Gentherm Incorporated Price & Performance (THRM)

Thank you, and good morning, everyone. For joining us today. Gentherm's earnings results were released earlier this morning and a of the release is available at gentherm.com. 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 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 10 ks, and subsequent reports for discussions of our risk factors, and other significant assumptions, risks and uncertainties underlying such forward looking statements. During the call, we will also discuss non GAAP financial measures as defined by 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. On the call with me today are Bill Pressley, President and Chief Executive Officer and John Douillard, Chief Financial Officer. During their comments, they will be referring to a presentation deck that we made available on the Investors of Gentherm's website.

After the prepared remarks, we'd be pleased to take your questions. Now, I'd like to turn the call over to Bill. Thank you, Greg. And good morning, everyone. I'm excited to give you an update on our first quarter, the opportunities across Gentherm and the progress we've made in the short period since joining the company at the beginning of the year. I am pleased with the energy and adaptability of the Gentherm team. The team has worked aggressively to begin instituting key business process standardization actions and embrace the challenge of pushing our core platforms into markets outside of automotive. We are aligned on the need to grow revenue, while I expanding margins and increasing cash flow. We as a company are still in the early stages of this journey, but I see great opportunities ahead for us. Let me start with some comments on the broader operating environment on Slide three before diving into our business. The announcement of tariffs have created an increased level of economic uncertainty. We continue to monitor developments related to tariffs daily with an internal team and have also engaged various industry partners to help us fully understand any potential impact. We have a strategically positioned footprint focused primarily on manufacturing and region or region with Mexico supporting our North American business, which is about 40% of Gentherm's total revenue.

At this time, we believe we can largely mitigate the direct impact of tariffs. First, the majority of our components are either not included on the listed components annex or are USMCA compliant and therefore we do not expect significant incremental tariffs. However, for the tariffs we do incur, we have communicated to our customers these costs will be passed through. We have been working closely with our customers to implement tariff tracking and reimbursement mechanisms. And we have mapped out our production and flow of goods to provide our customers clear visibility to where the impacts are recurring. In some cases, we have changed logistics logistics so that the customer becomes the importer of record eliminating the need for any tariff pass through. We continue to keep a close eye on demand. We are closely watching dealer inventory levels customer EDI schedules, and collaborating with our customers to get real time data on future demand. According to S and P Global's mid April report, the outlook for 2025 annual volumes has declined 2% for our relevant markets compared with the mid February report. More notably, looking at the last 33.4% for our relative markets including 10% in North America, where we have 40% of our business.

In terms of direct insights from customers, there has been limited net impact from changes to demand schedules. For the year, we have assessed the latest light vehicle production forecasts the impact of tariffs in place today. And while these put pressure on the midpoint of our initial revenue guidance, we are still within our prior range at this time. In summary, we have developed action plans to execute commercially and operationally based on the current environment. We are remaining nimble, allowing us to react to any policy changes that may occur. Even facing the current uncertainty, we remain confident that we are operating from a position of strength. Our balance sheet is very strong to weather any potential near term noise. Longer term, we expect to grow revenue in automotive, medical and other markets and we have a plan to expand margins and deliver strong free cash flows. Now let's turn to slide four to discuss our business and the things within our control. Since joining Gentherm on January 1, I have been continually impressed the team our product portfolio, and our customer relationships. I have made multiple trips to our various locations around the globe to engage with the Gentherm team on the floors of our media manufacturing facilities and technical centers.

In addition, I have been meeting with our current and prospective customers as well as members of the investment community. Everything I have heard and seen has reinforced my belief that we have the right technology platforms that have a broad market application. As I said in our last earnings call, we are very focused on scaling our four core technology platforms, thermal management, air moving devices, pneumatic solutions, and valve systems. The company has historically proven the ability of these technologies and ability to scale outside of the seat into other areas of the vehicle and into the medical market. Over the past one hundred days, we have been mapping out opportunities into additional markets. I want to reinforce that the team has been reacting with urgency to find new markets or existing product platforms while innovating new solutions for existing markets. I am very confident in our future growth given recent automotive awards as well as our actions to identify opportunities in other markets. On slide five, I want to give a real example how we are identifying new growth opportunities. We have reinvigorated our product lifecycle roadmap with a key focus on our core technology platforms. This leads to clear visibility on the component and system level which allows us to reach specifications or needs across various markets.

That's a long winded way of saying we can now spec our existing core technology platforms against other markets to buy and scale. Through some of our early work, we have already identified several new commercial opportunities utilizing our four core platforms and are now working through margin profiles in scenarios to see how we can accelerate our speed to market. Mapping our product platforms against conquest maps and commercial opportunities will be a continuously sustained action drive profitable growth. In a short time, we have been able to identify two areas for our medical business where we believe we can leverage our existing core platforms to address emerging needs in patient and physician thermal management. We are literally taking components used in automotive applications, and redefining the usage of those same components to create new systems in medical. This is demonstrating that we can drive scale of our core products in other end markets without making significant incremental investments. We have completed proof of concepts on these product design that are currently performing voice of the customer workshops to determine the potential for market adoption and pricing. The initial customer feedback has been very positive. These are two examples of opportunities to meaningfully expand our addressable market.

Given these opportunities and others we are exploring, we have high aspirations for our medical business and believe it can scale to a much more meaningful percentage of our overall company revenue. This demonstrates how we are approaching opportunities with our methodical evaluation of all capabilities in our portfolio. As a technology leader, we believe we have the ability to unlock significant market potential that can change the growth trajectory of Gentherm. The medical example illustrates how we are fueling a key piece of the strategic framework that we rolled out across the company in March. On the left side of slide six, you see that our framework to deliver shareholder value focuses on profitable growth, operational excellence and financial performance. On the right side are some of our initial key focus areas. As I said earlier, I am confident in our ability to scale Gentherm platforms for profitable growth. In addition to reshaping our product lifecycle management actions, we have been defining the size of the markets where our platforms and products outside of purely automotive. We have met with potential customers and partners in adjacent markets to define paths to push our technology into other applications. We are committed to driving profitable growth in our product platforms and pipeline are the key to achieving that commitment.

In addition, we have made progress on improving operational excellence and vigor. Business to our global locations have provided us with clear insights on opportunities to drive continuous improvements. We are doing this through implementation of standardized business processes. Early focus has been on standardized production control plans, to bring inventory levels to an appropriate level based on a supply chain model we call plans for every part. These actions are supported by the standardized factory floor KPIs we have rolled out across the company that allows to quickly benchmark our sites against one another. As previously announced, we have accelerated our strategic footprint plans that will realign our across all three regions and optimize capacity. As a reminder, in North America, we are consolidating our two sites in Erey. In Europe, we will close our location in The Czech Republic and consolidate that production into North Macedonia and Morocco. In Asia, we are transferring production from one of our facilities in Shanghai to Tianjin. This quarter, we received production park approval in a Morocco facility and began shipping production components to the customer locations. This was a critical achievement to start ramping up our Morocco facility. These investments in our footprint position us for a long term margin expansion free cash flow generation.

A continued focus on product, operational excellence and maximizing our usage of plant property and equipment would deliver superior financial performance. We have kicked off several work streams to identify areas where we can enhance cash flows. We are driving better utilization of our existing capital we'll be diligent in our capital expenditures going forward to ensure we are efficiently utilizing our cash flow. We're also looking at things like our entity structure to identify where we can generate cash savings. Let's turn to the first quarter highlights on slide seven. Before handing over to John, I want to share a few key performance highlights for the quarter. We continue to make strong commercial progress towards driving strategic profitable growth and saw solid new business awards in the quarter. The team continues to focus on driving operational and financial improvement even in light of a challenging environment. And we are investing in our business to make the right strategic moves to best position us for the future. We will not overreact to current near term noise. Our priorities remain clear. Scaling our technologies and optimizing our operations. Gentherm has unique capabilities, strong operating momentum, and additional paths for growth going forward.

I am confident in our ability to succeed and drive shareholder value. And now, I will turn the call over to John to review the first quarter highlights and results. John? Thanks, Phil. Please turn to slide eight. In the first quarter, our team delivered overall results that were in line with our expectations despite a highly dynamic operating environment. As we have continued diving into the business, it is clear there is a solid foundation in place that positions us well for long term value creation. A key piece of the foundation is commercial success, and our team had another solid quarter to start the year. In total, we secured $400,000,000 of automotive new business awards which included multiple strategically important wins. We were awarded our first ever Pneumatic Comfort Solutions Award with a Japanese OEM. Which is a significant milestone for two reasons. First, we previously stated that partnering with Japanese OEMs was key for Gentherm's growth and customer diversification. And this award demonstrates the significant progress we have made. Second, it is another example of the value of the Altmeyer acquisition and a great proof point of our ability to leverage Gentherm's strong customer relationships. This was a great win for the Japan team, and we believe it is just the beginning of our efforts to expand our global business with the Japanese OEMs.

In addition, we secured our first climate controlled seat award with Volvo on a future vehicle platform. This award was a conquest win for Gentherm, an important first step as we look to grow our relationship with Volvo. In China, we secured several awards in the quarter with domestic OEMs, including Great Wall, [indiscernible] As we discussed on our last call, it is a priority for us to shift our China mix towards domestic OEMs to be more closely aligned to the overall market. While the mix is not yet where we wanted, we were pleased to see further progress in the quarter. Operationally, our team continued to successfully execute new program launches with 17 in the quarter across 11 OEMs. Key highlights include the launch of our entire suite of climate and comfort solutions products on the Lincoln Navigator, Ford Expedition. Including climate controlled seats, lumbar and massage comfort solutions, climate controlled interiors and electronics. This launch highlights not only our strong relationship with Ford, but also the strength of our industry leading technology portfolio. Additionally, we began production of our thermal and pneumatic solutions on the Audi Q5 as well as a high volume vehicle from a global EV manufacturer.

We also launched several thermal components with Chinese domestic OEMs, including with BYD, which will continue to support our growth efforts in China. Before closing this slide, I want to take the opportunity to acknowledge our global team for being recognized as General Motors Supplier of the Year. We appreciate the exclusivity of this award and are proud to have been selected for the third time. Our long standing relationship with GM is built on innovative technology and strong business performance. We have a shared vision of delivering meaningful solutions that create value for GM and for the end consumer look forward to continuing our strong partnership. Please turn to slide nine a more detailed review of the financial results for the quarter. First quarter revenues decreased 0.6% compared to the same period last year, but grew approximately 1% when adjusted for foreign exchange. Automotive climate and comfort solutions revenue increased 3.8% year over year or 5.3% ex FX outpacing actual light vehicle production in our key markets by more than 300 basis points. Driven by strong growth in lumbar and massage comfort solutions partially offset by the expected declines in other automotive revenues. Our medical team delivered another strong quarter with improved financial performance.

For the first quarter, revenues increased 6% ex FX compared to the same period last year driven by growth in Europe. Turning to profitability, we delivered $39,300,000 of adjusted EBITDA in the quarter, or 11.1% of sales compared to 12.2% in the first quarter of last year, The decrease was primarily driven by higher freight costs, product mix and the costs related to our footprint realignment partially offset by strong net material performance. Adjusted operating expenses were approximately flat versus the prior year quarter. Adjusted diluted earnings per share in the quarter was $0.51 per share, compared to $0.62 per share in the first quarter of last year. Our balance sheet and overall financial position remains strong. In the quarter, we saw an operating cash outflow consistent with prior year while investing approximately $11,000,000 in net CapEx. Overall, net debt stood at $99,000,000 and our net leverage ratio was 0.5 turns flat versus last year. Our available liquidity was approximately $400,000,000 at the end of the quarter, in line with prior year. Please turn to slide 10 for further context on our guidance. The operating backdrop has become increasingly dynamic and uncertain as the year has progressed. After reviewing key variables impacting our business, we are maintaining our prior revenue range and reducing the low end of the adjusted EBITDA margin range to the impact of lower volumes tariff pass through.

The key assumptions that support our guidance are as follows: On tariffs, are considering tariffs that are in effect as of today. As Bill mentioned earlier, our primary exposure relates to our operations where we are selling product into The U. S. For any tariffs incurred, we have every indication that Gentherm will be able to pass through and recover the incremental costs. Similar to other forms of customer recovery, we may experience timing disconnects between when costs are incurred and ultimately settled with the customer. Our team is working closely with customers and suppliers to minimize the impact to Gentherm. Turning to volume, Consistently, recent industry reports and indicate that global full year vehicle production will decline further than previously anticipated. To date, we have seen limited changes in OEM demand schedules, with isolated increases and decreases resulting in an overall net impact that has been relatively unchanged. In reviewing recent industry reports specifically, we would note that S and P Mobility's mid April report projected a 2% reduction in global light vehicle production versus their February report. This decline included a 10% reduction in North America volume across the last three quarters of the year. As noted earlier, North America is approximately 40% of our total company revenue.

Additionally, we have seen recent changes in foreign currencies versus the dollar, which we expect will have a favorable impact to the company. In summary, expect lower revenue from the decline in vehicle volume with partial offsets from tariff pass through and foreign exchange favorability. Overall, we expect this to pressure margin and have updated our guidance accordingly. As we navigate through this period, we are fortunate to have a strong balance sheet allowing us to focus on growth, improve overall financial performance and invest in the future. We will continue to closely monitor market dynamics will provide updates as appropriate. With that, I will hand it back to Bill for closing remarks. Thanks John. Let me wrap up with why I believe Gentherm remains a compelling long term opportunity. First, we're innovative leaders uniquely positioned for profitable growth driven by scalable technology platforms and broad market applications. The company's strong R and D mindset has built the foundation of our key platforms including thermal management, air moving devices, pneumatic solutions and valves. Our innovative and differentiated technologies are scalable and portable to adjacent markets. Our commercial success is within our control and not dependent on a Tier one to sell our products.

We work directly with OEMs to capture the voice of the customer and bring our products to market. To provide the OEMs with unique, differentiated selling points. Next, we have a continuous improvement mindset to drive margin expansion and solid cash flow conversion. Our strategic footprint realignment is underway which will lower our variable manufacturing costs and allow us to leverage our fixed cost on higher future revenue. The margin profile of our lumbar and massage comfort solutions continues to expand as we wind down pre acquisition business contracts and launch new business from the awards we secured after the acquisition. Lastly, we have a strong financial position with the ability to efficiently deploy cash capital and drive shareholder value. This will allow us to remain flexible and opportunistic with our capital allocation priorities. I remain optimistic about the future of Gentherm. As we work to navigate through some of the near term noise, we are confident in the opportunity to generate shareholder value. We look forward to keeping you informed of our progress throughout the year. With that, I will turn the call back to the operator to begin the Q and A session.

Thank you. We will now be conducting conducting the Q and A session. If you would like to ask a question please press first question is from Ryan Sigdahl from Craig Hallum Capital Group. Please go ahead. Hey. Good morning, guys. Appreciate the update on certainly a lot going on in the industry right now and the world. Wanna start with the guidance and the tariff impact. So how much pass through revenue is incorporated in the guidance? And then with the decremental margin on the low end of the EBITDA guidance, much of that is passed through revenue versus core operating performance?

Hey, Ryan, good morning. As of now, as we talked about in the messaging, I mean we're talking about the tariffs that are in place as of as of today. Which is a smaller portion of potentially what's to come. I think what we tried to do is lay out the overall impact being focused more on Mexico and in North America with the overall business being about 40% of total Gentherm. I think as you look at at that today, [indiscernible] impact is relatively limited.

In terms of the amount of tariffs that were actually talking about passing through. And so there's you know [indiscernible] tens of bps of impact on dilution. But it's not overly consequential. I think the big piece and where the most uncertainty lies is really around what industry volumes will do and the impacts there. And I think we were pretty transparent in how we laid that out. [indiscernible] John. As you excuse me, as you think about medical, and you talked a lot about adjacencies you have since you guys have come in here, the opportunity to expand into other automotive but also nonautomotive medical applications. Gentherm, going back over the past decade, has tried this in the past. To then kinda refocus the business back on core markets over the past several years. I guess, why is this different? How do you think about staying focused? Really doing this in an efficient smart, and strategic way? But just any clarity kind of looking at Gentherm over the past ten years and trying to get into adjacent markets versus what you guys are looking at now.

Yeah, Ryan. Good morning, it's Bill. Good to hear from you. Let me be clear. I think in the past when we've looked at it, was a push into adjacent markets as you've said. But our focus is very different. Our focus is taking the core technology platforms and pushing those specifically into adjacent markets. And just to be super clear, you know the two proof of concepts we talk about in medical, what's important there is the methodology we went through to create these new proof of concepts, So we talked about surgeon and patient warming, We have literally 100% taken the heating technology that we use in the seating, which is same heating technology that we use in the steering wheels, which is the same heating technology that we use in climate and comfort interiors and found an application for that exact same technology unadulterated other than shade. For the medical market. So [indiscernible] is really an approach not about new products for new markets, but about scaling existing technologies utilizing existing floor space and existing capital equipment and pushing them into new markets. So it's it's a very different approach and you know, you and I have talked to you, Brittany, say this, if it's the exact same technology don't care what market it's in as long as it's coming off the same machine in my plants.

Very helpful. Thanks, Bill. Good luck, guys.

Thank you, everyone.

The next question is from Matt Aranda from Roth Capital. Please go ahead.

Good morning, guys. It's Joseph on for Matt today. Just in regards to your new program awards, it looks like it's one of the lower quarterly award figures since 2022. Could you just discuss booking dynamics in 1Q? Were there fewer programs up for bid? Yep, I would say it's been in line, I mean, with what what we've done in Q1. If you go back and look through history, we've had some hot months just based on our quarters in the past based on what was awarded But I would say the first quarter came in right about where we expected it to come in. So it might look a little light, it was exactly what we expected based on the texturing we see in our roadmaps for when the original equipment manufacturers are asking us to quote. So, with all that said, everything we see full year we have a very rigorous process for how we map out our opportunities and when they're available and how we're going to quote them and address them. Says we should have a very robust year again this year. I see nothing that says different. Got it, thank you for that. And then if I could just squeeze in one more on your 2025 guide.

Just looks like the revenue guide remains unchanged despite the weaker industry forecast. Could you just speak on what's enabling you guys to hold up sales, the sales guide despite the erosion and production expectations, in the North American market? [indiscernible] I think as we look at the guidance, prior midpoint was fourteen fifty, current midpoint is fourteen fifty. I think you know the biggest piece of that is the North American volume which we highlighted I think we put information out there in the deck in terms of [indiscernible] contributes to the business, what industry reports we're looking at, in terms of 10% declines for the balance of the year, and it that certainly puts pressure or takes our midpoint guidance down to towards the lower end. We do see some some favorability from FX, which will offset a portion of that. We will see the past through recovery of tariffs impacting revenue as well. And so as we've looked at it particularly with the uncertainty on where industry volumes will actually come in, we put that map together and said we'll still be in the range albeit it may be towards the lower end of that range but still comfortable putting that out there given the fact that there's so many moving dynamics right now.

I appreciate it, John. Thank you. Thank you.

As a reminder, to ask a question, please press 1. The next question is from Ryan Brinkman from JPMorgan. Please go ahead.

Great. Thanks for taking my questions. I'm curious, if you might have seen any benefit during the quarter from automaker orders for parts exceeding what they would ordinarily purchase to support concurrent production, as they sought to maybe atypically stockpile components ahead of production. In an effort to mitigate tariff impact. Is that something that you're seeing? I haven't really seen anything meaningful on the production side. I would say the variances that we saw in production orders from the customer in the first quarter within what we would consider to be standard variances. So we haven't seen a heavy fall to try to stock ahead of the tariffs. That's helpful, thanks. And then just a couple of follow ups on the tariff impact on the full year results. Firstly, relative to the comment that many or most of your products are not subject to tariffs because they are either not included in the categories of tariff components or because they're USMCA compliant. Are you able to say how much is because they are not in the tariff categories versus how much is because they are USMCA compliant? And then secondly and relatedly relative to your comment that the guide incorporates tariffs in effect as of today.

Does that assume then that the temporary exemption on USMCA compliant parks that last through May 3 that that continues, or, do you assume that the exemption period ends or how to think about that? Yeah, I mean, I think as we look at it, we're certainly not going to predict what direction these things go just based on the changes that happen seemingly by the day here. I think as we look at it, where we of take comfort in what we talked about in the prepared remarks is we have the mechanisms in place to be able to recover these and are working with customers closely to be able to do that.

And so to the extent that those go into effect, there would be more expense incurred that would be we'd expect to fully pass on to the customers and therefore recover. So the dilution impact on the margin would be a little bit higher than what we've contemplated in the range, but we still feel by tweaking the lower end of the range that we're still within that 11.5% to 13% from an adjusted EBITDA perspective for the year.

Great. Very helpful. Thanks so much.

This concludes the question and answer session as well as today's call. You may disconnect your lines at this time. You for your participation.