THRM - Earnings call transcript Q4 2018

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Operator

Greetings, and welcome to Gentherm Fourth Quarter and Full Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Yijing Brentano, Investor Relations and Corporate Communications. begin. may you you, Thank

Yijing Brentano

available Thank you, joining earlier Thank for release morning, morning and today. Gentherm’s good is the us of released a everyone. gentherm.com. earnings and you copy Sherry, at results this were

will Additionally, today available of website. on today’s section later Relations be a Investor of webcast Gentherm’s replay call the

no respect Federal Statements reflect undertake our update this the subsequent materially. may forward-looking risk filings, discussions to them make such may see performance. laws. Please differ During obligation events statements various within underlying financial views Security and actual with to call, we the future and meaning latest of results current forward-looking Gentherm’s SEC statements. factors of reports including and uncertainties and XX-K for We

we by discuss as GAAP these may Reconciliations of financial measures financial our SEC in financial included G. earnings call, measures their defined non-GAAP non-GAAP release. measures During to comparable Regulation the are

me their take Anversa, the Officer. questions. today a Matteo website referring gentherm.com/events. presentation and are with President to that deck we Executive Matteo Officer Eyler, be Phil during will will Phil their Chief we After on made be On our remarks, available to and call at remarks, have and prepared Financial that pleased note Please Chief your

I’d Now, like Phil. over to the call to turn

Phil Eyler

was transformative for Gentherm. year Good Thank joining us you, everyone, morning, and a Yijing. today. thank for you XXXX all

able we for While deliver some full headwinds that I’m revenue were XXXX. to across and automotive presented award year industry record pleased automotive levels challenges,

began generate impact. cost initiative reduction addition, Fit-for-Growth to our In positive

further improvement in progress XXXX, XXXX. initial are there opportunities demonstrated we for certainly While in

look XXXX. all me details of that step to we’ve in back financial our gets in the results, Matteo accomplished let at and Before

over time. it’s joined on been since that driven we’ve a shown I As significant change over X, year slide and Gentherm just

XXXX To Gentherm a years internal a we one Panasonic battery with cost software automotive our Pepsi, initial restructured the that awards solutions enabled record management, expertise. forward, global things, in in Fiat minimize That technology leveraging some such creating unique which several of program Let and created $X.X at an a has Industrial finance, believe as expenses. of and back and Fit-for-Growth operating divestiture a the industry-leading This in BD past We electronics repositioned around early Gentherm by I proven few of we’re resulted evidenced are in months by and the progress, assessment developed organization think assessment strong which the divest strategic lead the June. company going truly we’ve over identified micro such the how six to three, thermal it of resulted company’s’ in about we’ve already Chambers human world a implemented. on solutions; speaks expanding medical, resources. the with we all call our and non-core we automotive XX under achievements which in identified battery in climate-controlled seen team about breakthrough growth and from key our XX executives one, strategy with We We’ve the experience of patient two, our to minutes in accelerating of companies the annualized going clarified concept completed mission, and talents focused Chrysler spend talking an involves team innovative Sprint, as GE, plan functions Climate recent what which We’ve the business. company margins the you optimism savings good Medical, pillars; shared successful four, million augmented our thermal climate to verticals, thermal just business; with management and class of billion to organization million medical, medical business. with strategy that CSZ system, and we around we a developing resulted has me Sense; of and year. four We’ve forward. expand a transformation be businesses, focus I external a

and cost turning our We’ve centered with early driving now where compensation factor XX% of our also attention to as employee global gross margins, on be We’re accountability. to engagement an has mindset, key in of Driving realigned our as environment focus been cultural change well customer our success. strategy. lies. a focused consistent performance We’ve created growth

will value our engineering. that come focus margin from to As expanded gross efficiencies, turning purchasing I manufacturing rationalization, earlier, improved and footprint mentioned we’re and excellence

journey has electrification, automotive on and capitalize for the Gentherm and of the future consumer perfectly is begun; connected trends just comfort truly wellness. demand Our positioned vehicles increasing autonomous to

an and beyond. engine and creating growth drive on will objectives We’re to poised deliver our that we’re XXXX

recent some review presentation business highlights X lets’ Now, slide in deck. beginning with our

growth for was assets our sale, businesses our in for We’re than excluding year basis to better pleased revenue X.X% XXXX, full able core held points we’re plan. that which XX deliver

automotive addition challenging delivered environment. X% organic automotive growth product the In despite we in

growth Control to markets. our automotive both of marked CCS sequentially automotive growth revenue quarter, automotive market significantly also record the Gentherm. for also momentum in Seat saw key a in continue awards business Climate We number our we When at and or year-over-year. looking fourth continued We see launches outperforming XXXX delivered X% for specifically and organic

of our business, progress activities, our make seeing in held We our for also expansion continued an on items. and achieved to assets focused positive in in margin In particularly XXXX, margin and sale. results we expenses excluding our line we’re financials core growth operating significant rate XX.X% EBITDA

more fourth approximately plan. of repurchased XXbX-X the early XXXX to and pursuant million a we repurchase quarter in shares $XX during continue we to Finally,

and repurchases program, market evaluate opportunistically million to XXX As our We towards on of will of repurchased we current yesterday, we’ve at since our capital have conditions. of almost launching deploy authorization. share recognize shares XXX the over and and total a repurchase million remaining our share shares value continue in depending

strong XX incorporate our figures fourth automotive in XX our Geely slide the continued the that Telluride. Blazer, CCS on continued by team product, to momentum with These X, Chevrolet plate execution Kia quarter, nine and seeing with Hyundai of NL-X, we’re with OEMs. launches Turning the models Santa launches included systems name Fe, different the across

that perfectly modular cool will heat worked I’m forces solutions. our experience for through collaboration these who teams were announced vehicles has were attended concept very This a show. our development of and of last highly talent innovation well the systems those partnership team development advanced future. ride the interior passenger time, And drive of hard Rinspeed vehicle we that I’m join that of Lear’s the partnership a provide electrified excited ecosystem we just seating for we to Our period have at and very thermo-modelling comfort. first solution strategic improve events vehicle highlighted our represented Intu to vehicle, CCS a short the The got the integrated of system current January, will that true that a This future Detroit with solution Auto Lear. to in In partnership is proud to to Rinspeed’s been to comfort partnership a firm. of Sense solutions. proudly our in we how us is and many leading microSNAP. Also view example the bring as thermal a testament will partnership a global solutions. software to is Gentherm at our project through passenger Climate customers great tailored were development provided know personalized lab, tank you enable for and Rinspeed, personalized Gentherm. leader comfort autonomous, through capabilities finally, the This both the with resoundingly based comfort tremendous Customer thermal thermal the autonomous we comfort thermal announced display the ThermoAnalytics, the concept feedback local a hand. and either global expertise positive. at latest week Working CES sharing stage developed and of think both life Detroit Auto mobility our I passenger of on our a Swiss with with show. able

record different to quarter, In business slide can that pace. we new Now X; continuing program XX customers. fourth in the secured XXX on you to across we’re new at where million win a awards see approximately

beyond full awards FS-XX, for Kia and for Kia XXXX. received C-CUV, year our We We Sorento, already billion awards full Evoque, won Nissan we the in and follow-on second with a for system, I Rover X.X our X.X surpassing Range in As record multiple Geely of OEMs Land Geely Wagon KX secured XX%. Volkes of battery by Rover quarter new vehicles mentioned, were in wins the billion XXXX two management we and thermal XXXX Golf. from year platform CCS air cooling award awarded from including awards the

won small seat a platform the vehicle awards the platform and Series progress with make to S Tourer. luxury auto the German makers we on business car Mercedes expanding new We XX our continue on and XX, X and on on electric the BMW based class including EQS, heating

Finally, will thermoelectric which for through awarded this we Mercedes the BTM extend follow-on business were XXXX. program

mild-hybrid We proven an integral part has such to of our be boost EQ are proud system. that solution their XX-Volt

number rating patient US and of three Integrated a in our one the thermal the from ranks two Blanketrol; globally, continued in based management Medical, to growth a we Delivery our top Now, turn Networks consistently lets’ in in US with temperature saw liquid the orders segment. Blanketrol discussion slide top management X rating large with brands patient or a several on solution UK. IDNs. for industrial CSZ as number the In

signature this product. of proud We’re

our XX% growth in Middle Africa. and strong XX% markets, East We’re momentum in and seeing growth with Europe international in

orders from saw also substantial and We Japan the in quarter. China

in example; we product seamlessly upgrade our launches medical system. invest to front, record R&D launching next portfolio to kit digital a this the upgrade continue On with One year. generation and will existing that to connect additional Blanketrol products electronic we’re hospitals our

scale for lower core to products. continues secure Our and automotive of component medical engineering medical the costs optimize and to team leverage design our sourcing our

new while Industries, discipline tremendous remain where us Gentherm auto I’m He for the talented continue on we work Myers XXXX we’re summarize; was new Matteo to me to seeing Chrysler our its and the I’d in he Ferrari CFO. the Matteo to routes. Anversa, and including I’ll Matteo, Gentherm global aboard. increased markets brings us persist, our his Fiat preparing CFO, achieve industry to team. introduce like and of make. with IPO hard joins the position the on progress experience GE little focus welcome analysis well awards proud to through margin, our pleased momentum capital With formally commitment over the our both outlook. by the from him and for team. color results. call financial welcome a turn the and more and planning financial detailed you guidance the of that XXXX to The challenges and global you in I with presented automotive Let

Matteo Anversa

Thank thank future. and you, the to am here and meeting to of many excited today, everyone joining look you I the be and Phil, I you to forward call forthcoming speaking in

X, the if will So prepared I my impacted that slide items our results. focus remarks from on fourth we quarter start

almost the For was achieved IHS overall of organic America, XXX The more Europe, in in the revenues declined negative mid-October fourth approximately quarter; of with or According key declined revenue product Korea, and growth we of swing China, in by in a fourth year-over-year. forecast industrial global X%, increase If than to flat X.X%. quarter of in Japan X% quarter, with XX% was data vehicle was in North for offset A X% this for vehicle FX segment revenues despite growing automotive light markets the which the points. relatively the automotive decline production. declined a automotive organic XX%. More significantly declining the Etratech fourth basis industrial. by our production X.X adjust compares headwinds our a impact X% X% our in the year-over-year and million by acquisition, latest

XXXX. as up Our program pro Climate with in decline The with increase automotive a rate due XX% down basis, XX%, due certain automotive on lower in automotive in revenues improvement. to Control and throughout to were up as increase This than launches Seat a were more OEMs. to forma management business volumes up by year-over-year, XX% Automotive heaters, wheel cancellations cable Etratech’s in line, X%. was of volume take well platform sedan in new strength which also OEMs, as orders revenue times our as large was product due due by primarily market, Germany. a battery slowdown launches the new partially cable industry. the that customers offset a European tier down which outpaced seat the Steering decline three RV revenue was X revenues was our in one of well occurred were heaters as to with contributor X%, driven product result thermal from

and segment revenues Throughout Industrial. our in to custom respectively. business industrial; projects GPT by in Chamber and XXXX, and experienced Industrial the XX.X%, CSZ shipments the Moving of declines industrial in declined GPT X% in XX% chambers climate custom declined CSZ testing we

Additionally fourth which the GPT shipment quarter experienced unusually of in a high difficult makes volume it comparison. XXXX,

may intention businesses, on to from December shifted X, which was past decline Industrial As these February to the were due and our you in we shipments recall X% January. approximately the segment most successful by timing in of both an revenues, the revenues we the Chambers indicated which CSZ Industrial of Test to medical business. announced disposition also of impacted of divest

year-ago to excluding one-time issue, essentially XX%. quarter for higher and basis we labor If flat; were in was related For was benefit costs, gross revenues thermal was The quarter grown medical full unit. to of gross for gross costs have tier XXX decrease - lower than volume, margin launch primarily to compared late would the margins; the XXXX revenues order points, XXXX, move management margin the XX%. battery competitors XX%, the adjustment, a year which quarter, however, expected sales in customer medical X the due to decline

increased due in couple were decline our freight cost we the we by a also production the at a by volume; addition, and during customer to we Fit-for-Growth higher facilities Mexico and to reductions, production us incurred other the coming were cost volumes decline did labor quarter. incurred tariffs. partially fast adjust negative of The however, costs driven These where production impact In our from not expected our cost offset in increases initiatives. Macedonia, and headcounts allow enough that mostly higher variable in had sudden headcount

to implemented. with to are Additionally, in expenses, our incurred we negatively we the labor currently rates ramp that still in On of align ahead Mexico, the conditions the And a we of million cost some In we efforts requirement the fixed expect impact of is we we to team, of annual impact previously of our while tariffs, able quarter $X million still our competitive adjusted were approximately production which therefore new negative the at $XXX,XXX. result of impact margin. be high in tariffs being as net wage gross as point, our was mitigate indicated. a $X wage the sourcing market this and minimum approximately phase impacted up BTM, production; to

were expenses options decline initiatives non-recurrence in the XXXX, XX.X the quarter impact settled of occurred that nearly This related the It million of and the the freight for Fit-for-Growth in quarter fourth Mexico million of important This the of operating amount were X.X initiatives. we of million expenses; in If quarter included charges of our the million. quarter adjust due the impacted transition we expenses driven operating these and that restructuring year-over-year expenses in in cash approximately primarily XXXX XX.X inefficiencies last charges, amount approximately both fourth stock operating (inaudible) XX.X If quarter addition, restructuring XXXX. XX% and to fourth we was mark-to-market down results of fourth XX.X up from CEO by of third million. and move are the million, in being our these of In to quarter in to from cost we that some Fit-for-Growth ramped note XXXX to Celaya benefited as $X our is resolved. reduction currently in incurred year. also X.X inefficiency plant million

than benefited reimbursements from customer X higher approximately the quarter R&D normal of fourth addition, million. of XXXX also In

year-over-year into So just the items if we I in these take mentioned, all approximately quarter that was in account the decrease expenses operating X%.

rate result, in the Our higher income jurisdictions which as favorable XX% tax year to and tax was our than XX.X% due XX.X%. a lower our rates, tax rate full XXXX quarter, in was was the with for forecasted

quarter in million XX; to XXXX. program, outlay activities, from to a generated review by cash slide last helped XX to million result, $X.XX the our EPS If of the partially We so share, the adjusted the actually million. share per will for year. the move I $X.XX XXX cash position million share operating as in quarter balance by our at during XX of offset us sheet, decreased was XXX the in of compared which the our debt our increased from repurchase cash we year million Finally, per net fourth to million at XX XXXX end end XX

revolving stands stands is update XXX.X outlook. guidance slide availability XXXX, As you which much we our the and If million, of ‘XX debt for provide million, pretty will our I of XX; at year-end with on flat turn total year-over-year. credit XXXX an XXX and line at to the

So are be in to held assets X% of to growth for if excluding we projecting start we sale. the with XXXX, X% range organic revenue

we a Operating increase of our progresses. Fit-for-Growth We due in XX% expenses to and reduction, gross expect next revenue, the on Fit-for-Growth impact to to of of margin revenue range full cost the focus our will to of ‘XX be variable enter growth gradually XX% in XX% XX% into to XX%. mainly the to will be the result, more the range for of in expect as XX% the adjusted year And actions, year. decreasing and to improve EBITDA with gradually we be rates the margin as as the phase year-over-year to initiatives

XX. XXXX, outlook to also on session. shown the to With back call as reaffirming that, the turn Sherry I’ll Sherry? for slide We are Q&A our begin

Operator

FBR. Riley B. your with Please Horn Van Chris from is question proceed first Our questions. Instructions] with [Operator

Chris Van Horn

underlying that And puts you takes X% kind about of as on? timing and side, are we identified how of of terms your launches the XX what new XXXX of million, - think us kind XX some about you’ve of how to then on same kind and the industry million you then of at for of thinking rolling or margin in production, you’ve on range? guidance lines X%, the for could you are had contribution $XX give assumptions Looking that business identified the Fit-for-Growth you much the - margin million, the

Phil Eyler

you trends start bit we little down flat a show little side; best taking look half couple We’ll last a in and of release the the the quarters IHS first at growth basically Chris. and the more estimates with February movement which says we’ve data, year, have the if the through basically of Sure throughout direction comes back the year-over-year, bit. the

that’s those what given we we’ve basically achieve and So the got that latest we’re can in model, forecast. results our comfortable

In launches will vehicles, climate our grow continue certainly is about and take comfort new it and new new lion that with X% excited growth, period, pretty we’re to terms so our grow into in and rate X% continues that share momentum technologies, share and business heading of the launches, new to with to XXXX.

clearly side momentum we’ll in see and side Fit-for-Growth moving the equation, that expense on XXXX. some pretty operating the continue we’re of fast the On on to

focus identified structure a our sold. which to the on you of we’ve the opportunities is now of cost shifting cost our We’re know, gross in as margin part goods significant side,

out and there targets we at looking think efficiencies, margin our manufacturing, those So will that we’ll realignments help that going for achieve we’ll be at we footprint laid forward. us look several other global gross

on those, really and to going we move pretty be we’re I as we’re think forward. comfortable obviously So aggressive

Chris Van Horn

of a quarter it shifting active on business the just how like of that challenges more you does technologies? past forward, business if follow-on, seems and marketplace from the that it’s coming new kind the see in to what CCS some that from and side. could a lot the good offer various customers like as seen I’m seems just for business just are some commentary you in (inaudible) saw switch seeing back into going on you’re from growth then CCS, topline people wondering And that maybe you in some

Phil Eyler

Sure.

look on growth the at tough we proud When the market that’s technology continue it’s CCS event we’re the the side, the you in regions. CCS of seeing the active even speaks have. on to we customers wins in and launches, in certainly to from but definitely really movement, the given We’re still see it with this and all on side interest toward electrification and trending fuel efficiency, focus lots movement momentum of

wins really that as to be about winning So continuing announce we’ll those inform toward the and that to wins the you excited beyond continue shift going on to coming. start side of period, awards. But Active be will Active those is XXXX we we’re

Operator

question. Our next Steve Dwyer with Capital. your question Craig-Hallum is with Please from proceed

Steve Dwyer

On to and the between for how that are willing outlined business? X% product XXXX, you you able to the breakout business or auto growth splits to X% sort the medical had of it

Phil Eyler

business growing a as say Well, kind we’ve but small the is it’s But that, a overall compared know, rate very relatively. company. little given on the would you not of faster a detail business at I that medical to

Steve Dwyer

looking then pretty to would guidance in forward digits organically And a growth high-single the the imply of XXXX there, reiterated XXXX-XXXX. significant and revenue reacceleration

production estimates Given imply what IHS XXXX numbers. down get you their you’ll we’ve you’re of to about XXXX forth, sort of to year organic what this and those sort from talking and would gives get confidence of mid-single in that, that kind sort digits growth if of double-digit so ratcheting and the seen

the So, color little would is something new like on that, more you’re of that wins maybe design wins that great. based sort be seeing there a or

Phil Eyler

years Well a amassing the Sure. two technologies, across big of these as it’s that. we we’ve the start multiple big all layering rate, plays is and a part over the clearly course that, part last of in win been wins of that CCS that’s

XXXX, of battery to big its that’ll continue in toward it. management the part thermal going the We to of run see growth business; a it’s play so higher rate reach end also

pretty growth medical both coming elements. see culminations in three those also business, the strong We of

Steve Dwyer

you going of more expect interest those rate, me additional forward? lines, there, to would sort along you management referred add run initial battery I wins. those seeing you to then reaching based design thermal nameplates the on that’s of assume sort couple And of just Are from lastly of sort

Phil Eyler

that couldn’t Mercedes. Yeah, technologies have BTM, the there excited with about host our a definitely, we more thermoelectric be extension of we

to proposition of I think the that value speaks the product.

going certainly from forward. So product expect we that more

As a and couple that, we’ve very (inaudible) But some I connecting in cooling, we’ve quarters product under we’ve are top that development air technologies ago, mentioned on around got got that mix. contracts got we’ve some heating some of way. of got interesting

So I there��s nice business think growth be going to of whole a area. that in run rate

Operator

Our is Please Gary Barrington with your Prestopino next question from Research. with proceed question.

Gary Prestopino

mentioned gross and you Phil, of gross going where biggest forward, could kind margin factors the you could at just you impact margin looking we your terms of some revisit them them in maybe and order to see rank betterment?

Phil Eyler

I let will take Yeah. Matteo that question.

Matteo Anversa

say of importance back Fit-for-Growth attention shifting to the on side. variable I we Phil’s comment, So in cost more initiatives are would order the of

improvements. I of improving footprint reducing you margin waste, of the think the is the the think efficiencies going manufacturing the value and plan gross where our see all actions be that I around will the plants, engineering, to bulk

work either to addition then our the price (inaudible) purchasing and cost, reduction that definitely achieving rest. the rank continued say piece on this, would the I through from we second the In rebates supplier lower by or

Phil Eyler

operational look I would related Gary, quarter categorize from own issues. our the one-third, third XX% actions was XX% last the of gap the the the are two-thirds, Those if but you to about a normalized versus it and year, at

and market to lower space. quarter volume in some overall as - of the up and the came of issues, of effects fourth related in plant, factors that the obviously affected the ramp one-time was such two-thirds expedited our So everybody our in freight, Mexico efficiency

to from our was We and really end in decline of toward key the - time a customer of of also dramatically really on a European with effect us had customers, that a cancellations left that one-off quarter the we cut this had end customers. cable of quarter, thing couple order orders, of to orders European business at same them respond or steep one no the the

two-thirds about the of was in problem fourth combination that we So had quarter.

Gary Prestopino

of I’m these thing, the efficiencies, like six terms things would have guess I you going that applying getting at at one sigma can you but like at, to in better the obviously waste, footprint margin of been is gross principles be something you continually what some you running or plants? if continually [blow], plant your full because really your this improve are get improving go

Phil Eyler

think that’s right. I Yeah exactly

mentioned, one we back focused year Fit-for-Growth those on expenses, the As activities track. on of getting I most operating

margin, May to those. I think is the good stage we’re identified now of really of we’ve we’re smaller the gross kind manage efficiencies. with year where solid the And cost but And through network, changes, rationalization, of buy start of the into structural versus buckets; the footprint that’s make come, would that the bucket a fall would showing the whether more those bigger we in how opportunities most execution progress savings be bucket there. thing. be two in-plant

have in plants, think terms We’re and quality the advantage we it’s execution of the after that. plants, just I really of proud so I really go in the continue culture our plants, think a a company in talent to good there’s we’ll proven of competitive for a us our and as

Gary Prestopino

of just more then couple a and Okay here.

the public? through annualized medical didn’t went In is business you this see of Can the terms of Cincinnati point? that make Sub-Zero, release, I revenue here. the What at it press I

Phil Eyler

It’s of the neighborhood in XX million.

Gary Prestopino

And that business, got treat more guidance is is kind million, just your of Okay, so a power of nothing our together? consider in generation really the we medical anything not as XX discontinued we as numbers pegged-off the should okay. there, medical, op there’s auto but for

Phil Eyler

GPT all altogether. out have and of that CSZ Industrial Yeah, taken Investment Chambers

Gary Prestopino

your of, all you and that steering all crossovers for lastly wheel there CCS then more things like of we And SUVs, light show auto of at into plenty attitude, appetite the that fine. Are that. and that? that’s still is as these an trucks of transition seeing Okay, and products away heaters in sedans from

Phil Eyler

Yeah, I think that’s true.

these are a so the OEMs take features rates, see on more on we vehicle, more it and trend. like comfort bit trucks convenience generally higher the SUVs, and the competing We’re definitely little seems in have and we that

continue the are short challenge the some by hopeful those players certainly roll announcements that the has big to sedan off vehicle. run, effect that, that though, of to that some a facing of been in in of continue of truck that’s a year will the We of comes and it on - a and production these but be certainly market we’re as SUV and negative end factor factor, overcome next

Operator

Brinkman Please with Our from JPMorgan. Ryan next question question. proceed is your with

Ryan Brinkman

China your exposure rates take then might revenue seeing What’s if of on demand supply, market ground is be your there happening there, expectation vehicles, with also anything that you’re biggest your remind of this your us for What customers and and new in and the the the the terms are? just for year? you who latest could

Phil Eyler

from, got and XXXX, operating lot definitely still with China the But about of that as are in international it revenue, we the win see years certainly growth as as now going in GAC in in and then penetration growth OEMs XXX and we’re bulk be new rates the millionish domestic rates come and OEMs, upside and We into programs the that coming is significant we a take Great ahead. going Geely, roll more our is Wall several in The places, to launching have such years JVs China, in pickup. we comes from and that more market vehicles two year. the well is of growth as with in China the to in we out

Ryan Brinkman

think and to imagine, efforts the than regard to I you maybe an business coming revenue-generating timing can and of would customer the how share? for which much probably is And I how better we a have activities, was higher much this from outlook the focus the of is forward XQ, related versus in for do R&D R&D R&D due level entire (inaudible) should you would carry which, benefit that issue, more your reimbursements, to then of normal how lower

Phil Eyler

coming a Yeah, in the we down, funneling savings. the the key of out we to That into into target adding our and that’s four from that down, XX%. given down areas we’re normalized some the it’s more definitely that are XX% that’s XX%, OpEx it on in put the reimbursement. a basis will definitely will coming built offset we there decline resources coming XX% we growth, those and areas more of see see said, did quarter to little But higher

example, the getting reinforcements Climate the terms those of certainly expertise. Management are areas R&D our Thermal new in Battery Sense Solution, So side, on medical for business, some

Ryan Brinkman

of us question, if done and some update auto to from last understand parts on potential impact autos And mitigate tasks the margin? the if of to could and to efforts your and that steel impact of perhaps there those an give and aluminum Section while any your those to then business, Section you include your were to answering extended to to try be tariffs work the have XXX also you XXX try to

Phil Eyler

still of I think we’re to estimate you now look And has if right know we good to offset that it a X done I million at team the everything working our X about. captures job. see we think million, those;

our changes to other hopper, and got own to the from in as at If previous you have that even some work with our making We’ll supplier really continue in we’ve time, go you customers look you we’re of get manufacturing in already but have we’ve some through and happy supplier design expected know, takes estimate, to on so what double changes, like. you approvals internal changes originally have changes to and automotive, supplier location mitigated through locations. ideas qualifications, we that, XXXX, the impact

million million point. with So I to X at think the this we X feel comfortable

Operator

ROTH Koranda is question from next Our Capital. Matt question. Please your proceed with with

Matt Koranda

Phil. regards in one answered question A to you earlier

guys, to the into wanted or you vehicle? more vehicles down your produce in mean rate tailwind mid-term do think high level year content being just CCS is OEMs that as the you’re you growing just tuned I a mentioned is you with clarify, put seeing mixed this take for XXXX

Phil Eyler

vehicles take combination; current the we’re apply seeing on so that were higher take market technology going a at rate, up. It’s a just rate

We’re on are had of it, also launching that, technology that top And haven’t you with all the past lump the way seeing CCS, rate, steering then the adoption add that content vehicle. and supplies vehicles now to in specific the heat that so the increased of in kind together. wheel, by

seeing seats are kind you’re we’re (inaudible) reason both with all the we’re those surprisingly passive heat, together things it So as seeing in SUVs, and third rate. seats full our The drive seat, of to take large rear active the rear seeing it rear with coming or seeing we’re CCS, and row. in both

Matt Koranda

that terms issue you there thermal in was were mentioned, quarter margins think the adjustments Okay, margins that of launch additional interesting, some of then from essentially that of I headwinds management end in sort the that of or than the two-thirds quarter? with customers, saw headwind the gross and of of this just gross sort you better balance was

Phil Eyler

was on-third. in the That

Sorry, go Matteo. ahead

Matteo Anversa

points, about of the the rest. the makes launch the So battery thermal was (inaudible) basis impact the freight and then in XX

Sorry.

Matt Koranda

highlighted? the assuming launch of is to Okay, sort or of end what of maybe toward that that’s essentially back year, the midpoint plan then sort you that you the that helpful. range margin in becomes is embedded that to higher a of that tailwind, half at gross outlook the the the goes gets that And

Matteo Anversa

would that that to total I compared will still be I we it. BTM in way ‘XX the the expecting dilutive the think margin on improve, I say still portray the the are of company. to BTM but margin That’s gross will

Matt Koranda

And then term footprint today. margin sort of highlight action, and bit actions your Fit-for-Growth in a in commentary actions gross guys longer did the improvement you fair a

least sort additional some of when wondering the of have XXXX? that the footprint have the to those we’re around to timing-wise, fair? we to very to announcements to flow Just margin hold going to for take by to through that of is do start it point see see assume gross of action would year at kind middle footprints this by to I need see improvement,

Phil Eyler

and year those start this this announcing working adjustments year. be we’ll definitely, on Yeah,

Matt Koranda

XXX of you something reimbursement got, what the me annualize to guys still OpEx you XX% ask XX% puts that sort of I annualized have I about even ex-out And But R&D if sort so of you it. sort hate more, got but it of questions, range. Okay, implies XXX did and OpEx. in QX, in highlighted one-time the one the to million I I

there gap? terms the in help of any So

Phil Eyler

Yeah.

I think we’re going to keep prudently investing in R&D. That’ll be your delta.

strategy growth into those all have technology in portion about, we’re The focused As is competing going I innovation, really we’re of technologies. mentioned, core to growth it, and got on company and resources areas. what that’s invest and prudently we our is we our to those

Operator

your from question. [Operator Longbow Instructions] with Our Please with next Deem Anthony is question Research. proceed

Anthony Deem

few a right. for XXXX a XXX-XXX operating basis improvement the cost included from revenue, guidance. a looking percentage to as the of all in sounds If operating Fit-for-Growth expected XXXX me, that’s So, XXXX expenses like benefits it also the we’re at point case,

a can is is issue restructuring was excluding timing So that point by simply accomplished wondering points about this So, that this primarily XXX basis leverage basis guidance the XXX of just for operating think payback improvements, was upgrades it? wondering to you before that GPT, I’m based just driving the those to or is on if issues, and expenses? to that I lower the higher if in kind XXX if revenues? case the XXX dimension on is what’s

Phil Eyler

X the I cost points would the we say the fixed definitely say Fit-for-Growth. revenue So point I at major and increase. it’s the one continued least X.X would that also leverage, to are think on work thanks on of I actions assuming

I that’s So how it. portray would

Anthony Deem

you. got Okay,

operating coming still Fit-for-Growth leverage. past addition the in XXXX, So and to benefits

XXXX-’XX the around growth? be or some can a does XXXX? digit of leverage can does X% you ‘XX I also use with it or that decline Does high-single of it And very X% mean your upside the high also adjusted said, on we in specific with I’m more product wondering the just guidance, growth there? this assumptions there’s guidance, make top different that, mean product that X%, Etratech does include single-digit in because think So for

Phil Eyler

basically point expecting XXXX medical those what medical net we’re ‘XX. roll XXXX what in share point as is comfort we in that climate business in at pace, sure time. earlier, for we’re the And the high-single So either of, things expecting so are and the growth I And is regards. assets it’s this think mentioned course, business ‘XX the to as I we’re growth combination after willing amount digit, of start that’s then we’re going a see awards higher take to is clearly is starting a pick sale. are of double laying net up in BTM with in are and - fair medical, having an that’s of the exiting, the for growth that in years. result kind new between going of the the of starting rates those effect through out backlog, or of time and to record to to our And held All as we out businesses to divested business that compared period the

Anthony Deem

the Are contribution run win medical? break you pretty of between medical, those BTM think terms in the contribution or of higher and can in it’s if the able to we three out rate, rate, sort (inaudible) your interested I into expectation. back

Phil Eyler

basis BTM business, it’s to the On and the medical. in dollar be and value, is in core on climate certainly business going comfort higher higher the a growth so percentage

Anthony Deem

And then congrats just entity, on last question from Lear this me, the collaboration.

do your you with their this does think looks in just help my see medium, market few it I’m opinion mass thanks thermostat. high, highlight wondering, to about a really set, is one temperatures product questions. taking certainly, a And have customers this they how this area can accelerate luxury or option low potential? Lear I growth as So seat for

Phil Eyler

project, a into be efficiently idea think that’s I can’t Lear Yeah, because I the not not it high-end. the that and to is the it is on but highest I give, integrated certainly the only design, be behind something detail mean that of modular that’s be the would probably that used so, certainly meant something can

Operator

Our with Please question. is from next question with BMO Carlson proceed Richard Markets. Capital your

Richard Carlson

the expect that’s give the talk from wins, you successful for current in pipeline to bit think are it because part ramp, I that the story a fully be and how probably once currently? Mercedes, shared may revenue just little you is the very you you kind So, some hope past what us the big of then to sounds for numbers that willing what - you the on maybe about number So with going of you’ve to would the I years? more, a of could as growth be about talked of BTM, a dig be next you’ve big add-on when in like Phil, little pretty couple bit your been

Phil Eyler

Yeah.

I and and expectation to product between is million a think, lines. between that’s of if dollar our all million, general, combination the XXX look and XXXX, somewhere a grow in XXXX you on basis different XX

Richard Carlson

hearing going are a go So you and especially from you XX-volt, with that’s different certainly to are from hearing anything to currently is pretty certainly customers different growth, with pretty because that’s the low anything your pretty so penetration, the that? size, a expectation substantial substantial that

Phil Eyler

pretty is solution based air on still if whether lion built the thermoelectric miles I BTM in and at XX-volt have, business hybrid the that based right you solid set our the really No, estimates where space. fast now, growing cooling or our of think look we are the plans, we it’s that’s share

to So the that’s we expect be largest certainly what XXXX. market through

Richard Carlson

China? what’s concentration then your Europe regional it mostly And that business, and for I is assume

Phil Eyler

mostly Yeah, it and is right China. now Europe

Europe course, and FCA, Of China. we US most of with start seeing we opportunity and shipments in the some one now other the in, program right to are have are but the come

Richard Carlson

lower rate XX that an basis? past number tax and they’re GAAP course higher adjusted on of And so than years, is a much what last one just is of just modeling shown to question, over the couple of your you’ve being XX

Matteo Anversa

if question. that’s the XXXX, till have We

that We are and reason going be inter-company ‘XX increase. It’s points transactions what XX%. the because to that’s in higher expecting we for in than to experienced we we ‘XX expecting ‘XX tax again are of on enjoyed favorable to in occur couple not XX% some the rates

Richard Carlson

forward so what out well we going that think should be should years? about the then, And as for

Phil Eyler

For now, use. that’s what I would

Operator

remarks. reached gentlemen, the Eyler back I would we and over to our turn end have closing call of session. Ladies question-and-answer to for the Mr. like

Phil Eyler

Well, our today. Great. joining for thanks everyone call

focused in said improvement. remain we cost execution, and comments, on I my opening innovation, As

in and team, to Today, early implement Thank our heard I’m keeping your transformative clarified look confident year emerging consumer significant I ahead. design, our was the on and it’s appreciate returns. Gentherm. comfort mission continue achieving leadership vehicles to plan a develop and and Gentherm and already for appraised strategic convenience. is in trends focused today, we demand XXXX we’ll capitalize shareholder value you. a interest electrification, recap and connected the to to and we forward you you’ve really We for quarters autonomous the growth, automotive to Just briefly positioned really that continued industry, deliver progress. our strengthened and to perfectly of what drive and years support, strong

Operator

This concludes today’s conference. Thank you.

your lines for this you thank participation. at time disconnect your may and You

Gentherm (THRM) 21 Feb 192018 Q4 Earnings call transcript