Amerigon Incorporated (now Gentherm Inc.) — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. The filing is under the name Amerigon Incorporated. Financial statements are unaudited and prepared on a consolidated basis.
Business context
Amerigon designs and sells electronic components and systems to automotive OEMs, including Climate Control Seat products. It acquired a majority interest in W.E.T. Automotive Systems in Q2 2011; W.E.T. contributed substantially to Q1 2012 consolidated results, so reported year-over-year growth is not directly comparable with the pre-acquisition 2011 period.
Key financial metrics
Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | $129.5 | $35.8 |
| Gross profit / margin | $32.4 / 25.1% | $10.5 / 29.2% |
| Operating income | $8.7 | $0.9 |
| Income before tax | $8.5 | $1.1 |
| Net income (loss) | $6.3 | $(0.7) |
| Net income (loss) attributable to common shareholders | $2.7 | $(0.7) |
| Basic and diluted EPS | $0.11 | $(0.03) |
| Cash from operations | $6.8 | $2.1 |
- Revenue rose 262% year over year, primarily because Q1 2012 included $100.5 million from W.E.T. Historical Amerigon revenue was $29.0 million, down 19% from $35.8 million.
- Consolidated gross margin was 25.1%; historical Amerigon’s margin was approximately 26.9%, down from 29.2%, reflecting unfavorable product mix.
- Q1 2012 income attributable to common shareholders was reduced by $2.2 million of preferred-stock dividends. The effective income tax rate was 26%, compared with 37% in Q1 2011; the prior period included nondeductible acquisition costs.
- Cash and cash equivalents were $100.6 million at March 31, 2012, versus $23.8 million at December 31, 2011. Working capital was $146.1 million, up from $66.0 million.
- Investing activities used $3.9 million, including $3.0 million for property and equipment. Financing activities provided $72.7 million, principally from the $75.5 million net proceeds of a common-stock offering.
- Total debt was $73.6 million: $15.3 million current and $58.3 million long-term. No revolving-note borrowings were outstanding. The company reported compliance with credit-facility covenants.
Material changes and notable items
- The March 2012 public offering sold 5.29 million shares at $15.25 per share and yielded $75.5 million net. Shares outstanding rose to 29.55 million at March 31, from 23.52 million at year-end.
- Preferred-stock principal and dividends were partly settled with common shares. The company reported $43.5 million of Series C convertible preferred stock at quarter-end; the preferred stock carries an 8% dividend and scheduled installments through 2013.
- W.E.T. accounted for $100.5 million of quarterly revenue and $7.3 million of operating income. The company’s acquisition and integration make consolidated comparisons with Q1 2011 less meaningful.
- Derivative revaluation produced a reported $1.36 million gain in the income statement; the filing also reports foreign-currency and other derivative effects. Derivatives expose the company to currency, interest-rate, and commodity-price risks.
Outlook, risks and contingencies
- Management said cash on hand and expected revenue under its current operating plan should be sufficient for operating needs for the foreseeable future. No specific revenue or earnings guidance was provided.
- A German minority shareholder challenged W.E.T. shareholder approval of a Domination and Profit and Loss Transfer Agreement (DPLTA). On April 5, 2012, a German lower court voided the approval; W.E.T. intended to appeal. Until the agreement is registered and effective, Amerigon lacks the contemplated direct management control and profit-transfer arrangement. A potential minority-shareholder tender could require approximately €33.1 million if all eligible shares were tendered.
- Management concluded disclosure controls were ineffective because of a previously identified material weakness in accounting for significant, non-routine transactions. Remediation was underway, including hiring additional skilled accounting staff; management said additional procedures supported preparation of the included financial statements in accordance with GAAP.
- The filing reported no material changes to previously disclosed risk factors. It cautioned that quarterly results are not necessarily indicative of full-year results.
Important facts for investors to verify
- How much of future growth and profitability is organic versus attributable to W.E.T., and how W.E.T. performs on a comparable-period basis.
- The status and financial consequences of the German litigation, DPLTA registration, and any potential minority-shareholder tender.
- The preferred-stock redemption schedule, cash requirements, dividend burden, and potential dilution from share settlements or conversion.
- Debt amortization, covenant headroom, variable-rate exposure, and the availability and permitted use of the €-related acquisition financing facility.
- Progress in remediating the material weakness and the effect of the recent share issuance on per-share results.