Gentherm Incorporated — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Amounts are in millions of dollars unless otherwise noted. Gentherm makes thermal-management and comfort products for automotive and medical markets. Results are unaudited.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Product revenue | $363.6 | $267.7 |
| Gross profit / margin | $81.1 / 22.3% | $64.1 / 24.0% |
| Operating income / margin | $17.7 / 4.9% | $14.2 / 5.3% |
| Net income | $8.0 | $11.7 |
| Diluted EPS | $0.24 | $0.35 |
| Cash from operations | $25.1 | $(0.7) |
| Capital expenditures | $6.3 | $5.7 |
Revenue rose 35.9%. Automotive revenue was $352.7 million, up 36.8%; Medical revenue was $10.9 million, up 11.6%. Automotive operating income increased to $38.4 million from $31.3 million; Medical recorded an operating loss of $0.5 million, compared with a $0.9 million loss. Corporate operating costs increased to $20.2 million from $16.2 million.
At March 31, 2023, cash and cash equivalents were $166.6 million, total debt was $234.6 million, and shareholders’ equity was $680.3 million. The $500 million revolving facility had $232.0 million drawn and $266.4 million available, subject to conditions. The revolving borrowing rate was 6.28%. The company reported compliance with credit-agreement covenants. Current assets were $711.5 million and current liabilities were $306.9 million.
Material changes versus Q1 2022
- Revenue growth reflected higher automotive volumes, $67.0 million of acquisition-related revenue, and customer pricing/cost recoveries; foreign exchange reduced revenue by $8.1 million.
- Gross margin declined 1.7 percentage points. Higher volume and acquisitions, inflation in wages and materials, and a $1.4 million inventory impairment charge weighed on margins; lower expedited freight costs and favorable currency effects partly offset these pressures.
- Operating expenses increased to $63.5 million from $49.9 million, including higher R&D, SG&A and restructuring costs. Net R&D expense rose to $25.1 million, primarily due to Alfmeier and investment supporting new program wins.
- Net income fell despite revenue growth, with interest expense rising to $4.1 million from $0.6 million and foreign currency results moving to a $2.1 million loss from a $2.2 million gain. The effective tax rate was 31.9%, including $0.5 million related to closure of a multi-year state audit; excluding that impact, the company reported an effective rate of 28.0%.
- Operating cash flow improved by $25.8 million year over year, from cash use of $0.7 million to cash provided of $25.1 million. Cash increased $12.7 million during the quarter. Investing cash use was $2.5 million and financing cash use was $13.0 million, including $10.0 million of share repurchases.
Outlook, commentary and risks
- The filing provides no specific company revenue or earnings guidance. S&P Global Mobility forecast 2023 light-vehicle production in Gentherm’s key markets of 70.4 million units, up 4.1% from 2022; management cautions that forecasts change and do not directly predict Gentherm’s results.
- Gentherm reported $480 million of first-quarter automotive new business awards, measured as projected lifetime revenue based on customer price and volume estimates. Awards are not firm orders or a revenue forecast and are subject to change and risk.
- Management expected cash, operating cash flow, available borrowings and factoring arrangements to be adequate for anticipated requirements for at least the next 12 months. Semiconductor supply commitments totaled $40.6 million for rolling 12–24-month periods; these agreements do not ensure suppliers will meet requested timing or quantities.
- Macroeconomic and geopolitical uncertainty, semiconductor and other supply constraints, inflation, foreign-exchange movements and automotive production volatility may adversely affect costs, operations and demand. Ukraine-site output represented approximately 8% of 2022 company revenue. The site was operating normally, but disruption to the facility or the Ukraine–Hungary border route could materially affect operations.
- The company plans to wind down its non-automotive electronics business by the end of 2023, subject to customer and supplier discussions. It recorded a $1.4 million inventory impairment in Q1 2023, following additional impairment charges in 2022.
- Legal matters were described as ordinary-course, with no material pending proceeding reported. The company stated that its risk factors had not materially changed from its 2022 Form 10-K. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether automotive volume and acquisition-related growth translate into sustained earnings improvement, given lower gross margin and increased interest expense.
- Progress and costs associated with the non-automotive electronics wind-down, and any further impairment charges.
- Semiconductor availability, the $40.6 million purchase commitments, and the resilience of the Ukraine facility and shipping route.
- Revolving-facility covenants, borrowing availability and exposure to variable rates; the filing estimates a 100-basis-point rate change would affect annual interest expense by $2.3 million before considering hedging effects.
- Realization of new business awards and the assumptions behind the external vehicle-production forecast; neither is a firm company revenue outlook.