Thermon Group Holdings Inc.
11/06/2025 | Press release | Distributed by Public on 11/06/2025 11:37
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Introduction and Special Note Regarding Forward-Looking Statements
Management's discussion and analysis of our financial condition and results of operations is provided as a supplement to the unaudited condensed consolidated financial statements and accompanying notes thereto for the three and six months ended September 30, 2025 and 2024 to help provide an understanding of our financial condition, changes in our financial condition, and results of our operations. In this quarterly report, we refer to the three month periods ended September 30, 2025 and 2024 as "Interim 2026" and "Interim 2025," respectively and the six month periods ended September 30, 2025 and 2024 as "YTD 2026" and "YTD 2025." The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, our unaudited condensed consolidated financial statements and related notes included in Item 1 above.
This quarterly report includes forward-looking statements within the meaning of the U.S. federal securities laws in addition to historical information. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding our industry, business strategy, plans, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words "anticipate," "assume," "believe," "budget," "continue," "contemplate," "could," "should," "estimate," "expect," "intend," "may," "plan," "possible," "potential," "predict," "project," "will," "would," "future," and similar terms and phrases are intended to identify forward-looking statements in this quarterly report.
Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our financial condition, results of operations and cash flows. These forward-looking statements include but are not limited to statements regarding: (i) our plans to strategically pursue emerging growth opportunities, including strategic acquisitions, in diverse regions and across industry sectors; (ii) our plans to secure more new facility project bids; (iii) our ability to generate more facility maintenance, repair and operations or upgrades or expansions revenue from our existing and future installed base; (iv) our ability to timely deliver backlog; (v) our ability to respond to new market developments and technological advances; (vi) our expectations regarding energy consumption and demand in the future and its impact on our future results of operations; (vii) our plans to develop strategic alliances with major customers and suppliers; (viii) our expectations that our revenues will increase; (ix) our belief in the sufficiency of our cash flows to meet our needs for the next year; (x) our ability to integrate acquired companies; (xi) our ability to successfully achieve synergies from acquisitions; and (xii) our ability to make required debt repayments.
Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to identify all of these factors, they include, among others, (i) future growth of our key end markets and related capital investments; (ii) our ability to operate successfully in foreign countries; (iii) uncertainty over and changes in administrative policy; (iv) general economic conditions and cyclicality in the markets we serve; (v) our ability to successfully develop and improve our products and successfully implement new technologies; (vi) competition from various other sources providing similar heat tracing and process heating products and services, or alternative technologies, to customers; (vii) our ability to deliver existing orders within our backlog; (viii) our ability to bid and win new contracts; (ix) the imposition of certain operating and financial restrictions contained in our debt agreements; (x) our revenue mix; (xi) our ability to grow through strategic acquisitions; (xii) our ability to manage risk through insurance against potential liabilities (xiii) changes in relevant currency exchange rates; (xiv) tax liabilities and changes to tax policy; (xv) impairment of goodwill and other intangible assets; (xvi) our ability to attract and retain qualified management and employees, particularly in our overseas markets; (xvii) our ability to protect our trade secrets; (xviii) our ability to protect our intellectual property; (xix) our ability to protect data and thwart potential cyber-attacks and incidents; (xx) a material disruption at any of our manufacturing facilities; (xxi) our dependence on subcontractors and third-party suppliers; (xxii) our ability to profit on fixed-price contracts; (xxiii) the credit risk associated to our extension of credit to customers; (xxiv) our ability to achieve our operational initiatives; (xxv) unforeseen difficulties with expansions, relocations, or consolidations of existing facilities; (xxvi) potential liability related to our products as well as the delivery of products and services; (xxvii) our ability to comply with foreign anti-corruption laws; (xxviii) export control regulations or sanctions; (xxix) environmental and health and safety laws and regulations as well as environmental liabilities; (xxx) changes in government administrative policy and government sanctions, including the recently enacted tariffs on trade between the U.S. and Canada; (xxxi) climate change and related regulation of greenhouse gases, and (xxxii) those factors listed under Item 1A, "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2025, filed with the Securities and Exchange Commission (the "SEC") on May 22, 2025, and in any subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K or other filings that we have filed or may file with the SEC. Any one of these factors or a combination of these factors could materially affect our future results of operations and could influence
whether any forward-looking statements contained or incorporated by reference in this quarterly report ultimately prove to be accurate.
Our forward-looking statements are not guarantees of future performance, and actual results and future performance may differ materially from those suggested in any forward-looking statements. We do not intend to update these statements unless we are required to do so under applicable securities laws.
Business Overview and Company History
Thermon is a diversified industrial technology company and a global leader in industrial process heating, temperature maintenance, environmental monitoring, and temporary power distribution solutions. We deliver engineered solutions that enhance operational awareness, safety, reliability, and efficiency to deliver the lowest total cost of ownership.
Thermon offers over 250 products, software and services across multiple brands, providing a range of offerings from boilers, transportation heaters, and liquid load banks to tubing bundles and heat trace. Our advanced technologies and expertise are essential to safeguarding the operational resilience of critical infrastructure. From the relentless demands of chemical plants and the intricate networks of rail and transit to the vital pulse of power generation, we innovate solutions that ensure optimal operation, protect critical assets, and maximize efficiency.
We care deeply about the success of our customers, the well-being of our people, and the reliability of every product we design. This drives our unwavering commitment to safety and integrity in everything we do. Through collaboration, we unite a rich legacy of expertise with a trusted global team, partnering side-by-side with our customers.
Revenue.During YTD 2026 and YTD 2025, approximately 44% and 50%, respectively, of our revenues were generated from outside of the United States. Our revenues are derived from providing customers with a full suite of innovative and reliable process heating solutions, including advanced heating and filtration solutions for industrial and hazardous area applications. Revenue recognized at a point-in-time occurs based on when control transfers to the customer and is generally related to our product sales. Revenue recognized over time occurs on our projects where engineering, manufactured materials, or installation services, or a combination of the three, are required. We recognize revenue related to such projects in a systematic way that reflects the transfer of goods or services, or a combination thereof, to the customer.
We maintain 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").
We believe that our pipeline of planned projects, in addition to our backlog of signed purchase orders received from customers, provides us with visibility into our future revenue. 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 construction projects. Our backlog at September 30, 2025, was $251.3 million, as compared to $240.3 million at March 31, 2025. The timing of recognition of revenue out of backlog is not always certain, as it is subject to a variety of factors that may cause delays, many of which are beyond our control (such as, customers' delivery schedules and levels of capital and maintenance expenditures). When delays occur, the recognition of revenue associated with the delayed project is likewise deferred.
Cost of sales. Our cost of sales includes primarily the cost of raw material items used in the manufacture of our products, cost of ancillary products that are sourced from external suppliers and construction labor costs. Additional costs of sales include contract engineering costs directly associated to projects, direct labor costs, shipping and handling costs, and other costs associated with our manufacturing/fabrication operations. The other costs associated with our manufacturing/fabrication operations are primarily indirect production costs, including depreciation, indirect labor costs, warranty-related costs and the costs of manufacturing support functions such as logistics and quality assurance. Key raw material costs include polymers, copper, stainless steel, insulating material, electronic components and other miscellaneous parts related to products manufactured or assembled. 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. Our selling, general and administrative expenses ("SG&A") are primarily comprised of compensation and related costs for sales, marketing, pre-sales engineering and administrative personnel, plus other sales related expenses as well as other costs related to research and development, insurance, professional fees, the global integrated business information system, and provisions for credit losses. In addition, our deferred compensation expense includes a non-qualified deferred compensation plan for certain highly compensated employees where payroll contributions are made by the employees on a pre-tax basis. The expense/income associated with our deferred compensation plan is titled "Deferred compensation plan expense/(income)" on our condensed consolidated statements of operations and comprehensive income/(loss).
Key drivers affecting our results of operations.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, 2025, filed with the SEC on May 22, 2025, and in any subsequent Quarterly Reports on Form 10-Q that we have filed or may file with the SEC, including those described below. These factors include the following:
•Impact of product mix. Typically, our customers require our products as well as our engineering and installation services. 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. For clarity, we will refer to these as "Over time large projects." Our results of operations in recent years have been impacted by the various construction phases of Over time large projects. We are typically designated as the heating solutions provider of choice by the project owner. We then engage with multiple contractors to address incorporating various heating solutions throughout the overall project. Our largest projects may generate revenue for several quarters. In the early stages of an Over time large project, our revenues are typically realized from the provision of engineering services. In the middle stages, or the material requirements phase, we typically experience the greatest demand for our heating products, at which point our revenues tend to accelerate. Revenues tend to decrease gradually in the final stages of a project and are generally derived from installation services and demand for electrical panels and other miscellaneous electronic components used in the final installation of heating solutions, which we frequently outsource from third-party manufacturers.
Projects that do not require installation and maintenance services are typically smaller in size and representative of maintenance, repairs and small upgrades necessary to improve efficiency and uptime. These small projects are often tied to our customers operating expense budgets, are generally less than $0.5 million in total revenue, and have relatively higher profit margins. We refer to such projects as "Over time small projects."
The most profitable of our sales are derived from selling our heating products for which we recognize revenue at a point in time. We also tend to experience lower margins from our outsourced products, such as electrical switch gears and transformers than we do from our manufactured products. Accordingly, our results of operations are impacted by our mix of products and services.
We estimate that Point in time and Over time revenues have each contributed the following as a percentage of total revenue in the periods listed:
| Three Months Ended September 30, | Six months ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Point in time | 71 | % | 72 | % | 71 | % | 69 | % | |||||||||||||||
| Over time: | 29 | % | 28 | % | 29 | % | 31 | % | |||||||||||||||
| Small projects | 10 | % | 13 | % | 12 | % | 16 | % | |||||||||||||||
| Large projects | 19 | % | 15 | % | 17 | % | 15 | % | |||||||||||||||
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 certain engineered 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 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. 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.
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 estimated 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. Changes to the original cost estimate may be required during the life of the contract and such estimates are reviewed on a regular basis. Sales and gross profits are adjusted using the cumulative catch-up method for revisions in estimated contract costs. Reviews of estimates have not generally resulted in significant adjustments to our results of operations.
Point in time revenue represents goods transferred to customers at a point in time and is recognized when obligations under the terms of the contract with the customer are satisfied; generally this occurs with the transfer of control upon shipment.
•Cyclicality of end users' markets. Demand for our products and services depends in large part upon the level of capital and maintenance expenditures of our customers and end users, in particular those in the energy, oil, gas, chemical processing and power generation industries, and firms that design and construct facilities for these industries. These customers' expenditures historically have been cyclical in nature and vulnerable to economic downturns. Large projects historically have been a substantial source of revenue growth, and large project revenues tend to be more cyclical than maintenance and repair revenues. A sustained decrease in capital and maintenance spending or in new facility construction by our customers could have a material adverse effect on the demand for our products and services and our business, financial condition and results of operations.
•Acquisition strategy. In recent years, we have been executing on a strategy to grow the Company through the acquisition of businesses that are either in the process heating solutions industry or provide complementary products and solutions for the markets and customers we serve. Refer to Note 2, "Acquisition," for more discussion.
Recent Developments
We have continued to monitor the evolving global trade environment and its potential impact on our operations. In the three and six months ended September 30, 2025, we incurred approximately $0.7 million and $1.6 million, respectively, in incremental direct tariff costs. While tariffs remain a factor in our cost structure, the overall financial impact has been lower than initially anticipated.
To proactively manage both direct and indirect tariff-related costs, we have implemented several mitigation strategies. These include price adjustments to reflect the higher cost environment, optimization of our global manufacturing footprint, and strategic reconfiguration of our supply chain. We remain committed to closely monitoring trade developments and adapting our operations to minimize disruption and preserve margin performance.
On July 24, 2025, we entered into an amendment to our existing Credit Agreement to modify certain terms of our debt facility in alignment with our long-term strategic initiatives.
We continue to execute on our disciplined capital allocation strategy, which includes driving growth through investments in our technology and people, prioritizing inorganic growth opportunities with strategic fit that can exceed the weighted-average cost of capital by year three and be accretive to earnings per share in year one, returning capital to our shareholders through our share repurchase program and paying down our long-term debt while managing within our targeted leverage ratio.
Results of Operations - Three-month periods ended September 30, 2025 and 2024
The following table sets forth our unaudited condensed consolidated statements of operations for the three months ended September 30, 2025 and 2024, respectively, and indicates the amount of change and percentage change between periods.
| (Dollars in thousands) | Three Months Ended September 30, | Change | |||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| Condensed Consolidated Statements of Operations: | |||||||||||||||||||||||
| Sales | $ | 131,723 | $ | 114,648 | $ | 17,075 | 15 | % | |||||||||||||||
| Cost of sales | 70,647 | 63,736 | 6,911 | 11 | % | ||||||||||||||||||
| Gross profit | 61,076 | 50,912 | 10,164 | 20 | % | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative expenses | 35,508 | 31,259 | 4,249 | 14 | % | ||||||||||||||||||
| Deferred compensation plan expense/(income) | 486 | 434 | 52 | 12 | % | ||||||||||||||||||
| Amortization of intangible assets | 3,502 | 3,402 | 100 | 3 | % | ||||||||||||||||||
| Restructuring and other charges/(income) | - | 614 | (614) | (100) | % | ||||||||||||||||||
| Income from operations | 21,580 | 15,203 | 6,377 | 42 | % | ||||||||||||||||||
| Other income/(expenses): | |||||||||||||||||||||||
| Interest expense, net | (2,022) | (2,790) | 768 | (28) | % | ||||||||||||||||||
| Other income/(expense) | 456 | 563 | (107) | (19) | % | ||||||||||||||||||
| Income before provision for income taxes | 20,014 | 12,976 | 7,038 | 54 | % | ||||||||||||||||||
| Income tax expense | 5,060 | 3,482 | 1,578 | 45 | % | ||||||||||||||||||
| Net income | $ | 14,954 | $ | 9,494 | $ | 5,460 | 58 | % | |||||||||||||||
| As a percent of sales: | Change in basis points | ||||||||||||||||||||||
| Gross profit | 46.4 | % | 44.4 | % | 200 bps | ||||||||||||||||||
| Selling, general and administrative expenses | 27.0 | % | 27.3 | % | -30 bps | ||||||||||||||||||
| Income from operations | 16.4 | % | 13.3 | % | 310 bps | ||||||||||||||||||
| Net income | 11.4 | % | 8.3 | % | 310 bps | ||||||||||||||||||
| Effective tax rate | 25.3 | % | 26.8 | % | -150 bps | ||||||||||||||||||
Three Months Ended September 30, 2025 ("Interim 2026") Compared to the Three Months Ended September 30, 2024 ("Interim 2025")
Sales. Our Interim 2026 results benefitted from increased demand, the contribution from F.A.T.I., as well as realization of revenues that were pushed out of the first fiscal quarter due to delayed backlog conversion. The increase was driven by greater Point in time or "product" sales, which rose $11.2 million or 13.6% year-over-year to $93.5 million, representing 71% of total sales. Over time or "project" sales also contributed meaningfully, increasing $5.9 year-over-year or 18.1% to $38.2 million. The Company's fiscal 2025 acquisition, F.A.T.I., added $6.9 million in point in time revenue during the quarter. Absent F.A.T.I., total sales increased $10.2 million or 8.9% in Interim 2026 as compared to Interim 2025.
Separately, we experienced growth across most geographic segments. Projects activity was up in all segments but much more pronounced in US-LAM and EMEA. Revenue for the US-LAM segment rose 8.4% to $63.8 million, with Point in time revenue up 1.8% and Over time revenue up 29.0%. Canada delivered 9.6% revenue growth to $40.4 million, with Point in time revenue up 11.5% and Over time revenue up 4.8%. EMEA posted the strongest growth, with revenue doubling to $18.1 million, up 100.0% year-over-year, thanks to the contribution from F.A.T.I. APAC declined 4.1% to $9.5 million, with Point in time revenue down 7.8% and Over time revenue up 2.4%. APAC overall is down due to lingering uncertainty around global trade policies with China.
Separately, foreign exchange rates positively impacted revenues in Interim 2026 by approximately $0.2 million, net, as the U.S. dollar weakened on average in the period relative to our other primary operating currencies.
Refer to the "Overview" section above for definitions of Point in time and Over time revenue.
Gross profit and margin.Gross profit increased in Interim 2026 compared to Interim 2025 due to an increase in the throughput of our manufacturing operations, disciplined cost control, including tariff mitigation measures, and pricing benefits. This led to an expansion of margins in both project and product sales.
Selling, general and administrative expenses. The increase in SG&A expenses in Interim 2026 was driven by incremental expenses from F.A.T.I., investments in our growth initiatives, which includes compensation-related expenses. These were partially offset by disciplined cost management. SG&A as a percent of sales was 27.0% in Interim 2026, slightly lower than 27.3% in Interim 2025.
Deferred compensation plan expense/(income). The change in deferred compensation plan expense/(income) in Interim 2026 is attributable to market fluctuations in the underlying balances owed to employees as compared to Interim 2025. To note, this compensation plan expense/(income) is materially offset in other income/(expense) where the Company records market gains/(losses) on the related investment assets. Refer to Note 3, "Fair Value Measurements," for more information.
Amortization of intangible assets.Amortization of intangible assets in Interim 2026 increased when compared to Interim 2025 primarily related to intangibles assets associated with our recent acquisition. Refer to Note 2, "Acquisition" for more information.
Restructuring and other charges/(income). Restructuring and other charges/(income) were zero in Interim 2026 and $0.6 million in Interim 2025 related to a reduction in force plan as well as a consolidation of production lines from the Denver manufacturing facility to the San Marcos, Texas manufacturing facility as part of certain cost-cutting measures and operational excellence efforts.. Refer to Note 4, "Restructuring and Other Charges/(Income)" for more information.
Interest expense, net.The decrease in interest expense is primarily due to a lower average outstanding principal balance of $139.5 million during Interim 2026 versus $167.4 million in Interim 2025 as well as relatively lower interest rates, 5.76% versus 6.75%. See Note 9, "Debt," for additional information on our outstanding debt.
Other income/(expense). The decrease in Other income/(expense) in Interim 2026 is mainly attributable 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 tax expense.Our effective tax rate was 25.3% and 26.8% in Interim 2026 and Interim 2025, respectively. Interim 2026 tax expense was lower due to a shift in earnings to lower tax jurisdictions. Refer to Note 12, "Income Taxes," for additional detail.
Results of Operations - Six-month periods ended September 30, 2025 and 2024
The following table sets forth our unaudited condensed consolidated statements of operations for the six months ended September 30, 2025 and 2024, respectively, and indicates the amount of change and percentage change between periods.
| (Dollars in thousands) |
Six Months Ended September 30, |
Change | |||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| Condensed Consolidated Statements of Operations: | |||||||||||||||||||||||
| Sales | $ | 240,621 | $ | 229,774 | $ | 10,847 | 5 | % | |||||||||||||||
| Cost of sales | 131,500 | 128,430 | 3,070 | 2 | % | ||||||||||||||||||
| Gross profit | 109,121 | 101,344 | 7,777 | 8 | % | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative expenses | 67,683 | 62,347 | 5,336 | 9 | % | ||||||||||||||||||
| Deferred compensation plan expense | 1,141 | 537 | 604 | 112 | % | ||||||||||||||||||
| Amortization of intangible assets | 6,991 | 6,799 | 192 | 3 | % | ||||||||||||||||||
| Restructuring and other charges/(income) | - | 2,723 | (2,723) | (100) | % | ||||||||||||||||||
| Income from operations | 33,306 | 28,938 | 4,368 | 15 | % | ||||||||||||||||||
| Other income/(expenses): | |||||||||||||||||||||||
| Interest expense, net | (3,983) | (5,637) | 1,654 | (29) | % | ||||||||||||||||||
| Other income/(expense) | 1,698 | 706 | 992 | 141 | % | ||||||||||||||||||
| Income before provision for income taxes | 31,021 | 24,007 | 7,014 | 29 | % | ||||||||||||||||||
| Income tax expense | 7,486 | 6,002 | 1,484 | 25 | % | ||||||||||||||||||
| Net income | $ | 23,535 | $ | 18,005 | $ | 5,530 | 31 | % | |||||||||||||||
| As a percent of sales: | Change in basis points | ||||||||||||||||||||||
| Gross profit | 45.3 | % | 44.1 | % | 120 bps | ||||||||||||||||||
| Selling, general and administrative expenses | 28.1 | % | 27.1 | % | 100 bps | ||||||||||||||||||
| Income from operations | 13.8 | % | 12.6 | % | 120 bps | ||||||||||||||||||
| Net income | 9.8 | % | 7.8 | % | 200 bps | ||||||||||||||||||
| Effective tax rate | 24.1 | % | 25.0 | % | -90 bps | ||||||||||||||||||
Six Months Ended September 30, 2025 ("YTD 2026") Compared to the Six Months Ended September 30, 2024 ("YTD 2025")
Sales.Our YTD 2026 results benefitted from improving demand in Interim 2026, the contribution from F.A.T.I., and strong pricing actions. However, market uncertainty related to tariffs weighed on consumer demand in our first quarter and continued to impact customer capex decisions. The Company's fiscal 2025 acquisition, F.A.T.I., added a commendable $13.7 million in revenue during YTD 2026. Point in time or "product" sales, which rose $12.7 million or 8.0% year-over-year to $171.8 million, represented 71% of total sales. On the contrary, Over time or "project" sales were down $1.9 year-over-year or 2.7% to $68.8 million. Absent F.A.T.I., global sales contracted slightly by $2.8 million or 1.2%.
Segment performance was mixed. EMEA delivered strong growth, with revenue more than doubling from $16.9 million to $35.1 million, up 108.3% year-over-year, supported by both organic expansion and acquisition-related volume. Canada posted a modest increase of 0.4% to $75.6 million, as a 10.0% increase in Point in time revenue more than offset a 16.5% decline in over-time revenue, which was impacted by reduced activity in large customer projects. US-LAM revenue declined 4.2% to $113.8 million, with Point in time revenue down 6.5%, while over-time revenue increased 2.7% on improved project activity. APAC revenue decreased 14.6% to $16.1 million, with declines in both Point in time and over-time revenue due to lingering uncertainty around global trade policies, particularly with China.
In YTD 2026, approximately 73% of our total revenue was derived from non-oil and gas sources, reflecting continued progress in our diversification strategy and increased demand across industrial, commercial, and other end markets.
Finally, foreign exchange rates positively impacted revenues in YTD 2026 by approximately $0.6 million, net, as the U.S. dollar strengthened on average over the period relative to our other primary operating currencies.
Refer to the "Overview" section above for definitions of Point in time and Over time revenue.
Gross profit and margin.Gross profit increased $7.8 million on higher sales volume and pricing actions. The improved gross margin is due to greater throughput in our plants, a slight shift in revenue mix toward relatively more profitable product sales, plus the impacts of prudent cost management and pricing efforts.
Selling, general and administrative expenses. Selling, general and administrative expenses increased $5.3 million or 9% in YTD 2026 compared to YTD 2025 driven mainly by expenses related to the F.A.T.I. Acquisition as well as investments in our strategic growth initiatives, which includes compensation-related expenses, partially offset by disciplined cost management. SG&A as a percent of sales increased 100 bps.
Deferred compensation plan expense. Deferred compensation plan expense/(income) was higher in YTD 2026 compared to YTD 2025 due 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 recorded market gains/(losses) on related investment assets. Refer to Note 3, "Fair Value Measurements," for more information.
Restructuring and other charges/(income). In YTD 2025, we enacted a reduction in force plan as well as a consolidation of production lines from the Denver manufacturing facility to the San Marcos, Texas manufacturing facility as part of certain cost-cutting measures and operational excellence efforts. No such charges were present in YTD 2026. Refer to Note 4, "Restructuring and Other Charges/(Income)" for more information.
Amortization of intangible assets.Amortization of intangible assets increased when compared to YTD 2025 primarily related to intangibles assets associated with the F.A.T.I. Acquisition. Refer to Note 2, "Acquisition" for more information.
Interest expense, net.Interest expense, net decreased in YTD 2026 as compared to YTD 2025 due primarily to a lower average debt balance ($139.3 million in YTD 2026 versus $169.1 million in YTD 2025) as well as a lower average interest rate of 5.79% versus 6.87%. Refer to Note 9, "Debt," for more information on our outstanding debt.
Other income. The change in Other income in YTD 2026 is primarily attributable 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 as noted above.
Income taxes. Our effective tax rate was 24.1% and 25.0% in YTD 2026 and YTD 2025, respectively. The Company's effective tax rate was impacted by discrete tax items such as the benefit from the release of a valuation reserve on foreign tax credits that we expect to receive and the benefit from realized stock compensation in excess of the estimate. Refer to Note 12, "Income Taxes," for additional detail.
Contingencies
See Note 10, "Commitments and Contingencies," to our unaudited condensed consolidated financial statements included above in Part I, Item 1. Financial Statements (Unaudited) of this quarterly report, which is hereby incorporated by reference into this Item 2.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations and funds available under our Revolving Credit Facility. Our primary liquidity needs are to finance our working capital, capital expenditures, debt service requirements, share repurchases and potential future acquisitions.
At September 30, 2025, we had $29.7 million in cash and cash equivalents and $99.4 million inavailable borrowing capacity under our Revolving Credit Facility. We manage our global cash requirements by maintaining cash and cash equivalents at various financial institutions throughout the world where we operate. Approximately $6.6 million, or 22%, of these amounts were held in domestic accounts with various institutions and approximately $23.1 million, or 78%, of these amounts were held in accounts outside of the United States with various financial institutions. While we require cash needs at our various foreign operations, excess cash is available for distribution to the United States through intercompany dividends. Please refer to Note 1, "Basis of Presentation," for more information regarding our restricted cash.
Generally, we seek to maintain a cash and cash equivalents balance between $30.0 and $40.0 million. We will encounter periods where we may be above or below this range, due to, for example, inventory buildup for anticipated seasonal demand in fall and winter months, related cash receipts from credit sales in months that follow, debt maturities, restructuring activities, larger capital investments, severe and/or protracted economic downturns, acquisitions, share repurchases or some combination of the above activities. The Company continues to manage its working capital requirements effectively through optimizing inventory levels, doing business with creditworthy customers, and extending payment terms with its supplier base.
Future Cash Requirements
Our future capital requirements depend on many factors as noted throughout this quarterly report. 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 had $14.7 million outstanding on our Revolving Credit Facility at September 30, 2025.
We expect our capital expenditures to be approximately 2.5% to 3.0% of revenue in fiscal 2026. We expect to pay $6.3 million in principal payments on our long-term debt in the next 12 months. Also, we are contractually obligated for $3.8 million related to our leased assets. See further details in Note 9, "Debt," in Part I, Item 1. Financial Statements (Unaudited) of this quarterly report. We also have payment commitments of $3.3 million, mostly related to long-term information technology contracts, of which $2.8 million is due within the next 12 months.
Discussion and Analysis of Cash Flows
| Six months ended September 30, | |||||||||||||||||
| 2025 | 2024 | Increase/(Decrease) | |||||||||||||||
| Total cash provided by/(used in): | |||||||||||||||||
| Operating activities | $ | 18,167 | $ | 21,221 | $ | (3,054) | |||||||||||
| Investing activities | (5,404) | (5,749) | 345 | ||||||||||||||
| Financing activities | (19,481) | (13,659) | (5,822) | ||||||||||||||
|
Free Cash Flow:(1)
|
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| Cash provided by operating activities | $ | 18,167 | $ | 21,221 | $ | (3,054) | |||||||||||
| Less: Cash used for purchases of property, plant, and equipment | (5,485) | (5,785) | 300 | ||||||||||||||
| Free Cash Flow | $ | 12,682 | $ | 15,436 | $ | (2,754) | |||||||||||
(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. 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.
Operating Cash Flows
Operating cash flows decreased in YTD 2026 as compared to YTD 2025 primarily due to greater investments in working capital and other operating assets and liabilities of $9.2 million. More specifically, the Company began building inventory in preparation for the upcoming heating season at a higher rate than YTD 2025, and secured certain materials in advance of impending tariffs. This increase in inventory was partially offset by an increase in activity related to accounts payable. Separately, the change in non-cash items, such as depreciation and amortization and stock compensation expense, contributed to a source of operating cash flows in YTD 2026 by $0.8 million.
Investing Cash Flows
Cash used in investing activities decreased in YTD 2026 as compared to YTD 2025 primarily due to lower capital expenditures in YTD 2026 than YTD 2025.
Financing Cash Flows
Cash used in financing activities increased in YTD 2026 versus YTD 2025 primarily due to comparatively higher share repurchases in YTD 2026, partially offset by comparatively higher proceeds from net borrowing in YTD 2026.
Credit Facilities
On July 24, 2025, Thermon entered into a new credit agreement with JPMorgan Chase and a group of lenders. This agreement updates and replaces the prior credit facility from 2021 and includes Thermon Group Holdings, Thermon Holding Corp., Thermon Canada Inc., and Thermon Europe B.V. as participating borrowers and guarantors. Refer to Note 9, "Debt," in Part I, Item 1. Financial Statements (Unaudited) of this quarterly report for additional information regarding our new credit agreement and credit facilities. There is no material uncertainty about our ongoing ability to comply with our credit agreement covenants.
Non-GAAP Financial Measures
In addition to evaluating our cash flow generation based upon operating, investing, and financing activities, the Company believes that Free Cash Flow (non-GAAP) as used in this section may provide investors and key stakeholders with another important perspective regarding our performance. The Company does not intend for this non-GAAP metric to be a substitute for the related GAAP measure, nor should it be viewed in isolation and without considering all relevant GAAP measurements. Moreover, our calculation may not be comparable to similarly titled measures reported by other companies.
We define "Free Cash Flow" as net cash provided by operating activities less cash used for the purchase of property, plant, and equipment. This metric should not be interpreted to mean the remaining cash that is available for discretionary spending, dividends, share repurchases, acquisitions, or other purposes, as it excludes significant, mandatory obligations, such as principal payments on the Company's long-term debt facility. Free cash flow is one measure that the Company uses internally to assess liquidity.
Free Cash Flow totaled $12.7 million for YTD 2026 as compared to $15.4 million for YTD 2025, the drivers of which are explained above.
Contractual Obligations and Off-Balance Sheet Arrangements
There have been no material changes outside the ordinary course of business in the Company's contractual obligations during fiscal 2026. The Company does not have any off-balance sheet arrangements or any interest in entities commonly referred to as variable interest entities, which include special purpose entities and other structured finance entities, except as otherwise disclosed. See the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2025, filed on May 22, 2025 for further details.
Critical Accounting Polices
Our condensed consolidated financial statements are prepared in conformity with GAAP. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. See Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2025, filed with the SEC on May 22, 2025, for a discussion of the Company's critical accounting policies and estimates.
Recent Accounting Pronouncements
Please refer to Note 1, "Summary of Significant Accounting Policies" of our Consolidated Financial Statements, from our Annual Report on Form 10-K for the fiscal year ended March 31, 2025, filed with the SEC on May 22, 2025, for the discussion on accounting pronouncements that have been issued but not yet effective for the interim periods presented that are not expected to have a material impact on our financial position or results of operations.
We are currently evaluating the impact of the recently issued Financial Accounting Standards Board Accounting Standards Update (ASU) 2025-05, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets," on our financial statements. This ASU introduces a practical expedient and an accounting policy election designed to simplify the estimation of credit losses for current accounts receivable and contract assets arising from transactions accounted for under Topic 606. We do not anticipate that this ASU will have a material impact on our financial statements when adopted.
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