UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
|
For the quarterly period ended
OR
|
For the transition period from to .
Commission File Number:
(Exact name of registrant as specified in its charter)
|
|
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
|
|
|
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.
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).
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.
|
☒ |
|
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
At April 29, 2022, there were
GENTHERM INCORPORATED
TABLE OF CONTENTS
|
|||||
|
|
|
|||
|
|
3 |
|||
|
Item 1. |
|
|
|
3 |
|
|
|
|
|
3 |
|
|
|
|
|
4 |
|
|
|
|
|
5 |
|
|
|
|
|
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. |
|
|
|
30 |
|
Item 4. |
|
|
|
31 |
|
|
32 |
|||
|
Item 1. |
|
|
32 |
|
|
Item 1A. |
|
|
32 |
|
|
Item 2. |
|
|
34 |
|
|
Item 5. |
|
|
34 |
|
|
Item 6. |
|
|
36 |
|
|
|
37 |
2
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 |
|
$ |
|
|
|
$ |
|
|
Accounts receivable, net |
|
|
|
|
|
|
|
|
Inventory: |
|
|
|
|
|
|
|
|
Raw materials |
|
|
|
|
|
|
|
|
Work in process |
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
Inventory, net |
|
|
|
|
|
|
|
|
Other current assets |
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
Other intangible assets, net |
|
|
|
|
|
|
|
|
Operating lease right-of-use assets |
|
|
|
|
|
|
|
|
Deferred income tax assets |
|
|
|
|
|
|
|
|
Other non-current assets |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
|
|
Current lease liabilities |
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
|
|
|
|
|
|
|
Other current liabilities |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
|
|
Long-term debt, less current maturities |
|
|
|
|
|
|
|
|
Non-current lease liabilities |
|
|
|
|
|
|
|
|
Pension benefit obligation |
|
|
|
|
|
|
|
|
Other non-current liabilities |
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in capital |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Accumulated earnings |
|
|
|
|
|
|
|
|
Total shareholders’ equity |
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
|
|
|
$ |
|
|
3
GENTHERM INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Product revenues |
|
$ |
|
|
|
$ |
|
|
Cost of sales |
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Net research and development expenses |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
Restructuring expenses |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
Foreign currency gain |
|
|
|
|
|
|
|
|
Other income (loss) |
|
|
|
|
|
|
( |
) |
Earnings before income tax |
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
Basic earnings per share |
|
$ |
|
|
|
$ |
|
|
Diluted earnings per share |
|
$ |
|
|
|
$ |
|
|
Weighted average number of shares – basic |
|
|
|
|
|
|
|
|
Weighted average number of shares – diluted |
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated condensed financial statements.
4
GENTHERM INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net income |
|
$ |
|
|
|
$ |
|
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
Pension benefit obligations |
|
|
|
|
|
|
— |
|
Foreign currency translation adjustments |
|
|
( |
) |
|
|
( |
) |
Unrealized gain (loss) on foreign currency derivative securities, net of tax |
|
|
|
|
|
|
( |
) |
Unrealized loss on commodity derivative securities, net of tax |
|
|
( |
) |
|
|
— |
|
Other comprehensive loss, net of tax |
|
|
( |
) |
|
|
( |
) |
Comprehensive income |
|
$ |
|
|
|
$ |
|
|
See accompanying notes to the consolidated condensed financial statements.
5
GENTHERM INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
( |
) |
|
|
|
|
Non-cash stock based compensation |
|
|
|
|
|
|
|
|
Loss on disposition of property and equipment |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
( |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
( |
) |
|
|
( |
) |
Inventory |
|
|
( |
) |
|
|
( |
) |
Other assets |
|
|
( |
) |
|
|
|
|
Accounts payable |
|
|
|
|
|
|
|
|
Other liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by operating activities |
|
|
( |
) |
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from the sale of property and equipment |
|
|
|
|
|
|
|
|
Cost of technology investments |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Financing Activities: |
|
|
|
|
|
|
|
|
Repayments of debt |
|
|
— |
|
|
|
( |
) |
Proceeds from the exercise of Common Stock options |
|
|
|
|
|
|
|
|
Taxes withheld and paid on employees' share-based payment awards |
|
|
( |
) |
|
|
( |
) |
Acquisition contingent consideration payment |
|
|
— |
|
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Foreign currency effect |
|
|
( |
) |
|
|
( |
) |
Net decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for taxes |
|
$ |
|
|
|
$ |
|
|
Cash paid for interest |
|
$ |
|
|
|
$ |
|
|
See accompanying notes to the consolidated condensed financial statements.
6
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 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock compensation, net |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Accumulated |
|
|
|
|
|
||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Loss |
|
|
Earnings |
|
|
Total |
|
||||||
Balance at December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock compensation, net |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
Balance at March 31, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
See accompanying notes to the consolidated condensed financial statements.
7
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
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 $
8
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
Segment Reporting
The Company has
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 $
The Company has recorded approximately $
9
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 $
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 |
|
$ |
|
|
|
$ |
|
|
Medical |
|
|
— |
|
|
|
— |
|
Corporate |
|
|
— |
|
|
|
— |
|
Total |
|
$ |
|
|
|
$ |
|
|
Restructuring Liability
Restructuring liabilities are classified as Other current liabilities in the consolidated condensed balance sheets.
|
|
Employee Separation Costs |
|
|
Other Related Costs |
|
|
Total |
|
|||
Balance at December 31, 2021 |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
Additions, charged to restructuring expenses |
|
|
— |
|
|
|
|
|
|
|
|
|
Cash payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Non-cash utilization |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Change in estimate |
|
|
|
|
|
|
— |
|
|
|
|
|
Currency translation |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at March 31, 2022 |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
Note 4 – Details of Certain Balance Sheet Components
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Other current assets: |
|
|
|
|
|
|
|
|
Notes receivable |
|
$ |
|
|
|
$ |
|
|
Income tax and other tax receivable |
|
|
|
|
|
|
|
|
Billable tooling |
|
|
|
|
|
|
|
|
Prepaid expenses |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Total other current assets |
|
$ |
|
|
|
$ |
|
|
Other current liabilities: |
|
|
|
|
|
|
|
|
Liabilities from discounts and rebates |
|
$ |
|
|
|
$ |
|
|
Accrued employee liabilities |
|
|
|
|
|
|
|
|
Income tax and other taxes payable |
|
|
|
|
|
|
|
|
Restructuring |
|
|
|
|
|
|
|
|
Accrued warranty |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Total other current liabilities |
|
$ |
|
|
|
$ |
|
|
10
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Exchange rate impact |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance as of March 31, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Technology |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Product development costs |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Software development |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|