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)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
At July 26, 2024, there were
GENTHERM INCORPORATED
TABLE OF CONTENTS
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3 |
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Item 1. |
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3 |
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3 |
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4 |
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Consolidated Condensed Statements of Comprehensive Income (Loss) |
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5 |
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6 |
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Consolidated Condensed Statements of Changes in Shareholders’ Equity |
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7 |
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Notes to Unaudited Consolidated Condensed Financial Statements |
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8 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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25 |
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Item 3. |
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38 |
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Item 4. |
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40 |
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41 |
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Item 1. |
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Item 1A. |
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41 |
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Item 2. |
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Item 5. |
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Item 6. |
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42 |
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2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENTHERM INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
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June 30, 2024 |
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December 31, 2023 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventory: |
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Raw materials |
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Work in process |
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Finished goods |
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Inventory, net |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Other intangible assets, net |
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Operating lease right-of-use assets |
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Deferred income tax assets |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
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$ |
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Current lease liabilities |
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Current maturities of long-term debt |
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Other current liabilities |
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Total current liabilities |
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Long-term debt, less current maturities |
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Non-current lease liabilities |
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Pension benefit obligation |
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Other non-current liabilities |
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Total liabilities |
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$ |
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$ |
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Shareholders’ equity: |
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Common Stock: |
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par value; |
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Paid-in capital |
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— |
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Accumulated other comprehensive loss |
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Accumulated earnings |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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See accompanying notes to the consolidated condensed financial statements.
3
GENTHERM INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share data)
(Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Product revenues |
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$ |
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$ |
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$ |
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$ |
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of sales |
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Gross margin |
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Operating expenses: |
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Net research and development expenses |
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Selling, general and administrative expenses |
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Restructuring expenses |
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Impairment of goodwill |
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— |
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— |
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Total operating expenses |
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Operating income |
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Interest expense, net |
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( |
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Foreign currency (loss) gain |
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Other (loss) income |
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Earnings before income tax |
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Income tax expense |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
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Basic earnings (loss) per share |
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$ |
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$ |
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$ |
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$ |
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Diluted earnings (loss) per share |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of shares – basic |
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Weighted average number of shares – diluted |
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See accompanying notes to the consolidated condensed financial statements.
4
GENTHERM INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive (loss) income: |
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Pension benefit obligations |
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Foreign currency translation adjustments |
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Unrealized (loss) gain on foreign currency derivative securities, net of tax |
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Other comprehensive (loss) income, net of tax |
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( |
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( |
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Comprehensive income (loss) |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes to the consolidated condensed financial statements.
5
GENTHERM INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Six Months Ended June 30, |
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2024 |
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2023 |
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Operating Activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Deferred income taxes |
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Stock based compensation |
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(Gain) loss on disposition of property and equipment |
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Provisions for inventory |
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Impairment of goodwill |
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— |
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Other |
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( |
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Changes in assets and liabilities: |
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Accounts receivable, net |
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Inventory |
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( |
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Other assets |
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( |
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Accounts payable |
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Other liabilities |
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Net cash provided by operating activities |
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Investing Activities: |
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Purchases of property and equipment |
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Proceeds from the sale of property and equipment |
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Proceeds from deferred purchase price of factored receivables |
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Cost of technology investments |
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( |
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Net cash used in investing activities |
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Financing Activities: |
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Borrowings on debt |
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— |
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Repayments of debt |
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Proceeds from the exercise of Common Stock options |
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Taxes withheld and paid on employees' stock-based compensation |
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Cash paid for the repurchase of Common Stock |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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Foreign currency effect |
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( |
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Net (decrease) increase in cash and cash equivalents |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Cash paid for taxes |
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$ |
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$ |
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Cash paid for interest |
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Non-Cash Investing Activities: |
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Period-end balance of accounts payable for property and equipment |
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$ |
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$ |
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Deferred purchase price of receivables factored in the period |
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See accompanying notes to the consolidated condensed financial statements.
6
GENTHERM INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)
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Accumulated |
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Other |
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Common Stock |
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Paid-in |
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Comprehensive |
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Accumulated |
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Shares |
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Amount |
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Capital |
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Loss |
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Earnings |
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Total |
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Balance at December 31, 2023 |
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$ |
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$ |
— |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Stock based compensation, net |
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— |
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— |
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( |
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Stock repurchase |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2024 |
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$ |
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$ |
— |
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$ |
( |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Stock based compensation, net |
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( |
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— |
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— |
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Stock repurchase |
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( |
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( |
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— |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Accumulated |
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Other |
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Common Stock |
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Paid-in |
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Comprehensive |
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Accumulated |
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Shares |
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Amount |
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Capital |
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Loss |
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Earnings |
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Total |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Stock based compensation, net |
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( |
) |
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( |
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— |
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— |
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( |
) |
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Stock repurchase |
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( |
) |
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( |
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— |
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— |
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— |
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( |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Stock based compensation, net |
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— |
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— |
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— |
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Stock repurchase |
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( |
) |
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( |
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— |
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— |
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— |
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( |
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Balance at June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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See accompanying notes to the consolidated condensed financial statements.
7
Note 1 – Overview
Gentherm Incorporated, a Michigan corporation, and its consolidated subsidiaries (“Gentherm”, “we”, “us”, “our” or the “Company”) is the global market leader of innovative thermal management and pneumatic comfort technologies for the automotive industry and a leader in medical patient temperature management. Automotive products include variable temperature Climate Control Seats, heated automotive interior systems (including heated seats, steering wheels, armrests and other components), battery performance solutions, cable systems, lumbar and massage comfort solutions, fuel management valves and other valves for brake and engine systems, and other electronic devices. Our automotive products can be found on vehicles manufactured by nearly all the major original equipment manufacturers (“OEMs”) operating in North America and Europe, and several major OEMs in Asia. We operate in locations aligned with our major customers’ product strategies to provide locally enhanced design, integration and production capabilities. Medical products include patient temperature management systems. Our medical products can be found in hospitals throughout the world, primarily in the U.S., China, Germany and Brazil. The Company is also developing a number of new technologies and products that will help enable improvements to existing products, improve health, wellness and patient outcomes and will lead to new product applications for existing and new and adjacent markets.
During the first half of 2023, the Company launched Fit-for-Growth 2.0 to execute as part of our long-term growth strategy. Fit-for-Growth 2.0 has begun, and is expected to continue, to deliver significant cost reductions through sourcing excellence, value engineering, manufacturing productivity, manufacturing footprint optimization, product profitability and cost synergies from the 2022 acquisition of Alfmeier Präzision SE (“Alfmeier”). Additionally, the program is intended to drive operating expense efficiency to leverage scale.
Basis of Presentation and Significant Accounting Policies
The unaudited consolidated condensed financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations. The information furnished in the consolidated condensed financial statements include all adjustments (consisting of only normal, recurring adjustments) considered necessary to present fairly the results of operations, financial position and cash flows of the Company. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The operating results for interim periods are not necessarily indicative of results that may be expected for other interim periods 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 third-party sources, as appropriate. These estimates and assumptions are subject to an inherent degree of uncertainty. We are not presently aware of any events or circumstances that would require us to update such estimates and assumptions or revise the carrying value of our assets or liabilities. Our estimates may change, however, as new events occur and additional information is obtained. As a result, actual results may differ significantly from our estimates, and any such differences may be material to our financial statements.
All amounts in these notes to the consolidated condensed financial statements are presented in thousands, except share and per share data.
Principles of Consolidation
The consolidated condensed financial statements include the accounts of the Company, its wholly owned subsidiaries and those entities in which it has a controlling financial interest. The Company evaluates its relationship with other entities for consolidation and to identify whether such entities are variable interest entities (“VIE”) and to assess whether the Company is the primary beneficiary of such entities. Investments in affiliates 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
8
Variable Interest Entities
The Company maintains an ownership interest in a VIE, Carrar Ltd. (“Carrar”). Carrar is a technology developer of advanced thermal management systems for the electric mobility market. The Company determined that Carrar is a VIE; however, the Company does not have a controlling financial interest or have the power to direct the activities that most significantly affect the economic performance of the investment. Therefore, the Company has concluded that it is not the primary beneficiary. Gentherm’s investment in Carrar is measured at cost, less impairments, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. During the six months ended June 30, 2024, we recognized an increase in the fair value of our investment in Carrar of $
Revenue Recognition
The Company has no material contract assets or contract liabilities as of June 30, 2024.
The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if the benefits of those costs are expected to be realized for a period greater than
Note 2 – New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
The Company considers the applicability and impact of all Accounting Standards Updates ("ASUs") issued by the Financial Accounting Standards Board. New ASUs effective in 2024 through June 30, 2024 were assessed and determined to be either not applicable or not expected to have a significant impact on the Company's consolidated condensed financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
Segment Reporting
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures". ASU 2023-07 requires a public entity to disclose, on an annual and interim basis, significant segment expenses that are included within each reported measure of segment profit or loss and regularly reviewed by the chief operating decision maker ("CODM"), the title and position of the CODM, clarification regarding the CODM's use of multiple measures of a segment's profit or loss in assessing segment performance (this must include a measure that is consistent with the measurement principles under U.S. GAAP, but may also include additional measures of a segment's profit or loss), and a description of the composition of amounts within an "Other" segment line item. Further, ASU 2023-07 requires that all annual disclosures about a reportable segment's profit or loss and assets currently required by Topic 280 to be provided in interim periods. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. ASU 2023-07 should be adopted retrospectively to all periods presented in the financial statements and early adoption is permitted. We are currently in the process of determining the impact the implementation of ASU 2023-07 will have on the Company’s financial statement disclosures.
Income Taxes
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". ASU 2023-09 enhances income tax disclosures to further disaggregate the effective tax rate reconciliation and income taxes paid. This update is effective for fiscal years beginning after December 15, 2024. ASU 2023-09 should be adopted prospectively, but retrospective application is permitted. Further, early adoption is permitted. We are currently in the process of determining the impact the implementation of ASU 2023-09 will have on the Company’s financial statement disclosures.
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Note 3 – Restructuring
The Company continuously monitors market developments, industry trends and changing customer needs and in response, has taken and may continue to undertake restructuring actions, as necessary, to execute management’s strategy, streamline operations and optimize the Company’s cost structure. Restructuring actions may include the realignment of existing manufacturing footprint, facility closures, or similar actions, either in the normal course of business or pursuant to significant restructuring programs.
These actions may result in employees receiving voluntary or involuntary employee termination benefits, which are mainly statutory requirements or other contractual agreements. Voluntary termination benefits are accrued when an employee accepts the related offer. Involuntary termination benefits are accrued upon the commitment to a termination plan and when the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable, depending on the existence of a substantive plan for severance or termination.
2023 Manufacturing Footprint Rationalization
On September 19, 2023, the Company committed to a restructuring plan (“2023 Plan”) to improve the Company’s manufacturing productivity and rationalize its footprint. Under this 2023 Plan, the Company is in the process of relocating certain existing manufacturing and related activities in its Greenville, South Carolina facility to a new facility in Monterrey, Mexico.
The Company expects to incur total costs of between $
During the three and six months ended June 30, 2024, the Company recognized restructuring expense of $
The Company has recorded $
Other Restructuring Actions
The Company has undertaken several discrete restructuring actions in an effort to optimize its cost structure.
During the three and six months ended June 30, 2024, the Company’s Automotive segment recognized $
During the three and six months ended June 30, 2024, the Company’s Automotive segment recognized $
During the three and six months ended June 30, 2024, the Company recognized $
The Company expects to incur less than $
During the three and six months ended June 30, 2023, the Company recognized $
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Restructuring Expenses By Reporting Segment
The following table summarizes restructuring expense for the three and six months ended June 30, 2024 and 2023 by reporting segment:
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Automotive |
|
$ |
|
|
$ |
|
|
$ |
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|
$ |
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||||
Medical |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
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|
Corporate |
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|
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|
|
|
|
|
|
|
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Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
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Restructuring Liability
Restructuring liabilities are classified as other current liabilities in the consolidated condensed balance sheets.
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Employee Separation Costs |
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Other Related Costs |
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Total |
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Balance at December 31, 2023 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Additions, charged to restructuring expenses |
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|
|
|
|
|
|
|
|
|||
Cash payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Non-cash utilization |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Currency translation |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at March 31, 2024 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Additions, charged to restructuring expenses |
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|
|
|
|
|
|
|
|
|||
Cash payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Non-cash utilization |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Currency translation |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at June 30, 2024 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
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Note 4 – Details of Certain Balance Sheet Components
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June 30, 2024 |
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December 31, 2023 |
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Other current assets: |
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Income tax and other tax receivable |
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$ |
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$ |
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||
Billable tooling |
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Notes receivable |
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Prepaid expenses |
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Receivables due from factor |
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Short-term derivative financial instruments |
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Other |
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Total other current assets |
|
$ |
|
|
$ |
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Other current liabilities: |
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Accrued employee liabilities |
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$ |
|
|
$ |
|
||
Liabilities from discounts and rebates |
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Income tax and other taxes payable |
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|
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Restructuring |
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Accrued warranty |
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Other |
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