What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-04-24 compared with 2024-10-30 · 167 added, 241 removed, 202 unchanged (67% of the section changed)

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

the impact of macroeconomic and geopolitical conditions;

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

the impact of macroeconomic and geopolitical conditions, including adverse global trade conditions and actual and threatened global tariffs;

the components and our execution of our strategic plan and restructuring plans;

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

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The forward-looking statements included in this Report are made as of the date hereof or as of the date specified herein and are based on management’s reasonable expectations and beliefs.

In making these statements we rely on assumptions and analysis based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we consider appropriate under the circumstances.

In making these statements we rely on assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, third-party information and projections from sources that management believes to be reputable, as well as other factors we consider appropriate under the circumstances.

Such statements are subject to a number of assumptions, risks, uncertainties and other factors, which are set forth in “Item 1A.

Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2023 and subsequent reports filed with or furnished to the Securities and Exchange Commission, and which could cause actual results to differ materially from that described in the forward-looking statements.

Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2024 and subsequent reports filed with the Securities and Exchange Commission, and which could cause actual results to differ materially from that described in the forward-looking statements.

In addition, with reasonable frequency, we have entered into business combinations, acquisitions, divestitures, strategic investments and other significant transactions.

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The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, the consolidated condensed financial statements and related notes thereto included elsewhere in this Report and our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2024.

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®, 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.

Gentherm Incorporated is a global market leader of innovative thermal management and pneumatic comfort technologies.

Our automotive products include variable temperature Climate Control Seats (CCS®), Climate Control Interiors (CCI), Lumbar and Massage Comfort Solutions, Valve Systems, and electronic solutions for climate and comfort technologies.

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

We operate in locations aligned with our major customers’ product strategies to provide locally enhanced design, integration and production capabilities.

Medical products include patient temperature management systems.

Our medical products can be found in hospitals throughout the world, primarily in the U.S., China, Germany and Brazil.

Our medical products include patient temperature management systems that can be found in hospitals throughout the world, primarily in the U.S., China, Germany and Brazil.

The Company is also developing a number of new technologies and products that will help enable improvements to existing products, improve health, wellness and patient outcomes and will lead to new product applications for existing and new and adjacent markets.

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

Our Automotive sales are driven by the number of light vehicles produced by the OEMs primarily in our key markets of North America, Europe, China, Japan and South Korea, which is ultimately dependent on consumer demand for automotive light vehicles, our product content per vehicle, and other factors that may limit or otherwise impact production by us, our supply chain and our customers.

Historically, new vehicle demand and product content (i.e.

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Vehicle content has also been driven by trends in consumer preferences, such as preferences for smart devices and features, personalized user experience, and comfort, health and wellness.

Economic volatility or weakness in North America, Europe or Asia, as well as global geopolitical factors, have had and could result in a significant reduction in automotive sales and production by our customers, which have had and would have an adverse effect on our business, results of operations and financial condition.

Economic volatility or weakness in North America, Europe or Asia, as well as global geopolitical factors, have resulted and could further result in a significant reduction in automotive sales and production by our customers, which have had and could further have an adverse effect on our business, results of operations and financial condition.

We believe our diversified OEM customer base and

geographic revenue base, along with our flexible cost structure, have well positioned us to withstand the impact of industry downturns and benefit from industry upturns in the ordinary course.

However, shifts in the mix of global automotive production to higher cost regions or to vehicles that contain less of our product content as well as continuing production challenges and inflationary pressures have adversely impacted our profitability and may continue to do so.

However, shifts in the mix of global automotive production to higher cost regions or to vehicles that contain less of our product content and inflationary pressures have adversely impacted our profitability and may continue to do so.

In addition, we have been and may in the future be adversely impacted by volatility or weakness in markets for hybrid or electric vehicles specifically.

We believe our products offer certain advantages for hybrid and electric vehicles, including improved energy efficiency, and position us well to withstand changes in the volume mix between vehicles driven by internal combustion engines and hybrid and other electric vehicles.

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 Präzision SE (“Alfmeier”) pneumatic comfort solutions, position us well to address trends in consumer preferences such as personalized user experience, comfort, health and wellness.

We believe our industry is increasingly progressing towards a focus on human comfort, 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 ComfortScale, 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.

Recent Trends

Tariffs and Global Trade Environment

In April 2025, the U.S.

government announced additional tariffs on various goods imported to the U.S.

and other countries announced reciprocal tariffs on goods imported to such countries, including goods used by or manufactured by us.

Some of these additional tariffs have been implemented and others have been conditionally paused, and it is reasonably possible that new or additional tariffs will be periodically announced given the current global trade environment.

We continue to monitor and evaluate the direct and indirect impacts of these tariffs and heightened global trade disputes.

Our business model of manufacturing by regions for the regions limit the global impact of certain trade restrictions and tariffs, with our primary tariff exposure relating to our Mexico operations that sell products into the U.S.

Further, the majority of our supply components are not subject to the additional tariffs or are compliant with exceptions, and we believe that we can generally mitigate the direct impact of any such tariffs currently in effect by directly or indirectly passing the additional costs through to customers.

We are taking and will continue to take additional actions to mitigate any direct and indirect impacts.

As of March 31, 2025, there was no material impact on our results of operations, financial position, and cash flows.

However, these matters are changing rapidly and there is significant uncertainty as to how long and to what degree that Gentherm and the automotive industry will be impacted by these additional tariffs, the adverse global trade environment and the resulting economic uncertainty.

See Part II, Item 1A, “Risk Factors” in this report for additional information.

Global Conditions

Since 2020, the global economy has experienced significant volatility and supply chain disruption, which has had a widespread adverse effect on the global automotive industry.

These macroeconomic conditions have resulted in fluctuating demand and production disruptions, facility closures, labor shortages and work stoppages.

In addition, global inflation has increased significantly beginning in 2021.

Although supply chain conditions have steadily improved and certain inflationary pressures have moderated, rising costs of materials, labor, equipment and other inputs used to manufacture and sell our products, including freight and logistics costs, have impacted, and may in the future impact, operating costs and operating results.

The global automotive light vehicle industry is impacted by a number of factors, including global and regional economic conditions.

At times in recent years, the global economy has experienced significant volatility, inflationary pressures and supply chain disruptions, which have a widespread adverse effect on the global automotive industry.

These macroeconomic conditions have resulted in fluctuating demand and production disruptions, facility closures, labor shortages, work stoppages, and increased prices of inputs to our products.

Although some supply chain conditions have steadily improved and certain inflationary pressures have moderated, rising costs of materials, labor, equipment and other inputs used to manufacture and sell our products, including freight and logistics costs, have impacted, and may in the future impact, operating costs and operating results.

We continue to employ measures to mitigate the impact of cost increases through identification of sourcing and manufacturing efficiencies where possible.

However, we have been unable to fully mitigate or pass through the increases in our operating costs, which may continue in the future.

We are exposed to foreign currency risk due to the translation and remeasurement of the results of certain international operations.

We are exposed to foreign currency risk due to the translation and remeasurement of the results of certain international operations into U.S.

Dollars as part of the consolidation process.

Therefore, fluctuations in foreign currency exchange rates can create volatility in the results of operations and may adversely affect our financial condition.

We have a global manufacturing footprint that enables us to serve our customers in the regions they operate and shift production between regions to remain competitive.

In recent years there have been various ongoing geopolitical conflicts, such as the current conflicts between Russia and Ukraine, and in the Middle East, heightened tensions in the Red Sea, and potential tensions in the South China Sea.

Over the past year, there have been various ongoing geopolitical conflicts, such as the current conflicts between Russia and Ukraine and in the Middle East and heightened tensions in the Red Sea and in the South China Sea.

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 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.

On December 15, 2022, the European Union (“EU”) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development Pillar Two Framework.

The effective dates for different aspects of the directive are January 1, 2024 and January 1, 2025.

The aspects of the directive that were effective as of January 1, 2024 did not have a material impact on the Company’s financial statements.

Further, the Company does not expect the remaining aspects to have a material impact to the Company’s financial statements.

The Company will continue to evaluate the potential impact on future periods of these tax regulations.

Fit-for-Growth 2.0

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 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.

2023 Manufacturing Footprint Rationalization

On September 19, 2023, the Company committed to a restructuring plan (“2023 Plan”) to improve the Company’s manufacturing productivity and rationalize its footprint.

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.

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.

Further, there is the potential that certain political pressures, such as changes to international trade agreements,

increases in tariffs, import quotas or other trade restrictions or actions, including export controls and other retaliatory responses to such actions, could affect the operations of our OEM customers, resulting in reduced automotive production in certain regions or shifts in the mix of production to higher cost regions.

See “—Tariffs and Global Trade Environment” above for further information on the impact of tariffs and the global trade environment in 2025.

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.

Restructuring Plans

2025 EMEA Plan

In February 2025, we committed to a restructuring plan to further optimize our manufacturing footprint by realigning our manufacturing capacity in Europe (“2025 EMEA Plan”).

As a result, we will close our facility in Plzeň, Czech Republic and relocate the manufacturing activities into other existing facilities within the region.

We expect to incur cash restructuring costs of between $4 million and $6 million for employee severance and retention costs and between $2 million and $3 million of other transition costs primarily for machinery and equipment move and set up costs.

Additionally, we expect to incur capital expenditures of between $1 million and $2 million.

The actions under the 2025 EMEA Plan are expected to be substantially completed by the end of 2027.

During the three months ended March 31, 2025, we recognized restructuring expense of $2.4 million for employee separation costs and less than $0.1 million for other costs.

2025 Asia Plan

In February 2025, we committed to an additional restructuring plan to further optimize our manufacturing footprint by realigning our manufacturing capacity in Asia (“2025 Asia Plan”).

As a result, we will relocate certain manufacturing activities from our facility in Shanghai, China to our new facility in Tianjin, China.

We expect to incur cash restructuring costs of between $2 million and $3 million for employee severance and retention costs and $1 million of other transition costs primarily for machinery and equipment move and set up costs.

Additionally, we expect to incur capital expenditures of between $2 million and $3 million.

The actions under the 2025 Asia Plan are expected to be substantially completed in the first half of 2026.

During the three months ended March 31, 2025, we recognized restructuring expense of $1.5 million for employee separation costs and less than $0.1 million for other costs.

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, 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 (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,

According to the forecasting firm S&P Global Mobility (April 2025 release), global light vehicle production in the three months ended March 31, 2025 in the Company’s key markets of North America, Europe, China, Japan and South Korea, as compared to the three months ended March 31, 2024, are shown below (in millions of units):

Three Months Ended March 31,

North America

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Total light vehicle production volume in key markets

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.

The S&P Global Mobility (April 2025 release) forecasted light vehicle production volume in the Company’s key markets for full year 2025 to decrease to 72.9 million units, a 2.4% decrease from full year 2024 light vehicle production volumes.

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

However, these forecasts generally are updated monthly, and future forecasts have been and may continue to be significantly different from period to period due to changes in macroeconomic and geopolitical conditions or matters specific to the automotive industry.

Further, due to differences in regional product mix at our manufacturing facilities, as well as material production schedules from our customers for our products on specific vehicle programs, our future forecasted results do not directly correlate with the global and/or regional light vehicle production forecasts of S&P Global Mobility or other third-party sources.

Further, due to differences in

regional product mix at our manufacturing facilities, as well as material production schedules from our customers for our products on specific vehicle programs, our future forecasted results do not directly correlate with the global and/or regional light vehicle production forecasts of S&P Global Mobility or other third-party sources.

Automotive New Business Awards

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

During the third quarter of 2024, we secured automotive new business awards totaling $600 million.

During the first quarter of 2025, we secured automotive new business awards totaling $400 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 September 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 March 31, 2025, 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 third quarter 2024 also do not reflect, in particular, the impact of macroeconomic and geopolitical challenges on future business.

Automotive new business awards in the first quarter 2025 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 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.

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.

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 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 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.

In June 2024, the Board of Directors authorized a stock repurchase program (the “2024 Stock Repurchase Program”) to commence upon expiration of the Company’s prior 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.

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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.

During the three months ended March 31, 2025 and 2024, the Company did not make any repurchases.

The 2024 Stock Repurchase Program had $120 million of repurchase authorization remaining as of March 31, 2025.

Reportable Segments

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Automotive and Medical.

See Note 15, “Segment Reporting,” to the consolidated condensed financial statements included in this Report for a description of our reportable segments as well as their proportional contribution to the Company’s reported product revenues and operating income.

The financial information used by our chief operating decision maker to assess operating performance and allocate resources is based on these reportable segments.

Consolidated Results of Operations

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)

The results of operations for the three months ended March 31, 2025 and 2024, in thousands, were as follows:

Three Months Ended March 31,

(Unfavorable)

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Restructuring expenses, net

Impairment of goodwill

Loss on sale of land and building, net

Total operating expenses

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Foreign currency (loss) gain

Other (loss) income

Earnings before income tax

Income tax expense

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

Net (loss) income

Product revenues by product category, in thousands, for the three months ended March 31, 2025 and 2024, were as follows:

Three Months Ended March 31,

Climate Control Seats (a)

Climate Control Interiors (a)

Lumbar and Massage Comfort Solutions

Steering Wheel Heaters

Climate and Comfort Electronics (a)

Automotive Climate and Comfort Solutions

Valve Systems

Automotive Cables

Battery Performance Solutions

Other Automotive

Other Automotive (a)

Subtotal Automotive segment

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Total Company

Product Revenues

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:

(Unfavorable)

Automotive Volume

Pricing / Other

(b) Product categories have been modified, and prior-period amounts have been recast to conform with the current period presentation.

Climate Control Seats (CCS) includes CCS Heat (previously Seat Heaters), CCS Vent/CCS Active Cool (previously CCS) and CCS Neck Conditioners (previously included in Other Automotive).

Climate Control Interiors (CCI) includes CCI Steering Wheel Heat and CCI Interior Heat (previously included in Other Automotive).

Other Automotive includes Automotive Cables, Battery Performance Solutions, non-automotive electronics and contract manufacturing electronics (previously classified as Electronics).

Product Revenues

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,

Below is a summary of our product revenues, in thousands, for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

Variance Due To:

(Unfavorable)

Automotive Volume

Pricing / Other

Product revenues

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 September 30, 2024 and 2023:

Three Months Ended September 30,

Variance Due To:

(Unfavorable)

Automotive Volume

Product revenues for the three months ended March 31, 2025 decreased 0.6% as compared to the three months ended March 31, 2024.

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

Cost of Sales

Gross margin - Percentage of product revenues

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,

Below is a summary of our cost of sales and gross margin, in thousands, for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

Variance Due To:

(Unfavorable)

Automotive Volume

Cost of sales

Gross margin - Percentage of product revenues

Cost of sales for the nine months ended September 30, 2024 decreased 2.8% as compared to the nine months ended September 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 September 30, 2024 and 2023:

Three Months Ended September 30,

(Unfavorable)

Research and development expenses

Reimbursed research and development expenses

Gross margin - Percentage

of product revenues

Cost of sales for the three months ended March 31, 2025 were relatively unchanged as compared to the three months ended March 31, 2024.

The increase in cost of sales is primarily due to higher automotive volumes, freight costs and the costs related to our footprint realignment, offset by material purchasing savings and favorable foreign currency impacts (net of foreign currency hedges) primarily attributable to the Mexican Peso, the Euro and the Korean Won.

Net Research and Development Expenses

Percentage of product revenues

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,

Below is a summary of our net research and development expenses, in thousands, for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

(Unfavorable)

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Percentage of product revenues

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 September 30, 2024 and 2023:

Three Months Ended September 30,

(Unfavorable)

Net research and development expenses for the three months ended March 31, 2025 increased 6.5% as compared to the three months ended March 31, 2024.

The increase in net research and development expenses is primarily related to higher personnel costs.

Selling, General and Administrative Expenses

Percentage of product revenues

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,

Below is a summary of our selling, general and administrative expenses, in thousands, for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

(Unfavorable)

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Percentage of product revenues

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)

Selling, general and administrative expenses for the three months ended March 31, 2025 decreased 5.5% as compared to the three months ended March 31, 2024.

The decrease in selling, general and administrative expenses is primarily related to lower compensation expenses and favorable foreign currency impacts.

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 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,

Below is a summary of our restructuring expenses, net, in thousands, for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

(Unfavorable)

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 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.

During the three months ended March 31, 2025, the Company recognized expenses of $4.2 million for employee separation costs and $0.3 million for other costs.

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 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 nine months ended September 30, 2024 and 2023:

Three Months Ended September 30,

(Unfavorable)

Impairment of goodwill

Nine Months Ended September 30,

(Unfavorable)

Impairment of goodwill

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 September 30, 2024 and 2023:

Three Months Ended September 30,

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

Loss on Sale of Land and Building, net

Below is a summary of our loss on sale of land and building, net, in thousands, for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

(Unfavorable)

Loss on sale of land and building, net

Loss on sale of land and building, net for the three months ended March 31, 2025 is primarily related to the sale of our former headquarters building in Northville, Michigan.

Interest Expense, net

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,

Below is a summary of our interest expense, net, in thousands, for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

(Unfavorable)

Interest expense, net

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 September 30, 2024 and 2023:

Three Months Ended September 30,

(Unfavorable)

Interest expense, net for the three months ended March 31, 2025 increased 9.6% as compared to the three months ended March 31, 2024.

The increase in interest expense, net is primarily related to the change in fair value of the interest rate swap derivative and increased borrowings under the Revolving Credit Facility, partially offset by lower interest rates on outstanding borrowings under the Revolving Credit Facility in the current period.

Foreign Currency (Loss) Gain

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,

Below is a summary of our foreign currency (loss) gain, in thousands, for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

(Unfavorable)

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 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 nine months ended September 30, 2024 and 2023:

Nine Months Ended September 30,

(Unfavorable)

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.

due to observable transactions.

Income Tax Expense

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,

Foreign currency loss for the three months ended March 31, 2025 included net realized foreign currency loss of $0.7 million and net unrealized foreign currency loss of $9.6 million.

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.

Other (Loss) Income

Below is a summary of our other (loss) income, in thousands, for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

(Unfavorable)

Other (loss) income

Other (loss) income for the three months ended March 31, 2025 decreased as compared to the three months ended March 31, 2024.

The decrease in other (loss) income is primarily due to a $1.3 million write-down of an equity investment and an increase in the fair value of an investment due to observable transactions in the prior year period.

Income Tax Expense

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 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 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,

Below is a summary of our income tax expense, in thousands, for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

(Unfavorable)

Income tax expense

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%.

Income tax expense was $2.2 million for the three months ended March 31, 2025, on earnings before income tax of $2.1 million, representing an effective tax rate of 106.1%.

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 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.

Adjusted for the impairment impacts, the effective rate was 31.0%.

Federal statutory rate of 21.0% primarily due to unfavorable tax effects of the vesting of stock based compensation awards and a valuation allowance established in the U.S.

related to a capital loss carryforward.

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%.

The effective tax rate differed from the U.S.

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.

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.

Liquidity and Capital Resources

2 unchanged sentences

We generally reinvest available cash flows from operations into our business, while opportunistically utilizing our authorized stock repurchase program.

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

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.

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

As of March 31, 2025, the Company had $163.1 million of cash and cash equivalents and $235.2 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 September 30, 2024, the Company’s cash and cash equivalents held by our non-U.S.

As of March 31, 2025, the Company’s cash and cash equivalents held by our non-U.S.

subsidiaries totaled $112.0 million.

7 unchanged sentences

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

Nine Months Ended September 30,

Three Months Ended March 31,

Cash and cash equivalents at beginning of period

Net cash provided by operating activities

Net cash used in operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by (used in) financing activities

Foreign currency effect on cash and cash equivalents

1 unchanged sentence

Cash Flows From Operating Activities

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.

Net cash used in operating activities totaled $13.3 million during the three months ended March 31, 2025 primarily reflecting a net loss of $0.1 million, $22.6 million related to changes in accounts receivable, net, $16.5 million related to changes in net other assets and liabilities, $6.2 million related to changes in inventory and $2.8 million for non-cash deferred income taxes, partially offset by $20.4 million for non-cash charges for depreciation, amortization, stock based compensation, loss on disposition of property, provisions for inventory and other, and $14.3 million related to changes in accounts payable.

Cash Flows From Investing Activities

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.

Net cash used in investing activities was $10.5 million during the three months ended March 31, 2025, reflecting purchases of property and equipment of $14.9 million and investments in technology companies of $0.1 million, partially offset by proceeds from the sale of property and equipment of $3.7 million and proceeds from deferred purchase price of factored receivables of $0.8 million.

Cash Flows From Financing Activities

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

Net cash provided by financing activities was $40.7 million during the three months ended March 31, 2025, reflecting the borrowing on debt of $52.0 million, partially offset by $10.1 million of debt repayments and $1.2 million paid for employee taxes related to the net settlement of restricted stock units that vested during the year.

The following table summarizes the Company’s debt, in thousands, as of March 31, 2025 and December 31, 2024:

March 31, 2025

December 31, 2024

11 unchanged sentences

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

As of March 31, 2025, the Company was in compliance, in all material respects, with the terms of the Second Amended and Restated Credit Agreement.

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 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 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.

As of March 31, 2025 and December 31, 2024, there was $0.2 million of outstanding finance leases.

Material Cash Requirements

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

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.

In February 2025, we committed to a restructuring plan to further optimize our manufacturing footprint by realigning our manufacturing capacity in Europe.

Additionally, we expect to incur capital expenditures of between $1 million and $2 million.

In February 2025, we committed to an additional restructuring plan to further optimize our manufacturing footprint by realigning our manufacturing capacity in Asia.

Additionally, we expect to incur capital expenditures of between $2 million and $3 million.

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

Except as described above, there have been no material changes in our cash requirements since December 31, 2024, the end of fiscal year 2024.

2 unchanged sentences

The automotive component supply industry has historically been subject to inflationary pressures with respect to materials and labor.

Since 2021, the automotive industry has experienced a period of significant volatility in the costs of certain materials and components, labor and transportation.

At times in recent years, the automotive industry has experienced significant volatility in the costs of certain materials and components, labor and transportation.

These higher costs and cost increases due to inflation are expected to continue for the foreseeable future as demand remains elevated and supply remains constrained.

The impact of new tariffs could add to these inflationary pressures.

Although the Company has developed and implemented strategies to mitigate the impact of higher material component costs and transportation costs through sourcing and manufacturing efficiencies where possible, these strategies together with commercial negotiations with Gentherm's customers and suppliers have not fully offset to date and may not fully offset our future cost increases.

3 unchanged sentences

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, 2024.

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

There have been no significant changes in our critical accounting policies or critical accounting estimates during the three months ended March 31, 2025.

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.

4 unchanged sentences

Market risks for changes in interest rates relate primarily to the Company's debt obligations under the Second Amended and Restated Credit Agreement.

Foreign currency exchange risks are attributable to sales to foreign customers and purchases from foreign suppliers not denominated in a location’s functional currency, foreign plant operations, intercompany indebtedness, acquisitions denominated in foreign currencies, intercompany investments and include exposures to the Euro, Mexican Peso, Canadian Dollar, Hungarian Forint, North Macedonian Denar, Ukrainian Hryvnia, Japanese Yen, Chinese Renminbi, Korean Won, Czech Koruna and Vietnamese Dong.

The Company regularly enters into derivative contracts with the objective of managing its financial and operational exposure arising from these risks by offsetting gains and losses on the underlying exposures with gains and losses on the financial instruments used to hedge them.

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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 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 September 30, 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 (loss) 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 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 (loss) income.

Cash flows associated with derivatives are reported in net cash from 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, 2025 is set forth in Note 10, “Financial Instruments” in the consolidated condensed financial statements included in this Report.

Interest Rate Sensitivity

5 unchanged sentences

Variable rate

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.

Variable interest rate as of March 31, 2025

Based on the amounts outstanding as of March 31, 2025, a hypothetical 100 basis point change (increase or decrease) in interest rates would impact annual interest expense by $2.6 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.

8 unchanged sentences

(Receive MXN / Pay USD)

Total contract amount

Total contract amount (a)

Average contract rate

(Receive HUF / Pay EUR)

Total contract amount (a)

Average contract rate

(a) Reflects the approximate U.S.

dollar equivalent of the notional value of the hedge contracts.

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.

September 30, 2024

March 31, 2025

December 31, 2024

5 unchanged sentences

Exchange Agreement:(Receive MXN / Pay USD)

Exchange Agreements:(Receive HUF / Pay EUR)

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