Gentherm Inc (THRM) FY 2024 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, our consolidated financial statements (and notes related thereto) and other more detailed financial information appearing elsewhere in this Annual Report. Further, you should read the following discussion and analysis of our financial condition and results of operations together with the “Risk Factors” included elsewhere in this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. See also “Forward-Looking Statements” in Part I of this Annual Report.

Overview

Gentherm Incorporated is the global market leader of innovative thermal management and pneumatic comfort technologies for the automotive industry and a leader in medical patient temperature management. Automotive products include variable temperature Climate Control Seats, heated interior systems (including heated seats, steering wheels, armrests and other components), battery performance solutions, cable systems, lumbar and massage comfort solutions, fuel management valve systems and other valve systems 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.

Our Automotive sales are driven by the number of light vehicles produced by the OEMs primarily in our key markets of North America, Europe, China, Japan and South Korea, which is ultimately dependent on consumer demand for automotive light 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 and could result in a significant reduction in automotive sales and production by our customers, which have 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 and benefit from industry upturns in the ordinary course. However, shifts in the mix of global automotive production to higher cost regions or to vehicles that contain less of our product content and inflationary pressures have adversely impacted our profitability and may continue to do so. In addition, we have been and may in the future be adversely impacted by volatility or weakness in markets for hybrid or electric vehicles specifically. We believe our products offer certain advantages for hybrid and electric vehicles, including improved energy efficiency, and position us well to withstand changes in the volume mix between vehicles driven by internal combustion engines and hybrid and other electric vehicles. We believe our industry is increasingly progressing towards a focus on human comfort, health and wellness, which is evidenced by increasing adoption rates for comfort products. We believe that products we are developing, such as ClimateSense, WellSense and ComfortScale, position us well to address trends in consumer preferences such as personalized user experience, comfort, health and wellness. Gentherm is an independent partner that can cooperate with any combination of the vehicle OEMs and seat manufacturers globally, including those that are vertically integrated, to create innovative and unique configurations that adapt to industry trends.

Recent Trends

Global Conditions

The global automotive light vehicle industry is impacted by a number of factors, including global and regional economic conditions. At times in recent years, the global economy has experienced significant volatility, inflationary pressures and supply chain disruptions, which have a widespread adverse effect on the global automotive industry. These macroeconomic conditions have

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resulted in fluctuating demand and production disruptions, facility closures, labor shortages, work stoppages, and increased prices of inputs to our products. Although some supply chain conditions have steadily improved and certain inflationary pressures have moderated, rising costs of materials, labor, equipment and other inputs used to manufacture and sell our products, including freight and logistics costs, have impacted, and may in the future impact, operating costs and operating results. 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.

We are exposed to foreign currency risk due to the translation and remeasurement of the results of certain international operations into U.S. Dollars as part of the consolidation process. Therefore, fluctuations in foreign currency exchange rates can create volatility in the results of operations and may adversely affect our financial condition.

We have a global manufacturing footprint that enables us to serve our customers in the regions they operate and shift production between regions to remain competitive. Throughout the year there have been various ongoing geopolitical conflicts, such as the current conflicts between Russia and Ukraine, and in the Middle East, heightened tensions in the Red Sea and the South China Sea. These conflicts have interrupted ocean freight shipping and if prolonged or intensified, could have a substantial adverse effect on our financial results. Further, there is the potential that certain political pressures, such as changes to international trade agreements, increases in trade tariffs, import quotas or other trade restrictions or actions, including retaliatory responses to such actions, could affect the operations of our OEM customers, resulting in reduced automotive production in certain regions or shifts in the mix of production to higher cost regions. We are monitoring and evaluating the impacts of recently announced potential tariffs and reciprocal tariffs on our supply chain and results of operations. We, like other manufacturers, have a high proportion of fixed structural costs, and therefore relatively small changes in industry vehicle production can have a substantial effect on our financial results.

Fit-for-Growth 2.0

During the first half of 2023, the Company launched Fit-for-Growth 2.0 to execute our long-term growth strategy, including to realign and resize our production capacity and cost structure, lower our cost base, improve our financial performance and cash flow generation, and create a simplified organization best positioned to deliver on our key financial and operational priorities. Fit-for-Growth 2.0 has delivered significant cost reductions through sourcing excellence, value engineering, manufacturing productivity, manufacturing footprint optimization, and product profitability. Additionally, the program has driven and is expected to continue to drive operating expense efficiency to leverage scale.

Exit of 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 has substantially completed the exit of this business.

During the year ended December 31, 2024, the Company recorded a benefit of $4.6 million for the sale of previously reserved inventory. This benefit is recorded in product revenues.

During the year ended December 31, 2023, the Company recorded non-cash impairment charges of $6.1 million for the write down of inventory within the Automotive segment. This charge is recorded in cost of sales.

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.

Impairments - Medical Segment

During the fourth quarter of 2024, we recorded a non-cash impairment charge of $2.0 million for equipment determined to have no future use.

During the first quarter of 2024, we recorded a non-cash impairment charge of $0.5 million for one of our tradenames.

During the second quarter of 2023, an indicator of impairment was identified for the Company’s Medical reporting unit 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 in 2023.

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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 through the closure and relocation of its manufacturing site in Greenville, South Carolina to a new facility in Monterrey, Mexico. During the year ended December 31, 2024, the Company completed the closure and relocation and completed the sale of its Greenville, South Carolina manufacturing facility, resulting in a gain on sale of $1.9 million. The gain on sale was recorded as a reduction of restructuring expenses, net in the consolidated statements of income. During the year ended December 31, 2024, the Company also recognized restructuring expense of $1.8 million for employee separation costs and $2.4 million for other costs. During the year ended December 31, 2023, the Company recognized restructuring expense of $0.5 million for employee separation costs and $0.2 million for other costs.

The 2023 Plan is expected to be completed by the end of 2025 as the final actions, including consolidation of our original manufacturing site in Monterrey, Mexico into our new facility is complete. The Company expects to incur less than $1 million of additional restructuring costs for the 2023 Plan.

See Note 5, “Restructuring and Impairments” to the consolidated financial statements included in this Annual Report for additional information related to this plan and additional restructuring plans approved in February 2025.

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 production by us, our supply chain and our customers. According to the forecasting firm S&P Global Mobility (February 2025 release), global light vehicle production in 2024 in the Company’s key markets of North America, Europe, China, Japan and South Korea, as compared to 2023, are shown below (in millions of units):

The S&P Global Mobility report (February 2025 release) forecasted light vehicle production volume in the Company’s key markets for full year 2025 to decrease to 74.2 million units, a 0.6% decrease from full year 2024 light vehicle production volumes. Forecasted light vehicle production volumes are a component of the data we use in forecasting future business. However, these forecasts generally are updated monthly, and future forecasts have been and may continue to be significantly different from period to period due to changes in macroeconomic 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 2024, we secured an estimated $2,400 million of automotive new business awards. 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 December 31, 2024, the date of this Annual 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 2024 also do not reflect, in particular, the impact of macroeconomic and

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geopolitical challenges on future business. Revenues resulting from automotive new business awards also are subject to additional risks and uncertainties as described in Item 1 under “Forward-Looking Statements” of this Annual Report.

Reportable Segments

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

See Note 20, “Segment Reporting,” to the consolidated financial statements included in this Annual Report for a description of our reportable segments as well as their proportional contribution to the Company’s reported product revenues, operating income (loss) and significant segment expenses.

Results of Operations Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

This section discusses our consolidated results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023. For a detailed discussion of our consolidated results of operations for the years ended December 31, 2023 compared to the year ended December 31, 2022, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operation” under “Results of Operations Year Ended December 31, 2023 Compared to December 31, 2022” in our annual report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 21, 2024.

The results of operations for the years ended December 31, 2024 and 2023, in thousands, were as follows:

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Product revenues by product category, in thousands, for the years ended December 31, 2024 and 2023 were as follows:

Product Revenues

Below is a summary of our product revenues, in thousands, for the years ended December 31, 2024 and 2023:

Product revenues for the year ended December 31, 2024 decreased 0.9% as compared to the year ended December 31, 2023. The decrease in product revenues is due to unfavorable pricing and foreign currency impacts primarily attributable to the Chinese Renminbi, the Korean Won and the Japanese Yen, partially offset by favorable volumes in several product lines within the Automotive segment and favorable foreign currency impacts primarily attributable to the Euro.

Cost of Sales

Below is a summary of our cost of sales and gross margin, in thousands, for the years ended December 31, 2024 and 2023:

Cost of sales for the year ended December 31, 2024 decreased by 2.5% as compared to the year ended December 31, 2023. The decrease in cost of sales is primarily due to supplier cost reductions, value engineering activities, as well as the impact of non-automotive inventory charges in the prior-year period and favorable foreign currency impacts primarily attributable to the Mexican Peso, Ukrainian Hryvnia, and the Chinese Renminbi. These decreases were partially offset by higher wages, higher automotive volumes, start-up costs from our new plants in Tangier, Morocco and Monterrey, Mexico and unfavorable foreign currency impacts primarily attributable to the Euro.

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Net Research and Development Expenses

Below is a summary of our net research and development expenses, in thousands, for the years ended December 31, 2024 and 2023:

Net research and development expenses for the year ended December 31, 2024 decreased 6.0% as compared to the year ended December 31, 2023. The decrease in net research and development expenses is primarily related to lower project spend and a reduction in resources allocated to the battery performance solutions product category.

Selling, General and Administrative Expenses

Below is a summary of our selling, general and administrative expenses, in thousands, for the years ended December 31, 2024 and 2023:

Selling, general and administrative expenses for the year ended December 31, 2024 decreased 0.3% as compared to the year ended December 31, 2023. The decrease in selling, general and administrative expenses is primarily related to acquisition and integration expenses in the prior year and lower compensation expenses, partially offset by leadership transition costs and increased investment in information technology in the current year.

Restructuring Expenses, net

Below is a summary of our restructuring expenses, net, in thousands, for the years ended December 31, 2024 and 2023:

Restructuring expenses, net primarily relate to the 2023 Plan and other discrete restructuring activities focused on optimizing our manufacturing and engineering footprint and the reduction of global overhead expenses. See Note 5, "Restructuring and Impairments," in the notes to the consolidated financial statements included in this Annual Report for additional information.

Impairment of Intangible Assets and Property and Equipment

Below is a summary of our impairment of intangible assets and property and equipment, in thousands, for the years ended December 31, 2024 and 2023:

Impairment of intangible assets and property and equipment for the year ended December 31, 2024 is related to equipment determined to have no future use and one of our tradenames.

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Impairment of Goodwill

Below is a summary of our impairment of goodwill, in thousands, for the years ended December 31, 2024 and 2023:

Impairment of goodwill for the year ended December 31, 2023 is related to the recorded Medical reporting unit goodwill impairment.

Interest Expense, net

Below is a summary of our interest expense, net, in thousands, for the years ended December 31, 2024 and 2023:

The increase in interest expense during the year ended December 31, 2024 compared to 2023 is primarily related to the impact from the change in fair value of the interest rate swap derivative.

Foreign Currency Gain (Loss)

Below is a summary of our foreign currency gain (loss), in thousands, for the years ended December 31, 2024 and 2023:

Foreign currency gain for the year ended December 31, 2024 included net realized foreign currency loss of $1.1 million and unrealized net foreign currency gain of $10.7 million.

Foreign currency loss for the year ended December 31, 2023 included net realized foreign currency gain of $3.2 million and unrealized net foreign currency loss of $9.1 million.

Other Income (Loss)

Below is a summary of our other income (loss), in thousands, for the years ended December 31, 2024 and 2023:

The increase in other income is primarily driven by the increase in fair value of our investment in Carrar Ltd., due to observable transactions during the year ended December 31, 2024, as well as an impairment in our investment in Carrar Ltd. during the year ended December 31, 2023. See Note 2, "Summary of Significant Accounting Policies," in the notes to the consolidated financial statements included in this Annual Report for additional information.

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Income Tax Expense

Below is a summary of our income tax expense, in thousands, for the years ended December 31, 2024 and 2023:

Income tax expense was $37.3 million for the year ended December 31, 2024, on earnings before income tax of $102.3 million, representing an effective tax rate of 36.5 %. The effective tax rate differed from the U.S. Federal statutory rate of 21% primarily due to the unfavorable impact of the global intangible low-tax income ("GILTI"), withholding taxes, other non-deductible expenses, and the settlement of a prior period tax audit, partially offset by the impact of income taxes on foreign earnings at tax rates varying from the U.S. statutory tax rate, research and development credits and incentive tax rates in various jurisdictions.

Income tax expense was $14.6 million for the year ended December 31, 2023, on earnings before income tax of $55.0 million, representing an effective tax rate of 26.6%. The effective tax rate differed from the U.S. Federal statutory rate of 21% primarily due to the unfavorable impact of the GILTI, withholding taxes, other non-deductible expenses, the impact of income taxes on foreign earnings at tax rates varying from the U.S. statutory tax rate and the tax effect of a goodwill impairment, partially offset by research and development credits and prior year adjustments in various jurisdictions.

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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 and investment opportunities that will enhance our business strategies.

As of December 31, 2024, the Company had $134.1 million of cash and cash equivalents and $280.0 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 December 31, 2024, the Company’s cash and cash equivalents held by our non-U.S. subsidiaries totaled $106.9 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 and borrowings available under our Second Amended and Restated Credit Agreement 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 table below summarizes our cash activity for each of the last two fiscal years (in thousands):

Cash Flows From Operating Activities

Net cash provided by operating activities totaled $109.6 million and $119.3 million for the years ended December 31, 2024 and 2023, respectively. Cash flow provided by operating activities for the year ended December 31, 2024 consisted primarily of net income of $64.9 million, increased by $82.9 million for non-cash charges for depreciation, amortization, stock based compensation, deferred income taxes, impairment of intangible assets and property and equipment and provision for inventory, partially offset by $35.5 million related to changes in assets and liabilities, $1.6 million for a gain on disposition of property and equipment and $1.1 million of other. Cash flow provided by operating activities for the year ended December 31, 2023 consisted primarily of net income of $40.3 million, increased by $66.2 million for non-cash charges for depreciation, amortization, stock based compensation, loss on disposition of property and equipment and other, $6.9 million for inventory provisions, and $19.5 million of goodwill impairment, partially offset by non-cash charges of $13.1 million for deferred income taxes and $0.6 million related to changes in assets and liabilities.

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Cash Flows From Investing Activities

Net cash used in investing activities totaled $53.5 million and $24.1 million for the years ended December 31, 2024 and 2023, respectively. Cash flows used in investing activities for the year ended December 31, 2024 primarily included capital expenditures of $73.3 million and technology investments of $1.0 million, partially offset by proceeds from deferred purchase price of factored receivables of $12.9 million and proceeds from the sale of property and equipment of $7.9 million. Cash flows used in investing activities for the year ended December 31, 2023 primarily included capital expenditures of $37.6 million and technology investments of $0.8 million, partially offset by proceeds from deferred purchase price of factored receivables of $13.9 million and proceeds from the sale of property and equipment of $0.4 million.

Cash Flows From Financing Activities

Net cash used in financing activities totaled $51.7 million and $106.1 million for the years ended December 31, 2024 and 2023, respectively. Cash flows used in financing activities for the year ended December 31, 2024 primarily included $2.6 million of net debt activity, $51.6 million of cash paid for the repurchase of Common Stock and $3.3 million paid for employee taxes related to the net settlement of restricted stock units that vested during the year, partially offset by $5.8 million of proceeds from the exercise of Common Stock options. Cash flows used in financing activities for the year ended December 31, 2023 primarily included $91.1 million of cash paid for the repurchase of Common Stock, $12.3 million of net debt activity and $2.9 million paid for employee taxes related to the net settlement of restricted stock units that vested during the year, partially offset by $0.2 million of proceeds from the exercise of Common Stock options.

Debt

The following table summarizes the Company’s debt at December 31, 2024 and 2023 (dollars in thousands):

Credit Agreement

Gentherm, together with certain of its subsidiaries, maintain a revolving credit note (“U.S. Revolving Note”) 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 amends and restates 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.

Finance Leases

As of December 31, 2024 and 2023, there was $0.2 million and $0.6 million of outstanding finance leases, respectively.

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Other Sources of Liquidity

Receivable Factoring

The Company was party to receivable factoring agreements with unrelated third parties under which we could sell receivables for certain account debtors, on a revolving basis, subject to outstanding balances and concentration limits. The receivable factoring agreements were transferred in their entirety to the acquiring entities and were accounted for as a sale. Some of the agreements had deferred purchase price arrangements. During the year ended December 31, 2024, all past factoring arrangements were terminated or expired. As of December 31, 2024 there were remaining receivables factored and outstanding that will be collected in the future, however, no further factoring can occur under these factoring agreements.

Material Cash Requirements

The following table summarizes current and long-term material cash requirements as of December 31, 2024, which we expect to fund primarily with operating cash flows. We have not included amounts for material and component purchase obligations related to standard recurring purchases of materials for use in our manufacturing operations as these amounts are generally consistent from year to year, closely reflect our levels of production, and are not long-term in nature.

(1)
Long-term debt obligations do not include an amount payable for interest. See Note 9, “Debt,” to the consolidated financial statements included in this Annual Report for additional information.

(2)
See Note 8, “Leases,” to the consolidated financial statements included in this Annual Report for additional information.

(3)
Capital commitments is comprised of commitments for capital expenditures. Such commitments are typically less than one year.

Other Commitments

In December 2021, the Company committed to make a $5 million investment in Autotech Fund III, L.P., pursuant to a limited partnership agreement. As a limited partner, the Company will periodically make capital contributions toward this total commitment amount over the expected ten year life of the fund. The Company has made contributions of approximately $1.8 million to the Autotech Fund III, LP as of December 31, 2024. Timing of the remaining $3.2 million of capital contributions is unknown and therefore amounts have been excluded from the Material Cash Requirements table above.

Restructuring subsequent events

In February 2025, the Company committed to additional restructuring plans intended to further optimize its manufacturing footprint by realigning its manufacturing capacity. As a result of these plans, the Company will close its facility in Plzeň, Czech Republic and relocate the manufacturing activities into other existing facilities within the region. Additionally, in Asia, we will relocate certain manufacturing activities from our facility in Shanghai, China to our new facility in Tianjin, China.

In connection with these plans, the Company expects to incur total costs of between $13 million and $21 million. The total expected costs include employee severance, retention and termination costs of between $7 million and $11 million and capital expenditures of between $3 million and $5 million. The Company also expects to incur other transition costs including recruiting, relocation, and machinery and equipment move and set up costs of between $3 million and $5 million.

Capital Expenditures

We anticipate capital expenditures in fiscal year 2025 of approximately $70 million to $80 million. We will continue support organic growth through capacity expansion in our facilities and make capital improvements as necessary. We believe cash on hand,

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cash generated from operations, and the borrowing capacity available under our Second Amended and Restated Credit Agreement will be sufficient to support our capital expenditures.

Stock Repurchase Program

In December 2020, the Board of Directors of Gentherm Incorporated (the “Board of Directors”) authorized the 2020 Stock Repurchase Program. Under the 2020 Stock Repurchase Program, the Company was authorized to repurchase up to $150.0 million of its issued and outstanding Common Stock over a three-year period, expiring December 15, 2023. On November 1, 2023, the Board of Directors extended the maturity date of the program from December 15, 2023 to June 30, 2024.

During the year ended December 31, 2024, the Company repurchased $20.0 million in the open market under the 2020 Stock Repurchase Program with an average price paid per share of $52.65.

On November 1, 2023, following the above-noted extension, the Company entered into the ASR Agreement with Bank of America, N.A. that provided for the Company to purchase shares of Common Stock in an aggregate amount of $60.0 million under the 2020 Stock Repurchase Program.

Under the terms of the ASR Agreement, on November 2, 2023, the Company paid $60.0 million to Bank of America for an initial purchase of approximately 1.22 million shares of Common Stock, representing 80% of ASR Repurchase Amount. The final settlement date occurred in the second quarter of 2024. During the year ended December 31, 2024, the Company paid $0.3 million in cash as the final settlement of the ASR Agreement. The 2020 Stock Repurchase Program had $17.5 million of repurchase authorization remaining at the time of expiration.

In June 2024, the Board of Directors authorized the “2024 Stock Repurchase Program” to commence upon expiration of the 2020 Stock Repurchase Program on June 30, 2024. Under the 2024 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 June 30, 2027. Repurchases under the 2024 Stock Repurchase Program may be made, from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions, applicable legal requirements, debt covenants and other considerations. Any such repurchases may be executed using open market purchases, accelerated share repurchase programs, privately negotiated agreements or other transactions. Repurchases may be funded from cash on hand, available borrowings or proceeds from potential debt or other capital markets sources.

During the year ended December 31, 2024, the Company repurchased shares under the 2024 Stock Repurchase Program for $29.9 million and have a remaining repurchase authorization of $120.1 million as of December 31, 2024.

Stock repurchases are subject to excise tax, subject to specified exclusions and adjustments. Excise tax of $0.5 million was charged to Common Stock for the year ended December 31, 2024.

For further information related to our stock repurchase program, see Note 16, "Equity" in the notes to the consolidated financial statements included in this Annual Report.

Effects of Inflation

The automotive component supply industry has historically been subject to inflationary pressures with respect to materials and labor. At times in recent years, the automotive industry has experienced significant volatility in the costs of certain materials and components, labor and transportation. Although supply chain conditions have steadily improved and certain inflationary pressures have moderated, rising costs of materials, labor, equipment and other inputs used to manufacture and sell our products, including freight and logistics costs, have impacted, and may in the future impact, operating costs and operating results. Although the Company has developed and implemented strategies to mitigate the impact of higher material component costs and transportation costs through sourcing and manufacturing efficiencies where possible, these strategies together with commercial negotiations with Gentherm's customers and suppliers have not fully offset to date and may not fully offset our future cost increases. Such inflationary cost increase may increase the cash required to fund our operations by a material amount.

Critical Accounting Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In preparing these consolidated financial statements, management was required to make

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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. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material to our financial statements.

We have identified the following estimates as our most critical accounting estimates, which are those that are most important to aid in fully understanding and evaluating the Company’s financial condition and results of operations, and that require management’s most subjective and complex judgments. Information regarding our other significant accounting estimates and policies are disclosed in Note 2, "Summary of Significant Accounting Policies", of the notes to the consolidated financial statements.

Goodwill

Critical estimates: Goodwill is tested for impairment at least annually as of December 31 and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In conducting our annual impairment assessment testing, we first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is performed. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if we elect not to perform a qualitative assessment of a reporting unit, we then compare the fair value of the reporting unit to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized.

The Company utilizes an income approach to estimate the fair value of a reporting unit and a market valuation approach to further support this analysis. The income approach is based on projected debt-free cash flow that is discounted to the present value using discount factors that consider the timing and risk of cash flows. We believe that this approach is appropriate because it provides a fair value estimate based on the reporting unit’s expected long-term operating cash flow performance. This approach also mitigates the impact of cyclical trends that occur in our industry. Fair value is estimated using internally developed forecasts, as well as commercial and discount rate assumptions. The discount rate used is 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 is adjusted to reflect risk, if necessary. Other significant assumptions include terminal value growth rates and terminal value margin rates. To further support the fair value estimate determined by the income approach, the Company utilizes a market valuation approach to estimate the fair value of a reporting unit. The market approach considers historical and/or anticipated financial metrics of a reporting unit and applies valuation multiples based on recent observed transactions involving companies similar enough to the reporting units from which to draw meaningful conclusions.

Judgments and uncertainties: These fair value calculations contain uncertainties as they require management to make assumptions about future cash flows and appropriate discount rates to reflect the risk inherent in the future cash flows and to derive a reasonable enterprise value and related premium. Our ability to realize the future cash flows used in our fair value 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. The estimated future cash flows reflect management's latest assumptions of the financial projections based on current and anticipated competitive landscape, including estimates of revenue based on production volumes over the foreseeable future and long-term growth rates, and operating margins based on historical trends and future cost containment activities.

Also, the market valuation approach is highly subjective as it requires the selection of comparable companies and valuation multiples.

Impact if actual results differ from assumptions: As of December 31, 2024, our goodwill balance included $72.8 million related to our Automotive segment and $26.8 million related to our Medical segment. These balances could be fully or partially impaired if management does not achieve the expected cash flows assumed in the fair value estimates or if assumptions and cash flow estimates change in future periods.

The Company’s Medical segment is comprised of one reporting unit (the “Medical reporting unit”). The estimated fair value of the Medical reporting unit exceeded its carrying value by approximately 15% as of December 31, 2024. The Medical reporting unit is at risk of failing future impairment tests, as the estimate of fair value does not substantially exceed its carrying value. The Company’s

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estimated future cash flow projections for the Medical reporting unit for the period of 2025 through 2029 assume a compound annual growth rate for revenue of approximately 13.1%, which we deem to be a critical assumption in the fair value determination as of December 31, 2024. This forecasted revenue growth, which is significantly higher than historical periods, is primarily driven by our anticipated product launches that are expected to increase volume and price due to new features and product capabilities. Realization of this assumed revenue growth is dependent on the successful launch of these new products and product features and the acceptance of customers. If this 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 a material impairment of goodwill. Additionally, forecasted cash flows assume margin expansion as a direct result of the forecasted revenue growth. If we experience higher costs than assumed in our forecast or if we experience other deviations from forecasted results and/or external factors (e.g., increase of interest rates), it could result in a material impairment.

The Company's reporting units in its Automotive segment each have a fair value that is substantially in excess of its respective carrying value as of December 31, 2024.

Income Taxes

Critical estimates: The Company is subject to income taxes in the United States and numerous international jurisdictions. In calculating our effective income tax rate, we make judgments regarding certain tax positions, including the timing and amount of deductions and allocations of income among various tax jurisdictions. When determining whether we will be able to realize deferred tax assets, judgment is used to evaluate the positive and negative evidence, including forecasting taxable income using historical and future operating results. The provision for income taxes includes current income taxes as well as deferred income taxes. Deferred tax assets and liabilities are measured based on the difference between the financial statement and tax base of assets and liabilities at the applicable enacted tax rates.

Judgments and uncertainties: We have various tax filing positions with regard to the timing and amount of deductions and credits and the allocation of income among various tax jurisdictions, based on our interpretation of local tax laws, supported by external advisor review for material positions.

Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts expected to be realized when management considers it more likely than not that some portion or all of a deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is based on the evaluation of positive and negative evidence, which includes historical profitability, future market growth, future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The Company assesses deferred taxes and the adequacy or need for a valuation allowance on a quarterly basis.

The Company is subject to ongoing tax examinations and assessments in various jurisdictions. At any time, multiple tax years are subject to audit by the various tax authorities and a number of years may elapse before a particular matter, for which a liability has been established, is audited and fully resolved or clarified. In evaluating the exposures associated with various tax filing positions, the Company may record liabilities for such exposures. The Company generally adjusts its liabilities for unrecognized tax benefits and related indemnification obligations through earnings in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position, or when more information becomes available. Although management believes that the judgments and estimates discussed herein are reasonable, actual results could differ, and may materially increase or decrease the effective tax rate, as well as impact the Company’s operating results.

Impact if actual results differ from assumptions: Some or all of management’s judgments are subject to review by the taxing authorities. If one or more of the taxing authorities were to successfully challenge our right to realize some or all of the tax benefit we have recorded, and we were unable to realize this benefit, it could have a material adverse effect on our financial results and cash flows. Further, if the Company is unable to generate sufficient future taxable income, there is a material change in the actual effective tax rates, a change to the time period within which the underlying temporary differences become taxable or deductible, or if the tax laws change unfavorably, then the Company could be required to increase the valuation allowance against deferred tax assets, resulting in an increase in income tax expense and the effective tax rate.

For the year ended December 31, 2024, each change of the effective tax rate by one percentage point would impact income tax expense by $1.0 million.

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Recent Accounting Pronouncements

For a complete description of recent accounting standards which we have not yet been required to implement which may be applicable to our operations, as well as significant accounting standards that have been adopted during the year ended December 31, 2024, see Note 3, “New Accounting Pronouncements,” to the consolidated financial statements included in this Annual Report.

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