Gentherm Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; filed May 4, 2022. Gentherm develops thermal-management products for the automotive and medical markets. Financial amounts below are in U.S. dollars; statements are unaudited.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Product revenue | $267.7 million | $288.5 million; down 7.2% |
| Gross profit / margin | $64.1 million / 24.0% | $87.7 million / 30.4% |
| Operating income | $14.2 million | $40.7 million |
| Net income | $11.7 million | $32.9 million |
| Diluted EPS | $0.35 | $0.99 |
| Cash from operating activities | $(0.7) million | $39.7 million provided |
Revenue fell primarily on lower automotive volumes and unfavorable foreign exchange, partly offset by 6.9% growth in Medical revenue. Automotive revenue declined 7.7%. Gross margin contracted 6.4 percentage points; management cited inflation in freight, materials and wages, along with weaker volume and pricing. Net R&D expense rose 16.1% to $20.4 million, mainly from higher project spending and lower customer reimbursements. The effective tax rate was 26.8%, versus 18.7% a year earlier.
Operating cash flow was pressured by working-capital movements, including increases in receivables and inventory. Investing cash use was $6.0 million, including $5.7 million of capital expenditures. Cash and equivalents were $177.9 million at quarter-end, down from $190.6 million at December 31, 2021.
Total debt was $38.8 million, including $35.0 million outstanding on the revolving credit facility and $3.8 million on the Vietnam loan. The company reported $424.5 million of additional revolving availability, subject to conditions, and $19.4 million available under its receivables factoring arrangement. Gentherm reported compliance with debt covenants. It expects cash, operating cash flow and available borrowing capacity to meet anticipated needs for at least 12 months.
Material changes and management commentary
- Automotive revenue declined across product categories; electronics fell 28.3%, seat heaters 10.2% and climate-control seats 5.9%. Medical revenue increased to $9.8 million from $9.2 million.
- Key-market light-vehicle production was down 5.3% year over year in Q1, with weakness in Europe and Japan/South Korea. IHS Markit forecast 2022 production in Gentherm’s key markets to rise 4.0% from 2021; this is an industry forecast, not company revenue guidance.
- Management said supply-chain disruption, semiconductor shortages, inflation and labor constraints are expected to continue and may materially affect performance. Semiconductor purchase commitments totaled $38.9 million; suppliers are not guaranteed to deliver requested timing or quantities.
- The Ukraine facility, which produced products representing approximately 11% of 2021 company revenue, was operating normally. Gentherm had begun contingency planning and some equipment and production relocations; disruptions, border restrictions and additional costs remain risks.
- On May 4, 2022, Gentherm agreed to acquire Alfmeier’s automotive business for €177.5 million, net of cash and debt, subject to customary adjustments and a possible €4.0 million increase tied to tax matters. The company expected a third-quarter 2022 close, subject to regulatory and other conditions, funded with cash and revolving borrowings. Alfmeier reported 2021 revenue of €232 million. The purchase and integration entail execution, financing and regulatory risks.
- Manufacturing-footprint restructuring actions were expected to be substantially complete by year-end 2022, with future expense expected below $1.0 million. No material pending litigation was reported; management considered ordinary-course legal matters unlikely to materially affect results or financial position.
Investor verification priorities
- Track automotive volumes, customer pricing, inflation recovery and gross-margin trends, alongside the conversion of earnings into operating cash flow.
- Verify semiconductor availability and the actual cost and fulfillment outcomes of the $38.9 million purchase commitments.
- Monitor developments at the Ukraine facility, including production relocation, employee and asset safety, and cross-border logistics.
- Confirm Alfmeier closing, final purchase-price adjustments, funding mix, regulatory approvals and subsequent integration results.
- Check borrowing availability and covenant compliance as acquisition financing and working-capital needs evolve.