Gentherm Reports 2018 Fourth Quarter and Full Year Results
Company Achieved Record Annual Revenues Despite Industry Headwinds
Secured Record
2019 Guidance Established
Fourth Quarter Highlights
- Product revenues of
$253.7 million decreased 1.4% from$257.2 million in the 2017 fourth quarter. Excluding the impact of acquisitions and foreign currency translation, product revenues declined 2.2% year over year - Automotive revenues, excluding the impact of acquisitions and foreign currency translation, increased 0.9% year over year
- GAAP diluted earnings per share was
$0.36 as compared with a loss per share of$0.14 for the prior-year period - Adjusted diluted earnings per share, excluding restructuring expenses, unrealized currency loss, and expenses and other impacts related to acquisitions (see table herein), was
$0.50 . Adjusted diluted earnings per share in the prior-year period was$0.61 - Secured automotive new business awards totaling approximately
$350 million in the quarter - Repurchased
$84 million of the Company’s stock
Full Year Highlights
- Record product revenues of
$1,038.3 million increased 5.3% from$985.7 million in 2017. Excluding the impact of acquisitions and foreign currency translation, product revenues declined 0.7% year over year - Automotive revenues, excluding the impact of acquisitions and foreign currency translation, increased 1.0% year over year
- GAAP diluted earnings per share was
$1.16 as compared with$0.96 for the prior-year period - Adjusted diluted earnings per share, excluding impairment loss, restructuring expenses, unrealized currency loss, and expenses and other impacts related to acquisitions (see table herein), was
$2.12 . Adjusted diluted earnings per share in the prior-year period was$2.31 - Secured record automotive new business awards totaling approximately
$1.6 billion , of which 40% represents Climate Control Seat (CCS®) - Repurchased
$148 million of the Company’s stock
“I am pleased with the continued momentum we are achieving with our focused growth strategy, evidenced by a record
2018 Fourth Quarter Financial Review
Product revenues for the fourth quarter of 2018 decreased
Revenue growth in Automotive was driven by higher sales in climate-controlled seats (“CCS”), steering wheel heaters and battery thermal management, partially offset by lower sales of seat heaters and automotive cables, as well as the contribution of the Etratech acquisition for the entire quarter. Adjusting for the Etratech acquisition and foreign currency translation, organic automotive revenues increased 0.9% year over year.
Automotive revenues grew despite lower than expected automotive production in the Company’s key markets which include
The revenue decline in Industrial resulted primarily from lower revenues from the Cincinnati Sub-Zero (“CSZ”) industrial chambers business and Global Power Technologies (“GPT”), which were classified as assets held for sale in the quarter. On
See the “Revenues by Product Category” table enclosed herein for additional detail.
Gross margin rate declined to 27.0% in the current-year period, as compared with 30.0% in the prior-year period, primarily as a result of lower than expected sales volume, late-quarter tier one customer order adjustments, higher labor costs and lower margin on Battery Thermal Management (“BTM”) associated with the launch phase of the new actively cooled technology programs. These were partially offset by Fit-for-Growth cost reduction initiatives.
Net research and development expenses of
Selling, general and administrative expenses of
During the quarter, the Company recognized
As described more fully in the table included below, “Reconciliation of Net Income to Adjusted EBITDA,” the Company recorded Adjusted EBITDA less CEO transition expenses of
Income tax expense in the 2018 fourth quarter was
GAAP diluted earnings per share for the fourth quarter of 2018 was
Full Year Revenue and Earnings Per Share Discussion
For full-year 2018, the Company reported record product revenues of
In the Automotive segment, 2018 full-year revenues were
The Company’s Industrial Segment revenues decreased
GAAP diluted earnings per share was
Guidance
The Company is providing the following guidance for 2019, excluding divested assets and assets held for sale:
- Product revenues are expected to grow between 4% and 6% to a range of
$1.01 billion to $1.04 billion - Operating expenses between 19% and 20% of product revenues
- Gross margin rate between 28% and 30%
- Adjusted EBITDA between 14% and 15% of product revenue
- Full-year effective tax rate between 28% and 30%
- Capital expenditures between
$40 and $50 million
Based on 2018 results and 2019 guidance, the Company is reaffirming the following outlook for 2021:
- Product revenue growth of high single-digit CAGR for the 2018 to 2021 period
- Operating expenses between 15% and 17% of product revenues
- Gross margin rate between 30% and 32%
- Adjusted EBITDA margin of high teens
- ROIC of greater than 20%
Conference Call
As previously announced,
A live webcast and one-year archived replay of the call can be accessed on the Events page of the Investor section of
A telephonic replay will be available at approximately 2 hours after the call until
Investor Relations Contact
investors@gentherm.com
(248) 308-1702
Media Contact
media@gentherm.com
248.289.9702
About
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
The foregoing risks should be read in conjunction with other cautionary statements included herein, as well as in the Company's annual report on Form 10-K for the year ended
TABLES FOLLOW
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended December 31, |
Year Ended December 31, |
||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||
Product revenues | $ | 253,652 | $ | 257,185 | 1,038,259 | $ | 985,683 | ||||||||||
Cost of sales | 185,195 | 179,953 | 743,647 | 674,796 | |||||||||||||
Gross margin | 68,457 | 77,232 | 294,612 | 310,887 | |||||||||||||
Operating expenses: | |||||||||||||||||
Net research and development expenses | 16,518 | 21,845 | 79,900 | 82,478 | |||||||||||||
Acquisition transaction expenses | — | 789 | — | 789 | |||||||||||||
Selling, general and administrative expenses | 29,232 | 33,610 | 127,152 | 130,522 | |||||||||||||
Restructuring expenses | 1,874 | — | 14,772 | — | |||||||||||||
Total operating expenses | 47,624 | 56,244 | 221,824 | 213,789 | |||||||||||||
Operating income | 20,833 | 20,988 | 72,788 | 97,098 | |||||||||||||
Interest expense | (1,281 | ) | (1,252 | ) | (4,942 | ) | (4,885 | ) | |||||||||
Foreign currency (loss)gain | (99 | ) | (1,188 | ) | 622 | (23,108 | ) | ||||||||||
Impairment loss | — | — | (11,476 | ) | — | ||||||||||||
Other income (loss) | (411 | ) | 5 | 1,127 | 150 | ||||||||||||
Earnings before income tax | 19,042 | 18,553 | 58,119 | 69,255 | |||||||||||||
Income tax expense | 6,413 | 23,795 | 16,220 | 34,028 | |||||||||||||
Net income (loss) | $ | 12,629 | $ | (5,242 | ) | $ | 41,899 | $ | 35,227 | ||||||||
Basic earnings (loss) per share | $ | 0.37 | $ | (0.14 | ) | $ | 1.17 | $ | 0.96 | ||||||||
Diluted earnings (loss) per share | $ | 0.36 | $ | (0.14 | ) | $ | 1.16 | $ | 0.96 | ||||||||
Weighted average number of shares – basic | 34,551 | 36,743 | 35,921 | 36,721 | |||||||||||||
Weighted average number of shares – diluted | 34,743 | 36,869 | 36,177 | 36,814 |
REVENUE BY PRODUCT CATEGORY
(Unaudited, in thousands)
Three Months Ended December 31, |
|
Year Ended December 31, |
|
|||||||||||||||||||||||||
2018 | 2017 | % Diff. |
2018 | 2017 |
% Diff. |
|||||||||||||||||||||||
Climate Control Seat (CCS) | $ | 98,033 | $ | 93,397 | 5.0 | % | $ | 374,816 | $ | 387,961 | (3.4 | ) | % | |||||||||||||||
Seat Heaters | 70,173 | 78,067 | (10.1 | ) | % | 305,337 | 307,309 | (0.6 | ) | % | ||||||||||||||||||
Steering Wheel Heaters | 16,653 | 16,142 | 3.2 | % | 69,845 | 62,125 | 12.4 | % | ||||||||||||||||||||
Automotive Cables | 21,460 | 24,764 | (13.3 | ) | % | 98,931 | 92,093 | 7.4 | % | |||||||||||||||||||
Battery Thermal Management (BTM) (1) | 9,609 | 2,862 | 235.7 | % | 28,472 | 10,043 | 184 | % | ||||||||||||||||||||
Etratech | 11,840 | 8,398 | (13.2 | ) | %(2) | 54,267 | 8,398 | (1.3 | ) | %(2) | ||||||||||||||||||
Other Automotive | 3,406 | 3,007 | 13.3 | % | 16,924 | 11,528 | (3) | 46.8 | % | |||||||||||||||||||
Subtotal Automotive | $ | 231,174 | $ | 226,637 | 2.0 | % | $ | 948,592 | $ | 879,457 | 7.9 | % | ||||||||||||||||
Remote Power Generation (GPT) | 5,209 | 12,486 | (58.3 | ) | % | 19,222 | 31,891 | (39.7 | ) | % | ||||||||||||||||||
Cincinnati Sub-Zero Products (CSZ) | 17,269 | 18,062 | (4.4 | ) | % | 70,445 | 74,335 | (5.2 | ) | % | ||||||||||||||||||
Subtotal Industrial | $ | 22,478 | $ | 30,548 | (26.4 | ) | % | $ | 89,667 | $ | 106,226 | (15.6 | ) | % | ||||||||||||||
Total Company | $ | 253,652 | $ | 257,185 | (1.4 | ) | % | $ | 1,038,259 | $ | 985,683 | 5.3 | % |
(1) | Battery Thermal Management or BTM product revenues include Gentherm’s automotive grade, low cost, heat resistant fans and blowers used by customer for battery cooling through ventilation and production level shipments of the advanced TED based active cool system which began during the fourth quarter of 2017. |
(2) | Amount represents the pro-forma growth for Etratech by comparing the amount of revenue during the 2018 period to Etratech’s revenue during the prior year period which totaled $13,641 and $54,987, respectively, which is not included in Gentherm’s revenue since the acquisition did not occur until November 1, 2017. |
(3) | Includes $2.0 million rebate to customer during the third quarter of 2017. |
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(Unaudited, in thousands)
Three Months Ended December 31, |
Year Ended December 31, |
||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||
Net income (loss) | $ | 12,629 | $ | (5,242 | ) | $ | 41,899 | $ | 35,227 | ||||||||
Add Back: | |||||||||||||||||
Income tax expense | 6,413 | 23,795 | 16,220 | 34,028 | |||||||||||||
Interest expense | 1,281 | 1,252 | 4,942 | 4,885 | |||||||||||||
Depreciation and amortization | 11,845 | 12,238 | 50,350 | 44,685 | |||||||||||||
Adjustments: | |||||||||||||||||
Restructuring expenses | 1,874 | – | 14,772 | – | |||||||||||||
Impairment of assets held for sale | – | – | 11,476 | – | |||||||||||||
Acquisition transaction expense | – | 789 | – | 789 | |||||||||||||
Unrealized currency loss | 488 | 2,393 | 589 | 21,819 | |||||||||||||
Adjusted EBITDA | 34,530 | 35,225 | 140,248 | 141,433 | |||||||||||||
CEO transaction expenses | – | 3,757 | – | 6,694 | |||||||||||||
Adjusted EBITDA less CEO transition expenses | $ | 34,530 | $ | 38,982 | $ | 140,248 | $ | 148,127 |
Use of Non-GAAP Financial Measures
In evaluating its business,
The term Adjusted EBITDA is not defined under GAAP, and is not a measure of operating income, operating performance or liquidity presented in accordance with GAAP. Adjusted EBITDA has limitations as an analytical tool, and when assessing the Company's operating performance, investors should not consider Adjusted EBITDA in isolation, or as a substitute for net income or other consolidated income statement data prepared in accordance with GAAP.
ACQUISITION TRANSACTION EXPENSES, PURCHASE ACCOUNTING IMPACTS
AND OTHER EFFECTS
(Unaudited and in thousands, except per share data)
Three Months Ended | Full Year | |||||||||||||||||||||||||||||||
December 31, | December 31, | Future Full Year Periods (estimated) | ||||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2019 | 2020 | 2021 | Thereafter | |||||||||||||||||||||||||
Transaction related current expense | — | 789 | — | 789 | — | — | — | — | ||||||||||||||||||||||||
Acquisition transaction expenses | ||||||||||||||||||||||||||||||||
Non-cash purchase accounting impacts | ||||||||||||||||||||||||||||||||
Customer relationships amortization | 2,528 | 2,412 | 10,363 | 8,197 | 7,986 | 6,728 | 6,192 | 28,072 | ||||||||||||||||||||||||
Technology amortization | 968 | 844 | 2,984 | 2,943 | 2,406 | 2,406 | 2,179 | 2,547 | ||||||||||||||||||||||||
Trade name amortization | — | 45 | — | 132 | — | — | — | — | ||||||||||||||||||||||||
Inventory fair value adjustment | 30 | 20 | 118 | 20 | 39 | — | — | — | ||||||||||||||||||||||||
Other effects | ||||||||||||||||||||||||||||||||
Unrealized currency loss | 488 | 2,393 | 589 | 21,819 | ||||||||||||||||||||||||||||
Restructuring expenses | 1,874 | — | 14,772 | — | ||||||||||||||||||||||||||||
Impairment of assets held for sale | — | — | 11,476 | — | ||||||||||||||||||||||||||||
CEO transition expenses | — | 3,757 | — | 6,694 | — | — | — | — | ||||||||||||||||||||||||
Total acquisition transaction expenses, purchase accounting impacts and other effects |
$ | 5,888 | $ | 10,260 | $ | 40,302 | $ | 40,594 | $ | 10,431 | $ | 9,134 | $ | 8,371 | $ | 30,619 | ||||||||||||||||
Tax effect of above | (1,112 | ) | (2,625 | ) | (5,462 | ) | (10,855 | ) | (1,517 | ) | (1,226 | ) | (1,067 | ) | (2,937 | ) | ||||||||||||||||
U.S. Tax Reform | — | 20,153 | — | 20,153 | ||||||||||||||||||||||||||||
Net income effect | $ | 4,776 | $ | 27,788 | $ | 34,840 | $ | 49,892 | $ | 8,914 | $ | 7,908 | $ | 7,304 | $ | 27,682 | ||||||||||||||||
Earnings per share - difference | ||||||||||||||||||||||||||||||||
Basic | $ | 0.14 | $ | 0.76 | $ | 0.97 | $ | 1.36 | ||||||||||||||||||||||||
Diluted | $ | 0.14 | $ | 0.76 | $ | 0.96 | $ | 1.36 | ||||||||||||||||||||||||
Adjusted earnings per share | ||||||||||||||||||||||||||||||||
Basic | $ | 0.50 | $ | 0.61 | $ | 2.14 | $ | 2.32 | ||||||||||||||||||||||||
Diluted | $ | 0.50 | $ | 0.61 | $ | 2.12 | $ | 2.31 |
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
December 31, 2018 |
December 31, 2017 |
||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 39,620 | $ | 103,172 | |||
Accounts receivable, less allowance of $851 and $973, respectively | 166,858 | 185,058 | |||||
Inventory: | |||||||
Raw materials | 61,679 | 64,175 | |||||
Work in process | 5,939 | 16,139 | |||||
Finished goods | 44,917 | 41,095 | |||||
Inventory, net | 112,535 | 121,409 | |||||
Derivative financial instruments | 92 | 213 | |||||
Prepaid expenses and other assets | 54,271 | 51,217 | |||||
Assets held for sale | 69,699 | — | |||||
Total current assets | 443,075 | 461,069 | |||||
Property and equipment, net | 171,380 | 200,294 | |||||
Goodwill | 55,311 | 69,685 | |||||
Other intangible assets, net | 56,385 | 83,286 | |||||
Deferred financing costs | 647 | 936 | |||||
Deferred income tax assets | 64,024 | 30,152 | |||||
Other non-current assets | 12,225 | 37,983 | |||||
Total assets | $ | 803,047 | $ | 883,405 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 93,113 | $ | 89,596 | |||
Accrued liabilities | 65,808 | 77,209 | |||||
Current maturities of long-term debt | 3,413 | 3,460 | |||||
Derivative financial instruments | — | 1,050 | |||||
Liabilities held for sale | 13,062 | — | |||||
Total current liabilities | 175,396 | 171,315 | |||||
Pension benefit obligation | 7,211 | 7,913 | |||||
Other liabilities | 3,087 | 2,747 | |||||
Long-term debt, less current maturities | 136,477 | 141,209 | |||||
Deferred income tax liabilities | 1,177 | 6,347 | |||||
Total liabilities | 323,348 | 329,531 | |||||
Shareholders’ equity: | |||||||
Common Stock: | |||||||
No par value; 55,000,000 shares authorized, 33,856,629 and 36,761,362 issued and outstanding at December 31, 2018 and December 31, 2017, respectively |
140,300 | 265,048 | |||||
Paid-in capital | 14,934 | 15,625 | |||||
Accumulated other comprehensive loss | (39,500 | ) | (20,444 | ) | |||
Accumulated earnings | 363,965 | 293,645 | |||||
Total shareholders’ equity | 479,699 | 553,874 | |||||
Total liabilities and shareholders’ equity | $ | 803,047 | $ | 883,405 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Year Ended December 31, | |||||||
2018 | 2017 | ||||||
Operating Activities: | |||||||
Net income | $ | 41,899 | $ | 35,227 | |||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||
Depreciation and amortization | 50,638 | 44,972 | |||||
Deferred income taxes | 6,699 | 5,135 | |||||
Stock compensation | 9,047 | 12,507 | |||||
Defined benefit plan (income) expense | 82 | (23 | ) | ||||
Provision of doubtful accounts | (1 | ) | (469 | ) | |||
Loss on sale of property and equipment | 2,602 | 1,042 | |||||
Impairment loss | 11,476 | — | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | 3,024 | 6,033 | |||||
Inventory | (7,689 | ) | (4,348 | ) | |||
Prepaid expenses and other assets | (4,428 | ) | (12,334 | ) | |||
Accounts payable | 12,380 | (7,691 | ) | ||||
Accrued liabilities | (7,295 | ) | (30,171 | ) | |||
Net cash provided by operating activities | 118,434 | 49,880 | |||||
Investing Activities: | |||||||
Proceeds from the sale of property and equipment | 799 | 91 | |||||
Investment in subsidiary, net of cash acquired | (15 | ) | (66,994 | ) | |||
Purchases of property and equipment | (41,541 | ) | (50,785 | ) | |||
Net cash used in investing activities | (40,757 | ) | (117,688 | ) | |||
Financing Activities: | |||||||
Borrowing of debt | 94,679 | — | |||||
Repayments of debt | (99,460 | ) | (27,156 | ) | |||
Cash paid for the cancellation of restricted stock | (1,188 | ) | (1,837 | ) | |||
Proceeds from the exercise of Common Stock options | 14,777 | 2,755 | |||||
Cash paid for the repurchase of restricted stock | (148,074 | ) | (5,326 | ) | |||
Net cash used in financing activities | (139,266 | ) | (31,564 | ) | |||
Foreign currency effect | (1,963 | ) | 25,357 | ||||
Net decrease in cash and cash equivalents | (63,552 | ) | (74,015 | ) | |||
Cash and cash equivalents at beginning of period | 103,172 | 177,187 | |||||
Cash and cash equivalents at end of period | $ | 39,620 | $ | 103,172 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for taxes | $ | 23,159 | $ | 76,741 | |||
Cash paid for interest | $ | 5,027 | $ | 4,540 | |||
Supplemental disclosure of non-cash transactions: | |||||||
Common Stock issued to Board of Directors and employees | $ | 5,759 | $ | 6,298 |
Source: Gentherm Inc.