Gentherm Incorporated (THRM) — Q2 2021 Form 10-Q
Unaudited results for the quarter and six months ended June 30, 2021. Gentherm develops thermal-management products for automotive and medical applications. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $266.0 | $136.1 | $554.5 | $364.7 |
| Gross profit / margin | $79.2 / 29.8% | $26.7 / 19.6% | $166.9 / 30.1% | $92.8 / 25.4% |
| Operating income (loss) | $31.7 | $(9.9) | $72.4 | $8.8 |
| Net income (loss) | $24.8 | $(10.3) | $57.7 | $1.6 |
| Diluted EPS | $0.74 | $(0.32) | $1.72 | $0.05 |
- Revenue rose 95.5% in Q2 and 52.1% year to date. The comparison benefited substantially from pandemic-related customer and factory shutdowns in Q2 2020. Management attributed growth mainly to higher automotive volumes and favorable foreign exchange, including new program launches and higher product take rates. Price reductions and lower Medical sales partly offset growth.
- Automotive revenue increased 105.1% in Q2 to $255.1 million; Medical revenue fell 6.6% to $10.9 million. For the first half, Automotive revenue rose 56.8% to $534.5 million, while Medical fell 15.7% to $20.1 million.
- Q2 operating income improved from a loss to $31.7 million; six-month operating income increased to $72.4 million. Manufacturing productivity improved, but higher material and freight costs, wage inflation and foreign-exchange impacts were offsets. Operating expenses also increased, including R&D and SG&A.
- Operating cash flow was $84.4 million for the first half, versus $50.2 million. Capital expenditures were $20.7 million, making operating cash flow less capital expenditures $63.7 million, versus $42.7 million a year earlier.
- Cash and equivalents were $186.9 million at June 30, down from $268.3 million at year-end 2020. The decline primarily reflected $143.7 million of debt repayments and $20.7 million of capital spending. Inventory increased by $17.2 million in operating cash flow.
- Total debt was $48.3 million, down from $192.4 million at December 31, 2020; the company repaid the full $169.5 million pandemic-related revolver draw during Q1 2021. The credit facility had $431.6 million of additional borrowing availability, subject to conditions and covenants. The company reported compliance with debt covenants.
- Current assets were $559.0 million and current liabilities $207.1 million at June 30. The company reported $645.2 million in shareholders’ equity.
Outlook, commentary and risks
- Management said cash, operating cash flows, available credit and a new receivables-factoring facility were expected to be sufficient for operating needs, capital expenditures and debt service for at least 12 months. The factoring facility permits up to $41.3 million of specified receivables; none had been sold by June 30.
- IHS Markit’s July 2021 forecast—not Gentherm guidance—projected 69.5 million light-vehicle units in the company’s key markets for full-year 2021, up 7.9% from 2020. The filing cautions that forecasts change and do not directly translate to Gentherm’s results.
- Gentherm reported $400 million of Q2 automotive new-business awards measured as projected lifetime revenue. Awards are not firm orders or revenue forecasts; customer volume and pricing assumptions may change.
- Semiconductor shortages, supplier delays and port congestion were disrupting automotive production and increasing expediting, material and freight costs. COVID-19-related disruptions remained ongoing and future effects were uncertain. Inflation in labor and raw materials could also pressure costs; management said its mitigation efforts might not fully offset increases.
- The manufacturing-footprint restructuring is expected to cost $16–$19 million in total, including $13–$16 million of cash expenditures, and is expected to be substantially completed by year-end 2021. $8.9 million had been recorded since inception. Actual costs, timing and savings may differ.
- Q2 2020 included a $2.9 million one-time patent-sale gain, absent in 2021. The 2020 six-month effective tax rate also reflected a $3.4 million international tax-audit settlement; the 2021 effective tax rate was 18.7% for the first half.
- After quarter-end, Gentherm acquired a German medical business unit for €2.4 million on July 1 and invested €2.0 million in a European automotive technology company on July 22. Management said there were no material changes to previously disclosed risk factors; no material pending litigation was reported.
Investor verification points
- Check whether semiconductor and supplier constraints, customer production schedules and associated costs affect subsequent revenue and margins.
- Assess the durability of the recovery against the unusually weak Q2 2020 comparison, including ongoing Medical revenue declines and automotive pricing pressure.
- Track cash conversion, inventory growth, capital spending and whether debt repayment and liquidity availability remain consistent with management’s 12-month assessment.
- Verify realized revenue and economics from new-business awards, and actual costs, savings and completion timing for the restructuring plan.
- Review the results and integration of the post-quarter medical acquisition and technology investment.