Gentherm Reports 2020 First Quarter Results
Significantly Improved
Strong Total Liquidity of
Maintained Gross Margin Rate at Similar Levels Despite Market Challenges
First Quarter Highlights
- Product revenues of
$228.6 million decreased 11.4% from$257.9 million in the 2019 first quarter.
• Excluding the impact of foreign currency translation, product revenues decreased 10.1% year over year; excluding the impact of foreign currency translation and divested assets, product revenues decreased 7.5% year over year - GAAP diluted earnings per share was
$0.36 as compared with$0.25 for the prior-year period - Adjusted diluted earnings per share (see table herein) was
$0.51 . Adjusted diluted earnings per share in the prior-year period was$0.55 - Net cash provided by operating activities was
$29.4 million as compared with$6.9 million in the prior-year period - Secured automotive new business awards totaling
$120 million in the quarter - Achieved record quarterly revenue of
$12.1 million in Gentherm Medical; increased 48.3% year over year
“I am proud that our Blanketrol® solutions are supporting temperature management of COVID-19 patients, improving outcomes. In addition, we are partnering with
He continued, “While the COVID-19 pandemic has created significant challenges and uncertainties in the near term, the actions we have taken since launching our Focused Growth strategy, including our ongoing disciplined approach to managing expenses and the divestiture of non-core assets, has strengthened our balance sheet and positions us well to overcome the current challenges and to deliver over the long term.”
2020 First Quarter Financial Review
Product revenues for the first quarter of 2020 decreased
Automotive revenues declined 10.7% year over year. The revenue increase in Steering Wheel Heaters and Battery Thermal Management (BTM) was more than offset by revenue decreases in all other product categories. Adjusting for foreign currency translation, organic Automotive revenues decreased 9.4% year over year. The estimated negative impact of the COVID-19 pandemic on Automotive revenues was
According to IHS Markit, actual light vehicle production declined by approximately 24% when compared to the first quarter of 2019 in the Company’s key markets of
The 22.0% revenue decrease in Industrial resulted from the divestitures of the Cincinnati Sub-Zero industrial chambers business (“CSZ-IC”), which was sold on
See the “Revenues by Product Category” table included below for additional detail.
Gross margin rate decreased slightly to 28.9% in the current-year period, as compared with 29.2% in the prior-year period, primarily as a result of annual customer price reductions and lower Automotive volume due to the COVID-19 pandemic. These were partially offset by improved labor productivity at the manufacturing facilities, supplier cost reductions, and positive sales mix as a result of the strength in our Medical business.
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 2020 first quarter was
GAAP diluted earnings per share for the first quarter of 2020 was
COVID-19 Actions
“We are incredibly proud of the agility, flexibility and dedication demonstrated by our team in these challenging times,” said Eyler. “I want to thank our more than 11,000 global employees for their strong execution, which has allowed us to keep successfully delivering on our commitments to our customers, shareholders and other stakeholders.”
The COVID-19 pandemic is dramatically affecting the global automotive industry including the temporary suspension of vehicle production across
- Drew down an additional
$169 million under its revolving credit facility in March - Reprioritized and reducing capital expenditures
- Reducing discretionary operating expenses
- Deferring a portion of employee compensation beginning
May 1 , including a 30-40% deferral at the Executive level and a 20% deferral for other salaried employees - Managing working capital with strong discipline to improve cash flow
- Suspended share repurchases to conserve cash
As a result of the unprecedented uncertainty facing the automotive industry and global economy,
In addition, the Company has postponed its Investor event originally scheduled for
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 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.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended | |||||||
2020 | 2019 | ||||||
Product revenues | $ | 228,613 | $ | 257,921 | |||
Cost of sales | 162,546 | 182,614 | |||||
Gross margin | 66,067 | 75,307 | |||||
Operating expenses: | |||||||
Net research and development expenses | 17,760 | 18,897 | |||||
Selling, general and administrative expenses | 25,840 | 32,651 | |||||
Restructuring expenses | 3,766 | 1,914 | |||||
Total operating expenses | 47,366 | 53,462 | |||||
Operating income | 18,701 | 21,845 | |||||
Interest expense, net | (748 | ) | (1,368 | ) | |||
Foreign currency (loss) gain | (938 | ) | 203 | ||||
Gain on sale of business | — | 4,970 | |||||
Impairment loss | — | (10,484 | ) | ||||
Other income | 264 | 143 | |||||
Earnings before income tax | 17,279 | 15,309 | |||||
Income tax expense | 5,406 | 6,895 | |||||
Net income | $ | 11,873 | $ | 8,414 | |||
Basic earnings per share | $ | 0.36 | $ | 0.25 | |||
Diluted earnings per share | $ | 0.36 | $ | 0.25 | |||
Weighted average number of shares – basic | 32,693 | 33,573 | |||||
Weighted average number of shares – diluted | 32,869 | 33,733 | |||||
REVENUE BY PRODUCT CATEGORY
(Unaudited, in thousands)
Three Months Ended | ||||||||||
2020 | 2019 | % Diff | ||||||||
Climate Control Seats (CCS) | $ | 82,528 | $ | 94,354 | (12.5 | )% | ||||
Seat Heaters | 64,532 | 73,920 | (12.7 | )% | ||||||
Automotive Cables | 22,140 | 23,749 | (6.8 | )% | ||||||
Steering Wheel Heaters | 19,235 | 16,970 | 13.3 | % | ||||||
Battery Thermal Management (BTM) | 11,209 | 10,745 | 4.3 | % | ||||||
Electronics | 10,376 | 12,852 | (19.3 | )% | ||||||
Other Automotive | 6,452 | 9,767 | (33.9 | )% | ||||||
216,472 | 242,357 | (10.7 | )% | |||||||
Medical | 12,141 | 8,187 | 48.3 | % | ||||||
GPT | — | 3,959 | (100.0 | )% | ||||||
CSZ-IC | — | 3,418 | (100.0 | )% | ||||||
12,141 | 15,564 | (22.0 | )% | |||||||
$ | 228,613 | $ | 257,921 | (11.4 | )% | |||||
Total Core Businesses (Automotive and Gentherm Medical) | $ | 228,613 | $ | 250,544 | (8.8 | )% | ||||
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(In thousands)
(Unaudited)
Three Months Ended | |||||||
2020 | 2019 | ||||||
Net income | $ | 11,873 | $ | 8,414 | |||
Add back: | |||||||
Income tax expense | 5,406 | 6,895 | |||||
Interest expense | 748 | 1,368 | |||||
Depreciation and amortization | 10,153 | 10,980 | |||||
Adjustments: | |||||||
Restructuring expense | 3,766 | 1,914 | |||||
Impairment loss | — | 10,484 | |||||
Gain on sale of business | — | (4,970 | ) | ||||
Acquisition transaction expense | — | 38 | |||||
Unrealized currency loss (gain) | 765 | (994 | ) | ||||
CFO transition expenses | — | 1,065 | |||||
Adjusted EBITDA | $ | 32,711 | $ | 35,194 | |||
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 | |||||||||||||||||||||||||||
Future Full Year Periods (estimated) | |||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | |||||||||||||||||||||
Transaction related current expenses | |||||||||||||||||||||||||||
Acquisition transaction expenses | $ | — | $ | 38 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
Non-cash purchase accounting impacts | |||||||||||||||||||||||||||
Customer relationships amortization | 1,596 | 1,828 | 6,382 | 5,832 | 5,423 | 3,812 | 16,485 | ||||||||||||||||||||
Technology amortization | 439 | 482 | 1,755 | 1,747 | 1,688 | 211 | 680 | ||||||||||||||||||||
Inventory fair value adjustment | 108 | 39 | 432 | — | — | — | — | ||||||||||||||||||||
Other effects | |||||||||||||||||||||||||||
Restructuring expenses | 3,766 | 1,914 | 3,766 | — | — | — | — | ||||||||||||||||||||
Gain on sale of business | — | (4,970 | ) | — | — | — | — | — | |||||||||||||||||||
Impairment loss | — | 10,484 | — | — | — | — | — | ||||||||||||||||||||
Unrealized currency (gain) loss | 765 | (994 | ) | 765 | — | — | — | — | |||||||||||||||||||
CFO transition | — | 1,065 | — | — | — | — | — | ||||||||||||||||||||
Total acquisition transaction expenses, purchase accounting impacts and other effects | $ | 6,674 | $ | 9,886 | $ | 13,100 | $ | 7,579 | $ | 7,111 | $ | 4,023 | $ | 17,165 | |||||||||||||
Tax effect of above | (1,710 | ) | 212 | (2,303 | ) | (2,020 | ) | (1,891 | ) | (1,060 | ) | (5,484 | ) | ||||||||||||||
Net income effect | $ | 4,964 | $ | 10,098 | $ | 10,797 | $ | 5,559 | $ | 5,220 | $ | 2,963 | $ | 11,681 | |||||||||||||
Earnings per share - difference | |||||||||||||||||||||||||||
Basic | $ | 0.16 | $ | 0.30 | — | — | — | — | — | ||||||||||||||||||
Diluted | $ | 0.15 | $ | 0.30 | — | — | — | — | — | ||||||||||||||||||
Adjusted earnings per share | |||||||||||||||||||||||||||
Basic | $ | 0.52 | $ | 0.55 | — | — | — | — | — | ||||||||||||||||||
Diluted | $ | 0.51 | $ | 0.55 | — | — | — | — | — | ||||||||||||||||||
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 222,939 | $ | 50,443 | |||
Restricted cash | 2,505 | 2,505 | |||||
Accounts receivable, less allowance of |
159,011 | 159,710 | |||||
Inventory: | |||||||
Raw materials | 60,844 | 61,323 | |||||
Work in process | 6,778 | 7,444 | |||||
Finished goods | 50,019 | 49,712 | |||||
Inventory, net | 117,641 | 118,479 | |||||
Other current assets | 44,941 | 42,726 | |||||
Total current assets | 547,037 | 373,863 | |||||
Property and equipment, net | 152,120 | 160,605 | |||||
63,894 | 64,572 | ||||||
Other intangible assets, net | 50,062 | 49,783 | |||||
Operating lease right-of-use assets | 14,991 | 11,587 | |||||
Deferred income tax assets | 56,032 | 57,650 | |||||
Other non-current assets | 9,234 | 9,326 | |||||
Total assets | $ | 893,370 | $ | 727,386 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 97,065 | $ | 83,035 | |||
Current lease liabilities | 4,735 | 4,586 | |||||
Current maturities of long-term debt | 2,500 | 2,500 | |||||
Other current liabilities | 67,000 | 66,583 | |||||
Total current liabilities | 171,300 | 156,704 | |||||
Long-term debt, less current maturities | 231,667 | 78,124 | |||||
Pension benefit obligation | 7,619 | 8,057 | |||||
Non-current lease liabilities | 10,869 | 6,751 | |||||
Other non-current liabilities | 1,534 | 5,100 | |||||
Total liabilities | $ | 422,989 | $ | 254,736 | |||
Shareholders’ equity: | |||||||
Common Stock: | |||||||
No par value; 55,000,000 shares authorized, 32,598,854 and 32,674,354 issued and outstanding at |
102,059 | 102,507 | |||||
Paid-in capital | 9,648 | 10,852 | |||||
Accumulated other comprehensive loss | (54,931 | ) | (42,441 | ) | |||
Accumulated earnings | 413,605 | 401,732 | |||||
Total shareholders’ equity | 470,381 | 472,650 | |||||
Total liabilities and shareholders’ equity | $ | 893,370 | $ | 727,386 | |||
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended |
|||||||
2020 | 2019 | ||||||
Operating Activities: | |||||||
Net income | $ | 11,873 | $ | 8,414 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 10,406 | 11,052 | |||||
Deferred income taxes | 721 | 1,749 | |||||
Stock based compensation | 1,942 | 1,968 | |||||
Defined benefit plan expense (income) | 85 | (617 | ) | ||||
Allowance for credit losses | 451 | 229 | |||||
Loss on sale of property and equipment | 119 | 178 | |||||
Operating lease expense | 1,651 | 1,333 | |||||
Impairment loss | — | 10,484 | |||||
Gain on sale of business | — | (4,970 | ) | ||||
Changes in assets and liabilities: | |||||||
Accounts receivable | (2,491 | ) | (8,293 | ) | |||
Inventory | (404 | ) | (229 | ) | |||
Other assets | (4,805 | ) | (5,553 | ) | |||
Accounts payable | 13,540 | (2,079 | ) | ||||
Other liabilities | (3,669 | ) | (6,785 | ) | |||
Net cash provided by operating activities | 29,419 | 6,881 | |||||
Investing Activities: | |||||||
Proceeds from the sale of property and equipment | 34 | 28 | |||||
Proceeds from divestiture of business | — | 47,500 | |||||
Acquisition of intangible assets | (3,141 | ) | — | ||||
Purchases of property and equipment | (3,231 | ) | (5,150 | ) | |||
Net cash (used in) provided by investing activities | (6,338 | ) | 42,378 | ||||
Financing Activities: | |||||||
Borrowing of debt | 169,546 | 10,428 | |||||
Repayments of debt | (16,111 | ) | (49,627 | ) | |||
Cash paid for the cancellation of restricted stock | (404 | ) | (376 | ) | |||
Proceeds from the exercise of Common Stock options | 5,902 | 214 | |||||
Cash paid for the repurchase of Common Stock | (9,092 | ) | (8,040 | ) | |||
Net cash provided by (used in) financing activities | 149,841 | (47,401 | ) | ||||
Foreign currency effect | (426 | ) | (209 | ) | |||
Net increase in cash, cash equivalents and restricted cash | 172,496 | 1,649 | |||||
Cash, cash equivalents and restricted cash at beginning of period | 52,948 | 39,620 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 225,444 | $ | 41,269 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for taxes | $ | 3,525 | $ | 3,466 | |||
Cash paid for interest | $ | 537 | $ | 1,252 | |||
Source: Gentherm Inc.