiscal 2020.
Year Ended March 31, 2022 ("fiscal 2022") Compared to the Year Ended March 31, 2021 ("fiscal 2021") See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022 filed with the SEC on May 26, 2022 for a discussion of net cash provided by operating activities, net cash used in investing activities and net cash provided by (used in) financing activities in fiscal 2022 as compared to fiscal 2021. 31 Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements.
Of the non-U.S. cash noted above, $3.1 million of cash was held by our Russian affiliate. While we have cash needs at our various foreign operations, excess cash is available for distribution to the United States through intercompany dividends or debt reduction in Canada. Generally, we seek to maintain a cash and cash equivalents balance between $30.0 and $40.0 million.
While we have cash needs at our various foreign operations, excess cash is available for distribution to the United States through intercompany dividends or debt reduction in Canada. Generally, we seek to maintain a cash and cash equivalents balance between $30.0 and $40.0 million.
In the middle stages, or the material requirements phase, we typically experience the greatest demand for our heat tracing cable, at which point our revenues tend to accelerate. 26 Revenues tend to decrease gradually in the final stages of a project and are generally derived from installation services and demand for electrical panels and other miscellaneous electronic components used in the final installation of heat tracing cable, which we frequently outsource from third-party manufacturers.
Revenues tend to decrease gradually in the final stages of a project and are generally derived from installation services and demand for electrical panels and other miscellaneous electronic components used in the final installation of heat tracing cable, which we frequently outsource from third-party manufacturers.
Impact of product mix. Typically, both Greenfield and MRO/UE customers require our products as well as our engineering and construction services. The level of service and construction needs will affect the profit margin for each type of revenue.
These factors include the following: • Impact of product mix. Typically, our customers require our products as well as our engineering and construction services. The level of service and construction needs affect the profit margin for each type of revenue.
Demand for our products and services depends in large part upon the level of capital and maintenance expenditures of our customers and end-users, in particular those in the energy, chemical processing and power generation industries, and firms that design and construct facilities for these industries. These customers' expenditures historically have been cyclical in nature and vulnerable to economic downturns.
Demand for our products and services depends in large part upon the level of capital and maintenance expenditures of our customers and end users, in particular those in the energy, oil, gas, chemical processing and power generation industries, and firms that design and construct facilities for these industries.
We manage our global cash requirements by maintaining cash and cash equivalents at various financial institutions throughout the world where we operate. Approximately $15.3 million, or 37%, of these amounts were held in domestic accounts with various institutions and approximately $26.1 million, or 63%, of these amounts were held in accounts outside of the United States with various financial institutions.
We manage our global cash requirements by maintaining cash and cash equivalents at various financial institutions throughout the world where we operate. Approximately $5.9 million, or 16%, of these amounts were held in domestic accounts with various institutions and approximately $29.8 million, or 84%, of these amounts were held in accounts outside of the United States with various financial institutions.
In recent years, we have begun executing on a strategy to grow the Company through the acquisition of businesses that are either in the process heating solutions industry or that provide complementary products and solutions for the markets and customers we serve. We actively pursue both organic and inorganic growth initiatives that serve to advance our corporate strategy.
In recent years, we have been executing on a strategy to grow the Company through the acquisition of businesses that are either in the process heating solutions industry or provide complementary products and solutions for the markets and customers we serve.
From time to time, we may choose to utilize our revolving credit facility to fund operations, acquisitions or other investments, despite having cash available within our consolidated group in light of the cost, timing and other business considerations. As of March 31, 2022, we had $129.0 million of outstanding principal on our term loan A facility.
From time to time, we may choose to utilize our revolving credit facility to fund operations, acquisitions or other investments, despite having cash available within our consolidated group in light of the cost, timing and other business considerations.
Raw material costs have been stable in the past; however, we are experiencing temporary shortages related to the global supply chain issues driven by the COVID-19 pandemic in certain raw materials as well as an increase in costs of these materials due to: use of alternate suppliers, higher freight costs, increased lead times, expedited shipping and other inflationary factors.
Raw material costs have been stable in the past; however, we are experiencing an increase in costs of these materials due to: use of alternate suppliers, higher freight costs, increased lead times, expedited shipping and other inflationary factors.
At March 31, 2022, we had no outstanding borrowings under our revolving credit facility and $97.1 million of available capacity thereunder, after taking into account the borrowing base and letters of credit outstanding, which totaled $2.9 million.
At March 31, 2023, we had $14.5 million outstanding borrowings under our revolving credit facility and $83.7 million of available capacity thereunder, after taking into account the borrowing base and letters of credit outstanding, which totaled $16.3 million.
Refer to Note 1, "Organization and Summary of Significant Accounting Policies" of our consolidated financial statements included below in Item 8 of this annual report for further discussion. We determined that there was no impairment related to our goodwill, intangible assets, or long-lived assets during fiscal 2022, 2021, and 2020. Accounting for income taxes.
Refer to Note 1, "Organization and Summary of Significant Accounting Policies" of our consolidated financial statements included below in Item 8 of this annual report for further discussion. Accounting for income taxes. Refer to Note 1, "Organization and Summary of Significant Accounting Policies" of our consolidated financial statements included below in Item 8 of this annual report for further discussion.
Free Cash Flow totaled $24.2 million for fiscal 2022 as compared to $22.5 million for fiscal 2021, an increase comparatively, primarily due to higher cash flows from operations as well as reduced purchases on property, plant and 32 equipment.
Free Cash Flow totaled $48.5 million for fiscal 2023 as compared to $24.2 million for fiscal 2022, an increase comparatively, primarily due to higher cash flows from operations. Free Cash Flow for fiscal 2021 was $22.5 million driven primarily by strong cash flows from operating activities.
Historically we have experienced few order cancellations, and the cancellations that have occurred in the past have not been material compared to our total contract volume or total backlog. The small number of order cancellations is attributable in part to the fact that a large portion of our solutions are ordered and installed toward the end of Greenfield project construction.
Historically we have experienced few order cancellations, and the cancellations that have occurred in the past have not been material compared to our total contract volume or total backlog.
Our critical accounting policies are those that materially affect our financial statements and involve difficult, subjective or complex judgments by management.
Our critical accounting policies are those that materially affect our financial statements and involve difficult, subjective or complex judgments by management. Our most significant financial statement estimates include revenue recognition, valuation of goodwill and other intangible assets, and accounting for income taxes.
Refer to Item 1A, "Risk Factors" in this annual report on Form 10-K for further discussion regarding our risks. Also, we disclose the quantitative risk our exposure to the Ruble could have on our net income in Item 7A, "Quantitative and Qualitative Disclosures about Market Risk" in this annual report on Form 10-K.
Refer to Item 1A, "Risk Factors" in this annual report on Form 10-K for further discussion regarding our risks.
Net cash used in investing activities was $(4.5) million in fiscal 2022 and $(7.8) million in fiscal 2021 and relates to the purchase of capital assets, primarily to maintain the existing operations of the business and includes purchases and sales of equipment in our rental business. Net cash provided by/(used in) financing activities.
Net cash provided by/(used in) investing activities. Activity in fiscal 2023 relates to borrowing for the acquisition of Powerblanket, as well as increased purchasing of fixed assets, primarily to maintain the existing operations of the business plus purchases and sales of equipment in our rental business. Net cash provided by/(used in) financing activities.
On large projects, we are typically designated as the heat tracing provider of choice by the project owner. We then engage with multiple contractors to address incorporating various heat tracing solutions throughout the overall project. Our largest Greenfield projects may generate revenue for more than one year.
We then engage with multiple contractors to address incorporating various heat tracing solutions throughout the overall project. Our largest projects may generate revenue for several quarters. In the early stages of an Over time large project, our revenues are typically realized from the provision of engineering services.
Net cash provided by operating activities decreased by $1.5 million in fiscal 2022. The decrease is mostly attributable to the use of cash to fund net working capital accounts of $21.0 million, partially offset by a change in non-cash items and increase in net income totaling $19.5 million.
Net cash provided by operating activities increased versus fiscal 2022. The increase is mostly attributable to better relative performance in our working capital accounts of $19.9 million, and strong change in net income in the fiscal year of $13.6 million, partially offset by relatively less cash provided by other miscellaneous items of $4.5 million.
Our fiscal 2022 effective tax rate of 29.3% was within our expected range of combined tax expense for the United States and foreign subsidiaries in which we operate. The benefit in fiscal 2021 was primarily due to a pre-tax loss and the impact from the Global Intangible Low-Taxes Income (or “GILTI Tax”) in the U.S.
Our fiscal 2022 effective tax rate of 29.3% was within the upper end of the expected range of combined tax expense for the United States and foreign subsidiaries in which we operate. See Note 18, “Income Taxes,” for further information. Net income/(loss).
The decrease is primarily attributable to market fluctuations in the underlying balances owed to employees. This compensation plan expense/(income) is materially offset in other income/(expense) where the Company records market gains/(losses) on related investment assets. Restructuring and other charges/(income) . Restructuring and other charges/(income) was $(0.4) million in fiscal 2022 compared to $8.6 million in fiscal 2021.
This compensation plan expense/(income) is materially offset in other income/(expense) where the Company records market gains/(losses) on related investment assets. Restructuring and other charges/(income) . Restructuring and other charges/(income) increased in fiscal 2023 due to charges associated with the Russia Exit in the amount of $3.7 million.
The increase primarily relates to our debt extinguishment charges of $2.6 million in fiscal 2022, as we completed refinancing of our senior secured credit facility, as well as an increase in foreign exchange losses of $2.2 million. See Note 11, "Long-Term Debt," for additional information on our long-term debt and the refinancing of our senior secured credit facility.
See Note 12, "Long-Term Debt," for additional information on our long-term debt and the refinancing of our senior secured credit facility. Income taxes. Income tax expense was $15.6 million or 31.6% on pretax income of $49.2 million in fiscal 2023 as compared to an income tax expense of $8.3 million on a pretax income of $28.4 million in fiscal 2022.
The Company continues to manage its working capital requirements effectively through optimizing inventory levels, doing business with credit-worthy customers, and extending payments terms with its supplier base. Senior secured credit facility On September 29, 2021, Thermon Group Holdings, Inc. (the “Company”), as a credit party and a guarantor, Thermon Holding Corp. (“THC” or the “U.S. Borrower”) and Thermon Canada Inc.
The Company continues to manage its working capital requirements effectively through optimizing inventory levels, doing business with creditworthy customers, and extending payments terms with its supplier base.
Greenfield projects, and especially large Greenfield projects (i.e., new facility construction projects generating in excess of $5 million in annual sales), historically have been a substantial source of revenue growth, and Greenfield revenues tend to be more cyclical than MRO/UE revenues.
These customers' expenditures historically have been cyclical in nature and vulnerable to economic downturns. Large projects historically have been a substantial source of revenue growth, and large project revenues tend to be more cyclical than maintenance and repair revenues.
THS has been excluded from the Greenfield and MRO/UE calculations. Most of THS's revenue would be classified as MRO/UE under these definitions. We believe that our pipeline of planned projects, in addition to our backlog of signed purchase orders, provides us with visibility into our future revenue.
We recognize revenue related to such projects in a systematic way that reflects the transfer of goods or services, or a combination of goods and services, to the customer. We believe that our pipeline of planned projects, in addition to our backlog of signed purchase orders, provides us with visibility into our future revenue.
We tend to experience lower margins from our design optimization, engineering, installation and maintenance services than we do from sales of our heating units, heating cable, tubing bundle and control system products. We also tend to experience lower margins from our outsourced products, such as electrical switch gears and transformers, than we do from our manufactured products.
We will refer to such projects as "Over time small projects." The most profitable of our sales are derived from selling our heating products, for which we recognize revenue at a point in time. We also tend to experience lower margins from our outsourced products, such as electrical switch gears and transformers, than we do from our manufactured products.
Our average outstanding principal balance during fiscal 2022 was lower at $138.8 million versus $162.3 million during fiscal 2021. See Note11, "Long-Term Debt," for additional information on our long-term debt. Other income/(expense). Other income/(expense) was $(4.2) million and $2.1 million in fiscal 2022 and fiscal 2021, respectively.
Our average outstanding principal, measured at the end of each quarter, including any applicable revolving credit facility balance outstanding, was $135.0 million in fiscal 2023 versus $137.4 million in fiscal 2022. See Note 12, "Long-Term Debt," for additional information. Other income/(expense).
Our revenues are derived from providing customers with a full suite of innovative and reliable process heating solutions, including electric and steam heat tracing, tubing bundles, control systems, design optimization, engineering services, installation services, portable power solutions and software. Additionally, our process heating products offer a complementary suite of advanced heating and filtration solutions for industrial and hazardous area applications.
Our revenues are derived from providing customers with a full suite of innovative and reliable process heating solutions, including advanced heating and filtration solutions for industrial and hazardous area applications. Revenue recognized at a point in time based on when control transitions to the customer is generally related to our product sales.
However, revenues from Greenfield projects are not seasonal and depend on the capital spending environment and project timing. 27 Results of Operations The following table sets forth data from our statements of operations for the periods indicated.
Refer to Note 2, "Acquisition," for more discussion of our recent acquisition. 26 Results of Operations The following table sets forth data from our statements of operations for the periods indicated.
The Company implemented certain restructuring activities in fiscal 2021 not present in fiscal 2022. Refer to Note 14, "Restructuring and other charges/(income)" for additional details. Interest expense, net. The decrease in interest expense is due to a lower average interest rate during fiscal 2022 than fiscal 2021 as well as a lower average outstanding balance.
Other portions of the total $12.6 million charge are discussed in SG&A and Gross profit above. Refer to Note 14, "Restructuring and Other Charges/(Income)" for additional details. Interest expense, net. Interest expense, net was relatively flat as compared to fiscal 2022.
Sales related to our products ("point-in-time") grew $53.0 million and sales of projects ("over time") grew $26.5 million compared to fiscal 2021. Our sales mix (excluding THS) in fiscal 2022 was 38% Greenfield and 62% MRO/UE compared to 35% Greenfield and 65% MRO/UE in fiscal 2021. Gross profit.
Our sales mix in fiscal 2023 was 63% Point in time sales and 37% Over time sales as compared to 60% Point in time sales and 40% Over time sales in fiscal 2022. Gross profit.
Removed
The Company has paused new investments in and new orders by our Russian affiliate. We will continue to fulfill our existing agreements while remaining in compliance with applicable laws, including applicable sanctions and export controls.
Added
As a result of the continued impact of the Russo-Ukrainian war, including the sanctions related thereto, the Company commenced a strategic assessment of its operations in the Russian Federation, and, on January 31, 2023, our board of directors authorized the Company to withdraw from its operations in the Russian Federation (the “Russia Exit”), through a planned disposition of its Russian subsidiary.
Removed
We continue to assess the impact on our results of operations, financial position and overall performance as the situation develops and any broader implications it may have on the global economy. Our Russian affiliate represented approximately 5% of Thermon’s worldwide revenue during fiscal 2022.
Added
We announced this decision in a current report on Form 8-K dated February 2, 2023. In fiscal 2023, we recorded total charges of $12.6 million related to the Russia Exit as well as $0.2 million in transaction costs to prepare for the disposal of the subsidiary.
Removed
The carrying value of Thermon’s net assets in Russia was approximately $8.8 million as of March 31, 2022.
Added
We expect to complete the Russia Exit by the end of the second fiscal quarter of fiscal 2024, subject to the receipt of the requisite regulatory approvals. Our Russian affiliate represented approximately 2% of Thermon’s worldwide revenue during fiscal 2023. The Company continues to invest in our three long-term strategic initiatives.
Removed
This consisted of $3.1 million of cash, $1.8 million of accounts receivables, net, $4.5 million of inventories, net, $1.9 million of other current assets, $0.3 million of property, plant, and equipment, net, $0.8 million of other non-current assets, and $3.6 million of current liabilities.
Added
Second, we anticipate a multi-decades investment trend to emerge based on the rapidly increasing desire for industrial customers to electrify equipment to reduce their carbon footprint, which represents an opportunity for the Company.
Removed
The COVID-19 pandemic and the measures being taken to address and limit the spread of the virus and its variants have adversely affected the economies and financial markets of many countries, resulting in an economic downturn that negatively impacted, and may impact in the future, global demand for our products and services.
Added
Thermon's process heating expertise will be a key factor in a successful, sustainable transition, and we expect to invest in additional resources to quickly respond to changing customer demand.
Removed
Although we believe the general economic environment in which we operate has improved significantly since the onset of the COVID-19 pandemic, we may experience a decline in the demand of our products and services or disruptions in raw materials or labor required for manufacturing that could materially and negatively impact our business, financial condition, results of operation and overall financial performance in future periods.
Added
Point in time revenue does not typically require engineering or installation services. Revenue recognized over time occurs on our projects where engineering or installation services, or a combination of the two, are required.
Removed
The effect of loosening pandemic restrictions along with pent-up demand from periods of stagnant lockdown and uncertainty has combined to strengthen our customer demand from most regions we serve, especially in our US-LAM and Canada segments.
Added
The small number of order cancellations is attributable in part to the fact that a large portion of our solutions are ordered and installed toward the end of 24 large project construction. Our backlog at March 31, 2023 was $163.3 million as compared to $156.2 million at March 31, 2022.
Removed
The Company continues to invest in our three long-term strategic initiatives: diversifying our revenues into adjacent markets as the global economy transitions to a more sustainable energy future, increased investment in developing markets as a response to a growing middle class, and offering technology enabled maintenance solutions that improve our customer’s efficiency and safety.
Added
Our results of operations and financial condition are affected by numerous factors, including those described under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed with the SEC on May 26, 2022, and in any subsequent Quarterly Reports on Form 10-Q that we have filed or may file with the SEC, including those described below.
Removed
While we are seeing improvements in many key metrics by which we measure the business, including revenue, we also recognized higher costs in fiscal 2022, due to higher raw material and labor costs due to global supply chain challenges as discussed above. Revenue.
Added
We tend to experience lower margins from our design optimization, engineering, installation and maintenance services, which are typically large projects tied to our customers' capital expenditure budgets and are comprised of more than $0.5 million in total revenue.
Removed
Historically, our sales are primarily to industrial customers for petroleum and chemical plants, gas production facilities and power generation 25 facilities.
Added
For clarity, we will refer to these as "Over time large projects." Our results of operations in recent years have been impacted by the various construction phases of Over time large projects. We are typically designated as the heat tracing or heating system engineering provider of choice by the project owner.
Removed
While our petroleum customers represent an important portion of our business, we have been successfully broadening our customer base by earning business from numerous other industries, including chemical processing, power generation, transportation, food and beverage, commercial, pharmaceutical, and mineral processing.
Added
In the middle stages, or the material requirements phase, we typically experience the greatest demand for our heat tracing cable, at which point our revenues tend to accelerate.
Removed
Demand for industrial heat tracing solutions falls into two categories: (i) new facility construction, which we refer to as Greenfield projects, and (ii) recurring maintenance, repair and operations and facility upgrades or expansions, which we refer to as MRO/UE. Greenfield construction projects often require comprehensive heat tracing solutions.
Added
Projects which do not require installation and maintenance services are smaller in size and representative of maintenance, repairs and small upgrades necessary to improve efficiency and uptime. These small projects are typically tied to our customers operating expense budgets, are generally less than $0.5 million in total revenue, and have relatively higher profit margins.
Removed
We believe that Greenfield revenue consists of sales revenue by customer in excess of $1 million annually (excluding sales to resellers), and typically includes most orders for projects related to facilities that are new or that are built independent of existing facilities.
Added
We estimate that Point in time and Over time revenues have each made the following contribution as a percentage of total revenue in the periods listed: 25 Year-Ended March 31, 2023 Year-Ended March 31, 2022 Year-Ended March 31, 2021 Point in time 63 % 60 % 59 % Over time: 37 % 40 % 41 % Small projects 15 % 16 % 16 % Large projects 22 % 24 % 25 % Our Over time revenue includes (i) products and services which are billed on a time and materials basis, and (ii) fixed fee contracts for complex turnkey solutions.
Removed
We refer to sales revenue by customer of less than $1 million annually, which we believe are typically derived from MRO/UE, as MRO/UE revenue. Based on our experience, we believe that $1 million in annual sales is an appropriate threshold for distinguishing between Greenfield revenue and MRO/UE revenue.
Added
For our time and materials service contracts, we recognize revenues as the products and services are provided over the term of the contract and have determined that the stated rate for installation services and products is representative of the stand-alone selling price for those services and products.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

19 edited+2 added−3 removed7 unchanged
Biggest changeCurrency translation gains or losses are reported as part of comprehensive income or loss in our accompanying consolidated financial statements. Foreign currency risks related to intercompany notes. The Company exited a cross currency swap during fiscal 2022. Refer to Note 2, "Fair Value Measurements" for more information.
Biggest changeForeign currency risks related to intercompany notes. The Company exited a cross currency swap during fiscal 2022 and did not have a similar arrangement in fiscal 2023. Refer to Note 3, "Fair Value Measurements" for more information. Also, refer to Item 1A, "Risk Factors" for further discussion regarding our risk as it relates to foreign currency.
All outstanding foreign currency forward contracts are marked to market at the end of the period with unrealized gains and losses included in other expense. The fair value is determined by quoted prices on identical forward contracts (Level 2 fair value). The balance sheet reflects unrealized gains within accounts receivable and unrealized losses within accrued liabilities.
All outstanding foreign currency forward contracts are marked to market at the end of the period with unrealized gains and losses included in Other income/(expense). The fair value is determined by quoted prices on identical forward contracts (Level 2 fair value). The balance sheet reflects unrealized gains within accounts receivable and unrealized losses within accrued liabilities.
We cannot provide any assurance, however, that we may be able to pass along such cost increases to our customers or source sufficient amounts of key components on commercially reasonable terms or at all in the future, and if we are unable to do so, our results of operations may be adversely affected. 38
We cannot provide any assurance, however, that we may be able to pass along such cost increases to our customers or source sufficient amounts of key components on commercially reasonable terms or at all in the future, and if we are unable to do so, our results of operations may be adversely affected. 35
During fiscal 2022, our largest exposures to foreign exchange rates consisted primarily of the Canadian Dollar and the Euro against the U.S. dollar. The market risk related to the foreign currency exchange rates is measured by estimating the potential impact of a 10% change in the value of the U.S. dollar relative to the local currency exchange rates.
During fiscal 2023, our largest exposures to foreign exchange rates consisted primarily of the Canadian Dollar and the Euro against the U.S. dollar. The market risk related to the foreign currency exchange rates is measured by estimating the potential impact of a 10% change in the value of the U.S. dollar relative to the local currency exchange rates.
The rates used to perform this analysis were based on a weighted average of the market rates in effect during the relevant period. A 10% appreciation of the U.S. dollar relative to the Canadian Dollar would result in a net decrease in net income of $1.2 million for fiscal 2022.
The rates used to perform this analysis were based on a weighted average of the market rates in effect during the relevant period. A 10% appreciation of the U.S. dollar relative to the Canadian Dollar would result in a net decrease in net income of $2.2 million for fiscal 2023.
Based on the outstanding borrowings, a one percent change in the interest rate would result in a $1.3 million increase or decrease in our annual interest expense. Commodity price risk. We use various commodity-based raw materials in our manufacturing processes.
Based on the outstanding borrowings, a one percent change in the interest rate would result in a $1.0 million increase or decrease in our annual interest expense. 34 Commodity price risk. We use various commodity-based raw materials in our manufacturing processes.
Approximately 57% of our fiscal 2022 consolidated revenues were generated by sales from our non-U.S. subsidiaries. Our non-U.S. subsidiaries generally sell their products and services in the local currency, but obtain a significant amount of their products from our manufacturing facilities located elsewhere, primarily the United States, Canada and Europe.
Approximately 56% of our fiscal 2023 consolidated revenues were generated by sales from our non-U.S. subsidiaries. Our non-U.S. subsidiaries generally sell their products and services in the local currency, but obtain a significant amount of their products from our manufacturing facilities located elsewhere, primarily the United States, Canada and Europe.
Our ultimate realized gain or loss with respect to currency fluctuations will depend on the currency exchange rates and other factors in effect as the contracts mature. As of March 31, 2022 and 2021, the notional amounts of forward contracts we held to buy U.S. dollars in exchange for other major international currencies were $7.3 million and $16.4 million, respectively.
Our ultimate realized gain or loss with respect to currency fluctuations will depend on the currency exchange rates and other factors in effect as the contracts mature. As of March 31, 2023 and 2022, the notional amounts of forward contracts we held to buy U.S. dollars in exchange for other major international currencies were $7.0 million and $7.3 million, respectively.
The impact of foreign currency transactions on our consolidated statements of operations were losses of $1.9 million and gains of $0.3 million in fiscal 2022 and fiscal 2021, respectively.
The impact of foreign currency transactions on our consolidated statements of operations were losses of $0.1 million and losses of $1.9 million in fiscal 2023 and fiscal 2022, respectively.
Conversely, a 10% depreciation of the U.S. dollar relative to the Canadian Dollar would result in a net increase in net income of $1.4 million for fiscal 2022. A 10% appreciation of the U.S. dollar relative to the Euro would result in a net decrease in net income of $0.1 million for fiscal 2022.
Conversely, a 10% depreciation of the U.S. dollar relative to the Canadian Dollar would result in a net increase in net income of $2.7 million for fiscal 2023. A 10% appreciation of the U.S. dollar relative to the Euro would result in a net decrease in net income of $0.1 million for fiscal 2023.
In addition, fluctuations in currencies relative to the U.S. dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations. In fiscal 2022, we estimate that our sales were positively impacted by $5.9 million when compared to foreign exchange translation rates that were in effect in fiscal 2021.
In addition, fluctuations in currencies relative to the U.S. dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations. In fiscal 2023, we estimate that our sales were negatively impacted by $15.1 million when compared to foreign exchange translation rates that were in effect in fiscal 2022.
Conversely, a 10% depreciation of the U.S. dollar relative to the Russian Ruble would result in a net increase in net income of $0.2 million. The geographic areas outside the United States in which we operate are generally not considered to be highly inflationary.
Conversely, a 10% depreciation of the U.S. dollar relative to the Euro would result in a net increase in net income of $0.1 million for fiscal 2023. The geographic areas outside the United States in which we operate are generally not considered to be highly inflationary.
Also, refer to Item 1A, "Risk Factors" for further discussion regarding our risk as it relates to foreign currency. Interest rate risk and foreign currency risk relating to debt. Borrowings under both our variable rate term loan A credit facility and revolving credit facility incur interest expense that is variable in relation to the LIBOR rate.
Interest rate risk and foreign currency risk relating to debt. Borrowings under both our variable rate term loan A credit facility and revolving credit facility incur interest expense that is variable in relation to the SOFR rate. The interest rate for borrowings under our term loan A credit facility was 5.59% for the U.S.
In fiscal 2022, we were primarily impacted by the appreciation of the Canadian Dollar relative to the U.S. dollar. At each balance sheet date, we translate our assets and liabilities denominated in foreign currency to U.S. dollars. The balances of our foreign equity accounts are translated at their historical value.
At each balance sheet date, we translate our assets and liabilities denominated in foreign currency to U.S. dollars. The balances of our foreign equity accounts are translated at their historical value. The difference between the current rates and the historical rates are posted to our currency translation account and reflected in the shareholders' equity section of our balance sheet.
Significant changes in the relevant exchange rates could adversely affect our margins on foreign sales of products. Our non-U.S. subsidiaries incur most of their expenses (other than intercompany expenses) in their local functional currency. These currencies include the Canadian Dollar, Euro, British Pound, Russian Ruble, Australian Dollar, South Korean Won, Chinese Renminbi, Indian Rupee, Mexican Peso, and Japanese Yen.
Significant changes in the relevant exchange rates could adversely affect our margins on foreign sales of products. Our non-U.S. subsidiaries incur most of their expenses (other than intercompany expenses) in their local functional currency.
We have established a program that primarily utilizes foreign currency forward contracts to offset the risk associated with the effects of certain foreign currency exposures. Under this program, increases or decreases in our foreign currency exposures are offset by gains or losses on the forward contracts, to mitigate the possibility of foreign currency transaction gains or losses.
Under this program, increases or decreases in our foreign currency exposures are offset by gains or losses on the forward contracts, to mitigate the possibility of foreign currency transaction gains or losses. These foreign currency exposures typically arise from intercompany transactions. Our forward contracts generally have terms of 30 days or less.
Based on historical balances on our revolving credit facility, we do not anticipate that a one percent increase or decrease in our interest rate would have a significant impact on our operations. We cannot provide any assurances that historical revolver borrowings will be reflective of our future use of the revolving credit facility.
Term Loan, 6.16% for the U.S. revolving credit facility, and 6.27% for the Canadian Term loan as of March 31, 2023. Based on historical balances on our revolving credit facility, we do not anticipate that a one percent increase or decrease in our interest rate would have a significant impact on our operations.
These foreign currency exposures typically arise from intercompany transactions. Our forward contracts generally have terms of 30 days or less. We do not use forward contracts for trading purposes nor do we designate these forward contracts as hedging instruments pursuant to ASC 815.
We do not use forward contracts for trading purposes nor do we designate these forward contracts as hedging instruments pursuant to Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging .
As of March 31, 2022, we had no outstanding principal under our revolving credit facility. As of March 31, 2022, we had $129.0 million of outstanding principal under our variable rate LIBOR-based term loan B credit facility.
We cannot provide any assurances that historical revolver borrowings will be reflective of our future use of the revolving credit facility. As of March 31, 2023, we had $14.5 million outstanding principal under our revolving credit facility. As of March 31, 2023, we had $98.4 million of outstanding principal under our variable rate SOFR-based term loan B credit facility.
Removed
Conversely, a 10% depreciation of the U.S. dollar relative to the Euro would result in a net increase in net income of $0.1 million for fiscal 2022. We also have exposure to the Russian Ruble. A 10% appreciation of the U.S. dollar relative to the Russian Ruble would result in a net decrease in net income of $0.2 million.
Added
These currencies include the Canadian Dollar, Euro, British Pound, Russian Ruble, Australian Dollar, South Korean Won, Chinese Renminbi, Indian Rupee, Mexican Peso, and Japanese Yen. 33 We have established a program that primarily utilizes foreign currency forward contracts to offset the risk associated with the effects of certain foreign currency exposures.
Removed
The difference between the current rates and the historical rates are posted to our currency translation account and reflected in the shareholders' equity section of our balance sheet. The effect of foreign currency translation were losses of $2.9 million in fiscal 37 2022 and gains of $28.6 million in fiscal 2021.
Added
The effect of foreign currency translation were losses of $19.2 million in fiscal 2023 and $2.9 million in fiscal 2022. In fiscal 2022, we were primarily impacted by the appreciation of the Canadian Dollar relative to the U.S. dollar. Currency translation gains or losses are reported as part of comprehensive income or loss in our accompanying consolidated financial statements.
Removed
The interest rate for borrowings under our term loan A credit facility was 1.96% for the U.S. Term Loan and 2.62% for the Canadian Term loan as of March 31, 2022.

Other THR 10-K year-over-year comparisons