10q10k10q10k.net

What changed in Thermon Group Holdings, Inc.'s 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of Thermon Group Holdings, Inc.'s 2023 and 2024 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 2024 report.

+196 added−199 removedSource: 10-K (2024-05-29) vs 10-K (2023-05-25)

Top changes in Thermon Group Holdings, Inc.'s 2024 10-K

196 paragraphs added · 199 removed · 161 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

43 edited+8 added−4 removed75 unchanged
Biggest changeOwnership of this operation allows us to have complete control of the manufacturing process, enhancing quality and reducing the lead time by about six weeks. Some of the base heating cable that is produced in San Marcos is shipped to our different sites to reduce lead time and to satisfy local content requirements.
Biggest changeOur San Marcos, Texas operation includes an electron cross-linking facility that is used to stabilize the resin material in our low-temperature self-regulating heating cables. Ownership of this operation allows us to have complete control of the manufacturing process, enhancing quality and reducing the lead time by about six weeks.
None of the information on our website or any other website identified herein is incorporated by reference in this annual report and should not be considered a part of this annual report. 1 Sales Heat Tracing We offer turnkey heat tracing solutions for maintaining pipe, vessel, and foundation temperatures in industrial and hazardous locations as well as in commercial applications.
None of the information on our website or any other website identified herein is incorporated by reference in this annual report and should not be considered a part of this annual report. 1 Sales Heat Tracing We offer heat tracing solutions for maintaining pipe, vessel, and foundation temperatures in industrial and hazardous locations as well as in commercial applications.
Segments We operate in four reportable segments based on four geographic countries or regions in which we operate: (i) United States and Latin America ("US-LAM"), (ii) Canada, (iii) Europe, Middle East and Africa ("EMEA") and (iv) Asia-Pacific ("APAC"). Profitability within our segments is measured by operating income.
Segments We operate in four reportable segments based on four geographic countries or regions in which we operate: (i) United States and Latin America ("US-LAM"), (ii) Canada, (iii) Europe, Middle East and Africa ("EMEA") and (iv) Asia-Pacific 5 ("APAC"). Profitability within our segments is measured by operating income.
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.
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.
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.
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.
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.
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 herein, and the adoption of new technologies is providing additional opportunities in new end markets.
TRIR and LTIR are defined as the Company’s number of recordable injuries/loss time, respectively, experienced by employees during the fiscal year multiplied by 200,000 divided by the number of man hours worked during the fiscal year. In addition to TRIR and LTIR, we also measure total near miss and hazard ID reporting as well as case management metrics.
TRIR and LTIR are calculated as the Company’s number of recordable injuries/loss time, respectively, experienced by employees during the fiscal year multiplied by 200,000 divided by the number of man hours worked during the fiscal year. In addition to TRIR and LTIR, we also measure total near miss and hazard ID reporting as well as case management metrics.
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”).
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 2024. We primarily track two key safety indicators in monitoring our safety efforts, total recordable incident rate (“TRIR”) and lost-time incident rate (“LTIR”).
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.
Our fiscal year differs from the period covered by the BLS study, but we believe it is the best proxy to benchmark against. We remain committed to reducing our voluntary turnover. Approximately 0.3% of our global employees are covered by a collective bargaining agreement.
We have locations in 15 countries, and our employees operate across cultures, functions, unique languages, and time zones to solve the technical and logistical challenges presented by a worldwide customer base.
We have locations in 14 countries, and our employees operate across cultures, functions, unique languages, and time zones to solve the technical and logistical challenges presented by a worldwide customer base.
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.
We serve our customers through a global network of sales and service professionals and distributors in more than 30 countries and through our 11 manufacturing facilities on two continents.
Revenue diversification is a key long-term strategic initiative for the business. We believe that we have established our credibility as a reliable provider of high-quality process heating products. In addition, we believe that our registered trademarks in the United States and numerous additional brand names are recognized globally, giving us excellent brand recognition.
Revenue diversification is a key long-term strategic initiative for the business. We believe that we have established our credibility as a reliable provider of high-quality process heating products. In addition, we believe that our registered trademarks in the U.S. and numerous additional brand names are recognized globally, giving us excellent brand recognition.
The Orillia facility manufactures tubular heaters, including our mineral insulated ("MI") heating cable that is supplied to OEM customers and other Thermon facilities. The Oakville location specializes in our engineered solutions and our Calgary facility fabricates electric heat trace circuits using the MI cable produced in Orillia.
The Orillia facility manufactures tubular heaters, including our mineral insulated ("MI") heating cable that is supplied to original equipment manufacturers, or "OEM," customers and other Thermon facilities. The Oakville location specializes in our engineered solutions and our Calgary facility fabricates electric heat trace circuits using the MI cable produced in Orillia.
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 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.
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.
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 U.S. and abroad and have many recognized brand names.
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 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. • Food and Beverage.
We refer to this as our construction business which is primarily located in the southern United States near many of our customers in the downstream and mid-stream petroleum, chemical and power generation industries. Manufacturing and Operations We have nine manufacturing facilities and two smaller assembly facilities, which complement our manufacturing operations.
We refer to this as our construction business which is primarily located in the southern U.S. near many of our customers in the downstream and mid-stream petroleum, chemical and power generation industries. Manufacturing and Operations We have 11 manufacturing facilities and two smaller assembly facilities, which complement our manufacturing operations.
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; • 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) and; • Boilers (branded as “Vapor Power,” “Precision Boilers,” and “Caloritech”) – provides electric resistance, electrode, and fired coil tube boilers across commercial and multiple industrial end-markets. 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.
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.
We also contracted with 163 contingent workers at March 31, 2024. Our 12-month rolling voluntary turnover rate as of March 31, 2024, was 12.7% compared to the 2023 U.S. manufacturing industry average of 22.3% according to the U.S. Bureau of Labor Statistics ("BLS") Job Openings and Labor Turnover Survey.
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.
We are a leading expert in temperature control that provides patented standard and custom-made heating products, and we operate an industrial heating e-commerce website.
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.
For almost 70 years, we have served a diverse base of thousands of customers around the world in attractive and growing markets, including general industrial, chemical and petrochemical, oil, gas, power generation, commercial, food and beverage, energy transition/decarbonization, rail and transit, and other, which we refer to as our "key end markets." We offer a full suite of products (heating units, electrode and gas-fired boilers, heating cables, industrial heating blankets and related products, temporary power solutions and tubing bundles), services (engineering, installation and maintenance services) and software (design optimization and wireless and network control systems) required to deliver comprehensive solutions to some of the world's largest and most complex projects.
Department of Justice, the SEC, the Internal Revenue Service, or the "IRS," Customs and Border Protection, the Bureau of Industry and Security, or "BIS," the Office of Antiboycott Compliance, or "OAC," and the Office of Foreign Assets Control, or "OFAC," as well as the counterparts of these agencies in foreign countries.
These laws are administered by, among others, the U.S. Department of Justice, the SEC, the Internal Revenue Service, or the "IRS," Customs and Border Protection, the Bureau of Industry and Security, or "BIS," the Office of Antiboycott Compliance, or "OAC," and the Office of Foreign Assets Control, or "OFAC," as well as the counterparts of these agencies in foreign countries.
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.
Our diversity statistics include the following as of March 31, 2024 (based on self-reporting at the date of hire): 24.9% of our employees worldwide identify as female; 25.3% of our employees in the U.S. identify as female, and 51.9% 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. Employee Retention Thermon was impacted by the post-pandemic-era trend of voluntary employee departures.
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.
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
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
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.
In fiscal 2024, we continued to include diversity metrics in the short-term incentive payments for Vice Presidents and above. 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.
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.
Markets 4 The major end markets that drive demand for process heating include general industrial, chemical and petrochemical, oil, gas, power generation, commercial, food and beverage, energy transition/decarbonization, rail and transit, and other. We believe there are attractive long-term trends in each of these end markets.
Thermon, Inc., our principal operating subsidiary in the United States, was founded as a partnership in October 1954 and later incorporated in Texas in 1960. At that time, our primary product was a thermally conductive heat transfer compound invented by our founder, Richard Burdick. Under Mr.
Thermon, Inc., our principal operating subsidiary in the U.S., was founded as a partnership in October 1954 and later incorporated in Texas in 1960. At that time, our primary product was a thermally conductive heat transfer compound invented by our founder, Richard Burdick. Under Mr. Burdick's leadership, we experienced steady growth by diversifying our products and expanding our geographic reach.
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.
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, 2024, we employed 1,416 employees, of which 41.4% were located in the US-LAM region, 38.8% in Canada, 7.6% located in EMEA, and 12.2% located in APAC.
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.
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.
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.
None of our customers represented more than 10% of total revenue in fiscal 2024, 2023, or 2022. 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.
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.
Our TRIR decreased from 0.4 in fiscal 2023 to 0.2 in 7 fiscal 2024 and our LTIR decreased from 0.1 to 0.0 in the same periods.
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.
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 U.S., a network of representatives maintain safety stocks of core products.
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.
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.
Government Regulation Due to the international scope of our operations, we are subject to complex United States and foreign laws governing, among others, anti-corruption matters, export controls, economic sanctions, anti-boycott rules, currency exchange controls and transfer pricing rules. These laws are administered by, among others, the U.S.
Government Contracts We do not have any material portion of our business that may be subject to renegotiation of profits or termination of contracts or subcontracts at the U.S. government's election. 6 Government Regulation Due to the international scope of our operations, we are subject to complex U.S. and foreign laws governing, among others, anti-corruption matters, export controls, economic sanctions, anti-boycott rules, currency exchange controls and transfer pricing rules.
Process heating is required for high-temperature product maintenance, freeze protection and environmental regulation compliance in coal and gas facilities and for safety systems in nuclear facilities. An important driver of demand for process heating solutions for power generation is increasing demand for electricity worldwide, with an increasing prevalence of renewable power generation solutions. • Rail and Transit.
Process heating is required for high-temperature product maintenance, freeze protection and environmental regulation compliance in coal and gas facilities and for safety systems in nuclear facilities.
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 of the base heating cable that is produced in San Marcos is shipped to our different sites to reduce lead time and to satisfy local content requirements. 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.
Our corporate offices are located at 7171 Southwest Parkway, Building 300, Suite 200, Austin, Texas 78735. Our telephone number is (512) 690-0600. Our website address is www.thermon.com.
Mr. Burdick and his family maintained a controlling interest in us until August 2007, when the controlling interest was sold to an affiliate of the Audax Group private equity firm. Our corporate offices are located at 7171 Southwest Parkway, Building 300, Suite 200, Austin, Texas 78735. Our telephone number is (512) 690-0600. Our website address is www.thermon.com.
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.
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. 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.
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.
Our heated blankets and related products are manufactured and shipped at our Salt Lake City, Utah facility, which also serves as our headquarters for the Powerblanket brand. 3 Our electric resistance, electrode and super critical coil tube boilers and steam generators are manufactured in our Chicago, Illinois or Morristown, Tennessee locations.
We maintain a high level of operational efficiency and excellent quality standards in all our manufacturing facilities through the use of automated processes and rigorous quality control checkpoints and procedures. Our San Marcos, Texas operation includes an Electron Cross-Linking Facility that is used to stabilize the resin material in our low-temperature self-regulating heating cables.
Additionally, due to our recent acquisition of Vapor Power, we have manufacturing locations in Chicago, Illinois and Morristown, Tennessee. We maintain a high level of operational efficiency and excellent quality standards in all our manufacturing facilities through the use of automated processes and rigorous quality control checkpoints and procedures.
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.
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 almost 70 years. We have a diversified revenue mix with thousands of customers.
The quantities we consume of these materials are insignificant compared to the global production and usage. Government Contracts We do not have any material portion of our business that may be subject to renegotiation of profits or termination of contracts or subcontracts at the U.S. government's election.
The quantities we consume of these materials are insignificant compared to the global production and usage.
Removed
Burdick's leadership, we experienced steady growth by diversifying our products and expanding our geographic reach. Mr. Burdick and his family maintained a controlling interest in us until August 2007, when the controlling interest was sold to an affiliate of the Audax Group private equity firm.
Added
Our primary distribution centers are located in San Marcos, Texas; Calgary, Alberta; and Pijnacker, the Netherlands. Inventory is typically shipped from these distribution centers directly to customers, the construction site or our regional sales agents or distributors.
Removed
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.
Added
An important driver of demand for process heating solutions for power generation is increasing demand for electricity worldwide, which is accelerating due to increased power demand from data centers and artificial intelligence applications. • Rail and Transit.
Removed
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.
Added
The ability to process food and beverage safely, and the process of altering raw agricultural materials into products for intermediate or final consumption, is essential to our society. Thermon is proud to offer heating solutions for food and beverage processing applications. We offer safe, reliable products and services for food and beverage processing organizations. • Energy Transition/Decarbonization.
Removed
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.
Added
We are focused on our culture, which is anchored in our core values and purpose. Our values are embedded in everything we do, including safety, hiring and promoting, goal setting, decision making and performance reviews.
Added
This is why we have invested in our culture program called the Thermon CORE, which is a multi-year program that aligns our global management base to our key results, continuous improvement mindset, and deep financial, strategy and business acumen through business simulation engagement.
Added
We continue to expand our impact with employee equity through enhanced market-aligned annual awards, as well as consideration of strategic roles to add to the annual program. Employee Retention 8 Thermon’s global voluntary turnover in fiscal 2024 was down 27% from the prior year.
Added
We believe this was a result of the strategies we implemented to improve retention and career satisfaction, including operations transformation and training, career paths, culture program, and expanding equity participation.
Added
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

46 edited+1 added−8 removed147 unchanged
Biggest changeSuspensions 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.
Biggest changeContinued significant volatility in these capital projects could further decrease demand for some of our products and services and adversely affect our business, financial condition and results of operations. A significant portion of our revenue historically has been generated by end-users in connection with the development of large capital projects.
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.
If we were to experience a breach of our systems and were unable to protect sensitive data, such a breach could, among other things: 15 • 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.
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.
Recent years have seen 17 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.
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.
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; 19 • 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.
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.
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.
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.
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 U.S., 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.
Dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations. In addition, the net asset values of foreign operations are adjusted upward and downward based on currency exchange rate fluctuations and are reported in our foreign currency translation adjustment as part of other comprehensive income in our consolidated statements of operations and comprehensive income/(loss).
Dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations. In addition, the net asset values of foreign operations are adjusted upward and downward based on currency exchange rate fluctuations and are reported in our foreign currency translation adjustment as part of other comprehensive income in our consolidated statements of operations and comprehensive income.
Any provision of our second amended and restated certificate of incorporation or amended and restated bylaws that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
Any provision of our second amended and restated certificate of incorporation or amended and restated bylaws that has the effect of delaying or deterring a change in control could limit the opportunity for our 20 stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
Some of our operations require environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities. 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.
Some of our operations require environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, 18 renewal and revocation by issuing authorities. 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.
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.
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.
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.
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.
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.
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, 2024 and beyond.
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.
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-Ukrainian war in 2022, many of these regulations have expanded significantly and become increasingly complex.
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.
Although over time 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 over time 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.
Profitability in the energy industry is highly sensitive to supply and demand cycles and commodity prices, which historically have been volatile, and our customers in this industry have tended to delay large capital projects, including expensive maintenance and upgrades, during industry downturns.
Profitability in the development of large capital projects is highly sensitive to supply and demand cycles and commodity prices, which historically have been volatile, and our customers in this industry have tended to delay large capital projects, including expensive maintenance and upgrades, during industry downturns.
Interruptions in production, in particular at our manufacturing facilities in the United States or Canada, at which we manufacture the majority of our products, could increase our costs and reduce our sales. Any interruption in production capability could require us to make substantial capital expenditures to fill customer orders, which could negatively affect our profitability and financial condition.
Interruptions in production, in particular at our manufacturing facilities in the U.S. or Canada, at which we manufacture the majority of our products, could increase our costs and reduce our sales. Any interruption in production capability could require us to make substantial capital expenditures to fill customer orders, which could negatively affect our profitability and financial condition.
These factors could be exacerbated by the impact of COVID-19 pandemic or geopolitical instability. This may reduce the profit we realize or result in a loss on a project for which the services or materials were needed or, if the product is unavailable, prevent us from accepting orders.
These factors could be exacerbated by the impact of geopolitical instability or pandemics. This may reduce the profit we realize or result in a loss on a project for which the services or materials were needed or, if the product is unavailable, prevent us from accepting orders.
In addition, our patents, copyrights, trademarks and other intellectual property rights may not provide us a significant competitive advantage, particularly in those countries where the laws do not protect our intellectual property rights as fully as in the United States. Participants in our markets may use challenges to intellectual property as a means to compete.
In addition, our patents, copyrights, trademarks and other intellectual property rights may not provide us a significant competitive advantage, particularly in those countries where the laws do not protect our intellectual property rights as fully as in the U.S. Participants in our markets may use challenges to intellectual property as a means to compete.
In addition, we could become subject to potential regulations concerning the emission of greenhouse gases or disclosure regarding such emissions, and while the effect of such future regulations cannot be determined at this time, they could require us to incur substantial costs in order to achieve and maintain compliance.
In addition, we could become subject to potential regulations concerning the use of per- or polyfluoroalkyl substances ("PFAS"), the emission of greenhouse gases or disclosure regarding such emissions, and while the effect of such future regulations cannot be determined at this time, they could require us to incur substantial costs in order to achieve and maintain compliance.
These customers' expenditures historically have been cyclical in nature and vulnerable to economic downturns. Prolonged periods of little or no economic growth could decrease demand for oil and gas which, in turn, could result in lower demand for our products and a negative impact on our results of operations and cash flows.
These customers' expenditures historically have been cyclical in nature and vulnerable to economic downturns. Prolonged periods of little or no economic growth could result in lower demand for our products and a negative impact on our results of operations and cash flows.
Demand for a significant portion of our products and services depends upon the level of capital expenditure by companies in the energy industry, which depends, in part, on energy prices, which can be volatile.
Demand for a significant portion of our products and services in connection with large capital projects depends upon the level of capital expenditure by companies in the energy industry, which depends, in part, on energy prices, which can be volatile.
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.
The dollar amount of backlog as of March 31, 2024, was $186.1 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.
Dollars or Euros. If the U.S. Dollar or Euro strengthen relative to the value of the local currency, we may be less competitive in bidding for those projects.
We also bid for certain foreign projects in U.S. Dollars or Euros. If the U.S. Dollar or Euro strengthen relative to the value of the local currency, we may be less competitive in bidding for those projects.
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.
In addition, the imposition of trade restrictions, economic sanctions or embargoes by the U.S. or foreign governments could adversely affect our future sales and results of operations.
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.
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, 2024, our goodwill and other intangible assets balance was $397.9 million, which represented 52% of our total assets.
In addition, many of our customer contracts, including fixed-price contracts, contain liquidated damages and warranty provisions for which we are responsible in the event that we fail to perform our obligations thereunder in a timely manner or our products or services fail to perform, in accordance with the agreed terms, conditions and standards.
In addition, many of our customer contracts, including fixed-price contracts, contain liquidated damages and warranty provisions for which we are responsible in the event that we fail to perform our obligations thereunder in a timely manner or our products or services fail to perform, in accordance with the agreed terms, conditions and standards. 16 We extend credit to customers in conjunction with our performance under fixed-price contracts which subjects us to potential credit risks.
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.
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 2024, approximately 51% of our revenues were generated outside of the U.S., and approximately 17% of our revenues were generated outside of North America.
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.
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, 2024, revenue recognized over time accounted for approximately 39% of our total revenue.
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.
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 U.S. and Canada. The impact on oil and gas commodity markets has further been impacted by the heightened level of global instability.
The businesses of most of our customers in the energy industry are, to varying degrees, cyclical and historically have experienced periodic downturns.
The businesses of most of our large capital project customers are, to varying degrees, cyclical and historically have experienced periodic downturns.
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.
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.
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.
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.
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.
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. 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.
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.
In particular, significant fluctuations in the Canadian Dollar, the Euro or the Pound Sterling against the U.S. Dollar could adversely affect our results of operations. During fiscal 2024, 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 $4.3 million.
Governments around the world are increasingly focused on enacting laws and regulations regarding climate change and regulation of greenhouse gases.
The effects of climate change and any related regulation of greenhouse gases could have a negative impact on our business. Governments around the world are increasingly focused on enacting laws and regulations regarding climate change and regulation of greenhouse gases.
In addition, this historically cyclical demand may lead to significant shifts in our results of operations from quarter to quarter, which limits our ability to make accurate long-term predictions about our future performance.
In addition, this historically cyclical demand may lead to significant shifts in our results of operations from quarter to quarter, which limits our ability to make accurate long-term predictions about our future performance. Suspensions and delays in large capital projects, especially in the United States and Canada, have adversely affected our results of operations in recent years.
Our revenue from major projects depends in part on the level of capital expenditures in our principal end markets, including the energy, chemical processing and power generation industries.
Our revenue from major projects depends in part on the level of capital expenditures in our principal end markets, including the general industrial, chemical and petrochemical, oil, gas, power generation, commercial, food and beverage, energy transition/decarbonization, rail and transit, and other industries.
Although we maintain insurance policies with respect to our related exposures, including certain casualty, property and business interruption programs, these policies contain deductibles, self-insured retentions and limits of coverage.
We carry insurance against many potential liabilities, but our management of risk may leave us exposed to unidentified or unanticipated risks. 13 Although we maintain insurance policies with respect to our related exposures, including certain casualty, property and business interruption programs, these policies contain deductibles, self-insured retentions and limits of coverage.
The Russo-Ukrainian war could also have the effect of heightening other risks described elsewhere in these Risk Factors. We are subject to numerous environmental and health and safety laws and regulations, as well as potential environmental liabilities, which may require us to make substantial expenditures.
We are subject to numerous environmental and health and safety laws and regulations, as well as potential environmental liabilities, which may require us to make substantial expenditures.
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 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 At March 31, 2024, we had $172.5 million of outstanding indebtedness.
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 facilities located elsewhere, primarily the United States, Canada or Europe. In particular, significant fluctuations in the Canadian Dollar, the Russian Ruble, the Euro or the Pound Sterling against the U.S.
In addition, we may not be able to obtain hedging instruments with respect to certain currencies. 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 facilities located elsewhere, primarily the U.S., Canada or Europe.
Any acquisitions or investments may ultimately harm our business or financial condition if they are unsuccessful and any acquisitions or investments ultimately result in impairment charges. We carry insurance against many potential liabilities, but our management of risk may leave us exposed to unidentified or unanticipated risks.
Any acquisitions or investments may ultimately harm our business or financial condition if they are unsuccessful and any acquisitions or investments ultimately result in impairment charges.
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.
Long-term declines in projected future cash flows could result in future goodwill and other intangible asset impairments.
We may also undertake restructuring actions and workforce reductions. For example, during fiscal 2021, we enacted certain restructuring initiatives to align our current cost structure with the decline in demand for our products and services primarily due to COVID-19 and supply/demand fluctuations in commodity prices. Refer to Item 8, Financial Statements and Supplementary Data for more discussion.
We may also undertake restructuring actions and workforce reductions. For example, we enacted certain restructuring initiatives to streamline certain operations, reduce our manufacturing footprint, and position us for more profitable growth. Refer to Item 8, Financial Statements and Supplementary Data for more discussion.
In the ordinary course of business, we may be held responsible for any environmental damages we may cause to our customers' premises. The effects of climate change and any related regulation of greenhouse gases could have a negative impact on our business.
For example, European Union regulatory authorities and certain other governmental authorities are contemplating regulations to restrict and phase-out PFAS. In the ordinary course of business, we may be held responsible for any environmental damages we may cause to our customers' premises.
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.
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. 14 If we lose our senior management or other key employees or cannot successfully execute succession plans, our business may be adversely affected.
Removed
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.
Added
Our current or future indebtedness could impair our financial condition and reduce the funds available to us for other purposes.
Removed
At March 31, 2023, we had $98.4 million of outstanding indebtedness.
Removed
In addition, we may not be able to obtain hedging instruments with respect to certain currencies. For example, we were unable to renew our foreign currency hedges in respect of the Russian Ruble in light of the Russo-Ukrainian war and related sanctions imposed by the United States and European Union.
Removed
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.
Removed
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
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.
Removed
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 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.
Removed
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.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeWe believe that our production facilities are suitable for their purpose and are adequate to support our businesses.
Biggest changeAll our manufacturing facilities are registered to International Organization for Standardization (ISO) 9001 quality standards, except for Morristown, Tennessee and Chicago, Illinois. These locations were acquired through our recent acquisition and are in the process to be certified. We believe that our production facilities are suitable for their purpose and are adequate to support our businesses.
All 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.
All our reportable segments utilize our San Marcos, Texas facilities. In addition, we have offices and/or manufacturing and assembly locations in Chicago, Illinois, Morristown, Tennessee, Houston, Texas, Denver, Colorado, Salt Lake City, Utah, Canada, the Netherlands, France, United Kingdom, Germany, Mexico, China, Korea, Japan, India, Australia, and Bahrain.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+6 added−1 removed3 unchanged
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.
Biggest changeMarch 31, 2019 March 31, 2020 March 31, 2021 March 31, 2022 March 31, 2023 March 31, 2024 Thermon Group Holdings, Inc. $ 100.00 $ 61.49 $ 79.52 $ 66.10 $ 101.67 $ 133.50 iShares Russell 2000 Index $ 100.00 $ 76.13 $ 148.31 $ 139.20 $ 122.89 $ 147.14 S&P 600 SmallCap 600 Energy $ 100.00 $ 20.27 $ 59.11 $ 94.17 $ 86.83 $ 104.66 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.
See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." Equity Compensation Plan Information For information on our equity compensation plans, see Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters-Equity Compensation Plan Information." See also Note 16, "Stock-Based Compensation Expense" to our consolidated financial statements included elsewhere in this annual report.
See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." Equity Compensation Plan Information For information on our equity compensation plans, see Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters-Equity Compensation Plan Information." See also Note 16, "Stock-Based Compensation" to our consolidated financial statements included elsewhere in this annual report.
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.
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, 2019 (the last day of our fiscal 2019), and assumes the reinvestment of dividends, as applicable.
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.
Dividend Policy 23 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 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.
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 28, 2024, the closing sale price of our common stock, as reported by the NYSE, was $34.88.
As of May 24, 2023, there were approximately 15 holders of our common stock of record.
As of May 28, 2024, there were approximately 15 holders of our common stock of record.
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.
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, voluntary principal repayments on our debt as well as make discretionary repurchases of outstanding shares of our common stock.
Removed
Issuer Purchases of Equity Securities None. Recent Sales of Unregistered Securities None. 23
Added
Issuer Purchases of Equity Securities On March 15, 2024, the Company announced the authorization of a share repurchase program by the Company’s board of directors of up to $50 million of the Company’s outstanding shares of common stock, exclusive of any fees, commissions or other expenses related to such repurchases (the "Repurchase Program").
Added
The Repurchase Program does not include a specific timetable or price targets and may be suspended or terminated at any time.
Added
Shares under the current repurchase program may be purchased through open market or privately negotiated transactions at the discretion of management, including through the use of trading plans intended to qualify under Rule 10b5-1 and Rule 10b-18 under the Securities Exchange Act of 1934, as amended.
Added
The timing and amount of any share repurchases will be determined by the Company at its discretion based on ongoing evaluation of general market conditions, the market price of Thermon’s common stock, the Company’s capital needs, and other factors.
Added
The objective of the Repurchase Program is to offset dilution related to the Equity Compensation Plan discussed in Note 16, "Stock-Based Compensation" to our consolidated financial statements included elsewhere in this annual report. During fiscal 2024, we purchased 8,018 shares at a weighted average price of $31.20.
Added
As of March 31, 2024, we have $49.8 million of remaining unused and authorized availability under the Repurchase Program. We record shares of common stock repurchased at cost as treasury stock, resulting in a reduction of stockholders’ equity in the consolidated balance sheets. Recent Sales of Unregistered Securities None. 24

Item 7. Management's Discussion & Analysis

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

44 edited+19 added−24 removed45 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. 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
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. 33 The following table reconciles net income to Adjusted EBITDA for the periods presented: Year Ended March 31, (Dollars in thousands) 2024 2023 2022 Net income $ 51,588 $ 33,666 $ 20,092 Interest expense, net 8,845 5,871 5,815 Income tax expense 16,086 15,567 8,333 Depreciation and amortization 18,837 19,231 20,205 EBITDA (non-GAAP) $ 95,356 $ 74,335 $ 54,445 Stock-based compensation 5,754 5,954 3,803 Transaction-related costs 2,107 335 — Restructuring and other charges/(income) 984 3,693 (414) Impairment and other charges — 8,945 — Loss on debt extinguishment — — 2,569 Canadian Emergency Wage Subsidy — — (1,952) Adjusted EBITDA (non-GAAP) $ 104,201 $ 93,262 $ 58,451 The following table reconciles net income to Adjusted Net Income and Adjusted EPS for the periods presented: Year ended March 31, (Dollars in thousands, except per share data) 2024 2023 2022 Net income $ 51,588 $ 33,666 $ 20,092 Tax expense for impact of rate reduction in foreign jurisdictions — — 505 Withholding tax on dividend related to debt amendment — — 301 Amortization of intangible assets 10,158 9,447 8,790 Transaction-related costs 2,107 335 — Restructuring and other charges/(income) 984 3,693 (414) Impairment and other charges — 8,945 — Loss on debt extinguishment — — 2,569 Canadian Emergency Wage Subsidy — — (1,952) Tax effect of financial adjustments (2,947) (3,307) (1,999) Adjusted net income (non-GAAP) $ 61,890 $ 52,779 $ 27,892 Adjusted-fully diluted earnings per common share (non-GAAP) $ 1.82 $ 1.56 $ 0.83 Fully-diluted common shares - (thousands) 34,067 33,746 33,515
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 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. 25 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.
For revenue recognized under fixed fee turnkey contracts, we measure the costs incurred that contribute towards the satisfaction of our performance obligation as a percentage of the total cost of production (the “cost-to-cost method”), and we recognize a proportionate amount of contract revenue, as the cost-to-cost method appropriately depicts performance towards satisfaction of the performance obligation.
For revenue recognized under fixed fee contracts, we measure the costs incurred that contribute towards the satisfaction of our performance obligation as a percentage of the total cost of production (the “cost-to-cost method”), and we recognize a proportionate amount of contract revenue, as the cost-to-cost method appropriately depicts performance towards satisfaction of the performance obligation.
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.
Point in time revenue does not typically require engineering or installation services. Revenue recognized over time generally occurs on our projects where engineering or installation services, or a combination of the two, are required.
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.
As of March 31, 2024, 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.
Free Cash Flow is one measure management uses internally to assess liquidity. Our calculation may not be comparable to similarly titled measures reported by other companies. See further discussion of Non-GAAP Financial Measures below. Year Ended March 31, 2023 ("fiscal 2023") Compared to the Year Ended March 31, 2022 ("fiscal 2022") Net cash provided by/(used in) operating activities.
Free Cash Flow is one measure management uses internally to assess liquidity. Our calculation may not be comparable to similarly titled measures reported by other companies. See further discussion of Non-GAAP Financial Measures below. Year Ended March 31, 2024 ("fiscal 2024") Compared to the Year Ended March 31, 2023 ("fiscal 2023") Net cash provided by/(used in) operating activities.
Our turnkey projects, or fixed fee projects, offer our customers a comprehensive solution for heat tracing from the initial planning stage through engineering/design, manufacture, installation and final proof-of-performance and acceptance testing. Turnkey services also include project planning, product supply, system integration, commissioning and ongoing maintenance.
Our fixed fee projects typically offer our customers a comprehensive solution for heat tracing from the initial planning stage through engineering/design, manufacture, installation and final proof-of-performance and acceptance testing. Turnkey services also include project planning, product supply, system integration, commissioning and ongoing maintenance.
Finally, we will continue expanding our technology-enabled maintenance solutions, like our recently launched Genesis Network, which helps our customers more efficiently and safely monitor and maintain their heating systems by utilizing our software, analytics, hardware and process heating maintenance expert services.
Finally, we will continue expanding our technology-enabled maintenance solutions, like our Genesis Network, which helps our customers more efficiently and safely monitor and maintain their heating systems by utilizing our software, analytics, hardware and process heating maintenance expert services.
Our efforts to diversify the business's end markets is starting to show early signs of success through increased customer engagement in diversified end markets such as rail and transit, food and beverage, commercial and power.
Our efforts to diversify the business's end markets is starting to show early signs of success through increased customer engagement in diversified end markets such as chemical and petrochemical, rail and transit, food & beverage, commercial and power.
We cannot provide any assurance that we will continue to be able to mitigate temporary raw material shortages or be able to pass along such cost increases, including the potential impacts of tariffs, to our customers in the future, and if we are unable to do so, our results of operations may be adversely affected. Operating expenses.
We cannot provide any assurance that we will be able to mitigate potential raw material shortages or be able to pass along raw material cost increases, including the potential impacts of tariffs, to our customers in the future, and if we are unable to do so, our results of operations may be adversely affected. Operating expenses.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, Item 6, "Selected Financial Data" and our consolidated financial statements and related notes included elsewhere in this annual report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with, and is qualified in its entirety by reference to our consolidated financial statements and related notes included elsewhere in this annual report.
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.
Year Ended March 31, 2023 ("fiscal 2023") Compared to the Year Ended March 31, 2022 ("fiscal 2022") 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, 2023 filed with the SEC on May 25, 2023 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 2023 as compared to fiscal 2022. 32 Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements.
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.
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 credit losses. Key drivers affecting our results of operations.
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.
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.
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.
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 property, plant, and equipment.
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.
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. We expect our capital expenditures to approximate 2.5% to 3.0% of revenue in fiscal 2025.
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.
For our time and materials service contracts, we recognize revenues as the products and services are provided over the term of the contract and have determined that the stated rate for installation services and products is representative of the stand-alone selling price for those services and products. Our turnkey projects and certain other projects.
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.
Additionally, we are continuing to receive orders from key customers related to our 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. In short, we are benefiting from the increasing global demand for our solutions. Revenue.
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.
On March 31, 2024, we had in place standby letters of credit, bank guarantees and performance bonds totaling $13.3 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.
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.
Liquidity and Capital Resources 30 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, 2024, we had $48.6 million in cash and cash equivalents.
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.
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: 26 Year-Ended March 31, 2024 Year-Ended March 31, 2023 Year-Ended March 31, 2022 Point in time 61 % 63 % 60 % Over time: 39 % 37 % 40 % Small projects 15 % 15 % 16 % Large projects 24 % 22 % 24 % 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 and other solutions such as engineered products.
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.
Payment Schedule % of Original Principal Amount 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.
Fiscal Year Ended March 31, Increase/(Decrease) (Dollars in thousands) 2023 2022 $ % Consolidated Statements of Operations Data: Sales $ 440,590 $ 355,674 $ 84,916 24 % Cost of sales 255,465 215,556 39,909 19 % Gross profit 185,125 140,118 45,007 32 % Operating expenses: Selling, general and administrative expenses 117,003 93,054 23,949 26 % Deferred compensation plan expense/(income) (208) 283 (491) (173) % Amortization of intangible assets 9,447 8,790 657 7 % Restructuring and other charges/(income) 3,693 (414) 4,107 (992) % Income/(loss) from operations 55,190 38,405 16,785 44 % Other income/(expenses): Interest expense, net (5,871) (5,815) (56) 1 % Other income/(expense) (86) (4,165) 4,079 (98) % Income/(loss) before provision for income taxes 49,233 28,425 20,808 73 % Income tax expense/(benefit) 15,567 8,333 7,234 87 % Net income/(loss) $ 33,666 $ 20,092 $ 13,574 68 % As a percent of sales: Gross profit 42.0 % 39.4 % 260 bps Selling, general and administrative expenses 26.6 % 26.2 % 40 bps Income/(loss) from operations 12.5 % 10.8 % 170 bps Net income/(loss) 7.6 % 5.6 % 200 bps Effective tax rate 31.6 % 29.3 % Year Ended March 31, 2023 ("fiscal 2023") Compared to the Year Ended March 31, 2022 ("fiscal 2022") Revenues.
The change in net income is explained by the changes noted in the sections above. 29 Fiscal Year Ended March 31, Increase/(Decrease) (Dollars in thousands) 2023 2022 $ % Consolidated Statements of Operations Data: Sales $ 440,590 $ 355,674 $ 84,916 24 % Cost of sales 255,465 215,556 39,909 19 % Gross profit 185,125 140,118 45,007 32 % Operating expenses: Selling, general and administrative expenses 117,003 93,054 23,949 26 % Deferred compensation plan expense/(income) (208) 283 (491) (173) % Amortization of intangible assets 9,447 8,790 657 7 % Restructuring and other charges/(income) 3,693 (414) 4,107 (992) % Income from operations 55,190 38,405 16,785 44 % Other income/(expenses): Interest expense, net (5,871) (5,815) (56) 1 % Other income/(expense) (86) (4,165) 4,079 (98) % Income before provision for income taxes 49,233 28,425 20,808 73 % Income tax expense 15,567 8,333 7,234 87 % Net income $ 33,666 $ 20,092 $ 13,574 68 % As a percent of sales: Gross profit 42.0 % 39.4 % 260 bps Selling, general and administrative expenses 26.6 % 26.2 % 40 bps Income from operations 12.5 % 10.8 % 170 bps Net income 7.6 % 5.6 % 200 bps Effective tax rate 31.6 % 29.3 % Year Ended March 31, 2023 ("fiscal 2023") Compared to the Year Ended March 31, 2022 ("fiscal 2022") 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, 2023, filed with the SEC on May 25, 2023 for a discussion of the results of operations in fiscal 2023 as compared to fiscal 2022.
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.
At March 31, 2024, we had $5.0 million outstanding borrowings under our revolving credit facility and $92.7 million of available capacity thereunder, after taking into account the borrowing base and letters of credit outstanding, which totaled $7.3 million.
See further details Note 12, "Long-Term Debt." We also have payment commitments of $1.6 million, mostly related to long-term information technology contracts, of which $1.5 million are due within the next 12 months. 30 Year Ended March 31, (Dollars in thousands) 2023 2022 2021 Total cash provided by/(used in): Operating activities $ 57,714 $ 28,754 $ 30,289 Investing activities (44,555) (4,531) (7,832) Financing activities (13,465) (22,658) (28,205) Free Cash Flow (1) Cash provided by operating activities $ 57,714 $ 28,754 $ 30,289 Less: Cash used for purchases of property, plant, and equipment (9,453) (5,220) (8,132) Plus: Sales of rental equipment 197 689 300 Free Cash Flow $ 48,458 $ 24,223 $ 22,457 (1) "Free Cash Flow" is a non-GAAP financial measure, which we define as net cash provided by operating activities less cash used for the purchase of property, plant, and equipment, net of sales of rental equipment and proceeds from sales of land and buildings.
See further details Note 12, "Long-Term Debt." We also have payment commitments of $7.7 million, mostly related to long-term information technology contracts, of which $6.7 million are due within the next 12 months. 31 Year Ended March 31, (Dollars in thousands) 2024 2023 2022 Total cash provided by/(used in): Operating activities $ 65,955 $ 57,714 $ 28,754 Investing activities (109,522) (44,555) (4,531) Financing activities 56,533 (13,465) (22,658) Free Cash Flow (1) Cash provided by operating activities $ 65,955 $ 57,714 $ 28,754 Less: Cash used for purchases of property, plant, and equipment (11,016) (9,453) (5,220) Plus: Sales of rental equipment 99 197 689 Plus: Proceeds from sale of property, plant, and equipment $ 840 $ — $ — Free Cash Flow $ 55,878 $ 48,458 $ 24,223 (1) "Free Cash Flow" is a non-GAAP financial measure, which we define as net cash provided by operating activities less cash used for the purchase of property, plant, and equipment, net of sales of rental equipment and proceeds from sales of land and buildings.
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.
Refer to Note 2, "Acquisitions," for more discussion. 27 Results of Operations The following table sets forth data from our statements of operations for the periods indicated.
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.
Additionally, we will be required to pay $14.6 million in principal payments and approximately $11.4 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, 2024, and is subject to change.
Turnkey solutions, containing multiple deliverables, are customer specific and do not have an alternative use and present an unconditional right to payment, and thus are treated as a single performance obligation with revenues recognized over time as work progresses.
Fixed fee projects, containing multiple deliverables, are customer specific, do not have an alternative use and have an enforceable right to payment, and thus are treated as a single performance obligation with revenues recognized over time as work progresses.
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 U.S. through intercompany dividends. Generally, we seek to maintain a cash and cash equivalents balance between $30.0 and $40.0 million.
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.
The level of service and construction needs affect the profit margin for each type of revenue. We tend to experience lower margins from our design optimization, engineering, installation and maintenance services, which are typically large projects tied to our customers' capital expenditure budgets and are comprised of more than $0.5 million in total revenue.
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.
We manage our global cash requirements by maintaining cash and cash equivalents at various financial institutions throughout the world where we operate. Approximately $17.0 million, or 35%, of these amounts were held in domestic accounts with various institutions and approximately $31.6 million, or 65%, of these amounts were held in accounts outside of the U.S. with various financial institutions.
As of March 31, 2023, we had $97.9 million of outstanding principal on our term loan A facility, net of deferred debt issuance costs.
As of March 31, 2024, we had $166.6 million of outstanding principal on our term loan facilities, net of deferred debt issuance costs.
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.
Free Cash Flow totaled $55.9 million for fiscal 2024 as compared to $48.5 million for fiscal 2023, an increase comparatively, primarily due to higher cash flows from operations.
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.
Historically we have experienced few order cancellations, and the cancellations that have occurred in the past have not been material compared to our total contract volume or total backlog. The small number of order cancellations is attributable in part to the fact that a large portion of our solutions are ordered and installed toward the end of large project construction.
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.
Net cash provided by operating activities increased in fiscal 2024 versus fiscal 2023. The increase is mostly attributable to the $17.9 million increase in net income, partially offset by greater investments in our working capital and other accounts resulting in the net increase of $11.5 million in fiscal 2024 relative to fiscal 2023. Net cash provided by/(used in) investing activities.
Separately, revenue was negatively impacted in fiscal 2023 by foreign exchange rates by approximately $15.1 million, though partially offset by the inverse effect within cost of sales. Point-in-time sales grew $62.5 million and Over time sales grew $22.4 million compared to fiscal 2022.
Separately, revenue was negatively affected in fiscal 2024 by foreign exchange rate impacts of approximately $4.3 million, though this is partially offset by similar effects within cost of sales. Point-in-time sales grew $23.3 million and Over time sales grew $30.7 million compared to fiscal 2023.
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.
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. Share repurchases On March 15, 2024, we announced the authorization from our board of directors to execute a share repurchase program of up to $50.0 million (the "Repurchase Program").
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.
Our sales mix in fiscal 2024 was 61% Point in time sales and 39% Over time sales as compared to 63% Point in time sales and 37% Over time sales in fiscal 2023. Gross profit. Gross profit increased in fiscal 2024 versus fiscal 2023 on greater sales volume and higher gross profit margin, which increased 80 bps.
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 change in deferred compensation plan activity 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) .
Our losses with regard to the Russia Exit, totaling $12.6 million, have no significant tax benefit. Excluding the tax effect of the Russia Exit, our effective tax rate would have been 25.1% in fiscal 2023.
Excluding the tax effect of the Russia Exit, our effective tax rate would have been 25.1% in fiscal 2023. See Note 18, “Income Taxes,” for further information. Net income.
The increase of amortization is due to adding certain intangible assets through our acquisition of Powerblanket. Refer to Note 2, "Acquisition." Deferred compensation plan expense/(income). The change in deferred compensation plan activity is primarily attributable to market fluctuations in the underlying balances owed to employees.
Fiscal 2023 was affected in part by the Russia Exit, which negatively impacted SG&A by $4.6 million in fiscal 2023. Amortization of intangible assets. The increase of amortization is due to adding certain intangible assets through our acquisition of Vapor Power on December 29, 2023. Refer to Note 2, "Acquisitions." Deferred compensation plan expense/(income).
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.
Our results of operations and financial condition are affected by numerous factors, including those described under the caption “Risk Factors” in Item 1A of this Annual Report on Form 10-K. These factors include the following: • Impact of product mix. Typically, our customers require our products as well as our engineering and construction services.
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.
Income tax expense was $16.1 million or 23.8% on pretax income of $67.7 million in fiscal 2024 as compared to income tax expense of $15.6 million on a pretax income of $49.2 million in fiscal 2023. Our losses with regard to the Russia Exit in fiscal 2023, totaling $12.6 million, had no significant tax benefit.
Revenue increased in fiscal 2023 compared to fiscal 2022 due to strong performance in our US-LAM and Canada segments. US-LAM revenue increased $55.0 million, or 36%, while Canada revenue increased $38.5 million, or 33%.
Revenue increased in fiscal 2024 compared to fiscal 2023 due to growth across all reportable segments, especially in US-LAM. Our US-LAM revenue increased $47.1 million, or 23%. Revenue in our APAC segment increased $3.4 million, or 10% and revenue in our EMEA segment grew $2.1 million, or 5%. Last, Canada revenue increased $1.4 million, or 1%.
Removed
Recent Developments. The global economy has been negatively impacted by the war between Russia and Ukraine. Furthermore, governments in the United States, Canada, and European Union, among others, have imposed trade controls on certain products and economic sanctions on certain industry sectors and parties in Russia.
Added
We completed the Russia Exit in fiscal 2024 and incurred cumulative charges totaling $13.6 million, of which $1.0 million was recognized in fiscal 2024. We are currently integrating the operations of Vapor Power International, LLC ("Vapor Power"), our recent acquisition, which was consummated on December 29, 2023.
Removed
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.
Added
Vapor Power is a leading provider of high-quality industrial process heating solutions, including electric, electrode and gas fired boilers. We purchased Vapor Power for $107.5 million in cash, which was funded with cash on hand, borrowings under our existing revolving credit facility, and an increased term loan (which was amended on December 29, 2023 in connection with the acquisition).
Removed
Refer to Item 1A, "Risk Factors" in this annual report on Form 10-K for further discussion regarding our risks.
Added
We integrated Vapor Power into our US-LAM reportable segment. On March 15, 2024, we announced the authorization of a share repurchase program by the Company’s board of directors of up to $50 million of the Company’s outstanding shares of common stock, exclusive of any fees, commissions or other expenses related to such repurchases.
Removed
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.
Added
We initiated purchases pursuant to this program in our fourth fiscal quarter. On April 8, 2024, we enacted certain cost-cutting measures, including a reduction-in-force plan that affected approximately 68 employees across our US-LAM and Canada reportable segments.
Removed
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.
Added
Pursuant to the foregoing, we are also moving certain operations and equipment from our Denver, Colorado location to San Marcos, Texas, where we have an existing manufacturing and back-office presence. In connection with this plan, the Company expects to incur approximately $2.8 to $3.5 million in restructuring charges mostly during the first quarter of fiscal 2025.
Removed
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.
Added
The Company continues to invest in our three long-term strategic initiatives where we see opportunities for growth.
Removed
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.
Added
Our backlog at March 31, 2024 was $186.1 million, including $39.4 million related to recently-acquired Vapor Power, as compared to $163.3 million at March 31, 2023.
Removed
Also, we have seen labor inefficiencies and increased overtime in certain of our facilities due to temporary shortages in raw materials required for production, as well as time and attendance issues and labor shortages in certain of our facilities.
Added
Fiscal Year Ended March 31, Increase/(Decrease) (Dollars in thousands) 2024 2023 $ % Consolidated Statements of Operations Data: Sales $ 494,629 $ 440,590 $ 54,039 12 % Cost of sales 283,065 255,465 27,600 11 % Gross profit 211,564 185,125 26,439 14 % Operating expenses: Selling, general and administrative expenses 123,820 117,003 6,817 6 % Deferred compensation plan expense/(income) 1,231 (208) 1,439 (692) % Amortization of intangible assets 10,158 9,447 711 8 % Restructuring and other charges/(income) 984 3,693 (2,709) (73) % Income from operations 75,371 55,190 20,181 37 % Other income/(expenses): Interest expense, net (8,845) (5,871) (2,974) 51 % Other income/(expense) 1,148 (86) 1,234 (1435) % Income before provision for income taxes 67,674 49,233 18,441 37 % Income tax expense 16,086 15,567 519 3 % Net income $ 51,588 $ 33,666 $ 17,922 53 % As a percent of sales: Gross profit 42.8 % 42.0 % 80 bps Selling, general and administrative expenses 25.0 % 26.6 % -160 bps Income from operations 15.2 % 12.5 % 270 bps Net income 10.4 % 7.6 % 280 bps Effective tax rate 23.8 % 31.6 % Year Ended March 31, 2024 ("fiscal 2024") Compared to the Year Ended March 31, 2023 ("fiscal 2023") Revenues.
Removed
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.
Added
Strong demand in both our products and project sales contributed to the revenue increase during fiscal 2024. Moreover, we experienced growth in our diversified end-markets, in particular power, chemical & petrochemical, food and beverage, and commercial. Of note, Vapor Power (which we acquired in December 2023) contributed $10.9 million to our overall revenue growth in fiscal 2024.
Removed
Revenues in these segments were bolstered in part by strong demand from general industrial, upstream and downstream oil end markets, plus moderate growth in our diversified end markets such as rail and transit, renewables, and commercial. Additionally, our recent acquisition of Powerblanket in the US-LAM segment contributed $17.1 million in revenue growth in fiscal 2023.
Added
This improvement was primarily driven by higher profitability in our Over time sales. Fiscal 2024 gross margin was supported by customer price increases and operational efficiencies, though tempered by inflationary pressures on costs.
Removed
Revenue in our APAC segment increased $3.0 million, or 10% versus fiscal 2022. These increases were partly offset by contraction in our EMEA segment, with a decrease in revenue of $(11.6) million, or (21)%. The ongoing effects of the Russo-Ukrainian war as well as the overall recessionary environment impacted the results in EMEA.
Added
Fiscal 2023 was impacted in part by greater charges associated with the Russia Exit in our EMEA segment that impacted cost of sales in addition to incremental costs associated from global supply chain challenges present at that time. Selling, general and administrative expenses.
Removed
Gross profit increased in fiscal 2023 versus fiscal 2022 on greater sales volume and higher gross profit margin, as gross profit margin increased by 260 bps. This was primarily driven by our product mix, as we increased our Point in time sales (generally higher margin sales) at a higher rate than in fiscal 2022.
Added
The increase in SG&A is due in part to investments to advance our decarbonization, diversification and digitization strategies as well as variable costs associated with increased sales activity, such 28 as sales commissions as well as salaries and benefits. SG&A as a percentage of Sales decreased by -160 bps based on disciplined cost management relative to our growth.
Removed
Furthermore, gross margin was augmented by customer price increase realization, and improved margins on design, design and supply, and design, supply and installation projects. Although we faced elevated costs related to material sourcing and labor headwinds, increases in volume and favorable product mix more than offset these effects.
Added
Restructuring and other charges/(income) mainly represent charges associated with the Russia Exit which primarily impacted fiscal 2023 as we moved the associated assets into assets held-for-sale at that time with lesser related charges in fiscal 2024. Refer to Note 14, "Restructuring and Other Charges/(Income)" for additional details. Interest expense, net. Interest expense, net increased compared to fiscal 2023.
Removed
Partially offsetting these positive drivers was a charge of $4.3 million associated with the Russia Exit. 27 Selling, general and administrative expenses. The increase in SG&A is due to costs associated with greater sales activity resulting in increased salaries and benefits, incentive pay, commissions, travel, and marketing expenses.
Added
Although we paid down approximately $58 million in total debt, our average debt balance and average interest rate increased during the year. Debt increased as we financed the acquisition of Vapor Power and our variable interest rate was relatively higher throughout fiscal 2024. Specifically, our average interest rate for fiscal 2024 was 6.59% versus 3.94% in fiscal 2023.
Removed
In addition, expenses increased in fiscal 2023 due to the acquisition of Powerblanket. We also recognized a charge of $4.6 million related to the Russia Exit in SG&A. SG&A as a percent of sales increased by 40 bps based on the above reasons. Amortization of intangible assets.
Added
See Note 12, "Long-Term Debt," for additional information. Other income/(expense). The change in other income/(expense) primarily relates to market fluctuations in the underlying investments associated with our non-qualified deferred compensation plan. These unrealized gains and losses on investments were materially offset by deferred compensation plan expense/(income) as noted above. Income taxes.
Removed
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.
Added
As of March 31, 2024, we have $49.8 million of remaining unused and authorized availability under the Repurchase Program. The Repurchase Program does not include a specific timetable or price targets and may be suspended or terminated at any time.
Removed
Although we have paid down approximately $27 million in long-term debt, we borrowed against our revolving credit facility to acquire Powerblanket and our interest rate has increased throughout fiscal 2023. At the end of fiscal 2022, interest rates were 2.62% for the Canadian Term Loan Facility and 1.96% for the U.S. Term Loan Facility.
Added
Shares may be purchased through open market or privately negotiated transactions at the discretion of management based on its evaluation of prevailing market conditions and other factors. Refer to Note 16, "Stock-Based Compensation" for more information.
Removed
As of March 31, 2023, interest rates were 6.27% for the Canadian Term Loan Facility, 5.59% for the U.S. Term Loan Facility, and 6.16% for the U.S. revolving credit facility.
Added
The comparative increase in the use of cash in fiscal 2024 versus fiscal 2023 relates to the acquisition of Vapor Power in December 2023. Refer to Note 2, "Acquisitions" for more information. Additionally, we increased capital expenditures by $1.5 million in fiscal 2024 versus fiscal 2023. Net cash provided by/(used in) financing activities.

… 7 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

19 edited+1 added−1 removed8 unchanged
Biggest changeUnder 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.
Biggest changeWe 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 34 or losses.
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.
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 equity section of our balance sheet.
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
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. 36
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.
During fiscal 2024, 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.
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.
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, 2024 and 2023, 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 $7.0 million, respectively.
Foreign 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.
Foreign currency risks related to intercompany notes. The Company exited a cross currency swap during fiscal 2022 and did not have a similar arrangements in fiscal 2023 and fiscal 2024. 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.
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.
The effect of foreign currency translation were losses of $0.8 million in fiscal 2024 and $19.2 million in fiscal 2023. In fiscal 2023, 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.
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.
Based on the outstanding borrowings, a one percent change in the interest rate would result in a $1.7 million increase or decrease in our annual interest expense. 35 Commodity price risk. We use various commodity-based raw materials in our manufacturing processes.
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.
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 $1.9 million for fiscal 2024.
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.
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 2024, we estimate that our sales were negatively impacted by $4.3 million when compared to foreign exchange translation rates that were in effect in fiscal 2023.
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.
Approximately 51% of our fiscal 2024 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 U.S., Canada and Europe.
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.
Conversely, a 10% depreciation of the U.S. dollar relative to the Euro would result in a net increase in net income of $0.3 million for fiscal 2024. The geographic areas outside the U.S. in which we operate are generally not considered to be highly inflationary.
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.
Conversely, a 10% depreciation of the U.S. dollar relative to the Canadian Dollar would result in a net increase in net income of $2.3 million for fiscal 2024. A 10% appreciation of the U.S. dollar relative to the Euro would result in a net decrease in net income of $0.2 million for fiscal 2024.
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.
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 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.
Net of forward contracts, the impact of foreign currency transactions on our consolidated statements of operations were losses of $0.2 million and losses of $0.1 million in fiscal 2024 and fiscal 2023, respectively.
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.
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, Australian Dollar, South Korean Won, Chinese Renminbi, Indian Rupee, Mexican Peso, and Japanese Yen.
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 .
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 Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging .
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.
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.
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.
As of March 31, 2024, we had $5.0 million outstanding principal under our revolving credit facility. As of March 31, 2024, we had $167.5 million of outstanding principal under our variable rate SOFR-based term loan A credit facilities.
Removed
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.
Added
The interest rate for borrowings under our term loan A credit facility was 7.05% for the U.S. term loan, 7.06% for the U.S. revolving credit facility, and 7.18% for the 2023 incremental U.S. term loan Facility as of March 31, 2024.

Other THR 10-K year-over-year comparisons