UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to .
Commission File Number:
(Exact name of registrant as specified in its charter)
|
||
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
||
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
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.
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).
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.
☒ |
|
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
At October 20, 2023, there were
GENTHERM INCORPORATED
TABLE OF CONTENTS
|
|||||
|
|
|
|||
|
|
3 |
|||
|
Item 1. |
|
|
|
3 |
|
|
|
|
|
3 |
|
|
|
|
|
4 |
|
|
|
Consolidated Condensed Statements of Comprehensive (Loss) Income |
|
5 |
|
|
|
|
|
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 |
|
25 |
|
Item 3. |
|
|
|
38 |
|
Item 4. |
|
|
|
40 |
|
|
41 |
|||
|
Item 1. |
|
|
41 |
|
|
Item 1A. |
|
|
41 |
|
|
Item 2. |
|
|
41 |
|
|
Item 5. |
|
|
41 |
|
|
Item 6. |
|
|
42 |
|
|
|
43 |
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 |
|
||
ASSETS |
|
|
|
|
|
|
||
Current Assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Accounts receivable, net |
|
|
|
|
|
|
||
Inventory: |
|
|
|
|
|
|
||
Raw materials |
|
|
|
|
|
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Inventory, net |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Other intangible assets, net |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
|
|
|
|
|
||
Deferred income tax assets |
|
|
|
|
|
|
||
Other non-current assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
||
Current Liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Current lease liabilities |
|
|
|
|
|
|
||
Current maturities of long-term debt |
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Long-term debt, less current maturities |
|
|
|
|
|
|
||
Non-current lease liabilities |
|
|
|
|
|
|
||
Pension benefit obligation |
|
|
|
|
|
|
||
Other non-current liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
$ |
|
|
$ |
|
||
Shareholders’ equity: |
|
|
|
|
|
|
||
Common Stock: |
|
|
|
|
|
|
||
par value; |
|
|
|
|
|
|
||
Paid-in capital |
|
|
|
|
|
|
||
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Accumulated earnings |
|
|
|
|
|
|
||
Total shareholders’ equity |
|
|
|
|
|
|
||
Total liabilities and shareholders’ equity |
|
$ |
|
|
$ |
|
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, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Product revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
of sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross margin |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net research and development expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Impairment of goodwill |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Restructuring expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest (expense) income, net |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Foreign currency gain (loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings before income tax |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Basic earnings per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted earnings per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Weighted average number of shares – basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares – diluted |
|
|
|
|
|
|
|
|
|
|
|
|
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, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pension benefit obligations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency translation adjustments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Unrealized (loss) gain on foreign currency derivative securities, net of tax |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Unrealized loss on commodity derivative securities, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other comprehensive loss, net of tax |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Comprehensive (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
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, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Operating Activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
( |
) |
|
|
( |
) |
Stock based compensation |
|
|
|
|
|
|
||
Loss on disposition of property and equipment |
|
|
|
|
|
|
||
Provisions for inventory |
|
|
|
|
|
|
||
Impairment of goodwill |
|
|
|
|
|
— |
|
|
Other |
|
|
|
|
|
|
||
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
( |
) |
|
|
( |
) |
Inventory |
|
|
|
|
|
( |
) |
|
Other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
|
|
|
|
||
Other liabilities |
|
|
( |
) |
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Investing Activities: |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from the sale of property and equipment |
|
|
|
|
|
|
||
Acquisition of businesses, net of cash acquired |
|
|
— |
|
|
|
( |
) |
Proceeds from deferred purchase price of factored receivables |
|
|
|
|
|
|
||
Cost of technology investments |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Financing Activities: |
|
|
|
|
|
|
||
Borrowings on debt |
|
|
— |
|
|
|
|
|
Repayments of debt |
|
|
( |
) |
|
|
( |
) |
Proceeds from the exercise of Common Stock options |
|
|
|
|
|
|
||
Taxes withheld and paid on employees' share-based payment awards |
|
|
( |
) |
|
|
( |
) |
Cash paid for the repurchase of Common Stock |
|
|
( |
) |
|
|
— |
|
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
Foreign currency effect |
|
|
( |
) |
|
|
( |
) |
Net cash increase (decrease) in cash and cash equivalents |
|
|
|
|
|
( |
) |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
||
Cash paid for taxes |
|
$ |
|
|
$ |
|
||
Cash paid for interest |
|
|
|
|
|
|
||
Non-Cash Investing Activities: |
|
|
|
|
|
|
||
Period-end balance of accounts payable for property and equipment |
|
$ |
|
|
$ |
|
||
Deferred purchase price of receivables factored in the period |
|
$ |
|
|
$ |
|
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, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Stock compensation, net |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock repurchase |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock compensation, net |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Stock repurchase |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at June 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock compensation, net |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Stock repurchase |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at September 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
||||||
|
|
Common Stock |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Accumulated |
|
|
|
|
|||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Loss |
|
|
Earnings |
|
|
Total |
|
||||||
Balance at December 31, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Stock compensation, net |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
||
Balance at March 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock compensation, net |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Balance at June 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock compensation, net |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance at September 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
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 and medical industries. 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, valve 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.
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. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period 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 outside 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.
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 entities 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
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. The Carrar investment was $
8
Revenue Recognition
The Company has no material contract assets or contract liabilities as of September 30, 2023.
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
Note 2 – Acquisitions
Alfmeier Präzision SE
On
The total consideration transferred was $
The acquisition was accounted for as a business combination.
|
|
Initial Allocation |
|
|
Measurement Period Adjustments |
|
|
Final Allocation |
|
|||
Purchase price, cash consideration, net of cash acquired |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
— |
|
||
Accounts receivable |
|
|
|
|
|
( |
) |
|
|
|
||
Inventory |
|
|
|
|
|
|
|
|
|
|||
Prepaid expenses and other assets |
|
|
|
|
|
( |
) |
|
|
|
||
Operating lease right-of-use assets |
|
|
|
|
|
— |
|
|
|
|
||
Property and equipment |
|
|
|
|
|
|
|
|
|
|||
Other intangible assets |
|
|
|
|
|
|
|
|
|
|||
Goodwill |
|
|
|
|
|
( |
) |
|
|
|
||
Assumed liabilities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Deferred tax liabilities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net assets acquired |
|
$ |
|
|
$ |
|
|
$ |
|
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 |
|
$ |
|
|
|
|
||
Technology |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
|
|
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 is not expected to be deductible for tax purposes.
9
|
|
Three Months Ended September 30, 2022 |
|
|
Nine Months Ended September 30, 2022 |
|
||
Product revenues |
|
$ |
|
|
$ |
|
||
Net income |
|
|
|
|
|
|
Jiangmen Dacheng Medical Equipment Co. Ltd
On
The total consideration transferred was $
The acquisition was accounted for as a business combination.
|
|
Initial Allocation |
|
|
Measurement Period Adjustments |
|
|
Final Allocation |
|
|||
Purchase price, cash consideration, net of cash acquired |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
— |
|
||
Accounts receivable |
|
|
|
|
|
( |
) |
|
|
|
||
Inventory |
|
|
|
|
|
( |
) |
|
|
|
||
Prepaid expenses and other assets |
|
|
|
|
|
|
|
|
|
|||
Operating lease right-of-use assets |
|
|
|
|
|
— |
|
|
|
|
||
Property and equipment |
|
|
|
|
|
— |
|
|
|
|
||
Other intangible assets |
|
|
|
|
|
|
|
|
|
|||
Goodwill |
|
|
|
|
|
( |
) |
|
|
|
||
Assumed liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Deferred tax liabilities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net assets acquired |
|
$ |
|
|
$ |
— |
|
|
$ |
|
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 |
|
$ |
|
|
|
|
||
Technology |
|
|
|
|
|
|
||
Indefinite-lived: |
|
|
|
|
|
|
||
Tradenames |
|
|
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
|
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, may 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 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 $
During the three and nine months ended September 30, 2023, the Company did
Other Restructuring Activities
The Company has undertaken several discrete restructuring actions. During the three and nine months ended September 30, 2023, the Company recognized $
Restructuring Expenses By Reporting Segment
The following table summarizes restructuring expense for the three and nine months ended September 30, 2023 and 2022 by reporting segment:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Automotive |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Medical |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Corporate |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
11
Restructuring Liability
Restructuring liabilities are classified as other 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 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Additions, charged to restructuring expenses |
|
|
|
|
|
|
|
|
|
|||
Cash payments |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Currency translation |
|
|
|
|
|
— |
|
|
|
|
||
Balance at March 31, 2023 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Additions, charged to restructuring expenses |
|
|
|
|
|
|
|
|
|
|||
Cash payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Currency translation |
|
|
|
|
|
— |
|
|
|
|
||
Balance at June 30, 2023 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Additions, charged to restructuring expenses |
|
|
|
|
|
— |
|
|
|
|
||
Cash payments |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Currency translation |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at September 30, 2023 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
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 $
During the three and nine months ended September 30, 2023, the Company recorded non-cash impairment charges of $
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 $
12
Note 4 – Details of Certain Balance Sheet Components
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
Other current assets: |
|
|
|
|
|
|
||
Billable tooling |
|
$ |
|
|
$ |
|
||
Income tax and other tax receivable |
|
|
|
|
|
|
||
Notes receivable |
|
|
|
|
|
|
||
Short-term derivative financial instruments |
|
|
|
|
|
|
||
Prepaid expenses |
|
|
|
|
|
|
||
Receivables due from factor |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total other current assets |
|
$ |
|
|
$ |
|
||
Other current liabilities: |
|
|
|
|
|
|
||
Accrued employee liabilities |
|
$ |
|
|
$ |
|
||
Liabilities from discounts and rebates |
|
|
|
|
|
|
||
Income tax and other taxes payable |
|
|
|
|
|
|
||
Accrued warranty |
|
|
|
|
|
|
||
Restructuring |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total other current liabilities |
|
$ |
|
|
$ |
|
Note 5 – Goodwill and Other Intangibles
Goodwill
Changes in the carrying amount of goodwill, by reportable segment, for the nine months ended September 30, 2023 was as follows:
|
|
Automotive |
|
|
Medical |
|
|
Total |
|
|||
Balance as of December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Impairment of goodwill |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Currency translation and other |
|
|
|
|
|
( |
) |
|
|
|
||
Balance as of September 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
Other Intangible Assets
Other intangible assets and accumulated amortization balances as of September 30, 2023 and December 31, 2022 were as follows:
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net Carrying |
|
|
Gross |
|
|
Accumulated |
|
|
Net Carrying |
|
||||||
Definite-lived: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer relationships |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Technology |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Product development costs |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Software development |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Indefinite-lived: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tradenames |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
As of December 31, 2022, the estimated fair value of the Medical reporting unit exceeded its carrying value by less than
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.
Note 6 – Debt
The following table summarizes the Company’s debt as of September 30, 2023 and December 31, 2022:
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Interest |
|
|
Principal |
|
|
Interest |
|
|
Principal |
|
||||
Credit Agreement: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving Credit Facility (U.S. Dollar denominations) |
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
||||
Other loans |
|
|
% |
|
|
|
|
|
|
|
|
|||||
Finance leases |
|
|
% |
|
|
|
|
|
% |
|
|
|
||||
Total debt |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current maturities |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Long-term debt, less current maturities |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
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 $
Subject to specified conditions, Gentherm can increase the Revolving Credit Facility or incur secured term loans in an aggregate amount of up to $
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
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, the Company was in compliance 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
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
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, $
In connection with the Second Amended and Restated Credit Agreement, the Company incurred debt issuance costs of $
The scheduled principal maturities of our debt as of September 30, 2023 were as follows:
|
|
U.S. |
|
|
Other Debt |
|
|
Total |
|
|||
2023 |
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
2024 |
|
|
— |
|
|
|
|
|
|
|
||
2025 |
|
|
— |
|
|
|
|
|
|
|
||
2026 |
|
|
— |
|
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
— |
|
|
|
|
||
2028 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
|
|
$ |
|
|
$ |
|
Note 7 – Commitments and Contingencies
Legal and other contingencies
The Company may be subject to various legal actions and claims in the ordinary course of its business, including 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 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 that the Company’s products fail to perform as expected or result in alleged bodily injury or property damage, our products may subject us to warranty claims and product liability. 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.
The following is a reconciliation of the changes in accrued warranty costs:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Balance at the beginning of the period |
|
$ |
|
|
$ |
|
||
Warranty opening balance from acquired entities |
|
|
— |
|
|
|
|
|
Warranty claims paid |
|
|
( |
) |
|
|
( |
) |
Warranty expense for products shipped during the current period |
|
|
|
|
|
|
||
Adjustments to warranty estimates from prior periods |
|
|
( |
) |
|
|
( |
) |
Adjustments due to currency translation |
|
|
( |
) |
|
|
( |
) |
Balance at the end of the period |
|
$ |
|
|
$ |
|
Other matters
Purchase commitments for materials, supplies, services and capital expenditures, as part of the normal course of business, are generally consistent from year to year. In addition, due to supply shortages of semiconductors, the Company has entered into agreements with various suppliers to reserve the right to purchase certain semiconductor chips over rolling periods of
Note 8 – Earnings Per Share
Basic earnings per share are computed by dividing net income by the weighted average number of shares of 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, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic weighted average shares of Common Stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of stock options, restricted stock awards and restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted weighted average shares of Common Stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted earnings per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
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 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 $
17
Information related to the recurring fair value measurement of derivative instruments in our consolidated condensed balance sheet as of September 30, 2023 is as follows:
|
|
|
|
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
|
|
|
||||||||
|
|
Fair Value |
|
Notional Amount |
|
|
Balance Sheet |
|
Fair |
|
|
Balance Sheet |
|
Fair |
|
|
Net Asset/ |
|
||||
Derivatives Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency derivatives |
|
Level 2 |
|
$ |
|
|
Other current assets |
|
$ |
|
|
Other current liabilities |
|
$ |
— |
|
|
$ |
|
|||
Derivatives Not Designated as Hedging Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate contracts |
|
Level 2 |
|
$ |
|
|
Other current assets |
|
$ |
|
|
Other current liabilities |
|
$ |
— |
|
|
$ |
|
Information related to the recurring fair value measurement of derivative instruments in our consolidated condensed balance sheet as of December 31, 2022 is as follows:
|
|
|
|
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
|
|
|
||||||||
|
|
Fair Value |
|
Notional Amount |
|
|
Balance Sheet |
|
Fair |
|
|
Balance Sheet |
|
Fair |
|
|
Net Asset/ |
|
||||
Derivatives Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency derivatives |
|
Level 2 |
|
$ |
|
|
Other current assets |
|
$ |
|
|
Other current liabilities |
|
$ |
— |
|
|
$ |
|
|||
Derivatives Not Designated as Hedging Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate contracts |
|
Level 2 |
|
$ |
|
|
Other current assets |
|
$ |
|
|
Other current liabilities |
|
$ |
— |
|
|
$ |
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
Location (Income/(Loss)) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Derivatives Designated as Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency derivatives |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commodity derivatives |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives Not Designated as Hedging Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency derivatives |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate contracts |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The Company did
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 accounts 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 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, 2023 and December 31, 2022 were as follows:
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
Receivables factored and outstanding |
|
$ |
|
|
$ |
|
||
Amount available under the credit limit |
|
|
|
|
|
|
||
Collective factoring limit |
|
$ |
|
|
$ |
|
Trade receivables sold and factoring fees incurred during the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022(a) |
|
|
2023 |
|
|
2022(a) |
|
||||
Trade receivables sold |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Factoring fees incurred |
|
|
|
|
|
|
|
|
|
|
|
|
Note 10 – 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) and pension plan assets, the Company had
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. 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). 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, and December 31, 2022, there were
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, and December 31, 2022, 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 11 – 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 is authorized to repurchase up to $
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, the Company repurchased $
Note 12 – 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, 2023 and 2022 were as follows:
|
|
Defined |
|
|
Foreign |
|
|
Foreign |
|
|
Commodity Hedge |
|
|
Total |
|
|||||
Balance at June 30, 2023 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
Other comprehensive (loss) income before reclassifications |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
Income tax effect of other comprehensive (loss) income before reclassifications |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Amounts reclassified from accumulated other comprehensive loss into net income |
|
|
|
|
|
— |
|
|
|
( |
) |
a |
|
— |
|
a |
|
( |
) |
|
Income taxes reclassified into net income |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Net current period other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Balance at September 30, 2023 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
20
|
|
Defined |
|
|
Foreign |
|
|
Foreign |
|
|
Commodity Hedge |
|
|
Total |
|
|||||
Balance at June 30, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
Other comprehensive (loss) income before reclassifications |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
Income tax effect of other comprehensive (loss) income before reclassifications |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Amounts reclassified from accumulated other comprehensive loss into net income |
|
|
|
|
|
— |
|
|
|
( |
) |
a |
|
— |
|
a |
|
( |
) |
|
Income taxes reclassified into net income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Net current period other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
||
Balance at September 30, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
|
Defined |
|
|
Foreign |
|
|
Foreign |
|
|
Commodity Hedge |
|
|
Total |
|
|||||
Balance at December 31, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
Other comprehensive (loss) income before reclassifications |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
Income tax effect of other comprehensive (loss) income before reclassifications |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Amounts reclassified from accumulated other comprehensive loss into net income |
|
|
|
|
|
— |
|
|
|
( |
) |
a |
|
— |
|
a |
|
( |
) |
|
Income taxes reclassified into net income |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Net current period other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
||
Balance at September 30, 2023 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
|
Defined |
|
|
Foreign |
|
|
Foreign |
|
|
Commodity Hedge |
|
|
Total |
|
|||||
Balance at December 31, 2021 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||
Other comprehensive (loss) income before reclassifications |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Income tax effect of other comprehensive (loss) income before reclassifications |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amounts reclassified from accumulated other comprehensive loss into net income |
|
|
|
|
|
— |
|
|
|
( |
) |
a |
|
( |
) |
a |
|
( |
) |
|
Income taxes reclassified into net income |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Net current period other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Balance at September 30, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
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, 2023 to be reclassified into earnings during the next twelve months. See Note 9 for additional information about derivative financial instruments and the effects from reclassification to Net income.
21
Note 13 – 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, 2023 and 2022, is shown below:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Income tax expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Earnings before income tax |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Effective tax rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
Income tax expense was $
Income tax expense was $
Income tax expense was $
Income tax expense was $
22
Note 14 – 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:
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, 2023 and 2022.
Three Months Ended September 30, |
|
Automotive |
|
|
Medical |
|
|
Corporate |
|
|
Total |
|
||||
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
revenues |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Operating income (loss) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
$ |
|
||
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
revenues |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Operating income (loss) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nine Months Ended September 30, |
|
Automotive |
|
|
Medical |
|
|
Corporate |
|
|
Total |
|
||||
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
revenues |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Operating income (loss) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
$ |
|
||
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
revenues |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Operating income (loss) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
$ |
|
Automotive and Medical segment Product revenues by product category for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Climate Control Seat |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Seat Heaters |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Steering Wheel Heaters |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Lumbar and Massage Comfort Solutions (a) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Valve Systems (a) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Automotive Cables |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Battery Performance Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Electronics |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Automotive |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Subtotal Automotive segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Medical segment (b) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Company |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
23
Total information by geographic area for the three and nine months ended September 30, 2023 and 2022 is as follows (based on shipment destination):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
China |
|
|
|
|
|
|
|
|
|
|
|
|
||||
South Korea |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Germany |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Czech Republic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Japan |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Romania |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Slovakia |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Finland |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Non-U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Company |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
24
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; long-term consumer and technological trends in the Automotive industry and our related market opportunity for our existing and new products and technologies; the competitive landscape; the 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, 2022 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, our 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.
Overview
Gentherm Incorporated is the global market leader of innovative thermal management and pneumatic comfort technologies for the automotive and medical industries. 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, valve systems, and other electronic devices. Our automotive products can be found on vehicles manufactured by nearly all the major 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 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 could adversely impact our profitability. In addition, we may 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, which is evidenced by increasing adoption rates for comfort products. We believe that products we are developing, such as ClimateSense® 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.
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. 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 direct and indirect impacts on our markets, 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.”
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 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, we launched Fit-for-Growth 2.0 to execute our long-term strategy that includes a profitability improvement initiative with a plan to achieve high teens Adjusted EBITDA margin rate by 2026. Fit-for-Growth 2.0 is expected to deliver cost reductions through manufacturing productivity, manufacturing footprint optimization, value engineering, sourcing excellence 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.
Acquisitions
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 million and $18 million, of which between $13 million and $17 million are expected to be cash expenditures. The actions under the 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 Plan may differ materially from the Company’s current expectations and estimates.
See Note 3, “Restructuring and Impairments” to the consolidated condensed financial statements included in this Report for additional information.
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 release), global light vehicle production in the three and nine months ended September 30, 2023 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, are shown below (in millions of units):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
||||||
North America |
|
|
4.0 |
|
|
|
3.6 |
|
|
|
9.3 |
% |
|
|
12.0 |
|
|
|
10.7 |
|
|
|
11.3 |
% |
Europe |
|
|
3.9 |
|
|
|
3.6 |
|
|
|
6.3 |
% |
|
|
13.1 |
|
|
|
11.5 |
|
|
|
14.0 |
% |
Greater China |
|
|
7.4 |
|
|
|
7.4 |
|
|
|
(0.3 |
)% |
|
|
20.0 |
|
|
|
19.1 |
|
|
|
4.8 |
% |
Japan / South Korea |
|
|
3.1 |
|
|
|
2.8 |
|
|
|
8.8 |
% |
|
|
9.4 |
|
|
|
8.0 |
|
|
|
16.8 |
% |
Total light vehicle production volume in key markets |
|
|
18.3 |
|
|
|
17.5 |
|
|
|
4.6 |
% |
|
|
54.5 |
|
|
|
49.4 |
|
|
|
10.3 |
% |
The S&P Global Mobility (October 2023 release) forecasted light vehicle production volume in the Company’s key markets for full year 2023 to increase to 73.5 million units, an 8.6% increase from full year 2022 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 may 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.
New Business Awards
We believe that innovation is an important element to gaining market acceptance of our products and strengthening our market position. During the third quarter of 2023, 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. 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 new business awards are an indicator of future revenue. New business awards are not projections of revenue or future business as of September 30, 2023, the date of this Report or any other date. Customer projections regularly change over time and we do not update our calculation of any new business award after the date initially communicated. Automotive new business awards in the third quarter 2023 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.
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 over a three-year period, expiring December 15, 2023. 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, the Company repurchased $11.1 million and $31.1 million, respectively, of shares under the 2020 Stock Repurchase Program with an average price paid per share of $56.91 and $58.54, respectively. The 2020 Stock Repurchase Program had $98.9 million repurchase authorization remaining as of September 30, 2023.
28
Reportable Segments
The Company has two reportable segments for financial reporting purposes: Automotive and Medical.
See Note 14, “Segment Reporting” to the consolidated condensed financial statements included in this Report for a description of our reportable segments as well as their proportional contribution to the Company’s reported product revenues and operating income. The financial information used by our chief operating decision maker to assess operating performance and allocate resources is based on these reportable segments.
Consolidated Results of Operations
The results of operations for the three and nine months ended September 30, 2023 and 2022, in thousands, were as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Favorable / |
|
|
2023 |
|
|
2022 |
|
|
Favorable / |
|
||||||
Product revenues |
|
$ |
366,195 |
|
|
$ |
332,962 |
|
|
$ |
33,233 |
|
|
$ |
1,102,143 |
|
|
$ |
861,334 |
|
|
$ |
240,809 |
|
Cost of sales |
|
|
279,985 |
|
|
|
252,610 |
|
|
|
(27,375 |
) |
|
|
846,815 |
|
|
|
657,492 |
|
|
|
(189,323 |
) |
Gross margin |
|
|
86,210 |
|
|
|
80,352 |
|
|
|
5,858 |
|
|
|
255,328 |
|
|
|
203,842 |
|
|
|
51,486 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net research and development expenses |
|
|
23,150 |
|
|
|
22,666 |
|
|
|
(484 |
) |
|
|
72,991 |
|
|
|
62,425 |
|
|
|
(10,566 |
) |
Selling, general and administrative expenses |
|
|
38,220 |
|
|
|
34,859 |
|
|
|
(3,361 |
) |
|
|
113,680 |
|
|
|
96,109 |
|
|
|
(17,571 |
) |
Impairment of goodwill |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19,509 |
|
|
|
— |
|
|
|
(19,509 |
) |
Restructuring expenses |
|
|
1,099 |
|
|
|
6 |
|
|
|
(1,093 |
) |
|
|
3,412 |
|
|
|
561 |
|
|
|
(2,851 |
) |
Total operating expenses |
|
|
62,469 |
|
|
|
57,531 |
|
|
|
(4,938 |
) |
|
|
209,592 |
|
|
|
159,095 |
|
|
|
(50,497 |
) |
Operating income |
|
|
23,741 |
|
|
|
22,821 |
|
|
|
920 |
|
|
|
45,736 |
|
|
|
44,747 |
|
|
|
989 |
|
Interest (expense) income, net |
|
|
(3,368 |
) |
|
|
714 |
|
|
|
(4,082 |
) |
|
|
(9,444 |
) |
|
|
(1,285 |
) |
|
|
(8,159 |
) |
Foreign currency gain (loss) |
|
|
2,107 |
|
|
|
(8,285 |
) |
|
|
10,392 |
|
|
|
384 |
|
|
|
(1,516 |
) |
|
|
1,900 |
|
Other income |
|
|
272 |
|
|
|
361 |
|
|
|
(89 |
) |
|
|
1,058 |
|
|
|
698 |
|
|
|
360 |
|
Earnings before income tax |
|
|
22,752 |
|
|
|
15,611 |
|
|
|
7,141 |
|
|
|
37,734 |
|
|
|
42,644 |
|
|
|
(4,910 |
) |
Income tax expense |
|
|
6,908 |
|
|
|
5,784 |
|
|
|
(1,124 |
) |
|
|
15,478 |
|
|
|
13,998 |
|
|
|
(1,480 |
) |
Net income |
|
$ |
15,844 |
|
|
$ |
9,827 |
|
|
$ |
6,017 |
|
|
$ |
22,256 |
|
|
$ |
28,646 |
|
|
$ |
(6,390 |
) |
Product revenues by product category, in thousands, for the three and nine months ended September 30, 2023 and 2022, were as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||||||
Climate Control Seat |
|
$ |
124,905 |
|
|
$ |
112,059 |
|
|
$ |
12,846 |
|
|
|
11.5 |
% |
|
$ |
360,868 |
|
|
$ |
311,281 |
|
|
$ |
49,587 |
|
|
|
15.9 |
% |
Seat Heaters |
|
|
77,238 |
|
|
|
75,568 |
|
|
|
1,670 |
|
|
|
2.2 |
% |
|
|
231,132 |
|
|
|
210,367 |
|
|
|
20,765 |
|
|
|
9.9 |
% |
Steering Wheel Heaters |
|
|
39,861 |
|
|
|
31,482 |
|
|
|
8,379 |
|
|
|
26.6 |
% |
|
|
115,166 |
|
|
|
89,169 |
|
|
|
25,997 |
|
|
|
29.2 |
% |
Lumbar and Massage Comfort Solutions |
|
|
33,260 |
|
|
|
22,740 |
|
|
|
10,520 |
|
|
|
46.3 |
% |
|
|
109,602 |
|
|
|
22,740 |
|
|
|
86,862 |
|
|
|
382.0 |
% |
Valve Systems |
|
|
27,830 |
|
|
|
18,542 |
|
|
|
9,288 |
|
|
|
50.1 |
% |
|
|
82,516 |
|
|
|
18,542 |
|
|
|
63,974 |
|
|
|
345.0 |
% |
Automotive Cables |
|
|
19,668 |
|
|
|
18,338 |
|
|
|
1,330 |
|
|
|
7.3 |
% |
|
|
60,131 |
|
|
|
59,662 |
|
|
|
469 |
|
|
|
0.8 |
% |
Battery Performance Solutions |
|
|
17,242 |
|
|
|
20,331 |
|
|
|
(3,089 |
) |
|
|
(15.2 |
)% |
|
|
57,138 |
|
|
|
55,395 |
|
|
|
1,743 |
|
|
|
3.1 |
% |
Electronics |
|
|
10,163 |
|
|
|
12,083 |
|
|
|
(1,920 |
) |
|
|
(15.9 |
)% |
|
|
30,456 |
|
|
|
33,190 |
|
|
|
(2,734 |
) |
|
|
(8.2 |
)% |
Other Automotive |
|
|
4,615 |
|
|
|
11,412 |
|
|
|
(6,797 |
) |
|
|
(59.6 |
)% |
|
|
21,998 |
|
|
|
29,224 |
|
|
|
(7,226 |
) |
|
|
(24.7 |
)% |
Subtotal Automotive segment |
|
|
354,782 |
|
|
|
322,555 |
|
|
|
32,227 |
|
|
|
10.0 |
% |
|
|
1,069,007 |
|
|
|
829,570 |
|
|
|
239,437 |
|
|
|
28.9 |
% |
Medical segment |
|
|
11,413 |
|
|
|
10,407 |
|
|
|
1,006 |
|
|
|
9.7 |
% |
|
|
33,136 |
|
|
|
31,764 |
|
|
|
1,372 |
|
|
|
4.3 |
% |
Total Company |
|
$ |
366,195 |
|
|
$ |
332,962 |
|
|
$ |
33,233 |
|
|
|
10.0 |
% |
|
$ |
1,102,143 |
|
|
$ |
861,334 |
|
|
$ |
240,809 |
|
|
|
28.0 |
% |
Product Revenues
Below is a summary of our product revenues, in thousands, for the three months ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|
|
Variance Due To: |
|
||||||||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Favorable / |
|
|
|
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
Product revenues for the three months ended September 30, 2023 increased 10.0% as compared to the three 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 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 / |
|
|
|
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, the Korean Won, and the Japanese Yen.
Cost of Sales
Below is a summary of our cost of sales and gross margin, in thousands, for the three months ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|
|
Variance Due To: |
|
||||||||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Favorable / |
|
|
|
Automotive Volume |
|
|
Operational |
|
|
FX |
|
|
Acquisitions and Other |
|
|
Total |
|
||||||||
Cost of sales |
|
$ |
279,985 |
|
|
$ |
252,610 |
|
|
$ |
(27,375 |
) |
|
|
$ |
(11,981 |
) |
|
$ |
14,320 |
|
|
$ |
(6,508 |
) |
|
$ |
(23,206 |
) |
|
$ |
(27,375 |
) |
Gross margin |
|
$ |
86,210 |
|
|
$ |
80,352 |
|
|
$ |
5,858 |
|
|
|
$ |
7,640 |
|
|
$ |
10,218 |
|
|
$ |
(1,683 |
) |
|
$ |
(10,317 |
) |
|
$ |
5,858 |
|
Gross margin - Percentage of product revenues |
|
|
23.5 |
% |
|
|
24.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales for the three months ended September 30, 2023 increased 10.8% as compared to the three 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, a non-automotive electronics inventory charge 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 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 / |
|
|
|
Automotive Volume |
|
|
Operational |
|
|
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, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
Favorable / |
|
|||
Research and development expenses |
|
$ |
32,298 |
|
|
$ |
26,841 |
|
|
$ |
(5,457 |
) |
Reimbursed research and development expenses |
|
|
(9,148 |
) |
|
|
(4,175 |
) |
|
|
4,973 |
|
Net research and development expenses |
|
$ |
23,150 |
|
|
$ |
22,666 |
|
|
$ |
(484 |
) |
Percentage of product revenues |
|
|
6.3 |
% |
|
|
6.8 |
% |
|
|
|
Net research and development expenses for the three months ended September 30, 2023 increased 2.1% as compared to the three 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, partially offset by higher customer reimbursements, excluding those from Alfmeier.
Below is a summary of our net research and development expenses, in thousands, for the nine months ended September 30, 2023 and 2022:
|
|
Nine Months Ended September 30, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
Favorable / |
|
|||
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 compared 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.
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, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
Favorable / |
|
|||
Selling, general and administrative expenses |
|
$ |
38,220 |
|
|
$ |
34,859 |
|
|
$ |
(3,361 |
) |
Percentage of product revenues |
|
|
10.4 |
% |
|
|
10.5 |
% |
|
|
|
Selling, general and administrative expenses for the three months ended September 30, 2023 increased 9.6% as compared to the three 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.
Below is a summary of our selling, general and administrative expenses, in thousands, for the nine months ended September 30, 2023 and 2022:
|
|
Nine Months Ended September 30, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
Favorable / |
|
|||
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 / |
|
|||
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.
Restructuring Expenses
Below is a summary of our restructuring expenses, in thousands, for the three months ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
Favorable / |
|
|||
Restructuring expenses |
|
$ |
1,099 |
|
|
$ |
6 |
|
|
$ |
(1,093 |
) |
During the three months ended September 30, 2023, the Company recognized expenses of $1.1 million for employee separation costs and $0 million for other costs. These restructuring expenses primarily relate to discrete restructuring actions focused on the reduction of global overhead expenses.
During the three months ended September 30, 2022, the Company recognized expenses of 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 / |
|
|||
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, 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 / |
|
|||
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 nine months ended September 30, 2023 and 2022:
|
|
Nine Months Ended September 30, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
Favorable / |
|
|||
Interest expense, net |
|
$ |
(9,444 |
) |
|
$ |
(1,285 |
) |
|
$ |
(8,159 |
) |
Interest expense, net for the nine months ended September 30, 2023 increased 634.9% as compared to the nine 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 nine months ended September 30, 2023. See Note 6, "Debt," to the consolidated condensed financial statements included in this Report for additional information.
Foreign Currency Gain (Loss)
Below is a summary of our foreign currency gain (loss), in thousands, for the three months ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
Favorable / |
|
|||
Foreign currency gain (loss) |
|
$ |
2,107 |
|
|
$ |
(8,285 |
) |
|
$ |
10,392 |
|
Foreign currency gain for the three months ended September 30, 2023 included net realized foreign currency gain of $1.2 million and net unrealized foreign currency gain of $0.9 million.
Foreign currency loss for the three months ended September 30, 2022 primarily included net realized foreign currency loss of $3.0 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 / |
|
|||
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 million.
Other Income
Below is a summary of our other income, in thousands, for the three months ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
Favorable / |
|
|||
Other income |
|
$ |
272 |
|
|
$ |
361 |
|
|
$ |
(89 |
) |
Other income for the three months ended September 30, 2023 decreased 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 / |
|
|||
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. The increase in Other income is due to an increase in miscellaneous income.
Income Tax Expense
Below is a summary of our income tax expense, in thousands, for the three months ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
Favorable / |
|
|||
Income tax expense |
|
$ |
6,908 |
|
|
$ |
5,784 |
|
|
$ |
(1,124 |
) |
Income tax expense was $6.9 million for the three months ended September 30, 2023, on earnings before income tax of $22.8 million, representing an effective tax rate of 30.4%. The effective tax rate differed from the U.S. Federal statutory rate of 21.0% primarily due to the impact of income taxes on foreign earnings taxed at rates varying from the U.S. 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 / |
|
|||
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, 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 equity vesting.
34
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, the Company had $154.4 million of cash and cash equivalents and $293.0 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, the Company’s cash and cash equivalents held by our non-U.S. subsidiaries totaled approximately $114.7 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, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash and cash equivalents at beginning of period |
|
$ |
153,891 |
|
|
$ |
190,606 |
|
Net cash provided by operating activities |
|
|
80,042 |
|
|
|
12,957 |
|
Net cash used in investing activities |
|
|
(16,945 |
) |
|
|
(247,841 |
) |
Net cash (used in) provided by financing activities |
|
|
(60,751 |
) |
|
|
191,582 |
|
Foreign currency effect on cash and cash equivalents |
|
|
(1,883 |
) |
|
|
(8,141 |
) |
Cash and cash equivalents at end of period |
|
|
154,354 |
|
|
|
139,163 |
|
Cash Flows From Operating Activities
Net cash provided by operating activities totaled $80.0 million during the nine months ended September 30, 2023 primarily reflecting net income of $22.3 million, $19.5 million for non-cash goodwill impairment, $47.9 million for non-cash charges for depreciation, amortization, stock based compensation and loss on disposition of property, and non-cash charges of $6.6 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.
Cash Flows From Investing Activities
Net cash used in investing activities was $16.9 million during the nine months ended September 30, 2023, reflecting purchases of property and equipment of $26.5 million and investments in technology companies of $0.6 million, partially offset by proceeds from deferred purchase price of factored receivables of $10.1 million.
35
Cash Flows From Financing Activities
Net cash used in financing activities was $60.8 million during the nine months ended September 30, 2023, reflecting $31.0 million paid to repurchase common stock, $27.2 million of debt repayments and $2.8 million paid for employee taxes related to the net settlement of restricted stock units that vested during the year, partially offset by the proceeds from the exercise of Common Stock options totaling $0.3 million.
Debt
The following table summarizes the Company’s debt, in thousands, as of September 30, 2023 and December 31, 2022:
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Interest |
|
|
Principal |
|
|
Interest |
|
|
Principal |
|
||||
Credit Agreement: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving Credit Facility (U.S. Dollar denominations) |
|
|
6.79 |
% |
|
$ |
207,000 |
|
|
|
5.80 |
% |
|
$ |
232,000 |
|
Other loans |
|
|
3.90 |
% |
|
|
247 |
|
|
3.89% - 5.21% |
|
|
|
2,011 |
|
|
Finance leases |
|
|
3.54 |
% |
|
|
675 |
|
|
|
3.57 |
% |
|
|
1,085 |
|
Total debt |
|
|
|
|
|
207,922 |
|
|
|
|
|
|
235,096 |
|
||
Current maturities |
|
|
|
|
|
(620 |
) |
|
|
|
|
|
(2,443 |
) |
||
Long-term debt, less current maturities |
|
|
|
|
$ |
207,302 |
|
|
|
|
|
$ |
232,653 |
|
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, the Company was in compliance with the terms of the Second Amended and Restated Credit Agreement.
Finance Leases
As of September 30, 2023 and December 31, 2022, there was $0.7 million and $1.1 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, there were $1.2 million available under the receivable factoring agreement.
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, the Company expects to incur total costs of between $14 million and $18 million, of which between $14 million and $17 million are expected to be cash expenditures. 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, the end of fiscal year 2022. 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, 2022 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 in 2021 and continuing through 2023, the industry has experienced inflationary cost increases in certain materials and components, labor and transportation. Although the Company has developed and implemented strategies to mitigate the impact of higher material component costs and transportation costs, 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” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no significant changes in our critical accounting policies or critical accounting estimates during the three months ended September 30, 2023. 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. 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.
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 Accumulated other comprehensive loss in the consolidated condensed balance sheets. When the underlying hedge transaction is realized, the gain or loss included in Accumulated other comprehensive loss is recorded in earnings in the consolidated condensed statements of income on the same line as the gain or loss on the hedged item attributable to the hedged risk. The Company records the ineffective portion of foreign currency and copper commodity hedging instruments, if any, to Cost of sales, and the ineffective portion of interest rate swaps, if any, to Interest expense, net in the consolidated condensed statements of income. Cash flows associated with derivatives are reported in Net cash provided by (used in) operating activities in the consolidated condensed statements of cash flows.
Information related to the fair values of all derivative instruments in our consolidated condensed balance sheet as of September 30, 2023 is set forth in Note 9, “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 |
|
|||||||||||||||||||||||||||||
|
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
Total |
|
|
Fair Value |
|
||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Long-Term Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Variable rate |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
207,000 |
|
|
$ |
— |
|
|
$ |
207,000 |
|
|
$ |
207,000 |
|
Variable interest rate as of September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.79 |
% |
|
|
|
|
|
6.79 |
% |
|
|
|
||||||
Fixed rate |
|
$ |
247 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
247 |
|
|
$ |
— |
|
Fixed interest rate |
|
|
3.90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.90 |
% |
|
|
|
Based on the amounts outstanding as of September 30, 2023, a hypothetical 100 basis point change (increase or decrease) in interest rates would impact annual interest expense by $2.1 million. To hedge the Company's exposure to interest payment fluctuations on a portion of these borrowings, we entered into a floating-to-fixed interest rate swap agreement with a notional amount of $100.0 million.
38
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 |
|
|
|
|
|
|
|
|||||||||||
Anticipated Transactions and Related Derivatives |
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
Total |
|
|
Fair Value |
|
|||||
USD Functional Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Forward Exchange Agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(Receive MXN / Pay USD) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total contract amount |
|
$ |
14,824 |
|
|
$ |
59,298 |
|
|
$ |
29,649 |
|
|
$ |
103,771 |
|
|
$ |
6,706 |
|
Average contract rate |
|
|
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 |
|
||||||||||
Exchange Rate Sensitivity |
|
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 |
|
39
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. 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.
(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, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
40
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to litigation from time to time in the ordinary course of business, however there is 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.
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. 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 Third Quarter 2023
Period |
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
(d) |
|
||||
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 |
|
ITEM 5. OTHER INFORMATION
Trading Plans – Directors and Section 16 Officers
During the three months ended September 30, 2023, none of the Company's
41
ITEM 6. EXHIBITS
Exhibits to this Report are as follows:
|
|
|
|
|
|
Incorporated by Reference |
||||||
Exhibit Number |
|
Exhibit Description |
|
Filed /Furnished Herewith |
|
Form |
|
Period Ending |
|
Exhibit / |
|
Filing Date |
3.1 |
|
Second Amended and Restated Articles of Incorporation of Gentherm Incorporated |
|
|
|
8-K |
|
|
|
3.2 |
|
3/5/18 |
3.2 |
|
|
|
|
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 |
|
|
X |
|
|
|
|
|
|
|
|
|
31.2 |
|
|
X |
|
|
|
|
|
|
|
|
|
32.1** |
|
|
X |
|
|
|
|
|
|
|
|
|
32.2** |
|
|
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 |
|
|
|
|
|
|
|
|
* Indicates management contract or compensatory plan.
** Documents are furnished not filed.
42
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, 2023 |
|
/s/ MATTEO ANVERSA |
|
Matteo Anversa |
|
Executive Vice President, Chief Financial Officer and Treasurer |
|
(Principal Financial Officer) |
|
|
|
Date: October 26, 2023 |
43
Exhibit 10.1
GENTHERM |
Technology to the next degreeTM |
June 12, 2023
Helen Xu
45 Huangyang Road
Building E - 501
Shanghai
200220
China
Dear Helen,
The purpose of this letter is to confirm the updated terms of your "local plus benefit" package as a Gentherm, Inc., employee on assignment at Gentherm Technology (Shanghai) co LTD. These terms were originally outlined in your offer letter, dated August 5, 2019. The other provisions outlined in the offer letter remain in place and unchanged.
This letter is not intended to be a contract or a promise of employment for a fixed term. This letter only summarizes the essential provisions of your assignment and verifies your understanding of the provisions detailed in this letter. Your assignment is conditional upon your acceptance of the terms and conditions outlined in this letter.
GLOBAL MOBILITY ASSIGNMENT BENEFITS SUMMARY
Assignee Name: |
Helen Xu |
Family Size: |
Four (Employee, Spouse, Children) |
Assignment Type: |
International Assignment, Executive, Home-based Pay |
Home Country Details |
|
Base Pay Policy |
Remain on home country pay programs |
Tax and Social Security: |
Tax equalized to the US (see appendix for policy details) |
Benefits: |
Home country benefit policies |
Host Country Support |
|
Host Country |
The Company will cover 100% of housing and utilities expenses throughout the duration of the assignment (December 2024). Where possible, the costs will be direct billed to the Company, or submitted for reimbursement |
Housing/Utility |
|
Allowance: |
21680 Haggerty Road Northville, Ml 48167 | 1.248.504.0500
Technology to the next degreeTM
Children's Education: |
The Company will cover 100% of the education fees for eligible dependent children on assignment. This includes expenses related to school issued tuition and fees. Other expenses, including books and supplies, are not included. Where possible, the costs will be direct billed to the Company, or submitted for reimbursement. |
Host Country Transportation: |
Car and driver for 7 days per week through assignment end date. During this period any home country car benefit will temporarily be suspended until assignment is completed. |
Home Visits: |
One (1) home visit per year for the remaining of assignment (2023 and 2024); includes business-class airfare to Home country and rental car for up to seven (7) days. Where possible, the costs will be direct billed to the Company, or submitted for reimbursement |
Tax Preparation: |
Tax preparation while on assignment and the years following assignment due to trailing tax obligations, as determined by the Company's tax services provider |
End of Assignment Support |
|
Household Goods Transport: |
Includes packing, loading, transport, and delivery of Household goods (arranged by relocation provider). Air Shipment - 220 lbs (100 kg volumetric net) max per adult; Sea Shipment - max 50 m3 (65.40 cubic yards) |
Travel between Home and Host Country: |
Airfare, meals and lodging at the end of assignment. |
Car Rental (Repatriation): |
Up to 30 days of car rental while employee acquires new car. Extension available if employee is, through no fault of their own, unable to acquire a new vehicle within the initial 30 days. |
The assignment related allowances and services outlined above are subject to change throughout the course of the assignment. Assignment related allowances will end in the payroll following repatriation, or December 31 , 2024 unless a mutually agreed extension of this agreement is documented.
ACCEPTANCE
I have read and fully understand and accept the terms and conditions of the assignment as outlined in this letter
Employee: |
/s/ Helen Xu |
|
Date: |
AUG 17, 2023 |
|
Helen Xu |
|
|
|
HR Representative: |
/s/ Barb Runyon |
|
Date: |
Aug 21, 2023 |
|
Barb Runyon |
|
|
|
Technology to the next degreeTM
APPENDIX: TAX ASSISTANCE
You will be responsible for complying with any and all applicable income tax regulations in your home and host country and in any other countries where you are required to pay taxes. During this assignment, required income tax returns will be prepared by the Company's designated tax services provider at the Company's expense. Representatives of the Company's dedicated tax services provider will conduct meetings with you to ensure your familiarity with your home and host country's tax requirements as well as your responsibilities in the tax filing process.
At the end of each calendar year during the life of this assignment, the Company's tax services provider will compute the amount of aggregate income tax you are required to pay as a result of employment with the Company (the "Actual Tax Obligation") and compare that amount to the aggregate income taxes you would have been required to pay as a result of your employment with the Company assuming you had worked at the Home location and lived in your primary residence in the United States (the "Theoretical Tax Obligation). To the extent the Actual Tax Obligation exceeds the Theoretical Tax Obligation, you will receive a payment from the company in an amount so that you will have paid no more income taxes on your earnings based on the Theoretical Tax Obligation.
The following assignment-related amounts payable under this agreement are intended to be provided on a tax-free basis and so their tax effect will be removed from the computations of the Actual Tax Obligation and the Theoretical Tax Obligation: housing and utilities, transportation, host country transportation, miscellaneous allowance, cost of tax preparation/administration, and host country medical coverage. Instead the Company will separately make "tax gross-up" payments at least annually in order to achieve the stated intent on the assignment-related payments and benefits. For clarity, the following amounts (and any other amounts not expressly listed above that directly relate to the assignment) are excluded from the tax gross-up described above: annual base salary, bonuses, long-term compensation, discretionary bonuses, all home country health and welfare benefits not tied to the assignment, home country vehicle lease and/or allowance, and any employment-related benefits that are not directly related to the assignment.
The company shall be entitled to withhold, from any cash payments under this agreement, such federal, state, local or foreign taxes as required based on applicable local law or regulation. In return, the Company shall remit all such taxes withheld to the appropriate government body in a timely manner.
If your employment terminates for any reason during the assignment, the tax equalization will end as of the last date of the employment. Theoretical U.S. tax will be calculated as if you returned to your home country on the last date of employment.
Exhibit 31.1
CERTIFICATION
I, Phillip Eyler, certify that:
/s/ Phillip Eyler |
Phillip Eyler |
President and Chief Executive Officer |
October 26, 2023 |
|
|
Exhibit 31.2
CERTIFICATION
I, Matteo Anversa, certify that:
/s/ Matteo Anversa |
Matteo Anversa |
Executive Vice President, Chief Financial Officer and Treasurer |
October 26, 2023 |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Gentherm Incorporated (the “Company”) on Form 10-Q for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Phillip Eyler, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
/s/ Phillip Eyler |
Phillip Eyler |
President and Chief Executive Officer |
October 26, 2023 |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Gentherm Incorporated (the “Company”) on Form 10-Q for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matteo Anversa, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
/s/ Matteo Anversa |
Matteo Anversa |
Executive Vice President, Chief Financial Officer and Treasurer |
October 26, 2023 |