GlobeNewswire Inc | Oct 28, 2021 06:00AM EDT

October 28, 2021

Automotive Revenue Continued to Significantly Outperform Light Vehicle ProductionSecured $260 Million in New Automotive AwardsUpdates 2021 Guidance

NORTHVILLE, Mich., Oct. 28, 2021 (GLOBE NEWSWIRE) -- Gentherm (NASDAQ:THRM), a global market leader of innovative thermal management technologies, today announced its financial results for the third quarter ended September 30, 2021.

Third Quarter Highlights

-- Product revenues of $243.4 million decreased 6.2% from $259.5 million in the 2020 third quarter -- Excluding the impact of foreign currency translation, product revenues decreased 7.3% year over year -- GAAP diluted earnings per share was $0.47 as compared to $0.73 in the prior-year period -- Adjusted earnings per share (see table herein) was $0.51 as compared to $0.91 in the prior-year period -- Secured automotive new business awards totaling $260 million

Phil Eyler, the Company's President and CEO, said I am proud of the team for their strong execution in the third quarter, despite the unprecedented global supply chain disruption and production volatility. In Automotive, we continued to significantly outperform light vehicle production in the key markets we serve and secured $260 million of new awards from auto makers around the world. Importantly, 40% of these awards are for electric vehicles. In Medical, we are gaining market share with strong demand for Blanketrol. I am especially pleased that we increased cash flow from operations by over 40% in the third quarter compared to the same period last year.

While supply disruptions and production volatilities will remain challenging in the foreseeable future, our relentless focus on operational execution, innovation and cash flow generation position us well to continue to drive shareholder value over the long term, continued Eyler.

2021 Third Quarter Financial Review

Product revenues of $243.4 million decreased $16.2 million, or 6.2%, in the third quarter of 2021 as compared to the prior-year period. Excluding the impact of foreign currency translation, product revenues decreased 7.3% year over year.

Automotive revenues decreased 6.7% year over year, as decreases in Climate Control Seat (CCS), Seat Heaters and Electronics offset revenue increases in all other product categories. Adjusting for foreign currency translation, organic Automotive revenues decreased 7.8% year over year. According toIHS Markit,actual light vehicle productiondecreased by 22.6% when compared to the third quarter of 2020 in the Companys key markets of North America, Europe, China, Japan and Korea.

Gentherm Medical revenue increased 5.9% year over year, primarily due to higher Blanketrol and Hemotherm sales.

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

The gross margin rate decreased to 28.5% in the current-year period versus 31.8% in the prior-year period, primarily as a result of the negative impact from industry-wide supply chain disruptions, annual customer price reductions as well as wage and material inflation. These were partially offset by cost recoveries from customers and supplier cost reductions.

Net research and development expenses of $20.6 million in the third quarter of 2021 increased $2.5 million, or 13.9%, year over year as the company increased investments in ClimateSenseand battery performance solutions, partially offset by higher R&D reimbursement.

Selling, general and administrative expenses of $27.3 million in the third quarter of 2021 increased $1.6 million, or 6.2%, versus the prior-year period. The year-over-year increase was primarily driven by the absence of temporary COVID-19 cost reduction measures that were taken by the Company in the third quarter of 2020.

Restructuring expenses for the third quarter of 2021 were $0.7 million, as compared to $0.3million incurred in the prior-year period, as a result of the restructuring planto improve the Companys manufacturing productivity and rationalize its footprint.

As described more fully in the table included below, Reconciliation of Net Income to Adjusted EBITDA, the Company recorded Adjusted EBITDA of $30.5 million during the third quarter of 2021 compared to $50.1 million in the prior year, a year-over-year decrease of $19.7 million or 39.2%.

Income tax expense in the 2021 third quarter was $4.6 million, as compared with $9.6 million in the prior-year period. The effective tax rate was 22.9% for the current-year quarter.

GAAP diluted earnings per share for the third quarter of 2021 was $0.47 compared with $0.73 for the prior-year period. Adjusted diluted earnings per share, excluding non-cash purchase accounting impact, unrealized currency gain, restructuring expenses and other impacts (see table herein), was $0.51. Adjusted diluted earnings per share in the prior-year period was $0.91.

Guidance

The Company is updating its full-year 2021 guidance that was last provided on September 14, 2021:

-- Product revenues between $1.02 billion and $1.05 billion, based on the current forecast of customer orders, production outlook, supply chain constraints and current foreign exchange rates -- Adjusted EBITDA between 14% and 15% of product revenues -- Full-year effective tax rate between 20% and 22% -- Capital expenditures between $40 million and $50 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 1-877-407-4018 (callers in the U.S.) or +1-201-689-8471 (callers outside this U.S.). The passcode for the live call is 13724009.

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 two hours after the call until 11:59 pm Eastern Time on November 11, 2021. 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 13724009.

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 hasmore than 11,000 employees in facilities in the United States, Germany, China, Hungary, Japan, Korea,NorthMacedonia, Malta, Mexico, United Kingdom, Ukraine, and Vietnam.For more information, go towww.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:

-- the COVID-19 pandemic and its direct and indirect adverse impacts on the automobile and medical industries, global supply chain and global economy, which had, and may continue to have, an adverse effect on, among other things, the Companys results of operations, financial condition, cash flows, liquidity, borrowing availability under the Companys revolving credit facility, business operations, and stock price; -- the loss of any key suppliers, or any material delays in the supply chain of the Company or the OEMs and Tier 1s supplied by the Company, including resulting from a shortage of key components (such as the significant supply disruptions currently faced by the automotive industry, including relating to semiconductors); -- reductions in the Companys manufacturing capacity and productivity due to adverse impacts of shifts and turnover in the labor market; -- the Companys failure to be in compliance with covenants under its debt agreements, which could result in the amounts outstanding thereunder being accelerated and becoming immediately due and payable; -- the Companys ability to obtain additional financing by accessing the capital markets, which may not be available on acceptable terms or at all; -- the macroeconomic environment, including its impact on the automotive industry, which is cyclical; -- any significant declines or slower growth than anticipated in light vehicle production, and in particular in markets for electric vehicles; -- market acceptance of the Companys existing or new products, and new or improved competing products developed by competitors with greater resources; -- shifting customer preferences, including due to the evolving use of automobiles and technology; -- the Companys ability to project future sales volumes, based on which the Company manages its business; -- reductions in new business awards, which were limited in 2020, and could be limited in the future, due to COVID-19, global supply chain challenges and related uncertainties; -- the Companys ability to convert new business awards into product revenues; -- managing the Companys growth effectively and to integrate successfully any recent business ventures, acquisitions, and strategic investments and alliances into the Companys business; -- the loss or insolvency of any of the Companys key customers; -- the impact of price downs in the ordinary course, or additional increased pricing pressures from the Companys customers; -- the feasibility of Companys development of new products on a timely, cost effective basis, or at all; -- security breaches and other disruptions to the Companys IT systems; -- work stoppages impacting the Company, its suppliers or customers; -- changes in free trade agreements or the implementation of additional tariffs, and the Companys ability to pass-through tariff costs; -- unfavorable changes to currency exchange rates; -- the Companys ability to protect its intellectual property in certain jurisdictions; -- the Companys ability to effectively implement ongoing restructuring and other cost-savings measures or realize the full amount of estimated savings; and -- compliance with, and increased costs related to, domestic and international regulations.

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 future 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 INCOME(In thousands, except per share data) (Unaudited)

Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Product revenues $ 243,384 $ 259,540 $ 797,924 $ 624,214 Cost of sales 173,997 176,935 561,655 448,807 Gross margin 69,387 82,605 236,269 175,407 Operating expenses: Net research and 20,590 18,070 56,420 51,171 development expensesSelling, general and 27,344 25,745 83,093 73,474 administrative expensesRestructuring expenses 749 284 3,631 3,452 Total operating expenses 48,683 44,099 143,144 128,097 Operating income 20,704 38,506 93,125 47,310 Interest expense, net (515 ) (1,259 ) (2,184 ) (3,368 )Foreign currency gain 133 (2,883 ) 391 (5,562 )(loss)Other income (loss) 10 (615 ) 13 2,531 Earnings before income tax 20,332 33,749 91,345 40,911 Income tax expense 4,646 9,603 17,959 15,214 Net income $ 15,686 $ 24,146 $ 73,386 $ 25,697 Basic earnings per share $ 0.47 $ 0.74 $ 2.22 $ 0.79 Diluted earnings per share $ 0.47 $ 0.73 $ 2.19 $ 0.78 Weighted average number of 33,178 32,624 33,075 32,631 shares ? basicWeighted average number of 33,609 32,958 33,489 32,924 shares ? diluted

GENTHERM INCORPORATEDREVENUE BY PRODUCT CATEGORY AND RECONCILIATION OF FOREIGN CURRENCY TRANSLATION IMPACT(In thousands)(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 % 2021 2020 % Change ChangeClimate )Control $ 89,991 $ 97,058 (7.3 % $ 297,393 $ 229,465 29.6 %Seat (CCS)Seat 61,516 73,471 (16.3 ) 208,101 171,345 21.5 %Heaters %SteeringWheel 24,578 22,506 9.2 % 80,139 49,721 61.2 %HeatersAutomotive 19,465 18,917 2.9 % 66,686 50,890 31.0 %CablesBatteryPerformance 16,928 15,956 6.1 % 52,265 33,818 54.5 %Solutions(BPS)Electronics 11,567 14,463 (20.0 ) 41,324 38,327 7.8 % %Other 8,983 7,393 21.5 % 21,595 17,056 26.6 %AutomotiveSubtotal )Automotive 233,028 249,764 (6.7 % 767,503 590,622 29.9 %segmentMedical 10,356 9,776 5.9 % 30,421 33,592 (9.4 )segment %Total $ 243,384 $ 259,540 ? $ 797,924 $ 624,214 ? Company Foreigncurrency 2,832 ? 24,824 ? translationimpactTotalCompany,excluding )foreign $ 240,552 $ 259,540 (7.3 % $ 773,100 $ 624,214 23.9 %currencytranslationimpact

GENTHERM INCORPORATED

RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA(In thousands)(Unaudited)

Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Net income $ 15,686 $ 24,146 $ 73,386 $ 25,697 Add back: Depreciation and 9,859 10,129 29,182 30,129 amortizationIncome tax expense 4,646 9,603 17,959 15,214 Interest expense 515 1,259 2,184 3,368 Adjustments: Restructuring expense 749 284 3,631 3,452 Unrealized currency (1,039 ) 4,117 (1,345 ) 6,491 (gain) lossGain on sale of patents ? ? ? (1,978 )Acquisition and 65 608 1,023 608 divestiture expensesAdjusted EBITDA $ 30,481 $ 50,146 $ 126,020 $ 82,981 Product revenues $ 243,384 $ 259,540 $ 797,924 $ 624,214 Adjusted EBITDA % 12.5 % 19.3 % 15.8 % 13.3 %

Use of Non-GAAP Financial Measures

In addition to the results reported in accordance with GAAP throughout this release, the Company has provided here or elsewhere information regarding adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), Adjusted EBITDA margin, adjusted earnings per share (Adjusted earnings per share or Adjusted EPS), free cash flow, Net Debt and Revenue excluding the impact of foreign currency translation, 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 EBITDA margin as Adjusted EBITDA divided by product revenues. 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 Company defines Free Cash Flow as Net cash provided by operating activities less Purchases of property and equipment. The Company defines Net Debt as the principal amount of all Consolidated Funded Indebtedness (as defined in the Credit Agreement) less cash and cash equivalents. The Company defines Revenue excluding the impact of foreign currency translation as revenue, less the estimated effects of foreign currency exchange on revenue by translating actual revenue using the prior period foreign currency exchange rates.

The Companys reconciliations are included in this release or can be found in the supplemental materials furnished as Exhibit 99.2 to the Companys Form 8-K dated October 28, 2021.

In evaluating its business, the Company considers and uses Free Cash Flow and Net Debt as supplemental measures of its liquidity and the other non-GAAP financial measures as supplemental measures of its operating performance. Management provides such non-GAAP financial 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 by excluding matters not indicative of the Companys ongoing operating or liquidity results. In evaluating our non-GAAP financial measures, you should be aware that in the future we may incur revenues, expenses, and cash and non-cash obligations that are the same as or similar to some of the adjustments in our presentation of non-GAAP financial measures. Our presentation of non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There also can be no assurance that we will not modify the presentation of our non-GAAP financial measures in the future, and any such modification may be material. Other companies in our industry may define and 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 or liquidity, investors should not consider these non-GAAP measures in isolation, or as a substitute for net income, revenue or other consolidated income statement or cash flow statement data prepared in accordance with GAAP.

Non-GAAP measures referenced in this release and other public communications may include estimates of future Adjusted EBITDA, Adjusted EBITDA margin 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 INCORPORATED

ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE(In thousands, except per share data)(Unaudited)

Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Net income $ 15,686 $ 24,146 $ 73,386 $ 25,697 Non-cash purchase 2,141 2,259 6,241 6,543 accounting impactRestructuring expenses 749 284 3,631 3,452 Unrealized currency (1,039 ) 4,117 (1,345 ) 6,491 (gain) lossGain on sale of patents ? ? ? (1,978 )Acquisition and 65 608 1,023 608 divestiture expensesTax effect of above (566 ) (1,435 ) (2,557 ) (3,764 )Adjusted net income $ 17,036 $ 29,979 $ 80,379 $ 37,049 Weighted average shares outstanding:Basic 33,178 32,624 33,075 32,631 Diluted 33,609 32,958 33,489 32,924 Earnings per share, as reported:Basic $ 0.47 $ 0.74 $ 2.22 $ 0.79 Diluted $ 0.47 $ 0.73 $ 2.19 $ 0.78 Adjusted earnings (loss) per share:Basic $ 0.51 $ 0.92 $ 2.43 $ 1.14 Diluted $ 0.51 $ 0.91 $ 2.40 $ 1.13

GENTHERM INCORPORATED

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

September December 30, 2021 31, 2020ASSETS Current Assets: Cash and cash equivalents $ 195,086 $ 268,345 Accounts receivable, net 182,324 211,672 Inventory: Raw materials 89,017 68,362 Work in process 12,460 8,247 Finished goods 52,819 45,792 Inventory, net 154,296 122,401 Other current assets 41,997 41,188 Total current assets 573,703 643,606 Property and equipment, net 155,788 152,581 Goodwill 66,769 68,024 Other intangible assets, net 39,140 46,421 Operating lease right-of-use assets 24,718 30,642 Deferred income tax assets 67,307 73,912 Other non-current assets 16,553 7,653 Total assets $ 943,978 $ 1,022,839 LIABILITIES AND SHAREHOLDERS? EQUITY Current Liabilities: Accounts payable $ 124,000 $ 116,043 Current lease liabilities 5,948 6,032 Current maturities of long-term debt 2,500 2,500 Other current liabilities 82,905 81,409 Total current liabilities 215,353 205,984 Long-term debt, less current maturities 37,500 189,934 Non-current lease liabilities 20,313 24,233 Pension benefit obligation 7,531 8,163 Other non-current liabilities 7,801 8,194 Total liabilities $ 288,498 $ 436,508 Shareholders? equity: Common Stock: No par value; 55,000,000 shares authorized33,224,779 and 32,921,341 issued and outstanding 135,449 121,073 at September 30, 2021 and December 31, 2020,respectivelyPaid-in capital 5,980 7,458 Accumulated other comprehensive loss (32,117 ) (14,982 )Accumulated earnings 546,168 472,782 Total shareholders? equity 655,480 586,331 Total liabilities and shareholders? equity $ 943,978 $ 1,022,839

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

Nine Months Ended September 30, 2021 2020 Operating Activities: Net income $ 73,386 $ 25,697 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization 29,430 30,777 Deferred income taxes 3,867 3,583 Non-cash stock based compensation 9,422 6,569 Change in defined benefit pension plans (650 ) (433 )Loss on disposition of property and equipment 638 562 Gain on sale of patents ? (1,978 )Changes in assets and liabilities: Accounts receivable, net 26,162 (33,250 )Inventory (34,019 ) 4,645 Other assets 10 (57 )Accounts payable 9,231 24,272 Other liabilities (371 ) 12,914 Net cash provided by operating activities 117,106 73,301 Investing Activities: Purchases of property and equipment (29,585 ) (11,613 )Acquisition of intangible assets ? (3,141 )Proceeds from the sale of patents and property and 11 1,068 equipmentAcquisition of business (2,827 ) ? Cost of technology investments (7,557 ) ? Net cash used in investing activities (39,958 ) (13,686 )Financing Activities: Borrowing of debt ? 201,193 Repayments of debt (151,993 ) (87,688 )Cash paid for the repurchase of Common Stock ? (9,092 )Proceeds from the exercise of Common Stock options 7,467 6,828 Cash paid for the cancellation of restricted stock (3,991 ) (811 )Acquisition contingent consideration payment (69 ) (618 )Net cash (used in) provided by financing activities (148,586 ) 109,812 Foreign currency effect (1,821 ) 6,664 Net (decrease) increase in cash, cash equivalents (73,259 ) 176,091 and restricted cashCash, cash equivalents and restricted cash at 268,345 52,948 beginning of periodCash, cash equivalents and restricted cash at end of $ 195,086 $ 229,039 periodSupplemental disclosure of cash flow information: Cash paid (refund) for taxes $ 12,348 $ (252 )Cash paid for interest $ 1,823 $ 3,006