GlobeNewswire Inc | Aug 4, 2020 06:00AM EDT

August 04, 2020

Reduced Operating Expenses by 30% from the Prior-year PeriodStrong Cash Flow Generation in the First Half of 2020 Despite Unprecedented Market ChallengesTotal Liquidity of $369 Million at Quarter End

NORTHVILLE, Mich., Aug. 04, 2020 (GLOBE NEWSWIRE) -- Gentherm (NASDAQ:THRM), the global market leader of innovative thermal management technologies, today announced its financial results for the second quarter ended June 30, 2020.

Second Quarter Highlights

-- Product revenues of $136.1 million decreased 44.1% from $243.3 million in the 2019 second quarter -- Excluding the impact of foreign currency translation and divested assets, product revenues decreased 42.3% year over year -- GAAP diluted loss per share was $0.32 compared to diluted earnings per share of $0.08 for the prior-year period -- Adjusted loss per share (see table herein) was $0.30. Adjusted earnings per share in the prior-year period was $0.47 -- Secured automotive new business awards totaling $300 million

Phil Eyler, Gentherm's President and CEO, said I am proud of the team for their strong execution in the second quarter despite the unprecedented uncertainties created by the worldwide COVID-19 pandemic. While the Companys revenue performance reflects the challenges in the underlying markets, our ongoing disciplined approach to managing expenses allowed us to reduce operating expense by 30% from a year ago. In Medical, we delivered double-digit revenue growth both year over year and sequentially. Importantly, we generated a 24% increase in cash flow from operations in the first half of 2020 versus the prior-year period.

While the COVID-19 pandemic will continue to create challenges and uncertainties in the near term, the momentum we are seeing in new awards, winning the coveted General Motors Supplier of the Year award, coupled with aggressive cost management and our strong balance sheet position us well to continue to deliver over the long term, continued Eyler.

2020 Second Quarter Financial Review

Product revenues for the second quarter of 2020 of $136.1 million declined $107.3 million, or 44.1%, as compared to the prior-year period. Excluding the impact of foreign currency translation and divested assets, product revenues declined 42.3% year over year.

Automotive revenues declined 45.8% year over year. All product categories saw revenue declines except Electronics. Adjusting for foreign currency translation, organic Automotive revenues decreased 44.9% year over year. According to IHS Markit, actual light vehicle production declined by approximately 38.9% when compared to the second quarter of 2019 in the Companys key markets of North America, Europe, China, Japan and Korea.

The 14.3% revenue decrease in Industrial resulted from the divestiture of Global Power Technologies (GPT), which was sold on October 1, 2019. The decrease was partially offset by year-over-year growth of 18.2% in Gentherm Medical, primarily due to increased demand for our Blanketrol solutions, including the support of temperature management for COVID-19 patients.

See the Revenue by Product Category table included below for additional detail.

The gross margin rate decreased to 19.6% in the current-year period, compared with 29.9% in the prior-year period, primarily as a result of lower Automotive volume due to the COVID-19 pandemic and annual customer price reductions. These were partially offset by supplier cost reductions and positive sales mix as a result of the strength in our Medical business.

Net research and development (R&D) expenses of $15.3 million in the 2020 second quarter decreased $3.9 million, or 20.3%, year over year as a direct result of cost reduction initiatives and lower incentive compensation.

Selling, general and administrative (SG&A) expenses of $21.9 million in the 2020 second quarter decreased $10.3 million, or 32.0%, versus the prior-year period. The year-over-year decline was primarily driven by the impact of cost reduction initiatives, lower incentive compensation and the divestiture of the GPT business.

During the quarter, the Company reduced its restructuring expenses by a net $0.6 million, primarily as a result of proactively reducing cash restructuring costs associated with previously announced plan to improve the Companys manufacturing productivity and rationalize its footprint.

As described more fully in the table included below, Reconciliation of Net (Loss) Income to Adjusted EBITDA, the Company recorded Adjusted EBITDA of $0.1 million during the second quarter of 2020 compared to $32.2 million in the prior year.

Income tax expense in the 2020 second quarter was $0.2 million, as compared with $5.5 million in the prior-year period. The tax amount in 2020 included the effect of the settlement and closure of multi-year international tax audits of $3.4 million. Adjusted for the audit settlement impacts, the effective tax rate was 31.4%. This rate differed from the Federal statutory rate of 21%, primarily due to higher tax rates in foreign tax jurisdictions.

GAAP diluted loss per share for the second quarter of 2020 was $0.32 compared with diluted earnings per share of $0.08 for the prior-year period. Adjusted diluted loss per share, excluding restructuring expenses, income from sale of patents, unrealized currency gain, and other impacts (see table herein), was $0.30. Adjusted diluted earnings per share in the prior-year period was $0.47.

As a result of the unprecedented uncertainty facing the automotive industry and global economy, Gentherm withdrew its 2020 guidance on March 25, 2020 and is not providing an update at this time. However, the Company expects product revenues in the third quarter of 2020 to improve sequentially to be in the range of $210 to $240 million.

Conference Call

As previously announced, Gentherm will conduct a conference call today at 8:00 am Eastern Time to review these results. The dial-in number for the call is 1-855-327-6837 (callers in the U.S.) or +1-631-891-4304 (callers outside this U.S.). The passcode for the live call is 10010358.

A live webcast and one-year archived replay of the call can be accessed on the Events page of the Investor section of Gentherm's website at www.gentherm.com.

A telephonic replay will be available approximately 2 hours after the call until 11:59 pm Eastern Time on August 18, 2020. The replay can be accessed by dialing 1-844-512-2921 (callers in the U.S.), or +1-412-317-6671 (callers outside the U.S.). The passcode for the replay is 10010358.

Investor Relations ContactYijing Brentanoinvestors@gentherm.com (248) 308-1702

Media ContactMelissa Fischermedia@gentherm.com248.289.9702

About Gentherm

Gentherm (NASDAQ:THRM) is a global developer and marketer of innovative thermal management technologies for a broad range of heating and cooling and temperature control applications. Automotive products include variable temperature Climate Control Seats, heated automotive interior systems (including heated seats, steering wheels, armrests and other components), battery thermal management systems, cable systems and other electronic devices. Medical products include patient temperature management systems. The Company is also developing a number of new technologies and products that will help enable improvements to existing products and to create new product applications for existing and new markets. Gentherm has more than 11,000 employees in facilities in the United States, Germany, Canada, China, Hungary, Japan, Korea, North Macedonia, Malta, Mexico, United Kingdom, Ukraine, and Vietnam. For more information, go to www.gentherm.com.

Forward-Looking Statements

Except for historical information contained herein, statements in this release are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent Gentherm Incorporated's goals, beliefs, plans and expectations about its prospects for the future and other future events. The forward-looking statements included in this release are made as of the date hereof or as of the date specified herein and are based on management's reasonable expectations and beliefs. Such statements are subject to a number of important assumptions, risks, uncertainties and other factors that may cause actual results or performance to differ materially from that described in or indicated by the forward-looking statements, including that: COVID-19 and its direct and indirect adverse impacts on the automobile and medical industries and global economy has, and will continue to have, an adverse effect on, among other things, the Companys results of operations, financial condition, cash flows, liquidity, business operations and stock price; future borrowing availability under the Companys revolving credit facility is subject to compliance with covenants thereunder, and the deterioration of the Companys financial performance (including consolidated EBITDA) due to the COVID-19 has caused the borrowing availability to be, and it may continue to be for at least the next 12 months, substantially less than the full amount of revolving credit facility; the Companys failure to be in compliance with covenants under the revolving credit facility due to COVID-19 or otherwise could result in an event of default thereunder, and if the lenders thereunder do not agree to amend or waive, the amounts outstanding under the revolving credit facility may be accelerated and may become immediately due and payable; additional financing by accessing the capital markets may not be available on acceptable terms, if at all, due to the impact of COVID-19 and additional indebtedness may harm the Companys financial position and impact the Companys ability to comply with covenants under the Companys revolving credit facility; the Company may not realize the expected benefits from any restructuring initiatives it may pursue as a result of the effects of COVID-19 or otherwise; declines in automobile production may have an adverse impact; sales may not increase and the projected future sales volumes on which the Company manages its business may be inaccurate; new business awards may not be converted into product revenues and our projections thereof are not updated after the date initially communicated to us by customers, including for the impact of COVID-19 on future business; new or improved competing products may be developed by competitors with greater resources; customer preferences may shift, including due to the evolving use of automobiles and technology; the Company may lose suppliers or customers; market acceptance of the Companys existing or new products may decrease; currency exchange rates may change unfavorably; pricing pressures from customers may increase; the macroeconomic environment may present adverse conditions; new products may not be feasible; work stoppages impacting the Company, its suppliers or customers, due to labor matters, civil or political unrest, infectious diseases and epidemics or other reasons, could harm the Companys operations; free trade agreements may be altered or additional tariffs may be implemented; customers may not accept pass-through of tariff costs; the Company may be unable to protect its intellectual property in certain jurisdictions; there may be manufacturing or design defects or other quality issues with the Companys products; the Company may be unable to effectively implement ongoing restructuring and other cost-savings measures or realize the full amount of estimated savings; the Companys business may be harmed by security breaches and other disruptions to its IT systems; the Company may be unable to comply with or may incur increased costs associated with complying with domestic and international regulations, which could change in an unfavorable manner; and other adverse conditions in the industries in which the Company operates may negatively affect its results.

The foregoing risks should be read in conjunction with the Company's filings with the Securities and Exchange Commission (the SEC), including Risk Factors, in its most recent Annual Report on Form 10-K and subsequent SEC filings, for a discussion of these and other risks and uncertainties. In addition, the business outlook discussed in this release does not include the potential impact of any business combinations, acquisitions, divestitures, strategic investments and other significant transactions that may be completed after the date hereof, each of which may present material risks to the Companys business and financial results.

Except as required by law, the Company expressly disclaims any obligation or undertaking to update any forward-looking statements to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

GENTHERM INCORPORATEDCONSOLIDATED CONDENSED STATEMENTS OF (LOSS) INCOME (In thousands, except per share data) (Unaudited)

Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019Product revenues $ 136,061 $ 243,326 $ 364,674 $ 501,247Cost of sales 109,326 170,612 271,872 353,226Gross margin 26,735 72,714 92,802 148,021Operating expenses: Net research and 15,341 19,255 33,101 38,152development expensesSelling, general and 21,889 32,171 47,729 64,822administrative expensesRestructuring expenses (598 ) 1,231 3,168 3,145Total operating expenses 36,632 52,657 83,998 106,119Operating (loss) income (9,897 ) 20,057 8,804 41,902Interest expense, net (1,361 ) (1,240 ) (2,109 ) (2,608Foreign currency loss (1,741 ) (804 ) (2,679 ) (601Gain on sale of business ? ? ? 4,970Impairment loss ? (9,885 ) ? (20,369Other income 2,882 171 3,146 314(Loss) earnings before (10,117 ) 8,299 7,162 23,608income taxIncome tax expense 205 5,548 5,611 12,443Net (loss) income $ (10,322 ) $ 2,751 $ 1,551 $ 11,165Basic (loss) earnings per $ (0.32 ) $ 0.08 $ 0.05 $ 0.33shareDiluted (loss) earnings per $ (0.32 ) $ 0.08 $ 0.05 $ 0.33shareWeighted average number of 32,580 33,441 32,635 33,508shares ? basicWeighted average number of 32,580 33,574 32,869 33,651shares ? diluted



GENTHERM INCORPORATEDREVENUE BY PRODUCT CATEGORY(Unaudited, in thousands)

Three Months Ended Six Months Ended June 30, June 30, 2020 2019 % 2020 2019 % Change ChangeClimate ) )Control $ 49,879 $ 88,437 (43.6 % $ 132,407 $ 182,791 (27.6 %Seats (CCS)Seat 33,342 73,628 (54.7 ) 97,874 147,548 (33.7 )Heaters % %Electronics 13,488 11,454 17.8 % 23,864 24,306 (1.8 ) %Automotive 9,833 22,205 (55.7 ) 31,973 45,955 (30.4 )Cables % %Steering ) )Wheel 7,980 16,029 (50.2 % 27,215 32,999 (17.5 %HeatersBatteryThermal 6,653 8,897 (25.2 ) 17,862 19,641 (9.1 )Management % %(BTM)Other 3,211 9,050 (64.5 ) 9,663 18,817 (48.6 )Automotive % %Subtotal 124,386 229,700 (45.8 ) 340,858 472,057 (27.8 )Automotive % %Medical 11,675 9,881 18.2 % 23,816 18,068 31.8 %GPT ? 3,745 (100.0 ) ? 7,704 (100.0 ) % %CSZ-IC ? ? 0.0 % ? 3,418 (100.0 ) %Subtotal 11,675 13,626 (14.3 ) 23,816 29,190 (18.4 )Industrial % %Total 136,061 243,326 (44.1 ) 364,674 501,247 (27.2 )Company % % Total CoreBusinesses ) )(Automotive $ 136,061 $ 239,581 (43.2 % $ 364,674 $ 490,125 (25.6 %andMedical)

GENTHERM INCORPORATEDRECONCILIATION OF NET (LOSS) INCOME TO ADJUSTED EBITDA(In thousands)(Unaudited)

Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Net (loss) income $ (10,322 ) $ 2,751 $ 1,551 $ 11,165 Add back: Income tax expense 205 5,548 5,611 12,443 Interest expense 1,361 1,240 2,109 2,608 Depreciation and amortization 9,847 11,094 20,000 22,074 Adjustments: Restructuring expense (598 ) 1,231 3,168 3,145 Impairment loss ? 9,885 ? 20,369 Gain on sale of business ? ? ? (4,970 )Acquisition transaction ? 342 ? 380 expenseUnrealized currency loss 1,609 71 2,374 (923 )(gain)Gain on sale of patents (1,978 ) ? (1,978 ) ? CFO transition expenses ? ? ? 1,065 Adjusted EBITDA $ 124 $ 32,162 $ 32,835 $ 67,356

Use of Non-GAAP Financial Measures

In addition to the results reported in accordance with GAAP throughout this release, the Company has provided information regarding adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) and adjusted earnings per share (Adjusted earnings per share or Adjusted EPS), each, a non-GAAP financial measure. The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, deferred financing cost amortization, and other gains and losses not reflective of the Companys ongoing operations and related tax effects including transaction expenses, debt retirement expenses, impairment of assets held for sale, gain or loss on sale of business, restructuring expense, unrealized currency gain or loss and unrealized revaluation of derivatives. The Company defines Adjusted EPS as earnings adjusted by gains and losses not reflective of the Companys ongoing operations and related tax effects including transaction expenses, debt retirement expenses, impairment of assets held for sale, gain or loss on sale of business, restructuring expense, unrealized currency gain or loss and unrealized revaluation of derivatives. The Companys reconciliation of net income to Adjusted EBITDA is provided in this release. The Companys Reconciliation of Adjusted EPS can be found in the supplemental materials furnished as Exhibit 99.2 to the Companys Form 8-K dated August 4, 2020 and also is included in the presentation entitled Q2 2020 Gentherm Incorporated Earnings Conference Presentation, which can be found on the Events page of the Investor section of Gentherm's website at www.gentherm.com.

In evaluating its business, the Company considers and uses Adjusted EBITDA and Adjusted EPS as supplemental measures of its operating performance. Management provides Adjusted EBITDA and Adjusted EPS measures so that investors will have the same financial information that management uses with the belief that it will assist investors in properly assessing the Company's performance on a period-over-period basis. Other companies in our industry may calculate these non-GAAP financial measures differently than we do and those calculations may not be comparable to our metrics. These non-GAAP measures have limitations as analytical tools, and when assessing the Company's operating performance, investors should not consider Adjusted EBITDA or Adjusted EPS in isolation, or as a substitute for net income or other consolidated income statement data prepared in accordance with GAAP.

Non-GAAP measures referenced in this release may include estimates of future Adjusted EBITDA and Adjusted EPS. Such forward-looking non-GAAP measures may differ significantly from the corresponding GAAP measures, due to depreciation and amortization, tax expense, and/or interest expense, some or all of which management has not quantified for the future periods.

GENTHERM INCORPORATEDACQUISITION TRANSACTION EXPENSES, PURCHASE ACCOUNTING IMPACTSAND OTHER EFFECTS(In thousands, except per share data)(Unaudited)

Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Transaction related current expensesAcquisition transaction $ ? $ 342 $ ? $ 380 expensesNon-cash purchase accounting impactsCustomer relationships 1,595 1,936 3,191 3,764 amortizationTechnology amortization 438 498 877 980 Inventory fair value 108 117 216 156 adjustmentOther effects Restructuring expenses (598 ) 1,231 3,168 3,145 Gain on sale of business ? ? ? (4,970 )Gain on sale of patents (1,978 ) ? (1,978 ) ? Impairment loss ? 9,885 ? 20,369 Unrealized currency (gain) 1,609 71 2,374 (923 )lossCFO transition ? ? ? 1,065 Total acquisition transactionexpenses, purchase accounting $ 1,174 $ 14,080 $ 7,848 $ 23,966 impacts and other effectsTax effect of above (619 ) (1,117 ) (2,329 ) (905 )Net income effect $ 555 $ 12,963 $ 5,519 $ 23,061 Earnings per share - differenceBasic $ 0.02 $ 0.39 $ 0.17 $ 0.69 Diluted $ 0.02 $ 0.39 $ 0.17 $ 0.69 Adjusted earnings per share Basic $ (0.30 ) $ 0.47 $ 0.22 $ 1.02 Diluted $ (0.30 ) $ 0.47 $ 0.22 $ 1.02

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands, except share data) (Unaudited)

June 30, December31, 2020 2019ASSETS Current Assets: Cash and cash equivalents $ 209,170 $ 50,443 Restricted cash 2,505 2,505 Accounts receivable, less allowance of $1,800 and 118,885 159,710 $1,193, respectivelyInventory: Raw materials 61,762 61,323 Work in process 6,575 7,444 Finished goods 44,293 49,712 Inventory, net 112,630 118,479 Other current assets 36,592 42,726 Total current assets 479,782 373,863 Property and equipment, net 149,240 160,605 Goodwill 64,629 64,572 Other intangible assets, net 48,399 49,783 Operating lease right-of-use assets 12,780 11,587 Deferred income tax assets 57,972 57,650 Other non-current assets 10,568 9,326 Total assets $ 823,370 $ 727,386 LIABILITIES AND SHAREHOLDERS? EQUITY Current Liabilities: Accounts payable $ 65,521 $ 83,035 Current lease liabilities 4,184 4,586 Current maturities of long-term debt 2,500 2,500 Other current liabilities 63,805 66,583 Total current liabilities 136,010 156,704 Long-term debt, less current maturities 198,099 78,124 Pension benefit obligation 7,690 8,057 Non-current lease liabilities 10,097 6,751 Other non-current liabilities 2,153 5,100 Total liabilities $ 354,049 $ 254,736 Shareholders? equity: Common Stock: No par value; 55,000,000 shares authorized32,639,752 and 32,674,354 issued 104,113 102,507 and outstanding at June 30, 2020 and December 31,2019, respectivelyPaid-in capital 9,770 10,852 Accumulated other comprehensive loss (47,845 ) (42,441 )Accumulated earnings 403,283 401,732 Total shareholders? equity 469,321 472,650 Total liabilities and shareholders? equity $ 823,370 $ 727,386

GENTHERM INCORPORATEDCONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS(In thousands)(Unaudited)

Six Months Ended June 30, 2020 2019 Operating Activities: Net income $ 1,551 $ 11,165 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization 20,488 22,217 Deferred income taxes (913 ) 3,070 Stock based compensation 3,909 3,291 Defined benefit plan income (278 ) (699 )Allowance for credit losses 605 545 Loss on sale of property and equipment 339 227 Operating lease expense 3,490 2,903 Impairment loss ? 20,369 Gain on sale of business ? (4,970 )Gain on sale of patents (1,978 ) ? Changes in assets and liabilities: Accounts receivable 37,805 (4,021 )Inventory 5,292 1,650 Other assets 2,888 276 Accounts payable (17,753 ) (9,528 )Other liabilities (5,218 ) (6,087 )Net cash provided by operating activities 50,227 40,408 Investing Activities: Purchases of property and equipment (7,500 ) (13,024 )Acquisition of intangible assets (3,141 ) ? Proceeds from the sale of patents and property and 1,061 82 equipmentProceeds from divestiture of business ? 47,500 Acquisition of subsidiary, net of cash acquired ? (15,476 )Net cash (used in) provided by investing activities (9,580 ) 19,082 Financing Activities: Borrowing of debt 201,193 28,371 Repayments of debt (81,830 ) (61,120 )Cash paid for financing costs ? (1,278 )Cash paid for the cancellation of restricted stock (471 ) (926 )Proceeds from the exercise of Common Stock options 6,178 4,771 Cash paid for the repurchase of Common Stock (9,092 ) (33,040 )Net cash provided by (used in) financing activities 115,978 (63,222 )Foreign currency effect 2,102 293 Net increase (decrease) in cash, cash equivalents and 158,727 (3,439 )restricted cashCash, cash equivalents and restricted cash at 52,948 39,620 beginning of periodCash, cash equivalents and restricted cash at end of $ 211,675 $ 36,181 periodSupplemental disclosure of cash flow information: Cash (refund) paid for taxes $ (3,117 ) $ 3,522 Cash paid for interest $ 1,967 $ 2,712