Gentherm Reports 2019 Second Quarter Results
Revenue Performance Reflects Challenging Automotive Environment
Achieved Highest Gross Margin Rate in 5 Quarters
Reduced Operating Expenses by 14%
Updates 2019 Revenue and Gross Margin Guidance
Second Quarter Highlights
- Product revenues of
$243.3 million decreased 8.7% from$266.4 million in the 2018 second quarter - Excluding the impact of foreign currency translation, divested assets and assets held for sale, product revenues decreased 1.9% year over year
- GAAP diluted earnings per share was
$0.08 as compared to$0.45 for the prior-year period - Adjusted earnings per share (see table herein) was
$0.47 . Adjusted earnings per share in the prior-year period was$0.58 - Secured automotive new business awards totaling
$260 million - Repurchased
$25 million of the Company’s stock
“In Automotive, we secured over
2019 Second Quarter Financial Review
Product revenues for the second quarter of 2019 of
Automotive revenues declined 5.5% year over year. All product categories saw revenue declines except Battery Thermal Management (BTM) and Other Automotive. Adjusting for foreign currency translation, organic Automotive revenues decreased 3.0% year over year. When compared with
The revenue decline in the Industrial segment resulted from the absence of revenue in this year’s second quarter from the divested Cincinnati Sub-Zero (CSZ) industrial chamber business and lower sales in the Global Power Technologies (GPT) business, which has been classified as “assets held for sale.” The decline was partially offset by higher medical revenue. Gentherm Medical revenue grew 30.7% year over year as a result of the Stihler acquisition that occurred in the first quarter of 2019, as well as higher Blanketrol sales.
See the “Revenue by Product Category” table included below for additional detail.
The gross margin rate increased to 29.9% in the current-year period, a 100-basis point improvement over the prior-year period, primarily as a result of supplier cost reductions, higher labor productivity and Fit-for-Growth cost reduction initiatives. These were partially offset by annual customer price reductions, wage inflation, tariffs, as well as the negative fixed cost leverage from lower unit volume. On a sequential basis, the gross margin rate improved 70 basis points.
Net research and development (R&D) expenses of
Selling, general and administrative (SG&A) 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 second quarter was
GAAP diluted earnings per share for the second quarter of 2019 was
Guidance
Based on the Company’s second quarter results and the challenging macroeconomic environment,
- Product revenues are expected to grow between 0% and 2%
- Operating expenses between 19% and 20% of product revenues
- Gross margin rate between 29% 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
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 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 the Company's filings with the
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 June 30, |
Six Months Ended June 30, |
||||||||||||||||
2019 | 2018(1) | 2019 | 2018(1) | ||||||||||||||
Product revenues | $ | 243,326 | $ | 266,400 | $ | 501,247 | $ | 530,986 | |||||||||
Cost of sales | 170,612 | 189,308 | 353,226 | 372,652 | |||||||||||||
Gross margin | 72,714 | 77,092 | 148,021 | 158,334 | |||||||||||||
Operating expenses: | |||||||||||||||||
Net research and development expenses | 19,255 | 21,022 | 38,152 | 44,326 | |||||||||||||
Selling, general and administrative expenses | 31,829 | 34,262 | 64,442 | 70,686 | |||||||||||||
Acquisition transaction expense | 342 | — | 380 | — | |||||||||||||
Restructuring expenses | 1,231 | 6,215 | 3,145 | 7,080 | |||||||||||||
Total operating expenses | 52,657 | 61,499 | 106,119 | 122,092 | |||||||||||||
Operating income | 20,057 | 15,593 | 41,902 | 36,242 | |||||||||||||
Interest expense | (1,240 | ) | (1,240 | ) | (2,608 | ) | (2,420 | ) | |||||||||
Foreign currency (loss) gain | (804 | ) | 5,174 | (601 | ) | 596 | |||||||||||
Gain on sale of business | — | — | 4,970 | — | |||||||||||||
Impairment loss | (9,885 | ) | — | (20,369 | ) | — | |||||||||||
Other income | 171 | 215 | 314 | 1,326 | |||||||||||||
Earnings before income tax | 8,299 | 19,742 | 23,608 | 35,744 | |||||||||||||
Income tax expense | 5,548 | 3,083 | 12,443 | 6,119 | |||||||||||||
Net income | $ | 2,751 | $ | 16,659 | $ | 11,165 | $ | 29,625 | |||||||||
Basic earnings per share | $ | 0.08 | $ | 0.46 | $ | 0.33 | $ | 0.81 | |||||||||
Diluted earnings per share | $ | 0.08 | $ | 0.45 | $ | 0.33 | $ | 0.81 | |||||||||
Weighted average number of shares – basic | 33,441 | 36,523 | 33,508 | 36,560 | |||||||||||||
Weighted average number of shares – diluted | 33,574 | 36,667 | 33,651 | 36,663 | |||||||||||||
|
GENTHERM INCORPORATED |
REVENUE BY PRODUCT CATEGORY |
(Unaudited, in thousands) |
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||||||||||||
2019 | 2018(1) | % Diff. | 2019 | 2018(1) | % Diff. | ||||||||||||||||||||||
Climate Controlled Seat (CCS) | $ | 88,437 | $ | 90,395 | (2.1 | )% | $ | 182,791 | $ | 178,613 | 2.3 | % | |||||||||||||||
Seat Heaters | 73,628 | 80,176 | (8.2 | )% | 147,548 | 164,396 | (10.2 | )% | |||||||||||||||||||
Steering Wheel Heaters | 16,029 | 17,540 | (8.6 | )% | 32,999 | 35,097 | (6.0 | )% | |||||||||||||||||||
Automotive Cables | 22,205 | 25,645 | (13.4 | )% | 45,955 | 52,510 | (12.5 | )% | |||||||||||||||||||
Battery Thermal Management (BTM) | 8,897 | 7,241 | 22.9 | % | 19,641 | 11,402 | 72.3 | % | |||||||||||||||||||
Electronics | 11,454 | 15,842 | (27.6 | )% | 24,306 | 31,819 | (23.6 | )% | |||||||||||||||||||
Other Automotive | 9,050 | 6,311 | 43.4 | % | 18,817 | 11,734 | 60.4 | % | |||||||||||||||||||
Subtotal Automotive | $ | 229,700 | $ | 243,150 | (5.5 | )% | $ | 472,057 | $ | 485,571 | (2.8 | )% | |||||||||||||||
Remote Power Generation (GPT) | 3,745 | 5,270 | (28.9 | )% | 7,704 | 9,932 | (22.4 | )% | |||||||||||||||||||
Industrial Chambers | — | 10,418 | (100 | )% | 3,418 | 20,631 | (83.4 | )% | |||||||||||||||||||
Gentherm Medical | 9,881 | 7,562 | 30.7 | % | 18,068 | 14,852 | 21.7 | % | |||||||||||||||||||
Subtotal Industrial | $ | 13,626 | $ | 23,250 | (41.4 | )% | $ | 29,190 | $ | 45,415 | (35.7 | )% | |||||||||||||||
Total Company | $ | 243,326 | $ | 266,400 | (8.7 | )% | $ | 501,247 | $ | 530,986 | (5.6 | )% | |||||||||||||||
Total Core Businesses (Automotive and Gentherm Medical) | $ | 239,581 | $ | 250,712 | (4.4 | )% | $ | 490,125 | $ | 500,423 | (2.1 | )% | |||||||||||||||
|
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RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(In thousands)
(Unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||
Net Income | $ | 2,751 | $ | 16,659 | $ | 11,165 | $ | 29,625 | |||||||||
Add Back: | |||||||||||||||||
Income tax expense | 5,548 | 3,083 | 12,443 | 6,119 | |||||||||||||
Interest expense | 1,240 | 1,240 | 2,608 | 2,420 | |||||||||||||
Depreciation and amortization | 11,094 | 12,859 | 22,074 | 25,679 | |||||||||||||
Adjustments: | |||||||||||||||||
Restructuring expenses | 1,231 | 6,215 | 3,145 | 7,080 | |||||||||||||
Impairment of assets held for sale | 9,885 | — | 20,369 | — | |||||||||||||
Gain on sale of business | — | — | (4,970 | ) | — | ||||||||||||
Acquisition transaction expenses | 342 | — | 380 | — | |||||||||||||
Unrealized currency loss (gain) | 71 | (4,532 | ) | (923 | ) | (890 | ) | ||||||||||
CFO transition expense | — | — | 1,065 | — | |||||||||||||
Adjusted EBITDA | $ | 32,162 | $ | 35,524 | $ | 67,356 | $ | 70,033 |
Use of Non-GAAP Financial Measures
In addition to the results reported in accordance with GAAP throughout this release, the Company has provided information regarding adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) and adjusted earnings per share (“Adjusted earnings per share” or “Adjusted EPS”), 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 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’s reconciliation of net income to Adjusted EBITDA is provided in this release. The Company’s Reconciliation of Adjusted EPS can be found in the supplemental materials furnished as Exhibit 99.2 to the Company’s Form 8-K dated
In evaluating its business, the Company considers and uses Adjusted EBITDA and Adjusted EPS as supplemental measures of its operating performance. Management provides Adjusted EBITDA and Adjusted EPS 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. Other companies in our industry may 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, investors should not consider Adjusted EBITDA or Adjusted EPS in isolation, or as a substitute for net income or other consolidated income statement data prepared in accordance with GAAP.
Non-GAAP measures referenced in this release may include estimates of future Adjusted EBITDA 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.
ACQUISITION TRANSACTION EXPENSES, PURCHASE ACCOUNTING IMPACTS
AND OTHER EFFECTS
(In thousands, except per share data)
(Unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
June 30, | June 30, | Future Full Year Periods (estimated) | |||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | |||||||||||||||||||||||||||
Transaction related current expenses | |||||||||||||||||||||||||||||||||||
Acquisition transaction expenses | $ | 342 | $ | — | $ | 380 | $ | — | $ 380 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
Non-cash purchase accounting impacts | |||||||||||||||||||||||||||||||||||
Customer relationships amortization | 1,936 | 2,607 | 3,764 | 5,273 | 7,677 | 6,569 | 6,003 | 5,581 | 20,905 | ||||||||||||||||||||||||||
Technology amortization | 498 | 985 | 980 | 1,791 | 1,986 | 2,012 | 2,004 | 1,945 | 5,063 | ||||||||||||||||||||||||||
Inventory fair value adjustment | 117 | 30 | 156 | 59 | 462 | 447 | — | — | — | ||||||||||||||||||||||||||
Other effects | |||||||||||||||||||||||||||||||||||
Restructuring expenses | 1,231 | 6,276 | 3,145 | 7,141 | 3,145 | — | — | — | — | ||||||||||||||||||||||||||
Gain on sale of business | — | — | (4,970 | ) | — | (4,970) | — | — | — | — | |||||||||||||||||||||||||
Impairment loss | 9,885 | — | 20,369 | — | 20,369 | — | — | — | — | ||||||||||||||||||||||||||
Unrealized currency loss (gain) | 71 | (4,532) | (923 | ) | (890 | ) | (923) | — | — | — | — | ||||||||||||||||||||||||
CFO Transition | — | — | 1,065 | — | 1,065 | — | — | — | — | ||||||||||||||||||||||||||
Total acquisition transaction expenses, purchase accounting impacts and other effects | $ | 14,080 | $ | 5,366 | $ | 23,966 | $ | 13,374 | $ | 29,191 | $ | 9,028 | $ | 8,007 | $ | 7,526 | $ | 25,968 | |||||||||||||||||
Tax effect of above | (1,117 | ) | (711) | (905 | ) | (2,452 | ) | (2,236) | (2,313 | ) | (2,037 | ) | (1,914 | ) | (6,571) | ||||||||||||||||||||
Net income effect | $ | 12,963 | $ | 4,655 | $ | 23,061 | $ | 10,922 | $26,955 | $ | 6,715 | 5,970 | 5,612 | $ | 19,397 | ||||||||||||||||||||
Earnings per share - difference | |||||||||||||||||||||||||||||||||||
Basic | $ | 0.39 | $ | 0.12 | $ | 0.69 | $ | 0.30 | |||||||||||||||||||||||||||
Diluted | $ | 0.39 | $ | 0.13 | $ | 0.69 | $ | 0.30 | |||||||||||||||||||||||||||
Adjusted earnings per share | |||||||||||||||||||||||||||||||||||
Basic | $ | 0.47 | $ | 0.58 | $ | 1.02 | $ | 1.11 | |||||||||||||||||||||||||||
Diluted | $ | 0.47 | $ | 0.58 | $ | 1.02 | $ | 1.11 |
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
June 30, 2019 |
December 31, 2018 |
||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 33,677 | $ | 39,620 | |||
Restricted cash | 2,504 | — | |||||
Accounts receivable, less allowance of $1,399 and $851, respectively | 171,640 | 166,858 | |||||
Inventory: | |||||||
Raw materials | 66,181 | 61,679 | |||||
Work in process | 6,660 | 5,939 | |||||
Finished goods | 39,772 | 44,917 | |||||
Inventory, net | 112,613 | 112,535 | |||||
Derivative financial instruments | 1,155 | 92 | |||||
Prepaid expenses and other assets | 50,128 | 54,271 | |||||
Assets held for sale | 6,714 | 69,699 | |||||
Total current assets | 378,431 | 443,075 | |||||
Property and equipment, net | 169,345 | 171,380 | |||||
Goodwill | 65,114 | 55,311 | |||||
Other intangible assets, net | 55,479 | 56,385 | |||||
Operating lease right-of-use assets | 13,267 | — | |||||
Deferred financing costs | 1,782 | 647 | |||||
Deferred income tax assets | 60,071 | 64,024 | |||||
Other non-current assets | 8,421 | 12,225 | |||||
Total assets | $ | 751,910 | $ | 803,047 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 84,009 | $ | 93,113 | |||
Accrued liabilities | 62,706 | 65,808 | |||||
Current lease liabilities | 5,031 | — | |||||
Current maturities of long-term debt | 2,955 | 3,413 | |||||
Liabilities held for sale | 6,714 | 13,062 | |||||
Total current liabilities | 161,415 | 175,396 | |||||
Pension benefit obligation | 6,765 | 7,211 | |||||
Non-current lease liabilities | 7,741 | — | |||||
Long-term debt, less current maturities | 104,393 | 136,477 | |||||
Deferred income tax liabilities | 2,577 | 1,177 | |||||
Other non-current liabilities | 3,738 | 3,087 | |||||
Total liabilities | 286,629 | 323,348 | |||||
Shareholders’ equity: | |||||||
Common Stock: | |||||||
No par value; 55,000,000 shares authorized, 33,147,567 and 33,856,629 issued and outstanding at June 30, 2019 and December 31, 2018, respectively | 115,310 |
140,300 | |||||
Paid-in capital | 14,020 | 14,934 | |||||
Accumulated other comprehensive loss | (39,440 | ) | (39,500 | ) | |||
Accumulated earnings | 375,391 | 363,965 | |||||
Total shareholders’ equity | 465,281 | 479,699 | |||||
Total liabilities and shareholders’ equity | $ | 751,910 | $ | 803,047 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
Operating Activities: | |||||||
Net income | $ | 11,165 | $ | 29,625 | |||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||
Depreciation and amortization | 22,217 | 25,823 | |||||
Deferred income taxes | 3,070 | (1,799 | ) | ||||
Stock compensation | 3,291 | 4,063 | |||||
Defined benefit plan income | (699 | ) | (103 | ) | |||
Provision of doubtful accounts | 545 | 204 | |||||
Loss on sale of property and equipment | 227 | 2,156 | |||||
Operating lease expense | 2,903 | — | |||||
Impairment loss | 20,369 | — | |||||
Gain on sale of business | (4,970 | ) | — | ||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (4,021 | ) | (17,469 | ) | |||
Inventory | 1,650 | 1,631 | |||||
Prepaid expenses and other assets | 276 | (12,094 | ) | ||||
Accounts payable | (9,528 | ) | 10,540 | ||||
Accrued liabilities | (6,087 | ) | (10,034 | ) | |||
Net cash provided by operating activities | 40,408 | 32,543 | |||||
Investing Activities: | |||||||
Proceeds from the sale of property and equipment | 82 | 698 | |||||
Proceeds from sale of a business | 47,500 | — | |||||
Acquisition of subsidiary, net of cash acquired | (15,476 | ) | (15 | ) | |||
Purchases of property and equipment | (13,024 | ) | (22,138 | ) | |||
Net cash provided by (used in) investing activities | 19,082 | (21,455 | ) | ||||
Financing Activities: | |||||||
Borrowing of debt | 28,371 | 15,000 | |||||
Repayments of debt | (61,120 | ) | (46,742 | ) | |||
Cash paid for financing costs | (1,278 | ) | — | ||||
Cash paid for the cancellation of restricted stock | (926 | ) | (882 | ) | |||
Proceeds from the exercise of Common Stock options | 4,771 | 4,966 | |||||
Repurchase of Common Stock | (33,040 | ) | (20,241 | ) | |||
Net cash used in financing activities | (63,222 | ) | (47,899 | ) | |||
Foreign currency effect | 293 | (1,004 | ) | ||||
Net decrease in cash, cash equivalents and restricted cash | (3,439 | ) | (37,815 | ) | |||
Cash, cash equivalents and restricted cash at beginning of period | 39,620 | 103,172 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 36,181 | $ | 65,357 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for taxes | $ | 3,522 | $ | 18,100 | |||
Cash paid for interest | $ | 2,712 | $ | 2,608 | |||
Supplemental disclosure of non-cash transactions: | |||||||
Common Stock issued to Board of Directors and employees | $ | 3,605 | $ | 2,419 |
Source: Gentherm Inc.