Gentherm Incorporated Price & Performance (THRM)

Thank you. Good morning, everyone, and thanks for joining us today. Genther's earnings results were released earlier this morning and a copy of the release is available at gentherm.com Gentherm. Additionally, a webcast replay of today's call will be available later today on the Investor Relations section of Gentherm's website. During this call, we will make forward looking statements within the meaning of federal securities laws. These statements reflect our current views with respect to future events and financial performance, and actual results may differ materially. We undertake no obligation to update them except as required by law. Please see Gentherm's earnings release and its SEC filings, including the latest subsequent reports for discussion of our risk factors and other significant assumptions, risk and uncertainties underlying such forward looking statements. During the call, we will also discuss non GAAP financial measures as defined by our SEC Regulation G. Reconciliations of these non GAAP financial measures to the comparable GAAP financial measures are included in our earnings release and investor presentation. I would now like to introduce you to our new President and Chief Executive Officer, [indiscernible] and new Chief Financial Officer, John Buiard.

During their comments, they will be referring to a presentation deck that we made available on the Investor section of Gentherm's website. After the prepared remarks, we'll be pleased to take your questions. And now, I'd like to turn the call over to Bill. Thank you, Greg, and good morning, everyone. Before we cover the results of the fourth quarter, the full year and outlook for 2025, I want to start with a few opening thoughts. First, I want to thank the Board of Directors for the opportunity to lead Genther.

I'm honored to be selected and truly excited to lead the organization through its next phase of profitable growth. Gentherm has a proven track record of product innovation, making a leader in the industry with unique and defensible competitive advantages. Innovation is part of the culture agenda. It's in the DNA of the team.

There is an entrepreneurial spirit here and the team is driven to win. When I look at Gentherm Gentherm, I see a technology company. The solutions are differentiated and we innovate with a systems focused approach to offer unique value to customers. During my short time here, I have been impressed at how portable and scalable the technologies are. I think this is a company that has great growth opportunities within the technology platforms and core competencies that have been developed. These strengths combined to create a unique opportunity to generate shareholder value, which I am determined to do. Over the past seven weeks, I've been meeting with the Gentherm and leadership team as well as speaking with customers, suppliers, and members of the investment community. John and I are quickly diving deeper into the product portfolio and business operations. This has given us the opportunity to ask questions, solicit feedback and identify where some of the greatest opportunities lie. We will continue doing this and as the year progresses, we will be transparent with you regarding our top priorities to drive revenue growth, margin expansion and cash generation. Now turning to the deck on Slide three, I have outlined a few of my initial takeaways.

When it comes to our customers, Gentherm is a partner of choice. I am very pleased that we have direct access to the OEMs and incredibly strong relationships with our Tier one partners. Our position as an independent provider of thermal and pneumatic solutions is a real differentiator We work with over 50 global OEMs and dozens of Tier one manufacturers around the world and any combination of those We develop systems oriented solutions utilizing our portfolio of innovative technologies to provide our customers real value propositions and we have proven our technology has [indiscernible] This is a result of Gentherm Gentherm Given our direct access to decision makers and our technology, we have all the tools needed to continue to drive conquest for profitable growth and outgrow our key markets over the long term. Next, I see incremental opportunities for operational improvements throughout the business by implementing business process standardization. This isn't unusual for a company that has moved at the speed of Genitherm Gentherm. There have been multiple acquisitions, as well as continuing footprint relocations and significant business wins. I've experienced similar situations in which the process differentiation throughout the organization. The way I've addressed this in the past is through the implementation of operating systems.

For things like Fit for Growth, fundamentally become part of the continuous improvement culture of the company. This includes benchmarking, setting standards to the ideal state, identifying and measuring gaps and then driving process improvements. Philosophically, it sounds easy. But it takes a perpetual focus to integrate that mindset into the culture that is exactly what we have begun to do. Ultimately, we expect these operational improvements to result in increased margins. Further, the company has I've had the pleasure of visiting some of our manufacturing locations and I was impressed with our operations and facilities. That said, I do see an opportunity to become more efficient with our capital by driving more volume through our existing assets. Additionally, we have recently accelerated strategic footprint plans that will realign across all three regions. The plan focus is first on having our production in the best locations, and then optimizing floor space usage through layout redesign. We intend to reduce our footprint by approximately 30% while maintaining the capacity necessary to support our expected growth and improve margins and cash flow generation. And lastly, Gentherm has a strong technology foundation. Its core products are scalable technology platforms We think these industry leading technologies can be leveraged to broader applications and customers ultimately driving future growth.

That leads me to Page four, where I want to give some perspective on why I believe there are significant growth [indiscernible] within our existing technology platforms. The left side of the page represents an element of GenZIRM's Gentherm strategy that was laid out during the company's 2023 strategy update. The strategy is to extend in technology leadership through things like focusing on software and electronics and a systems engineering mindset the company has consistently and purposefully made investments into research and development, which has resulted in a strong core foundation of industry leading technologies. This focus on innovation is a differentiator for Gentherm really separating us from our peers. As I look at our innovative solutions, I put them into four technology platforms where we have core competency, engineering depth, and competitive advantages. These platforms are thermal management, air moving devices, pneumatic solutions, and Valve Systems which we have successfully deployed across the automotive and medical industries. Notably, for air moving devices, we utilized the same core technology for a CCS portfolio for the automotive industry as we do for our warm air product for the medical industry. For thermal management, we've taken our resistive heating technology out of the seat and applied it to the medical industry.

These are just a few examples of the synergies across our up to this point in time. We have demonstrated the technology is portable we believe there is further opportunity to scale. We will continue our strong R and D focus taking a customer centric systems oriented approach to scaling our technologies. And we will continue to leverage our proven go to market capabilities to gain more widespread market adoption of our innovative solutions. These industry leading technologies are what give me confidence Now on Slide five, let me give you some examples. Of how Gentherm has done a phenomenal job of leveraging this foundation of strong core technology platforms to innovate next generation products and win new business awards. Over the past few years, momentum has been building as customers increasingly adopted our market leading technology. As many of you are aware, in 2024, we announced pulsed awards with Hyundai and Land Rover. And today, I'm excited to announce that we've secured another Pulsa Award with BMW in the fourth quarter. Polestay is one of a kind as it utilizes our pneumatic technology and includes precision micro pressure bursts to deliver a pulsating massage We have created a truly differentiated consumer [indiscernible] and we are excited about the interest this technology continues to receive from multiple OEMs.

Our new managed solutions products delivered 20 In our view, we remain in the early stages of growth as we deliver on previously awarded business, and secure new conquest awards over the next several years. During 2024, we also secured an important award from General Motors for ComfortScale, Our patented next generation integrated thermal lumbar massage hardware system. On the high volume, both sides truck platform, including Chevrolet Silverado and GMC Sierra. In the past, each of these components was sourced separately and now through our system oriented approach we have integrated these functions into a single solution. This solution is a win for OEMs due to improved performance and reduced costs and a win for jet burn through increased content per vehicle. It is a great example of our value proposition and how Gentherm is not just a leader in an integrated systems and solutions provider. We continue to innovate many of our core products to stay ahead of our competition and provide value to our customers. Additional examples include the awards we received for CCS Compact Event and for the CCS Quiet Blower. These results demonstrate accelerating adoption of Gentherm's unique and innovative solutions leveraging our core technologies deployed across multiple product categories.

As we look ahead to 2025, we expect expect to see continued strong demand for our Gentherm products. Already this year, we secured our first seat heater award with Volvo on our future platform. This conquest win is a testament to our team's relationship with Volvo as well as our superior technology and flexibility to support any customer globally. Awards like these will support our future growth build upon our market leading position. Now, I'd like to turn the call over to our Chief Financial Officer, John Deweyard. Review our 2024 results and 2025 outlook. John? Thanks, Bill. I want to begin by echoing some of Bill's remarks. Through the first few weeks here, it is apparent that we have a strong team great culture innovative technologies and a leading market position. Which together make Gentherm quite compelling. In addition, the company has a strong financial foundation to support future growth plans. I look forward to partnering with Bill and the global Gentherm team through this next phase of growth. Leveraging my experience to drive additional financial rigor and engaging with many of you over the coming months. With that, let's turn to Slide six, where I will discuss the highlights from the fourth quarter and the full year.

Our commercial momentum continued in the quarter as the team secured $640,000,000 of automotive new business awards, We saw success with our thermal management products where we received 13 CTS awards and eight steering wheel heater awards, three of which included hands on detection, These awards span more than a dozen OEMs and were balanced across region and powertrain For Lumbar and Massage, our team won six programs across four OEMs in the quarter, including securing two new Pulse A awards with both BMW and Land Rover, It is great to see PULSE A beginning to gain significant traction. Next, I want to highlight key program launches in the quarter. It was another strong quarter of activity with 18 vehicle launches. Including the start of production of several thermal solutions products on the high volume midsized SUV platforms the Acura 80X and the Nissan Murano as well as the next generation Dodge Charger and all new electric Jeep Wagoneer S from Stellantis. In addition, we launched Gentherm thermal control unit across several in production Lantus vehicle platforms for both seat and steering wheel heat control.

This conquest program was our first with this OEM and positioned us to successfully win the next generation business.

In our Medical segment, delivered record financial results driven by the expansion of our global partner network, We were pleased to see the progress of the business and are optimistic about the future growth opportunities. Turning to the full year, secured $2,400,000,000 of automotive new business awards, led by increased adoption and strong market acceptance of our leading innovations. We delivered record adjusted EBITDA of $183,000,000 and expanded margin by 30 basis points compared to the prior year despite a challenging market. Lastly, Gentherm's balance sheet remains incredibly strong. We maintained net leverage of approximately 0.5 turns at year end. While making significant investments in our operations, and returning $50,000,000 to shareholders through share repurchases throughout the year. Please turn to Slide seven for a more detailed review of the financial results. Fourth quarter revenues decreased 3.8% compared to the same period [indiscernible] foreign exchange adjusted revenue decreased by 3.3% Our Automotive Climate and Comfort Solutions revenue grew one point outpacing actual light vehicle production in our key markets by 130 basis points. When adjusted for FX, and one time benefits for recoveries in both periods. Revenues from lumbar and massage increased 29% ex FX as we ramped up production for the Volkswagen MQB platform, along with several Ford models, Steering wheel heater revenue increased by 11% ex FX driven by the start of production of Li Auto L6 new launches with Honda and General Motors.

Climate control seat and seat heaters revenue decreased primarily due to lower volumes from Hyundai and Stellantis. As well as some inventory corrections at the Tier 1s to account for lower OEM demand. Turning to Medical, as I mentioned, we were really pleased with the team's execution of its strategic and operational initiatives. For the fourth quarter, revenues increased 9% ex FX compared to the same period last year but once again improving profitability sequentially. The momentum is strong and we will look to continue driving revenue growth and further expanding margins. Moving to profitability, achieved $41,400,000 of adjusted EBITDA in the quarter, or 11.7% of sales compared to 13.4% in the fourth quarter of last year.

The decline was primarily driven by product mix, higher freight costs the impact of foreign exchange, and costs related to our new plants opening in Monterrey, Mexico and Tangier, Morocco, Adjusted operating expenses were down $2,400,000 versus the prior year quarter.

Adjusted diluted earnings per share in the quarter was $0.29 per share compared to $0.9 per share in the fourth quarter of last year, primarily driven by unfavorable one time tax adjustments recorded in 2024. For the full year, revenue decreased 0.9% compared to the same period last year, or 0.4% when adjusted for FX. Revenue increases from lumbar and massage and steering wheel heaters were offset by expected declines in cables, VPS and electronics. 2024 EBITDA margin expanded 30 basis driven by strong material performance and productivity partially offset by price reductions, wage inflation, and the costs associated with the new plants Excluding the impact of prior period tax audits, the effective tax rate was 26.9%. Moving to cash flow and the balance sheet on Slide eight. For the year, we generated $110,000,000 of cash flow from operating activities, while deploying $65,000,000 to net capital expenditures. In addition, we returned $50,000,000 to shareholders in the form of share repurchases, leaving $120,000,000 under current authorization. We ended the year with a net leverage ratio of 0.5 turns and ample available liquidity of $414,000,000 Overall, Gendarm has been a solid cash generator and our balance sheet remains strong. That said, in the spirit of continuous improvement, opportunities remain.

Going forward, we will have a renewed focus on working capital and it will be a key part of the operating system Bill discussed earlier, In my past, I have leveraged daily management and war room approach in to drive down working capital with solid results I look forward to seeing progress here at Gentherm. To ensure focus, we are evaluating leadership objectives as well as our incentive plans to drive cash flow as a key business priority going forward. We believe we are well positioned to generate increased levels of cash flow over time which will allow us to efficiently deploy capital and drive shareholder value. Now let me turn to Slide nine for our outlook. Geotherm revenue has consistently outgrown light vehicle production in our key markets and we expect that to continue in 2025 despite an uncertain environment. 2025 revenue is expected to be between $1,400,000,000 and $1,500,000,000 up approximately 2% when excluding a $35,000,000 year over year According to S and P Global Mobility's mid February twenty twenty five report, actual light vehicle production in our key markets is expected to decrease roughly 1% for the year. So we anticipate this may be optimistic based on discussions with customers regarding near term conditions, We expect adjusted EBITDA margin for 2025 to be in the range of 12% to 13%.

At the midpoint, we expect favorable material savings and productivity actions, to more than offset inflation in annual pricing However, we will experience headwinds related to the impact of footprint changes. As Bill mentioned earlier, the team has been evaluating scenarios to strategically realign our operations. After review, we are accelerating these moves in an effort to drive improved long term profitability. In the short term, we will see an increase in one time costs as well as some year. We are taking action across the globe In North America, we will be consolidating two facilities in Monterey. In Europe, we recently made the decision to close our location in The Czech Republic and consolidate production into other facilities in the region. In Asia, we announced that we will be transferring production from one of our facilities in Shanghai to Tanjune. When our optimization plan is complete, we expect to reduce our footprint by approximately 30% while maintaining the required capacity for growth as we optimize the existing floor Despite the near term headwinds associated with these footprint actions, they will play a significant role in our margin expansion over time. Without these actions, would have expected margin expansion of at least 50 basis points year over year.

As we think about the quarterly cadence, we expect second half revenue to be stronger than the first half based on the lower first quarter. Additionally, as is typical, expect a sequentially lower first quarter adjusted EBITDA margin driven by the impact of contractual price downs with improvement through the remainder of the year as we execute supplier cost improvements and productivity actions. At this time, we have not factored in any assumptions to account for potential changes to tariffs as there is not enough certainty with regard to implementation or timing. Capital expenditures are expected to be in the range of $70,000,000 to eighty twenty twenty five CapEx remains higher than what we would consider typical as we continue investing in the capital required to support our increased level of awards and footprint optimization. Quite challenging markets in the near Gentherm, we remain excited about the long term growth prospects for Gentherm this company remains uniquely positioned to outperform We are exploring additional opportunities for growth taking quick and decisive actions to drive margin improvement and focusing on generating cash flow through an investment cycle. And with that, I will hand it back Bill for a few closing remarks.

Thanks, John. To close, I want to reiterate our excitement for the future here. We recognize the near term view in the auto industry was challenging, However, we remain confident in the long term growth opportunities at Genzer. We are acting with urgency on a few key priorities. First, we have market leading technologies where there is opportunity to scale. We are focused on leveraging our platforms to accelerate profitable growth. Operationally, we are implementing business process standardization across the company to drive efficiency in all aspects of the business which will translate into higher margins. And lastly, we are accelerating strategic plans that will realign our manufacturing This will optimize our footprint for improved margins and cash flow generation. I'm very optimistic about the future of the company and look forward to leading Gentherm's next phase of growth. As the year progresses, we look forward to keeping you apprised of our key priorities and priorities And with that, I will turn the call back to the operator begin the Q and A session.

Thank you. We will now be conducting a question and answer session. The first question is from Matt Koranda from ROTH Capital Partners. Please go ahead.

Hey, guys. Good morning. Maybe Bill, to start with you, wanted to see if Well, You laid out some of the basics with respect to your views on Gentherm. Are there any ways to think about your top two priorities in the seat over the next couple of quarters?

Yes. Thanks for the question. Good morning. Yes, I'll be very clear on my top two priorities, right? Number one is if you think back to the slide that showed the technology platforms, right, we kind of break that down. We broke that down into thermal pneumatic, valve systems and air moving devices.

Those technologies are platforms Those technologies are core competencies. So while we think about those in terms of system design, those core competencies have large application outside of the seat. Sometimes I'm worried that we're often thought about too much of just being in the seat ECHO ecosystem. And we've proven that those technologies can scale outside of the seat. The same technology that's used for thermal solutions in the seat is used in other places in the vehicle. That same thermal technology is used in medical, system is many times an air moving device. So my point in saying that is priority number one is John and I have been deep into the product portfolio and the platforms. And we're aggressively working to identify opportunities that can scale those core technology platforms. That's number one. Because the product is a lifebloodly company. Number two goes back to the standardization of the operating systems And really what we're trying to do is put more standard hours per square foot to our equipment in our floor space. Right? And that will go through scaling those products but we're in the process of again standardizing our business processes and I'll just give you some examples.

Such that we are gapping our total effective equipment production to what's theoretically possible and trying to close that Yeah. So instead of buying more assets down the road, we're just maximizing the location of the assets, gap plans in place that close theoretical shop floor or direct labor, Efish And then again tying our manufacturing operating plan to our supply chain plan so that our manufacturing operating plans actually consider the impact on net working capital. So really those two things and I'll just summarize and come back to scaling the product and putting more product through our existing assets and increasing our efficient use of our assets such that we're expanding margins and generating cash by lowering net working capital.

Very helpful. Thank you for that.

And then just on the footprint reduction that you mentioned in the remarks, I think you said 30% reduction in footprint while maintaining sort of the capacity that you have. Already? Is there any way maybe John to hang numbers on the savings that could be associated with that and how that flows through over time?

Yes. I think, I mean, Matt, when you look at it, certainly some headwinds this year. We expect roughly 50 plus basis points as we indicated in terms of impact just in terms of one time expenses and inefficiencies that will run through the P and L this year. I think as you look at the out years or where the benefits are, not something I would necessarily want to put a number to right now, but we certainly view this as as a critical piece of the equation that will get us to the mid high single digit EBITDA numbers.

I'm team's EBITDA numbers here over time. And so we'll come back on a more holistic sort of view as to what that looks like. But I think the important think for us, is we wanted to take a quick action to be able to reposition the footprint, get rid of some of the the inefficiencies or incremental costs that's in the system and really leverage the capacity that we have to Bill's point earlier. Okay, fair enough. And then maybe just last one if I could ask on the '25 outlook.

You mentioned obviously there's there's S and P production forecast down a point or so. It sounded like you guys were more downbeat in terms of your expectations. So what's factored in to your assumptions for industry production that's built into the guide. I think there's only a little bit of outgrowth I would assume implied Historically, I guess, Gentherm has outgrown the industry north of 500 basis points. Is that still the case this year?

What's the right way to think about outgrowth relative to your industry assumptions for '20 Yes. I mean, I think to your point, the IHS report now roughly a point We expect that to be maybe a point two rich or so in that range. I think as you look at us from an overall company perspective, we're 2% when you exclude FX.

And so mean that's how we're thinking about it. I think the other sort of context on the overall environment both from a macro perspective and in autos, is just the uncertainty that exists as well. And so not really in a position at this point to be forward, if you will, with the guide given the broader environment. [indiscernible] The next question is from Luke Young from Baird.

Please go ahead.

Good morning. Thanks for taking the questions. Maybe I'll continue on that line questioning and just hoping to unpack the flat revenue some at the midpoint. Like you said, it was a Few points of outgrowth from a product standpoint, should we think of that mostly being driven by the pneumatic part of the portfolio or are there other key growth contributors we should be considering this year? Thank you. Hey, good morning, Luke. It's Bill Presley.

To talk to you again. I would say if you think of climate our CCS portfolio and I put the CCS portfolio on the heaters That is actually showing growth year over year. The pneumatics are showing healthy growth. Year over year. And steering wheel heaters are showing some modest growth year over year. So I would say when it comes back to our core portfolio portfolio, all of those in what we would call automotive climate and comfort solutions that performance versus IHS is mid mid single digits at a minimum is what we think. So that's growing pretty well. We had talked in the past about proactively and consciously shedding some portfolio. So the battery performance system reductions are still pulling us down.

And then we're kind of just treading water on the automotive cable. So if you think about our again, I go back to our core climate and comfort solutions in automotive, growing as we would expect it to, And what we're seeing is just pull down from some of those things that had been previously specified last year that we would be pruning from the core and Contract Manufacturing Electronics.

Got it. Thank you for that. And then second, Bill, you mentioned business process standardization several times in your remarks and as one of your two main focus areas. Can you maybe just help provide a little more context on where you found the organization this in this regard? And then should we understand these as growing pains for still youngish company, the results of some of the recent M and A or is it it really more of the above of all those things contributing?

Yes. Luke, I think you're reading it right. What I mean is if you ask my perception, we're exactly where I would expect it to be. I spent the the last fifteen plus years in a couple of pretty hardcore operating companies that were established companies long legacy companies that had very strong operating systems, right? When you think about [indiscernible] There has been growth through mergers and acquisitions. There has been some divestitures like we've talked about in the past. There's been some stuff that we're pruning. So the company is exactly kind of where you think it would be for for a company of this maturity. You roll in Altmeer, I think Altmeer is an example They have a different SAP structure than say legacy Gen You look at how certain footprint moves have happened or certain business have been one of the regions And then some of the volumes have dropped off. So although those are kind of needs to be knitted together and I go back to it's where I expected it to be. I'll use my experience from the past we will standardize those operating systems such that they're linked to supply chain, they're linked to networking capital, that we build manufacturing operating plans that maximize utilization of plant marketing equipment while driving down net working capital.

And I think that with John's background and financial rigor and the the tools and processes that he's put in place there and his proven track record that we're where we expect to be, but we're very confident in the path forward And I would say the nice thing about the scale of Gentherm think we have the ability to get there in relatively quick fashion. Thank you. And then last question for me, just, we're Fit for Growth two point zero Since all this fully recognized your comment that you want to move this more towards sort of a cultural view for the organization, not something that's more discrete, but in the nearer term, am I hearing it right that some of the things that were in place from a gross margin standpoint are going to be adders in 2025 and then kind of clicking beyond '25, should we see maybe some evolution of what was outlined as the prior approach for Fit for Growth? Thank you.

Yes, Luke, I think I think you read it correctly. I mean, I think we view it certainly as sort of cultural or the business system as we move forward. I think when you look at the success of for Growth historically, I think it's put a a relatively impressive focus on On things like material performance, a number of the footprint actions that we have accelerated talked about accelerating here are a result of the the work the team has done And so there's some pillars there that we look to continue to build off of. I don't where I think you'll see a difference is is talking about specific targets as it relates to Fit for Growth. From Bill and I. But it is we plan to sort of institutionalize that in the company and we view that as a mechanism and a muscle that we can leverage to expand margins here over time.

Got it. I'll leave it there. Thank you. [indiscernible] The next question is from Brian Brinkman from JPMorgan.

Please go ahead. Hi. Thanks for taking my questions. I just wanted to follow-up on some of the comments around footprint optimization, including how you go about during this process of approaching like balancing supply chain and cost optimization on the one hand, manufacturing optimization with on the other hand like redundancy resiliency or maybe tariff risk mitigation. And while I don't think you have any facilities in Canada, can you just remind us again what your exposure might be in terms of what you source from Mexico into The U. S. And what early planning you might be doing or conversations you might be having with customers to try to go about best managing that potential risk?

Yes, I'll take the first part and then John, I don't know if you can jump in here there's something to add. But yes, our risk lies primarily with Mexico, Ryan. I think you've read that correctly. We currently have five plants in Mexico that ship servicing the North American market. Just on the footprint piece, that region is one of the regions where we will be [indiscernible] And that's a known plant out there. With regard to tariffs, we don't know what's going to happen. So proactively what we've been doing with customers is we've been telling them what we view the Gentherm impact to be to them once tariffs are enacted or whenever tariffs are enacted. We're trying to work proactively with the customer so that they can give us option pre stage inventory in other areas, whether they want to pull ahead inventory, At the end of the day, what we want to make sure of is that our production is assumptions are tied to their production assumptions such that the flow of goods continues. With regard to what happens to tariffs don't know, we just want to have at [indiscernible] [indiscernible] [indiscernible] [indiscernible] they'll become part of the cost that will need to be recovered from the customer.

John, anything you want to add? I mean, I think just as you think about the footprint of the company, I think very strategically positioned in China for China in Asia to support the rest of the region. We've got Mexico, we've got Open Morocco, last year and have some strategic sites throughout Europe as well.

I think as we look at the inefficiencies that you touched on in terms of the plant moves, I mean our view is on Miraculously as an example, the decision has been made going to Morocco. We're very excited about the opportunity there.

How do we Gentherm faster so that you can eliminate some of the additional fixed costs or inefficiency that exists in the rest of the business. So that's really where our planning has been focused. Okay. That's very helpful. Thank you. And then just last lastly, I'd be curious if in the new management's initial strategy review here, how you might be thinking about approaches to capital allocation [indiscernible] Buyback, etcetera? And then how that general approach could perhaps be swayed by current market conditions, either in terms of what multiples you might be asked to pay in the medical or automotive space versus also the price in multiple that your own stock trades at currently? Thank you.

Yes. No, I'm saying it's a fair question, Ryan. I think I would say a couple of things. I think one, we're fortunate to have a strong balance sheet. In a company that can generate cash flow in a has proven the ability to do that. I think we're also fortunate that we are confident in an organic growth story that we don't necessarily need to do M and A to grow. And so I think that's a good foundation be starting from. You look at it historically, I think funding organic growth has been the key priority followed by opportunistic M and A and then share repurchase in the absence of that. Think in early days here that framework remains [indiscernible] I think as we look at it, we're looking to build out the M and A funnel and reevaluate that. We've got a bit of elevated CapEx and investment this year as we manage through this transitions and preparing for future growth. And certainly, as we look at where the value of the company is now, there's a dislocation between we think that is in the future and where it sits today. And so so as we balance those things here, certainly one more certain operating environment or re visibility in terms of some of the things like tariffs and other things and the impact that may have on the industry.

But we will continue to balance those and I would say it remains in that order terms of funding organic growth opportunistic M and A and then and then repurchasing where appropriate.

Thank you. [indiscernible] The next question is from Brian Sigdahl from Craig Hallum Capital Group.

Please go ahead. Good morning, guys. This is Matthew Rob on for Ryan.

Two questions here. And they're both sort of bigger picture questions. How do you view the awards backlog for 2025 The focus of the slide deck here at least early on, you're talking about Strong demand for derm solutions and creating other applications. For the tech that you guys have. How quickly could those new applications come to market? And then be put into the backlog?

Yes, I will just I'll start and then John you can jump in here.

I will say that when you look at let's talk core automotive first, it looks pretty strong for us 2025 again. 2024 was a good year. 2025 looks to be at a similar level just with the quoting activity.

That we see What John and I, I'll go back to have been focused on and you touched on is where else can we read the technology across? Again, we view it as a platform. We view it as a core competency. I'm just going to go back to the medical piece as an example.

For us, what we use in the thermal blankets is the same technology literally that we use in the steering wheels that we use in the seats. It's a form factor.

So uses the same equipment, uses the same processes, uses the same core technology. So for us, I go back to its scalable technology.

What John and I are aggressively doing right now is working with the team to identify where we could scale that technology. Optimistically, we'll spend the next six months planning out what I call strategic conquest. You probably saw the word conquest in my portion a lot. Which is targeted things we're going after that utilized a core technology of the platforms.

So I would expect that within the next six months, to seven months, we have a very hardcore line of conquests.

And I would say, I would expect that next year we're rolling those into our actual booking targets.

Okay. Got it. Got it. Anything you want to know? Okay. And then switching over to China.

How do you view the Chinese domestic market? Do you plan to take a more aggressive stance there? And revenue backlog mix up over time? Yes, let me take that. So I think you're spot on there. If you look at us historically in the China market, we've been 80%, the multinational joint Gentherm is 20% domestic Chinese.

We've been taking an aggressive approach to shift that mix within the next year. That mix will be 40% domestic Chinese.

OEMs And we continue to try to fill our booking funnel in the China market to more [indiscernible] of manufacturers in the market. So that is a proactive strategy that we're actually using So ultimately, we would like to see our mix relevant to the mix in the market. And one of the things we actually like about the China market is the develop faster in China So that's an opportunity as we win there to build up the backlog quicker. By focusing on the Chinese domestic OEMs. And the one thing that we're hoping honestly, I made a trip to China last year. I was in impressed with the quality. I was impressed with the technology, the bit and the finish. They've come a long way. The ten years I've been traveling back and forth.

So we do expect that they're going to start penetrating other markets in EMEA and in North America and we'd like to be a partner of choice with whoever comes across because we do have a global footprint and global capability. Okay, great.

That's it for me. Thank you.

This concludes the question and answer session and today's teleconference. May disconnect your lines at this time.