thr-20211231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 001-35159

THERMON GROUP HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware			27-2228185
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

7171 Southwest Parkway, Building 300, Suite 200, Austin, Texas 78735

(Address of principal executive offices) (zip code)

(512) 690-0600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

THR

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒ No

As of February 2, 2022, the registrant had 33,350,311 shares of common stock, par value $0.001 per share, outstanding.

THERMON GROUP HOLDINGS, INC.

QUARTERLY REPORT

FOR THE QUARTER ENDED DECEMBER 31, 2021

TABLE OF CONTENTS


			Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of December 3 1 , 2021 and March 31, 2021			2
Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended December 3 1 , 2021 and 2020			3
Condensed Consolidated Statements of Equity for the three and n ine months ended December 3 1 , 2021 and 2020			4
Condensed Consolidated Statements of Cash Flows for the nine months ended December 3 1 , 2021 and 2020			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures About Market Risk			34
Item 4. Controls and Procedures			35
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			37
Item 1A. Risk Factors			37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 3. Defaults Upon Senior Securities			37
Item 4. Mine Safety Disclosures			38
Item 5. Other Information			38
Item 6. Exhibits			38
EXHIBIT INDEX			39
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2
SIGNATURE			40

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Thermon Group Holdings, Inc.

Condensed Consolidated Balance Sheets

(Dollars in Thousands, except share and per share data)


	December 31, 2021		March 31, 2021
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	32,566	$	40,124

Accounts receivable, net of allowances of $2,689 and $2,074 as of December 31, 2021 and March 31, 2021, respectively	89,422		74,501
Inventories, net	69,634		63,790
Contract assets	21,248		11,379
Prepaid expenses and other current assets	12,007		8,784
Income tax receivable	7,936		8,231

Total current assets	$	232,813	$	206,809
Property, plant and equipment, net of depreciation and amortization of $62,722 and $55,555 as of December 31, 2021 and March 31, 2021, respectively	66,299		72,630
Goodwill	211,389		213,038
Intangible assets, net	96,398		103,784
Operating lease right-of-use assets	10,935		12,619
Deferred income taxes	1,083		2,586
Other long-term assets	7,553		6,412
Total assets	$	626,470	$	617,878
Liabilities
Current liabilities:
Accounts payable	$	34,799	$	19,722
Accrued liabilities	22,731		23,888
Current portion of long-term debt	7,004		2,500

Contract liabilities	6,568		2,959
Lease liabilities	3,335		3,511
Income taxes payable	417		218

Total current liabilities	$	74,854	$	52,798
Long-term debt, net	125,092		143,017
Deferred income taxes	18,532		21,006
Non-current lease liabilities	10,312		12,373
Other non-current liabilities	9,120		9,812
Total liabilities	$	237,910	$	239,006


Commitments and contingencies (Note 9)
Equity
Common stock: $0.001 par value; 150,000,000 authorized; 33,341,899 and 33,225,808 shares issued and outstanding at December 31, 2021 and March 31, 2021, respectively	$	33	$	33
Preferred stock: $0.001 par value; 10,000,000 authorized; no shares issued and outstanding	—		—
Additional paid in capital	233,555		231,322
Accumulated other comprehensive loss	(39,871)		(35,919)
Retained earnings	194,843		183,436


Total equity	$	388,560	$	378,872
Total liabilities and equity	$	626,470	$	617,878

The accompanying notes are an integral part of these condensed consolidated financial statements

Thermon Group Holdings, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

(Dollars in Thousands, except share and per share data)


	Three Months Ended December 31, 2021		Three Months Ended December 31, 2020		Nine Months Ended December 31, 2021		Nine Months Ended December 31, 2020
Sales	$	100,613	$	79,604	$	253,090	$	202,858
Cost of sales	59,866		42,644		154,084		112,848
Gross profit	40,747		36,960		99,006		90,010
Operating expenses:
Selling, general and administrative expenses	22,099		20,283		66,820		66,222
Deferred compensation plan expense/(income)	292		599		610		1,380
Amortization of intangible assets	2,187		2,135		6,613		7,265
Restructuring and other charges/(income)	—		3,783		(414)		8,692
Income/(loss) from operations	16,169		10,160		25,377		6,451
Other income/(expenses):
Interest expense, net	(842)		(2,433)		(5,029)		(7,404)

Other income/(expense)	(627)		874		(3,517)		2,188
Income/(loss) before provision for income taxes	14,700		8,601		16,831		1,235
Income tax expense/(benefit)	3,430		2,426		5,424		(693)
Net income/(loss)	$	11,270	$	6,175	$	11,407	$	1,928


Comprehensive income/(loss):
Net income/(loss)	$	11,270	$	6,175	$	11,407	$	1,928
Foreign currency translation adjustment	(413)		14,516		(3,843)		29,245
Other miscellaneous income/(loss)	(96)		(152)		(109)		(731)
Comprehensive income/(loss)	$	10,761	$	20,539	$	7,455	$	30,442
Net income/(loss) per common share:
Basic	$	0.34	$	0.19	$	0.34	$	0.06
Diluted	0.33		0.18		0.34		0.06
Weighted-average shares used in computing net income/(loss) per common share:
Basic	33,340,000		33,180,562		33,292,614		33,110,877
Diluted	33,658,104		33,419,573		33,481,964		33,234,357

The accompanying notes are an integral part of these condensed consolidated financial statements

Thermon Group Holdings, Inc.

Condensed Consolidated Statements of Equity (Unaudited)

(Dollars in Thousands)


	Common Stock Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings/ (Loss)		Accumulated Other Comprehensive Income/(Loss)		Total
Balances at March 31, 2021	33,225,808	$	33	$	231,322	$	183,436	$	(35,919)	$	378,872
Issuance of common stock in exercise of stock options	8,100	—		97		—		—		97
Issuance of common stock as deferred compensation to employees	23,858	—		—		—		—		—
Issuance of common stock as deferred compensation to executive officers	42,326	—		—		—		—		—
Issuance of common stock as deferred compensation to directors	7,368	—		—		—		—		—
Stock compensation expense	—	—		1,178		—		—		1,178
Repurchase of employee stock units on vesting	—	—		(548)		—		—		(548)

Net income/(loss)	—	—		—		(340)		—		(340)
Foreign currency translation adjustment	—	—		—		—		4,195		4,195
Other	—	—		—		—		(64)		(64)

Balances at June 30, 2021	33,307,460	$	33	$	232,049	$	183,096	$	(31,788)	$	383,390

Issuance of common stock as deferred compensation to employees	10,687	—		—		—		—		—
Issuance of common stock as deferred compensation to executive officers	7,344	—		—		—		—		—
Issuance of common stock as deferred compensation to directors	8,352	—		—		—		—		—
Stock compensation expense	—	—		1,246		—		—		1,246
Repurchase of employee stock units on vesting	—	—		(14)		—		—		(14)
Net income/(loss)	—	—		—		477		—		477
Foreign currency translation adjustment	—	—		—		—		(7,625)		(7,625)



Other	—	—		(1)		1		51		51
Balances at September 30, 2021	33,333,843	$	33	$	233,280	$	183,574	$	(39,362)	$	377,525

Issuance of common stock as deferred compensation to employees	52	—		—		—		—		—

Issuance of common stock as deferred compensation to directors	8,004	—		—		—		—		—
Stock compensation expense	—	—		275		—		—		275

Net income/(loss)	—	—		—		11,270		—		11,270
Foreign currency translation adjustment	—	—		—		—		(413)		(413)
Other	—	—		—		(1)		(96)		(97)
Balances at December 31, 2021	33,341,899	$	33	$	233,555	$	194,843	$	(39,871)	$	388,560


	Common Stock Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings/ (Loss)		Accumulated Other Comprehensive Income/(Loss)		Total
Balances at March 31, 2020	32,916,818	$	33	$	227,741	$	182,559	$	(63,894)	$	346,439
Issuance of common stock in exercise of stock options	81,995	—		437		—		—		437
Issuance of common stock as deferred compensation to employees	39,458	—		—		—		—		—
Issuance of common stock as deferred compensation to executive officers	63,477	—		—		—		—		—
Issuance of common stock as deferred compensation to directors	13,520	—		—		—		—		—
Stock compensation expense	—	—		1,133		—		—		1,133
Repurchase of employee stock units on vesting	—	—		(557)		—		—		(557)

Net income/(loss)	—	—		—		(6,085)		—		(6,085)
Foreign currency translation adjustment	—	—		—		—		9,475		9,475
Other	—	—		—		—		(380)		(380)


Balances at June 30, 2020	33,115,268	$	33	$	228,754	$	176,474	$	(54,799)	$	350,462
Issuance of common stock in exercise of stock options	1,344	—		15		—				15
Issuance of common stock as deferred compensation to employees	33,789	—		—		—		—		—
Issuance of common stock as deferred compensation to executive officers	6,005	—		—		—		—		—
Issuance of common stock as deferred compensation to directors	13,392	—		—		—		—		—
Stock compensation expense	—	—		1,358		—		—		1,358
Repurchase of employee stock units on vesting	—	—		(129)		—		—		(129)
Net income/(loss)	—	—		—		1,838		—		1,838
Foreign currency translation adjustment	—	—		—		—		5,254		5,254



Other	—	—		—		—		(199)		(199)
Balances at September 30, 2020	33,169,798	$	33	$	229,998	$	178,312	$	(49,744)	$	358,599
Issuance of common stock in exercise of stock options	—	—		16		—		—		16
Issuance of common stock as deferred compensation to employees	1,867	—		—		—		—		—
Issuance of common stock as deferred compensation to directors	14,553	—		—		—		—		—
Stock compensation expense	—	—		430		—		—		430
Repurchase of employee stock units on vesting	—	—		(2)		—		—		(2)
Net income/(loss)	—	—		—		6,175		—		6,175
Foreign currency translation adjustment	—	—		—		—		14,516		14,516
Other	—	—		8		—		(160)		(152)
Balances at December 31, 2020	33,186,218	$	33	$	230,450	$	184,487	$	(35,388)	$	379,582

The accompanying notes are an integral part of these condensed consolidated financial statements

Thermon Group Holdings, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)


	Nine Months Ended December 31, 2021		Nine Months Ended December 31, 2020
Operating activities
Net income/(loss)	$	11,407	$	1,928
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization	15,349		15,617
Amortization of deferred debt issuance costs	495		773

Loss on extinguishment of debt	2,569		—
Stock compensation expense	2,699		2,921
Deferred income taxes	(878)		(2,698)
Reserve for uncertain tax positions, net	58		—
(Gain)/Loss on long-term cross currency swap	(1,391)		5,068
Remeasurement (gain)/loss on intercompany balances	(556)		(6,996)
Loss on sale of business, net of cash surrendered	310		2,045
Changes in operating assets and liabilities:			0
Accounts receivable	(15,471)		21,028
Inventories	(6,137)		(10,618)
Contract assets	(6,287)		(2,148)
Other current and non-current assets	(3,293)		(2,833)
Accounts payable	15,221		(2,263)
Accrued liabilities and non-current liabilities	(824)		(991)
Income taxes payable and receivable	475		(5,354)
Net cash provided by/(used in) operating activities	$	13,746	$	15,479
Investing activities
Purchases of property, plant and equipment	(2,920)		(4,708)
Sale of rental equipment	235		65




Net cash provided by/(used in) in investing activities	$	(2,685)	$	(4,643)
Financing activities
Proceeds from Term Loan A	140,425		—
Proceeds from revolving credit facility	15,959		37,189
Payments on long-term debt and revolving credit facility	(171,862)		(44,339)
Issuance costs associated with revolving line of credit and long term debt	(1,248)		—

Proceeds from exercise of stock options	97		468
Repurchase of employee stock units on vesting	(562)		(688)
Payments on finance leases	(96)		(218)
Net cash provided by/(used in) financing activities	$	(17,287)	$	(7,588)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(821)		3,057
Change in cash, cash equivalents and restricted cash	(7,047)		6,305
Cash, cash equivalents and restricted cash at beginning of period	42,450		46,006
Cash, cash equivalents and restricted cash at end of period	$	35,403	$	52,311

The accompanying notes are an integral part of these condensed consolidated financial statements

Thermon Group Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in Thousands, Except Share and Per Share Data)

1. Basis of Presentation

Thermon Group Holdings, Inc. and its direct and indirect subsidiaries are referred to collectively as “we,” “our,” or the “Company” herein. We are one of the largest providers of highly engineered industrial process heating solutions for process industries. We offer a full suite of products (heating units, heating cables, temporary power solutions and tubing bundles), services (engineering, installation and maintenance services) and software (design optimization and wireless and network control systems) required to deliver comprehensive solutions to some of the world's largest and most complex projects.

Our condensed consolidated financial statements are prepared in conformity with generally accepted accounting principles in the United States ("GAAP") and the requirements of the United States Securities and Exchange Commission ("SEC") for interim financial information. Accordingly, the accompanying condensed consolidated financial statements do not include all disclosures required for full annual financial statements and should be read in conjunction with our audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2021 ("fiscal 2021"). In our opinion, the accompanying condensed consolidated financial statements reflect all adjustments considered necessary to present fairly our financial position at December 31, 2021 and March 31, 2021, and the results of our operations for the three and nine months ended December 31, 2021 and 2020. Certain prior year amounts have been reclassified to conform with the current year's presentation.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic and the measures being taken to address and limit the spread of the virus have adversely affected the economies and financial markets of many countries, resulting in an economic downturn that negatively impacted, and may continue to negatively impact, global demand for our products and services. Although we believe the general economic environment in which we operate has improved since the onset of the COVID-19 pandemic, we may experience a decline in the demand of our products and services or disruptions in raw materials or labor required for manufacturing that could materially and negatively impact our business, financial condition, results of operation and overall financial performance in future periods. We have experienced increased costs across our global supply chain as we focus on meeting growing demand from our customers. In certain circumstances, we have had issues with a lack of availability of certain raw materials as well as increases in costs of our raw materials due to: use of alternate suppliers, higher freight costs, increased lead times, and expedited shipping. Also, we have seen labor inefficiencies and increased overtime in certain of our facilities due to temporary shortages in raw materials required for production. These increased costs have contributed to lower-than-anticipated margins in the three and nine months ended December 31, 2021.

On April 11, 2020, the Canadian government officially enacted the Canadian Emergency Wage Subsidy (the “CEWS”) for the purposes of assisting employers in financial hardship due to the COVID-19 pandemic and of reducing potential layoffs of employees. The CEWS, which was made retroactive to March 15, 2020, generally provides “eligible entities” with a wage subsidy of up to 75% of “eligible remuneration” paid to an eligible employee per week, limited to a certain weekly maximum. On September 23, 2020, the Canadian government announced that the CEWS program would be extended through the summer of 2021 and announced certain modifications to the subsidy calculation. Our Canadian operations have benefited from such wage subsidies and have received related distributions from the Canadian government.

We recorded $199 and $1,448 to "Cost of sales" in our condensed consolidated statement of operations for the three and nine months ended December 31, 2021, respectively. We recorded $4 and $504 to "Selling, general and administrative expenses" in our condensed consolidated statement of operations for the three and nine months ended December 31, 2021, respectively.

We recorded $1,399 and $3,552 to "Cost of sales" in our condensed consolidated statement of operations for the three and nine months ended December 31, 2020, respectively. We recorded $301 an $1,953 to "Selling, general and administrative expenses" in our condensed consolidated statement of operations for the three and nine months ended December 31, 2020, respectively.

Additionally, we capitalized $2 and $430 in "Inventories, net" at December 31, 2021 and March 31, 2021.

We anticipate our benefit from the CEWS program to decline in fiscal 2022 as we become less qualified for the subsidy and as the program ended in October 2021.

Use of Estimates

Generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. While management has based their assumptions and estimates on the facts and circumstances existing at December 31, 2021, actual results could differ from those estimates and affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities and the corresponding revenues and expenses as of the date of the financial statements. The operating results for the three and nine months ended December 31, 2021 are not necessarily indicative of the results that may be achieved for the fiscal year ending March 31, 2022 ("fiscal 2022").

We increased our allowance for doubtful accounts at December 31, 2021 to $2,689 from $2,074 at March 31, 2021. The increase in the period is primarily attributable to an accrual for bad debts related to potentially uncollectible receivables, mainly in our EMEA reportable segment.

We typically record compensation cost related to performance stock units that are initially deemed probable to meet our performance target 100% of the award fair value. However, during the three months ended December 31, 2021, we adjusted our compensation cost to reflect the likelihood of certain performance stock units granted in fiscal 2020 vesting based on the Company's financial performance. We determined that these awards were not probable to meet the related performance condition; therefore we have recorded income from a reversal of compensation cost of $1,073. We also recognized incremental compensation cost in the three months ended December 31, 2021 of $107 on certain fiscal 2021 and 2022 performance stock units based on the expected financial performance of the Company.

Restricted Cash and Cash Equivalents

The Company maintains restricted cash related to certain letter of credit guarantees and performance bonds securing performance obligations. The following table provides a reconciliation of cash, cash equivalents, and restricted cash included in prepaid expenses and other current assets and restricted cash included in other long-term assets reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the statements of cash flows.


	December 31,
	2021		2020
Cash and cash equivalents	$	32,566	$	49,617
Restricted cash included in prepaid expenses and other current assets	2,496		2,314
Restricted cash included in other long-term assets	341		380
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	35,403	$	52,311

Amounts shown in restricted cash included in prepaid expenses and other current assets and other long-term assets represent those required to be set aside by a contractual agreement, which contain cash deposits pledged as collateral on performance bonds and letters of credit. Amounts shown in restricted cash in other long-term assets represent such agreements that require a commitment term longer than one year.

Correction of an Error

During the second quarter of fiscal 2022, we identified an error in our previously issued unaudited condensed consolidated financial statements as of and for the three months ended June 30, 2021, as well as our consolidated financial statements as of and for the three months ended March 31, 2021. The error was due to underreported warranty costs associated with the operational execution of a large project in our US-LAM segment that completed in a prior year for which we are supplying engineering services, installation services, and equipment. Management evaluated the materiality of the error from a qualitative and quantitative perspective and concluded that the error was not material to any one quarterly period. Accordingly, we corrected the error in the consolidated balance sheets at March 31, 2021 and consolidated statements of operations and comprehensive income for the three and twelve months ended March 31, 2021. We also corrected the error in the unaudited condensed consolidated balance sheets at June 30, 2021, and unaudited condensed consolidated statements of operations and comprehensive income for the three months ended June 30, 2021 is as follows:


Consolidated Balance Sheets	March 31, 2021				March 31, 2021
	as reported		Adjustments		as corrected
Accrued liabilities	$	23,517	$	371	$	23,888
Deferred income taxes	21,088		(82)		21,006
Retained earnings	$	183,725	(289)		183,436


Consolidated Statement of Operations and Comprehensive Income	Three Months Ended March 31, 2021				Three Months Ended March 31, 2021
	as reported		Adjustments		as corrected
Sales	$	73,323	$	—	$	73,323
Cost of sales	46,090		371		46,461
Gross profit	27,233		(371)		26,862
Net income/(loss)	$	(763)	$	(288)	$	(1,051)
Net income/(loss) per common share:
Basic	$	(0.02)	$	(0.01)	$	(0.03)
Diluted	$	(0.02)	$	(0.01)	$	(0.03)


Consolidated Statement of Operations and Comprehensive Income	Twelve Months Ended March 31, 2021				Twelve Months Ended March 31, 2021
	as reported		Adjustments		as corrected
Sales	$	276,181	$	—	$	276,181
Cost of sales	158,938		371		159,309
Gross profit	117,243		(371)		116,872
Net income/(loss)	$	1,165	$	(288)	$	877
Net income/(loss) per common share:
Basic	$	0.04	$	(0.01)	$	0.03
Diluted	$	0.03	$	0.00	$	0.03


Consolidated Balance Sheets	June 30, 2021				June 30, 2021
	as reported		Adjustments		as corrected
Accrued liabilities	$	20,046	$	2,002	$	22,048
Income taxes payable	678		(424)		254
Deferred income taxes	21,880		(82)		21,798
Retained earnings	$	184,591	(1,496)		183,095


	Three Months Ended June 30, 2021				Three Months Ended June 30, 2021
	as reported		Adjustments		as corrected
Sales	$	71,155	$	—	$	71,155
Cost of sales	42,986		1,631		44,617
Gross profit	28,169		(1,631)		26,538
Net income/(loss)	$	867	$	(1,207)	$	(340)
Net income/(loss) per common share:
Basic	$	0.03	$	(0.04)	$	(0.01)
Diluted	$	0.03	$	(0.04)	$	(0.01)

Recent Accounting Pronouncements

Business Combinations - In October 2021, the FASB issued Accounting Standards Update, ("ASU") 2021-08 - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASC 805). ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. Under this "Topic 606 approach," the acquirer applies the revenue model as if it had originated the contracts. This is a departure from the current requirement to measure contract assets and contract liabilities at fair value. The ASU is effective for all public business entities in annual and interim periods starting after December 15, 2022 and early adoption is permitted. We intend to evaluate the option to early adopt should we execute a business combination before mandatory adoption. Adopting this standard could have a material impact on revenue associated with an acquired business.

Government Assistance - In November 2021, the FASB issued Accounting Standards Update 2021-10 - Government Assistance, which creates new Codification Topic 832 (government assistance). This new topic addresses the requirement for disclosures when an entity receives government assistance. The requirements state the entity should disclose the nature of the transactions and the related accounting policies used, the line items on the balance sheet and income statement that are affected and the amounts applicable to each financial statement line item, and significant terms and conditions of the transactions. Topic 832 is effective for all public business entities in annual periods in fiscal years beginning after December 15, 2021. Early application is permitted. We have early adopted this standard effective October 1, 2021, and it did not have a material impact on our financial statements.

Reference Rate Reform - In March 2020, the FASB issued Accounting Standards Update 2020-04 - Reference Rate Reform (ASC 848). The update is intended to provide temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This ASU became effective in March of 2020. As of December 31, 2021, we have not yet elected any optional expedients provided in the standard. We will apply the accounting relief, if necessary, as relevant contract and hedge accounting relationship modifications are made during the reference rate reform transition period.

Income Taxes - In December 2019, the FASB issued Accounting Standards Update 2019-12 - Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes. This ASU amends ASC 740 to simplify certain requirements related to income taxes, specifically as it relates to interim period accounting for changes in tax law and year-to-date loss limitation in interim period accounting. The new standard is effective for fiscal years beginning after December 15, 2020. We adopted this standard effective April 1, 2021, and such adoption did not have a material impact on our consolidated financial statements.

2. Fair Value Measurements

Fair Value

We measure fair value based on authoritative accounting guidance, which defines fair value, establishes a framework for measuring fair value, and expands on required disclosures regarding fair value measurements.

Inputs are referred to as assumptions that market participants would use in pricing the asset or liability. The use of inputs in the valuation process are categorized into a three-level fair value hierarchy.

•Level 1 — uses quoted prices in active markets for identical assets or liabilities we have the ability to access.

•Level 2 — uses observable inputs other than quoted prices in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•Level 3 — uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment.

Financial assets and liabilities with carrying amounts approximating fair value include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities. The carrying amount of these financial assets and liabilities approximates fair value because of their short maturities. At December 31, 2021 and March 31, 2021, no assets or liabilities were valued using Level 3 criteria.

Information about our long-term debt that is not measured at fair value is as follows:


	December 31, 2021				March 31, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value		Valuation Technique



Financial Liabilities
Outstanding principal amount of senior secured credit facility	$	132,780	$	132,116	$	148,500	$	148,871	Level 2 - Market Approach

At December 31, 2021 and March 31, 2021, the fair value of our long-term debt is based on market quotes available for issuance of debt with similar terms. As the quoted price is only available for similar financial assets, the Company concluded the pricing is indirectly observable through dealers and has been classified as Level 2.

Cross Currency Swap

On September 29, 2021, we terminated a long-term cross currency swap we previously entered into through transactions related to the amendment to our term loan and revolving credit facility. The previous intercompany receivable, for which we had the swap, was settled with us by our wholly-owned Canadian subsidiary, Thermon Canada Inc. Refer to Note 8,"Long-Term Debt" for more information regarding our debt transactions. There were no transactions related to the long-term cross currency swap in the three months ended December 31, 2021, and there was not a balance associated with the swap in our condensed consolidated balance sheets as of December 31, 2021.

Deferred Compensation Plan

The Company provides a non-qualified deferred compensation plan for certain highly compensated employees where payroll contributions are made by the employees on a pre-tax basis. Included in “Other long-term assets” in the condensed consolidated balance sheets at December 31, 2021 and March 31, 2021 were $5,710 and $5,047, respectively, of deferred compensation plan assets held by the Company. Deferred compensation plan assets (mutual funds) are measured at fair value on a recurring basis based on quoted market prices in active markets (Level 1). The Company has a corresponding liability to participants of $5,258 and $4,608 included in “Other long-term liabilities” in the condensed consolidated balance sheets at December 31, 2021 and March 31, 2021, respectively. In fiscal 2022, deferred compensation plan expense/(income) is included as such in the condensed consolidated statement of operations, and therefore is excluded from "Selling, general and administrative expenses." Deferred compensation expense/(income) was $292 and $599 for the three months ended December 31, 2021 and 2020, respectively, and $610 and $1,380 for the nine months ended December 31, 2021 and 2020, respectively. Expenses and income from our deferred compensation plan were offset by unrealized gains and losses for the deferred compensation plan included in "Other income and expense" on our condensed consolidated statements of operations and comprehensive income. Our unrealized gains on investments were $314 and $651, respectively, for the three months ended December 31, 2021 and 2020, respectively, and $620 and $1,419 for the nine months ended December 31, 2021 and 2020, respectively.

Trade Related Foreign Currency Forward Contracts

We transact business in various foreign currencies and have established a program that primarily utilizes foreign currency forward contracts to address 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 foreign currency transaction gains or losses. These foreign currency exposures arise from intercompany transactions as well as third party accounts receivable or payable that are denominated in foreign currencies. Our forward contracts generally have terms of 30 days. We do not use forward contracts for trading purposes or designate these forward contracts as hedging instruments pursuant to ASC 815. We adjust the carrying amount of all contracts to their fair value at the end of each reporting period and unrealized gains and losses are included in "Other income and expense" on our condensed consolidated statements of operations and comprehensive income. These gains and losses are designed to offset gains and losses resulting from settlement of receivables or payables by our foreign operations which are settled in currency other than the local transactional currency. The fair value is determined by quoted prices from active foreign currency markets (Level 2). Fair value amounts for such forward contracts on our condensed consolidated balance sheets are either classified as accounts receivable, net or accrued liabilities depending on whether the forward contract is in a gain (accounts receivable, net) or loss (accrued liabilities) position. 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 December 31, 2021 and March 31, 2021, the notional amounts of forward contracts were as follows:


Notional amount of foreign currency forward contracts by currency
	December 31, 2021		March 31, 2021
Russian Ruble	$	1,701	$	3,000

Canadian Dollar	3,500		5,500
South Korean Won	1,850		5,000

Mexican Peso	1,850		1,500
Australian Dollar	1,300		900



Great Britain Pound	—		500

Total notional amounts	$	10,201	$	16,400

The following table represents the fair value of our foreign currency forward contracts:


	December 31, 2021				March 31, 2021
	Fair Value				Fair Value
	Assets		Liabilities		Assets		Liabilities
Foreign currency forward contracts	$	63	$	64	$	61	$	32

Foreign currency gains or losses related to our forward contracts in the accompanying condensed consolidated statements of operations and comprehensive income were losses of $(637) and of $(388) in the three months ended December 31, 2021 and 2020, respectively, and losses of $(861) and $(437) for the nine months ended December 31, 2021 and 2020, respectively. Gains and losses from our forward contracts were offset by transaction gains or losses incurred with the settlement of transactions denominated in foreign currencies. For the three months ended December 31, 2021 and 2020, our net foreign currency transactions resulted in losses of $(949) and gains of $109, respectively, and losses of $(1,634) and gains of $85 for the nine months ended December 31, 2021 and 2020, respectively.

3. Restructuring and Other Charges/(Income)

In fiscal 2021, we enacted certain restructuring initiatives to align our cost structure with the decline in demand for our products and services at that time primarily due to COVID-19 and supply/demand fluctuations in commodity prices. We are substantially complete with these initiatives. We recorded the following charges/(income) as it relates to restructuring.

Fiscal 2022 charges/(income)

No activity was recorded for the three months ended December 31, 2021. For the nine months ended December 31, 2021, we recorded $(103) for severance-related activity in our Canadian segment which was recorded to "Restructuring and other charges/(income)" in our condensed consolidated statements of operations and comprehensive income. Additionally, we recorded $(311) in cash receipts related to receivables existing prior to the sale of our South Africa business, which was completed in fiscal 2021.

Fiscal 2021 charges/(income)

The Company eliminated approximately 66 and 262 hourly and salaried positions and incurred $997 and $5,858 in one-time severance costs during the three and nine months ended December 31, 2020, respectively, which was recorded to "Restructuring and other charges/(income)" in our condensed consolidated statements of operations and comprehensive income.

In addition, we incurred $429 in lease impairment costs primarily related to one of our Canadian facilities that was substantially vacated by December 31, 2020, as the Company executed efforts to optimize its global manufacturing footprint. We also exercised the early termination option for one of our existing leases in Canada, which resulted in the remeasurement of the related right-of-use asset and lease liability and accelerated the lease amortization and expense to align with the cease use date of the facility. We substantially vacated the facility by December 31, 2020. As a result, we recorded an incremental $144 and $191 in lease abandonment charges during the three and nine months ended December 31, 2020, respectively. Both of these lease-related costs were recorded to restructuring and other charges/(income) in our condensed consolidated statements of operations and comprehensive income.

Disposal of South Africa Business

On December 15, 2020, a Sale of Shares Agreement was entered into between one of our consolidated subsidiaries and an investor consortium (the "TSAPL Purchasers"). As a result of this agreement, 100% of the outstanding common shares of our consolidated subsidiary, Thermon South Africa Proprietary Limited (the "South Africa Business"), were sold to the TSAPL Purchasers, with aggregate proceeds of 2,500 South African Rand (ZAR), or $167, as partial satisfaction of an existing note receivable. In addition, the TSAPL Purchasers committed to settle operational receivables attributable to other Thermon Group Holdings, Inc. subsidiaries that were existing at the time of sale.

After evaluating our presence in the region served by the South Africa Business, the Company decided to centralize and consolidate our business structure and streamline our organization. A member of the TSAPL Purchasers was the current general manager of the operations at the time of sale. This sale is accompanied by a distribution agreement whereby the new owners will distribute our products, thus continuing the Company's presence in the region. We believes this is an opportunity to optimize the business while pivoting to a new relationship that will better enable us to serve our customers.

As a result of the sale and in accordance with ASC 360-10, we recognized a loss on the sale of a business of $2,214, which included the impact of a currency translation adjustment of $828. This loss was recognized within restructuring and other charges/(income) on the condensed consolidated statements of operations and comprehensive income. The reported loss on sale of stock is not deductible for tax. Prior to the disposal, the South Africa Business's results were reported within the "Europe, Middle East and Africa" segment.

Restructuring and other charges/(income) by reportable segment were as follows:


	Three Months Ended December 31, 2021		Three Months Ended December 31, 2020		Nine Months Ended December 31, 2021		Nine Months Ended December 31, 2020

United States and Latin America	$	—	$	959	$	(46)	$	3,373
Canada	—		573		(186)		2,702
Europe, Middle East and Africa	—		2,251		(182)		2,607
Asia-Pacific	—		—		—		10
	$	—	$	3,783	$	(414)	$	8,692

Restructuring activity related to severance activity described above recorded in "Accrued liabilities" on the condensed consolidated balance sheets is summarized as follows for the nine months ended December 31, 2021 and December 31, 2020:


	Nine Months Ended December 31, 2021		Nine Months Ended December 31, 2020
Beginning balance	$	657	$	—
Costs/(income)	(103)