UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30,March 31, 20232024

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to .

Commission File Number: 0-21810

GENTHERM INCORPORATED

(Exact name of registrant as specified in its charter)

Michigan

 

95-4318554

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

21680 Haggerty Road, Northville, MI

 

48167

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (248) 504-0500

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, no par value

THRM

Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

At October 20, 2023,April 25, 2024, there were 32,796,29731,644,934 issued and outstanding shares of Common Stock of the registrant.

 


 

GENTHERM INCORPORATED

TABLE OF CONTENTS

 

 

 

 

 

 

Part I. Financial Information

 

3

 

Item 1.

 

Financial Statements (Unaudited)

 

3

 

 

 

Consolidated Condensed Balance Sheets

 

3

 

 

 

Consolidated Condensed Statements of Income

 

4

 

 

 

Consolidated Condensed Statements of Comprehensive (Loss) Income

 

5

 

 

Consolidated Condensed Statements of Cash Flows

 

6

 

 

 

Consolidated Condensed Statements of Changes in Shareholders’ Equity

 

7

 

 

 

Notes to Unaudited Consolidated Condensed Financial Statements

 

8

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

2523

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

3833

 

Item 4.

 

Controls and Procedures

 

4035

Part II. Other Information

 

4136

 

Item 1.

 

Legal Proceedings

 

4136

 

Item 1A.

 

Risk Factors

 

4136

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

4136

 

 

Item 5.

 

Other Information

 

4136

 

Item 6.

 

Exhibits

 

4237

 

Signatures

 

4338

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

 

September 30, 2023

 

 

December 31, 2022

 

 

March 31, 2024

 

 

December 31, 2023

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

154,354

 

 

$

153,891

 

 

$

125,107

 

 

$

149,673

 

Accounts receivable, net

 

 

263,765

 

 

 

247,131

 

 

 

265,149

 

 

 

253,579

 

Inventory:

 

 

 

 

 

 

 

 

 

 

Raw materials

 

 

122,919

 

 

 

136,217

 

 

 

134,463

 

 

 

126,013

 

Work in process

 

 

16,745

 

 

 

17,695

 

 

 

18,611

 

 

 

15,704

 

Finished goods

 

 

66,192

 

 

 

64,336

 

 

 

66,510

 

 

 

64,175

 

Inventory, net

 

 

205,856

 

 

 

218,248

 

 

 

219,584

 

 

 

205,892

 

Other current assets

 

 

76,651

 

 

 

64,597

 

 

 

90,592

 

 

 

78,420

 

Total current assets

 

 

700,626

 

 

 

683,867

 

 

 

700,432

 

 

 

687,564

 

Property and equipment, net

 

 

236,660

 

 

 

244,480

 

 

 

241,798

 

 

 

245,234

 

Goodwill

 

 

100,633

 

 

 

119,774

 

 

 

102,194

 

 

 

104,073

 

Other intangible assets, net

 

 

66,427

 

 

 

73,933

 

 

 

63,165

 

 

 

66,482

 

Operating lease right-of-use assets

 

 

27,442

 

 

 

29,945

 

 

 

34,631

 

 

 

27,358

 

Deferred income tax assets

 

 

73,177

 

 

 

69,840

 

 

 

81,395

 

 

 

81,930

 

Other non-current assets

 

 

20,632

 

 

 

17,461

 

 

 

29,095

 

 

 

21,730

 

Total assets

 

$

1,225,597

 

 

$

1,239,300

 

 

$

1,252,710

 

 

$

1,234,371

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

213,851

 

 

$

182,225

 

 

$

226,190

 

 

$

215,827

 

Current lease liabilities

 

 

7,633

 

 

 

7,143

 

 

 

7,642

 

 

 

7,700

 

Current maturities of long-term debt

 

 

620

 

 

 

2,443

 

 

 

324

 

 

 

621

 

Other current liabilities

 

 

90,199

 

 

 

93,814

 

 

 

98,939

 

 

 

100,805

 

Total current liabilities

 

 

312,303

 

 

 

285,625

 

 

 

333,095

 

 

 

324,953

 

Long-term debt, less current maturities

 

 

207,302

 

 

 

232,653

 

 

 

222,173

 

 

 

222,217

 

Non-current lease liabilities

 

 

16,451

 

 

 

20,538

 

 

 

23,126

 

 

 

16,175

 

Pension benefit obligation

 

 

3,165

 

 

 

3,638

 

 

 

2,768

 

 

 

3,209

 

Other non-current liabilities

 

 

26,324

 

 

 

24,573

 

 

 

24,489

 

 

 

23,095

 

Total liabilities

 

$

565,545

 

 

$

567,027

 

 

$

605,651

 

 

$

589,649

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

Common Stock:

 

 

 

 

 

 

 

 

 

 

No par value; 55,000,000 shares authorized 32,795,093 and 33,202,082 issued and outstanding at September 30, 2023 and December 31, 2022, respectively

 

 

97,715

 

 

 

122,658

 

No par value; 55,000,000 shares authorized 31,629,224 and 31,542,001 issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

53,269

 

 

 

50,503

 

Paid-in capital

 

 

5,379

 

 

 

5,447

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

 

(55,955

)

 

 

(46,489

)

 

 

(45,195

)

 

 

(30,160

)

Accumulated earnings

 

 

612,913

 

 

 

590,657

 

 

 

638,985

 

 

 

624,379

 

Total shareholders’ equity

 

 

660,052

 

 

 

672,273

 

 

 

647,059

 

 

 

644,722

 

Total liabilities and shareholders’ equity

 

$

1,225,597

 

 

$

1,239,300

 

 

$

1,252,710

 

 

$

1,234,371

 

 

 

See accompanying notes to the consolidated condensed financial statements.

3


 

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2024

 

 

2023

 

Product revenues

 

$

366,195

 

 

$

332,962

 

 

$

1,102,143

 

 

$

861,334

 

 

$

356,015

 

 

$

363,625

 

Cost of sales

 

 

279,985

 

 

 

252,610

 

 

 

846,815

 

 

 

657,492

 

 

 

267,262

 

 

 

282,495

 

Gross margin

 

 

86,210

 

 

 

80,352

 

 

 

255,328

 

 

 

203,842

 

 

 

88,753

 

 

 

81,130

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net research and development expenses

 

 

23,150

 

 

 

22,666

 

 

 

72,991

 

 

 

62,425

 

 

 

22,745

 

 

 

25,145

 

Selling, general and administrative expenses

 

 

38,220

 

 

 

34,859

 

 

 

113,680

 

 

 

96,109

 

 

 

40,721

 

 

 

37,042

 

Impairment of goodwill

 

 

 

 

 

 

 

 

19,509

 

 

 

 

Restructuring expenses

 

 

1,099

 

 

 

6

 

 

 

3,412

 

 

 

561

 

 

 

7,238

 

 

 

1,269

 

Total operating expenses

 

 

62,469

 

 

 

57,531

 

 

 

209,592

 

 

 

159,095

 

 

 

70,704

 

 

 

63,456

 

Operating income

 

 

23,741

 

 

 

22,821

 

 

 

45,736

 

 

 

44,747

 

 

 

18,049

 

 

 

17,674

 

Interest (expense) income, net

 

 

(3,368

)

 

 

714

 

 

 

(9,444

)

 

 

(1,285

)

Interest expense, net

 

 

(3,244

)

 

 

(4,144

)

Foreign currency gain (loss)

 

 

2,107

 

 

 

(8,285

)

 

 

384

 

 

 

(1,516

)

 

 

2,549

 

 

 

(2,069

)

Other income

 

 

272

 

 

 

361

 

 

 

1,058

 

 

 

698

 

 

 

973

 

 

 

230

 

Earnings before income tax

 

 

22,752

 

 

 

15,611

 

 

 

37,734

 

 

 

42,644

 

 

 

18,327

 

 

 

11,691

 

Income tax expense

 

 

6,908

 

 

 

5,784

 

 

 

15,478

 

 

 

13,998

 

 

 

3,542

 

 

 

3,728

 

Net income

 

$

15,844

 

 

$

9,827

 

 

$

22,256

 

 

$

28,646

 

 

$

14,785

 

 

$

7,963

 

Basic earnings per share

 

$

0.48

 

 

$

0.30

 

 

$

0.67

 

 

$

0.87

 

 

$

0.47

 

 

$

0.24

 

Diluted earnings per share

 

$

0.48

 

 

$

0.29

 

 

$

0.67

 

 

$

0.86

 

 

$

0.47

 

 

$

0.24

 

Weighted average number of shares – basic

 

 

32,944

 

 

 

33,162

 

 

 

33,049

 

 

 

33,106

 

 

 

31,544

 

 

 

33,182

 

Weighted average number of shares – diluted

 

 

33,196

 

 

 

33,470

 

 

 

33,311

 

 

 

33,460

 

 

 

31,691

 

 

 

33,386

 

 

See accompanying notes to the consolidated condensed financial statements.

 

4


 

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2024

 

 

2023

 

Net income

 

$

15,844

 

 

$

9,827

 

 

$

22,256

 

 

$

28,646

 

 

$

14,785

 

 

$

7,963

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

Pension benefit obligations

 

 

4

 

 

 

6

 

 

 

12

 

 

 

62

 

 

 

14

 

 

 

4

 

Foreign currency translation adjustments

 

 

(16,456

)

 

 

(28,682

)

 

 

(11,789

)

 

 

(60,676

)

 

 

(14,382

)

 

 

8,255

 

Unrealized (loss) gain on foreign currency derivative securities, net of tax

 

 

(2,090

)

 

 

1,273

 

 

 

2,311

 

 

 

1,490

 

 

 

(667

)

 

 

2,129

 

Unrealized loss on commodity derivative securities, net of tax

 

 

 

 

 

 

 

 

 

 

 

(5

)

Other comprehensive loss, net of tax

 

 

(18,542

)

 

 

(27,403

)

 

 

(9,466

)

 

 

(59,129

)

Other comprehensive (loss) income, net of tax

 

 

(15,035

)

 

 

10,388

 

Comprehensive (loss) income

 

$

(2,698

)

 

$

(17,576

)

 

$

12,790

 

 

$

(30,483

)

 

$

(250

)

 

$

18,351

 

 

See accompanying notes to the consolidated condensed financial statements.

 

5


 

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

 

2024

 

 

2023

 

Operating Activities:

 

 

 

 

 

 

 

 

 

 

Net income

 

$

22,256

 

 

$

28,646

 

 

$

14,785

 

 

$

7,963

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

 

38,531

 

 

 

30,470

 

 

 

13,818

 

 

 

13,583

 

Deferred income taxes

 

 

(3,017

)

 

 

(1,207

)

 

 

(184

)

 

 

(1,786

)

Stock based compensation

 

 

8,451

 

 

 

3,383

 

 

 

3,789

 

 

 

2,023

 

Loss on disposition of property and equipment

 

 

873

 

 

 

620

 

 

 

69

 

 

 

16

 

Provisions for inventory

 

 

6,597

 

 

 

4,293

 

 

 

296

 

 

 

1,704

 

Impairment of goodwill

 

 

19,509

 

 

 

 

Other

 

 

81

 

 

 

881

 

 

 

(842

)

 

 

(44

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(19,813

)

 

 

(55,780

)

 

 

(14,856

)

 

 

(8,237

)

Inventory

 

 

3,733

 

 

 

(53,223

)

 

 

(16,648

)

 

 

(1,137

)

Other assets

 

 

(19,218

)

 

 

(10,868

)

 

 

(29,226

)

 

 

(6,417

)

Accounts payable

 

 

32,158

 

 

 

60,983

 

 

 

12,337

 

 

 

24,289

 

Other liabilities

 

 

(10,099

)

 

 

4,759

 

 

 

6,340

 

 

 

(6,848

)

Net cash provided by operating activities

 

 

80,042

 

 

 

12,957

 

Net cash (used in) provided by operating activities

 

 

(10,322

)

 

 

25,109

 

Investing Activities:

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(26,526

)

 

 

(25,737

)

 

 

(11,320

)

 

 

(6,294

)

Proceeds from the sale of property and equipment

 

 

72

 

 

 

175

 

 

 

22

 

 

 

17

 

Acquisition of businesses, net of cash acquired

 

 

 

 

 

(224,097

)

Proceeds from deferred purchase price of factored receivables

 

 

10,139

 

 

 

2,168

 

 

 

2,732

 

 

 

3,728

 

Cost of technology investments

 

 

(630

)

 

 

(350

)

 

 

(265

)

 

 

 

Net cash used in investing activities

 

 

(16,945

)

 

 

(247,841

)

 

 

(8,831

)

 

 

(2,549

)

Financing Activities:

 

 

 

 

 

 

 

 

 

 

Borrowings on debt

 

 

 

 

 

207,000

 

 

 

10,000

 

 

 

 

Repayments of debt

 

 

(27,166

)

 

 

(11,559

)

 

 

(10,324

)

 

 

(564

)

Proceeds from the exercise of Common Stock options

 

 

263

 

 

 

1,556

 

 

 

812

 

 

 

263

 

Taxes withheld and paid on employees' share-based payment awards

 

 

(2,754

)

 

 

(5,415

)

 

 

(2,022

)

 

 

(2,667

)

Cash paid for the repurchase of Common Stock

 

 

(31,094

)

 

 

 

 

 

 

 

 

(9,997

)

Net cash (used in) provided by financing activities

 

 

(60,751

)

 

 

191,582

 

Net cash used in financing activities

 

 

(1,534

)

 

 

(12,965

)

Foreign currency effect

 

 

(1,883

)

 

 

(8,141

)

 

 

(3,879

)

 

 

3,144

 

Net cash increase (decrease) in cash and cash equivalents

 

 

463

 

 

 

(51,443

)

Net (decrease) increase in cash and cash equivalents

 

 

(24,566

)

 

 

12,739

 

Cash and cash equivalents at beginning of period

 

 

153,891

 

 

 

190,606

 

 

 

149,673

 

 

 

153,891

 

Cash and cash equivalents at end of period

 

$

154,354

 

 

$

139,163

 

 

$

125,107

 

 

$

166,630

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

 

Cash paid for taxes

 

$

18,893

 

 

$

13,509

 

 

$

4,900

 

 

$

5,536

 

Cash paid for interest

 

 

9,737

 

 

 

3,334

 

 

 

3,310

 

 

 

3,235

 

Non-Cash Investing Activities:

 

 

 

 

 

 

 

 

 

 

Period-end balance of accounts payable for property and equipment

 

$

4,501

 

 

$

2,848

 

 

$

8,643

 

 

$

2,370

 

Deferred purchase price of receivables factored in the period

 

$

11,344

 

 

$

2,801

 

 

 

4,447

 

 

 

4,739

 

 

See accompanying notes to the consolidated condensed financial statements.

 

 

6


 

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

Comprehensive

 

Accumulated

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at December 31, 2023

 

 

31,542

 

 

$

50,503

 

 

$

 

 

$

(30,160

)

 

$

624,379

 

 

$

644,722

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,785

 

 

 

14,785

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(15,035

)

 

 

 

 

 

(15,035

)

Stock compensation, net

 

 

87

 

 

 

2,766

 

 

 

 

 

 

 

 

 

(179

)

 

 

2,587

 

Stock repurchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2024

 

 

31,629

 

 

$

53,269

 

 

$

 

 

$

(45,195

)

 

$

638,985

 

 

$

647,059

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

Comprehensive

 

Accumulated

 

 

 

 

Common Stock

 

 

Paid-in

 

Comprehensive

 

Accumulated

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Total

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at December 31, 2022

 

 

33,202

 

 

$

122,658

 

 

$

5,447

 

 

$

(46,489

)

 

$

590,657

 

 

$

672,273

 

 

 

33,202

 

 

$

122,658

 

 

$

5,447

 

 

$

(46,489

)

 

$

590,657

 

 

$

672,273

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,963

 

 

 

7,963

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,963

 

 

 

7,963

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

10,388

 

 

 

 

 

 

10,388

 

 

 

 

 

 

 

 

 

 

 

 

10,388

 

 

 

 

 

 

10,388

 

Stock compensation, net

 

 

94

 

 

 

(241

)

 

 

(68

)

 

 

 

 

 

 

 

 

(309

)

 

 

94

 

 

 

(241

)

 

 

(68

)

 

 

 

 

 

 

 

 

(309

)

Stock repurchase

 

 

(169

)

 

 

(9,997

)

 

 

 

 

 

 

 

 

 

 

 

(9,997

)

 

 

(169

)

 

 

(9,997

)

 

 

 

 

 

 

 

 

 

 

 

(9,997

)

Balance at March 31, 2023

 

 

33,127

 

 

$

112,420

 

 

$

5,379

 

 

$

(36,101

)

 

$

598,620

 

 

$

680,318

 

 

 

33,127

 

 

$

112,420

 

 

$

5,379

 

 

$

(36,101

)

 

$

598,620

 

 

$

680,318

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,551

)

 

 

(1,551

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(1,312

)

 

 

 

 

 

(1,312

)

Stock compensation, net

 

 

28

 

 

 

3,101

 

 

 

 

 

 

 

 

 

 

 

 

3,101

 

Stock repurchase

 

 

(167

)

 

 

(9,996

)

 

 

 

 

 

 

 

 

 

 

 

(9,996

)

Balance at June 30, 2023

 

 

32,988

 

 

$

105,525

 

 

$

5,379

 

 

$

(37,413

)

 

$

597,069

 

 

$

670,560

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,844

 

 

 

15,844

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(18,542

)

 

 

 

 

 

(18,542

)

Stock compensation, net

 

 

2

 

 

 

3,291

 

 

 

 

 

 

 

 

 

 

 

 

3,291

 

Stock repurchase

 

 

(195

)

 

 

(11,101

)

 

 

 

 

 

 

 

 

 

 

 

(11,101

)

Balance at September 30, 2023

 

 

32,795

 

 

$

97,715

 

 

$

5,379

 

 

$

(55,955

)

 

$

612,913

 

 

$

660,052

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

Comprehensive

 

Accumulated

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at December 31, 2021

 

 

33,008

 

 

$

118,646

 

 

$

5,866

 

 

$

(36,922

)

 

$

566,216

 

 

$

653,806

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,747

 

 

 

11,747

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(8,806

)

 

 

 

 

(8,806

)

Stock compensation, net

 

 

119

 

 

 

(814

)

 

 

(146

)

 

 

 

 

 

 

 

 

(960

)

Balance at March 31, 2022

 

 

33,127

 

 

$

117,832

 

 

$

5,720

 

 

$

(45,728

)

 

$

577,963

 

 

$

655,787

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,072

 

 

 

7,072

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(22,920

)

 

 

 

 

 

(22,920

)

Stock compensation, net

 

 

6

 

 

 

3,256

 

 

 

 

 

 

 

 

 

 

 

 

3,256

 

Balance at June 30, 2022

 

 

33,133

 

 

$

121,088

 

 

$

5,720

 

 

$

(68,648

)

 

$

585,035

 

 

$

643,195

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,827

 

 

 

9,827

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(27,403

)

 

 

 

 

 

(27,403

)

Stock compensation, net

 

 

63

 

 

 

(1,287

)

 

 

(243

)

 

 

 

 

 

 

 

 

(1,530

)

Balance at September 30, 2022

 

 

33,196

 

 

$

119,801

 

 

$

5,477

 

 

$

(96,051

)

 

$

594,862

 

 

$

624,089

 

 

See accompanying notes to the consolidated condensed financial statements.

7


 

Note 1 – Overview

Gentherm Incorporated, a Michigan corporation, and its consolidated subsidiaries (“Gentherm”, “we”, “us”, “our” or the “Company”) is the global market leader of innovative thermal management and pneumatic comfort technologies for the automotive industry and a leader in medical industries.patient temperature management. Automotive products include variable temperature Climate Control Seats, heated automotive interior systems (including heated seats, steering wheels, armrests and other components), battery performance solutions, cable systems, lumbar and massage comfort solutions, valvefuel management valves and other valves for brake and engine systems, and other electronic devices. Our automotive products can be found on vehicles manufactured by nearly all the major original equipment manufacturers (“OEMs”) operating in North America and Europe, and several major OEMs in Asia. We operate in locations aligned with our major customers’ product strategies to provide locally enhanced design, integration and production capabilities. Medical products include patient temperature management systems. Our medical products can be found in hospitals throughout the world, primarily in the U.S., China, Germany and Brazil. 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.

During the first half of 2023, the Company launched Fit-for-Growth 2.0 to execute as part of our long-term growth strategy. Fit-for-Growth 2.0 is expected to deliver significant cost reductions through sourcing excellence, value engineering, manufacturing productivity, manufacturing footprint optimization, product profitability and cost synergies from the 2022 acquisition of Alfmeier Präzision SE. Additionally, the program is intended to drive operating expense efficiency to leverage scale.

Basis of Presentation and Significant Accounting Policies

The unaudited consolidated condensed financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations. The information furnished in the consolidated condensed financial statements include all adjustments (consisting of only normal, recurring adjustments) considered necessary to present fairly the results of operations, financial position and cash flows of the Company. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.2023. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim periodperiods or for the full year.

In preparing these financial statements, management was required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on our historical experience, the terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and suppliers and information available from other outsidethird-party sources, as appropriate. These estimates and assumptions are subject to an inherent degree of uncertainty. We are not presently aware of any events or circumstances that would require us to update such estimates and 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.

All amounts in these notes to the consolidated condensed financial statements are presented in thousands, except share and per share data.

Principles of Consolidation

The consolidated condensed financial statements include the accounts of the Company, its wholly owned subsidiaries and those entities in which it has a controlling financial interest. The Company evaluates its relationship with other entities for consolidation and to identify whether such entities are variable interest entities (“VIE”) and to assess whether the Company is the primary beneficiary of such entities. Investments in entitiesaffiliates in which Gentherm does not have control but does have the ability to exercise significant influence over operating and financial policies are accounted for under the equity method. When Gentherm does not have the ability to exercise significant influence (generally when ownership interest is less than 20%), investments in entitiesaffiliates are measured at cost, less impairments, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer.

8


Variable Interest Entities

The Company maintains an ownership interest in a VIE, Carrar Ltd. (“Carrar”). Carrar is a technology developer of advanced thermal management systems for the electric mobility market. The Company determined that Carrar is a VIE; however, the Company does not have a controlling financial interest or have the power to direct the activities that most significantly affect the economic performance of the investment. Therefore, the Company has concluded that it is not the primary beneficiary. Gentherm’s investment in Carrar is measured at cost, less impairments, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. In the first quarter of 2024, we recognized an increase in the fair value of our investment in Carrar of $1,097 in Other income in the consolidated condensed statements of income due to observable transactions. The Carrar investment was $5,7003,897 and $5,2002,800 as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively, and is recorded in Other non-current assets in the consolidated condensed balance sheets.

8


Revenue Recognition

The Company has no material contract assets or contract liabilities as of September 30, 2023.March 31, 2024.

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if the benefits of those costs are expected to be realized for a period greater than one year. Total capitalized costs to obtain a contract were $4,13610,945 and $2,2397,305 as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. These amounts are recorded in Other non-current assets in the consolidated condensed balance sheets and are being amortized into Product revenues in the consolidated condensed statements of income over the expected production life of the applicable program.

Note 2 – AcquisitionsNew Accounting Pronouncements

Alfmeier Präzision SE

On August 1, 2022, the Company acquired 100% of the equity interests of Alfmeier Präzision SE (“Alfmeier”), a global leader in automotive lumbar and massage comfort solutions and a leading provider of advanced valve systems, integrated electronics and software. The acquisition further expanded the Company's value proposition beyond thermal in comfort, health, wellness, and energy efficiency and aligned with global consumer demand for expanded offerings in vehicle passenger comfort.Recently Adopted Accounting Pronouncements

The total consideration transferred was $170,700. The resultsCompany considers the applicability and impact of Alfmeier's operations are reported withinall Accounting Standards Updates ("ASUs") issued by the Automotive segment from the acquisition date.

The acquisition was accounted for as a business combination. The following table summarizes the final purchase considerationFinancial Accounting Standards Board. New ASUs effective in 2023 were assessed and estimated fair values of assets acquired and liabilities assumed as of the acquisition date:

 

 

Initial Allocation
as of
August 1, 2022

 

 

Measurement Period Adjustments

 

 

Final Allocation

 

Purchase price, cash consideration, net of cash acquired

 

$

164,887

 

 

$

5,813

 

 

$

170,700

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

24,988

 

 

 

(121

)

 

 

24,867

 

Inventory

 

 

36,026

 

 

 

417

 

 

 

36,443

 

Prepaid expenses and other assets

 

 

20,920

 

 

 

(74

)

 

 

20,846

 

Operating lease right-of-use assets

 

 

4,608

 

 

 

 

 

 

4,608

 

Property and equipment

 

 

89,942

 

 

 

1,242

 

 

 

91,184

 

Other intangible assets

 

 

22,668

 

 

 

8,791

 

 

 

31,459

 

Goodwill

 

 

43,678

 

 

 

(9,707

)

 

 

33,971

 

Assumed liabilities

 

 

(55,994

)

 

 

975

 

 

 

(55,019

)

Deferred tax liabilities

 

 

(21,949

)

 

 

4,290

 

 

 

(17,659

)

Net assets acquired

 

$

164,887

 

 

$

5,813

 

 

$

170,700

 

The following table summarizes the final allocation of the purchase considerationdetermined to the other intangible assets acquired:

 

 

Final Fair Value

 

 

Weighted Average Life (in years)

 

Definite-lived:

 

 

 

 

 

 

Customer related

 

$

19,812

 

 

 

14

 

Technology

 

 

11,647

 

 

 

9

 

Total

 

$

31,459

 

 

 

 

Assets acquired and liabilities assumed were recorded at estimated fair values based on third-party valuations, management’s estimates, available information, and supportable assumptions that management considered reasonable.

The fair value of the intangible assets was based on third-party valuations and management’s estimates, generally utilizing income and market approaches. Goodwill recognized in this transaction is primarily attributable to the Company’s expected future economic benefits from combining operations to offer more compelling and high-value solutions across complementary customer relationships as well as expected future synergies. The goodwill isbe either not applicable or not expected to have a significant impact on the Company's consolidated condensed financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

Segment Reporting

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures". ASU 2023-07 requires a public entity to disclose, on an annual and interim basis, significant segment expenses that are included within each reported measure of segment profit or loss and regularly reviewed by the chief operating decision maker ("CODM"), the title and position of the CODM, clarification regarding the CODM's use of multiple measures of a segment's profit or loss in assessing segment performance (this must include a measure that is consistent with the measurement principles under U.S. GAAP, but may also include additional measures of a segment's profit or loss), and a description of the composition of amounts within an "Other" segment line item. Further, ASU 2023-07 requires that all annual disclosures about a reportable segment's profit or loss and assets currently required by Topic 280 to be deductibleprovided in interim periods. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. ASU 2023-07 should be adopted retrospectively to all periods presented in the financial statements and early adoption is permitted. We are currently in the process of determining the impact the implementation of ASU 2023-07 will have on the Company’s financial statement disclosures.

Income Taxes

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". ASU 2023-09 enhances income tax purposes.disclosures to further disaggregate the effective tax rate reconciliation and income taxes paid. This update is effective for fiscal years beginning after December 15, 2024. ASU 2023-09 should be adopted prospectively, but retrospective application is permitted. Further, early adoption is permitted. We are currently in the process of determining the impact the implementation of ASU 2023-09 will have on the Company’s financial statement disclosures.

9


 

The following unaudited pro forma information represents our product revenues as if the acquisition of Alfmeier had occurred as of January 1, 2022:

 

 

Three Months Ended September 30, 2022

 

 

Nine Months Ended September 30, 2022

 

Product revenues

 

$

352,877

 

 

$

1,004,974

 

Net income

 

 

9,033

 

 

 

21,330

 

Jiangmen Dacheng Medical Equipment Co. Ltd

On July 13, 2022, the Company acquired 100% of the equity interests of Jiangmen Dacheng Medical Equipment Co. Ltd (“Dacheng”) and its wholly owned subsidiary, IOB Medical, Inc. Dacheng is a privately held manufacturer of medical materials and medical equipment, including patient temperature management solutions, for numerous local and international customers. The acquisition provided Gentherm Medical a local presence in China’s high-growth market for patient warming devices and other medical device products, and expanded overall manufacturing capacity to include a low-cost manufacturing site.

The total consideration transferred was $35,048. The purchase agreement also included potential cash payments contingent upon the achievement of certain performance metrics and continued employment of the former majority shareholder through a series of defined dates. The achievement of these performance metrics resulted in cash payments of $500. These cash payments were accounted for as compensation expense and recorded as a component of Selling, general and administrative expenses ratably over the service period.

The acquisition was accounted for as a business combination. The following table summarizes the final purchase consideration and estimated fair values of assets acquired and liabilities assumed as of the acquisition date:

 

 

Initial Allocation
as of
July 13, 2022

 

 

Measurement Period Adjustments

 

 

Final Allocation

 

Purchase price, cash consideration, net of cash acquired

 

$

35,048

 

 

$

 

 

$

35,048

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

746

 

 

 

(124

)

 

 

622

 

Inventory

 

 

1,942

 

 

 

(177

)

 

 

1,765

 

Prepaid expenses and other assets

 

 

152

 

 

 

22

 

 

 

174

 

Operating lease right-of-use assets

 

 

841

 

 

 

 

 

 

841

 

Property and equipment

 

 

684

 

 

 

 

 

 

684

 

Other intangible assets

 

 

19,094

 

 

 

965

 

 

 

20,059

 

Goodwill

 

 

22,995

 

 

 

(3,464

)

 

 

19,531

 

Assumed liabilities

 

 

(2,799

)

 

 

(515

)

 

 

(3,314

)

Deferred tax liabilities

 

 

(8,607

)

 

 

3,293

 

 

 

(5,314

)

Net assets acquired

 

$

35,048

 

 

$

 

 

$

35,048

 

The following table summarizes the final allocation of the purchase consideration to the other intangible assets acquired:

 

 

Final Fair Value

 

 

Weighted Average Life (in years)

 

Definite-lived:

 

 

 

 

 

 

Customer related

 

$

12,837

��

 

 

12

 

Technology

 

 

4,749

 

 

 

12

 

Indefinite-lived:

 

 

 

 

 

 

Tradenames

 

 

2,473

 

 

 

 

Total

 

$

20,059

 

 

 

 

Assets acquired and liabilities assumed were recorded at estimated fair values based on third-party valuations, management’s estimates, available information, and supportable assumptions that management considered reasonable.

The fair value of the intangible assets was based on third-party valuations and management’s estimates, generally utilizing income and market approaches. Goodwill recognized in this transaction is primarily attributable to the Company’s expected future economic benefits from the enhanced access to high-growth markets including private label opportunities through Dacheng’s innovative patient temperature management devices. The goodwill is not expected to be deductible for tax purposes.

10


The pro forma effects of this acquisition would not materially impact the Company’s reported results for any period presented, and as a result no pro forma financial statements are presented.

Note 3 – Restructuring and Impairments

The Company continuously monitors market developments, industry trends and changing customer needs and in response, has taken and may continue to undertake restructuring actions, as necessary, to execute management’s strategy, streamline operations and optimize the Company’s cost structure. Restructuring actions may include the realignment of existing manufacturing footprint, facility closures, or similar actions, either in the normal course of business or pursuant to significant restructuring programs.

These actions may result in employees receiving voluntary or involuntary employee termination benefits, which are mainly statutory requirements or other contractual agreements. Voluntary termination benefits are accrued when an employee accepts the related offer. Involuntary termination benefits are accrued upon the commitment to a termination plan and when the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable, depending on the existence of a substantive plan for severance or termination.

2023 Manufacturing Footprint Rationalization

On September 19, 2023, the Company committed to a restructuring plan (“2023 Plan”) to improve the Company’s manufacturing productivity and rationalize its footprint. Under this 2023 Plan, the Company will relocateis in the process of relocating certain existing manufacturing and related activities in its Greenville, South Carolina facility to a new facility in Monterrey, Mexico.

The Company expects to incur total costs of between $14,00012,000 and $18,00016,000, of which between $13,00011,000 and $17,00015,000 are expected to be cash expenditures. The total expected costs include employee severance, retention and termination costs of between $2,000 and $4,000, capital expenditures of between $7,000 and $8,000 and non-cash expenses for accelerated depreciation and impairment of fixed assets of approximately $1,000. The Company also expects to incur other transition costs including recruiting, relocation, and machinery and equipment move and set up costs of between $4,0002,000 and $5,0003,000. The actions under this 2023 Plan are expected to be substantially completed by the end of 2025. The actual timing, costs and savings of the 2023 Plan may differ materially from the Company’s current expectations and estimates.

During the three and nine months ended September 30, 2023,March 31, 2024, the Company did recognized restructuring expense of $no747t recognize any material amounts for employee separation costs and $293 for other costs.

The Company has recorded $1,737 of restructuring expense.expenses since the inception of this program as of March 31, 2024.

Other Restructuring ActivitiesActions

The Company has undertaken several discrete restructuring actions. actions in an effort to optimize its cost structure.

During the three and nine months ended September 30,March 31, 2024, the Company’s Automotive segment recognized $4,219 for employee separation costs related to structural cost reductions impacting the Company’s global salaried workforce. These cost reductions are connected to Fit-for-Growth 2.0.

During the three months ended March 31, 2024, the Company’s Automotive segment recognized $1,805 for employee separation costs related to the relocation of electronic component manufacturing in Germany to a manufacturing facility in China.

During the three months ended March 31, 2024, the Company recognized $174 of other costs related to all other restructuring actions. These other restructuring actions are focused on the reduction of global overhead costs.

The Company expects to incur less than $1,000 of additional restructuring costs for the other restructuring actions that have been approved as of March 31, 2024.

During the three months ended March 31, 2023, the Company recognized $1,0991,256 and $2,642, respectively, for employee separation costs and $0164 and $770, respectively, of other costs. During the three and nine months ended September 30, 2022, the Company recognized $0 and $50, respectively, for employee separation costs and $6 and $511, respectively, for other costs. These restructuring expenses were primarily associated with restructuring actions focused on the rotation of our manufacturing footprint to best cost locations and the reduction of global overhead costs.

10


Restructuring Expenses By Reporting Segment

The following table summarizes restructuring expense for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 by reporting segment:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Automotive

 

$

852

 

 

$

6

 

 

$

2,222

 

 

$

561

 

Medical

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

247

 

 

 

 

 

 

1,190

 

 

 

 

Total

 

$

1,099

 

 

$

6

 

 

$

3,412

 

 

$

561

 

11


 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Automotive

 

$

7,114

 

 

$

1,074

 

Medical

 

 

20

 

 

 

 

Corporate

 

 

104

 

 

 

195

 

Total

 

$

7,238

 

 

$

1,269

 

Restructuring Liability

Restructuring liabilities are classified as otherOther current liabilities in the consolidated condensed balance sheets. The following table summarizes restructuring liability for the nine months ended September 30, 2023:

 

 

Employee Separation Costs

 

 

Other Related Costs

 

 

Total

 

Balance at December 31, 2022

 

$

588

 

 

$

 

 

$

588

 

Additions, charged to restructuring expenses

 

 

1,206

 

 

 

63

 

 

 

1,269

 

Cash payments

 

 

 

 

 

(63

)

 

 

(63

)

Currency translation

 

 

16

 

 

 

 

 

 

16

 

Balance at March 31, 2023

 

$

1,810

 

 

$

 

 

$

1,810

 

Additions, charged to restructuring expenses

 

 

337

 

 

 

707

 

 

 

1,044

 

Cash payments

 

 

(565

)

 

 

(707

)

 

 

(1,272

)

Currency translation

 

 

6

 

 

 

 

 

 

6

 

Balance at June 30, 2023

 

$

1,588

 

 

$

 

 

$

1,588

 

Additions, charged to restructuring expenses

 

 

1,099

 

 

 

 

 

 

1,099

 

Cash payments

 

 

(728

)

 

 

 

 

 

(728

)

Currency translation

 

 

(21

)

 

 

 

 

 

(21

)

Balance at September 30, 2023

 

$

1,938

 

 

$

 

 

$

1,938

 

Impairments

Non-Automotive Electronics Business

On December 31, 2022, the Company approved a plan to exit its non-automotive electronics business to strengthen the Company’s core business and focus its resources and equipment with businesses and investments that are more strategic and profitable. The Company will continue to sell certain non-automotive electronics products until the exit is complete. During the year ended December 31, 2022, the Company recorded non-cash impairment charges of $9,378, $5,601 and $690 for write downs of inventory, intangible assets and property and equipment, respectively, within the Automotive segment.

During the three and nine months ended September 30, 2023, the Company recorded non-cash impairment charges of $3,426 and $5,489, respectively, for the write down of inventory within the Automotive segment. These charges were recorded in Cost of sales.

The Company is no longer pursuing a sale of the business and intends to wind-down the operations of the business by the end of 2023, subject to discussions with customers and suppliers.

Medical Segment

During the three months ended June 30, 2023, the Company determined that there were impairment indicators for its Medical reporting unit and conducted an impairment analysis, following which the Company concluded that $March 31, 2024:19,509 of goodwill was impaired. Such non-cash impairment charge was recorded in Impairment of goodwill. See Note 5 for additional information about the goodwill impairment analysis.

 

 

Employee Separation Costs

 

 

Other Related Costs

 

 

Total

 

Balance at December 31, 2023

 

$

2,150

 

 

$

 

 

$

2,150

 

Additions, charged to restructuring expenses

 

 

6,771

 

 

 

467

 

 

 

7,238

 

Cash payments

 

 

(1,762

)

 

 

(380

)

 

 

(2,142

)

Non-cash utilization

 

 

 

 

 

(87

)

 

 

(87

)

Currency translation

 

 

(19

)

 

 

 

 

 

(19

)

Balance at March 31, 2024

 

$

7,140

 

 

$

 

 

$

7,140

 

12


 

Note 4 – Details of Certain Balance Sheet Components

 

September 30, 2023

 

 

December 31, 2022

 

 

March 31, 2024

 

 

December 31, 2023

 

Other current assets:

 

 

 

 

 

 

 

 

 

 

Billable tooling

 

$

13,748

 

 

$

15,267

 

 

$

17,939

 

 

$

16,877

 

Income tax and other tax receivable

 

 

14,042

 

 

 

15,041

 

 

 

17,847

 

 

 

16,017

 

Notes receivable

 

 

16,766

 

 

 

12,127

 

 

 

17,504

 

 

 

18,226

 

Prepaid expenses

 

 

11,391

 

 

 

7,889

 

Short-term derivative financial instruments

 

 

10,213

 

 

 

6,564

 

 

 

11,479

 

 

 

10,717

 

Prepaid expenses

 

 

9,503

 

 

 

6,239

 

Receivables due from factor

 

 

6,688

 

 

 

5,490

 

 

 

6,504

 

 

 

4,422

 

Other

 

 

5,691

 

 

 

3,869

 

 

 

7,928

 

 

 

4,272

 

Total other current assets

 

$

76,651

 

 

$

64,597

 

 

$

90,592

 

 

$

78,420

 

Other current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accrued employee liabilities

 

$

39,363

 

 

$

32,031

 

 

$

31,217

 

 

$

43,176

 

Liabilities from discounts and rebates

 

 

24,790

 

 

 

26,640

 

 

 

23,528

 

 

 

22,916

 

Income tax and other taxes payable

 

 

11,385

 

 

 

14,459

 

 

 

23,055

 

 

 

19,327

 

Restructuring

 

 

7,140

 

 

 

2,150

 

Accrued warranty

 

 

3,206

 

 

 

2,380

 

 

 

5,068

 

 

 

3,945

 

Restructuring

 

 

1,938

 

 

 

588

 

Other

 

 

9,517

 

 

 

17,716

 

 

 

8,931

 

 

 

9,291

 

Total other current liabilities

 

$

90,199

 

 

$

93,814

 

 

$

98,939

 

 

$

100,805

 

Note 5 – Goodwill and Other Intangibles

Goodwill

Changes in the carrying amount of goodwill, by reportable segment, for the ninethree months ended September 30, 2023March 31, 2024 was as follows:

 

 

Automotive

 

 

Medical

 

 

Total

 

Balance as of December 31, 2022

 

$

73,069

 

 

$

46,705

 

 

$

119,774

 

Impairment of goodwill

 

 

 

 

 

(19,509

)

 

 

(19,509

)

Currency translation and other

 

 

768

 

 

 

(400

)

 

 

368

 

Balance as of September 30, 2023

 

$

73,837

 

 

$

26,796

 

 

$

100,633

 

 

 

Automotive

 

 

Medical

 

 

Total

 

Balance as of December 31, 2023

 

$

76,696

 

 

$

27,377

 

 

$

104,073

 

Currency translation and other

 

 

(1,543

)

 

 

(336

)

 

 

(1,879

)

Balance as of March 31, 2024

 

$

75,153

 

 

$

27,041

 

 

$

102,194

 

11


The Company’s cumulative goodwill impairment expense since inception was $19,509 as of March 31, 2024 and December 31, 2023, which includes Gentherm’s goodwill impairment of the Medical reporting unit in 2023.

Other Intangible Assets

Other intangible assets and accumulated amortization balances as of September 30, 2023March 31, 2024 and December 31, 20222023 were as follows:

 

September 30, 2023

 

 

December 31, 2022

 

 

March 31, 2024

 

 

December 31, 2023

 

 

Gross
Carrying Value

 

 

Accumulated
Amortization

 

 

Net Carrying
Value

 

 

Gross
Carrying Value

 

 

Accumulated
Amortization

 

 

Net Carrying
Value

 

 

Gross
Carrying Value

 

 

Accumulated
Amortization

 

 

Accumulated
Impairment

 

 

Net Carrying
Value

 

 

Gross
Carrying Value

 

 

Accumulated
Amortization

 

 

Net Carrying
Value

 

Definite-lived:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

110,845

 

 

$

(69,163

)

 

$

41,682

 

 

$

112,286

 

 

$

(65,748

)

 

$

46,538

 

 

$

112,931

 

 

$

(72,958

)

 

$

 

 

$

39,973

 

 

$

115,465

 

 

$

(73,737

)

 

$

41,728

 

Technology

 

 

44,042

 

 

 

(27,443

)

 

 

16,599

 

 

 

44,745

 

 

 

(25,709

)

 

 

19,036

 

 

 

44,871

 

 

 

(29,268

)

 

 

 

 

 

15,603

 

 

 

45,861

 

 

 

(29,317

)

 

 

16,544

 

Product development costs

 

 

18,389

 

 

 

(18,224

)

 

 

165

 

 

 

18,774

 

 

 

(18,456

)

 

 

318

 

 

 

18,868

 

 

 

(18,705

)

 

 

 

 

 

163

 

 

 

19,434

 

 

 

(19,270

)

 

 

164

 

Software development

 

 

1,007

 

 

 

 

 

 

1,007

 

 

 

1,007

 

 

 

 

 

 

1,007

 

 

 

1,007

 

 

 

(50

)

 

 

 

 

 

957

 

 

 

1,007

 

 

 

 

 

 

1,007

 

Indefinite-lived:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradenames

 

 

6,974

 

 

 

 

 

 

6,974

 

 

 

7,034

 

 

 

 

 

 

7,034

 

 

 

6,999

 

 

 

 

 

 

(530

)

 

 

6,469

 

 

 

7,039

 

 

 

 

 

 

7,039

 

Total

 

$

181,257

 

 

$

(114,830

)

 

$

66,427

 

 

$

183,846

 

 

$

(109,913

)

 

$

73,933

 

 

$

184,676

 

 

$

(120,981

)

 

$

(530

)

 

$

63,165

 

 

$

188,806

 

 

$

(122,324

)

 

$

66,482

 

AsIn addition to annual impairment testing, which is performed in the fourth quarter of December 31, 2022,each fiscal year, the estimatedCompany continuously monitors for events and circumstances that could negatively impact the key assumptions used in determining fair value and therefore would require interim impairment testing, including long-term revenue growth projections, profitability, discount rates, recent market valuations from transactions by comparable companies, volatility in the Company's market capitalization, and general industry, market and macroeconomic conditions. During the three months ended March 31, 2024, we recorded a non-cash impairment charge of $530 for one of our tradenames within the Medical reporting unit exceeded its carrying value by less than 10%. During the second quartersegment. We are not presently aware of 2023, the Company’s Medical reporting unit did not perform in-line with forecasted results primarily driven by slower than anticipated revenue growth. As a result, an indicator of impairment was identified and the Company performed an interim quantitative assessment as of June 30, 2023. The results of this quantitative analysis indicatedany other events or circumstances that would require us to revise the carrying value of the reporting unit exceeded the fair valueour assets or liabilities as of the reporting unit, and accordingly an impairment expense was recorded for $19,509.

13


The Company utilized an income approach to estimate the fair value of the reporting unit and a market valuation approach to further support this analysis (level 3). The income approach was based on projected debt-free cash flow that was discounted to the present value using discount factors that considered the timing and risk of cash flows. Fair value was estimated using internally developed forecasts, as well as commercial and discount rate assumptions. The discount rate used was the value-weighted average of our estimated cost of equity and of debt (“cost of capital”) derived using both known and estimated customary market metrics. Our weighted average cost of capital includes a company specific risk premium to address the risks associated with achieving the projected revenue and profitability growth rates. Other significant assumptions included terminal value growth rates and terminal value margin rates. Our ability to realize the future cash flows used in our calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies. To further support the fair value estimate determined by the income approach, the Company utilized a market valuation approach to estimate the fair value of the Medical reporting unit. The market approach considered historical and anticipated financial metrics of the Medical reporting unit and applied valuation multiples based on recent observed transactions involving companies similar enough to the Medical reporting unit from which to draw meaningful conclusions.March 31, 2024.

Note 6 – Debt

The following table summarizes the Company’s debt as of September 30, 2023March 31, 2024 and December 31, 2022:2023:

 

September 30, 2023

 

 

December 31, 2022

 

 

March 31, 2024

 

 

December 31, 2023

 

 

Interest
Rate

 

 

Principal
Balance

 

 

Interest
Rate

 

 

Principal
Balance

 

 

Interest
Rate

 

 

Principal
Balance

 

 

Interest
Rate

 

 

Principal
Balance

 

Credit Agreement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving Credit Facility (U.S. Dollar denominations)

 

 

6.79

%

 

$

207,000

 

 

 

5.80

%

 

$

232,000

 

 

 

6.80

%

 

$

222,000

 

 

 

6.58

%

 

$

222,000

 

Other loans

 

 

3.90

%

 

 

247

 

 

3.89% - 5.21%

 

 

 

2,011

 

 

 

 

 

 

 

 

 

3.90

%

 

 

233

 

Finance leases

 

 

3.54

%

 

 

675

 

 

 

3.57

%

 

 

1,085

 

 

 

3.51

%

 

 

497

 

 

 

3.53

%

 

 

605

 

Total debt

 

 

 

 

 

207,922

 

 

 

 

 

 

235,096

 

 

 

 

 

 

222,497

 

 

 

 

 

 

222,838

 

Current maturities

 

 

 

 

 

(620

)

 

 

 

 

 

(2,443

)

 

 

 

 

 

(324

)

 

 

 

 

 

(621

)

Long-term debt, less current maturities

 

 

 

 

$

207,302

 

 

 

 

 

$

232,653

 

 

 

 

 

$

222,173

 

 

 

 

 

$

222,217

 

Credit Agreement

On June 10, 2022, the Company entered into a 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 “Agent”).

The Second Amended and Restated Credit Agreement provides for a $500,000 secured revolving credit facility (the “Revolving Credit Facility”), with a $50,000 sublimit for swing line loans and a $15,000 sublimit for the issuance of standby letters of credit. Any amount of the facility utilized for swing line loans or letters of credit outstanding will reduce the amount available under the Second Amended and Restated Credit Agreement. The Company had no outstanding letters of credit issued as of September 30, 2023March 31, 2024 and December 31, 2022.2023.

Subject to specified conditions, Gentherm can increase the Revolving Credit Facility or incur secured term loans in an aggregate amount of up to $200,000. The Second Amended and Restated Credit Agreement matures on June 10, 2027.

12


The U.S. borrowers and guarantors participating in the Second Amended and Restated Credit Agreement also entered into a Second Amended and Restated Pledge and Security Agreement (the “Second Amended and Restated Security Agreement”). The Second Amended and Restated Security Agreement grants a security interest to the Agent in substantially all of the personal property of the Company and its U.S. subsidiaries designated as borrowers to secure their respective obligations under the Second Amended and Restated Security Agreement, including the stock and membership interests of specified subsidiaries (limited to 66% of the stock in the case of certain non-U.S. subsidiaries). In addition to the security obligations, all obligations under the Second Amended and Restated Credit Agreement (including all obligations of any U.S. or non-U.S. loan party) are unconditionally guaranteed by certain of Gentherm’s domestic subsidiaries, and the German subsidiary borrowers and certain other foreign subsidiaries guarantee all obligations of the non-U.S. loan parties under the Second Amended and Restated Credit Agreement. The Second Amended and Restated Credit Agreement restricts, among other things, the amount of dividend payments the Company can make to shareholders.

14


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. The Second Amended and Restated Credit Agreement also contains customary events of default. As of September 30, 2023,March 31, 2024, the Company was in compliance, in all material respects, with the terms of the Second Amended and Restated Credit Agreement. The Second Amended and Restated Credit Agreement additionally contains customary events of default. Upon the occurrence of an event of default, the amounts outstanding under the Revolving Credit Facility may be accelerated and may become immediately due and payable.

Under the Second Amended and Restated Credit Agreement, U.S. Dollar denominated loans bear interest at either a base rate (“Base Rate Loans”) or Term SOFR rate (“Term SOFR Rate Loans”), plus a margin (“Applicable Rate”). The rate for Base Rate Loans is equal to the highest of the Federal Funds Rate plus 0.50%, Bank of America’s prime rate, or the Term SOFR rate plus 1.00%. The rate for Term SOFR Rate Loans denominated in U.S. Dollars is equal to the forward-looking Secured Overnight Financing Rate (“SOFR”) term rate administered by the CMEChicago Mercantile Exchange with a term of one month. All loans denominated in a currency other than the U.S. Dollar must be Term SOFR Rate Loans. Interest is payable at least quarterly. Additionally, a commitment fee of between 0.175% to 0.300%, which will vary based on the Consolidated Net Leverage Ratio, as defined in the Second Amended and Restated Credit Agreement, is payable on the average daily unused amounts under the Revolving Credit Facility.

The Applicable Rate varies based on the Consolidated Net Leverage Ratio reported by the Company. As long as the Company is not in default of the terms and conditions of the Second Amended and Restated Credit Agreement, the lowest and highest possible Applicable Rate is 1.125% and 2.125%, respectively, for Term SOFR Rate Loans and 0.125% and 1.125%, respectively, for Base Rate Loans.

Borrowing availability is subject to, among other things, the Company’s compliance with the minimum Consolidated Interest Coverage Ratio and the maximum Consolidated Net Leverage Ratio as of the end of any fiscal quarter. Based upon consolidated EBITDA for the trailing four fiscal quarters calculated for purposes of the Consolidated Net Leverage Ratio, $293,000278,000 remained available as of September 30, 2023March 31, 2024 for additional borrowings under the Second Amended and Restated Credit Agreement subject to specified conditions that Gentherm currently satisfies.

In connection with the Second Amended and Restated Credit Agreement, the Company incurred debt issuance costs of $1,4171,520, which have been capitalized and are being amortized into Interest expense, net over the term of the credit facility.Revolving Credit Facility.

13


The scheduled principal maturities of our debt as of September 30, 2023March 31, 2024 were as follows:

 

U.S.
Revolving
Note

 

 

Other Debt

 

 

Total

 

 

U.S.
Revolving
Note

 

 

Other Debt

 

 

Total

 

2023

 

$

 

 

$

345

 

 

$

345

 

2024

 

 

 

 

 

365

 

 

 

365

 

 

$

 

 

$

324

 

 

$

324

 

2025

 

 

 

 

 

146

 

 

 

146

 

 

 

 

 

 

148

 

 

 

148

 

2026

 

 

 

 

 

66

 

 

 

66

 

 

 

 

 

 

68

 

 

 

68

 

2027

 

 

207,000

 

 

 

 

 

 

207,000

 

 

 

222,000

 

 

 

 

 

 

222,000

 

2028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2029

 

 

 

 

 

 

 

 

 

Total

 

$

207,000

 

 

$

922

 

 

$

207,922

 

 

$

222,000

 

 

$

540

 

 

$

222,540

 

 

Note 7 – Commitments and Contingencies

Legal and other contingencies

The Company may beis subject to various legal actions and claims in the ordinary course of its business, includingwhich may include those arising out of breach of contracts, intellectual property rights, environmental matters, regulatory matters and employment-related matters. The Company establishes accruals for matters which it believes that losses are probable and can be reasonably estimated. Although it is not possible to predict with certainty the outcome of these matters, the Company is of the opinion that the ultimate resolution of these

15


matters outstanding as of March 31, 2024 will not have a material adverse effect on its results of operations or financial position. Product liability and warranty reserves are recorded separately from legal reserves.

Product Liability and Warranty Matters

In the event thatOur products subject us to warranty claims and, from time to time product liability claims, based on the Company’s products failalleged failure to perform as expected or resultresulting in alleged bodily injury or property damage, our products may subject us to warranty claims and product liability.damage. If any of our products are or are alleged to be defective, we may be required to participate in a recall or other corrective action involving such products. The Company maintains liability insurance coverage at levels based on commercial norms and historical claims experience. The Company can provide no assurances that it will not experience material claims or liabilities in the future or that it will not incur significant costs to defend such claims.

The Company accrues warranty obligations for products sold based on management estimates of future failure rates and current claim cost experience, with support from the sales, engineering, quality and legal functions. Using historical information available to the Company, including any claims filed by customers, the warranty accrual is adjusted quarterly to reflect management’s estimate of future claims.

On February 14, 2024, the National Highway Traffic Safety Administration announced that Volkswagen Group of America, Inc. (“VW”) is recalling 261,257 vehicles from model years 2015-2020 to remedy an alleged problem with a suction jet pump seal inside the fuel tank system. VW informed Gentherm of its plan to conduct the recall on April 3, 2024. The suction jet pump is a product originally designed and manufactured by Alfmeier Präzision SE (“Alfmeier”), the business Gentherm acquired in August 2022. The Company has not accepted any financial responsibility for the recall and intends to provide replacement parts for the recall at commercial pricing paid by VW. The Company intends to pursue discussions with VW to advance its position and resolve this matter. No litigation has been threatened or filed as of the date of this report. If the Company is obligated to indemnify VW for the direct and indirect costs associated with the recall, such costs could be material. The Company has insurance policies that generally include coverage of the costs of a recall, although the Company’s costs related to manufacturing of replacement parts are generally not covered. In addition, the Company’s purchase agreement of Alfmeier includes indemnification provisions under which the Company believes it would have a claim against the sellers. Given the uncertainty that exists concerning the resolution of this matter, as of the date of this report, the Company cannot reasonably estimate the amount and timing of possible costs that may be incurred by the Company.

14


The following is a reconciliation of the changes in accrued warranty costs:

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

 

2024

 

 

2023

 

Balance at the beginning of the period

 

$

2,380

 

 

$

1,916

 

 

$

3,945

 

 

$

2,380

 

Warranty opening balance from acquired entities

 

 

 

 

 

907

 

Warranty claims paid

 

 

(1,979

)

 

 

(890

)

 

 

(747

)

 

 

(559

)

Warranty expense for products shipped during the current period

 

 

3,311

 

 

 

1,963

 

 

 

806

 

 

 

988

 

Adjustments to warranty estimates from prior periods

 

 

(434

)

 

 

(200

)

Adjustments to warranty estimates from prior periods(a)

 

 

1,123

 

 

 

(6

)

Adjustments due to currency translation

 

 

(72

)

 

 

(106

)

 

 

(59

)

 

 

18

 

Balance at the end of the period

 

$

3,206

 

 

$

3,590

 

 

$

5,068

 

 

$

2,821

 

(a)
Change in estimate related to a claim received during the quarter ended March 31, 2024.

Other mattersNote 8 – Supplier Finance Program

Purchase commitments for materials, supplies, services and capital expenditures, as part of the normal course of business, are generally consistent from yearThe Company is party to year. In addition, duea supplier finance program with a third-party service provider (“Service Provider”), pursuant to supply shortages of semiconductors,which the Company has entered into agreementsoffered the opportunity to participate to certain of the Company's suppliers. Although the program generally provides suppliers with variousa lower cost of capital than they could obtain individually due to the Company’s negotiated terms, the Company has no economic interest in a supplier’s participation and the Company has not pledged any assets to the Service Provider under this program.

Under this program, the Company and supplier initially agree on the contractual payment terms for the goods to be procured for the Company in the ordinary course. A supplier’s participation in this program is voluntary and does not impact its contractual payment terms with the Company, including the payment amount and timing of when payments are due. A participating supplier has the sole discretion to determine whether to sell one or more invoices, if any, to the Service Provider in exchange for payment by the Service Provider on an earlier date than provided for in the contract with the Company. Amounts due to participating suppliers are included in Accounts payable in the consolidated condensed balance sheets until the Company makes payment to reserve the rightService Provider, even though the payment of such amount will be made to purchase certain semiconductor chips over rolling periods of 12-24 months, with volume commitments determined based on our anticipated production requirements.the supplier at an earlier date by the Service Provider. As of September 30, 2023,March 31, 2024, the Company had outstanding payment obligations to participating suppliers of $9,473 confirmed under the program. Payments of the Company’s total commitments for these semiconductor chip agreements was $25,603. Such agreements provideobligations to the Company with priority access to semiconductor chipsService Provider are reported as they become available, however, these agreements do not guarantee that our suppliers will meetoperating cash flows in the timing and quantities requested by Gentherm. All other purchase commitments asconsolidated condensed statements of September 30, 2023 were immaterial.cash flows.

Note 89 – Earnings Per Share

Basic earnings per share are computed by dividing net income by the weighted average number of shares of the Company’s Common Stock, no par value (“Common Stock”), outstanding during the period. The Company’s diluted earnings per share give effect to all potential shares of Common Stock outstanding during a period that do not have an anti-dilutive impact to the calculation. In computing the diluted earnings per share, the treasury stock method is used in determining the number of shares assumed to be issued from the exercise of Common Stock equivalents.

16


The following table illustrates earnings per share and the weighted average shares outstanding used in calculating basic and diluted earnings per share:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2024

 

 

2023

 

Net income

 

$

15,844

 

 

$

9,827

 

 

$

22,256

 

 

$

28,646

 

 

$

14,785

 

 

$

7,963

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares of Common Stock outstanding

 

 

32,944,386

 

 

 

33,162,181

 

 

 

33,049,097

 

 

 

33,105,854

 

 

 

31,543,784

 

 

 

33,181,828

 

Dilutive effect of stock options, restricted stock awards and restricted stock units

 

 

251,614

 

 

 

308,258

 

 

 

261,504

 

 

 

353,896

 

 

 

147,547

 

 

 

204,306

 

Diluted weighted average shares of Common Stock outstanding

 

 

33,196,000

 

 

 

33,470,439

 

 

 

33,310,601

 

 

 

33,459,750

 

 

 

31,691,331

 

 

 

33,386,134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.48

 

 

$

0.30

 

 

$

0.67

 

 

$

0.87

 

 

$

0.47

 

 

$

0.24

 

Diluted earnings per share

 

$

0.48

 

 

$

0.29

 

 

$

0.67

 

 

$

0.86

 

 

$

0.47

 

 

$

0.24

 

15


Note 910 – Financial Instruments

Derivative Financial Instruments

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 its 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, intercompany investments and include exposures to the Euro, Mexican Peso, Canadian Dollar, Hungarian Forint, North Macedonian Denar, Ukrainian Hryvnia, Japanese Yen, Chinese Renminbi, Korean Won, Czech Koruna and Vietnamese Dong.

The Company regularly enters into derivative contracts with the objective of managing its financial and operational exposure arising from these risks by offsetting gains and losses on the underlying exposures with gains and losses on the financial instruments used to hedge them. 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 which can be classified as a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded to Accumulated other comprehensive loss in the consolidated condensed balance sheets. When the underlying hedge transaction is realized, the gain or loss included in Accumulated other comprehensive loss is recorded in earnings in the consolidated condensed statements of income on the same line as the gain or loss on the hedged item attributable to the hedged risk. The Company records the ineffective portion of designated foreign currency and copper commodity hedging instruments, if any, to Cost of sales in the consolidated condensed statements of income. Cash flows associated with derivatives are reported in Net cash (used in) provided by operating activities in the consolidated condensed statements of cash flows.

The Company uses an income approach to value derivative instruments, analyzing quoted market prices to calculate the forward values and then discounting such forward values to the present value using benchmark rates at commonly quoted intervals for the instrument’s full term.

The Company is party to a floating-to-fixed interest rate swap agreement with a notional amount of $100,000 and a maturity date of July 2025. This interest rate swapthat is an undesignated hedge of the Company’s exposure to interest payment fluctuations on a portion of the Revolving Credit Facility borrowings that were drawn for the acquisitions of Alfmeier and Dacheng.borrowings. The periodic changes in fair value is recognized in Interest expense, net.

17


Information related to the recurring fair value measurement of derivative instruments in ourthe consolidated condensed balance sheet as of September 30, 2023March 31, 2024 is as follows:

 

 

 

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

 

 

Fair Value
Hierarchy

 

Notional Amount

 

 

Balance Sheet
Location

 

Fair
Value

 

 

Balance Sheet
Location

 

Fair
Value

 

 

Net Asset/
(Liabilities)

 

 

Fair Value
Hierarchy

 

Notional Amount

 

 

Balance Sheet
Location

 

Fair
Value

 

 

Balance Sheet
Location

 

Fair
Value

 

 

Net Assets/ (Liabilities)

 

Derivatives Designated as Cash Flow Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency derivatives

 

Level 2

 

$

103,771

 

 

Other current assets

 

$

6,706

 

 

Other current liabilities

 

$

 

 

$

6,706

 

 

Level 2

 

$

74,122

 

 

Other current assets

 

$

9,113

 

 

Other current liabilities

 

$

 

 

$

9,113

 

Derivatives Not Designated as Hedging Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Level 2

 

$

100,000

 

 

Other current assets

 

$

3,506

 

 

Other current liabilities

 

$

 

 

$

3,506

 

 

Level 2

 

$

100,000

 

 

Other current assets

 

$

2,366

 

 

Other current liabilities

 

$

 

 

$

2,366

 

16


Information related to the recurring fair value measurement of derivative instruments in ourthe consolidated condensed balance sheet as of December 31, 20222023 is as follows:

 

 

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

 

 

Fair Value
Hierarchy

 

Notional Amount

 

 

Balance Sheet
Location

 

Fair
Value

 

 

Balance Sheet
Location

 

Fair
Value

 

 

Net Asset/
(Liabilities)

 

 

Fair Value
Hierarchy

 

Notional Amount

 

 

Balance Sheet
Location

 

Fair
Value

 

 

Balance Sheet
Location

 

Fair
Value

 

 

Net Assets/ (Liabilities)

 

Derivatives Designated as Cash Flow Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency derivatives

 

Level 2

 

$

40,063

 

 

Other current assets

 

$

3,791

 

 

Other current liabilities

 

$

 

 

$

3,791

 

 

Level 2

 

$

101,109

 

 

Other current assets

 

$

8,655

 

 

Other current liabilities

 

$

 

 

$

8,655

 

Derivatives Not Designated as Hedging Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Level 2

 

$

100,000

 

 

Other current assets

 

$

2,772

 

 

Other current liabilities

 

$

 

 

$

2,772

 

 

Level 2

 

$

100,000

 

 

Other current assets

 

$

2,062

 

 

Other current liabilities

 

$

 

 

$

2,062

 

Information relating to the effect of derivative instruments on ourthe consolidated condensed statements of income and the consolidated condensed statements of comprehensive (loss) income is as follows:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

Location (Income/(Loss))

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

Location (Income/(Loss))

 

2024

 

 

2023

 

Derivatives Designated as Cash Flow Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency derivatives

 

Cost of sales – income

 

$

2,771

 

 

$

321

 

 

$

5,814

 

 

$

807

 

 

Cost of sales – income

 

$

3,376

 

 

$

1,059

 

 

Other comprehensive income (loss)

 

 

(2,673

)

 

 

1,627

 

 

 

2,915

 

 

 

1,921

 

 

Other comprehensive income (loss)

 

 

(853

)

 

 

2,683

 

Total foreign currency derivatives

 

$

98

 

 

$

1,948

 

 

$

8,729

 

 

$

2,728

 

 

$

2,523

 

 

$

3,742

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivatives

 

Cost of sales – income

 

$

 

 

$

 

 

$

 

 

$

19

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(6

)

Total commodity derivatives

 

$

 

 

$

 

 

$

 

 

$

13

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives Not Designated as Hedging Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency derivatives

 

Foreign currency gain

 

$

 

 

$

(4,288

)

 

$

 

 

$

(3,806

)

Total foreign currency derivatives

 

$

 

 

$

(4,288

)

 

$

 

 

$

(3,806

)

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Interest expense, net

 

$

62

 

 

$

3,191

 

 

$

734

 

 

$

2,498

 

 

Interest expense, net

 

$

304

 

 

$

(699

)

Total interest rate derivatives

 

$

62

 

 

$

3,191

 

 

$

734

 

 

$

2,498

 

 

 

 

$

304

 

 

$

(699

)

The Company did not incur any hedge ineffectiveness during the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023.

Accounts Receivable Factoring

The Company sells certain customer trade receivables on a non-recourse basis under factoring arrangements with designated financial institutions. The sale of receivables under these agreements is considered an off-balance sheet arrangement to the Company

18


and is accounted for as a true sale and excluded from accountsAccounts receivable in the consolidated condensed balance sheets. These factoring arrangements include a deferred purchase price component in which a portion of the purchase price for the receivable is paid by the financial institution in cash upon sale and the remaining portion is recorded as a deferred purchase price receivable and paid at a later date. Deferred purchase price receivables are recorded in Other current assets within the consolidated condensed balance sheets. Cash proceeds received upon the sale of the receivables are included in Net cash (used in) provided by operating activities and the cash proceeds received on the deferred purchase price receivables are included in Net cash used in investing activities. All factoring arrangements incorporate customary representations, including representations as to validity of amounts due, completeness of performance obligations and absence of commercial disputes.

Receivables factored and availability under receivables factoring agreements balances as of September 30, 2023March 31, 2024 and December 31, 20222023 were as follows:

 

September 30, 2023

 

 

December 31, 2022

 

 

March 31, 2024

 

 

December 31, 2023

 

Receivables factored and outstanding

 

$

22,372

 

 

$

19,108

 

 

$

16,510

 

 

$

18,532

 

Amount available under the credit limit

 

 

1,169

 

 

 

5,034

 

 

 

7,425

 

 

 

5,891

 

Collective factoring limit

 

$

23,541

 

 

$

24,142

 

 

$

23,935

 

 

$

24,423

 

Trade receivables sold and factoring fees incurred during the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 were as follows:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022(a)

 

 

2023

 

 

2022(a)

 

 

2024

 

 

2023

 

Trade receivables sold

 

$

35,115

 

 

$

23,706

 

 

$

111,915

 

 

$

23,706

 

 

$

30,102

 

 

$

38,540

 

Factoring fees incurred

 

 

221

 

 

 

64

 

 

 

588

 

 

 

64

 

 

 

179

 

 

 

161

 

(a)17


Represents trade receivables sold and factoring fees incurred since the acquisition of Alfmeier (acquired on August 1, 2022).

Note 1011 – Fair Value Measurements

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurements are based on one or more of the following three valuation techniques:

Market: This approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Income: This approach uses valuation techniques to convert future amounts to a single present value amount based on current market expectations.

Cost: This approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost).

The Company uses the following fair value hierarchy to measure fair value into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Inputs, other than quoted market prices included in Level 1, that are observable either directly or indirectly for the asset or liability.

Level 3: Unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

Items Measured at Fair Value on a Recurring Basis

Except for derivative instruments (see Note 9)10) and pension plan assets, the Company had no material financial assets and liabilities that were carried at fair value at September 30, 2023March 31, 2024 and December 31, 2022.2023. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and also considers counterparty credit risk in its assessment of fair value.

19


Items Measured at Fair Value on a Nonrecurring Basis

The Company measures certain assets and liabilities at fair value on a non-recurring basis. As these nonrecurring fair value measurements are generally determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy. TheDuring the year ended December 31, 2023, the Company utilized a third-party to assist in the Level 3 fair value estimates of other intangible assets for acquisitions (see Note 2) and goodwill of the Medical reporting unit (see Note 5).unit. The estimated fair values of these assets were based on third-party valuations and management’s estimates, generally utilizing income and market approaches. As of September 30, 2023,March 31, 2024, and December 31, 2022,2023, there were no other significant assets or liabilities measured at fair value on a non-recurring basis.

Items Not Carried at Fair Value

The Company uses an income valuation technique to measure the fair values of its debt instruments by converting amounts of future cash flows to a single present value amount using rates based on current market expectations (Level 2 inputs). As of September 30, 2023,March 31, 2024, and December 31, 2022,2023, the carrying values of the indebtedness under the Company’s Second Amended and Restated Credit Agreement were not materially different than the estimated fair values because the interest rates on variable rate debt approximated rates currently available to the Company (see Note 6).

Note 1112 – Equity

In December 2020, the Board of Directors of Gentherm Incorporated (“Board of Directors”) authorized a stock repurchase program (the “2020 Stock Repurchase Program”). Under the 2020 Stock Repurchase Program, the Company iswas authorized to repurchase up to $150,000 of its issued and outstanding common stockCommon Stock over a three-year period, expiring December 15, 2023. On November 1, 2023, the Board of Directors extended the maturity date of the program from December 15, 2023 to June 30, 2024.

18


Repurchases 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, 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 and nine months ended September 30, 2023,March 31, 2024, the Company repurchased $11,101 and $31,094, respectively, of sharesdid not make any repurchases under the 2020 Stock Repurchase Program with an average price paid per share of $56.91 and $58.54, respectively.Program. The 2020 Stock Repurchase Program had $98,90637,491 of repurchase authorization remaining as of September 30, 2023.March 31, 2024.

On November 1, 2023, following the above-noted extension, the Company entered into a Confirmation of Issuer Forward Repurchase Transaction agreement (the “ASR Agreement”) with Bank of America, N.A. (“Bank of America”) that provides for the Company to purchase shares of Common Stock in an aggregate amount of $60,000 (the “ASR Repurchase Amount”) under the 2020 Stock Repurchase Program.

Under the terms of the ASR Agreement, on November 2, 2023, the Company paid $60,000 to Bank of America for an initial purchase of approximately 1.22 million shares of Common Stock, representing 80% of ASR Repurchase Amount. The final settlement date is scheduled to occur in the second quarter of 2024. As of the final settlement date, Bank of America may be required to deliver additional shares of Common Stock to the Company or the Company may be required to deliver shares of Common Stock to Bank America, such that the Company’s repurchase of Common Stock under the ASR Agreement in aggregate will equal the ASR Repurchase Amount (based on the average of the daily volume-weighted average prices of the Common Stock during the term of the ASR Agreement, less a specified discount). There is no cash requirement as of the final settlement date.

The ASR Agreement contains provisions customary for agreements of this type, including the mechanisms to determine the number of shares of Common Stock that will be delivered at settlement, the required timing of delivery of the shares of Common Stock, the circumstances under which Bank of America is permitted to make adjustments to the transaction terms, the circumstances under which the ASR Agreement may be accelerated, extended or terminated early by Bank of America and specified representations and warranties of each party to the other party.

Note 1213 – Reclassifications Out of Accumulated Other Comprehensive Loss

Reclassification adjustments and other activities impacting Accumulated other comprehensive loss during the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 were as follows:

 

Defined
Benefit
Pension
Plans

 

 

Foreign
Currency
Translation
Adjustments

 

 

Foreign
Currency
Hedge
Derivatives

 

 

Commodity Hedge
Derivatives

 

 

Total

 

 

Defined
Benefit
Pension
Plans

 

 

Foreign
Currency
Translation
Adjustments

 

 

Foreign
Currency
Hedge
Derivatives

 

 

Total

 

Balance at June 30, 2023

 

$

(1,059

)

 

$

(43,602

)

 

$

7,248

 

 

$

 

 

$

(37,413

)

Balance at December 31, 2023

 

$

(1,011

)

 

$

(34,830

)

 

$

5,681

 

 

$

(30,160

)

Other comprehensive (loss) income before reclassifications

 

 

 

 

 

(16,321

)

 

 

98

 

 

 

 

 

 

(16,223

)

 

 

 

 

 

(14,275

)

 

 

3,496

 

 

 

(10,779

)

Income tax effect of other comprehensive (loss) income before reclassifications

 

 

 

 

 

(135

)

 

 

(21

)

 

 

 

 

 

(156

)

 

 

 

 

 

(107

)

 

 

(762

)

 

 

(869

)

Amounts reclassified from accumulated other comprehensive loss into net income

 

 

5

 

 

 

 

 

 

(2,771

)

 a

 

 

 a

 

(2,766

)

 

 

21

 

 

 

 

 

 

(4,349

)

 a

 

(4,328

)

Income taxes reclassified into net income

 

 

(1

)

 

 

 

 

 

604

 

 

 

 

 

 

603

 

 

 

(7

)

 

 

 

 

 

948

 

 

 

941

 

Net current period other comprehensive income (loss)

 

 

4

 

 

 

(16,456

)

 

 

(2,090

)

 

 

 

 

 

(18,542

)

 

 

14

 

 

 

(14,382

)

 

 

(667

)

 

 

(15,035

)

Balance at September 30, 2023

 

$

(1,055

)

 

$

(60,058

)

 

$

5,158

 

 

$

 

 

$

(55,955

)

Balance at March 31, 2024

 

$

(997

)

 

$

(49,212

)

 

$

5,014

 

 

$

(45,195

)

(a)
The amounts reclassified from Accumulated other comprehensive loss were included in Cost of sales.sales in the consolidated condensed statements of income.

2019


 

 

 

Defined
Benefit
Pension
Plans

 

 

Foreign
Currency
Translation
Adjustments

 

 

Foreign
Currency
Hedge
Derivatives

 

 

Commodity Hedge
Derivatives

 

 

Total

 

Balance at June 30, 2022

 

$

(2,837

)

 

$

(66,182

)

 

$

371

 

 

$

 

 

$

(68,648

)

Other comprehensive (loss) income before reclassifications

 

 

 

 

 

(28,411

)

 

 

1,948

 

 

 

 

 

 

(26,463

)

Income tax effect of other comprehensive (loss) income before reclassifications

 

 

 

 

 

(271

)

 

 

(423

)

 

 

 

 

 

(694

)

Amounts reclassified from accumulated other comprehensive loss into net income

 

 

6

 

 

 

 

 

 

(321

)

 a

 

 

 a

 

(315

)

Income taxes reclassified into net income

 

 

 

 

 

 

 

 

69

 

 

 

 

 

 

69

 

Net current period other comprehensive income (loss)

 

 

6

 

 

 

(28,682

)

 

 

1,273

 

 

 

 

 

 

(27,403

)

Balance at September 30, 2022

 

$

(2,831

)

 

$

(94,864

)

 

$

1,644

 

 

$

 

 

$

(96,051

)

 

 

Defined
Benefit
Pension
Plans

 

 

Foreign
Currency
Translation
Adjustments

 

 

Foreign
Currency
Hedge
Derivatives

 

 

Total

 

Balance at December 31, 2022

 

$

(1,067

)

 

$

(48,269

)

 

$

2,847

 

 

$

(46,489

)

Other comprehensive income before reclassifications

 

 

 

 

 

8,191

 

 

 

3,742

 

 

 

11,933

 

Income tax effect of other comprehensive income before reclassifications

 

 

 

 

 

64

 

 

 

(815

)

 

 

(751

)

Amounts reclassified from accumulated other comprehensive loss into net income

 

 

6

 

 

 

 

 

 

(1,059

)

 a

 

(1,053

)

Income taxes reclassified into net income

 

 

(2

)

 

 

 

 

 

261

 

 

 

259

 

Net current period other comprehensive income

 

 

4

 

 

 

8,255

 

 

 

2,129

 

 

 

10,388

 

Balance at March 31, 2023

 

$

(1,063

)

 

$

(40,014

)

 

$

4,976

 

 

$

(36,101

)

(a)
The amounts reclassified from Accumulated other comprehensive loss were included in Cost of sales.

 

 

Defined
Benefit
Pension
Plans

 

 

Foreign
Currency
Translation
Adjustments

 

 

Foreign
Currency
Hedge
Derivatives

 

 

Commodity Hedge
Derivatives

 

 

Total

 

Balance at December 31, 2022

 

$

(1,067

)

 

$

(48,269

)

 

$

2,847

 

 

$

 

 

$

(46,489

)

Other comprehensive (loss) income before reclassifications

 

 

 

 

 

(11,741

)

 

 

8,729

 

 

 

 

 

 

(3,012

)

Income tax effect of other comprehensive (loss) income before reclassifications

 

 

 

 

 

(48

)

 

 

(1,901

)

 

 

 

 

 

(1,949

)

Amounts reclassified from accumulated other comprehensive loss into net income

 

 

17

 

 

 

 

 

 

(5,814

)

 a

 

 

 a

 

(5,797

)

Income taxes reclassified into net income

 

 

(5

)

 

 

 

 

 

1,297

 

 

 

 

 

 

1,292

 

Net current period other comprehensive income (loss)

 

 

12

 

 

 

(11,789

)

 

 

2,311

 

 

 

 

 

 

(9,466

)

Balance at September 30, 2023

 

$

(1,055

)

 

$

(60,058

)

 

$

5,158

 

 

$

 

 

$

(55,955

)

(a)
The amounts reclassified from Accumulated other comprehensive loss were includedsales in Costthe consolidated condensed statements of sales.

 

 

Defined
Benefit
Pension
Plans

 

 

Foreign
Currency
Translation
Adjustments

 

 

Foreign
Currency
Hedge
Derivatives

 

 

Commodity Hedge
Derivatives

 

 

Total

 

Balance at December 31, 2021

 

$

(2,893

)

 

$

(34,188

)

 

$

154

 

 

$

5

 

 

$

(36,922

)

Other comprehensive (loss) income before reclassifications

 

 

 

 

 

(60,023

)

 

 

2,728

 

 

 

13

 

 

 

(57,282

)

Income tax effect of other comprehensive (loss) income before reclassifications

 

 

 

 

 

(653

)

 

 

(606

)

 

 

(3

)

 

 

(1,262

)

Amounts reclassified from accumulated other comprehensive loss into net income

 

 

76

 

 

 

 

 

 

(807

)

 a

 

(19

)

 a

 

(750

)

Income taxes reclassified into net income

 

 

(14

)

 

 

 

 

 

175

 

 

 

4

 

 

 

165

 

Net current period other comprehensive income (loss)

 

 

62

 

 

 

(60,676

)

 

 

1,490

 

 

 

(5

)

 

 

(59,129

)

Balance at September 30, 2022

 

$

(2,831

)

 

$

(94,864

)

 

$

1,644

 

 

$

 

 

$

(96,051

)

(a)
The amounts reclassified from Accumulated other comprehensive loss were included in Cost of sales.income.

The Company expects that substantially all of the existing gains and losses related to foreign currency derivatives reported in Accumulated other comprehensive loss as of September 30, 2023March 31, 2024 to be reclassified into earnings during the next twelve months. See Note 910 for additional information about derivative financial instruments and the effects from reclassification to Net income.

21


Note 1314 – Income Taxes

At the end of each interim period, the Company makes an estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to unusual or infrequent items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or income tax contingencies is recognized in the interim period in which the change occurs.

The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in respective jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. Jurisdictions with a projected loss for the year for which no tax benefit can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the composition and timing of actual earnings compared to annual projections. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or as our tax environment changes. To the extent that the expected annual effective income tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs.

A summary of the provision for income taxes and the corresponding effective tax rate for the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, is shown below:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2024

 

 

2023

 

Income tax expense

 

$

6,908

 

 

$

5,784

 

 

$

15,478

 

 

$

13,998

 

 

$

3,542

 

 

$

3,728

 

Earnings before income tax

 

$

22,752

 

 

$

15,611

 

 

$

37,734

 

 

$

42,644

 

 

$

18,327

 

 

$

11,691

 

Effective tax rate

 

 

30.4

%

 

 

37.1

%

 

 

41.0

%

 

 

32.8

%

 

 

19.3

%

 

 

31.9

%

Income tax expense was $6,9083,542 for the three months ended September 30, 2023March 31, 2024 on earnings before income tax of $22,75218,327, representing an effective tax rate of 30.419.3%.The. The effective tax rate differed from the U.S. Federal statutory rate of 21.0% primarily due to the impact of a one-time benefit related to the Alfmeier acquisition, partially offset by income taxes on foreign earnings taxed at rates varying from the U.S. Federal statutory rate and the unfavorable impact of the global intangible low-tax income (“GILTI”), partially offset by the impact of the release of accruals for uncertain tax positions..

20


Income tax expense was $5,7843,728 for the three months ended September 30, 2022March 31, 2023 on earnings before income tax of $15,61111,691, representing an effective tax rate of 37.131.9%. The tax amount included the effect of the settlement and closure of a multi-year state audit of $454. Adjusted for the audit impacts, the effective rate was 28.0%. The effective tax rate differed from the U.S. Federal statutory rate of 21.0% primarily due to the impact of income taxes on foreign earnings taxed at rates varying from the U.S. Federal statutory rate, the unfavorable impact of the GILTI, and the quarterly accrual for uncertain tax positions, partially offset by the impact of certain favorable tax effects of equity vesting.

Income tax expense was $15,478 for the nine months ended September 30, 2023 on earnings before income tax of $37,734, representing an effective tax rate of 41.0%. The pre-tax earnings included the effect of an impairment loss of $19,509 with a tax benefit of $2,255. The effective tax rate differed from the U.S. Federal statutory rate of 21% primarily due to the impact of income taxes on foreign earnings taxed at rates varying from the U.S. statutory rate and the unfavorable impact of the GILTI, partially offset by the impact of research and development credits in various jurisdictions and certain favorable tax effects of equity vesting and the release of accruals for uncertain tax positions.

Income tax expense was $13,998 for the nine months ended September 30, 2022 on earnings before income tax of $42,644, representing an effective tax rate of 32.8%. 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. statutory rate, the unfavorable impact of the GILTI, and the quarterly accrual for uncertain tax positions partially offset by the impact of certain favorable tax effects of equitystock compensation vesting.

22


Note 1415 – Segment Reporting

Segment information is used by management for making operating decisions for the Company. Management evaluates the performance of the Company’s segments based primarily on operating income or loss.

The Company’s reportable segments are as follows:

Automotive – this segment represents the design, development, manufacturing and sales of automotive climate comfort systems, automotive cable systems, battery performance solutions, lumbar and massage comfort solutions, valvefuel management valves and other valves for brake and engine systems, battery performance solutions, and automotive electronic and software systems.
Medical – this segment represents the results from our patient temperature management business within the medical industry.

The Corporate category includes unallocated costs related to our corporate headquarter activities, including selling, general and administrative costs and acquisition transaction costs, which do not meet the requirements for being classified as an operating segment.

The tables below present segment information about the reported Product revenues, Depreciation and amortization and Operating income (loss) of the Company for the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023.

Three Months Ended September 30,

 

Automotive

 

 

Medical

 

 

Corporate

 

 

Total

 

Three Months Ended March 31,

 

Automotive

 

 

Medical

 

 

Corporate

 

 

Total

 

2024

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

344,638

 

 

$

11,377

 

 

$

 

 

$

356,015

 

Depreciation and amortization

 

 

12,408

 

 

 

883

 

 

 

527

 

 

$

13,818

 

Operating income (loss)

 

 

43,210

 

 

 

(483

)

 

 

(24,678

)

 

$

18,049

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

354,782

 

 

$

11,413

 

 

$

 

 

$

366,195

 

 

$

352,692

 

 

$

10,933

 

 

$

 

 

$

363,625

 

Depreciation and amortization

 

 

11,399

 

 

 

882

 

 

 

173

 

 

$

12,454

 

 

 

12,340

 

 

 

978

 

 

 

265

 

 

$

13,583

 

Operating income (loss)

 

 

41,690

 

 

 

(805

)

 

 

(17,144

)

 

$

23,741

 

 

 

38,379

 

 

 

(493

)

 

 

(20,212

)

 

$

17,674

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

322,555

 

 

$

10,407

 

 

$

 

 

$

332,962

 

Depreciation and amortization

 

 

10,499

 

 

 

1,035

 

 

 

302

 

 

$

11,836

 

Operating income (loss)

 

 

43,067

 

 

 

(2,232

)

 

 

(18,014

)

 

$

22,821

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

Automotive

 

 

Medical

 

 

Corporate

 

 

Total

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

1,069,007

 

 

$

33,136

 

 

$

 

 

$

1,102,143

 

Depreciation and amortization

 

 

34,910

 

 

 

2,756

 

 

 

865

 

 

$

38,531

 

Operating income (loss)

 

 

126,630

 

 

 

(21,838

)

 

 

(59,056

)

 

$

45,736

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

829,570

 

 

$

31,764

 

 

$

 

 

$

861,334

 

Depreciation and amortization

 

 

27,333

 

 

 

2,224

 

 

 

913

 

 

$

30,470

 

Operating income (loss)

 

 

98,367

 

 

 

(3,264

)

 

 

(50,356

)

 

$

44,747

 

Automotive and Medical segment Product revenues by product category for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 were as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Climate Control Seat

 

$

124,905

 

 

$

112,059

 

 

$

360,868

 

 

$

311,281

 

Seat Heaters

 

 

77,238

 

 

 

75,568

 

 

 

231,132

 

 

 

210,367

 

Steering Wheel Heaters

 

 

39,861

 

 

 

31,482

 

 

 

115,166

 

 

 

89,169

 

Lumbar and Massage Comfort Solutions (a)

 

 

33,260

 

 

 

22,740

 

 

 

109,602

 

 

 

22,740

 

Valve Systems (a)

 

 

27,830

 

 

 

18,542

 

 

 

82,516

 

 

 

18,542

 

Automotive Cables

 

 

19,668

 

 

 

18,338

 

 

 

60,131

 

 

 

59,662

 

Battery Performance Solutions

 

 

17,242

 

 

 

20,331

 

 

 

57,138

 

 

 

55,395

 

Electronics

 

 

10,163

 

 

 

12,083

 

 

 

30,456

 

 

 

33,190

 

Other Automotive

 

 

4,615

 

 

 

11,412

 

 

 

21,998

 

 

 

29,224

 

Subtotal Automotive segment

 

 

354,782

 

 

 

322,555

 

 

 

1,069,007

 

 

 

829,570

 

Medical segment (b)

 

 

11,413

 

 

 

10,407

 

 

 

33,136

 

 

 

31,764

 

Total Company

 

$

366,195

 

 

$

332,962

 

 

$

1,102,143

 

 

$

861,334

 

(a)
Represents Product revenues from Alfmeier (acquired on August 1, 2022) - (see Note 2)

23


 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Climate Control Seat

 

$

115,590

 

 

$

114,753

 

Seat Heaters

 

 

77,076

 

 

 

75,636

 

Steering Wheel Heaters

 

 

39,814

 

 

 

36,347

 

Lumbar and Massage Comfort Solutions

 

 

38,251

 

 

 

38,738

 

Valve Systems

 

 

26,625

 

 

 

26,994

 

Automotive Cables

 

 

21,519

 

 

 

20,220

 

Battery Performance Solutions

 

 

13,608

 

 

 

20,309

 

Electronics

 

 

8,185

 

 

 

10,970

 

Other Automotive

 

 

3,970

 

 

 

8,725

 

Subtotal Automotive segment

 

 

344,638

 

 

 

352,692

 

Medical segment

 

 

11,377

 

 

 

10,933

 

Total Company

 

$

356,015

 

 

$

363,625

 

 

(b)21


Includes Product revenues of $1,988

 and $4,939 for the three and nine months ended September 30, 2023, respectively, and $1,234 for the three and nine months ended September 30, 2022 from Dacheng (acquired on July 13, 2022) - (see Note 2)

Total Product revenues information by geographic area for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 is as follows (based on shipment destination):

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2024

 

 

2023

 

United States

 

$

134,588

 

 

$

131,021

 

 

$

414,359

 

 

$

337,759

 

 

$

125,453

 

 

$

141,452

 

China

 

 

61,004

 

 

 

57,439

 

 

 

161,530

 

 

 

127,183

 

 

 

54,476

 

 

 

46,654

 

South Korea

 

 

27,369

 

 

 

22,751

 

 

 

86,102

 

 

 

67,632

 

 

 

28,184

 

 

 

28,738

 

Germany

 

 

24,456

 

 

 

19,454

 

 

 

77,007

 

 

 

54,805

 

 

 

23,613

 

 

 

26,512

 

Czech Republic

 

 

16,684

 

 

 

13,247

 

 

 

51,706

 

 

 

35,630

 

 

 

19,584

 

 

 

17,650

 

Japan

 

 

16,906

 

 

 

17,603

 

 

 

44,995

 

 

 

42,305

 

Romania

 

 

13,828

 

 

 

11,592

 

 

 

39,797

 

 

 

35,866

 

 

 

14,222

 

 

 

12,533

 

Slovakia

 

 

10,946

 

 

 

8,109

 

 

 

35,254

 

 

 

25,755

 

 

 

13,178

 

 

 

11,596

 

Japan

 

 

12,455

 

 

 

15,222

 

United Kingdom

 

 

11,324

 

 

 

10,133

 

Mexico

 

 

15,251

 

 

 

7,062

 

 

 

34,701

 

 

 

16,171

 

 

 

10,015

 

 

 

9,094

 

Finland

 

 

8,286

 

 

 

9,757

 

 

 

29,558

 

 

 

26,244

 

Other

 

 

36,877

 

 

 

34,927

 

 

 

127,134

 

 

 

91,984

 

 

 

43,511

 

 

 

44,041

 

Total Non-U.S.

 

 

231,607

 

 

 

201,941

 

 

 

687,784

 

 

 

523,575

 

 

 

230,562

 

 

 

222,173

 

Total Company

 

$

366,195

 

 

$

332,962

 

 

$

1,102,143

 

 

$

861,334

 

 

$

356,015

 

 

$

363,625

 

 

2422


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 integration of acquisitions; the impact of macroeconomic and geopolitical conditions; the potential impact of ongoing and future labor strikes among certain original equipment manufacturers (“OEMs”) and suppliers; the components of and our ability to execute our updated strategic plan and 2023 manufacturing footprint rationalization restructuring plan; long-term consumer and technological trends in the Automotiveautomotive 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 analysis based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we consider appropriate under the circumstances. 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, 20222023 and subsequent reports filed with or furnished to the Securities and Exchange Commission, and which could cause actual results to differ materially from that described in the forward-looking statements. 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, ourthe 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, 2022.2023.

Overview

Gentherm Incorporated is the global market leader of innovative thermal management and pneumatic comfort technologies for the automotive industry and a leader in medical industries.patient temperature management. Automotive products include variable temperature Climate Control Seats,Seats® (“CCS”), heated automotive interior systems (including heated seats, steering wheels, armrests and other components), battery performance solutions, cable systems, lumbar and massage comfort solutions, valvefuel management valves and other valves for brake and engine systems, and other electronic devices. Our automotive products can be found on vehicles manufactured by nearly all the major OEMsoriginal equipment manufacturers ("OEMs") operating in North America and Europe, and several major OEMs in Asia. We operate in locations aligned with our major customers’ product strategies to provide locally enhanced design, integration and production capabilities. Medical products include patient temperature management systems. Our medical products can be found in hospitals throughout the world, primarily in the U.S., China, Germany and Brazil. The Company is also developing a number of new technologies and products that will help enable improvements to existing products, improve health, wellness and patient outcomes and will lead to new product applications for existing and new and adjacent markets.

Our Automotive sales are driven by the number of vehicles produced by the OEMs, which is ultimately dependent on consumer demand for automotive vehicles, our product content per vehicle, and other factors that may limit or otherwise impact production by us, our supply chain and our customers. 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 had and could result in a significant reduction in automotive sales and production by our customers, which have had and would have an adverse effect on our business, results of operations and financial condition. We believe our diversified OEM customer base and

23


geographic revenue base, along with our flexible cost structure, have well positioned us to withstand the impact of industry downturns

25


and benefit from industry upturns in the ordinary course. However, shifts in the mix of global automotive production to higher cost regions or to vehicles that contain less of our product content as well as continuing production challenges and inflationary pressures couldhave adversely impactimpacted our profitability.profitability and may continue to do so. In addition, we have been and may in the future be adversely impacted by volatility or weakness in markets for hybrid or electric vehicles specifically. We believe our products offer certain advantages for hybrid and electric vehicles, including improved energy efficiency, and position us well to withstand changes in the volume mix between vehicles driven by internal combustion engines and hybrid and other electric vehicles. We believe our industry is increasingly progressing towards a focus on human comfort and health and wellness, which is evidenced by increasing adoption rates for comfort products. We believe that products we are developing, such as ClimateSense®, WellSense™, and our acquisition of Alfmeier’s pneumatic comfort solutions, position us well to address trends in consumer preferences such as personalized user experience, comfort, health and wellness. Gentherm is an independent partner that can cooperate with any combination of the vehicle OEMs and seat manufacturers globally, including those that are vertically integrated, to create innovative and unique configurations that adapt to industry trends.

Recent Trends

Global Conditions

Since 2020, the global economy has experienced significant volatility and supply chain disruption, which has had a widespread adverse effect on the global automotive industry. These macroeconomic conditions have resulted in fluctuating demand and production disruptions, facility closures, labor shortages and work stoppages. In addition, global inflation has increased significantly beginning in 2021. RisingAlthough 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.

The directWe are exposed to foreign currency risk due to the translation and indirect impactsremeasurement of the results of certain international operations. Therefore, fluctuations in foreign currency exchange rates can create volatility in the results of operations and may adversely affect our financial condition.

We have a global manufacturing footprint that enables us to serve our customers in the regions they operate and shift production between regions to remain competitive. In recent years there have been various ongoing geopolitical conflicts, such as the current conflicts between Russia and Ukraine, and in the Middle East, heightened tensions in the Red Sea, and potential tensions in the South China Sea. These conflicts have interrupted ocean freight shipping and if prolonged or intensified, could have a substantial adverse effect on our markets,financial results. We, like other manufacturers, have a high proportion of fixed structural costs, and therefore relatively small changes in industry vehicle production can have a substantial effect on our financial results. If industry vehicle sales were to decline to levels significantly below our planning assumption, the decline could have a substantial adverse effect on our financial condition, results of operations, and financial performance remain unpredictable. As a result of this continued uncertainty, there may still be impacts on our industry, operations, workforce, supply chains, distribution systems, and demand for our products in the future which cannot be reasonably estimated at this time.

Beginning in the third quarter of 2023 and continuing into the fourth quarter, several North American OEMs have experienced union-led labor strikes at certain of their facilities. As the automotive industry relies heavily on “just-in-time” delivery of components, these strikes have led to labor shortages, work stoppages and other related disruptions, which have limited and continue to limit purchases of our products. During the three and nine months ended September 30, 2023, we experienced an insignificant impact on product revenues resulting from the labor strikes. We estimate that if the current strike actions known as of October 25, 2023, were to continue to be idled through the end of November, it would result in approximately $15 million to $20 million of revenue loss for Gentherm in the fourth quarter of 2023. On October 25, 2023, it was announced that a tentative agreement was reached between union leaders and Ford. Ford represents approximately 25-30% of the impact of the estimated Gentherm revenue loss in the fourth quarter. If the labor strikes are prolonged or expanded, they would have further adverse effects on our business and financial results, and may result in the temporary shutdown of the related Gentherm production facilities.”cash flow.

On December 15, 2022, the European Union (“EU”) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development Pillar Two Framework. The effective dates for different aspects of the directive are January 1, 2024, and January 1, 2025. The aspects of the directive that were effective as of January 1, 2024 did not have a material impact on the Company’s financial statements. Further, the Company does not expect the remaining aspects to have a material impact to the Company’s financial statements. The Company will continue to evaluate the potential impact on future periods of these tax regulations.

Fit-for-Growth 2.0

During the first half of 2023, wethe Company launched Fit-for-Growth 2.0 to execute as part of our long-term strategy that includes a profitability improvement initiative with a plan to achieve high teens Adjusted EBITDA margin rate by 2026.growth strategy. Fit-for-Growth 2.0 is expected to deliver significant cost reductions through sourcing excellence, value engineering, manufacturing productivity, manufacturing footprint optimization, value engineering, sourcing excellenceproduct profitability and cost synergies from the Alfmeier acquisition. Additionally, the program is intended to drive operating expense efficiency to leverage scale as we continue our growth path towards our target of over $2 billion dollars by 2026.scale.

Acquisitions24

On July 13, 2022, the Company completed the acquisition of Jiangmen Dacheng Medical Equipment Co. Ltd (“Dacheng”) and its wholly owned subsidiary, IOB Medical, Inc. Dacheng is a manufacturer of medical materials and medical equipment, including patient temperature management solutions, for numerous local and international customers. The acquisition provided Gentherm

26


 

Medical a local presence in China’s high-growth market for patient warming devices and other medical device products, and expanded overall manufacturing capacity to include a low-cost manufacturing site. The total consideration transferred was $35.0 million.

On August 1, 2022, the Company acquired 100% of the equity interests of Alfmeier Präzision SE (“Alfmeier”), a global leader in automotive lumbar and massage comfort solutions and a leading provider of advanced valve systems, integrated electronics and software. The acquisition further expanded the Company's value proposition beyond thermal in comfort, health, wellness, and energy efficiency and aligned well with global consumer demand for expanded offerings in vehicle passenger comfort. The total consideration for this acquisition was $170.7 million.

See Note 2, “Acquisitions” to the consolidated condensed financial statements included in this Report for additional information.

Impairments – Non-Automotive Electronics Business

On December 31, 2022, the Company approved a plan to exit its non-automotive electronics business to strengthen the Company’s core business and focus its resources and equipment with businesses and investments that are more strategic and profitable. The Company will continue to sell certain non-automotive electronics products until the exit is complete. During the year ended December 31, 2022, the Company recorded non-cash impairment charges of $9.4 million, $5.6 million and $0.7 million for write downs of inventory, intangible assets and property and equipment, respectively, within the Automotive segment.

During the three and nine months ended September 30, 2023, the Company recorded non-cash impairment charges of $3.4 million and $5.5 million for the write down of inventory within the Automotive segment. This charge is recorded in Cost of sales.

The Company is no longer pursuing a sale of the business and intends to wind-down the operations of the business by the end of 2023, subject to discussions with customers and suppliers.

Impairments - Medical Segment

As of December 31, 2022, the estimated fair value of the Medical reporting unit exceeded its carrying value by less than 10%. During the second quarter of 2023, the Company’s Medical reporting unit did not perform in-line with forecasted results primarily driven by slower than anticipated revenue growth. As a result, an indicator of impairment was identified and the Company performed an interim quantitative assessment as of June 30, 2023. The results of this quantitative analysis indicated the carrying value of the reporting unit exceeded the fair value, and accordingly an impairment expense was recorded for $19.5 million.

The primary factors leading to the decline in value from the analysis performed at December 31, 2022 were a reduction in expected future cash flows, due to the Company re-evaluating our forecasted results and an increase in the discount rate which is based on the Medical reporting unit’s weighted average cost of capital. The decline in expected future cash flows resulted primarily from a reduction of forecasted revenue growth rates. If the Company’s revised expectation of revenue growth is not achieved or if the estimated growth rates are reduced because of new information or experience, the fair value of the Medical reporting unit could decrease, which could result in further impairment of goodwill.

2023 Manufacturing Footprint Rationalization

On September 19, 2023, the Company committed to a restructuring plan (“2023 Plan”) to improve the Company’s manufacturing productivity and rationalize its footprint. Under this 2023 Plan, the Company will relocate certain existing manufacturing and related activities in its Greenville, South Carolina facility to a new facility in Monterrey, Mexico.

The Company expects to incur total costs of between $14$12 million and $18$16 million, of which between $13$11 million and $17$15 million are expected to be cash expenditures. The actions under the 2023 Plan are expected to be substantially completed by the end of 2025 and generate annual benefits of between $5 million and $6 million. The actual timing, costs and savings of the 2023 Plan may differ materially from the Company’s current expectations and estimates. During the three months ended March 31, 2024, the Company recognized restructuring expense of $0.7 million for employee separation costs and $0.3 million for other costs.

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

Light Vehicle Production Volumes

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

27


production by us, our supply chain and our customers. According to the forecasting firm S&P Global Mobility (October 2023(April 2024 release), global light vehicle production in the three and nine months ended September 30, 2023March 31, 2024 in the Company’s key markets of North America, Europe, China, Japan and Korea, as compared to the three and nine months ended September 30, 2022,March 31, 2023, are shown below (in millions of units):

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

 

% Change

 

 

2023

 

 

2022

 

 

% Change

 

 

2024

 

 

2023

 

 

% Change

 

North America

 

 

4.0

 

 

 

3.6

 

 

 

9.3

%

 

 

12.0

 

 

 

10.7

 

 

 

11.3

%

 

 

3.9

 

 

 

3.9

 

 

 

1.4

 %

Europe

 

 

3.9

 

 

 

3.6

 

 

 

6.3

%

 

 

13.1

 

 

 

11.5

 

 

 

14.0

%

 

 

4.5

 

 

 

4.6

 

 

 

(2.5

)%

Greater China

 

 

7.4

 

 

 

7.4

 

 

 

(0.3

)%

 

 

20.0

 

 

 

19.1

 

 

 

4.8

%

 

 

6.2

 

 

 

5.9

 

 

 

4.4

 %

Japan / South Korea

 

 

3.1

 

 

 

2.8

 

 

 

8.8

%

 

 

9.4

 

 

 

8.0

 

 

 

16.8

%

 

 

2.9

 

 

 

3.2

 

 

 

(9.7

)%

Total light vehicle production volume in key markets

 

 

18.3

 

 

 

17.5

 

 

 

4.6

%

 

 

54.5

 

 

 

49.4

 

 

 

10.3

%

 

 

17.5

 

 

 

17.6

 

 

 

(0.6

)%

The S&P Global Mobility (October 2023(April 2024 release) forecasted light vehicle production volume in the Company’s key markets for full year 20232024 to increase to 73.5remain flat at 75.4 million units an 8.6% increase from full year 20222023 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.

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 thirdfirst quarter of 2023,2024, we secured new automotive business awards totaling $520 million, bringing the year-to-date total as of September 30, 2023 to $1.7 billion. Also, through the date of this filing we have reached a year-to-date total of $2 billion.$530 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. NewAutomotive new business awards are not projections of revenue or future business as of September 30, 2023,March 31, 2024, the date of this Report or any other date. Customer projections regularly change over time, and we do not update our calculation of any automotive new business award after the date initially communicated. Automotive new business awards in the thirdfirst quarter 20232024 also do not reflect, in particular, the impact of macroeconomic and geopolitical challenges or the labor strikes 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.

25


Stock Repurchase Program

In December 2020, the Board of Directors authorized a stock repurchase program (the “2020 Stock Repurchase Program”). Under the 2020 Stock Repurchase Program, the Company is authorized to repurchase up to $150.0 million of its issued and outstanding Common Stock, no par value (“Common Stock”) over a three-year period, expiring December 15, 2023. On November 1, 2023, the Board of Directors extended the maturity date of the program from December 15, 2023 to June 30, 2024. Repurchases under the 2020 Stock Repurchase Program may be made, from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions, applicable legal requirements, debt covenants and other considerations. During the three and nine months ended September 30, 2023,March 31, 2024, the Company repurchased $11.1 million and $31.1 million, respectively, of sharesdid not make any repurchases under the 2020 Stock Repurchase Program with an average price paid per share of $56.91 and $58.54, respectively.Program. The 2020 Stock Repurchase Program had $98.9$37.5 million repurchase authorization remaining as of September 30, 2023.March 31, 2024.

28


On November 1, 2023, following the above-noted extension, the Company entered into a Confirmation of Issuer Forward Repurchase Transaction agreement (the “ASR Agreement”) with Bank of America, N.A. (“Bank of America”) that provides for the Company to purchase shares of Common Stock in an aggregate amount of $60 million (“ASR Repurchase Amount”) under the 2020 Stock Repurchase Program. Under the terms of the ASR Agreement, on November 2, 2023, the Company paid $60 million to Bank of America for an initial purchase of approximately 1.22 million shares of Common Stock, representing 80% of ASR Repurchase Amount. The final settlement date is scheduled to occur in the second quarter of 2024. As of the final settlement date, Bank of America may be required to deliver additional shares of Common Stock to the Company or the Company may be required to deliver shares of Common Stock to Bank America, such that the Company’s repurchase of Common Stock under the ASR Agreement in aggregate will equal the ASR Repurchase Amount (based on the average of the daily volume-weighted average prices of the Common Stock during the term of the ASR Agreement, less a specified discount). There is no cash requirement as of the final settlement date. For further information regarding the ASR Agreement, see Note 12, "Equity," to the notes to the consolidated condensed financial statements included in this Report.

Reportable Segments

The Company has two reportable segments for financial reporting purposes: Automotive and Medical.

See Note 14,15, “Segment Reporting”Reporting,” to the consolidated condensed financial statements included in this Report for a description of our reportable segments as well as their proportional contribution to the Company’s reported product revenues and operating income. The financial information used by our chief operating decision maker to assess operating performance and allocate resources is based on these reportable segments.

Consolidated Results of Operations

The results of operations for the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, in thousands, were as follows:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

 

2024

 

 

2023

 

 

Favorable /
(Unfavorable)

 

Product revenues

 

$

366,195

 

 

$

332,962

 

 

$

33,233

 

 

$

1,102,143

 

 

$

861,334

 

 

$

240,809

 

 

$

356,015

 

 

$

363,625

 

 

$

(7,610

)

Cost of sales

 

 

279,985

 

 

 

252,610

 

 

 

(27,375

)

 

 

846,815

 

 

 

657,492

 

 

 

(189,323

)

 

 

267,262

 

 

 

282,495

 

 

 

15,233

 

Gross margin

 

 

86,210

 

 

 

80,352

 

 

 

5,858

 

 

 

255,328

 

 

 

203,842

 

 

 

51,486

 

 

 

88,753

 

 

 

81,130

 

 

 

7,623

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net research and development expenses

 

 

23,150

 

 

 

22,666

 

 

 

(484

)

 

 

72,991

 

 

 

62,425

 

 

 

(10,566

)

 

 

22,745

 

 

 

25,145

 

 

 

2,400

 

Selling, general and administrative expenses

 

 

38,220

 

 

 

34,859

 

 

 

(3,361

)

 

 

113,680

 

 

 

96,109

 

 

 

(17,571

)

 

 

40,721

 

 

 

37,042

 

 

 

(3,679

)

Impairment of goodwill

 

 

 

 

 

 

 

 

 

 

 

19,509

 

 

 

 

 

 

(19,509

)

Restructuring expenses

 

 

1,099

 

 

 

6

 

 

 

(1,093

)

 

 

3,412

 

 

 

561

 

 

 

(2,851

)

 

 

7,238

 

 

 

1,269

 

 

 

(5,969

)

Total operating expenses

 

 

62,469

 

 

 

57,531

 

 

 

(4,938

)

 

 

209,592

 

 

 

159,095

 

 

 

(50,497

)

 

 

70,704

 

 

 

63,456

 

 

 

(7,248

)

Operating income

 

 

23,741

 

 

 

22,821

 

 

 

920

 

 

 

45,736

 

 

 

44,747

 

 

 

989

 

 

 

18,049

 

 

 

17,674

 

 

 

375

 

Interest (expense) income, net

 

 

(3,368

)

 

 

714

 

 

 

(4,082

)

 

 

(9,444

)

 

 

(1,285

)

 

 

(8,159

)

Interest expense, net

 

 

(3,244

)

 

 

(4,144

)

 

 

900

 

Foreign currency gain (loss)

 

 

2,107

 

 

 

(8,285

)

 

 

10,392

 

 

 

384

 

 

 

(1,516

)

 

 

1,900

 

 

 

2,549

 

 

 

(2,069

)

 

 

4,618

 

Other income

 

 

272

 

 

 

361

 

 

 

(89

)

 

 

1,058

 

 

 

698

 

 

 

360

 

 

 

973

 

 

 

230

 

 

 

743

 

Earnings before income tax

 

 

22,752

 

 

 

15,611

 

 

 

7,141

 

 

 

37,734

 

 

 

42,644

 

 

 

(4,910

)

 

 

18,327

 

 

 

11,691

 

 

 

6,636

 

Income tax expense

 

 

6,908

 

 

 

5,784

 

 

 

(1,124

)

 

 

15,478

 

 

 

13,998

 

 

 

(1,480

)

 

 

3,542

 

 

 

3,728

 

 

 

186

 

Net income

 

$

15,844

 

 

$

9,827

 

 

$

6,017

 

 

$

22,256

 

 

$

28,646

 

 

$

(6,390

)

 

$

14,785

 

 

$

7,963

 

 

$

6,822

 

26


Product revenues by product category, in thousands, for the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, were as follows:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

2024

 

 

2023

 

 

$ Change

 

 

% Change

 

Climate Control Seat

 

$

124,905

 

 

$

112,059

 

 

$

12,846

 

 

 

11.5

%

 

$

360,868

 

 

$

311,281

 

 

$

49,587

 

 

 

15.9

%

 

$

115,590

 

 

$

114,753

 

 

$

837

 

 

 

0.7

%

Seat Heaters

 

 

77,238

 

 

 

75,568

 

 

 

1,670

 

 

 

2.2

%

 

 

231,132

 

 

 

210,367

 

 

 

20,765

 

 

 

9.9

%

 

 

77,076

 

 

 

75,636

 

 

 

1,440

 

 

 

1.9

%

Steering Wheel Heaters

 

 

39,861

 

 

 

31,482

 

 

 

8,379

 

 

 

26.6

%

 

 

115,166

 

 

 

89,169

 

 

 

25,997

 

 

 

29.2

%

 

 

39,814

 

 

 

36,347

 

 

 

3,467

 

 

 

9.5

%

Lumbar and Massage Comfort Solutions

 

 

33,260

 

 

 

22,740

 

 

 

10,520

 

 

 

46.3

%

 

 

109,602

 

 

 

22,740

 

 

 

86,862

 

 

 

382.0

%

 

 

38,251

 

 

 

38,738

 

 

 

(487

)

 

 

(1.3

)%

Valve Systems

 

 

27,830

 

 

 

18,542

 

 

 

9,288

 

 

 

50.1

%

 

 

82,516

 

 

 

18,542

 

 

 

63,974

 

 

 

345.0

%

 

 

26,625

 

 

 

26,994

 

 

 

(369

)

 

 

(1.4

)%

Automotive Cables

 

 

19,668

 

 

 

18,338

 

 

 

1,330

 

 

 

7.3

%

 

 

60,131

 

 

 

59,662

 

 

 

469

 

 

 

0.8

%

 

 

21,519

 

 

 

20,220

 

 

 

1,299

 

 

 

6.4

%

Battery Performance Solutions

 

 

17,242

 

 

 

20,331

 

 

 

(3,089

)

 

 

(15.2

)%

 

 

57,138

 

 

 

55,395

 

 

 

1,743

 

 

 

3.1

%

 

 

13,608

 

 

 

20,309

 

 

 

(6,701

)

 

 

(33.0

)%

Electronics

 

 

10,163

 

 

 

12,083

 

 

 

(1,920

)

 

 

(15.9

)%

 

 

30,456

 

 

 

33,190

 

 

 

(2,734

)

 

 

(8.2

)%

 

 

8,185

 

 

 

10,970

 

 

 

(2,785

)

 

 

(25.4

)%

Other Automotive

 

 

4,615

 

 

 

11,412

 

 

 

(6,797

)

 

 

(59.6

)%

 

 

21,998

 

 

 

29,224

 

 

 

(7,226

)

 

 

(24.7

)%

 

 

3,970

 

 

 

8,725

 

 

 

(4,755

)

 

 

(54.5

)%

Subtotal Automotive segment

 

 

354,782

 

 

 

322,555

 

 

 

32,227

 

 

 

10.0

%

 

 

1,069,007

 

 

 

829,570

 

 

 

239,437

 

 

 

28.9

%

 

 

344,638

 

 

 

352,692

 

 

 

(8,054

)

 

 

(2.3

)%

Medical segment

 

 

11,413

 

 

 

10,407

 

 

 

1,006

 

 

 

9.7

%

 

 

33,136

 

 

 

31,764

 

 

 

1,372

 

 

 

4.3

%

 

 

11,377

 

 

 

10,933

 

 

 

444

 

 

 

4.1

%

Total Company

 

$

366,195

 

 

$

332,962

 

 

$

33,233

 

 

 

10.0

%

 

$

1,102,143

 

 

$

861,334

 

 

$

240,809

 

 

 

28.0

%

 

$

356,015

 

 

$

363,625

 

 

$

(7,610

)

 

 

(2.1

)%

Product Revenues

Below is a summary of our product revenues, in thousands, for the three months ended September 30, 2023March 31, 2024 and 2022:2023:

 

 

Three Months Ended September 30,

 

 

 

Variance Due To:

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

 

 

Automotive Volume

 

 

FX

 

 

Acquisitions

 

 

Pricing / Other

 

 

Total

 

Product revenues

 

$

366,195

 

 

$

332,962

 

 

$

33,233

 

 

 

$

19,621

 

 

$

4,825

 

 

$

18,866

 

 

$

(10,079

)

 

$

33,233

 

29


 

 

Three Months Ended March 31,

 

 

 

Variance Due To:

 

 

 

2024

 

 

2023

 

 

Favorable /
(Unfavorable)

 

 

 

Automotive Volume

 

 

FX

 

 

Pricing / Other

 

 

Total

 

Product revenues

 

$

356,015

 

 

$

363,625

 

 

$

(7,610

)

 

 

$

(1,671

)

 

$

(2,797

)

 

$

(3,142

)

 

$

(7,610

)

Product revenues for the three months ended September 30, 2023 increased 10.0%March 31, 2024 decreased 2.1% as compared to the three months ended September 30, 2022.March 31, 2023. The increasedecrease in product revenues is due to favorable volumes in several product lines within the Automotive segment, favorable foreign currency impacts primarily attributable to the Euro and the Korean Won, and the inclusion of sales from Alfmeier and Dacheng since the acquisitions, partially offset by unfavorable pricing, other, and unfavorable foreign currency impacts primarily attributable to the Chinese Renminbi.

Below is a summary of our product revenues, in thousands, for the nine months ended September 30, 2023 and 2022:

 

 

Nine Months Ended September 30,

 

 

 

Variance Due To:

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

 

 

Automotive Volume

 

 

FX

 

 

Acquisitions

 

 

Pricing / Other

 

 

Total

 

Product revenues

 

$

1,102,143

 

 

$

861,334

 

 

$

240,809

 

 

 

$

105,363

 

 

$

(4,962

)

 

$

152,844

 

 

$

(12,436

)

 

$

240,809

 

Product revenues for the nine months ended September 30, 2023 increased 28.0% as compared to the nine months ended September 30, 2022. The increase in product revenues is due to favorable volumes in several product lines within the Automotive segment, favorable foreign currency impacts primarily attributable to the Euro, and the inclusion of sales from Alfmeier and Dacheng since the acquisitions, partially offset by lower cost recoveries from customers, and unfavorable foreign currency impacts primarily attributable to the Chinese Renminbi theand Korean Won, and unfavorable automotive volumes, partially offset by favorable foreign currency impacts primarily attributable to the Japanese Yen.Euro.

Cost of Sales

Below is a summary of our cost of sales and gross margin, in thousands, for the three months ended September 30, 2023March 31, 2024 and 2022:2023:

 

Three Months Ended September 30,

 

 

 

Variance Due To:

 

 

Three Months Ended March 31,

 

 

 

Variance Due To:

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

 

 

Automotive Volume

 

 

Operational
Performance

 

 

FX

 

 

Acquisitions and Other

 

 

Total

 

 

2024

 

 

2023

 

 

Favorable /
(Unfavorable)

 

 

 

Automotive Volume

 

 

Operational
Performance

 

 

FX

 

 

Other

 

 

Total

 

Cost of sales

 

$

279,985

 

 

$

252,610

 

 

$

(27,375

)

 

 

$

(11,981

)

 

$

14,320

 

 

$

(6,508

)

 

$

(23,206

)

 

$

(27,375

)

 

$

267,262

 

 

$

282,495

 

 

$

15,233

 

 

 

$

553

 

 

$

18,200

 

 

$

(892

)

 

$

(2,628

)

 

$

15,233

 

Gross margin

 

$

86,210

 

 

$

80,352

 

 

$

5,858

 

 

 

$

7,640

 

 

$

10,218

 

 

$

(1,683

)

 

$

(10,317

)

 

$

5,858

 

 

$

88,753

 

 

$

81,130

 

 

$

7,623

 

 

 

$

(1,118

)

 

$

16,900

 

 

$

(3,689

)

 

$

(4,470

)

 

$

7,623

 

Gross margin - Percentage of product revenues

 

 

23.5

%

 

 

24.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24.9

%

 

 

22.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales for the three months ended September 30, 2023 increased 10.8%March 31, 2024 decreased 5.4% as compared to the three months ended September 30, 2022.March 31, 2023. The increasedecrease in cost of sales is primarily due to increasedlower material costs, the impact of non-automotive inventory charges in the prior year period, lower automotive volumes in our Automotive segment, inflation associated with wages, a non-automotive electronics inventory charge relatedand favorable foreign currency impacts primarily attributable to the exit of the business, the full inclusion of expenses from the acquired businesses andChinese Renminbi. These decreases were partially offset by unfavorable foreign currency impacts primarily attributable to the Euro and the Mexican Peso. These increases were partially offset by lower freight, duties, and material costs, and favorable foreign currency impacts primarily attributable to the Chinese Renminbi.

Below is a summary of our cost of sales and gross margin, in thousands, for the nine months ended September 30, 2023 and 2022:

 

 

Nine Months Ended September 30,

 

 

 

Variance Due To:

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

 

 

Automotive Volume

 

 

Operational
Performance

 

 

FX

 

 

Acquisitions and Other

 

 

Total

 

Cost of sales

 

$

846,815

 

 

$

657,492

 

 

$

(189,323

)

 

 

$

(63,515

)

 

$

28,417

 

 

$

(2,972

)

 

$

(151,253

)

 

$

(189,323

)

Gross margin

 

$

255,328

 

 

$

203,842

 

 

$

51,486

 

 

 

$

41,848

 

 

$

18,499

 

 

$

(7,934

)

 

$

(927

)

 

$

51,486

 

Gross margin - Percentage of product revenues

 

 

23.2

%

 

 

23.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales for the nine months ended September 30, 2023 increased 28.8% as compared to the nine months ended September 30, 2022. The increase in cost of sales is primarily due to increased volumes in our Automotive segment, inflation associated with wages and material costs, non-automotive electronics inventory charges related to the exit of the business, the full inclusion of expenses from the acquired businesses and unfavorable foreign currency impacts primarily attributable to the Mexican Peso and the Euro. These increases were partially offset by lower freight and duties costs, and favorable foreign currency impacts primarily attributable to the Chinese Renminbi and the Ukranian Hryvnia.

30


Net Research and Development Expenses

Below is a summary of our net research and development expenses, in thousands, for the three months ended September 30, 2023March 31, 2024 and 2022:2023:

 

Three Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

 

2024

 

 

2023

 

 

Favorable /
(Unfavorable)

 

Research and development expenses

 

$

32,298

 

 

$

26,841

 

 

$

(5,457

)

 

$

27,742

 

 

$

31,749

 

 

$

4,007

 

Reimbursed research and development expenses

 

 

(9,148

)

 

 

(4,175

)

 

 

4,973

 

 

 

(4,997

)

 

 

(6,604

)

 

 

(1,607

)

Net research and development expenses

 

$

23,150

 

 

$

22,666

 

 

$

(484

)

 

$

22,745

 

 

$

25,145

 

 

$

2,400

 

Percentage of product revenues

 

 

6.3

%

 

 

6.8

%

 

 

 

 

 

6.4

%

 

 

6.9

%

 

 

 

27


Net research and development expenses for the three months ended September 30, 2023 increased 2.1%March 31, 2024 decreased 9.5% as compared to the three months ended September 30, 2022.March 31, 2023. The increasedecrease in net research and development expenses is primarily related to the full inclusion of net expenses from Alfmeier, partially offset by higher customer reimbursements, excluding those from Alfmeier.

Below is a summary of our net research and development expenses,reduction in thousands, for the nine months ended September 30, 2023 and 2022:

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

Research and development expenses

 

$

94,784

 

 

$

75,077

 

 

$

(19,707

)

Reimbursed research and development expenses

 

 

(21,793

)

 

 

(12,652

)

 

 

9,141

 

Net research and development expenses

 

$

72,991

 

 

$

62,425

 

 

$

(10,566

)

Percentage of product revenues

 

 

6.6

%

 

 

7.2

%

 

 

 

Net research and development expenses for the nine months ended September 30, 2023 increased 16.9% as comparedresources allocated to the nine months ended September 30, 2022. The increase in net research and development expenses is primarily related to the full inclusion of net expenses from Alfmeier, increased investments to support new program wins, and lower customer reimbursements, excluding those from Alfmeier.battery performance solutions product category.

Selling, General and Administrative Expenses

Below is a summary of our selling, general and administrative expenses, in thousands, for the three months ended September 30, 2023March 31, 2024 and 2022:2023:

 

Three Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

 

2024

 

 

2023

 

 

Favorable /
(Unfavorable)

 

Selling, general and administrative expenses

 

$

38,220

 

 

$

34,859

 

 

$

(3,361

)

 

$

40,721

 

 

$

37,042

 

 

$

(3,679

)

Percentage of product revenues

 

 

10.4

%

 

 

10.5

%

 

 

 

 

 

11.4

%

 

 

10.2

%

 

 

 

Selling, general and administrative expenses for the three months ended September 30, 2023March 31, 2024 increased 9.6%9.9% as compared to the three months ended September 30, 2022.March 31, 2023. The increase in selling, general and administrative expenses is primarily related to the full inclusion of expenses from acquired businesses and higher compensation expenses partially offset by lower acquisition costs.

Below is a summary of our selling, general and administrative expenses,increased investment in thousands, for the nine months ended September 30, 2023 and 2022:

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

Selling, general and administrative expenses

 

$

113,680

 

 

$

96,109

 

 

$

(17,571

)

Percentage of product revenues

 

 

10.3

%

 

 

11.2

%

 

 

 

Selling, general and administrative expenses for the nine months ended September 30, 2023 increased 18.3% as compared to the nine months ended September 30, 2022. The increase in selling, general and administrative expenses is primarily related to the full inclusion of expenses from acquired businesses and higher compensation expenses, partially offset by lower acquisition costs.

31


Impairment of Goodwill

There was no impairment of goodwill for the three months ended September 30, 2023 and 2022.

Below is a summary of our impairment of goodwill, in thousands, for the nine months ended September 30, 2023 and 2022:

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

Impairment of goodwill

 

$

19,509

 

 

$

 

 

$

(19,509

)

Impairment of goodwill for the nine months ended September 30, 2023 related to the recorded Medical reporting unit goodwill impairment.information technology.

Restructuring Expenses

Below is a summary of our restructuring expenses, in thousands, for the three months ended September 30, 2023March 31, 2024 and 2022:2023:

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

Restructuring expenses

 

$

1,099

 

 

$

6

 

 

$

(1,093

)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

Favorable /
(Unfavorable)

 

Restructuring expenses

 

$

7,238

 

 

$

1,269

 

 

$

(5,969

)

During the three months ended September 30, 2023,March 31, 2024, the Company recognized expenses of $1.1$6.7 million for employee separation costs and $0$0.5 million for other costs. These restructuring expenses primarily relate to discrete restructuring actions focused on the reduction of global overhead expenses.expenses and achieving our Fit-for-Growth 2.0 objectives. See Note 3, “Restructuring,” to the consolidated condensed financial statements included in this Report for additional information.

During the three months ended September 30, 2022,March 31, 2023, the Company recognized expenses of$1.3 million for employee separation costs and less than $0.1 million for other costs.

Below is a summary of our restructuring expenses, in thousands, for the nine months ended September 30, 2023 and 2022:

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

Restructuring expenses

 

$

3,412

 

 

$

561

 

 

$

(2,851

)

During the nine months ended September 30, 2023, the Company recognized expenses of $2.6 million for employee separation costs and $0.8 million for other costs. These restructuring expenses primarily relate to discrete restructuring actions focused on the reduction of global overhead expenses.

During the nine months ended September 30, 2022, the Company recognized expenses of less than $0.1 million for employee separation costs and $0.5 million for other costs.

Interest (Expense) Income,Expense, net

Below is a summary of our interest (expense) income, net, in thousands, for the three months ended September 30, 2023 and 2022:

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

Interest (expense) income, net

 

$

(3,368

)

 

$

714

 

 

$

(4,082

)

Interest expense, net for the three months ended September 30, 2023 increased 571.7% as compared to the three months ended September 30, 2022. The increase is primarily related to less benefit from the change in fair value of the interest rate swap derivative and higher interest rates on the revolving credit agreement, partially offset by decreased interest from a lower balance on the revolving credit agreement during the three months ended September 30, 2023.

32


Below is a summary of our interest expense, net, in thousands, for the ninethree months ended September 30, 2023March 31, 2024 and 2022:2023:

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

Interest expense, net

 

$

(9,444

)

 

$

(1,285

)

 

$

(8,159

)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

Favorable /
(Unfavorable)

 

Interest expense, net

 

$

(3,244

)

 

$

(4,144

)

 

$

900

 

Interest expense, net for the ninethree months ended September 30, 2023 increased 634.9%March 31, 2024 decreased 21.7% as compared to the ninethree months ended September 30, 2022.March 31, 2023. The increasedecrease is primarily related to lessa benefit from the change in fair value of the interest rate swap derivative, andpartially offset by higher interest rates on outstanding borrowings under the revolving credit agreement, partially offset by decreased interest from a lower balance on the revolving credit agreement during the nine months ended September 30, 2023. See Note 6, "Debt," to the consolidated condensed financial statements included in this Report for additional information.Revolving Credit Facility.

Foreign Currency Gain (Loss)

Below is a summary of our foreign currency gain (loss), in thousands, for the three months ended September 30, 2023March 31, 2024 and 2022:2023:

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

Foreign currency gain (loss)

 

$

2,107

 

 

$

(8,285

)

 

$

10,392

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

Favorable /
(Unfavorable)

 

Foreign currency gain (loss)

 

$

2,549

 

 

$

(2,069

)

 

$

4,618

 

Foreign currency gain for the three months ended September 30, 2023March 31, 2024 included net realized foreign currency gain of $1.2$0.7 million and net unrealized foreign currency gain of $0.9$1.9 million.

28


Foreign currency loss for the three months ended September 30, 2022March 31, 2023 primarily included net realized foreign currency lossgain of $3.0$3.8 million and net unrealized foreign currency loss of $5.3 million.

Below is a summary of our foreign currency gain (loss), in thousands, for the nine months ended September 30, 2023 and 2022:

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

Foreign currency gain (loss)

 

$

384

 

 

$

(1,516

)

 

$

1,900

 

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

Foreign currency loss for the nine months ended September 30, 2022 primarily included net realized foreign currency loss of $2.6 million and net unrealized foreign currency gain of $1.1$5.9 million.

Other Income

Below is a summary of our other income, in thousands, for the three months ended September 30, 2023March 31, 2024 and 2022:2023:

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

Other income

 

$

272

 

 

$

361

 

 

$

(89

)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

Favorable /
(Unfavorable)

 

Other income

 

$

973

 

 

$

230

 

 

$

743

 

Other income for the three months ended September 30, 2023 decreasedMarch 31, 2024 increased as compared to the three months ended September 30, 2022. The decrease in Other income is due to a decrease in miscellaneous income.

Below is a summary of our other income, in thousands, for the nine months ended September 30, 2023 and 2022:

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

Other income

 

$

1,058

 

 

$

698

 

 

$

360

 

33


Other income for the nine months ended September 30, 2023 increased as compared to the nine months ended September 30, 2022.March 31, 2023. The increase in Otherother income is due to an increase in miscellaneous income.the fair value of our investment in Carrar due to observable transactions.

Income Tax Expense

Below is a summary of our income tax expense, in thousands, for the three months ended September 30, 2023March 31, 2024 and 2022:2023:

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

Income tax expense

 

$

6,908

 

 

$

5,784

 

 

$

(1,124

)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

Favorable /
(Unfavorable)

 

Income tax expense

 

$

3,542

 

 

$

3,728

 

 

$

186

 

Income tax expense was $6.9$3.5 million for the three months ended September 30,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 (“GILTI”).

Income tax expense was $3.7 million for the three months ended March 31, 2023 on earnings before income tax of $22.8$11.7 million, representing an effective tax rate of 30.4%31.9%. The tax amount included the effect of the settlement and closure of a multi-year state audit of $0.5 million. Adjusted for the audit impacts, the effective rate was 28.0%. 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. statutory rate and the unfavorable impact of the global intangible low-tax income (“GILTI”), partially offset by the impact of the release of accruals for uncertain tax positions.

Income tax expense was $5.8 million for the three months ended September 30, 2022 on earnings before income tax of $15.6 million representing an effective tax rate of 37.1%. The effective tax rate differed from the U.S. Federal statutory rate of 21.0% primarily due to the impact of income taxes on foreign earnings taxed at rates varying from the U.S. statutory rate, the unfavorable impact of the GILTI, and the quarterly accrual for uncertain tax positions, partially offset by the impact of certain favorable tax effects on equity vesting.

Below is a summary of our income tax expense, in thousands, for the nine months ended September 30, 2023 and 2022:

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

Favorable /
(Unfavorable)

 

Income tax expense

 

$

15,478

 

 

$

13,998

 

 

$

(1,480

)

Income tax expense was $15.5 million for the nine months ended September 30, 2023, on earnings before income tax of $37.7 million, representing an effective tax rate of 41.0%. The pre-tax earnings included the effect of an impairment loss of $19.5 million with a tax benefit of $2.5 million. Adjusted for the impairment impacts, the effective rate was 31.0%. The effective tax rate differed from the U.S. Federal statutory rate of 21% primarily due to the impact of income taxes on foreign earnings taxed at rates varying from the U.S. statutory rate and the unfavorable impact of the GILTI, partially offset by the impact of research and development credits in various jurisdictions and certain favorable tax effects of equity vesting and the release of accruals for uncertain tax positions.

Income tax expense was $14.0 million for the nine months ended September 30, 2022 on earnings before income tax of $42.6 million representing an effective tax rate of 32.8%. 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. statutory rate, the unfavorable impact of GILTI, and the quarterly accrual for uncertain tax positions, partially offset by the impact of certain favorable tax effects of equitystock compensation vesting.

3429


 

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, disposition, exits, and investment opportunities that will enhance our business strategies.

As of September 30, 2023,March 31, 2024, the Company had $154.4$125.1 million of cash and cash equivalents and $293.0$278.0 million of availability under our Second Amended and Restated Credit Agreement. We may issue debt or equity securities, which may provide an additional source of liquidity. 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 September 30, 2023,March 31, 2024, the Company’s cash and cash equivalents held by our non-U.S. subsidiaries totaled approximately $114.7$88.1 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 receivables factoring arrangements, and cash flows from operations will be adequate to meet anticipated cash requirements for at least the next twelve months and the foreseeable future.

Cash and Cash Flows

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

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

 

2024

 

 

2023

 

Cash and cash equivalents at beginning of period

 

$

153,891

 

 

$

190,606

 

 

$

149,673

 

 

$

153,891

 

Net cash provided by operating activities

 

 

80,042

 

 

 

12,957

 

Net cash (used in) provided by operating activities

 

 

(10,322

)

 

 

25,109

 

Net cash used in investing activities

 

 

(16,945

)

 

 

(247,841

)

 

 

(8,831

)

 

 

(2,549

)

Net cash (used in) provided by financing activities

 

 

(60,751

)

 

 

191,582

 

Net cash used in financing activities

 

 

(1,534

)

 

 

(12,965

)

Foreign currency effect on cash and cash equivalents

 

 

(1,883

)

 

 

(8,141

)

 

 

(3,879

)

 

 

3,144

 

Cash and cash equivalents at end of period

 

 

154,354

 

 

 

139,163

 

 

$

125,107

 

 

$

166,630

 

Cash Flows From Operating Activities

Net cash provided byused in operating activities totaled $80.0$10.3 million during the ninethree months ended September 30, 2023March 31, 2024 primarily reflecting $42.0 million related to changes in assets and liabilities, non-cash charges of $0.2 million for deferred income taxes and $0.8 million of other, partially offset by net income of $22.3$14.8 million, $19.5 million for non-cash goodwill impairment, $47.9$17.7 million for non-cash charges for depreciation, amortization, stock based compensation and loss on disposition of property and non-cash charges of $6.6$0.3 million for inventory provisions, partially offset by $13.2 million related to changes in assets and liabilities, and non-cash charges of $3.0 million for deferred income taxes.provisions.

Cash Flows From Investing Activities

Net cash used in investing activities was $16.9$8.8 million during the ninethree months ended September 30, 2023,March 31, 2024, reflecting purchases of property and equipment of $26.5$11.3 million and investments in technology companies of $0.6$0.2 million, partially offset by proceeds from deferred purchase price of factored receivables of $10.1$2.7 million.

3530


 

Cash Flows From Financing Activities

Net cash used in financing activities was $60.8$1.5 million during the ninethree months ended September 30, 2023,March 31, 2024, reflecting $31.0 million paid to repurchase common stock, $27.2$10.3 million of debt repayments and $2.8$2.0 million paid for employee taxes related to the net settlement of restricted stock units that vested during the year, partially offset by the borrowing on debt of $10.0 million and the proceeds from the exercise of Common Stock options totaling $0.3$0.8 million.

Debt

The following table summarizes the Company’s debt, in thousands, as of September 30, 2023March 31, 2024 and December 31, 2022:2023:

 

September 30, 2023

 

 

December 31, 2022

 

 

March 31, 2024

 

 

December 31, 2023

 

 

Interest
Rate

 

 

Principal
Balance

 

 

Interest
Rate

 

 

Principal
Balance

 

 

Interest
Rate

 

 

Principal
Balance

 

 

Interest
Rate

 

 

Principal
Balance

 

Credit Agreement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving Credit Facility (U.S. Dollar denominations)

 

 

6.79

%

 

$

207,000

 

 

 

5.80

%

 

$

232,000

 

 

 

6.80

%

 

$

222,000

 

 

 

6.58

%

 

$

222,000

 

Other loans

 

 

3.90

%

 

 

247

 

 

3.89% - 5.21%

 

 

 

2,011

 

 

 

 

 

 

 

 

 

3.90

%

 

 

233

 

Finance leases

 

 

3.54

%

 

 

675

 

 

 

3.57

%

 

 

1,085

 

 

 

3.51

%

 

 

497

 

 

 

3.53

%

 

 

605

 

Total debt

 

 

 

 

 

207,922

 

 

 

 

 

 

235,096

 

 

 

 

 

 

222,497

 

 

 

 

 

 

222,838

 

Current maturities

 

 

 

 

 

(620

)

 

 

 

 

 

(2,443

)

 

 

 

 

 

(324

)

 

 

 

 

 

(621

)

Long-term debt, less current maturities

 

 

 

 

$

207,302

 

 

 

 

 

$

232,653

 

 

 

 

 

$

222,173

 

 

 

 

 

$

222,217

 

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 September 30, 2023,March 31, 2024, the Company was in compliance, in all material respects, with the terms of the Second Amended and Restated Credit Agreement.

Finance Leases

As of September 30, 2023March 31, 2024 and December 31, 2022,2023, there was $0.7$0.5 million and $1.1$0.6 million, respectively, of outstanding finance leases.

Other Sources of Liquidity

The Company is party to receivable factoring agreements with unrelated third parties under which we can sell receivables for certain account debtors, on a revolving basis, subject to outstanding balances and concentration limits. The receivable factoring agreements are transferred in their entirety to the acquiring entities and are accounted for as a sale. Some of the agreements, including those assumed through the acquisition of Alfmeier, have deferred purchase price arrangements. As of September 30, 2023,March 31, 2024, there were $1.2$7.4 million available under the receivable factoring agreement.agreements.

31


Material Cash Requirements

The Company continues to enter into agreements with suppliers to reserve the right to purchase certain semiconductor chips over periods of 12-24 months. As of September 30, 2023, the Company’s total commitments for these semiconductor chip agreements was $25.6 million. See Note 7, “Commitments and Contingencies” to the consolidated condensed financial statements included in this Report for additional information.

36


In September 2023, the Company committed to a restructuring plan to improve the Company’s manufacturing productivity and rationalize its footprint. As of September 30, 2023,March 31, 2024, the Company expects to incur total costs of between $14$12 million and $18$16 million, of which between $14$11 million and $17$15 million are expected to be cash expenditures. The Company has recorded $1.7 million of restructuring expenses since the inception of this program as of March 31, 2024. See Note 3, “Restructuring, and Impairments” to the consolidated condensed financial statements included in this Report for additional information.

Except as described above, there have been no material changes in our cash requirements since December 31, 2022,2023, the end of fiscal year 2022.2023. 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, 20222023 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. Beginning inSince 2021, and continuing through 2023, the automotive industry has experienced inflationary cost increasesa period of 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. These higher costs and cost increases due to inflation are expected to continue for the foreseeable future as demand remains elevated and supply remains constrained. 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.

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”Policies,” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.2023. There have been no significant changes in our critical accounting policies or critical accounting estimates during the three months ended September 30, 2023.March 31, 2024. We are not presently aware of any events or circumstances that would require us to update our estimates, assumptions or revise the carrying value of our assets or liabilities, except for the impairment of the Medical segment goodwill, which was assessed in the second quarter of 2023. See Note 3, “Restructuring and Impairments” to the consolidated condensed financial statements included in this Report for additional information.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.

Recent Accounting Pronouncements

There are no new accounting pronouncements applicable to the Company as of September 30, 2023.32


37


ITEM 3. QUANTITATIVE AND QUALITATIVE 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 and Vietnamese Dong.

The Company regularly enters into derivative contracts with the objective of managing its financial and operational exposure arising from these risks by offsetting gains and losses on the underlying exposures with gains and losses on the financial instruments used to hedge them. 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 Accumulatedaccumulated other comprehensive loss in the consolidated condensed balance sheets. When the underlying hedge transaction is realized, the gain or loss included in Accumulatedaccumulated other comprehensive loss is recorded in earnings in the consolidated condensed statements of income on the same line as the gain or loss on the hedged item attributable to the hedged risk. The Company records the ineffective portion of foreign currency and copper commodity hedging instruments, if any, to Costcost of sales, and the ineffective portion of interest rate swaps, if any, to Interestinterest expense, net in the consolidated condensed statements of income. Cash flows associated with derivatives are reported in Netnet cash (used in) provided by (used in) operating activities in the consolidated condensed statements of cash flows.

Information related to the fair values of all derivative instruments in ourthe consolidated condensed balance sheet as of September 30, 2023March 31, 2024 is set forth in Note 9,10, “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

 

 

Expected Maturity Date

 

 

2023

 

 

2024

 

 

2025

 

 

2026

 

 

2027

 

 

2028

 

 

Total

 

 

Fair Value

 

 

2024

 

 

2025

 

 

2026

 

 

2027

 

 

2028

 

 

2029

 

 

Total

 

 

Fair Value

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-Term Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable rate

 

$

 

 

$

 

 

$

 

 

$

 

 

$

207,000

 

 

$

 

 

$

207,000

 

 

$

207,000

 

 

$

 

 

$

 

 

$

 

 

$

222,000

 

 

$

 

 

$

 

 

$

222,000

 

 

$

222,000

 

Variable interest rate as of September 30, 2023

 

 

 

 

 

 

 

 

 

 

6.79

%

 

 

 

 

 

6.79

%

 

 

 

Fixed rate

 

$

247

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

247

 

 

$

 

Fixed interest rate

 

 

3.90

%

 

 

 

 

 

 

 

 

 

 

 

 

3.90

%

 

 

 

Variable interest rate as of March 31, 2024

 

 

 

 

 

 

 

 

6.80

%

 

 

 

 

 

 

 

 

6.80

%

 

 

 

Based on the amounts outstanding as of September 30, 2023,March 31, 2024, a hypothetical 100 basis point change (increase or decrease) in interest rates would impact annual interest expense by $2.1$2.2 million. To hedge the Company's exposure to interest payment fluctuations on a portion of these borrowings, we entered into a floating-to-fixed interest rate swap agreement with a notional amount of $100.0 million.

3833


 

Exchange Rate Sensitivity

The table below provides information about the Company’s foreign currency forward 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 (contractual) maturity dates for each type of foreign currency forward exchange agreement. These notional amounts generally are used to calculate the contractual payments to be exchanged under the contract.

 

Expected Maturity or Transaction Date

 

 

 

 

 

 

 

Expected Maturity or Transaction Date

 

 

 

 

Anticipated Transactions and Related Derivatives

 

2023

 

 

2024

 

 

2025

 

 

Total

 

 

Fair Value

 

 

2024

 

 

2025

 

 

Total

 

 

Fair Value

 

USD Functional Currency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward Exchange Agreements:

 

 

 

 

 

 

 

 

 

 

 

Exchange Agreements:

 

 

 

 

 

 

 

 

 

(Receive MXN / Pay USD)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total contract amount

 

$

14,824

 

 

$

59,298

 

 

$

29,649

 

 

$

103,771

 

 

$

6,706

 

 

$

44,473

 

 

$

29,649

 

 

$

74,122

 

 

$

9,113

 

Average contract rate

 

 

19.23

 

 

 

19.23

 

 

 

19.23

 

 

 

19.23

 

 

 

 

 

 

19.23

 

 

 

19.23

 

 

 

 

 

 

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

 

September 30, 2023

 

 

December 31, 2022

 

 

March 31, 2024

 

 

December 31, 2023

 

Exchange Rate Sensitivity

 

Potential loss in fair value

 

 

Potential gain in fair value

 

 

Potential loss in fair value

 

 

Potential gain in fair value

 

 

Potential loss in fair value

 

 

Potential gain in fair value

 

 

Potential loss in fair value

 

 

Potential gain in fair value

 

Forward Exchange Agreement:(Receive MXN / Pay USD)

 

$

5,978

 

 

$

10,677

 

 

$

3,999

 

 

$

4,888

 

Exchange Agreement:(Receive MXN / Pay USD)

 

$

6,531

 

 

$

8,682

 

 

$

7,179

 

 

$

9,798

 

 

3934


ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Management of the Company, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2023.March 31, 2024. As defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (as amended, the “Exchange Act”), disclosure controls and procedures are controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported on a timely basis, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2023.March 31, 2024.

(b) Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2023March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

4035


 

PART II OTHER INFORMATION

We are subject to litigation from time to time in the ordinary course of business, however there iswas no material pending litigation to which we are a party and no material legal proceeding was terminated, settled or otherwise resolved during the three months ended September 30, 2023.March 31, 2024.

ITEM 1A. RISK FACTORS

The Company’s risk factors have not materially changed from those previously disclosed in Part 1, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.2023. You should carefully consider the risks and uncertainties described therein.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities During ThirdFirst Quarter 20232024

Period

 

(a)
Total Number
of Shares
Purchased

 

 

(b)
Average Price
Paid Per Share

 

 

(c)
Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs

 

 

(d)
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1)

 

July 1, 2023 to July 31, 2023

 

 

 

 

$

 

 

 

 

 

$

 

August 1, 2023 to August 31, 2023

 

 

 

 

$

 

 

 

 

 

$

 

September 1, 2023 to September 30, 2023

 

 

195,062

 

 

$

56.91

 

 

 

195,062

 

 

$

98,906,454

 

Period

 

(a)
Total Number
of Shares
Purchased

 

 

(b)
Average Price
Paid Per Share

 

 

(c)
Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs

 

 

(d)
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs

 

January 1, 2024 to January 31, 2024

 

 

 

 

$

 

 

 

 

 

$

37,490,518

 

February 1, 2024 to February 29, 2024

 

 

 

 

$

 

 

 

 

 

$

37,490,518

 

March 1, 2024 to March 31, 2024

 

 

 

 

$

 

 

 

 

 

$

37,490,518

 

 

(1)

In December 2020,For further information regarding the BoardASR Agreement and the final settlement date that is scheduled to occur in the second quarter of Directors authorized a stock repurchase program (the “2020 Stock Repurchase Program”). Under2024, see Note 12, "Equity," to the 2020 Stock Repurchase Program,notes to the Company is authorized to repurchase up to $150.0 million of its issued and outstanding common stock over a three-year period, expiring December 15, 2023. The authorization ofconsolidated condensed financial statements included in this stock repurchase program does not require that the Company repurchase any specific dollar value or number of shares and may be modified, extended or terminated by the Company’s Board of Directors at any time.Report.

ITEM 5. OTHER INFORMATION

Trading Plans – Directors and Section 16 Officers

During the three months ended September 30, 2023,March 31, 2024, none of the Company's directors or Section 16 officers adopted or terminated (i) any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or (ii) any non-Rule 10b5-1 trading arrangement.

 

4136


ITEM 6. EXHIBITS

Exhibits to this Report are as follows:

 

 

 

 

 

Incorporated by Reference

Exhibit

Number

 

Exhibit Description

Filed

/Furnished

Herewith

Form

 

Period

Ending

 

Exhibit /
Appendix Number

 

Filing Date

  3.1

 

Second Amended and Restated Articles of Incorporation of Gentherm Incorporated

 

 

 

8-K

 

 

 

3.2

 

3/5/18

  3.2

 

Amended and Restated Bylaws of Gentherm Incorporated

 

 

 

8-K

 

 

 

3.1

 

5/26/16

  10.1*

 

Amendment to Offer Letter between Gentherm Incorporated and Helen Xu, dated as of August 21, 2023

 

X

 

 

 

 

 

 

 

 

  31.1

Section 302 Certification – CEO

 

X

 

 

 

 

 

 

 

 

  31.2

Section 302 Certification – CFO

 

X

 

 

 

 

 

 

 

 

  32.1**

Section 906 Certification – CEO

 

X

 

 

 

 

 

 

 

 

  32.2**

Section 906 Certification – CFO

 

X

 

 

 

 

 

 

 

 

101.INS

Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

X

 

 

 

 

 

 

 

 

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

 

X

 

 

 

 

 

 

 

 

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

 

X

 

 

 

 

 

 

 

 

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

 

X

 

 

 

 

 

 

 

 

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

 

X

 

 

 

 

 

 

 

 

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

 

X

 

 

 

 

 

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document contained in Exhibit 101)

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

Incorporated by Reference

Exhibit

Number

 

Exhibit Description

Filed

/Furnished

Herewith

Form

 

Period

Ending

 

Exhibit /
Appendix Number

 

Filing Date

  3.1

 

Second Amended and Restated Articles of Incorporation of Gentherm Incorporated

 

 

 

8-K

 

 

 

3.2

 

3/5/18

  3.2

 

Amended and Restated Bylaws of Gentherm Incorporated

 

 

 

8-K

 

 

 

3.1

 

5/26/16

  10.1*

 

Offer Letter between Gentherm Incorporated and Vishnu Sundaram, dated as of August 31, 2023

 

X

 

 

 

 

 

 

 

 

  10.2*

 

Amendment to Offer Letter between Gentherm Incorporated and Vishnu Sundaram, dated as of February 5, 2024

 

X

 

 

 

 

 

 

 

 

  31.1

Section 302 Certification – CEO

 

X

 

 

 

 

 

 

 

 

  31.2

Section 302 Certification – CFO

 

X

 

 

 

 

 

 

 

 

  32.1**

Section 906 Certification – CEO

 

X

 

 

 

 

 

 

 

 

  32.2**

Section 906 Certification – CFO

 

X

 

 

 

 

 

 

 

 

101.INS

Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

 

X

 

 

 

 

 

 

 

 

101.SCH

Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents

 

X

 

 

 

 

 

 

 

 

104

 

Cover Page Interactive Date File – the cover page XBRL tags are embedded within the Inline XBRL document

 

X

 

 

 

 

 

 

 

 

* Indicates management contract or compensatory plan.

** Documents are furnished not filed.

4237


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Gentherm Incorporated

 

 

 

    /s/ PHILLIP EYLER

 

Phillip Eyler

 

President and Chief Executive Officer

 

(Principal Executive Officer)

 

 

 

Date: October 26, 2023April 30, 2024

 

 

    /s/ MATTEO ANVERSA

 

Matteo Anversa

 

Executive Vice President, Chief Financial Officer and Treasurer

 

(Principal Financial Officer)

 

 

 

Date: October 26, 2023April 30, 2024

 

4338