THRM - Earnings call transcript Q3 2020

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Operator

Thank you for standing by. This is the conference operator. Welcome to the Gentherm Third Quarter Earnings Conference Call.

As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. now Investor turn Relations. would to conference I Brentano, Yijing Instructions] like the to over [Operator Please ahead. go

Yijing Brentano

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

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

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

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

On me Chief Chief Anversa, Phil Officer; are Executive with today Eyler, Matteo and Officer. President and Financial call the

prepared pleased During website we deck gentherm.com/events. we on have available be Phil our Matteo to be remarks, take their to your that a made After will and their referring comments, presentation at will questions.

to to like Phil. turn over I'd the call Now

Phil Eyler

uncertainties third In you, global Yijing. worldwide. Thank Good pandemic challenges morning, you for quarter, the the and to everyone, us today. thank joining and continued create

team focused seen while a continued Gentherm I'm the the has growth from team industry level. global our very of and second safety maintaining execution automotive the the production of strategy strong our health extremely of members. However, recovery the low proud quarter for

on years sharing In of the divesting start Slide two all third highest the in we quarterly some highlights quarter, despite key businesses of the by our generated X. of non-core me revenue the vehicle Let growth the Automotive, production the and we strategy. of we history light of highest outperformed basis as key approximately points. markets company, in by revenue In the focused XXX delivered in part our the quarter quarterly

higher electronics, added take for launches, to and delivered we production. management, More rows, including comfort rate light importantly, as per double-digit vehicle, third outperform revenue content Medical, to and growth. vehicle thermal operating us line, The the the rate on and positioned with margin and second new on highest again In company's continue well well top gross to relentless enabled as income solutions momentum achieve climate EBITDA our adjusted us in focus along and in as record history. three quarterly quarterly margin as gross years productivity, battery the

in we On secured front, thus, RFQ awards and pipeline and $XX remains the quarters. upcoming the awards. the is limited the quarter, continue we several approximately decisions, conservatively opportunities That into said OEMs as quarter. in manage strong the million anticipated, sourcing reflects to award lower out timing level award than in the automotive of third it pushed new This business our

our of flow in the million our all meet front, our Even we operations. by still supply demand working teams from On to were from the in the exceptionally chain cash capital pivoting $XX quickly with generate increased while safety employees. assuring global and the quarter, able needs customers, manufacturing performed to operations increased of

few of balance financial our nearly at will strong in on Importantly, total results sheet with our Matteo moments. provide details liquidity remains a more $XXX quarter-end. million just

Volkswagen. Kia our In XX we Great on third the solutions turning Daimler, OEMs, XX launched automotive Hyundai vehicles different and quarter, Automotive to Wall, including Slide X. Now highlights FCA, on across

CCS S-Class, with We for and launch continue and our products CCS Mercedes. Sorrento to momentum Mercedes our Compass, the launched on Buick Jeep Kia see Envision, first the

Skoda our including hands-on-detection this has The wheel is increasing now Octavia, L exceeded of Volkswagen, available Kodiaq, on name Karoq of steering combined sensor plates, Coupe, and innovative well SEAT. our solution number by as solution multiple manufactured expectations. an vehicles GolfX, for addition, heat ramp-up In and launched as Tiguan the

Gentherm these front, results I'm results a XXXX, kicked System the pleased that were the partnership, Engineers of very technology to our our and in Motors the to in development And presented advanced continues. subsequently Symposium. phase on highlighted strong On Automotive jointly at number announce and industry a of project. we've progress Recall General Society ClimateSense of development project our decided Thermal development has off publications. Motors extend General third projects Management that

and future compelling portfolio comfort growing and America, of North projects Asia for efficiency is development Europe that OEMs solution with in vehicles. Our offering in a demonstrates energy passenger ClimateSense our

winning dedication the developing top and commitment Supplier American This our solutions to Lastly, our that pleased XX Honda, reflects top to total team's and for of one proud excellence suppliers quality, out by commitment for I'm and supplier North recognition XXX. a American value. North announce of team only a I'm Gentherm innovative of innovation excellence. named and our operational our was to of

awards X, the you Slide see a CCS XX that the to cautious, third to on of third production with that different including first and shifted for have Even quarter, awards in new several lead quarter, the quarter, where the customers. automotive million though CCS OEM of middle in remained our number wins expect we PSA this the RFQs across OEMs Of rebounded award timing in China. in note, won significant $XX with multiple out in approximately quarters. and we secured projects French unless third is upcoming six BMW Now awarding platform the we're we program awards in China can In will PSA. in the

In as from vehicle awards of the award addition, manufacturers. well from one heater steering largest additional received FCA, an electric wheel as multiple we

CCS, make like in seat products heaters. we drive as both Battery wheel and Management front, OEMs Thermal Motors, partnered our air business, Moreover, cooling we Great to Hyundai heaters significant such continued increases winning General progress the with Hyundai On expanding Kia with rate Wall, and steering and Kia. awards take in to

third doubled on HX rate majority For the example, The the Great our prior in the compared China popular to drive Haval to incremental as period. efforts resulted year the HX growth SUVs. Hover and team's our take revenue CCS from from of quarter Wall

new as have New and well vehicle, follow-on rate demonstrate and momentum we take Automotive. increases in comfort awards, as strong increased technology launches, continued content climate the per

Slide expected to a this X proving driven blood incremental turn In pleased of share X/X our warming XX% see let's discussion growth approximately double-digit acquisition. growing sales this year-over-year. growth, that of we Now is to by of from Stihler synergy we the for quarter, to continued Medical third growth I products, am business. revenue the

international demand Brazil and Kong. Hemotherm and Blanketrol grow markets, addition, Hong Spain, In equipment continued including in to

in could it levels. time some recovery return some saw procedures, elective to we believe we Although be normalized to

prevent Medical system technology to and helps our business. recently. can and management we business Finally, thermophysiology report product Introduction the portfolio in in We surgical of demonstrates system the excited in deep treat I'm from This that FDA, the received to temperature all an journey. XXX(k) the the have our hypothermia provide in able from human clearance patient throughout patients States. warming perioperative our and ASTOPAD our understanding patient of to added Medical United important business be and ASTOPAD leverage procedures to milestone warming in our patient achieved Automotive advancements we're in system utilized how

room in technology reliability carbon safety and hospital and comfort, anywhere is thermal need a unique technology was patient. and prevent surgical the professionals This when operating hypothermia for to resistant in treat Our reliable originally management. automotive ideal and medical heating quiet, fiber warming designed warmth, comfortable a passenger in for help

automotive our four, thermal innovative you four remind before two, of close, Slide and on Climate growth drive strategy our Management; patient and pillars Thermal accelerate let solution Battery I core solutions. me One, microclimate Now growth; the focused ClimateSense; introduce expand three, Comfort of X.

by our importantly, pleased enabled our to by is systems. significant electronics this and see software on growth very pillars, each focused of growth strategy. the more of and All progress these We're generated

on summarize X. me let Now Slide

in third record agility quarter to to strategic to This is successful during bring the innovative our plan our to of focus results times. team these solutions successfully our to structure market. our demonstrate global and performance unprecedented on continued realign and their our dedication Our customers and deliver cost growth, attributable commitments execution

uncertainty strong the on financial returns. technology that, confidence near-term call expanding shareholder certainly With over in macroeconomic color the performance, our and long-term operating still to sheet results. delivering the in turn us improving more there's I'll give leadership balance little While Matteo environment, a for

Matteo Anversa

Okay, thank the you everyone joining to and thank Phil, you call today.

and third So impacted on let Slide the on focus items me start significantly XX quarter most that results. our

$XXX last compared with the and comparison, revenue to revenues our the of for approximately light to period And adjust the to Automotive, revenue compared our increase quarterly essentially our currency North latest to same according Adjusting foreign data, of Japan IHS' also record prior-year of of key X%. by markets X.X% was FX increased segment quarter, period. the the by China, a by a if revenue impact In increased flat for production product approximately quarter. Automotive compared overall was for divested and Europe, we year. For almost assets, increased Korea million, America, Starting prior-year translation, Automotive X% X%. vehicle product

and product Electronics cell and has virtually Kia, outperformed e-Mini, XX% Phil XX% we third Memory were due with the of result launched as due RV in newly-launched Daimler. result, Automotive program Volkswagen well XXX increases recovery was by And highest with labor The revenues of we this compared in compares XX.X% the revenue years. Heaters the in quarter by past increase rate lines approximately Ford result third period. basis driven by including the with LGChem. the Module Other market. our ago basis hands-on the productivity, General and X, to BTM point increased XX% detection-enabled the Motors the specifically, Industrial points. primarily a last year gross the more the was the saw decreases strength three We And reductions the of the price for BTM XX.X%, XX to If of warming just as to customer that new strength Automotive. these offset and fixed increased volume primarily for heaters wage more well Conversely, XXXX. reductions As as GPT our Automotive a gross to business, products, the we in on revenue If primarily connecting resistant move Wheel to Cables XX% higher higher disposition blood FCA, margin rate board business, vehicle we Hemotherm quarter sales. increased solution growth saw that in Medical the the as and volumes margin, of the increased due than revenue of Steering in XX% revenue year, all October strength move of revenues These the to as segment, as occurred we the products continued in which positive light increased cost leverage battery partially CCS as by Seat decreased with where Hyundai were increase, solution as year-over-year, annual supplier Stihler inflation. XX% of heating a offset to due mix. new and and Blanketrol production cost demand well the to to partially by due mentioned.

compares Moving of XXXX. million, year's both in million expenses, in our the million in of offset operating of for to in periods, year XXXX. positive $XX.X headcount, as primarily when million million related project September $XX.X year-over-year the quarter well by improvement effect This quarter as announced down year The adjust charges the prior cost, consulting restructuring divestiture charges, decreased that restructuring approximately reduced charges. impact X% in third realignment we amount operating partially restructuring $XX.X we due $XX.X of by were of to the we primarily which this GPT, to of footprint driven current to lower from expenses incurred $X.X lower compared and last third incentive adjustments. SG&A If to the included compensation were quarter was the The And R&D $X.X was costs. million travel period.

Adjusted in XX% the year from company's rate please in and EBITDA resume $X result which to of EBITDA the in COVID operating points. lifted. or of improved other period, expenses $XX.X restrictions the shows than adjusted XX.X% reduced will Now keep million million, mind of history, XXX activities travel, a the trade reduced highest more once increased that addition, are prior basis the also the are

approximately per quarter quarter the year. adjusted XX.X% third the compared rate to Finally, was per in of our to $X.XX the range share And was line EPS tax XX% with in of expected our in last $X.XX XX%. in quarter share

coming million Now including Chambers quarter Slide the from moving balance to restricted the position $XXX CSZ on XX, end cash $X.X the at of sheet disposition our cash Industrial approximately million of was the business. the of

by million the at decreased exceeded the was end EBITDA million million of to last quarter quarter. availability result $XX million hand as million, end the from from as our position in the $X total up ratio XX, quarter, the the at increased end XX, negative to $XX end available from credit, approximately Similar of cash on we the was leverage and cash And operating $XXX as Our negative last the quarter. of of $XX adjusted a were on last by at cash total of liquidity generated million. a from September of net million debt. second million X.XX. line our at trailing up primarily activities. million $XX of debt of the we of quarter September stood cash in $XXX remaining Net the Based debt by third the a quarter, end quarter of quarter position, approximately third second net at end $XXX of gross $XXX $XXX negative had And the result, the million XX-month on consolidated as

uncertainty guidance our to withdrew XXXX late due macroeconomic the environment. we in the for of aware, you're As March

timing. we assuming product COVID, of to to However, current million due specific have resurgence expecting quarter on revenues not significant our fourth in to $XXX and fourth changes typical and provided market demand reflecting guidance, million, seasonality based the while quarter customer be of $XXX range the we're launch no

effects a number quarter, and quarter fourth to third. compared delivered the to circumstances. company difficult timing the third As conclusion, expect in margin due addition, fourth to spend. a higher the team of rate the the R&D in all In global project the gross in expenses And operating under in quarter, financial as of result, we primarily our including strong extremely decrease records, we expect results unprecedented

impact environment call back we growth points of the our focused proof financial remains Q&A the strategy with on in the to I'll session. results of uncertain, the the While the begin that, third that positive macroeconomic strong are turn achieved quarter And results. to the the operator

Operator

with sir. is Gary Instructions] you, from question first Our go Research. ahead. [Operator Please Barrington Thank Prestopino

Gary Prestopino

everyone. morning, Good

Phil Eyler

Hi, Gary.

Gary Prestopino

the guess, trying said often that the in prior I RFQs to get Hi. you're in still Phil, things have what winning. that calls, high-XX%, you percentage you you're of, Are winning these range in fold? XX%

Phil Eyler

in quarter. this XX% a We was above Gary, Yes, good were the quarter.

Gary Prestopino

Okay. XX%.

see in some then made new decisions this dribble to could Okay, in of on model awards, good. of or in the feel out And you rollouts that do see into or pushback even on a terms going were – that of this pushed you plethora things XXXX? QX, QX, you're

Phil Eyler

say going But you forward is a the second a half to really a pretty on I in expect still That think QX. path first should we what uncertainty will in I than a there's see about half. yes, we strong. give what pretty good still Again, we of now, based the some this; QX. higher Well, feel for bit feeling there, we see but little in likely right little achieving the bit good pipeline

Gary Prestopino

So the pipeline is pretty ebullient?

Phil Eyler

Yes.

Gary Prestopino

are to these just for in side, with the hear. on models, on good you and battery in that, products give this where thermal products? could Battery guys what's of That's us some of you – And management least Management EV Okay. participate the idea terms then how many Thermal at that actual all going

Phil Eyler

and models, just a a hybrid I Climate EVs, sense, if the but BTM, mild haven't course, steering pretty Jeep foil Good Connecting. to all And using significantly just dozen Comfort number platforms rolling out the Renegade look cooling. you that programs at we've just upcoming on Daimler's our we our momentum you on new been XX-volt of over don't with you thin certainly just on launched heat some innovative on on Compass. air resistive at if of beyond specific we're have and really also Cell of to able have announce similar in Jeep got that thermoelectric program. for systems; programs And thinking would CCS the heat using terms that technology technology are, then in there. seat And a is the the of products Unfortunately, out wheel of our those there Then just then about are that prevalently say, and platforms. BTM, or expand one I but rolling terms to EVs. where to estimate, cooling, look air give

Gary Prestopino

get and just else then somebody lastly, Okay. in. And I'll let

these points to was normalized points maybe sales it XX% now. what mean, good just trying of to XXX a side, those where sales Matteo, doing it run Do that was a as sales a with categories OpEx shows, percentage you're they for of number? expenses, about rate up would percentage of OpEx traveling quarter? that the – get that basis that how some XXX basis in an tick much OpEx? On idea, of versus – I and environment, raise as I'm trade this of all would where a done, would be you've

Matteo Anversa

Yes.

I I we've of short-term. bring I couple I seen with on then what back would say, a and and So the a fourth let – more way Gary, me quarter you longer-term more little the would bit the at maybe first look think, things, start

XX%, back in have percent our as Investors target of sales XX% outlined OpEx XXXX. the longer-term, remains as that to June in and So a we between Day

number are the that for. shooting that's So we

Gary Prestopino

Right.

Matteo Anversa

sequentially some primarily of third million. focus resumed regarding the conditions. I a for would really is fourth OpEx, think would one have able comment really quarter, we the and as continue proof of expense quarter. the by primarily the XX%, of side the R&D gross a so margin, quarter, XX.X% company, improved the the and team excellence, management. profitability as the to is say, fourth I'd the comment to short-term the was last achieved, overall market quarter that – driving driven about the point deliver I fact couple in profitability make, see we as the but expenses, at timing say are revenue compared Then rate I this the sourcing of increase around I by, what that And the improved the fourth to factories, expect More R&D a to expect the result that tight OpEx I we result That's on we third we of started of as that EBITDA a we obviously, accomplish a productivity suspended to can what think would in on

Gary Prestopino

Okay. Thank you. Great answers.

Phil Eyler

Sure.

Operator

Our next question from Please is ahead. Roth Capital. go Koranda Matt with

Matt Koranda

So just bookings to of Hey higher sounded north would could that half quarter? the are, fourth guys, you you'd that why And the there I at that in just than I half. the booked? clarify potentially Gary's moment the guess are wanted some color get get good there wanted guess, we and I to out bid on said for $XXX bookings to that, Phil's in first question. million second confidence answers It be those whether just suggest and morning. programs one some like of well large that be

Phil Eyler

Yes.

the pretty as pans that pipeline, decision timing are And a about really how in motion. have mentioned, timing, out. significant it's We RFQs the I

look to two right, make the uncertainty timing, but done. get just it sense. So would three the the the quarters, that of a I'd that obviously, think we if do you half in math and certainly, Still put some And as next said think first strong. path it really is to there's decision-making quarters couple north broader about number the of you

Matt Koranda

the towards of and of of weighted the rate run of And pipeline versus composition terms the What's management of bid is out heaters? kind versus or where and maybe of in contrast mix mix? and is items revenue wheel sort the CCS we're mix steering battery for still, what's sort thermal – more Great. compare in that that current near-term at

Phil Eyler

well. activity. and don't specific mix, mix, break typically is opportunities CCS but definitely, as we some BTM Actually, the there, It's and out there electronics decent activity, good a lots good certainly, there's of

covers So everything about it doing. really we're just

Matt Koranda

Great.

in guidance shutdown given Okay. And typical then decrease, think well it's sequential schedules that understood see we question XQ; a I on the holiday and the the just whatnot.

to it decrease the a you you incremental margins. talk talk the maybe XX% and year-over-year. solid margin sort XQ? margins we so could incremental for gross bit of that's that But level that the little margin gross XQ? a sequential in triangulate Any that makes a about coming in about see sense in help margin, kind reason of XQ that around can't Maybe did bit of And mix get we achieve us gross right little to

Matteo Anversa

Sure. This is Matteo.

at side would the the look in our higher, between that even incremental experienced seen, third and quarter, So was say gross we on to It our be I and think margin we I third of incremental a between what you tends the what the second range XX% quarter. XX%. have over the revenue little higher if general, – in

remarks, So a use. indicated prepared in this in as And obviously, be the we we to what revenue in the revenue good it I experienced projection going quarter, the that think implies in we is to below third. slightly fourth that's the gave number

have the as of I would So a on to some around decremental revenue decremental margin that, expect, XX%. result

also we selected a that in just third in are through conjunction awards thing forecasting. price little I the We're we're in one that compared fourth reduction Phil add would working that's quarter. But to to item to. some that fourth alluded we're higher So to the the another big have customers that quarter seeing expecting with

that's in fourth So the the third. we're that to also impact an compared seeing quarter

Matt Koranda

buyback the on how go-forward the of Very a sheet? The on from in deploying the just just basis, then front. capital sort thinking great more and thoughts just And on given preliminary me. about obviously sheet of helpful balance balance Great. wondering that shape here. we're one And health reinstating

Matteo Anversa

Sure.

are say both to think is [indiscernible] one think allocation are these terms first. macroeconomic are to the at. that environment I the monitor in in we of we want thing States. sharp to latest safe That's thing continue I'd maintain COVID looking we liquidity carefully in the overall, cases, priorities reacts so United secure, I the Europe So extremely that first think for how We the company and increase top strategy, the But capital most. comes I and

to inorganically, And we so to share proper M&A. to the third, Second, amount to organically grow capital company allocate then towards the want of both buybacks. the also continue and continue

So that's about the way least, are I thinking – right think would about at how now. it we

Matt Koranda

Great. here, And a thinking the of a a go are markets environment, kind and overall M&A you and bit about what where how about be sort Phil, as – multiples maybe we stretched sort relatively just follow-up, talk could that are target-rich or little may pipeline in how we're of forward of we moment, the capital shaping are? up at given the as

Phil Eyler

Target-rich might I And we've last that it a in section our comes little and productivity And and the order. of but but house we a in It's et we're cetera, our getting really passed pointed we've focused I cost scenario, strong, – management out there. think definitely in discipline there's divestitures, when growth the think as I first strategy made be quarter, journey, place hurdle. activity. to progress was good and the getting focused never-ending a

expanding content potential that I technologies, strategy. fit our eyes growth for we'll acquisitions our that vehicle be our an think looking to definitely, are that's focused So point important strategy. in a ties out that for And

the four at are resources, that the looking got certainly, more moment. into; we've pursuing say And Medical, of are so I'd that regional we're areas plays if what and and course, those

Matt Koranda

helpful guys. I’ll Very pack queue. Great. jump in

Phil Eyler

Thanks, Matt.

Matteo Anversa

Thanks, Matt.

Operator

question Ryan with next [Operator Capital Instructions] ahead. Please Group. is Sigdahl Our Craig-Hallum from go

Ryan Sigdahl

morning. questions Good for Two me.

forecasts kind QX. production versus be QX So to are Auto expected flattish of up to sequentially

sequential the implies color Your guidance guess, and there, on takes? puts I a Any revenue decline.

Phil Eyler

think that we've Ford the F-XXX, is big I Especially a in going some that's going one a through Sure, sure. a there. example little fourth a areas. key of for decline occur Yes, to revenue that the is see We're changeover, product fairly One got us. changes launch couple quarter.

a key launches. – chance rolling for been to used We Volkswagen, of as that a had hands-on lot that way, core by heater I detection. period launching but on across in launched not new product steering the to sensor wheel, steering haven't programs, product. related this little that we've excited also really business, the saw their also the bit of And out a platform But upside BTM, we've with only is both a we're that. heats about Volkswagen highlight QX lineup. And is wheel a is

real offering; as expand and Then I on earlier. term little with technology in positions shutdowns Tier-X of well our that business. you've So that December And excited typical the that steering you wheel bit see think shutdowns, for factory us a timeline. to that, occur would long the growth got top a supplier, typically

those big So are, I'd three the say, effects.

Ryan Sigdahl

any any other a then development is projects, on of going. a could development then BMW, that timing thoughts of ClimateSense you it see those Good. second to many so of secondly, these for one potentially phases on of working mentioned you projects? GM, kind any closer need you one third you're Then when before me, development award? And And if how commercial Also, phase a project with good with see. to

Phil Eyler

– think really several have I all, well, development contracts underway all Yes, in of right now we Sure. first regions.

GM, So obviously, with BMW.

that pretty that going in thing Essentially, of viable so progress. indicator a a development process GM get how We is this the in contracts. we're another this with obviously, deeper development then so hands architectural forward, this longer validating bit to is solution or working little great it's a terms award, the we've Europe the Asia, as process. roll is have contracts is of levels next in phase extension significant and change into the of car, to always got We And you vehicle. think also deeper OEM and full in in our with the

to So of the able development. ongoing show to we're results excited that that to been lead really we've continue kind

be looking definitely not-too-distant would some and at, opportunities clearly, we're we're XXXX in have the hoping, announce earliest beyond SOP. And timeline-wise, awards. Now say, to I'd the future, to

Ryan Sigdahl

That's for it me. guys. Thanks Great.

Phil Eyler

Thank you.

Matteo Anversa

you. Thank

Operator

remarks. to to would the back conference turn over closing I concludes question-and-answer for session. This Phil like the Eyler

Phil Eyler

our pandemic. incredibly. order the of apprised managed joining express today. commitments call relentless They've gratitude and continue focus impressively you significant cost environment, who the to for innovation extremely Despite us truly certainly interest challenges global our want Gentherm everyone, the to the progress. strong to We I'm macroeconomic proud Thanks, productivity, to in of highlight deliver team. the have in on to operational improvement this really especially look Thank performed so keeping enable team, our on manufacturing again Great. long-term forward execution, our our appreciate through and you. on want relentless of team's all to shareholder uncertainties our to I my of to your focus liquidity, and deliver value. your our stakeholders. I support

Operator

call. This concludes today's conference

You disconnect a have participating, day. pleasant Thank lines. you may for and your

Gentherm (THRM) 1 Nov 202020 Q3 Earnings call transcript