Gentherm Reports 2017 Second Quarter Results
NORTHVILLE, Mich., July 27, 2017 /PRNewswire/ -- Gentherm (NASDAQ-GS:THRM), the global market leader and developer of innovative thermal management technologies, today announced its financial results for the second quarter ended June 30, 2017.
Second Quarter 2017 Highlights
-- Quarterly revenue totaling $243.4 million represents growth of 5%
-- Net income of $8.5 million and adjusted EBITDA of $35.1 million
-- Diluted Earnings Per Share of $0.23 for the quarter, or $0.53 after
adjusting for the unrealized currency loss and other impacts
-- Euro strength results in significant unrealized foreign currency loss of
$12.0 million
-- Automotive revenue grew by nearly 2% despite an automotive production
headwind of nearly 3% in both Europe and North America
-- Gentherm Global Power Technologies (GPT) revenues continue to show
recovery and increased by 83% from the prior year quarter
-- CSZ continued to grow reporting $20.1 million in revenue, a 20% increase
from prior year second quarter
"The second quarter saw revenues for our automotive products grow by nearly 2%. This growth came despite the automotive industry, our most important end market, experiencing significant weakness. Global automotive production volumes declined by nearly 0.30% in the second quarter and, more importantly, production in North America and Europe were down by more than 3% on a combined basis," said President and CEO Daniel R. Coker. "This illustrates the strength in our underlying products but still does not reflect the coming benefits from some of our exciting new products including our advanced battery thermal management product, which will begin shipping later this year, and our innovative electronic controlling devices which are expected in early 2019," Coker added.
Coker continued, "Our corporate goal to add non-automotive markets to our product offerings has helped offset the uncertainty in the automotive industry. Both GPT and CSZ had impressive results for the quarter increasing revenue by 83% and 20%, respectively, helping to supplement the overall outlook for Gentherm."
Second Quarter 2017 Financial Review
Our product revenue grew $10.7 million, or 5%. The increase came almost equally from each of our Automotive, GPT and CSZ product groups which had higher product revenues totaling $4.0 million, $3.4 million and $3.3 million, respectively. Revenue growth for the automotive group, which was the slowest representing a 2% increase, was unfavorably impacted by a declining industry production rate especially in North America. This lower production volume impacted revenue of CCS disproportionately. CCS revenue also experienced a decrease associated with certain vehicles that changed from the higher priced active cooling solution to the lower priced heated and ventilated version. Strong growth in the other automotive products combined to help offset the lower revenue in CCS.
Higher revenue at CSZ included improvements in both medical products and environmental climate chambers; however, the strong first quarter growth attributable to the blood heater cooler, or Hemotherm, was replaced by increased shipments in environmental climate chambers.
The revenue growth at GPT reflects increased market activity, especially from gas pipeline projects that had been deferred during 2016. While the energy markets that GPT serves continue to be challenging, our revenue performance is expected to generally trend upward due to previously delayed projects now being completed. Of course, our customers in this sector are still cautious and project timing fluctuations are expected.
The gross margin percentage during the 2017 second quarter was 32.2% compared to 30.7% during the 2016 second quarter, or 32.4% after adjusting for the one-time purchase accounting impact of CSZ incurred during the second quarter of 2016, the period during which it was acquired. This slight decrease was due to a lower gross margin for CSZ during the current period partially offset by higher product revenues from the higher gross margin GPT business. Lower CSZ gross margin was attributable to a higher mix of revenue favoring lower margin test chamber equipment projects.
Operating expenses of $53.2 million increased $4.0 million, or 8%, compared to the year ago period. The increase over the prior year included higher stock based management incentive compensation, continued investments in new products and technologies and enhancements to our operating infrastructure.
Net research and development expenses (R&D) of $21.4 million increased by $2.3 million, or 12%, during the second quarter of 2017, compared with 2016, as the activities associated with new product development increase. These activities include the advanced battery thermal management device, which is set to launch later this year, and an innovative electronic controlling device which is scheduled to begin production in early 2019. Other focus areas for our advanced engineering teams include automotive interior thermal management devices, medical thermal management devices and battery management systems.
Selling, general and administrative expenses (SG&A) of $31.8 million increased by $2.4 million, or 8%, during the second quarter of 2017, compared with 2016. The increase in SG&A resulted from higher equity based management incentive compensation, a portion of which is adjusted based on the trading price of our common stock. Gentherm Common Stock appreciated during the second quarter of 2017 but decreased during the second quarter of 2016 resulting in an increase in compensation expense totaling $2.6 million.
During the 2017 second quarter we incurred a net foreign currency loss of $13.2 million which included a net realized loss of $1.2 million and a net unrealized loss of $12.0 million. The unrealized loss was primarily the result of holding significant amounts of U.S. Dollar ("USD") cash at our subsidiaries in Europe and due to certain intercompany relationships between these European subsidiaries and our U.S. based companies.
Adjusted EBITDA increased for the quarter to $35.1 million compared with Adjusted EBITDA of $31.5 million for the first quarter of 2016, an increase of 11%. A reconciliation of Adjusted EBITDA, a non-GAAP measure, to net income is provided in a table accompanying this news release.
Our fully diluted earnings per share were $0.23 and $0.50 for the second quarter 2017 and 2016, respectively. As outlined in the accompanying table, these amounts included certain purchase accounting impacts from acquisitions, the unrealized currency loss in 2017 and an unrealized currency gain in 2016. After adjusting for these impacts and effects, our fully diluted earnings per share would have been $0.53 and $0.57 in 2017 and 2016, respectively.
Total cash as of June 30, 2017 was $164.2 million as compared with total cash of $177.2 million at December 31, 2016. This decrease was primarily related to a $32.6 million tax payment associated with the first quarter 2016 reorganization of our North American operations. This amount was offset by favorable operating cash flow during the second quarter totaling $27.5 million. The cash combined with borrowing availability under the Company's credit agreements, provides available liquidity totaling $367.6 million as of June 30, 2017.
Guidance
We expect that our full year 2017 revenue growth is likely to be at the lower end of our previously stated range of between 5% and 10%. Our guidance reflects year-to-date actual results including the extra quarter of CSZ revenue and an expected softer automotive production level for the remainder of 2017.
Conference Call
As previously announced, Gentherm is conducting a conference call today to be webcast at 8:00 a.m. Eastern Time to review these financial results. The dial-in number for the call is 1-877-407-4018 or, for international callers, 1-201-689-8471. The live webcast and 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 at approximately 11:00 a.m. ET and will be accessible for two weeks. The replay can be accessed by dialing 1-844-512-2921, or for international callers, 1-412-317-6671. The passcode for the live call and the replay is 13667294.
Investor Relations Contact
investors@gentherm.com
248-308-1702
About Gentherm
Gentherm (NASDAQ-GS: 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, TrueTherm® cupholder and storage bins, heated automotive interior systems (including heated seats, steering wheels, armrests and other components), battery thermal management systems, cable systems and other electronic devices. Non-automotive products include remote power generation systems, heated and cooled furniture, patient temperature management systems, industrial environmental test chambers and related product testing services and other consumer and industrial temperature control applications. 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 over twelve thousand employees in facilities in the United States, Germany, Canada, China, Hungary, Japan, Korea, Macedonia, Malta, Mexico, United Kingdom, Ukraine, and Vietnam. For more information, go to www.gentherm.com.
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 press release are made as of the date hereof or as of the date specified and are based on management's current expectations and beliefs. Such statements are subject to a number of important assumptions, risks, uncertainties and other factors that may cause the Company's actual performance to differ materially from that described in or indicated by the forward looking statements. Those risks include, but are not limited to, risks that new products may not be feasible, sales may not increase, additional financing requirements may not be available, new competitors may arise, currency exchange rates may change, and adverse conditions in the industry in which the Company operates may negatively affect its results. 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 December 31, 2016 and subsequent reports filed with the Securities and Exchange Commission. 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.
TABLES FOLLOW
GENTHERM INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Six Months Ended
June 30,
Three Months Ended
June 30,
2017 2016 2017 2016
---- ---- ---- ----
Product revenues $243,378 $232,720 $492,645 $448,434
Cost of sales 164,973 161,225 329,080 308,697
------- ------- ------- -------
Gross margin 78,405 71,495 163,565 139,737
Operating expenses:
Net research and development expenses 21,407 19,111 40,912 34,807
Acquisition transaction expenses - 634 - 671
Selling, general and administrative expenses 31,775 29,397 62,581 52,021
------ ------ ------ ------
Total operating expenses 53,182 49,142 103,493 87,499
------ ------ ------- ------
Operating income 25,223 22,353 60,072 52,238
Interest expense (1,261) (950) (2,383) (1,627)
Foreign currency (loss) gain (13,251) 2,796 (14,580) 961
Other income 173 30 409 395
--- --- --- ---
Earnings before income tax 10,884 24,229 43,518 51,967
Income tax expense 2,371 5,783 9,603 21,628
----- ----- ----- ------
Net income $8,513 $18,446 $33,915 $30,339
====== ======= ======= =======
Basic earnings per share $0.23 $0.51 $0.92 $0.83
===== ===== ===== =====
Diluted earnings per share $0.23 $0.50 $0.92 $0.83
===== ===== ===== =====
Weighted average number of shares - basic 36,777 36,442 36,699 36,400
====== ====== ====== ======
Weighted average number of shares - diluted 36,840 36,637 36,796 36,572
====== ====== ====== ======
GENTHERM INCORPORATED
REVENUE BY PRODUCT CATEGORY
(Unaudited, in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2017 2016 % 2017 2016(1) %
Diff Diff
----
Climate Controlled Seat (CCS) $98,816 $102,317 -3.4% $200,861 $203,792 -1.4%
Seat Heaters 73,804 72,275 2.1% 151,449 142,866 6.0%
Steering Wheel Heaters 14,501 12,555 15.5% 29,544 24,112 22.5%
Automotive Cables 21,955 21,197 3.6% 43,684 42,766 2.1%
Battery Thermal Management (BTM) (2) 2,683 1,732 54.9% 4,427 3,281 34.9%
Other Automotive 4,053 1,757 130.7% 7,680 5,450 40.9%
----- ----- ----- -----
Subtotal Automotive $215,812 $211,833 1.9% $437,645 $422,267 3.6%
-------- -------- -------- --------
Remote Power Generation (GPT) 7,501 4,102 82.9% 14,913 9,382 59.0%
Cincinnati Sub-Zero Products (CSZ) 20,065 16,785 19.5% 40,087 16,785 138.8%
------ ------ ------ ------
Total Company $243,378 $232,720 4.6% $492,645 $448,434 9.9%
======== ======== ======== ========
During First Quarter 2017 we
revised our revenue by product
analysis to better reflect
pricing adjustments and other
differences. We have revised
prior year revenue by product
(1) amounts to reflect this change.
Battery Thermal Management or
BTM product revenues currently
includes Gentherm's automotive
grate, low cost, heat resistant
fans and blowers used by
customers for battery cooling
through ventilation. The
advanced TED based active cool
system are scheduled to begin
serial production during the
(2) 2017 fourth quarter.
GENTHERM INCORPORATED
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(Unaudited, in thousands)
Six Months Ended
June 30,
Three Months Ended
June 30,
--------
2017 2016 2017 2016
---- ---- ---- ----
Net Income $8,513 $18,446 $33,915 $30,339
Add Back:
Income tax expense 2,371 5,783 9,603 21,628
Interest expense 1,261 950 2,383 1,627
Depreciation and amortization 10,927 9,336 21,048 17,470
Adjustments:
Acquisition transaction expense - 634 - 671
Unrealized currency loss (gain) 12,041 (3,602) 13,386 165
------ ------ ------ ---
Adjusted EBITDA $35,113 $31,547 $80,335 $71,900
======= ======= ======= =======
Use of Non-GAAP Financial Measures
In evaluating its business, Gentherm considers and uses Adjusted EBITDA as a supplemental measure of its operating performance. The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, deferred financing cost amortization, transaction expenses, debt retirement expenses, unrealized currency gain or loss and unrealized revaluation of derivatives. Management believes that Adjusted EBITDA is a meaningful measure of liquidity and the Company's ability to service debt because it provides a measure of cash available for such purposes. Management provides an Adjusted EBITDA measure 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.
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 compensates for these limitations by relying primarily on its GAAP results and using Adjusted EBITDA only supplementally.
GENTHERM INCORPORATED
ACQUISITION TRANSACTION EXPENSES, PURCHASE ACCOUNTING IMPACTS
AND OTHER EFFECTS
(Unaudited and in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30, Future Full Year Periods (estimated)
2017 2016 2017 2016 2017 2018 2019 2020 Thereafter
---- ---- ---- ---- ---- ---- ---- ---- ----------
Transaction related current expenses
Acquisition transaction expenses $ - $634 $ - $671 $ - $ - $ - $ - $ -
Non-cash purchase accounting impacts
Customer relationships amortization 1,938 1,986 3,826 3,731 8,018 8,018 5,913 4,651 16,541
Technology amortization 886 900 1,570 1,650 2,747 1,306 759 759 1,507
Product development costs amortization ? 43 ? 42 ? ? ? ? ?
Trade name amortization 43 44 86 86 132 ? ? ? ?
Inventory fair value adjustment ? 3,973 ? 3,973 ? ? ? ? ?
Other effects
Unrealized currency loss (gain) 12,037 (3,602) 13,383 165 ? ? ? ? ?
------ ------ ------ --- --- --- --- --- ---
Total acquisition transaction expenses, $14,904 $3,978 $18,865 $10,318 $10,897 $9,324 $6,672 $5,410 $18,048
purchase accounting impacts and
other effects
Tax effect of above (3,944) (1,470) (4,959) (3,086) (2,716) (2,349) (1,735) (1,442) (5,423)
North America reorganization ? ? 9,600 ?
withholding tax (1) ? ? ? ? ?
--- --- --- --- ---
Net income effect $10,960 $2,508 $13,906 $16,832 $8,181 $6,975 $4,937 $3,968 $12,625
======= ====== ======= ======= ====== ====== ====== ====== =======
Earnings per share - difference
Basic $0.30 $0.07 $0.38 $0.46
Diluted $0.30 $0.07 $0.38 $0.46
(1) During the first quarter of 2016,
we completed a legal
reorganization in North American
by shifting certain operations
located in Canada to other
subsidiaries. Related to the
reorganization we declared
intercompany dividends and
incurred $9.6 million in
withholding taxes payable to the
Canadian Revenue Agency.
GENTHERM INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
June 30, December 31,
2017 2016
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $164,177 $177,187
Accounts receivable, less allowance of $1,424 and $1,391, respectively 181,273 170,084
Inventory:
Raw materials 58,364 60,525
Work in process 15,704 13,261
Finished goods 32,500 31,288
------ ------
Inventory, net 106,568 105,074
Derivative financial instruments 2,545 18
Prepaid expenses and other assets 39,939 32,000
------ ------
Total current assets 494,502 484,363
Property and equipment, net 187,391 172,052
Goodwill 53,497 51,735
Other intangible assets, net 54,356 57,557
Deferred financing costs 1,079 1,221
Deferred income tax assets 37,805 35,299
Other non-current assets 37,867 40,803
------ ------
Total assets $866,497 $843,030
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $83,719 $84,511
Accrued liabilities 65,946 105,625
Current maturities of long-term debt 3,414 2,092
Derivative financial instruments - 1,395
--- -----
Total current liabilities 153,079 193,623
Pension benefit obligation 7,937 7,419
Other liabilities 5,355 4,092
Long-term debt, less current maturities 159,871 169,433
Deferred income tax liabilities 7,287 8,058
----- -----
Total liabilities 333,529 382,625
Shareholders' equity:
Common Stock:
No par value; 55,000,000 shares authorized, 36,821,656 and 36,534,464 issued and 266,077 262,251
outstanding at June 30, 2017 and December 31, 2016, respectively
Paid-in capital 12,166 10,323
Accumulated other comprehensive loss (37,608) (69,091)
Accumulated earnings 292,333 256,922
------- -------
Total shareholders' equity 532,968 460,405
------- -------
Total liabilities and shareholders' equity $866,497 $843,030
======== ========
GENTHERM INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
2017 2016
---- ----
Operating Activities:
Net income $33,915 $30,339
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 21,191 17,547
Deferred income taxes (2,278) (3,707)
Stock compensation 4,761 4,505
Defined benefit plan expense 94 117
Provision of doubtful accounts 6 274
Loss on sale of property and equipment 249 254
Changes in operating assets and liabilities:
Accounts receivable (6,949) (12,668)
Inventory 1,149 6,624
Prepaid expenses and other assets (5,147) (6,890)
Accounts payable (2,932) 1,749
Accrued liabilities (37,944) 13,029
------- ------
Net cash provided by operating activities 6,115 51,173
Investing Activities:
Proceeds from the sale of property and equipment 34 27
Acquisition of subsidiary, net of cash acquired (2,000) (73,666)
Purchases of property and equipment (25,750) (30,828)
------- -------
Net cash used in investing activities (27,716) (104,467)
Financing Activities:
Borrowing of debt - 75,000
Repayments of debt (8,428) (31,918)
Excess tax expense from equity awards - (385)
Cash paid for financing costs - (650)
Cash paid for the cancellation of restricted stock (1,100) (793)
Cash paid for the repurchase of Common Stock (53) -
Proceeds from the exercise of Common Stock options 2,061 566
----- ---
Net cash (used in) provided by financing activities (7,520) 41,820
------ ------
Foreign currency effect 16,111 (998)
------ ----
Net decrease in cash and cash equivalents (13,010) (12,472)
Cash and cash equivalents at beginning of period 177,187 144,479
------- -------
Cash and cash equivalents at end of period $164,177 $132,007
======== ========
Supplemental disclosure of cash flow information:
Cash paid for taxes $58,831 $13,400
======= =======
Cash paid for interest $2,190 $1,526
====== ======
Supplemental disclosure of non-cash transactions:
Common Stock issued to Board of Directors and employees $2,229 $2,432
====== ======
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SOURCE Gentherm
