Gentherm Inc.

10/28/2021 | Press release | Distributed by Public on 10/28/2021 04:12

Gentherm Reports 2021 Third Quarter Results - Form 8-K

Gentherm Reports 2021 Third Quarter Results

Automotive Revenue Continued to Significantly Outperform Light Vehicle Production

Secured $260 Million in New Automotive Awards

Updates 2021 Guidance

NORTHVILLE, Michigan, October 28, 2021 /Global Newswire/ - Gentherm (NASDAQ:THRM), a global market leader of innovative thermal management technologies, today announced its financial results for the third quarter ended September 30, 2021.

Third Quarter Highlights

•

Product revenues of $243.4 million decreased 6.2% from $259.5 million in the 2020 third quarter

•

Excluding the impact of foreign currency translation, product revenues decreased 7.3% year over year

•

GAAP diluted earnings per share was $0.47 as compared to $0.73 in the prior-year period

•

Adjusted earnings per share (see table herein) was $0.51 as compared to $0.91 in the prior-year period

•

Secured automotive new business awards totaling $260 million

Phil Eyler, the Company's President and CEO, said "I am proud of the team for their strong execution in the third quarter, despite the unprecedented global supply chain disruption and production volatility. In Automotive, we continued to significantly outperform light vehicle production in the key markets we serve and secured $260 million of new awards from auto makers around the world. Importantly, 40% of these awards are for electric vehicles. In Medical, we are gaining market share with strong demand for Blanketrol®. I am especially pleased that we increased cash flow from operations by over 40% in the third quarter compared to the same period last year."

"While supply disruptions and production volatilities will remain challenging in the foreseeable future, our relentless focus on operational execution, innovation and cash flow generation position us well to continue to drive shareholder value over the long term," continued Eyler.

2021 Third Quarter Financial Review

Product revenues of $243.4 million decreased $16.2 million, or 6.2%, in the third quarter of 2021 as compared to the prior-year period. Excluding the impact of foreign currency translation, product revenues decreased 7.3% year over year.

Automotive revenues decreased 6.7% year over year, as decreases in Climate Control Seat (CCS®), Seat Heaters and Electronics offset revenue increases in all other product categories. Adjusting for foreign currency translation, organic Automotive revenues decreased 7.8% year over year. According to IHS Markit, actual light vehicle production decreased by 22.6% when compared to the third quarter of 2020 in the Company's key markets of North America, Europe, China, Japan and Korea.

Gentherm Medical revenue increased 5.9% year over year, primarily due to higher Blanketrol® and Hemotherm sales.

See the "Revenue by Product Category" table included below for additional detail.

The gross margin rate decreased to 28.5% in the current-year period versus 31.8% in the prior-year period, primarily as a result of the negative impact from industry-wide supply chain disruptions, annual customer price reductions as well as wage and material inflation. These were partially offset by cost recoveries from customers and supplier cost reductions.

Net research and development expenses of $20.6 million in the third quarter of 2021 increased $2.5 million, or 13.9%, year over year as the company increased investments in ClimateSenseTM and battery performance solutions, partially offset by higher R&D reimbursement.

Selling, general and administrative expenses of $27.3 million in the third quarter of 2021 increased $1.6 million, or 6.2%, versus the prior-year period. The year-over-year increase was primarily driven by the absence of temporary COVID-19 cost reduction measures that were taken by the Company in the third quarter of 2020.

Restructuring expenses for the third quarter of 2021 were $0.7 million, as compared to $0.3 million incurred in the prior-year period, as a result of the restructuring plan to improve the Company's manufacturing productivity and rationalize its footprint.

As described more fully in the table included below, "Reconciliation of Net Income to Adjusted EBITDA," the Company recorded Adjusted EBITDA of $30.5 million during the third quarter of 2021 compared to $50.1 million in the prior year, a year-over-year decrease of $19.7 million or 39.2%.

Income tax expense in the 2021 third quarter was $4.6 million, as compared with $9.6 million in the prior-year period. The effective tax rate was 22.9% for the current-year quarter.

GAAP diluted earnings per share for the third quarter of 2021 was $0.47 compared with $0.73 for the prior-year period. Adjusted diluted earnings per share, excluding non-cash purchase accounting impact, unrealized currency gain, restructuring expenses and other impacts (see table herein), was $0.51. Adjusted diluted earnings per share in the prior-year period was $0.91.

Guidance

The Company is updating its full-year 2021 guidance that was last provided on September 14, 2021:

•

Product revenues between $1.02 billion and $1.05 billion, based on the current forecast of customer orders, production outlook, supply chain constraints and current foreign exchange rates

•

Adjusted EBITDA between 14% and 15% of product revenues

•

Full-year effective tax rate between 20% and 22%

•

Capital expenditures between $40 million and $50 million

Conference Call

As previously announced, Gentherm will conduct a conference call today at 8:00 am Eastern Time to review these results. The dial-in number for the call is 1-877-407-4018 (callers in the U.S.) or +1-201-689-8471 (callers outside this U.S.). The passcode for the live call is 13724009.

A live webcast and one-year archived replay of the call can be accessed on the Events page of the Investor section of Gentherm's website at www.gentherm.com.

A telephonic replay will be available approximately two hours after the call until 11:59 pm Eastern Time on November 11, 2021. The replay can be accessed by dialing 1-844-512-2921 (callers in the U.S.), or +1-412-317-6671 (callers outside the U.S.). The passcode for the replay is 13724009.

Investor Relations Contact
Yijing Brentano

[email protected]
(248) 308-1702

Media Contact

Melissa Fischer

[email protected]

248.289.9702

About Gentherm

Gentherm (NASDAQ:THRM) is a global developer and marketer of innovative thermal management technologies for a broad range of heating and cooling and temperature control applications. Automotive products include variable temperature Climate Control Seats, heated automotive interior systems (including heated seats, steering wheels, armrests and other components), battery thermal management systems, cable systems and other electronic devices. Medical products include patient temperature management systems. The Company is also developing a number of new technologies and products that will help enable improvements to existing products and to create new product applications for existing and new markets. Gentherm has more than 11,000 employees in facilities in the United States, Germany, China, Hungary, Japan, Korea, North Macedonia, Malta, Mexico, United Kingdom, Ukraine, and Vietnam.For more information, go to www.gentherm.com.

Forward-Looking Statements

Except for historical information contained herein, statements in this release are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent Gentherm Incorporated's goals, beliefs, plans and expectations about its prospects for the future and other future events. The forward-looking statements included in this release are made as of the date hereof or as of the date specified herein and are based on management's reasonable expectations and beliefs. Such statements are subject to a number of important assumptions, risks, uncertainties and other factors that may cause actual results or performance to differ materially from that described in or indicated by the forward-looking statements, including:

▪

the COVID-19 pandemic and its direct and indirect adverse impacts on the automobile and medical industries, global supply chain and global economy, which had, and may continue to have, an adverse effect on, among other things, the Company's results of operations, financial condition, cash flows, liquidity, borrowing availability under the Company's revolving credit facility, business operations, and stock price;

▪

the loss of any key suppliers, or any material delays in the supply chain of the Company or the OEMs and Tier 1s supplied by the Company, including resulting from a shortage of key

components (such as the significant supply disruptions currently faced by the automotive industry, including relating to semiconductors);

▪

reductions in the Company's manufacturing capacity and productivity due to adverse impacts of shifts and turnover in the labor market;

▪

the Company's failure to be in compliance with covenants under its debt agreements, which could result in the amounts outstanding thereunder being accelerated and becoming immediately due and payable;

▪

the Company's ability to obtain additional financing by accessing the capital markets, which may not be available on acceptable terms or at all;

▪

the macroeconomic environment, including its impact on the automotive industry, which is cyclical;

▪

any significant declines or slower growth than anticipated in light vehicle production, and in particular in markets for electric vehicles;

▪

market acceptance of the Company's existing or new products, and new or improved competing products developed by competitors with greater resources;

▪

shifting customer preferences, including due to the evolving use of automobiles and technology;

▪

the Company's ability to project future sales volumes, based on which the Company manages its business;

▪

reductions in new business awards, which were limited in 2020, and could be limited in the future, due to COVID-19, global supply chain challenges and related uncertainties;

▪

the Company's ability to convert new business awards into product revenues;

▪

managing the Company's growth effectively and to integrate successfully any recent business ventures, acquisitions, and strategic investments and alliances into the Company's business;

▪

the loss or insolvency of any of the Company's key customers;

▪

the impact of price downs in the ordinary course, or additional increased pricing pressures from the Company's customers;

▪

the feasibility of Company's development of new products on a timely, cost effective basis, or at all;

▪

security breaches and other disruptions to the Company's IT systems;

▪

work stoppages impacting the Company, its suppliers or customers;

▪

changes in free trade agreements or the implementation of additional tariffs, and the Company's ability to pass-through tariff costs;

▪

unfavorable changes to currency exchange rates;

▪

the Company's ability to protect its intellectual property in certain jurisdictions;

▪

the Company's ability to effectively implement ongoing restructuring and other cost-savings measures or realize the full amount of estimated savings; and

▪

compliance with, and increased costs related to, domestic and international regulations.

The foregoing risks should be read in conjunction with the Company's filings with the Securities and Exchange Commission (the "SEC"), including "Risk Factors", in its most recent Annual Report on Form 10-K and subsequent SEC filings, for a discussion of these and other risks and uncertainties. In addition, the business outlook discussed in this release does not include the potential impact of any business combinations, acquisitions, divestitures, strategic investments and other significant transactions that may be

completed after the date hereof, each of which may present material risks to the Company's future business and financial results.

Except as required by law, the Company expressly disclaims any obligation or undertaking to update any forward-looking statements to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Product revenues

$

243,384

$

259,540

$

797,924

$

624,214

Cost of sales

173,997

176,935

561,655

448,807

Gross margin

69,387

82,605

236,269

175,407

Operating expenses:

Net research and development expenses

20,590

18,070

56,420

51,171

Selling, general and administrative expenses

27,344

25,745

83,093

73,474

Restructuring expenses

749

284

3,631

3,452

Total operating expenses

48,683

44,099

143,144

128,097

Operating income

20,704

38,506

93,125

47,310

Interest expense, net

(515

)

(1,259

)

(2,184

)

(3,368

)

Foreign currency gain (loss)

133

(2,883

)

391

(5,562

)

Other income (loss)

10

(615

)

13

2,531

Earnings before income tax

20,332

33,749

91,345

40,911

Income tax expense

4,646

9,603

17,959

15,214

Net income

$

15,686

$

24,146

$

73,386

$

25,697

Basic earnings per share

$

0.47

$

0.74

$

2.22

$

0.79

Diluted earnings per share

$

0.47

$

0.73

$

2.19

$

0.78

Weighted average number of shares - basic

33,178

32,624

33,075

32,631

Weighted average number of shares - diluted

33,609

32,958

33,489

32,924

GENTHERM INCORPORATED

REVENUE BY PRODUCT CATEGORY AND RECONCILIATION OF FOREIGN CURRENCY TRANSLATION IMPACT

(In thousands)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

% Change

2021

2020

% Change

Climate Control Seat (CCS)

$

89,991

$

97,058

(7.3

)%

$

297,393

$

229,465

29.6

%

Seat Heaters

61,516

73,471

(16.3

)%

208,101

171,345

21.5

%

Steering Wheel Heaters

24,578

22,506

9.2

%

80,139

49,721

61.2

%

Automotive Cables

19,465

18,917

2.9

%

66,686

50,890

31.0

%

Battery Performance Solutions (BPS)

16,928

15,956

6.1

%

52,265

33,818

54.5

%

Electronics

11,567

14,463

(20.0

)%

41,324

38,327

7.8

%

Other Automotive

8,983

7,393

21.5

%

21,595

17,056

26.6

%

Subtotal Automotive segment

233,028

249,764

(6.7

)%

767,503

590,622

29.9

%

Medical segment

10,356

9,776

5.9

%

30,421

33,592

(9.4

)%

Total Company

$

243,384

$

259,540

-

$

797,924

$

624,214

-

Foreign currency translation impact

2,832

-

24,824

-

Total Company, excluding foreign

currency translation impact

$

240,552

$

259,540

(7.3

)%

$

773,100

$

624,214

23.9

%

GENTHERM INCORPORATED

RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA

(In thousands)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Net income

$

15,686

$

24,146

$

73,386

$

25,697

Add back:

Depreciation and amortization

9,859

10,129

29,182

30,129

Income tax expense

4,646

9,603

17,959

15,214

Interest expense

515

1,259

2,184

3,368

Adjustments:

Restructuring expense

749

284

3,631

3,452

Unrealized currency (gain) loss

(1,039

)

4,117

(1,345

)

6,491

Gain on sale of patents

-

-

-

(1,978

)

Acquisition and divestiture expenses

65

608

1,023

608

Adjusted EBITDA

$

30,481

$

50,146

$

126,020

$

82,981

Product revenues

$

243,384

$

259,540

$

797,924

$

624,214

Adjusted EBITDA %

12.5

%

19.3

%

15.8

%

13.3

%

Use of Non-GAAP Financial Measures

In addition to the results reported in accordance with GAAP throughout this release, the Company has provided here or elsewhere information regarding adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), Adjusted EBITDA margin, adjusted earnings per share ("Adjusted earnings per share" or "Adjusted EPS"), free cash flow, Net Debt and Revenue excluding the impact of foreign currency translation, each a non-GAAP financial measure. The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, deferred financing cost amortization, and other gains and losses not reflective of the Company's ongoing operations and related tax effects including transaction expenses, debt retirement expenses, impairment of assets held for sale, gain or loss on sale of business, restructuring expense, unrealized currency gain or loss and unrealized revaluation of derivatives. The Company defines Adjusted EBITDA margin as Adjusted EBITDA divided by product revenues. The Company defines Adjusted EPS as earnings adjusted by gains and losses not reflective of the Company's ongoing operations and related tax effects including transaction expenses, debt retirement expenses, impairment of assets held for sale, gain or loss on sale of business, restructuring expense, unrealized currency gain or loss and unrealized revaluation of derivatives. The Company defines Free Cash Flow as Net cash provided by operating activities less Purchases of property and equipment. The Company defines Net Debt as the principal amount of all Consolidated Funded Indebtedness (as defined in the Credit Agreement) less cash and cash equivalents. The Company defines Revenue excluding the impact of foreign currency translation as revenue, less the estimated effects of foreign currency exchange on revenue by translating actual revenue using the prior period foreign currency exchange rates.

The Company's reconciliations are included in this release or can be found in the supplemental materials furnished as Exhibit 99.2 to the Company's Form 8-K dated October 28, 2021.

In evaluating its business, the Company considers and uses Free Cash Flow and Net Debt as supplemental measures of its liquidity and the other non-GAAP financial measures as supplemental measures of its operating performance. Management provides such non-GAAP financial measures so that investors will have the same financial information that management uses with the belief that it will assist investors in properly assessing the Company's performance on a period-over-period basis by excluding matters not indicative of the Company's ongoing operating or liquidity results. In evaluating our non-GAAP financial measures, you should be aware that in the future we may incur revenues, expenses,

and cash and non-cash obligations that are the same as or similar to some of the adjustments in our presentation of non-GAAP financial measures. Our presentation of non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There also can be no assurance that we will not modify the presentation of our non-GAAP financial measures in the future, and any such modification may be material. Other companies in our industry may define and calculate these non-GAAP financial measures differently than we do and those calculations may not be comparable to our metrics. These non-GAAP measures have limitations as analytical tools, and when assessing the Company's operating performance or liquidity, investors should not consider these non-GAAP measures in isolation, or as a substitute for net income, revenue or other consolidated income statement or cash flow statement data prepared in accordance with GAAP.

Non-GAAP measures referenced in this release and other public communications may include estimates of future Adjusted EBITDA, Adjusted EBITDA margin and Adjusted EPS. Such forward-looking non-GAAP measures may differ significantly from the corresponding GAAP measures, due to depreciation and amortization, tax expense, and/or interest expense, some or all of which management has not quantified for the future periods.

GENTHERM INCORPORATED

ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE

(In thousands, except per share data)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Net income

$

15,686

$

24,146

$

73,386

$

25,697

Non-cash purchase accounting impact

2,141

2,259

6,241

6,543

Restructuring expenses

749

284

3,631

3,452

Unrealized currency (gain) loss

(1,039

)

4,117

(1,345

)

6,491

Gain on sale of patents

-

-

-

(1,978

)

Acquisition and divestiture expenses

65

608

1,023

608

Tax effect of above

(566

)

(1,435

)

(2,557

)

(3,764

)

Adjusted net income

$

17,036

$

29,979

$

80,379

$

37,049

Weighted average shares outstanding:

Basic

33,178

32,624

33,075

32,631

Diluted

33,609

32,958

33,489

32,924

Earnings per share, as reported:

Basic

$

0.47

$

0.74

$

2.22

$

0.79

Diluted

$

0.47

$

0.73

$

2.19

$

0.78

Adjusted earnings (loss) per share:

Basic

$

0.51

$

0.92

$

2.43

$

1.14

Diluted

$

0.51

$

0.91

$

2.40

$

1.13

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

September 30, 2021

December 31, 2020

ASSETS

Current Assets:

Cash and cash equivalents

$

195,086

$

268,345

Accounts receivable, net

182,324

211,672

Inventory:

Raw materials

89,017

68,362

Work in process

12,460

8,247

Finished goods

52,819

45,792

Inventory, net

154,296

122,401

Other current assets

41,997

41,188

Total current assets

573,703

643,606

Property and equipment, net

155,788

152,581

Goodwill

66,769

68,024

Other intangible assets, net

39,140

46,421

Operating lease right-of-use assets

24,718

30,642

Deferred income tax assets

67,307

73,912

Other non-current assets

16,553

7,653

Total assets

$

943,978

$

1,022,839

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$

124,000

$

116,043

Current lease liabilities

5,948

6,032

Current maturities of long-term debt

2,500

2,500

Other current liabilities

82,905

81,409

Total current liabilities

215,353

205,984

Long-term debt, less current maturities

37,500

189,934

Non-current lease liabilities

20,313

24,233

Pension benefit obligation

7,531

8,163

Other non-current liabilities

7,801

8,194

Total liabilities

$

288,498

$

436,508

Shareholders' equity:

Common Stock:

No par value; 55,000,000 shares authorized 33,224,779 and 32,921,341 issued and outstanding at September 30, 2021 and December 31, 2020, respectively

135,449

121,073

Paid-in capital

5,980

7,458

Accumulated other comprehensive loss

(32,117

)

(14,982

)

Accumulated earnings

546,168

472,782

Total shareholders' equity

655,480

586,331

Total liabilities and shareholders' equity

$

943,978

$

1,022,839

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended September 30,

2021

2020

Operating Activities:

Net income

$

73,386

$

25,697

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

Depreciation and amortization

29,430

30,777

Deferred income taxes

3,867

3,583

Non-cash stock based compensation

9,422

6,569

Change in defined benefit pension plans

(650

)

(433

)

Loss on disposition of property and equipment

638

562

Gain on sale of patents

-

(1,978

)

Changes in assets and liabilities:

Accounts receivable, net

26,162

(33,250

)

Inventory

(34,019

)

4,645

Other assets

10

(57

)

Accounts payable

9,231

24,272

Other liabilities

(371

)

12,914

Net cash provided by operating activities

117,106

73,301

Investing Activities:

Purchases of property and equipment

(29,585

)

(11,613

)

Acquisition of intangible assets

-

(3,141

)

Proceeds from the sale of patents and property and equipment

11

1,068

Acquisition of business

(2,827

)

-

Cost of technology investments

(7,557

)

-

Net cash used in investing activities

(39,958

)

(13,686

)

Financing Activities:

Borrowing of debt

-

201,193

Repayments of debt

(151,993

)

(87,688

)

Cash paid for the repurchase of Common Stock

-

(9,092

)

Proceeds from the exercise of Common Stock options

7,467

6,828

Cash paid for the cancellation of restricted stock

(3,991

)

(811

)

Acquisition contingent consideration payment

(69

)

(618

)

Net cash (used in) provided by financing activities

(148,586

)

109,812

Foreign currency effect

(1,821

)

6,664

Net (decrease) increase in cash, cash equivalents and restricted cash

(73,259

)

176,091

Cash, cash equivalents and restricted cash at beginning of period

268,345

52,948

Cash, cash equivalents and restricted cash at end of period

$

195,086

$

229,039

Supplemental disclosure of cash flow information:

Cash paid (refund) for taxes

$

12,348

$

(252

)

Cash paid for interest

$

1,823

$

3,006

####