What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-07-24 compared with 2025-04-24 · 174 added, 119 removed, 250 unchanged (54% of the section changed)

30 unchanged sentences

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

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.

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 and inflationary pressures

could have adverse impacts on our profitability.

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.

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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.

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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.

Since March 2025, the U.S.

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

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

There has been significant uncertainty resulting from the implementation, termination and/or conditional pause of these additional tariffs.

Further, it is reasonably possible that new or additional tariffs will be periodically announced in the future 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.

Our business model of manufacturing by regions for the regions limit the global impact of certain trade restrictions and tariffs.

Further, the majority of our supply components are not currently 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.

For the six months ended June 30, 2025, the additional tariffs did not have a 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.

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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.

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 adversely impacted, and may in the future adversely 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.

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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.

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,

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.

Further, it is reasonably possible 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 continue to 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,

According to the forecasting firm S&P Global Mobility (July 2025 release), global light vehicle production in the three and six months ended June 30, 2025 in the Company’s key markets of North America, Europe, China, Japan and South Korea, as compared to the three and six months ended June 30, 2024, are shown below (in millions of units):

Three Months Ended June 30,

Six Months Ended June 30,

North America

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Total light vehicle production volume in key markets

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.

The S&P Global Mobility (July 2025 release) forecasted light vehicle production volume in the Company’s key markets for full year 2025 to remain consistent at 74.7 million units, in line with 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 first quarter of 2025, we secured automotive new business awards totaling $400 million.

During the second quarter of 2025, we secured automotive new business awards totaling $620 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.

Automotive new business awards are not projections of revenue or future business as of June 30, 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.

Automotive new business awards in the second quarter of 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.

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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.

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.

During the three and six months ended June 30, 2025, the Company repurchased $10.0 million with an average price paid per share of $26.24.

The 2024 Stock Repurchase Program had $110.1 million of repurchase authorization remaining as of June 30, 2025.

Reportable Segments

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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,

The results of operations for the three and six months ended June 30, 2025 and 2024, in thousands, were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(Unfavorable)

Product revenues

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Income tax expense

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,

Product revenues by product category, in thousands, for the three and six months ended June 30, 2025 and 2024, were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Climate Control Seats (a)

Climate Control Interiors (a)

Lumbar and Massage Comfort Solutions

Climate Control Interiors (a)

Climate and Comfort Electronics (a)

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Total Company

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

(a) 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).

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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,

Below is a summary of our product revenues, in thousands, for the three months ended June 30, 2025 and 2024:

Three Months Ended June 30,

Variance Due To:

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Product revenues

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.

Product revenues for the three months ended June 30, 2025 decreased 0.2% as compared to the three months ended June 30, 2024.

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

Below is a summary of our product revenues, in thousands, for the six months ended June 30, 2025 and 2024:

Six Months Ended June 30,

Variance Due To:

(Unfavorable)

Product revenues

Product revenues for the six months ended June 30, 2025 decreased 0.4% as compared to the six months ended June 30, 2024.

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

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,

Below is a summary of our cost of sales and gross margin, in thousands, for the three months ended June 30, 2025 and 2024:

Three Months Ended June 30,

Variance Due To:

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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.

Cost of sales for the three months ended June 30, 2025 increased 2.3% as compared to the three months ended June 30, 2024.

The increase in cost of sales is primarily due to higher labor costs, unfavorable foreign currency impacts primarily attributable to the Euro and higher quality costs, partially offset by lower automotive volumes, material purchasing savings and favorable foreign currency impacts (net of foreign currency hedges) primarily attributable to the Mexican Peso.

Below is a summary of our cost of sales and gross margin, in thousands, for the six months ended June 30, 2025 and 2024:

Six Months Ended June 30,

Variance Due To:

(Unfavorable)

Cost of sales

Gross margin - Percentage

of product revenues

Cost of sales for the six months ended June 30, 2025 increased 1.2% as compared to the six months ended June 30, 2024.

The increase in cost of sales is primarily due to higher labor costs, higher automotive volumes, unfavorable foreign currency impacts primarily attributable to the Euro and higher quality costs, partially offset by material purchasing savings and favorable foreign currency impacts (net of foreign currency hedges) primarily attributable to the Mexican Peso.

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,

Below is a summary of our net research and development expenses, in thousands, for the three months ended June 30, 2025 and 2024:

Three Months Ended June 30,

(Unfavorable)

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Percentage of product revenues

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.

Net research and development expenses for the three months ended June 30, 2025 increased 3.2% as compared to the three months ended June 30, 2024.

The increase in net research and development expenses is primarily related to higher employee compensation expenses.

Below is a summary of our net research and development expenses, in thousands, for the six months ended June 30, 2025 and 2024:

Six Months Ended June 30,

(Unfavorable)

Research and development expenses

Reimbursed research and development expenses

Net research and development expenses

Percentage of product revenues

Net research and development expenses for the six months ended June 30, 2025 increased 4.9% as compared to the six months ended June 30, 2024.

The increase in net research and development expenses is primarily related to higher employee compensation expenses.

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,

Below is a summary of our selling, general and administrative expenses, in thousands, for the three months ended June 30, 2025 and 2024:

Three Months Ended June 30,

(Unfavorable)

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Percentage of product revenues

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.

Selling, general and administrative expenses for the three months ended June 30, 2025 increased 4.3% as compared to the three months ended June 30, 2024.

The increase in selling, general and administrative expenses is primarily related to higher expenses for leadership transition, leases and information technology, partially offset by lower employee compensation expenses.

Below is a summary of our selling, general and administrative expenses, in thousands, for the six months ended June 30, 2025 and 2024:

Six Months Ended June 30,

(Unfavorable)

Selling, general and administrative expenses

Percentage of product revenues

Selling, general and administrative expenses for the six months ended June 30, 2025 decreased 0.7% as compared to the six months ended June 30, 2024.

The decrease in selling, general and administrative expenses is primarily related to lower employee compensation expenses and favorable foreign currency impacts, partially offset by higher expenses for leadership transition, leases and information technology.

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,

Below is a summary of our restructuring expenses, net, in thousands, for the three months ended June 30, 2025 and 2024:

Three Months Ended June 30,

(Unfavorable)

Restructuring expenses, net

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.

During the three months ended June 30, 2025, the Company recognized expenses of $1.5 million for employee separation costs and $0.7 million for other costs.

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

Below is a summary of our restructuring expenses, net, in thousands, for the six months ended June 30, 2025 and 2024:

Six Months Ended June 30,

(Unfavorable)

Restructuring expenses, net

During the six months ended June 30, 2025, the Company recognized expenses of $5.7 million for employee separation costs and $1.0 million for other costs.

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

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,

Below is a summary of our loss on sale of land and building, net, in thousands, for the six months ended June 30, 2025 and 2024:

Six Months Ended June 30,

(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.

Loss on sale of land and building, net for the six months ended June 30, 2025 is primarily related to the sale of our former headquarters building in Northville, Michigan in January 2025.

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,

Below is a summary of our interest expense, net, in thousands, for the three months ended June 30, 2025 and 2024:

Three Months Ended June 30,

(Unfavorable)

Interest expense, net

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.

Interest expense, net for the three months ended June 30, 2025 remained relatively flat as compared to the three months ended June 30, 2024.

Below is a summary of our interest expense, net, in thousands, for the six months ended June 30, 2025 and 2024:

Six Months Ended June 30,

(Unfavorable)

Interest expense, net

Interest expense, net for the six months ended June 30, 2025 increased 4.9% as compared to the six months ended June 30, 2024.

The increase in interest expense, net is primarily related to the change in fair value of an interest rate swap derivative.

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,

Below is a summary of our foreign currency loss, in thousands, for the three months ended June 30, 2025 and 2024:

Three Months Ended June 30,

(Unfavorable)

Foreign currency loss

Foreign currency loss for the three months ended June 30, 2025 included net realized foreign currency gain of $1.4 million and net unrealized foreign currency loss of $18.9 million.

The unrealized foreign currency loss is primarily related to a non-current intercompany U.S.

dollar receivable at one of our foreign subsidiaries.

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

Below is a summary of our foreign currency (loss) gain, in thousands, for the six months ended June 30, 2025 and 2024:

Six Months Ended June 30,

(Unfavorable)

Foreign currency (loss) gain

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.

Foreign currency loss for the six months ended June 30, 2025 included net realized foreign currency gain of $0.7 million and net unrealized foreign currency loss of $28.5 million.

The unrealized foreign currency loss is primarily related to a non-current intercompany U.S.

dollar receivable at one of our foreign subsidiaries.

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

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,

Below is a summary of our other loss, in thousands, for the three months ended June 30, 2025 and 2024:

Three Months Ended June 30,

(Unfavorable)

Other loss for the three months ended June 30, 2025 decreased as compared to other loss for the three months ended June 30, 2024, primarily due to a decrease in miscellaneous expenses.

Below is a summary of our other (loss) income, in thousands, for the six months ended June 30, 2025 and 2024:

Six Months Ended June 30,

(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.

Other (loss) income for the six months ended June 30, 2025 was unfavorable as compared to the six months ended June 30, 2024.

The change in other (loss) income is primarily due to a $1.3 million decrease in the fair value of an equity investment in the current year period and a $1.1 million increase in the fair value of an equity investment 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,

Below is a summary of our income tax expense, in thousands, for the three months ended June 30, 2025 and 2024:

Three Months Ended June 30,

(Unfavorable)

Income tax expense

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%.

Income tax expense was $2.1 million for the three months ended June 30, 2025 on earnings before income tax of $2.5 million, representing an effective tax rate of 81.2%.

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.

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 GILTI.

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

The effective tax rate differed from the U.S.

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

Federal statutory rate, the quarterly accrual for uncertain tax positions and the unfavorable impact of the GILTI, partially offset by certain favorable tax effects of equity vesting.

Below is a summary of our income tax expense, in thousands, for the six months ended June 30, 2025 and 2024:

Six Months Ended June 30,

(Unfavorable)

Income tax expense

Income tax expense was $4.3 million for the six months ended June 30, 2025 on earnings before income tax of $4.6 million, representing an effective tax rate of 92.4%.

The effective tax rate differed from the U.S.

Federal statutory rate of 21.0% primarily due to the unfavorable impact of GILTI, unfavorable tax effects of equity vesting 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%.

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

The effective tax rate differed from the U.S.

Federal statutory rate of 21.0% primarily due to the impact of 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.

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

Federal statutory rate, the quarterly accrual for uncertain tax positions and the unfavorable impact of the GILTI, partially offset by a one-time benefit related to the Alfmeier acquisition.

Liquidity and Capital Resources

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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.

As of June 30, 2025, the Company had $128.3 million of cash and cash equivalents and $288.0 million of availability under our Second Amended and Restated Credit Agreement.

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

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

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

As of June 30, 2025, the Company’s cash and cash equivalents held by our non-U.S.

subsidiaries totaled $91.3 million.

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

Three Months Ended March 31,

Six Months Ended June 30,

Cash and cash equivalents at beginning of period

Net cash used in operating activities

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash used in financing activities

Foreign currency effect on cash and cash equivalents

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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.

Net cash provided by operating activities totaled $31.7 million during the six months ended June 30, 2025 primarily reflecting net income of $0.3 million, $69.7 million for non-cash charges for depreciation, amortization, stock based compensation, loss on disposition of property, provisions for inventory and other, including unrealized foreign currency loss, and $20.5 million related to changes in accounts payable, partially offset by $23.7 million related to changes in accounts receivable, net, $13.4 million related to changes in inventory, $12.2 million for non-cash deferred income taxes and $9.5 million related to changes in net other assets and liabilities.

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.

Net cash used in investing activities was $19.8 million during the six months ended June 30, 2025, reflecting purchases of property and equipment of $23.7 million and investments in technology companies of $0.6 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.

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

March 31, 2025

Net cash used in financing activities was $22.3 million during the six months ended June 30, 2025, reflecting $63.1 million of debt repayments, $10.0 million paid to repurchase Common Stock and $1.2 million paid for employee taxes related to the net settlement of restricted stock units that vested during the year, partially offset by the borrowing of debt of $52.0 million.

The following table summarizes the Company’s debt, in thousands, as of June 30, 2025 and December 31, 2024:

June 30, 2025

December 31, 2024

Credit Agreement:

Revolving Credit Facility (U.S.

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

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

As of June 30, 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.

As of June 30, 2025 and December 31, 2024, there was $0.1 million and $0.2 million, respectively, of outstanding finance leases.

Material Cash Requirements

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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.

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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 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 adversely impacted, and may in the future adversely impact, operating costs and operating results.

The impact of additional significant 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.

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For discussion of our significant accounting policies, see Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024.

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

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

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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.

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

Cash flows associated with derivatives are reported in net cash 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.

Information related to the fair values of all derivative instruments in the consolidated condensed balance sheet as of June 30, 2025 is set forth in Note 10, “Financial Instruments” in the consolidated condensed financial statements included in this Report.

Interest Rate Sensitivity

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Variable rate

Variable interest rate as of March 31, 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.

Variable interest rate as of June 30, 2025

Based on the amounts outstanding as of June 30, 2025, a hypothetical 100 basis point change (increase or decrease) in interest rates would impact annual interest expense by $2.1 million.

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

Exchange Rate Sensitivity

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

March 31, 2025

June 30, 2025

December 31, 2024

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis