Business Context and Reporting Period
Company: Amerigon Incorporated (Note: Input text identifies registrant as Amerigon, despite metadata reference to Gentherm).
Reporting Period: Fiscal year ended December 31, 2010.
Business Overview: Amerigon designs and markets proprietary thermoelectric device (TED) technologies. Its primary product is the Climate Control Seat (CCS), sold to automotive OEMs and tier-one suppliers. In 2010, the company expanded its portfolio with the launch of a heated/cooled cup holder (2011 Dodge Charger) and the YuMe heated/cooled mattress (sold via Mattress Firm). The company operates as a Tier II supplier to the automotive industry.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Product Revenues | $112,403,000 | $60,925,000 |
| Gross Margin | $32,739,000 (29%) | $15,759,000 (26%) |
| Operating Income | $12,131,000 | $908,000 |
| Net Income (Attributable to Amerigon) | $9,950,000 | $723,000 |
| Diluted EPS | $0.44 | $0.03 |
| Cash & Cash Equivalents | $26,584,000 | $21,677,000 |
| Short-Term Investments | $9,761,000 | $6,704,000 |
| Working Capital | $47,239,000 | $33,542,000 |
| Long-Term Obligations | $688,000 | $427,000 |
| Revolving Credit Line | $15,000,000 (Unused) | $15,000,000 (Unused) |
Material Changes vs. Prior Period
- Revenue Growth: Product revenues increased 84% to $112.4 million, driven by a 23% recovery in global automotive production and new model introductions (e.g., Ford F250, Explorer, Infiniti QX56). CCS unit shipments rose 83% to 1.6 million units.
- Profitability: Operating income surged from $0.9 million to $12.1 million. Gross margin improved from 26% to 29% due to favorable product mix, lower raw material costs (Tellurium), and better fixed cost coverage at higher volumes.
- Expenses: Net R&D expenses increased 61% to $9.7 million, primarily due to the full funding of the ZT Plus subsidiary (advanced materials) and new product development. SG&A expenses rose 24% to $11.0 million, reflecting the opening of a European office and legal fees related to patent litigation.
- Acquisitions: In December 2010, the company purchased the remaining 15% non-controlling interest in its subsidiary BSST for $3.38 million, making it a wholly-owned subsidiary.
Guidance, Outlook, Risks, and Contingencies
- Outlook: Management expects global automotive production to increase in 2011, though at a slower rate than 2010. New products (cup holder, mattress) are expected to contribute noticeably to revenues in 2011.
- Raw Material Risk: Tellurium prices, which had moderated, began increasing in late 2010/early 2011. The company has limited ability to pass these cost increases to customers.
- Legal Contingencies: Ongoing patent infringement litigation with competitor W.E.T. Automotive Systems AG. The company has accrued $607,000 in legal fees for 2010. Trial is expected in 2012 or 2013. Two of the company's patents are currently under reexamination by the USPTO.
- Customer Concentration: The top three customers (Lear, Bridgewater, JCI) accounted for 62% of total revenues in 2010. Loss of any single major customer would have a material adverse impact.
- Liquidity: The company maintains a $15 million revolving credit line with Comerica Bank, with no borrowings outstanding as of year-end. Management believes cash and future revenues are sufficient for foreseeable operating needs.
Investor Verification Checklist
- Customer Concentration: Verify the stability of relationships with Lear, Bridgewater, and JCI, which collectively represent over 60% of revenue.
- Raw Material Costs: Monitor Tellurium price trends and the company's ability to negotiate price adjustments with suppliers and customers.
- Legal Exposure: Track the status of the patent litigation with W.E.T. Automotive Systems AG and the reexamination of US Patents RE41,765 and 7,827,805.
- New Product Adoption: Assess the commercial success and revenue contribution of the YuMe mattress and heated/cooled cup holder in 2011.
- Automotive Production: Monitor global and regional (North America/Asia) light vehicle production forecasts, as revenue is directly correlated to OEM production volumes.