What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-30 compared with 2024-07-31 · 138 added, 144 removed, 305 unchanged (48% of the section changed)

4 unchanged sentences

the expected light vehicle production in the Company’s key markets;

the integration of acquisitions;

the impact of macroeconomic and geopolitical conditions;

the components of and our ability to execute our updated strategic plan and 2023 manufacturing footprint rationalization restructuring plan;

the components and our execution of our updated strategic plan and 2023 manufacturing footprint rationalization restructuring plan;

long-term consumer and technological trends in the automotive industry and our related market opportunity for our existing and new products and technologies;

15 unchanged sentences

Gentherm Incorporated is the global market leader of innovative thermal management and pneumatic comfort technologies for the automotive industry and a leader in medical patient temperature management.

Automotive products include variable temperature Climate Control Seats® (“CCS”), heated automotive interior systems (including heated seats, steering wheels, armrests and other components), battery performance solutions, cable systems, lumbar and massage comfort solutions, fuel management valves and other valves for brake and engine systems, and other electronic devices.

Automotive products include variable temperature Climate Control Seats®, heated automotive interior systems (including heated seats, steering wheels, armrests and other components), battery performance solutions, cable systems, lumbar and massage comfort solutions, fuel management valves and other valves for brake and engine systems, and other electronic devices.

Our automotive products can be found on vehicles manufactured by nearly all the major original equipment manufacturers ("OEMs") operating in North America and Europe, and several major OEMs in Asia.

29 unchanged sentences

These conflicts have interrupted ocean freight shipping and if prolonged or intensified, could have a substantial adverse effect on our financial results.

We, like other manufacturers, have a high proportion of fixed structural costs, and therefore relatively small changes in industry vehicle production can have a substantial effect on our financial results.

We, like other manufacturers, have a high proportion of fixed structural costs, and therefore relatively small changes in industry vehicle production have and may continue to have a substantial effect on our financial results.

If industry vehicle sales were to decline to levels significantly below our planning assumption, the decline could have a substantial adverse effect on our financial condition, results of operations, and cash flow.

6 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 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.

Fit-for-Growth 2.0 has begun, and is 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.

2 unchanged sentences

Under this 2023 Plan, the Company will relocate certain existing manufacturing and related activities in its Greenville, South Carolina facility to a new facility in Monterrey, Mexico.

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 actions under the 2023 Plan are expected to be substantially completed by the end of 2025 and generate annual benefits of between $5 million and $6 million.

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

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.

During the three months ended September 30, 2024, the Company completed the sale of our Greenville, South Carolina manufacturing facility, resulting in a gain on sale of $1.7 million.

The gain on sale was recorded as a reduction of restructuring expenses, net in the consolidated condensed statements of income.

During the three and nine months ended September 30, 2024, the Company recognized restructuring expense of $0.3 million and $1.8 million, respectively, for employee separation costs and $0.2 million and $0.6 million, respectively, for other costs, including the gain on sale of the Greenville facility.

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

1 unchanged sentence

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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

North America

2 unchanged sentences

Total light vehicle production volume in key markets

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.

The S&P Global Mobility (October 2024 release) forecasted light vehicle production volume in the Company’s key markets for full year 2024 to decrease to 73.9 million units, a 2.1% 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 second quarter of 2024, we secured automotive new business awards totaling $660 million.

During the third quarter of 2024, we secured automotive new business awards totaling $600 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 June 30, 2024, the date of this Report or any other date.

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

Automotive new business awards in the third 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.

3 unchanged sentences

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

During the nine months ended September 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.

2 unchanged sentences

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.

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.

The final settlement date occurred in the second quarter of 2024.

During the nine months ended September 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.

3 unchanged sentences

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

During the nine months ended September 30, 2024, the Company repurchased $19.9 million under the 2024 Stock Repurchase Program with an average price paid per share of $48.97.

The 2024 Stock Repurchase Program had $130.1 million of repurchase authorization remaining as of September 30, 2024.

Stock repurchases are subject to excise tax, subject to specified exclusions and adjustments.

Excise tax of $0.4 million was charged to common stock for the three and nine months ended September 30, 2024.

Reportable Segments

4 unchanged sentences

Consolidated Results of Operations

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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

(Unfavorable)

5 unchanged sentences

Selling, general and administrative expenses

Restructuring expenses

Restructuring expenses, net

Impairment of goodwill

3 unchanged sentences

Foreign currency (loss) gain

Other (loss) income

Earnings before income tax

Income tax expense

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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

Climate Control Seat

9 unchanged sentences

Product Revenues

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,

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

Three Months Ended September 30,

Variance Due To:

3 unchanged sentences

Product revenues

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,

Product revenues for the three months ended September 30, 2024 increased 1.5% as compared to the three months ended September 30, 2023.

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

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

Nine Months Ended September 30,

Variance Due To:

3 unchanged sentences

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.

Product revenues for the nine months ended September 30, 2024 increased 0.1% as compared to the nine months ended September 30, 2023.

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

Cost of Sales

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,

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

Three Months Ended September 30,

Variance Due To:

3 unchanged sentences

Gross margin - Percentage of product revenues

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,

Cost of sales for the three months ended September 30, 2024 decreased 1.2% as compared to the three months ended September 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 Mexican Peso and the Ukranian Hryvnia.

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

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

Nine Months Ended September 30,

Variance Due To:

3 unchanged sentences

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.

Cost of sales for the nine months ended September 30, 2024 decreased 2.8% as compared to the nine months ended September 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 Chinese Renminbi.

Net Research and Development Expenses

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,

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

Three Months Ended September 30,

(Unfavorable)

3 unchanged sentences

Percentage of product revenues

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,

Net research and development expenses for the three months ended September 30, 2024 were relatively unchanged as compared to the three months ended September 30, 2023.

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

Nine Months Ended September 30,

(Unfavorable)

3 unchanged sentences

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.

Net research and development expenses for the nine months ended September 30, 2024 decreased 7.4% as compared to the nine months ended September 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 June 30, 2024 and 2023:

Three Months Ended June 30,

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

Three Months Ended September 30,

(Unfavorable)

1 unchanged sentence

Percentage of product revenues

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,

Selling, general and administrative expenses for the three months ended September 30, 2024 decreased 3.6% as compared to the three months ended September 30, 2023.

The decrease in selling, general and administrative expenses is primarily related to acquisition and integration expenses in the prior year.

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

Nine Months Ended September 30,

(Unfavorable)

1 unchanged sentence

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 June 30, 2024 and 2023:

Three Months Ended June 30,

Selling, general and administrative expenses for the nine months ended September 30, 2024 increased 2.9% as compared to the nine months ended September 30, 2023.

The increase in selling, general and administrative expenses is primarily related to higher compensation expenses and increased investment in information technology, partially offset by acquisition and integration expenses in the prior year.

Restructuring Expenses, net

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

Three Months Ended September 30,

(Unfavorable)

Restructuring expenses

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.

Restructuring expenses, net

During the three months ended September 30, 2024, the Company recognized expenses of $1.8 million for employee separation costs and $2.6 million for other costs, partially offset by $1.7 million of gain on sale of our Greenville, North Carolina facility.

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 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,

During the three months ended September 30, 2023, the Company recognized expenses of $1.1 million for employee separation costs and $0 million for other costs.

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

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

Nine Months Ended September 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.

Restructuring expenses, net

During the nine months ended September 30, 2024, the Company recognized expenses of $10.7 million for employee separation costs and $3.4 million for other costs, partially offset by $1.7 million of gain on sale of our Greenville, North Carolina facility.

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.

During the nine months ended September 30, 2023, the Company recognized expenses of $2.6 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,

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

Three Months Ended September 30,

(Unfavorable)

Impairment of goodwill

Six Months Ended June 30,

Nine Months Ended September 30,

(Unfavorable)

Impairment of goodwill

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

Impairment of goodwill for the nine months ended September 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 June 30, 2024 and 2023:

Three Months Ended June 30,

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

Three Months Ended September 30,

(Unfavorable)

Interest expense, net

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,

Interest expense, net for the three months ended September 30, 2024 increased 39.8% as compared to the three months ended September 30, 2023.

The increase is primarily related to carrying a higher balance of outstanding borrowings under the Revolving Credit Facility and the impact from the change in fair value of the interest rate swap derivative, partially offset by lower interest rates.

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

Nine Months Ended September 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.

Interest expense, net for the nine months ended September 30, 2024 increased 26.6% as compared to the nine months ended September 30, 2023.

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,

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

Three Months Ended September 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,

Foreign currency loss for the three months ended September 30, 2024 included net realized foreign currency gain of $0.1 million and net unrealized foreign currency loss of $8.6 million.

Foreign currency gain for the three months ended September 30, 2023 included net realized foreign currency gain of $1.2 million and net unrealized foreign currency gain of $0.9 million.

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

Nine Months Ended September 30,

(Unfavorable)

Foreign currency gain (loss)

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,

Foreign currency (loss) gain

Foreign currency loss for the nine months ended September 30, 2024 included net unrealized foreign currency loss of $6.2 million.

Foreign currency gain for the nine months ended September 30, 2023 included net realized foreign currency gain of $4.6 million and net unrealized foreign currency loss of $4.2 million.

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

Three Months Ended September 30,

(Unfavorable)

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.

Other income for the three months ended September 30, 2024 decreased as compared to the three months ended September 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,

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

Nine Months Ended September 30,

(Unfavorable)

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

Other income for the nine months ended September 30, 2024 decreased as compared to the nine months ended September 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.

1 unchanged sentence

Income Tax Expense

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,

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

Three Months Ended September 30,

(Unfavorable)

Income tax expense

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%.

Income tax expense was $3.4 million for the three months ended September 30, 2024, on earnings before income tax of $19.4 million, representing an effective tax rate of 17.7%.

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 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%.

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 release of the uncertain tax position reserve accrual due to tax audit settlement, partial valuation allowance release in the U.S.

related to its capital loss carryforward, and favorable tax effects of equity vesting, partially offset by the unfavorable impact of the global intangible low-tax income (“GILTI”).

Income tax expense was $6.9 million for the three months ended September 30, 2023 on earnings before income tax of $22.8 million, representing an effective tax rate of 30.4%.

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,

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 and the unfavorable impact of the GILTI, partially offset by the impact of the release of accruals for uncertain tax positions.

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

Nine Months Ended September 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%.

Income tax expense was $16.5 million for the nine months ended September 30, 2024, on earnings before income tax of $66.2 million, representing an effective tax rate of 25.0%.

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 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%.

Federal statutory rate and the unfavorable impact of the GILTI, partially offset by favorable tax effects of equity vesting, a partial valuation allowance release in the U.S.

related to its capital loss carryforward and a one-time benefit related to the Alfmeier acquisition.

Income tax expense was $15.5 million for the nine months ended September 30, 2023 on earnings before income tax of $37.7 million, representing an effective tax rate of 41.0%.

The pre-tax earnings included the effect of an impairment loss of $19.5 million with a tax benefit of $2.3 million.

1 unchanged sentence

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.

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

Federal statutory rate and the unfavorable impact of the GILTI, partially offset by the impact of research and development credits in various jurisdictions, certain favorable tax effects of equity vesting and the release of accruals for uncertain tax positions.

Liquidity and Capital Resources

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

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.

As of September 30, 2024, the Company had $150.6 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.

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

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

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

subsidiaries totaled $109.0 million.

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however, based on our current liquidity needs and strategies, we do not anticipate a need to accrue and pay such additional amounts.

We currently believe that our cash and cash equivalents, borrowings available under our Second Amended and Restated Credit Agreement and receivables factoring arrangements, and cash flows from operations will be adequate to meet anticipated cash requirements for at least the next twelve months and the foreseeable future.

We currently believe that our cash and cash equivalents, borrowings available under our Second Amended and Restated Credit Agreement, and cash flows from operations will be adequate to meet anticipated cash requirements for at least the next twelve months and the foreseeable future.

Cash and Cash Flows

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

Six Months Ended June 30,

Nine Months Ended September 30,

Cash and cash equivalents at beginning of period

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Cash Flows From Operating Activities

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.

Net cash provided by operating activities totaled $73.1 million during the nine months ended September 30, 2024 primarily reflecting $50.7 million for non-cash charges for depreciation, amortization, stock based compensation, gain on disposition of property and equipment, provision for inventory and deferred income taxes and net income of $49.6 million, partially offset by $26.2 million related to changes in assets and liabilities, and $1.0 million of other.

Cash Flows From Investing Activities

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.

Net cash used in investing activities was $33.1 million during the nine months ended September 30, 2024, reflecting purchases of property and equipment of $50.3 million and investments in technology companies of $0.6 million, partially offset by proceeds from deferred purchase price of factored receivables of $10.3 million and proceeds from the sale of property and equipment of $7.5 million.

Cash Flows From Financing Activities

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

Net cash used in financing activities was $40.6 million during the nine months ended September 30, 2024, reflecting $53.5 million of debt repayments, $41.6 million paid to repurchase Common Stock and $3.2 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 $53.0 million and the proceeds from the exercise of Common Stock options totaling $4.7 million.

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

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

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

As of September 30, 2024 and December 31, 2023, there was $0.3 million and $0.6 million, respectively, of outstanding finance leases.

Other Sources of Liquidity

The Company is party to receivable factoring agreements with unrelated third parties under which we can sell receivables for certain account debtors, on a revolving basis, subject to outstanding balances and concentration limits.

The Company was party to receivable factoring agreements with unrelated third parties under which we could sell receivables for certain account debtors, on a revolving basis, subject to outstanding balances and concentration limits.

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

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.

As of September 30, 2024, there was no availability for new factoring under the receivable factoring agreements as the factoring agreements the Company was party to either expired or were terminated during the three months ended September 30, 2024.

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 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.

The Company expects to incur less than $1.0 million of additional restructuring costs for the 2023 Plan.

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

Except as described above, there have been no material changes in our cash requirements since December 31, 2023, the end of fiscal year 2023.

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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 June 30, 2024.

There have been no significant changes in our critical accounting policies or critical accounting estimates during the three months ended September 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 (loss) 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 (loss).

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.

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.

Information related to the fair values of all derivative instruments in the consolidated condensed balance sheet as of September 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 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.

Variable interest rate as of September 30, 2024

Based on the amounts outstanding as of September 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.

June 30, 2024

September 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