Gentherm Incorporated — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the supplied text does not provide clear standalone fourth-quarter financial results. Gentherm develops and manufactures thermal-management products for automotive and medical markets. Automotive accounted for 96% of product revenue.
Key financial results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Product revenue | $1,046.2 million | $913.1 million |
| Gross profit | $303.6 million | $268.1 million |
| Gross margin | 29.0% | 29.4% |
| Operating income | $115.0 million | $89.2 million |
| Net income | $93.4 million | $59.7 million |
| Diluted EPS | $2.79 | $1.81 |
| Operating cash flow | $143.1 million | $110.7 million |
| Capital expenditures | $38.5 million | $17.2 million |
Revenue increased 14.6%, driven primarily by higher automotive volumes and favorable foreign exchange; customer pricing and other factors partly offset the increase. Gross margin declined 0.4 percentage points, reflecting inflation and other costs despite improved manufacturing productivity. Net income rose 56.5%; the effective tax rate was 17.9%, compared with 26.8% in 2020, which included a tax-audit settlement impact.
Automotive revenue was $1,004.6 million, up 15.5%; Medical revenue was $41.5 million, down 3.7%. Automotive operating income increased to $163.0 million from $138.4 million; Medical reported an operating loss of $1.8 million, versus income of $1.0 million.
Cash, debt and liquidity
- Cash and cash equivalents were $190.6 million at year-end, down from $268.3 million. Operating cash flow was $143.1 million; investing activities used $48.8 million and financing activities used $169.1 million.
- Total debt was $38.8 million, down from $192.4 million. The company repaid $153.2 million of debt during 2021. It reported $440 million of remaining availability under its $475 million revolving credit facility, subject to conditions, and $26.5 million available under its receivables-factoring arrangement.
- Management stated that cash and available borrowing capacity were expected to meet anticipated requirements for at least the next 12 months. The company was in compliance with its credit agreement covenants at year-end.
- Current assets were $565.8 million and current liabilities were $213.1 million. Inventory increased to $159.5 million from $122.4 million.
Material changes, outlook and risks
- Global light-vehicle production in Gentherm’s key markets increased only 0.3% in 2021, according to IHS Markit cited in the filing. Semiconductor and other component shortages disrupted customer schedules and, especially in the fourth quarter, affected Gentherm’s ability to meet demand. The company expected supply instability, logistics challenges, labor constraints and inflationary costs to continue and potentially materially affect performance.
- Management cited an IHS Markit forecast of 70.8 million light vehicles in its key markets for 2022, a 9.6% increase over 2021. This is an industry forecast, not company revenue guidance. Gentherm forecast 2022 capital expenditures of approximately $50–$60 million.
- Gentherm reported an estimated $1.613 billion in 2021 automotive new-business awards, based on projected lifetime program revenue. Awards are not firm orders or a revenue forecast and may change with customer projections and production volumes.
- Research and development spending increased, including investment in ClimateSense and battery performance solutions. Gentherm received its first ClimateSense production award for an all-new 2024 model-year electric vehicle.
- The 2019 manufacturing-footprint restructuring continued: facility consolidations were completed in Canada and China, with a Mexico transition ongoing. The plan was expected to be substantially complete by the first half of 2022, with less than $1 million of additional expense expected.
- Key concentration and execution risks include Adient and Lear, each representing 15% of product revenue; automotive cyclicality; price reductions; supplier and customer disruptions; foreign exchange; product quality, warranty and recall exposure; and the integration and performance of new products and investments. Lear announced an agreement to acquire a competitor’s interior comfort business; the effects on Gentherm were uncertain.
- The company repurchased approximately $20 million of shares in 2021, with $130 million remaining under its authorization. It did not expect to pay cash dividends in the foreseeable future.
Most important facts for investors to verify
- Whether semiconductor availability, customer production schedules and inflation improve as management expects, and how they affect margins and cash conversion.
- Whether 2022 industry production forecasts, customer program volumes and new-business awards translate into Gentherm sales and profitable growth.
- Whether Medical can return to operating profitability and whether goodwill valuation assumptions remain supportable; the Medical segment had $28.7 million of goodwill and was identified as a critical audit matter.
- Credit-facility availability, covenant headroom, refinancing and benchmark-rate transition exposure, alongside planned capital spending and share repurchases.
- Potential effects of customer concentration and Lear’s announced acquisition, and any material product liability, warranty, regulatory or supply-chain developments.