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Gentherm Reports 2016 Second Quarter And Six-Month Results
New Subsidiary Cincinnati Sub Zero Delivers Strong Revenue in First Quarter since Acquisition

NORTHVILLE, Mich., July 28, 2016 /PRNewswire/ -- Gentherm (NASDAQ-GS:THRM), the global market leader and developer of innovative thermal management technologies, today announced its financial results for the second quarter ended June 30, 2016.

Revenues for the 2016 second quarter and first six months increased 9.0 percent and 6.7 percent, respectively, to $232.7 million and $448.4 million from $213.4 million and $420.4 million for the comparable prior year periods. 

"Our overall topline growth of 9 percent included promising strength in several of our businesses and product lines, including our new Cincinnati Sub Zero (CSZ) subsidiary, our heated seats, heated and ventilated seats and heated steering wheel product lines, and our Electronics Business Unit which is part of our new Gentherm Technologies division," said President and CEO Daniel R. Coker. "Our strategy to expand into new and high-potential vertical markets is driving our investment in additional resources and related higher operating expenses to support these new markets and products.  This investment is also creating important new growth drivers and revenue streams, all of which bode well for our future. Today we are a much larger, stronger and more diversified thermal technology company than ever before."

Coker noted that overall sales of its Climate Control Seat (CCS™), which includes both heated and cooled and heated and ventilated seat system variants, were marked by a slower growth rate than in recent quarters.  He stated that the market is undergoing a shift, temporarily softening the growth rate of the higher end heated and cooled seat systems in the short term, but adding new interest in the Company's heated and ventilated seat systems that could be a significant growth driver in the future. 

"The value of our heated and ventilated seat systems is being realized by many of our customers, especially those in the mid-tier, mid-priced vehicle market," Coker said. "We believe we are well positioned to serve this attractive market which is more sensitive to power consumption and cost.  It is much larger than the luxury market where our heated and cooled seat systems have thrived, and can support significantly larger sales volumes with strong margins. It should also drive growth of Gentherm manufactured electronics products being sold with other components as a complete system."

Coker added that the CSZ business had a strong quarter, generating $17.0 million in revenue as compared with pro-forma prior year second quarter revenue of $15.1 million.  He also said that Gentherm Global Power Technologies (GPT) quarterly revenue continued to be down significantly year over year, reflecting the slowdown in oil and natural gas pipeline construction.  However, Coker noted that the order activity at GPT is currently strong indicating the potential for improved revenue performance for that business in 2017. 

Net income for this year's second quarter and first six months was $18.4 million, or $0.51 per basic share and $0.50 per diluted share, and $30.3 million, or $0.83 per basic and diluted share, respectively, compared to net income for the respective prior year periods of $19.5 million, or $0.54 per basic and $0.53 per diluted share, and $39.3 million, or $1.10 per basic share and $1.08 per diluted share.  Net income for the 2016 second quarter and first six months included acquisition related fees and expenses of $634,000 and $671,000, respectively, and a one-time inventory step-up adjustment of $4.0 million, associated with the acquisition of CSZ on April 1 of this year.  Net income for the first six months of 2016 also included the one-time Canadian withholding tax payment of $6.3 million and other related tax adjustments of $3.3 million recorded in this year's first quarter, which were all associated with the closing of the Windsor, Ontario Canada facility. 

Without the impact of those items, net income for the 2016 second quarter would have been $21.6 million, or $0.59 per basic and diluted share and for the first six months net income would have been $43.0 million, or $1.18 per basic and diluted share.

Second Quarter of 2016 Financial Highlights
The 9.0 percent increase in product revenues during the first quarter was largely attributable to the acquisition of CSZ and continued growth in the Company's automotive seating products, which was partially offset by lower product revenues from GPT.  Revenues for CSZ during the Second Quarter were very strong, driven by sales of both its medical and industrial products. Automotive product revenues were higher during the Second Quarter 2016 including modestly higher sales for CCS, with good growth in automotive seat heaters and strong growth in steering wheel heaters. Product revenues from GPT continued to decline year over year and sequentially, reflecting continued softness in the demand for GPT's products in North America. GPT continues to be unfavorably impacted by the market weakness in the oil and gas industry that has reduced capital investments being made by GPT's principal customers that build and operate natural gas pipelines. During prior quarters, this weakness had been offset by higher sales of products that are sold into geographical markets outside of GPT's home market of North America.  However, these are typically larger custom products which are more impacted by the timing of shipments and fewer of these custom systems were shipped during Second Quarter 2016.  Further information regarding product sales is detailed in the table accompanying this news release. 

Gentherm's product revenues were not significantly impacted by fluctuations in foreign currency exchange rates compared to the 2015 second quarter product revenues.

Operating expenses of $49.1 million increased $10.1 million or 26 percent during the second quarter of 2016 compared with 2015.  More than half of this increase represents the operating expenses of CSZ, which was acquired on April 1 of this year, totaling $5.6 million.  The remaining increase is due to higher costs associated with the many new product initiatives that have reached the commercialization stage such as battery thermal management and advanced electronics, the new battery management technology development and higher administrative expenses from our new production locations in Vietnam and Macedonia.

Gross margin as a percentage of revenue for the quarter was 30.7 percent compared with 30.8 percent in the second quarter of 2015. Gross margin for this year's second quarter would have been 32.4 percent without the one-time purchase accounting impact for CSZ. This higher gross margin percentage is due to higher gross margins for CSZ and favorable foreign currency impact on production expenses in the Mexican Peso and Ukrainian Hryvnia.  During the second quarter, the Peso and Hryvnia decreased in value compared to the U.S. Dollar.  

Total cash as of June 30, 2016, after using approximately $73 million to acquire CSZ in the second quarter, was $132.0 million when compared with total cash of $144.5 million at December 31, 2015.  This combined with borrowing availability under the Company's credit agreements, provides available liquidity totaling $257.4 million as of June 30, 2016. 

Adjusted EBITDA for the quarter was $31.5 million.  This amount included the $4.0 one-time purchase accounting inventory step-up for CSZ.  Adding this amount back our adjusted EBITDA would have been $35.5 million compared with Adjusted EBITDA of $33.9 million for the second quarter of 2015, an increase of $1.6 million, or 5 percent.  A reconciliation of Adjusted EBITDA, a non-GAAP measure, to net income is provided in the table accompanying this news release.

Further non-cash purchase accounting impacts associated with recent acquisitions are detailed in the Acquisition Transaction Expenses, Purchase Accounting Impacts and Other Effects table accompanying this news release.

First Six Months of 2016 Financial Highlights
Automotive revenues were higher during the first half 2016, reflecting higher sales for CCS, automotive seat heaters and significant year-over-year growth in the Company's steering wheel heater product during the first half of 2016.  Revenue for the period was favorably impacted by the acquisition of CSZ on April 1 of this year.  GPT revenue declined year over year due to the unfavorable impact of market weakness in the energy markets.  Further information regarding product sales is detailed in the table accompanying this news release.

Fluctuations in foreign currency exchange rates unfavorably impacted Gentherm's product revenues by about $4.1 million, or one percent compared with 2015 product revenues.

Further non-cash purchase accounting impacts associated with the recent acquisitions are detailed in the Acquisition Transaction Expenses, Purchase Accounting Impacts and Other Effects table accompanying the release.

Gross margin as a percentage of revenue for the first six months of 2016 was 31.1 percent and would have been 32.0 percent without the impact of the one-time purchase accounting inventory step-up for CSZ.  This amount is 0.5 percent higher than the gross margin percentage of 31.5 percent during the first six months of 2015.  This higher gross margin percentage reflects higher gross margins for CSZ and favorable foreign currency impact on production expenses.

Adjusted EBITDA for the first half of 2016 was $71.9 million.  This amount included the $4.0 one-time purchase accounting inventory step-up for CSZ.  Adding this amount back our adjusted EBITDA would have been $75.9 million compared with Adjusted EBITDA of $69.9 million for the first half of 2015, an increase of $6.0 million, or 9 percent.  A reconciliation of Adjusted EBITDA, a non-GAAP measure, to net income is provided in the table accompanying this news release.

Guidance
We continue to expect good revenue growth for the balance of 2016.  Because of the slower than expected growth in the first half and continued short term softness for GPT, we now expect that our 2016 product revenue will be at the low end of our previous outlook expectations, at about 10% over the $856 million recorded in 2015.

Conference Call
As previously announced, Gentherm is conducting a conference call today to be broadcast live over the Internet at 8:00 AM Eastern Time to review these financial results.  The dial-in number for the call is 1-877-407-4018 or 201-689-8471.  The live webcast and archived replay of the call can be accessed in the Events page of the Investor section of Gentherm's website at www.gentherm.com.

About Gentherm
Gentherm (NASDAQ-GS: 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 actively heated and cooled seat systems and cup holders, heated and ventilated seat systems, thermal storage bins, heated automotive interior systems (including heated seats, steering wheels, armrests and other components), battery thermal management systems, cable systems and other electronic devices.  Non-automotive products include remote power generation systems, heated and cooled furniture, patient temperature management systems, industrial environmental test chambers and related product testing services and other consumer and industrial temperature control applications.  The Company's advanced technology team is developing more efficient materials for thermoelectrics and new systems for waste heat recovery and electrical power generation.  Gentherm has over ten thousand employees in facilities in the U.S., Germany, Canada, China, Hungary, Japan, Korea, Macedonia, Malta, Mexico, Ukraine and Vietnam.  For more information, go to www.gentherm.com.

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 press release are made as of the date hereof or as of the date specified and are based on management's current expectations and beliefs.  Such statements are subject to a number of important assumptions, risks, uncertainties and other factors that may cause the Company's actual performance to differ materially from that described in or indicated by the forward looking statements. Those risks include, but are not limited to, risks that new products may not be feasible, sales may not increase, additional financing requirements may not be available, new competitors may arise, currency exchange rates may change, and adverse conditions in the industry in which the Company operates may negatively affect its results. The foregoing risks should be read in conjunction with other cautionary statements included herein, as well as in the Company's annual report on Form 10-K for the year ended December 31, 2015 and subsequent reports filed with the Securities and Exchange Commission. 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.

Contact:   

DresnerAllenCaron


Mike Mason (investors), mmason@dresnerallencaron.com    


(212) 691-8087


Rene Caron (investors), rcaron@dresnerallencaron.com         


Len Hall (media), lhall@dresnerallencaron.com 


(949) 474-4300

TABLES FOLLOW

 

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)



















Three Months Ended

June 30,



Six Months Ended

June 30,





2016



2015



2016



2015



Product revenues


$

232,720



$

213,441



$

448,434



$

420,350



Cost of sales



161,225




147,736




308,697




288,075



Gross margin



71,495




65,705




139,737




132,275



Operating expenses:


















Net research and development expenses



19,111




14,977




34,807




29,525



Acquisition transaction expenses



634







671






Selling, general and administrative expenses



29,397




24,058




52,021




49,003



Total operating expenses



49,142




39,035




87,499




78,528



Operating income



22,353




26,670




52,238




53,747



Interest expense



(950)




(544)




(1,627)




(1,108)



Revaluation of derivatives






(53)







(1,017)



Foreign currency gain (loss)



2,796




(107)




961




328



Other income



30




262




395




457



Earnings before income tax



24,229




26,228




51,967




52,407



Income tax expense



5,783




6,734




21,628




13,093



Net income


$

18,446



$

19,494



$

30,339



$

39,314



Basic earnings per share


$

0.51



$

0.54



$

0.83



$

1.10



Diluted earnings per share


$

0.50



$

0.53



$

0.83



$

1.08



Weighted average number of shares –basic



36,442




35,971




36,400




35,871



Weighted average number of shares – diluted



36,637




36,585




36,572




36,429



 

GENTHERM INCORPORATED

REVENUE BY PRODUCT CATEGORY

(Unaudited, in thousands)





Three Months Ended

June 30, 

Six Months Ended

June 30,


2016

2015

2016

2015


Climate Controlled Seat (CCS)

$    103,075

$    101,590

$    206,959

$    201,477


Seat Heaters

72,782

68,472

145,080

136,740


Steering Wheel Heater

12,630

10,256

24,189

20,029


Automotive Cables

21,604

19,979

43,446

40,089


Remote Power Generation (GPT)

4,201

12,591

9,573

20,159


Cincinnati Sub-Zero Products (CSZ)

16,978

--

16,978

--


Other product revenues and adjustments

1,450

553

2,209

1,856



$    232,720

$    213,441

$    448,434

$    420,350


 

GENTHERM INCORPORATED

RECONCILIATION OF ADJUSTED EBITDA TO NET INCOME

(Unaudited, in thousands)






Three Months Ended

June 30,


Six Months Ended

June 30,


2016

2015


2016

2015

Net income

$           18,446

$           19,494


$       30,339

$        39,314

Add Back:






    Income tax expense

5,783

6,734


21,628

13,093

    Interest expense

950

544


1,627

1,108

    Depreciation and amortization

9,336

7,841


17,470

15,277

Adjustments:






    Acquisition transaction expense

634


671

    Unrealized currency (gain) loss

(3,602)

(773)


165

100

    Unrealized revaluation of derivatives

-

53


-

1,017

Adjusted EBITDA

$           31,547

$           33,893


$       71,900

$        69,909

 

Use of Non-GAAP Financial Measures
In evaluating its business, Gentherm considers and uses Adjusted EBITDA as a supplemental measure of its operating performance.  The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, deferred financing cost amortization, transaction expenses, debt retirement expenses, unrealized currency gain or loss and unrealized revaluation of derivatives.  Management believes that Adjusted EBITDA is a meaningful measure of liquidity and the Company's ability to service debt because it provides a measure of cash available for such purposes. Management provides an Adjusted EBITDA measure 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.

The term Adjusted EBITDA is not defined under GAAP, and is not a measure of operating income, operating performance or liquidity presented in accordance with GAAP.  Adjusted EBITDA has limitations as an analytical tool, and when assessing the Company's operating performance, investors should not consider Adjusted EBITDA in isolation, or as a substitute for net income or other consolidated income statement data prepared in accordance with GAAP.  Gentherm compensates for these limitations by relying primarily on its GAAP results and using Adjusted EBITDA only supplementally.

GENTHERM INCORPORATED

ACQUISITION TRANSACTION EXPENSES, PURCHASE ACCOUNTING IMPACTS AND OTHER EFFECTS

(Unaudited and in thousands, except per share data)










Three Months Ended

June 30,

Six Months Ended

June 30,

Future  Full Year Periods (estimated)


2016

2015

2016

2015

2016

2017

2018

Thereafter










Transaction related current expenses









Acquisition transaction expenses

$          634

$              –

$         671

$              –

$              –

$              –

$              –

$              –

Non-cash purchase accounting impacts









Customer relationships amortization

$       1,986

$       1,762

$       3,731

$       3,556

$       7,643

$       7,836

$       7,836

$     26,707

Technology amortization

900

758

1,650

1,531

3,426

2,695

1,292

3,024

Product development costs amortization

43

260

42

1,051

42

Trade name amortization

44

46

86

93

176

132

Inventory fair value adjustment

3,973

3,973

3,973


$       6,946

$       2,826

$       9,482

$       6,231

$     15,260

$     10,663

$       9,128

$     29,731

Tax effect

(2,437)

(658)

(3,042)

(1,451)

(4,229)

(2,661)

(2,304)

(12,716)

Net income effect

$       5,143

$       2,168

$       7,111

$       4,780

$     11,031

$       8,002

$       6,824

$     21,223










Earnings per share - difference









Basic

$         0.14

$         0.06

$         0.20

$         0.13





Diluted

$         0.14

$         0.06

$         0.19

$         0.13
















 

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)








June 30,

2016



December 31,

2015








ASSETS








Current Assets:








Cash and cash equivalents

$

132,007



$

144,479


Accounts receivable, less allowance of $1,582 and $955, respectively


168,304




142,610


Inventory:








Raw materials


58,391




50,371


Work in process


10,068




4,150


Finished goods


26,104




29,662


Inventory, net


94,563




84,183


Derivative financial instruments


242





Deferred income tax assets


7,271




6,716


Prepaid expenses and other assets


47,463




42,620


Total current assets


449,850




420,608


Property and equipment, net


158,019




119,157


Goodwill


51,009




27,765


Other intangible assets


65,814




48,461


Deferred financing costs


896




310


Deferred income tax assets


23,427




22,094


Other non-current assets


38,561




8,403


Total assets

$

787,576



$

646,798


LIABILITIES AND SHAREHOLDERS' EQUITY








Current Liabilities:








Accounts payable

$

83,949



$

77,115


Accrued liabilities


117,941




60,823


Current maturities of long-term debt


889




4,909


Deferred tax liabilities


223




211


Derivative financial instruments


320




725


Total current liabilities


203,322




143,783


Pension benefit obligation


6,805




6,545


Other liabilities


3,420




5,026


Long-term debt, less current maturities


141,098




92,832


Deferred income tax liabilities


12,238




14,321


Total liabilities


366,883




262,507


Shareholders' equity:








Common Stock:








No par value; 55,000,000 shares authorized, 36,469,431 and 36,321,775 issued and outstanding at June 30, 2016 and December 31, 2015, respectively


259,309




256,919


Paid-in capital


221




(1,282)


Accumulated other comprehensive loss


(49,500)




(51,670)


Accumulated earnings


210,663




180,324


Total shareholders' equity


420,693




384,291


Total liabilities and shareholders' equity

$

787,576



$

646,798


 

GENTHERM INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)





Six Months Ended June 30,



2016



2015


Operating Activities:








Net income

$

30,339



$

39,314


Adjustments to reconcile net income to cash provided by operating activities:








Depreciation and amortization


17,547




15,323


Deferred income tax benefit


(12,767)




(4,765)


Stock compensation


4,505




2,983


Defined benefit plan expense


117




105


Provision of doubtful accounts


274




252


Gain on revaluation of financial derivatives





(150)


Loss (gain) on sale of property and equipment


254




(41)


Changes in operating assets and liabilities:








Accounts receivable


(12,668)




(16,711)


Inventory


6,624




(4,433)


Prepaid expenses and other assets


(6,890)




(6,674)


Accounts payable


1,749




13,148


Accrued liabilities


22,089




1,421


Net cash provided by operating activities


51,173




39,772


Investing Activities:








Proceeds from the sale of property and equipment


27




225




Acquisition and investment in subsidiary, net of cash acquired


(73,666)




(47)


Purchases of property and equipment


(30,828)




(23,029)


Net cash used in investing activities


(104,467)




(22,851)


Financing Activities:








Borrowing of debt


75,000





Repayments of debt


(31,918)




(2,801)


Excess tax (expense) benefit from equity awards


(385)




1,462


Cash paid for financing costs


(650)





Cash paid for the cancellation of restricted stock


(793)




(467)


Proceeds from the exercise of Common Stock options


566




4,122


Net cash provided by financing activities


41,820




2,316


Foreign currency effect


(998)




(3,294)


Net increase (decrease) in cash and cash equivalents


(12,472)




15,943


Cash and cash equivalents at beginning of period


144,479




85,700


Cash and cash equivalents at end of period

$

132,007



$

101,643


Supplemental disclosure of cash flow information:








Cash paid for taxes

$

13,400



$

19,384


Cash paid for interest

$

1,526



$

890












 

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SOURCE Gentherm