GENTHERM Inc [THRM] Filings

10-Q 1 thrm-10q_20220331.htm 10-Q thrm-10q_20220331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 0-21810

GENTHERM INCORPORATED

(Exact name of registrant as specified in its charter)

Michigan		95-4318554
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
21680 Haggerty Road, Northville, MI		48167
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (248) 504-0500

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, no par value	THRM	Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At April 29, 2022, there were 33,131,660 issued and outstanding shares of Common Stock of the registrant.

GENTHERM INCORPORATED

TABLE OF CONTENTS



Part I. Financial Information			3
	Item 1.	Financial Statements (Unaudited)	3
		Consolidated Condensed Balance Sheets	3
		Consolidated Condensed Statements of Income	4
		Consolidated Condensed Statements of Comprehensive Income	5
		Consolidated Condensed Statements of Cash Flows	6
		Consolidated Condensed Statements of Changes in Shareholders’ Equity	7
		Notes to Unaudited Consolidated Condensed Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
	Item 4.	Controls and Procedures	31
Part II. Other Information			32
	Item 1.	Legal Proceedings	32
	Item 1A.	Risk Factors	32
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
	Item 5.	Other Information	34
	Item 6.	Exhibits	36
Signatures			37

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	March 31, 2022			December 31, 2021
ASSETS
Current Assets:
Cash and cash equivalents	$	177,917		$	190,606
Accounts receivable, net		207,351			182,987
Inventory:
Raw materials		111,621			96,426
Work in process		10,991			9,495
Finished goods		53,556			53,556
Inventory, net		176,168			159,477
Other current assets		41,034			32,775
Total current assets		602,470			565,845
Property and equipment, net		152,288			155,270
Goodwill		64,979			66,033
Other intangible assets, net		34,982			37,554
Operating lease right-of-use assets		27,445			24,387
Deferred income tax assets		69,420			69,630
Other non-current assets		15,529			16,624
Total assets	$	967,113		$	935,343
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	156,236		$	122,727
Current lease liabilities		5,920			5,669
Current maturities of long-term debt		2,500			2,500
Other current liabilities		79,044			82,193
Total current liabilities		243,700			213,089
Long-term debt, less current maturities		36,250			36,250
Non-current lease liabilities		19,978			19,789
Pension benefit obligation		6,362			6,832
Other non-current liabilities		5,036			5,577
Total liabilities	$	311,326		$	281,537
Shareholders’ equity:
Common Stock:
No par value; 55,000,000 shares authorized 33,127,531 and 33,008,185 issued and outstanding at March 31, 2022 and December 31, 2021, respectively		117,832			118,646
Paid-in capital		5,720			5,866
Accumulated other comprehensive loss		(45,728	)		(36,922	)
Accumulated earnings		577,963			566,216
Total shareholders’ equity		655,787			653,806
Total liabilities and shareholders’ equity	$	967,113		$	935,343

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2022			2021
Product revenues	$	267,657		$	288,535
Cost of sales		203,544			200,866
Gross margin		64,113			87,669
Operating expenses:
Net research and development expenses		20,434			17,603
Selling, general and administrative expenses		29,308			28,526
Restructuring expenses		181			791
Total operating expenses		49,923			46,920
Operating income		14,190			40,749
Interest expense, net		(569	)		(1,039	)
Foreign currency gain		2,217			773
Other income (loss)		204			(9	)
Earnings before income tax		16,042			40,474
Income tax expense		4,295			7,565
Net income	$	11,747		$	32,909
Basic earnings per share	$	0.36		$	1.00
Diluted earnings per share	$	0.35		$	0.99
Weighted average number of shares – basic		33,035			32,946
Weighted average number of shares – diluted		33,377			33,390

See accompanying notes to the consolidated condensed financial statements.

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2022			2021
Net income	$	11,747		$	32,909
Other comprehensive loss:
Pension benefit obligations		29			—
Foreign currency translation adjustments		(9,294	)		(13,152	)
Unrealized gain (loss) on foreign currency derivative securities, net of tax		464			(522	)
Unrealized loss on commodity derivative securities, net of tax		(5	)		—
Other comprehensive loss, net of tax		(8,806	)		(13,674	)
Comprehensive income	$	2,941		$	19,235

See accompanying notes to the consolidated condensed financial statements.

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2022			2021
Operating Activities:
Net income	$	11,747		$	32,909
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,577			9,854
Deferred income taxes		(778	)		105
Non-cash stock based compensation		2,279			4,460
Loss on disposition of property and equipment		107			242
Other		256			(103	)
Changes in assets and liabilities:
Accounts receivable, net		(25,788	)		(13,931	)
Inventory		(18,116	)		(11,546	)
Other assets		(10,716	)		3,243
Accounts payable		34,097			18,113
Other liabilities		(3,349	)		(3,679	)
Net cash (used in) provided by operating activities		(684	)		39,667
Investing Activities:
Purchases of property and equipment		(5,659	)		(9,913	)
Proceeds from the sale of property and equipment		52			10
Cost of technology investments		(350	)		(200	)
Net cash used in investing activities		(5,957	)		(10,103	)
Financing Activities:
Repayments of debt		—			(130,000	)
Proceeds from the exercise of Common Stock options		569			5,984
Taxes withheld and paid on employees' share-based payment awards		(4,319	)		(1,532	)
Acquisition contingent consideration payment		—			(68	)
Net cash used in financing activities		(3,750	)		(125,616	)
Foreign currency effect		(2,298	)		(1,338	)
Net decrease in cash and cash equivalents		(12,689	)		(97,390	)
Cash and cash equivalents at beginning of period		190,606			268,345
Cash and cash equivalents at end of period	$	177,917		$	170,955
Supplemental disclosure of cash flow information:
Cash paid for taxes	$	3,267		$	2,555
Cash paid for interest	$	421		$	844

See accompanying notes to the consolidated condensed financial statements.

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

									Accumulated
									Other
	Common Stock					Paid-in			Comprehensive			Accumulated
	Shares		Amount			Capital			Loss			Earnings		Total
Balance at December 31, 2021		33,008	$	118,646		$	5,866		$	(36,922	)	$	566,216	$	653,806
Net income		—		—			—			—			11,747		11,747
Other comprehensive loss		—		—			—			(8,806	)		—		(8,806	)
Stock compensation, net		119		(814	)		(146	)		—			—		(960	)
Balance at March 31, 2022		33,127	$	117,832		$	5,720		$	(45,728	)	$	577,963	$	655,787

									Accumulated
									Other
	Common Stock					Paid-in			Comprehensive			Accumulated
	Shares		Amount			Capital			Loss			Earnings		Total
Balance at December 31, 2020		32,921	$	121,073		$	7,458		$	(14,982	)	$	472,782	$	586,331
Net income		—		—			—			—			32,909		32,909
Other comprehensive loss		—		—			—			(13,674	)		—		(13,674	)
Stock compensation, net		190		8,527			(1,335	)		—			—		7,192
Balance at March 31, 2021		33,111	$	129,600		$	6,123		$	(28,656	)	$	505,691	$	612,758

See accompanying notes to the consolidated condensed financial statements.

Note 1 – Overview

Gentherm Incorporated, a Michigan corporation, and its consolidated subsidiaries (“Gentherm”, “we”, “us”, “our” or the “Company”) is a global developer, manufacturer and marketer of innovative thermal management technologies for a broad range of heating, cooling and temperature control applications, primarily in the automotive and medical industries. Within the automotive industry, our products provide solutions for passenger climate comfort and convenience, battery thermal management and cell connecting systems. Within the medical industry our products provide patient temperature management solutions. Our automotive products can be found on vehicles manufactured by nearly all the major automotive original equipment manufacturers (“OEMs”) operating in North America and Europe, and several major OEMs in Asia. We operate in locations aligned with our major customers’ product strategies to provide locally enhanced design, integration and production capabilities. The Company is also developing a number of new technologies and products that are expected to enable improvements to existing products and to create new product applications for existing and new markets.

Basis of Presentation and Significant Accounting Policies

The unaudited consolidated condensed financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations. The information furnished in the consolidated condensed financial statements include all adjustments (consisting of only normal, recurring adjustments), considered necessary to present fairly the results of operations, financial position and cash flows of the Company. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

In preparing these financial statements, management was required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on our historical experience, the terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and suppliers and information available from other outside sources, as appropriate. These estimates and assumptions are subject to an inherent degree of uncertainty. We are not presently aware of any events or circumstances that would require us to update such estimates and assumptions or revise the carrying value of our assets or liabilities. Our estimates may change, however, as new events occur and additional information is obtained. As a result, actual results may differ significantly from our estimates, and any such differences may be material to our financial statements.

Principles of Consolidation

The consolidated condensed financial statements include the accounts of the Company, its wholly owned subsidiaries and those entities in which it has a controlling financial interest. The Company evaluates its relationship with other entities for consolidation and to identify whether such entities are variable interest entities (“VIE”) and to assess whether the Company is the primary beneficiary of such entities. Investments in affiliates in which Gentherm does not have control but does have the ability to exercise significant influence over operating and financial policies are accounted for under the equity method. When Gentherm does not have the ability to exercise significant influence (generally when ownership interest is less than 20%), investments in affiliates are measured at cost, less impairments, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer.

Variable Interest Entities

The Company maintains an ownership interest in a VIE, Carrar Ltd. (“Carrar”). Carrar is a technology developer of advanced thermal management systems for the electric mobility market. The Company determined that Carrar is a VIE; however, the Company does not have a controlling financial interest or have the power to direct the activities that most significantly affect the economic performance of the investment. Therefore, the Company has concluded that it is not the primary beneficiary. Gentherm’s investment in Carrar is measured at cost, less impairments, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. The Carrar investment was $5,200 as of March 31, 2022 and December 31, 2021, and is recorded in Other non-current assets in the consolidated condensed balance sheet.

Revenue Recognition

The Company has no material contract assets or contract liabilities as of March 31, 2022.

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if the benefits of those costs are expected to be realized for a period greater than one year. Total capitalized costs to obtain a contract were $1,884 and $1,946 as of March 31, 2022 and December 31, 2021, respectively. These amounts are recorded in Other non-current assets and are being amortized into Product revenues over the expected production life of the applicable program.

Segment Reporting

The Company has two reportable segments: Automotive and Medical.

The Automotive reporting segment is comprised of the results from our global automotive businesses, including the design, development, manufacturing and sales of automotive climate comfort systems, automotive cable systems, battery performance solutions, and automotive electronic and software systems.

The Medical reporting segment is comprised of the results from the patient temperature management business in the medical industry. Patient temperature management includes temperature management systems across multiple product categories addressing the needs of hyper-hypothermia therapy in intensive care, normothermia in surgical procedures and additional warming/cooling therapies utilized in acute care, ambulatory, clinics and home health.

Note 2 – New Accounting Pronouncements

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting”. ASU 2020-04 provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. These amendments are not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. In January 2021, the FASB subsequently issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope” to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2020-04 and ASU 2021-01 are effective as of March 12, 2020 through December 31, 2022 and may be applied retrospectively to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

Note 3 – Restructuring

Manufacturing Footprint Rationalization

In September 2019, the Company committed to a restructuring plan (“Plan”) to improve the Company’s manufacturing productivity and rationalize its footprint. Under this Plan, the Company is relocating and consolidating certain automotive electronics manufacturing plants in North America and China. During 2021, the Company completed the closures and relocation of its automotive electronics manufacturing operations from Burlington, Canada to Celaya, Mexico and from Longgang, Shenzhen, China to Bantian, Shenzhen, China. As of March 31, 2022, the electronics manufacturing in Acuña, Mexico continues to transition to Celaya, Mexico.

During the three months ended March 31, 2022, the Company recognized restructuring expense of $50 for employee separation costs and $101 for other costs. During the three months ended March 31, 2021, the Company recognized restructuring expense of $206 for employee separation costs and $259 for other costs.

The Company has recorded approximately $10,256 of restructuring expenses since the inception of this program and as of March 31, 2022, $538 remains accrued. Actions under the Plan are expected to be substantially completed by the end of 2022 and future expenses are expected to be less than $1,000.

Other Restructuring Activities

As part of the Company’s continued efforts to optimize its cost structure, the Company has undertaken several discrete restructuring actions. During the three months ended March 31, 2022, the Company recognized $30 for other costs. During the three months ended March 31, 2021, the Company recognized $326 for employee separation costs. These restructuring expenses were primarily associated with restructuring actions focused on the rotation of our manufacturing footprint to best cost locations and the reduction of global overhead costs.

Restructuring Expenses By Reporting Segment

The following table summarizes restructuring expense for the three months ended March 31, 2022 and 2021 by reporting segment:

	Three Months Ended March 31,
	2022		2021
Automotive	$	181	$	791
Medical		—		—
Corporate		—		—
Total	$	181	$	791

Restructuring Liability

Restructuring liabilities are classified as Other current liabilities in the consolidated condensed balance sheets. The following table summarizes restructuring liability for the three months ended March 31, 2022:

	Employee Separation Costs			Other Related Costs			Total
Balance at December 31, 2021	$	1,494		$	—		$	1,494
Additions, charged to restructuring expenses		—			131			131
Cash payments		(544	)		(131	)		(675	)
Non-cash utilization		—			—			—
Change in estimate		50			—			50
Currency translation		(18	)		—			(18	)
Balance at March 31, 2022	$	982		$	—		$	982

Note 4 – Details of Certain Balance Sheet Components

	March 31, 2022		December 31, 2021
Other current assets:
Notes receivable	$	15,958	$	13,033
Income tax and other tax receivable		12,501		10,681
Billable tooling		4,993		3,778
Prepaid expenses		4,751		3,407
Other		2,831		1,876
Total other current assets	$	41,034	$	32,775
Other current liabilities:
Liabilities from discounts and rebates	$	26,632	$	27,343
Accrued employee liabilities		21,244		28,818
Income tax and other taxes payable		19,529		17,068
Restructuring		982		1,494
Accrued warranty		1,772		1,916
Other		8,885		5,554
Total other current liabilities	$	79,044	$	82,193

Note 5 – Goodwill and Other Intangibles

Goodwill

Changes in the carrying amount of goodwill, by reportable segment, for the three months ended March 31, 2022 was as follows:

	Automotive			Medical			Total
'Balance as of December 31, 2021	$	37,329		$	28,704		$	66,033
Exchange rate impact		(762	)		(292	)		(1,054	)
Balance as of March 31, 2022	$	36,567		$	28,412		$	64,979

Other Intangible Assets

Other intangible assets and accumulated amortization balances as of March 31, 2022 and December 31, 2021 were as follows:

	March 31, 2022							December 31, 2021
	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Definite-lived:
Customer relationships	$	87,854	$	(63,445	)	$	24,409	$	90,448	$	(64,105	)	$	26,343
Technology		28,706		(24,288	)		4,418		29,464		(24,487	)		4,977
Product development costs		19,661		(19,183	)		478		20,329		(19,772	)		557
Software development		1,007		—			1,007		1,007		—