Gentherm(THRM) - 2024 Q3 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated condensed financial statements for Gentherm Incorporated for the period ended September 30, 2024, including balance sheets, statements of income, comprehensive income, cash flows, and changes in shareholders' equity, along with accompanying notes Consolidated Condensed Balance Sheets As of September 30, 2024, total assets increased to $1.30 billion from $1.23 billion at year-end 2023, driven by higher inventory and accounts receivable, while total liabilities also grew to $637.5 million from $589.6 million, primarily due to an increase in accounts payable, and total shareholders' equity saw a modest increase to $660.7 million Balance Sheet Highlights (in thousands) | Balance Sheet Item | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $736,951 | $687,564 | | Total Assets | $1,298,179 | $1,234,371 | | Total Current Liabilities | $365,450 | $324,953 | | Total Liabilities | $637,470 | $589,649 | | Total Shareholders' Equity | $660,709 | $644,722 | Consolidated Condensed Statements of Income For the third quarter of 2024, product revenues slightly increased to $371.5 million, with net income remaining stable at $16.0 million, while for the nine months ended September 30, 2024, revenues were flat at $1.10 billion, but operating income significantly increased to $83.4 million from $45.7 million year-over-year, and net income more than doubled to $49.6 million Income Statement Summary (in thousands, except per share data) | Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Product Revenues | $371,512 | $366,195 | $1,103,210 | $1,102,143 | | Gross Margin | $94,873 | $86,210 | $280,327 | $255,328 | | Operating Income | $32,337 | $23,741 | $83,374 | $45,736 | | Net Income | $15,965 | $15,844 | $49,626 | $22,256 | | Diluted EPS | $0.51 | $0.48 | $1.57 | $0.67 | Consolidated Condensed Statements of Comprehensive Income (Loss) Comprehensive income for Q3 2024 was $36.6 million, a significant turnaround from a loss of $2.7 million in Q3 2023, primarily driven by positive foreign currency translation adjustments, and for the nine-month period, comprehensive income was $44.8 million, up from $12.8 million in the prior year, despite a net loss from other comprehensive items Comprehensive Income (Loss) (in thousands) | Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $15,965 | $15,844 | $49,626 | $22,256 | | Other Comprehensive Income (Loss) | $20,678 | $(18,542) | $(4,861) | $(9,466) | | Comprehensive Income (Loss) | $36,643 | $(2,698) | $44,765 | $12,790 | Consolidated Condensed Statements of Cash Flows For the nine months ended September 30, 2024, net cash from operating activities was $73.1 million, down from $80.0 million in the prior year, while net cash used in investing activities increased to $33.1 million due to higher property and equipment purchases, and net cash used in financing activities decreased to $40.6 million, primarily due to lower net debt repayments and higher proceeds from stock option exercises, despite increased stock repurchases Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $73,089 | $80,042 | | Net cash used in investing activities | $(33,141) | $(16,945) | | Net cash used in financing activities | $(40,605) | $(60,751) | | Net increase in cash | $908 | $463 | Notes to Unaudited Consolidated Condensed Financial Statements The notes provide detailed explanations of the company's accounting policies and financial results, covering the 'Fit-for-Growth 2.0' strategy, ongoing restructuring activities, a potential product recall issue with VW, stock repurchase programs, and segment revenue performance - The company launched 'Fit-for-Growth 2.0' to deliver cost reductions through sourcing, value engineering, manufacturing productivity, and synergies from the Alfmeier acquisition[13] - A restructuring plan (2023 Plan) involves relocating a manufacturing facility from Greenville, SC, to Monterrey, Mexico, which is expected to be completed by the end of 2025. The Greenville facility was sold in Q3 2024, resulting in a $1.7 million gain[24] - Volkswagen is recalling 261,257 vehicles for an issue with a suction jet pump supplied by Alfmeier, a business Gentherm acquired. Gentherm has not accepted financial responsibility and cannot reasonably estimate potential costs[39] - A new $150 million stock repurchase program (2024 Stock Repurchase Program) was authorized in June 2024, expiring in June 2027. As of September 30, 2024, $130.1 million remained available[59] Product Revenues by Segment - Nine Months Ended Sep 30 (in thousands) | Segment | 2024 | 2023 | | :--- | :--- | :--- | | Automotive | $1,067,444 | $1,069,007 | | Medical | $35,766 | $33,136 | | Total Company | $1,103,210 | $1,102,143 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, highlighting a 1.5% revenue increase in Q3 2024 driven by favorable pricing and volume, with gross margin improving from 23.2% to 25.4% due to 'Fit-for-Growth 2.0' cost-saving initiatives, and the company secured $600 million in new automotive business awards in Q3, maintaining strong liquidity with $150.6 million in cash and $278.0 million available under its credit facility, despite challenges including geopolitical risks, inflationary pressures, and a forecasted 2.1% decline in key market light vehicle production for the full year 2024 - In Q3 2024, the company secured $600 million in automotive new business awards, which are an indicator of future revenue[80] - The 'Fit-for-Growth 2.0' program is delivering cost reductions through sourcing, value engineering, and manufacturing productivity, contributing to improved gross margins[77] Light Vehicle Production Volume Change in Key Markets (vs. Prior Year) | Region | Q3 2024 Change | YTD 2024 Change | | :--- | :--- | :--- | | North America | (4.7)% | (0.8)% | | Europe | (6.1)% | (3.5)% | | Greater China | (2.7)% | 2.0% | | Japan / South Korea | (6.2)% | (6.7)% | | Total Key Markets | (4.5)% | (1.4)% | - Liquidity remains solid with $150.6 million in cash and cash equivalents and $278.0 million available under the Revolving Credit Facility as of September 30, 2024[105] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from changes in foreign currency exchange rates (primarily Euro, Mexican Peso, Chinese Renminbi) and interest rates on its variable-rate debt, managing these exposures using derivative contracts such as foreign currency forwards and an interest rate swap, where a hypothetical 100 basis point change in interest rates would impact annual interest expense by $2.2 million, and the company has an interest rate swap with a notional amount of $100.0 million to hedge a portion of its floating-rate debt - The company is exposed to foreign currency exchange risks from various currencies, including the Euro, Mexican Peso, and Chinese Renminbi[118] - A hypothetical 100 basis point change in interest rates would impact annual interest expense by $2.2 million, based on debt levels at September 30, 2024[119] - The company uses a floating-to-fixed interest rate swap with a notional amount of $100.0 million to hedge against interest rate fluctuations[119] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2024, with no material changes in the company's internal control over financial reporting during the third quarter of 2024 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2024[121] - No material changes were made to the company's internal control over financial reporting during the third quarter of 2024[122] Part II. Other Information Legal Proceedings The company reported no material pending litigation to which it is a party, and no material legal proceedings were terminated, settled, or otherwise resolved during the third quarter of 2024 - There was no material pending litigation during the three months ended September 30, 2024[124] Risk Factors There have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023 - The company's risk factors have not materially changed from those previously disclosed in the 2023 Form 10-K[125] Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of 2024, the company repurchased a total of 406,021 shares of its common stock for approximately $20.0 million under its publicly announced repurchase programs, and as of September 30, 2024, approximately $130.1 million remained available for future repurchases under the new 2024 Stock Repurchase Program Issuer Purchases of Equity Securities (Q3 2024) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2024 | — | $— | | August 2024 | 198,862 | $50.29 | | September 2024 | 207,159 | $47.71 | - As of September 30, 2024, approximately $130.1 million was available for repurchase under the 2024 Stock Repurchase Program[126] Other Information During the third quarter of 2024, none of the company's directors or Section 16 officers adopted or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements for the purchase or sale of company securities - No directors or Section 16 officers adopted or terminated Rule 10b5-1 trading plans in Q3 2024[127] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications (Sections 302 and 906) and XBRL data files - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906[129]