Thermon Group Holdings, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Mar. 31, 2024

Share-Based Payment Arrangement [Abstract]

The Board of Directors has adopted and the stockholders have approved three stock option award plans. The 2010 Thermon Group Holdings, Inc. Restricted Stock and Stock Option Plans ("2010 Plan") was approved on July 28, 2010. The plan authorized the issuance of 2,767,171 stock options or restricted shares (on a post stock split basis). On April 8, 2011, the Board of Directors approved the Thermon Group Holdings, Inc. 2011 Long-Term Incentive Plan ("2011 LTIP"). The 2011 LTIP made available 2,893,341 shares of the Company's common stock that may be awarded to employees, directors or non-employee contractor's compensation in the form of stock options or restricted stock awards. On May 21, 2020, the Board of Directors approved the Thermon Group Holdings, Inc. 2020 Long-Term Incentive Plan ("2020 LTIP"). The 2020 LTIP made available 1,400,000 shares of the Company's common stock that may be awarded to employees, directors, or non-employee contractor's compensation in the form of stock options or restricted stock awards. Collectively, the 2010 Plan, the 2011 LTIP, and the 2020 LTIP are referred to as the "Stock Plans." Accordingly, the vesting of restricted stock units and performance stock units and the exercise of stock options result in the issuance of additional new shares of the Company's stock. For fiscal 2024, 2023, and 2022, we recorded stock-based compensation of $5,754, $5,954, and $3,803, respectively.

Unvested options outstanding are scheduled to cliff vest over three years with 100% vesting on the third anniversary date of the grant. Stock options must be exercised within 10 years from date of grant. Stock options were issued with an exercise price which was equal to the market price of our common stock at the grant date. We account for forfeitures as they occur, rather than estimate expected forfeitures.

Stock Options

A summary of stock option activity under our Stock Plans for fiscal 2024, 2023, and 2022 are as follows:


		Options Outstanding
		Number of Shares	Weighted Average Exercise Price
Balance at March 31, 2021		111,401	$	16.53

	Exercised	(8,100)	12.00
	Forfeited	(9,742)	14.28
	Expired	(4,322)	$	16.30
Balance at March 31, 2022		89,237	$	17.20



	Expired	(14,871)	21.52
Balance at March 31, 2023		74,366	$	16.33

Balance at March 31, 2024		74,366	$	16.33

For fiscal 2024, 2023, and 2022, the intrinsic value of stock option exercises was zero, zero, and $60, respectively. As of March 31, 2024, there was no unrecognized expense related to unvested stock option awards.

The following table summarizes information about stock options outstanding as of March 31, 2024:


	Options Outstanding						Options Vested and Exercisable
Exercise Price	Number Outstanding	Weighted Average Contractual Life (Years)	Weighted Average Exercise Price		Aggregate Intrinsic Value at March 31, 2024		Number Vested and Exercisable	Weighted Average Contractual Life (Years)	Weighted Average Exercise Price		Aggregate Intrinsic Value at March 31, 2024
$14.28	45,867	6.2	$	14.28	$	845,787	45,867	6.2	$	14.28	$	845,787
$19.64	28,499	2.8	19.64		372,767		28,499	2.8	19.64		372,767
$14.28 - $19.64	74,366	4.9	$	16.33	$	1,218,554	74,366	4.9	$	16.33	$	1,218,554

The aggregate intrinsic value in the preceding table represents the total intrinsic value based on our closing stock price of $32.72 as of the last business day in the fiscal year ended March 31, 2024, which would have been received by the option holders had all option holders exercised as of that date.

Stock options are valued by using a Black-Scholes-Merton option pricing model. We calculate the value of our stock option awards when they are granted. Accordingly, we update our valuation assumptions for volatility and the risk-free interest rate each quarter that option grants are awarded. Annually, we prepare an analysis of the historical activity within our option plans as well as the demographic characteristics of the grantees of options within our stock option plan to determine the estimated life of the grants and possible ranges of estimated forfeiture. The expected life was determined using the simplified method for estimating expected option life, which qualify as "plain-vanilla" options. The risk-free interest rate is based on the rate of a zero-coupon U.S. Treasury instrument with a remaining term approximately equal to the expected term. We do not expect to pay dividends in the near term and therefore do not incorporate the dividend yield as part of our assumptions.

Restricted Stock Awards and Units

Restricted stock awards have been issued to members of our board of directors and restricted stock units have been issued to certain employees. For restricted stock awards, the actual common shares have been issued with voting rights and are included as part of our total common shares outstanding. The common shares may not be sold or exchanged until the vesting period is completed. For restricted stock units, no common shares are issued until the vesting period is completed. For restricted stock units, the Company allows its employees to withhold a portion of their units upon the vesting dates in order to satisfy their tax obligation. For both restricted stock awards and units, fair value is determined by the market value of our common stock on the date of the grant.

We established a plan to issue our directors awards of fully vested common stock in lieu of restricted stock awards. During fiscal 2024, 2023, and 2022 we issued 22,829, 38,137 and 32,136 fully vested common shares which had a total fair value of $695, $624, and $570 based on the closing price of our common stock on the date of issuance, respectively. As of March 31, 2024, there were no outstanding restricted stock awards.

The following table summarizes the activity with regard to unvested restricted stock units issued to employees during fiscal 2024, 2023, and 2022.


Restricted Stock Units		Number of Shares	Weighted Average Grant Fair Value
Balance of unvested units at March 31, 2021		304,524	$	12.96
	Granted	139,242	17.62
	Released	(125,089)	19.42
	Forfeited	(24,524)	14.81
Balance of unvested units at March 31, 2022		294,153	$	16.26
	Granted	167,842	16.82
	Released	(112,157)	17.56
	Forfeited	(13,584)	15.83
Balance of unvested units at March 31, 2023		336,254	$	16.12
	Granted	135,963	23.26
	Released	(176,813)	15.12
	Forfeited	(3,590)	20.57
Balance of unvested units at March 31, 2024		291,814	$	20.00

Based on our closing stock price of $32.72, the aggregate intrinsic value of the unvested restricted stock units at March 31, 2024 was $9,539. Total unrecognized expense related to unvested restricted stock units was approximately $3,741 as of March 31, 2024. We anticipate this expense to be recognized over a weighted average period of approximately 1.0 year.

Performance Stock Units

During fiscal 2024, 2023, and 2022, performance stock unit awards were issued to our executive officers and other members of management and had total estimated grant date fair values of $2,277, $2,547 and $1,689, respectively. For the fiscal 2024 awards, the performance indicator for these awards is either the Company's Adjusted EBITDA or return on invested capital ("ROIC"). The target number of shares is 54,655 and 45,525 for the Adjusted EBITDA and ROIC awards, respectively. We have legacy awards which utilize the stock price indicator to measures our stock price relative to a predetermined peer group of companies with similar business characteristics as ours. Since the stock price indicator is market-based, we prepared a Monte Carlo valuation model to calculate the probable outcome of the market for our stock to arrive at the fair value. The fair value of the market-based units will be expensed over three years, whether or not the market condition is met. For those awards utilizing an Adjusted EBITDA indicator or the ROIC indicator, a target is established for each of the next three years from the grant date. Since these are performance-based stock awards, the Company will make estimates of periodic expense until the performance is known and the expense for actual number of shares earned is determinable.

During fiscal 2024, the following performance was achieved: Adjusted EBITDA-based performance awards paid at approximately 82%, the stock price-related awards paid at 200%, and the ROIC-related awards were earned at approximately 160% to be paid at vesting.

During fiscal 2023, certain Adjusted EBITDA-based performance awards paid at 200% of their target based on the Company's performance during the fiscal year, and the stock price-related awards paid at 106% of their target.

During fiscal 2022, certain Adjusted EBITDA-based performance stock awards that were scheduled to vest did not meet the minimum Adjusted EBITDA indicator. Accordingly, 59,297 of previously outstanding performance stock units were forfeited during fiscal 2022.

For performance stock units, the performance period will end on the third fiscal year end subsequent to the award being granted. It will then be determined how many shares of stock will be issued. In each year of the performance period, the possible number of shares will range from zero percent to two hundred percent of the target shares.

The following table summarized the target number of performance stock units outstanding and the minimum and maximum number of shares that can be earned as of March 31, 2024.


Fiscal Year Granted	Target	Minimum	Maximum
Fiscal 2022	95,068	—	190,136
Fiscal 2023	135,479	—	270,958
Fiscal 2024	100,180	—	200,360

In fiscal 2024, 2023 and 2022, the performance objectives for 141,608, 182,423 and 91,164 awards, respectively, were earned.

At March 31, 2024, there was $2,368 in stock compensation that remained to be expensed related to performance stock units, which will be recognized over a period of 1.0 years.