Gentherm Reports 2019 First Quarter Results
Company Achieved Organic Automotive Revenue Growth Despite Industry Headwinds
Secured
Maintains Full-Year 2019 Guidance and 2021 Outlook
First Quarter Highlights
- Product revenues of
$257.9 million decreased 2.5% from$264.6 million in the 2018 first quarter. Excluding the impact of foreign currency translation, product revenues were flat year over year - Excluding the impact of foreign currency translation, divested assets and assets held for sale, product revenues increased 3.0% year over year
- GAAP diluted earnings per share was
$0.25 as compared with$0.35 for the prior-year period - Adjusted diluted earnings per share (see table herein), was
$0.55 . Adjusted diluted earnings per share in the prior-year period was$0.52 - Secured automotive new business awards totaling
$400 million in the quarter
2019 First Quarter Financial Review
Product revenues for the first quarter of 2019 decreased
Automotive revenues were flat due to higher sales in Climate Control Seat (“CCS®”) and Battery Thermal Management (BTM), offset by lower sales of seat heaters, steering wheel heaters and automotive cables. Adjusting for foreign currency translation, organic Automotive revenues increased 2.8% year over year.
Organic Automotive revenues grew despite lower than expected automotive production. When compared with
The revenue decline in Industrial resulted primarily from lower revenues from the Cincinnati Sub-Zero (“CSZ”) industrial chambers business, which was sold on
See the “Revenues by Product Category” table enclosed herein for additional detail.
Gross margin rate declined to 29.2% in the current-year period, as compared with 30.7% in the prior-year period, primarily as a result of higher labor costs and the timing differences between annual customer price decreases compared to supplier cost reductions. These were partially offset by higher volume leverage and 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 of
Income tax expense in the 2019 first quarter was
GAAP diluted earnings per share for the first quarter of 2019 was
Guidance
The Company maintains its full-year 2019 guidance, excluding divested assets and assets held for sale, that was initially provided on its year-end 2018 earnings call on February 21, 2019:
- 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
The Company also maintains 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
GENTHERM INCORPORATED | ||||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||||
(In thousands, except per share data) | ||||||||||
(Unaudited) | ||||||||||
Three Months Ended March 31, |
||||||||||
2019 | 2018 | |||||||||
Product revenues | $ | 257,921 | $ | 264,586 | ||||||
Cost of sales | 182,614 | 183,344 | ||||||||
Gross margin | 75,307 | 81,242 | ||||||||
Operating expenses: | ||||||||||
Net research and development expenses | 18,897 | 23,304 | ||||||||
Selling, general and administrative expenses | 32,613 | 36,424 | ||||||||
Acquisition transaction expenses | 38 | — | ||||||||
Restructuring expenses | 1,914 | 865 | ||||||||
Total operating expenses | 53,462 | 60,593 | ||||||||
Operating income | 21,845 | 20,649 | ||||||||
Interest expense | (1,368 | ) | (1,180 | ) | ||||||
Foreign currency gain (loss) | 203 | (4,578 | ) | |||||||
Gain on sale of business | 4,970 | — | ||||||||
Impairment loss | (10,484 | ) | — | |||||||
Other income | 143 | 1,111 | ||||||||
Earnings before income tax | 15,309 | 16,002 | ||||||||
Income tax expense | 6,895 | 3,036 | ||||||||
Net income | $ | 8,414 | $ | 12,966 | ||||||
Basic earnings per share | $ | 0.25 | $ | 0.35 | ||||||
Diluted earnings per share | $ | 0.25 | $ | 0.35 | ||||||
Weighted average number of shares – basic | 33,573 | 36,766 | ||||||||
Weighted average number of shares – diluted | 33,733 | 36,873 |
GENTHERM INCORPORATED | |||||||||||||||
REVENUE BY PRODUCT CATEGORY | |||||||||||||||
(Unaudited, in thousands) | |||||||||||||||
Three Months Ended March 31, |
|||||||||||||||
2019 | 2018 | % Diff. |
|||||||||||||
Climate Control Seat (CCS®) | $ | 94,354 | $ | 88,218 | 7.0 | % | |||||||||
Seat Heaters | 73,920 | 84,220 | (12.2 | ) | % | ||||||||||
Steering Wheel Heaters | 16,970 | 17,557 | (3.3 | ) | % | ||||||||||
Automotive Cables | 23,749 | 26,865 | (11.6 | ) | % | ||||||||||
Battery Thermal Management (BTM) | 10,745 | 4,161 | 158.2 | % | |||||||||||
Electronics | 12,852 | 15,188 | (15.4 | ) | % | ||||||||||
Other Automotive | 9,767 | 6,212 | 57.2 | % | |||||||||||
Subtotal Automotive | $ | 242,357 | $ | 242,421 | — | % | |||||||||
Remote Power Generation (GPT) | 3,959 | 4,662 | (15.1 | ) | % | ||||||||||
Industrial Chambers | 3,418 | 10,213 | (66.5 | ) | % | ||||||||||
Gentherm Medical | 8,187 | 7,290 | 12.3 | % | |||||||||||
Subtotal Industrial | $ | 15,564 | $ | 22,165 | (29.8 | ) | % | ||||||||
Total Company | $ | 257,921 | $ | 264,586 | (2.5 | ) | % | ||||||||
|
|||||||||||||||
Total Core Businesses (Automotive and Gentherm Medical) | $ | 250,544 | $ | 249,711 | 0.3 | % | |||||||||
GENTHERM INCORPORATED | ||||||||
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA | ||||||||
(Unaudited, in thousands) | ||||||||
Three Months Ended March 31, |
||||||||
2019 | 2018 | |||||||
Net income | $ | 8,414 | $ | 12,966 | ||||
Add Back: | ||||||||
Income tax expense | 6,895 | 3,036 | ||||||
Interest expense | 1,368 | 1,180 | ||||||
Depreciation and amortization | 10,980 | 12,820 | ||||||
Adjustments: | ||||||||
Restructuring expenses | 1,914 | 865 | ||||||
Impairment of assets held for sale | 10,484 | – | ||||||
Gain on sale of a business | (4,970 | ) | – | |||||
Acquisition transaction expense | 38 | – | ||||||
Unrealized currency (gain)/loss | (994 | ) | 3,642 | |||||
CFO transition expenses | 1,065 | – | ||||||
Adjusted EBITDA | $ | 35,194 | $ | 34,509 |
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.
GENTHERM INCORPORATED | |||||||||||||||||||||
ACQUISITION TRANSACTION EXPENSES, PURCHASE ACCOUNTING IMPACTS AND OTHER EFFECTS |
|||||||||||||||||||||
(Unaudited and in thousands, except per share data) | |||||||||||||||||||||
Three Months Ended March 31, |
Future Full Year Periods (estimated) | ||||||||||||||||||||
2019 |
2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | |||||||||||||||
Transaction related current expenses | |||||||||||||||||||||
Acquisition transaction expenses | 38 | – | 38 | – | – | – | – | ||||||||||||||
Non-cash purchase accounting impacts | |||||||||||||||||||||
Customer relationships amortization | 1,828 | 2,665 | 7,251 | 5,991 | 5,461 | 5,143 | 18,574 | ||||||||||||||
Technology amortization | 482 | 998 | 1,913 | 1,909 | 1,901 | 1,843 | 4,759 | ||||||||||||||
Inventory value adjustment | 39 | 30 | 39 | – | – | – | – | ||||||||||||||
Trade name amortization | – | – | – | – | – | – | – | ||||||||||||||
Other effects | |||||||||||||||||||||
Restructuring expenses | 1,914 | 865 | 1,914 | – | – | – | – | ||||||||||||||
Gain on sale of a business | (4,970 | ) | – | (4,970 | ) | – | – | – | – | ||||||||||||
Impairment loss | 10,484 | – | 10,484 | – | – | – | – | ||||||||||||||
Unrealized currency (gain)/loss | (994 | ) | 3,642 | (994 | ) | – | – | – | – | ||||||||||||
CFO Transition | 1,065 | – | 1,065 | – | – | – | – | ||||||||||||||
Total acquisition transaction expenses, purchase accounting impacts and other effects |
$ |
9,886 |
$ |
8,200 |
$ |
16,740 |
$ |
7,900 |
$ |
7,362 |
$ |
6,986 |
$ |
23,333 |
|||||||
Tax effect of above | 212 | (2,098 | ) | (1,465 | ) | (1,950 | ) | (1,825 | ) | (1,735 | ) | (5,791 | ) | ||||||||
Net income effect | $ | 10,098 | $ | 6,102 | $ | 15,275 | $ | 5,950 | $ | 5,537 | $ | 5,251 | $ | 17,542 | |||||||
Earnings per share – difference | |||||||||||||||||||||
Basic | $ | 0.30 | $ | 0.17 | – | – | – | – | – | ||||||||||||
Diluted | $ | 0.30 | $ | 0.17 | – | – | – | – | – | ||||||||||||
Adjusted earnings per share | |||||||||||||||||||||
Basic | $ | 0.55 | $ | 0.52 | – | – | – | – | – | ||||||||||||
Diluted | $ | 0.55 | $ | 0.52 | – | – | – | – | – | ||||||||||||
GENTHERM INCORPORATED | |||||||
CONSOLIDATED BALANCE SHEETS | |||||||
(In thousands, except share data) | |||||||
(Unaudited) | |||||||
March 31, 2019 |
December 31, 2018 |
||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 38,769 | $ | 39,620 | |||
Restricted cash | 2,500 | — | |||||
Accounts receivable, less allowance of $1,068 and $851, respectively | 175,044 | 166,858 | |||||
Inventory: | |||||||
Raw materials | 66,316 | 61,679 | |||||
Work in process | 4,830 | 5,939 | |||||
Finished goods | 40,979 | 44,917 | |||||
Inventory, net | 112,125 | 112,535 | |||||
Derivative financial instruments | 857 | 92 | |||||
Prepaid expenses and other assets | 55,577 | 54,271 | |||||
Assets held for sale | 17,009 | 69,699 | |||||
Total current assets | 401,881 | 443,075 | |||||
Property and equipment, net | 168,371 | 171,380 | |||||
Goodwill | 54,721 | 55,311 | |||||
Other intangible assets, net | 53,188 | 56,385 | |||||
Operating lease right-of-use assets | 14,058 | — | |||||
Deferred financing costs | 575 | 647 | |||||
Deferred income tax assets | 61,032 | 64,024 | |||||
Other non-current assets | 9,220 | 12,225 | |||||
Total assets | $ | 763,046 | $ | 803,047 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 91,286 | $ | 93,113 | |||
Accrued liabilities | 60,907 | 65,808 | |||||
Current lease liabilities | 4,203 | — | |||||
Current maturities of long-term debt | 2,949 | 3,413 | |||||
Liabilities held for sale | 7,009 | 13,062 | |||||
Total current liabilities | 166,354 | 175,396 | |||||
Pension benefit obligation | 6,755 | 7,211 | |||||
Non-current lease liabilities | 9,307 | — | |||||
Long-term debt, less current maturities | 97,604 | 136,477 | |||||
Deferred income tax liabilities | 1,649 | 1,177 | |||||
Other non-current liabilities | 2,890 | 3,087 | |||||
Total liabilities | 284,559 | 323,348 | |||||
Shareholders’ equity: | |||||||
Common Stock: | |||||||
No par value; 55,000,000 shares authorized, 33,653,179 and 33,856,629 issued and outstanding at March 31, 2019 and December 31, 2018, respectively | 134,486 | 140,300 | |||||
Paid-in capital | 14,513 | 14,934 | |||||
Accumulated other comprehensive loss | (43,152 | ) | (39,500 | ) | |||
Accumulated earnings | 372,640 | 363,965 | |||||
Total shareholders’ equity | 478,487 | 479,699 | |||||
Total liabilities and shareholders’ equity | $ | 763,046 | $ | 803,047 |
GENTHERM INCORPORATED | |||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(In thousands) | |||||||
(Unaudited) | |||||||
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Operating Activities: | |||||||
Net income | $ | 8,414 | $ | 12,966 | |||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||
Depreciation and amortization | 11,052 | 12,892 | |||||
Deferred income taxes | 1,749 | (707 | ) | ||||
Stock compensation | 1,968 | 2,202 | |||||
Defined benefit plan (income) expense | (617 | ) | 298 | ||||
Provision of doubtful accounts | 229 | 41 | |||||
Loss on sale of property and equipment | 178 | 85 | |||||
Operating lease expense | 1,333 | — | |||||
Impairment loss | 10,484 | — | |||||
Gain on sale of business | (4,970 | ) | — | ||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (8,293 | ) | (9,691 | ) | |||
Inventory | (229 | ) | 1,903 | ||||
Prepaid expenses and other assets | (5,553 | ) | (4,881 | ) | |||
Accounts payable | (2,079 | ) | 1,290 | ||||
Accrued liabilities | (6,785 | ) | (10,808 | ) | |||
Net cash provided by operating activities | 6,881 | 5,590 | |||||
Investing Activities: | |||||||
Proceeds from the sale of property and equipment | 28 | — | |||||
Proceeds from the sale of a business | 47,500 | — | |||||
Final payment for acquisition of subsidiary, net of cash acquired | — | (15 | ) | ||||
Purchases of property and equipment | (5,150 | ) | (8,378 | ) | |||
Net cash provided by (used in) investing activities | 42,378 | (8,393 | ) | ||||
Financing Activities: | |||||||
Borrowing of debt | 10,428 | — | |||||
Repayments of debt | (49,627 | ) | (35,492 | ) | |||
Cash paid for the cancellation of restricted stock | (376 | ) | (659 | ) | |||
Proceeds from the exercise of Common Stock options | 214 | 751 | |||||
Repurchase of Common Stock | (8,040 | ) | — | ||||
Net cash used in financing activities | (47,401 | ) | (35,400 | ) | |||
Foreign currency effect | (209 | ) | 5,513 | ||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 1,649 | (32,690 | ) | ||||
Cash, cash equivalents and restricted cash at beginning of period | 39,620 | 103,172 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 41,269 | $ | 70,482 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for taxes | $ | 3,466 | $ | 6,870 | |||
Cash paid for interest | $ | 1,252 | $ | 981 | |||
Supplemental disclosure of non-cash transactions: | |||||||
Common Stock issued to Board of Directors and employees | $ | 1,581 | $ | 1,362 |
Source: Gentherm Inc.