Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our goals, beliefs, plans and expectations about our prospects for the future and other future events, such as: the expected light vehicle production in the Company’s key markets; 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; the competitive landscape; the impact of global tax reform legislation; the sufficiency of our cash balances and cash generated from operating, investing and financing activities for our future liquidity and capital resource needs; and our ability to finance sufficient working capital. Reference is made in particular to forward-looking statements included in this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Such statements may be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “believe”, “estimate”, “anticipate”, “intend”, “continue”, or similar terms, variations of such terms or the negative of such terms. 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 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, 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. Such forward-looking statements do not include the potential impact of any such transactions that may be completed after the date hereof, each of which may present material risks to the Company’s future business and financial results. Except as required by law, we expressly disclaim any obligation or undertaking to update any forward-looking statements to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
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.
Overview
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. 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 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. vehicle features) have been driven by macroeconomic and other factors, such as interest rates, automotive manufacturer and dealer sales incentives, fuel prices, consumer confidence, employment levels, income growth trends and government and tax incentives. 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 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
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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 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, 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
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 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. 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. Further, there is the potential that certain political pressures, such as changes to international trade agreements,
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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 (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,
2025
2024
% Change
North America
3.8
4.0
(5.3
)%
Europe
4.3
4.6
(6.7
)%
Greater China
7.0
6.3
11.2
%
Japan / South Korea
3.0
2.8
7.2
%
Total light vehicle production volume in key markets
18.1
17.7
2.2
%
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
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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 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 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 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 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. Repurchases under the 2024 Stock Repurchase Program may be made, from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions, applicable legal requirements, debt covenants and other considerations. Any such repurchases may be executed using open market purchases, accelerated share repurchase programs, privately negotiated agreements or other transactions. Repurchases may be funded from cash on hand, available borrowings or proceeds from potential debt or other capital markets sources.
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
The Company has two reportable segments for financial reporting purposes: 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, significant segment expenses, operating income (loss), and depreciation and amortization.
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Consolidated Results of Operations
The results of operations for the three months ended March 31, 2025 and 2024, in thousands, were as follows:
Three Months Ended March 31,
2025
2024
Favorable /
(Unfavorable)
Product revenues
$
353,854
$
356,015
$
(2,161
)
Cost of sales
267,389
267,262
(127
)
Gross margin
86,465
88,753
(2,288
)
Operating expenses:
Net research and development expenses
24,216
22,745
(1,471
)
Selling, general and administrative expenses
38,478
40,721
2,243
Restructuring expenses, net
4,514
7,238
2,724
Loss on sale of land and building, net
2,196
—
(2,196
)
Total operating expenses
69,404
70,704
1,300
Operating income
17,061
18,049
(988
)
Interest expense, net
(3,555
)
(3,244
)
(311
)
Foreign currency (loss) gain
(10,298
)
2,549
(12,847
)
Other (loss) income
(1,124
)
973
(2,097
)
Earnings before income tax
2,084
18,327
(16,243
)
Income tax expense
2,212
3,542
1,330
Net (loss) income
$
(128
)
$
14,785
$
(14,913
)
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,
2025
2024
$ Change
% Change
Climate Control Seats (a)
$
191,153
$
192,049
$
(896)
(0.5)%
Climate Control Interiors (a)
45,341
44,398
943
2.1 %
Lumbar and Massage Comfort Solutions
45,313
38,251
7,062
18.5 %
Climate and Comfort Electronics (a)
7,715
4,226
3,489
82.6 %
Automotive Climate and Comfort Solutions
289,522
278,924
10,598
3.8 %
Valve Systems
23,173
26,625
(3,452)
(13.0)%
Other Automotive (a)
29,179
39,089
(9,910)
(25.4)%
Subtotal Automotive segment
341,874
344,638
(2,764)
(0.8)%
Medical segment
11,980
11,377
603
5.3 %
Total Company
$
353,854
$
356,015
$
(2,161)
(0.6)%
(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
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:
2025
2024
Favorable /
(Unfavorable)
Automotive
Volume
FX
Pricing /
Other
Total
Product revenues
$
353,854
$
356,015
$
(2,161
)
$
5,200
$
(5,421
)
$
(1,940
)
$
(2,161
)
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.
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Cost of Sales
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:
2025
2024
Favorable /
(Unfavorable)
Automotive
Volume
Operational
Performance
FX
Other
Total
Cost of sales
$
267,389
$
267,262
$
(127
)
$
(3,087
)
$
(78
)
$
3,707
$
(669
)
$
(127
)
Gross margin
86,465
88,753
(2,288
)
2,113
(78
)
(1,714
)
(2,609
)
(2,288
)
Gross margin - Percentage
of product revenues
24.4
%
24.9
%
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
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,
2025
2024
Favorable /
(Unfavorable)
Research and development expenses
$
29,507
$
27,742
$
(1,765
)
Reimbursed research and development expenses
(5,291
)
(4,997
)
294
Net research and development expenses
$
24,216
$
22,745
$
(1,471
)
Percentage of product revenues
6.8
%
6.4
%
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
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,
2025
2024
Favorable /
(Unfavorable)
Selling, general and administrative expenses
$
38,478
$
40,721
$
2,243
Percentage of product revenues
10.9
%
11.4
%
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
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,
2025
2024
Favorable /
(Unfavorable)
Restructuring expenses, net
$
4,514
$
7,238
$
2,724
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.
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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.
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,
2025
2024
Favorable /
(Unfavorable)
Loss on sale of land and building, net
$
2,196
$
—
$
(2,196
)
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
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,
2025
2024
Favorable /
(Unfavorable)
Interest expense, net
$
(3,555
)
$
(3,244
)
$
(311
)
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
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,
2025
2024
Favorable /
(Unfavorable)
Foreign currency (loss) gain
$
(10,298
)
$
2,549
$
(12,847
)
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,
2025
2024
Favorable /
(Unfavorable)
Other (loss) income
$
(1,124
)
$
973
$
(2,097
)
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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
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,
2025
2024
Favorable /
(Unfavorable)
Income tax expense
$
2,212
$
3,542
$
1,330
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 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 21.0% 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
Overview
Our primary sources of liquidity and capital resources are cash flows from operations and borrowings available under our Second Amended and Restated Credit Agreement. Our cash requirements consist principally of working capital, capital expenditures, research and development, operating lease payments, income tax payments and general corporate purposes. We generally reinvest available cash flows from operations into our business, while opportunistically utilizing our authorized stock repurchase program. 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. However, there can be no assurance equity or debt financing will be available to us when we need it or, if available, the terms will be satisfactory to us and not dilutive to our then-current shareholders.
We continue to expect to be able to move funds between different countries to manage our global liquidity needs without material adverse tax implications, subject to current monetary policies and the terms of the Second Amended and Restated Credit Agreement. We utilize a combination of strategies, including dividends, cash pooling arrangements, intercompany loan repayments and other distributions and advances to provide the funds necessary to meet our global liquidity needs. There are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Gentherm Incorporated. As of March 31, 2025, the Company’s cash and cash equivalents held by our non-U.S. subsidiaries totaled $112.0 million. If additional non-U.S. cash was needed for our U.S. operations, we may be required to accrue and pay withholding if we were to distribute such funds from non-U.S. subsidiaries to the U.S.; 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 cash flows from operations will be adequate to meet anticipated cash requirements for at least the next twelve months and the foreseeable future.
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Cash and Cash Flows
The following table represents our cash and cash equivalents, in thousands:
Three Months Ended March 31,
2025
2024
Cash and cash equivalents at beginning of period
$
134,134
$
149,673
Net cash used in operating activities
(13,344
)
(10,322
)
Net cash used in investing activities
(10,534
)
(8,831
)
Net cash provided by (used in) financing activities
40,739
(1,534
)
Foreign currency effect on cash and cash equivalents
12,147
(3,879
)
Cash and cash equivalents at end of period
$
163,142
$
125,107
Cash Flows From Operating Activities
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 $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 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.
Debt
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
Interest
Rate
Principal
Balance
Interest
Rate
Principal
Balance
Credit Agreement:
Revolving Credit Facility (U.S. Dollar denominations)
5.80
%
$
262,000
5.86
%
$
220,000
Finance leases
3.42
%
172
3.46
%
201
Total debt
262,172
220,201
Current maturities
(138
)
(137
)
Long-term debt, less current maturities
$
262,034
$
220,064
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Credit Agreement
Gentherm, together with certain of its subsidiaries, maintain a revolving credit note (the “Revolving Credit Facility”) under its Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”) with a consortium of lenders and Bank of America, N.A. as administrative agent. The Second Amended and Restated Credit Agreement was entered into on June 10, 2022 and amended and restated in its entirety the Amended and Restated Credit Agreement dated June 27, 2019, by and among Gentherm, certain of its direct and indirect subsidiaries, the lenders party thereto and the Agent. The Second Amended and Restated Credit Agreement has a maximum borrowing capacity of $500 million and matures on June 10, 2027. The Second Amended and Restated Credit Agreement contains covenants, that, among other things, (i) prohibit or limit the ability of the borrowers and any material subsidiary to incur additional indebtedness, create liens, pay dividends, make certain types of investments (including acquisitions), enter into certain types of transactions with affiliates, prepay other indebtedness, sell assets or enter into certain other transactions outside the ordinary course of business, and (ii) require that Gentherm maintain a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Net Leverage Ratio (based on consolidated EBITDA for the applicable trailing four fiscal quarters) as of the end of any fiscal quarter. As of March 31, 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 March 31, 2025 and December 31, 2024, there was $0.2 million of outstanding finance leases.
Material Cash Requirements
In February 2025, we committed to a restructuring plan to further optimize our manufacturing footprint by realigning our manufacturing capacity in Europe. 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.
In February 2025, we committed to an additional restructuring plan to further optimize our manufacturing footprint by realigning our manufacturing capacity in Asia. 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.
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. See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024 for additional information regarding our material cash requirements.
Effects of Inflation
The automotive component supply industry has historically been subject to inflationary pressures with respect to materials and labor. At times in recent years, the automotive industry has experienced significant volatility in the costs of certain materials and components, labor and transportation. 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 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. Such inflationary cost increase may increase the cash required to fund our operations by a material amount.
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Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. 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 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. Our estimates may change, however, as new events occur and additional information is obtained. As a result, actual results may differ significantly from our estimates, and any such differences may be material to our financial statements.
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ITEM 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks including, but not limited to, changes in foreign currency exchange rates, changes in interest rates and price fluctuations of certain material commodities such as copper. 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, Vietnamese Dong, British Pound, and Moroccan Dirham.
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. The decision of whether and when to execute derivative financial instruments, along with the duration of the instrument, may vary from period to period depending on market conditions, the relative costs of the instruments and capacity to hedge. The duration is linked to the timing of the underlying exposure, with the connection between the two being regularly monitored. The Company does not enter into derivative financial instruments for speculative or trading purposes. Some derivative contracts do not qualify for hedge accounting; for other derivative contracts, we elect to not apply hedge accounting.
The Company’s designated hedging relationships are formally documented at the inception of the hedge, and hedges must be highly effective in offsetting changes to future cash flows on hedged transactions both at the inception of a hedge and on an ongoing basis to be designated for hedge accounting treatment. 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 (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
The table below presents principal cash flows and related weighted average interest rates by expected maturity dates for each of the Company’s debt obligations, excluding finance leases. The information is presented in U.S. dollar equivalents, which is the Company’s reporting currency.
Expected Maturity Date
2025
2026
2027
2028
2029
2030
Total
Fair Value
Liabilities
Long-Term Debt:
Variable rate
$
—
$
—
$
262,000
$
—
$
—
$
—
$
262,000
$
262,000
Variable interest rate as of March 31, 2025
5.80
%
5.80
%
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.
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Exchange Rate Sensitivity
The table below provides information about the Company’s foreign currency exchange rate agreements that are sensitive to changes in foreign currency exchange rates. The table presents the notional amounts and weighted average exchange rates by expected maturity dates for each type of foreign currency exchange agreement. These notional amounts generally are used to calculate the payments to be exchanged under the contract.
Expected Maturity or Transaction Date
Anticipated Transactions and Related Derivatives
2025
2026
Total
Fair Value
USD Functional Currency
Exchange Agreements:
(Receive MXN / Pay USD)
Total contract amount (a)
$
59,912
$
35,122
$
95,034
$
436
Average contract rate
20.03
20.50
20.20
(Receive HUF / Pay EUR)
Total contract amount (a)
$
8,975
$
—
$
8,975
$
180
Average contract rate
417.22
—
417.22
(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.
March 31, 2025
December 31, 2024
Exchange Rate Sensitivity
Potential loss in fair value
Potential gain in fair value
Potential loss in fair value
Potential gain in fair value
Exchange Agreement:(Receive MXN / Pay USD)
$
4,512
$
6,931
$
6,243
$
7,359
Exchange Agreements:(Receive HUF / Pay EUR)
741
905
917
1,120
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.