What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-04-30 · 190 added, 91 removed, 259 unchanged (52% of the section changed)

41 unchanged sentences

We believe our industry is increasingly progressing towards a focus on human comfort and health and wellness, which is evidenced by increasing adoption rates for comfort products.

We believe that products we are developing, such as ClimateSense®, WellSense, and our acquisition of Alfmeier’s pneumatic comfort solutions, position us well to address trends in consumer preferences such as personalized user experience, comfort, health and wellness.

We believe that products we are developing, such as ClimateSense®, WellSense, and our acquisition of Alfmeier Präzision SE (“Alfmeier”) pneumatic comfort solutions, position us well to address trends in consumer preferences such as personalized user experience, comfort, health and wellness.

Gentherm is an independent partner that can cooperate with any combination of the vehicle OEMs and seat manufacturers globally, including those that are vertically integrated, to create innovative and unique configurations that adapt to industry trends.

21 unchanged sentences

During the first half of 2023, the Company launched Fit-for-Growth 2.0 to execute as part of our long-term growth strategy.

Fit-for-Growth 2.0 is expected to deliver significant cost reductions through sourcing excellence, value engineering, manufacturing productivity, manufacturing footprint optimization, product profitability and cost synergies from the Alfmeier acquisition.

Fit-for-Growth 2.0 has begun, and expected to continue, to deliver significant cost reductions through sourcing excellence, value engineering, manufacturing productivity, manufacturing footprint optimization, product profitability and cost synergies from the Alfmeier acquisition.

Additionally, the program is intended to drive operating expense efficiency to leverage scale.

5 unchanged sentences

The actual timing, costs and savings of the 2023 Plan may differ materially from the Company’s current expectations and estimates.

During the three months ended March 31, 2024, the Company recognized restructuring expense of $0.7 million for employee separation costs and $0.3 million for other costs.

During the three and six months ended June 30, 2024, the Company recognized restructuring expense of $0.8 million and $1.5 million, respectively, for employee separation costs and $0.1 million and $0.4 million, respectively, for other costs.

See Note 3, “Restructuring,” to the notes to the consolidated condensed financial statements included in this Report for additional information related to this plan.

Light Vehicle Production Volumes

Our sales are driven by the number of vehicles produced by the automotive manufacturers, which is ultimately dependent on consumer demand for automotive vehicles, and our content per vehicle, and other factors that may limit or otherwise impact production by us, our supply chain and our customers.

According to the forecasting firm S&P Global Mobility (April 2024 release), global light vehicle production in the three months ended March 31, 2024 in the Company’s key markets of North America, Europe, China, Japan and Korea, as compared to the three months ended March 31, 2023, are shown below (in millions of units):

Three Months Ended March 31,

Our sales are driven by the number of vehicles produced by the automotive manufacturers, which is ultimately dependent on consumer demand for automotive vehicles, our content per vehicle, and other factors that may limit or otherwise impact production by us, our supply chain and our customers.

According to the forecasting firm S&P Global Mobility (July 2024 release), global light vehicle production in the three and six months ended June 30, 2024 in the Company’s key markets of North America, Europe, China, Japan and Korea, as compared to the three and six months ended June 30, 2023, are shown below (in millions of units):

Three Months Ended June 30,

Six Months Ended June 30,

North America

2 unchanged sentences

Total light vehicle production volume in key markets

The S&P Global Mobility (April 2024 release) forecasted light vehicle production volume in the Company’s key markets for full year 2024 to remain flat at 75.4 million units from full year 2023 light vehicle production volumes.

The S&P Global Mobility (July 2024 release) forecasted light vehicle production volume in the Company’s key markets for full year 2024 to slightly decrease to 74.1 million units, a 1.9% decrease from full year 2023 light vehicle production volumes.

Forecasted light vehicle production volumes are a component of the data we use in forecasting future business.

3 unchanged sentences

We believe that innovation is an important element to gaining market acceptance of our products and strengthening our market position.

During the first quarter of 2024, we secured new automotive business awards totaling $530 million.

During the second quarter of 2024, we secured automotive new business awards totaling $660 million.

Automotive new business awards represent the aggregate projected lifetime revenue of new awards provided by our customers to Gentherm in the applicable period, with the value based on the price and volume projections received from each customer as of the award date.

Although automotive new business awards are not firm customer orders, we believe that automotive new business awards are an indicator of future revenue.

Automotive new business awards are not projections of revenue or future business as of March 31, 2024, the date of this Report or any other date.

Automotive new business awards are not projections of revenue or future business as of June 30, 2024, the date of this Report or any other date.

Customer projections regularly change over time, and we do not update our calculation of any automotive new business award after the date initially communicated.

Automotive new business awards in the first quarter 2024 also do not reflect, in particular, the impact of macroeconomic and geopolitical challenges on future business.

Automotive new business awards in the second quarter 2024 also do not reflect, in particular, the impact of macroeconomic and geopolitical challenges on future business.

Revenues resulting from automotive new business awards also are subject to additional risks and uncertainties that are included in this Report or incorporated by reference in “Forward-Looking Statements” above.

Stock Repurchase Program

In December 2020, the Board of Directors authorized a stock repurchase program (the “2020 Stock Repurchase Program”).

Under the 2020 Stock Repurchase Program, the Company is authorized to repurchase up to $150.0 million of its issued and outstanding Common Stock, no par value (“Common Stock”) over a three-year period, expiring December 15, 2023.

In December 2020, the Board of Directors of Gentherm Incorporated (the “Board of Directors”) authorized a stock repurchase program (the “2020 Stock Repurchase Program”).

Under the 2020 Stock Repurchase Program, the Company was authorized to repurchase up to $150.0 million of its issued and outstanding Common Stock, no par value (“Common Stock”) over a three-year period, expiring December 15, 2023.

On November 1, 2023, the Board of Directors extended the maturity date of the program from December 15, 2023 to June 30, 2024.

Repurchases under the 2020 Stock Repurchase Program may be made, from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions, applicable legal requirements, debt covenants and other considerations.

During the three months ended March 31, 2024, the Company did not make any repurchases under the 2020 Stock Repurchase Program.

The 2020 Stock Repurchase Program had $37.5 million repurchase authorization remaining as of March 31, 2024.

During the three and six months ended June 30, 2024, the Company repurchased $20.0 million under the 2020 Stock Repurchase Program with an average price paid per share of $52.65.

The 2020 Stock Repurchase Program had $17.5 million of repurchase authorization remaining at the time of expiration.

On November 1, 2023, following the above-noted extension, the Company entered into a Confirmation of Issuer Forward Repurchase Transaction agreement (the “ASR Agreement”) with Bank of America, N.A.

(“Bank of America”) that provides for the Company to purchase shares of Common Stock in an aggregate amount of $60 million (“ASR Repurchase Amount”) under the 2020 Stock Repurchase Program.

(“Bank of America”) that provided for the Company to purchase shares of Common Stock in an aggregate amount of $60.0 million (the “ASR Repurchase Amount”) under the 2020 Stock Repurchase Program.

Under the terms of the ASR Agreement, on November 2, 2023, the Company paid $60.0 million to Bank of America for an initial purchase of approximately 1.22 million shares of Common Stock, representing 80% of ASR Repurchase Amount.

The final settlement date is scheduled to occur in the second quarter of 2024.

As of the final settlement date, Bank of America may be required to deliver additional shares of Common Stock to the Company or the Company may be required to deliver shares of Common Stock to Bank America, such that the Company’s repurchase of Common Stock under the ASR Agreement in aggregate will equal the ASR Repurchase Amount (based on the average of the daily volume-weighted average prices of the Common Stock during the term of the ASR Agreement, less a specified discount).

There is no cash requirement as of the final settlement date.

For further information regarding the ASR Agreement, see Note 12, "Equity," to the notes to the consolidated condensed financial statements included in this Report.

During the three and six months ended June 30, 2024 the Company paid $0.3 million in cash as the final settlement of the ASR Agreement.

In June 2024, the Board of Directors authorized a new stock repurchase program (the “2024 Stock Repurchase Program”) to commence upon expiration of the 2020 Stock Repurchase Program on June 30, 2024.

Under the 2024 Stock Repurchase Program, the Company is authorized to repurchase up to $150.0 million of its issued and outstanding Common Stock over a three-year period, expiring June 30, 2027.

Repurchases under the 2024 Stock Repurchase Program may be made, from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions, applicable legal requirements, debt covenants and other considerations.

Any such repurchases may be executed using open market purchases, accelerated share repurchase programs, privately negotiated agreements or other transactions.

Repurchases may be funded from cash on hand, available borrowings or proceeds from potential debt or other capital markets sources.

Reportable Segments

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Consolidated Results of Operations

The results of operations for the three months ended March 31, 2024 and 2023, in thousands, were as follows:

Three Months Ended March 31,

The results of operations for the three and six months ended June 30, 2024 and 2023, in thousands, were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(Unfavorable)

Product revenues

4 unchanged sentences

Restructuring expenses

Impairment of goodwill

Total operating expenses

1 unchanged sentence

Interest expense, net

Foreign currency gain (loss)

Foreign currency (loss) gain

Other (loss) income

Earnings before income tax

Income tax expense

Product revenues by product category, in thousands, for the three months ended March 31, 2024 and 2023, were as follows:

Three Months Ended March 31,

Net income (loss)

Product revenues by product category, in thousands, for the three and six months ended June 30, 2024 and 2023, were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Climate Control Seat

Steering Wheel Heaters

Lumbar and Massage Comfort Solutions

Steering Wheel Heaters

Valve Systems

6 unchanged sentences

Product Revenues

Below is a summary of our product revenues, in thousands, for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Below is a summary of our product revenues, in thousands, for the three months ended June 30, 2024 and 2023:

Three Months Ended June 30,

Variance Due To:

3 unchanged sentences

Product revenues

Product revenues for the three months ended March 31, 2024 decreased 2.1% as compared to the three months ended March 31, 2023.

The decrease in product revenues is due to unfavorable pricing, lower cost recoveries from customers, unfavorable foreign currency impacts primarily attributable to the Chinese Renminbi and Korean Won, and unfavorable automotive volumes, partially offset by favorable foreign currency impacts primarily attributable to the Euro.

Product revenues for the three months ended June 30, 2024 increased 0.9% as compared to the three months ended June 30, 2023.

The increase in product revenues is due to favorable automotive volumes, partially offset by unfavorable pricing and unfavorable foreign currency impacts primarily attributable to the Euro, Korean Won and the Chinese Renminbi.

Below is a summary of our product revenues, in thousands, for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

Variance Due To:

(Unfavorable)

Automotive Volume

Pricing / Other

Product revenues

Product revenues for the six months ended June 30, 2024 decreased 0.6% as compared to the six months ended June 30, 2023.

The decrease in product revenues is due to unfavorable pricing, lower cost recoveries from customers and unfavorable foreign currency impacts primarily attributable to the Chinese Renminbi and the Korean Won, partially offset by favorable automotive volumes.

Cost of Sales

Below is a summary of our cost of sales and gross margin, in thousands, for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Below is a summary of our cost of sales and gross margin, in thousands, for the three months ended June 30, 2024 and 2023:

Three Months Ended June 30,

Variance Due To:

3 unchanged sentences

Gross margin - Percentage of product revenues

Cost of sales for the three months ended March 31, 2024 decreased 5.4% as compared to the three months ended March 31, 2023.

The decrease in cost of sales is primarily due to lower material costs, the impact of non-automotive inventory charges in the prior year period, lower automotive volumes and favorable foreign currency impacts primarily attributable to the Chinese Renminbi.

These decreases were partially offset by unfavorable foreign currency impacts primarily attributable to the Euro and the Mexican Peso.

Cost of sales for the three months ended June 30, 2024 decreased 1.9% as compared to the three months ended June 30, 2023.

The decrease in cost of sales is primarily due to Fit-for-Growth 2.0 initiatives including supplier cost reductions and value engineering activities, as well as the impact of non-automotive inventory charges in the prior year period and favorable foreign currency impacts primarily attributable to the Euro.

These decreases were partially offset by higher automotive volumes, annual price reductions, start-up costs from our new plants in Tangier, Morocco and Monterrey, Mexico and unfavorable foreign currency impacts primarily attributable to the Mexican Peso.

Below is a summary of our cost of sales and gross margin, in thousands, for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

Variance Due To:

(Unfavorable)

Automotive Volume

Cost of sales

Gross margin - Percentage of product revenues

Cost of sales for the six months ended June 30, 2024 decreased 3.6% as compared to the six months ended June 30, 2023.

Net Research and Development Expenses

Below is a summary of our net research and development expenses, in thousands, for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Below is a summary of our net research and development expenses, in thousands, for the three months ended June 30, 2024 and 2023:

Three Months Ended June 30,

(Unfavorable)

3 unchanged sentences

Percentage of product revenues

Net research and development expenses for the three months ended March 31, 2024 decreased 9.5% as compared to the three months ended March 31, 2023.

Net research and development expenses for the three months ended June 30, 2024 decreased 11.5% as compared to the three months ended June 30, 2023.

The decrease in net research and development expenses is primarily related to a reduction in resources allocated to the battery performance solutions product category and higher research and development reimbursements.

Below is a summary of our net research and development expenses, in thousands, for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

(Unfavorable)

Research and development expenses

Reimbursed research and development expenses

Net research and development expenses

Percentage of product revenues

Net research and development expenses for the six months ended June 30, 2024 decreased 10.5% as compared to the six months ended June 30, 2023.

The decrease in net research and development expenses is primarily related to a reduction in resources allocated to the battery performance solutions product category.

Selling, General and Administrative Expenses

Below is a summary of our selling, general and administrative expenses, in thousands, for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Below is a summary of our selling, general and administrative expenses, in thousands, for the three months ended June 30, 2024 and 2023:

Three Months Ended June 30,

(Unfavorable)

1 unchanged sentence

Percentage of product revenues

Selling, general and administrative expenses for the three months ended March 31, 2024 increased 9.9% as compared to the three months ended March 31, 2023.

Selling, general and administrative expenses for the three months ended June 30, 2024 increased 2.6% as compared to the three months ended June 30, 2023.

The increase in selling, general and administrative expenses is primarily related to higher compensation expenses.

Below is a summary of our selling, general and administrative expenses, in thousands, for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

(Unfavorable)

Selling, general and administrative expenses

Percentage of product revenues

Selling, general and administrative expenses for the six months ended June 30, 2024 increased 6.2% as compared to the six months ended June 30, 2023.

The increase in selling, general and administrative expenses is primarily related to higher compensation expenses and increased investment in information technology.

Restructuring Expenses

Below is a summary of our restructuring expenses, in thousands, for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Below is a summary of our restructuring expenses, in thousands, for the three months ended June 30, 2024 and 2023:

Three Months Ended June 30,

(Unfavorable)

Restructuring expenses

During the three months ended March 31, 2024, the Company recognized expenses of $6.7 million for employee separation costs and $0.5 million for other costs.

These restructuring expenses primarily relate to discrete restructuring actions focused on the reduction of global overhead expenses and achieving our Fit-for-Growth 2.0 objectives.

During the three months ended June 30, 2024, the Company recognized expenses of $2.1 million for employee separation costs and $0.3 million for other costs.

These restructuring expenses primarily related to discrete restructuring actions focused on the reduction of global overhead expenses and achieving our Fit-for-Growth 2.0 objectives.

See Note 3, “Restructuring,” to the consolidated condensed financial statements included in this Report for additional information.

During the three months ended March 31, 2023, the Company recognized $1.3 million for employee separation costs and less than $0.1 million for other costs.

During the three months ended June 30, 2023, the Company recognized expenses of $0.3 million for employee separation costs and $0.7 million for other costs.

These restructuring expenses primarily related to discrete restructuring actions focused on the reduction of global overhead expenses.

Below is a summary of our restructuring expenses, in thousands, for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

(Unfavorable)

Restructuring expenses

During the six months ended June 30, 2024, the Company recognized expenses of $8.9 million for employee separation costs and $0.8 million for other costs.

These restructuring expenses primarily related to discrete restructuring actions focused on the reduction of global overhead expenses and achieving our Fit-for-Growth 2.0 objectives.

See Note 3, “Restructuring,” to the consolidated condensed financial statements included in this Report for additional information.

During the six months ended June 30, 2023, the Company recognized expenses of $1.5 million for employee separation costs and $0.8 million for other costs.

These restructuring expenses primarily related to discrete restructuring actions focused on the reduction of global overhead expenses.

Impairment of Goodwill

Below is a summary of our impairment of goodwill, in thousands, for the three and six months ended June 30, 2024 and 2023:

Three Months Ended June 30,

(Unfavorable)

Impairment of goodwill

Six Months Ended June 30,

(Unfavorable)

Impairment of goodwill

Impairment of goodwill for the three and six months ended June 30, 2023 related to the Medical reporting unit.

Interest Expense, net

Below is a summary of our interest expense, net, in thousands, for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Below is a summary of our interest expense, net, in thousands, for the three months ended June 30, 2024 and 2023:

Three Months Ended June 30,

(Unfavorable)

Interest expense, net

Interest expense, net for the three months ended March 31, 2024 decreased 21.7% as compared to the three months ended March 31, 2023.

The decrease is primarily related to a benefit from the change in fair value of the interest rate swap derivative, partially offset by higher interest rates on outstanding borrowings under the Revolving Credit Facility.

Foreign Currency Gain (Loss)

Below is a summary of our foreign currency gain (loss), in thousands, for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Interest expense, net for the three months ended June 30, 2024 increased 107.1% as compared to the three months ended June 30, 2023.

The increase is primarily related to higher interest rates on outstanding borrowings under the Revolving Credit Facility.

Below is a summary of our interest expense, net, in thousands, for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

(Unfavorable)

Interest expense, net

Interest expense, net for the six months ended June 30, 2024 increased 19.3% as compared to the six months ended June 30, 2023.

The increase is primarily related to higher interest rates on outstanding borrowings under the Revolving Credit Facility.

Foreign Currency (Loss) Gain

Below is a summary of our foreign currency (loss) gain, in thousands, for the three months ended June 30, 2024 and 2023:

Three Months Ended June 30,

(Unfavorable)

Foreign currency (loss) gain

Foreign currency loss for the three months ended June 30, 2024 included net realized foreign currency loss of $0.8 million and net unrealized foreign currency gain of $0.5 million.

Foreign currency gain for the three months ended June 30, 2023 primarily included net realized foreign currency loss of $0.4 million and net unrealized foreign currency gain of $0.7 million.

Below is a summary of our foreign currency gain (loss), in thousands, for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

(Unfavorable)

Foreign currency gain (loss)

Foreign currency gain for the three months ended March 31, 2024 included net realized foreign currency gain of $0.7 million and net unrealized foreign currency gain of $1.9 million.

Foreign currency loss for the three months ended March 31, 2023 primarily included net realized foreign currency gain of $3.8 million and net unrealized foreign currency loss of $5.9 million.

Below is a summary of our other income, in thousands, for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Foreign currency gain for the six months ended June 30, 2024 included net realized foreign currency loss of $0.1 million and net unrealized foreign currency gain of $2.4 million.

Foreign currency loss for the six months ended June 30, 2023 primarily included net realized foreign currency gain of $3.4 million and net unrealized foreign currency loss of $5.1 million.

Other (Loss) Income

Below is a summary of our other (loss) income, in thousands, for the three months ended June 30, 2024 and 2023:

Three Months Ended June 30,

(Unfavorable)

Other income for the three months ended March 31, 2024 increased as compared to the three months ended March 31, 2023.

The increase in other income is due to an increase in the fair value of our investment in Carrar due to observable transactions.

Other (loss) income

Other (loss) income for the three months ended June 30, 2024 decreased as compared to the three months ended June 30, 2023.

The decrease in other income is due to an increase in miscellaneous expenses.

Below is a summary of our other income, in thousands, for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

(Unfavorable)

Other (loss) income for the six months ended June 30, 2024 decreased as compared to the six months ended June 30, 2023.

The decrease in other income is due to an increase in miscellaneous expenses, partially offset by an increase in the fair value of our investment in Carrar Ltd.

due to observable transactions.

Income Tax Expense

Below is a summary of our income tax expense, in thousands, for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Below is a summary of our income tax expense, in thousands, for the three months ended June 30, 2024 and 2023:

Three Months Ended June 30,

(Unfavorable)

Income tax expense

Income tax expense was $3.5 million for the three months ended March 31, 2024, on earnings before income tax of $18.3 million, representing an effective tax rate of 19.3%.

Income tax expense was $9.5 million for the three months ended June 30, 2024, on earnings before income tax of $28.4 million, representing an effective tax rate of 33.6%.

The effective tax rate differed from the U.S.

Federal statutory rate of 21.0% primarily due to the impact of a one-time benefit related to the Alfmeier acquisition, partially offset by income taxes on foreign earnings taxed at rates varying from the U.S.

Federal statutory rate and the unfavorable impact of the global intangible low-tax income (“GILTI”).

Income tax expense was $3.7 million for the three months ended March 31, 2023 on earnings before income tax of $11.7 million, representing an effective tax rate of 31.9%.

The tax amount included the effect of the settlement and closure of a multi-year state audit of $0.5 million.

Adjusted for the audit impacts, the effective rate was 28.0%.

Federal statutory rate of 21.0% primarily due

to the impact of income taxes on foreign earnings taxed at rates varying from the U.S.

Federal statutory rate, the quarterly accrual for uncertain tax positions.

and the unfavorable impact of the global intangible low-tax income (“GILTI”), partially offset by certain favorable tax effects of equity vesting.

Income tax expense was $4.8 million for the three months ended June 30, 2023 on earnings before income tax of $3.3 million, representing an effective tax rate of 147.1%.

The pre-tax earnings included the effect of an impairment loss of $19.5 million with a tax benefit of $2.4 million.

Adjusted for the impairment impacts, the effective rate was 31.9%.

The effective tax rate differed from the U.S.

Federal statutory rate of 21.0% primarily due to the impact of the tax benefit related to the impairment loss, income taxes on foreign earnings taxed at rates varying from the U.S.

Federal statutory rate, the unfavorable impact of the GILTI and an impact related to legal entity restructuring, partially offset by the impact of research and development credits in various jurisdictions.

Below is a summary of our income tax expense, in thousands, for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

(Unfavorable)

Income tax expense

Income tax expense was $13.1 million for the six months ended June 30, 2024, on earnings before income tax of $46.7 million, representing an effective tax rate of 28.0%.

The effective tax rate differed from the U.S.

Federal statutory rate of 21.0% primarily due to the impact of income taxes on foreign earnings taxed at rates varying from the U.S.

Federal statutory rate, the unfavorable impact of the GILTI, and the quarterly accrual for uncertain tax positions, partially offset by the impact of research and development credits in various jurisdictions and certain favorable tax effects on stock compensation vesting.

Federal statutory rate, the quarterly accrual for uncertain tax positions.

and the unfavorable impact of the GILTI, partially offset by a one-time benefit related to the Alfmeier acquisition.

Income tax expense was $8.6 million for the six months ended June 30, 2023 on earnings before income tax of $15.0 million, representing an effective tax rate of 57.2%.

The pre-tax earnings included the effect of an impairment loss of $19.5 million with a tax benefit of $2.4 million.

Adjusted for the impairment impacts, the effective rate was 31.9%.

The effective tax rate differed from the U.S.

Federal statutory rate of 21% primarily due to the impact of the tax benefit related to the impairment loss, impact of income taxes on foreign earnings taxed at rates varying from the U.S.

Federal statutory rate, the unfavorable impact of the GILTI, the increase of accruals for uncertain tax positions and an impact related to legal entity restructuring, partially offset by the impact of research and development credits in various jurisdictions and certain favorable tax effects of equity vesting.

Liquidity and Capital Resources

3 unchanged sentences

Further, we continuously evaluate acquisition, disposition, exits, and investment opportunities that will enhance our business strategies.

As of March 31, 2024, the Company had $125.1 million of cash and cash equivalents and $278.0 million of availability under our Second Amended and Restated Credit Agreement.

As of June 30, 2024, the Company had $123.5 million of cash and cash equivalents and $278.0 million of availability under our Second Amended and Restated Credit Agreement.

We may issue debt or equity securities, which may provide an additional source of liquidity.

3 unchanged sentences

There are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Gentherm Incorporated.

As of March 31, 2024, the Company’s cash and cash equivalents held by our non-U.S.

As of June 30, 2024, the Company’s cash and cash equivalents held by our non-U.S.

subsidiaries totaled $80.0 million.

7 unchanged sentences

The following table represents our cash and cash equivalents, in thousands:

Three Months Ended March 31,

Six Months Ended June 30,

Cash and cash equivalents at beginning of period

Net cash (used in) provided by operating activities

Net cash provided by operating activities

Net cash used in investing activities

3 unchanged sentences

Cash Flows From Operating Activities

Net cash used in operating activities totaled $10.3 million during the three months ended March 31, 2024 primarily reflecting $42.0 million related to changes in assets and liabilities, non-cash charges of $0.2 million for deferred income taxes and $0.8 million of other, partially offset by net income of $14.8 million, $17.7 million for non-cash charges for depreciation, amortization, stock based compensation and loss on disposition of property and non-cash charges of $0.3 million for inventory provisions.

Net cash provided by operating activities totaled $26.8 million during the six months ended June 30, 2024 primarily reflecting $39.3 million for non-cash charges for depreciation, amortization, stock-based compensation, provision for inventory and deferred income taxes and net income of $33.7 million, partially offset by $45.2 million related to changes in assets and liabilities, $0.9 million of other, and $0.1 million non-cash gain on disposition of property and equipment.

Cash Flows From Investing Activities

Net cash used in investing activities was $8.8 million during the three months ended March 31, 2024, reflecting purchases of property and equipment of $11.3 million and investments in technology companies of $0.2 million, partially offset by proceeds from deferred purchase price of factored receivables of $2.7 million.

Net cash used in investing activities was $24.7 million during the six months ended June 30, 2024, reflecting purchases of property and equipment of $30.7 million and investments in technology companies of $0.2 million, partially offset by proceeds from deferred purchase price of factored receivables of $6.2 million.

Cash Flows From Financing Activities

Net cash used in financing activities was $1.5 million during the three months ended March 31, 2024, reflecting $10.3 million of debt repayments and $2.0 million paid for employee taxes related to the net settlement of restricted stock units that vested during the year, partially offset by the borrowing on debt of $10.0 million and the proceeds from the exercise of Common Stock options totaling $0.8 million.

The following table summarizes the Company’s debt, in thousands, as of March 31, 2024 and December 31, 2023:

March 31, 2024

Net cash used in financing activities was $21.8 million during the six months ended June 30, 2024, reflecting $35.4 million of debt repayments, $21.7 million paid to repurchase Common Stock and $2.4 million paid for employee taxes related to the net settlement of restricted stock units that vested during the year, partially offset by the borrowing on debt of $35.0 million and the proceeds from the exercise of Common Stock options totaling $2.7 million.

The following table summarizes the Company’s debt, in thousands, as of June 30, 2024 and December 31, 2023:

June 30, 2024

December 31, 2023

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The Second Amended and Restated Credit Agreement contains covenants, that, among other things, (i) prohibit or limit the ability of the borrowers and any material subsidiary to incur additional indebtedness, create liens, pay dividends, make certain types of investments (including acquisitions), enter into certain types of transactions with affiliates, prepay other indebtedness, sell assets or enter into certain other transactions outside the ordinary course of business, and (ii) require that Gentherm maintain a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Net Leverage Ratio (based on consolidated EBITDA for the applicable trailing four fiscal quarters) as of the end of any fiscal quarter.

As of March 31, 2024, the Company was in compliance, in all material respects, with the terms of the Second Amended and Restated Credit Agreement.

As of June 30, 2024, the Company was in compliance, in all material respects, with the terms of the Second Amended and Restated Credit Agreement.

Finance Leases

As of March 31, 2024 and December 31, 2023, there was $0.5 million and $0.6 million, respectively, of outstanding finance leases.

As of June 30, 2024 and December 31, 2023, there was $0.4 million and $0.6 million, respectively, of outstanding finance leases.

Other Sources of Liquidity

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The receivable factoring agreements are transferred in their entirety to the acquiring entities and are accounted for as a sale.

Some of the agreements, including those assumed through the acquisition of Alfmeier, have deferred purchase price arrangements.

As of March 31, 2024, there were $7.4 million available under the receivable factoring agreements.

Some of the agreements have deferred purchase price arrangements.

As of June 30, 2024, there were $7.0 million available under the receivable factoring agreements.

Material Cash Requirements

In September 2023, the Company committed to a restructuring plan to improve the Company’s manufacturing productivity and rationalize its footprint.

As of March 31, 2024, the Company expects to incur total costs of between $12 million and $16 million, of which between $11 million and $15 million are expected to be cash expenditures.

The Company has recorded $1.7 million of restructuring expenses since the inception of this program as of March 31, 2024.

As of June 30, 2024, the Company expects to incur total costs of between $12 million and $16 million, of which between $11 million and $15 million are expected to be cash expenditures.

The Company has recorded $2.6 million of restructuring expenses since the inception of this program as of June 30, 2024.

See Note 3, “Restructuring,” to the consolidated condensed financial statements included in this Report for additional information.

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For discussion of our significant accounting policies, see Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

There have been no significant changes in our critical accounting policies or critical accounting estimates during the three months ended March 31, 2024.

There have been no significant changes in our critical accounting policies or critical accounting estimates during the three months ended June 30, 2024.

We are not presently aware of any events or circumstances that would require us to update our estimates, assumptions or revise the carrying value of our assets or liabilities.

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For derivative contracts that can be classified as a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded to accumulated other comprehensive loss in the consolidated condensed balance sheets.

When the underlying hedge transaction is realized, the gain or loss included in accumulated other comprehensive loss is recorded in earnings in the consolidated condensed statements of income on the same line as the gain or loss on the hedged item attributable to the hedged risk.

The Company records the ineffective portion of foreign currency and copper commodity hedging instruments, if any, to cost of sales, and the ineffective portion of interest rate swaps, if any, to interest expense, net in the consolidated condensed statements of income.

Cash flows associated with derivatives are reported in net cash (used in) provided by operating activities in the consolidated condensed statements of cash flows.

Information related to the fair values of all derivative instruments in the consolidated condensed balance sheet as of March 31, 2024 is set forth in Note 10, “Financial Instruments” in the consolidated condensed financial statements included in this Report.

When the underlying hedge transaction is realized, the gain or loss included in accumulated other comprehensive loss is recorded in earnings in the consolidated condensed statements of income (loss) on the same line as the gain or loss on the hedged item attributable to the hedged risk.

Cash flows associated with derivatives are reported in net cash provided by operating activities in the consolidated condensed statements of cash flows.

Information related to the fair values of all derivative instruments in the consolidated condensed balance sheet as of June 30, 2024 is set forth in Note 10, “Financial Instruments” in the consolidated condensed financial statements included in this Report.

Interest Rate Sensitivity

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Variable rate

Variable interest rate as of March 31, 2024

Based on the amounts outstanding as of March 31, 2024, a hypothetical 100 basis point change (increase or decrease) in interest rates would impact annual interest expense by $2.2 million.

Variable interest rate as of June 30, 2024

Based on the amounts outstanding as of June 30, 2024, a hypothetical 100 basis point change (increase or decrease) in interest rates would impact annual interest expense by $2.2 million.

To hedge the Company's exposure to interest payment fluctuations on a portion of these borrowings, we entered into a floating-to-fixed interest rate swap agreement with a notional amount of $100.0 million.

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The table below presents the potential gain and loss in fair value for the foreign currency derivative contracts from a hypothetical 10% change in quoted currency exchange rates.

March 31, 2024

June 30, 2024

December 31, 2023

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis