NASDAQ:THRM Gentherm Q2 2023 Earnings Report $26.01 +0.25 (+0.97%) As of 04/30/2025 04:00 PM Eastern Earnings HistoryForecast Gentherm EPS ResultsActual EPS$0.58Consensus EPS $0.54Beat/MissBeat by +$0.04One Year Ago EPS$0.25Gentherm Revenue ResultsActual Revenue$372.30 millionExpected Revenue$368.93 millionBeat/MissBeat by +$3.37 millionYoY Revenue Growth+42.80%Gentherm Announcement DetailsQuarterQ2 2023Date8/1/2023TimeBefore Market OpensConference Call DateTuesday, August 1, 2023Conference Call Time8:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Gentherm Q2 2023 Earnings Call TranscriptProvided by QuartrAugust 1, 2023 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Greetings, and welcome to the Gentherm Second Quarter Earnings Conference Call. At this time, all as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Yijing Brentano, Corporate development and IR. Thank you, ma'am. You may begin. Speaker 100:00:38Thank you, and good morning, everyone, and thanks for joining us today. Gentherm's earnings results were released earlier this morning and a copy 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 may make forward looking statements within the meaning of federal securities laws. Statements reflect our current views with respect to future events and financial performance, all participants may differ materially. Speaker 100:01:18We undertake no obligation to update them except as required by law. Speaker 200:01:23All participants are ready to take questions. Speaker 100:01:24Please 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 risks and uncertainties underlying such forward looking statements. During the call, we may discuss non GAAP financial measures as defined by SEC Regulation G, including certain pro form a measures related to the Elfmeier acquisition. Reconciliations of these non GAAP financial measures to the comparable GAAP financial measures are included in our earnings release or investor presentation. All participants are on the call with me today are Phil Eiler, President and Chief Executive Officer and Matteo Anversa, Chief Financial Officer. During their comments, Phil and Matteo will be referring to a presentation deck That we have made available on our website at janthem.com/events. Speaker 100:02:26After their prepared remarks, we will be pleased to take your questions. Now, I'd like to turn the call over to Phil. Speaker 300:02:36Thank you, Yijing. Good morning, everyone, and thank you for joining us today. I am pleased with the continued strong all participants are ready to take questions. While we have seen some stabilization in automotive production and signs of easing inflation, we continue to strengthen our operational execution and further improved productivity. For the 2nd quarter, we achieved record revenue of $372,000,000 all participants are now in the range of $1,000,000,000 growing 43% year over year. Speaker 300:03:12These outstanding results also included record quarterly organic revenue all the necessary ever quarterly revenue for steering wheel heaters in the company's history. Demand for our thermal comfort, Massage and Lumbar Solutions continues to accelerate. This momentum has carried into 2023. All participants are in the Q2, we achieved a quarterly record of $670,000,000 of new automotive business awards. All participants are in the range of $1,200,000,000 of new awards. Speaker 300:03:53Recall that in 2022, we secured record wins of $1,800,000,000 for the full year. With this extraordinary strength in new business wins, we are preparing to gear up to meet the production demands of our customers along with creating a more optimal cost structure in our manufacturing footprint. And I'm pleased to announce that we are investing in 2 new manufacturing plants, 1 in Morocco and 1 in Monterrey, Mexico. The new factories will be ready for production in 2024. These new plants will not only allow us to meet the capacity requirements our record levels of new business awards, but also support our plan to keep expanding gross margins. Speaker 300:04:38Turning back to our Q2 results, which Matteo will cover in more detail in a few minutes. Our adjusted EBITDA margin rate improved 300 basis points year over year on a pro form a basis. We generated $34,000,000 of cash flow from operations, all of our shareholders are paid $16,000,000 of debt and repurchased $10,000,000 of shares in the quarter. We have officially kicked off our Fit for Growth 2.0 program to execute our previously announced profitability improvement plan to reach high teens adjusted EBITDA margin rate by 2026. Specifically, we have identified several 100 initiatives To reduce product costs through value engineering, sourcing excellence, improve manufacturing productivity through automation And implement lean best practices across our network. Speaker 300:05:33Additionally, the program will drive operating expense efficiency Speaker 200:05:44all participants are now ready to take questions. Speaker 300:05:46Now turning to the automotive highlights on Slide 4. In the Q2, we launched our automotive solutions on 20 different vehicles all participants are in the range of 10 OEMs, including Ford, General Motors, Great Wall, Hyundai and Toyota. We continue to see tremendous momentum for our CCS solutions. In the Q2, our CCS solutions were launched on the Buick LaCrosse, all comes from the line of the company's Q4 EV, Chevrolet Blazer EV, Ford Mustang, Hyundai Mariner, as well as several EV models of Great Wall Vehicles in China, including the Tank 700, Now let me give you a quick update on ClimateSense. We are progressing well in preparing for the flawless launch of the 2 upcoming production programs with General Motors. Speaker 300:06:43And in addition, we continue to work on several development projects with OEMs around the world, including recent work with a few electric vehicle manufacturers. The demonstrations of range extension enabled by ClimateSense have also driven higher thermal content, higher take rates and adoption on electric vehicles, which have resulted in a significant number of awards in the quarter. All participants are in the line with our advanced engineering team continues to integrate thermal with lumbar and massage all participants are ready to take questions. The combination of heating and cooling the body with our proprietary pulsating massage is opening vast opportunities for health and wellness experiences, alertness enhancements and physical recovery in the car. We are perfectly positioned to be a major player in the software defined vehicle of the future by integrating our proprietary software and algorithms. Speaker 300:07:47Our Alkmaier integration continues to deliver more value for our customers. We are now the clear market and technology leader Our strong position as the largest independent provider is a powerful differentiator with our customers. We are actively engaged with OEMs and Tier 1 Seat Manufacturers in North America, Europe and Asia to collaborate on Breakthrough Integrated Comfort Solutions. These solutions provide industry leading comfort performance, reduced space requirements in the seat and the interior, Less weight and a significant improvement in seat assembly efficiency through reduced complexity. As a partner to over 25 seat manufacturers around the world, our scale and capabilities are unparalleled. Speaker 300:08:43As the leading innovator in this market, we can collaborate with our customers to create customized solutions As we work with nearly every car manufacturer and every seat maker and configuration, we believe our partnership model is a unique and sustainable competitive advantage. Now on to Slide 5, where we'll discuss our record awards. While the pipeline of pneumatic opportunities remains very strong, the majority of the new awards secured in the 2nd quarter were for thermal solutions, Where we had a truly breakthrough quarter. We won CCS awards on the Chevrolet Silverado EV, GMC Sierra EV, Ford Explorer EV, Ford F-one hundred and fifty Lightning EV, Kia EV9 and the Subaru Forester. We continue to gain momentum in China. Speaker 300:09:51We won CCS awards for the Chevrolet Equinox EV, several Great Wall Plug in Hybrid Models, Honda CRB and Lee Auto's Electric MPB. Of special note, we won our 2nd climate controlled seat award with the world's largest EV manufacturer by volume BYD for its popular Song EV. Importantly, we won a highly desirable and contested award with BMW. Our CCS solutions all the ix7 and the IX5, IX6 and IX7. In fact, all participants are ready to take questions. Speaker 300:10:42The new BMW X7 and IX7 will also feature Gentherm's active CCF solution. All participants are in the Q2. In the Q2, we also received 11 steering wheel heater awards across 7 OEMs. These included bright drop bands from General Motors, Honda Ridgeline, Nissan Murano and the Renault Megane. In addition, we won hands on detection enabled all the speakers Speaker 200:11:08are in the same Speaker 300:11:11period. If you recall, we had an extremely strong Pneumatic Comfort wins in the Q1, including breakthrough conquest wins with Jaguar Land Rover and General Motors. All participants are in the Q2, we won a Pneumatic Lumbar Award for the Audi A 4. In addition, all participants are ready to take questions. I'd like to congratulate our team in China for winning a combined thermal comfort lumbar and massage full system award And the acquired Altmyer. Speaker 300:11:51The momentum of Pneumatic Lumbar and Massage Awards is accelerating rapidly. And I am pleased to share that we just won in July our 1st lumbar and massage award with Stellantis on the Jeep Compass, Alfa Romeo Stelvio, Alfa Romeo Giulia and Maserati Levante. This conquest award was enabled by Gentherm's strong customer relationships and Alkmaier's industry leading technologies. Let me remind you that we have already won 6 Conquest Pneumatic Lumbar and Massage Awards since the close of the acquisition, we are well ahead of our revenue synergy plans. Now on to Battery Performance Solutions. Speaker 300:12:36All participants are in the Q2, we won an air cooling battery thermal management award for Hyundai across 6 electrified vehicle platforms. All participants will be cooling 80% of Hyundai's mild hybrid and plug in hybrid vehicle batteries. All participants are in the Q2. So in summary, our record awards in the Q2 are strong proof points of our ability to grow market share through conquest wins, as well as growing penetration of thermal and pneumatic comfort solutions. Now let's turn to Slide 6 for a discussion of our Medical business. Speaker 300:13:15As a result of continued financial pressures and muted capital spending at hospitals in the United States and a large one time order by the United Nations in the Q2 of last year, we saw a reduction in medical revenue in the quarter. All participants are in the range of $1,000,000 Given the change in purchasing behaviors in the medical device space post COVID, we are working on bold moves to adapt our medical go to market model strengthening our partnership with SourceMark Medical, a certified minority supplier headquartered in Nashville, Tennessee, all participants are ready to provide world class patient warming solutions to the U. S. Healthcare market. SourceMark has a proven track record of driving growth our operating performance by providing superior service and solutions to hospitals and medical providers. Speaker 300:14:14With this partnership, we expect to we continue to win new accounts and hospitals in China. In the Q2, we added 24 new hospital accounts in China, replacing competition. And in the U. S, we added more units to the existing fleet of Blanketrol III systems at the Boston Children's Hospital all participants are ready to support expanded usage. In addition, we were awarded the Blanketrol 3 and Cool Kit Business at Children's Healthcare of Atlanta, a brand new hospital. Speaker 300:14:55We are confident that these actions will help us accelerate our growth in the patient temperature management solutions. All participants are ready to turn the call over to Matteo for a little more color on the financial results. Speaker 400:15:10Thank you, Phil. Let me turn to Slide 7 and focus on the most significant items in our 2nd quarter results. So for the quarter, product revenues increased by 43% compared to the same period of last year, including the contribution from the acquisitions. If we adjust for the impact of acquisitions and FX, our overall product revenue increased by 18%. Starting with the automotive segment, automotive revenues were $362,000,000 reflecting a 45% increase compared to the prior year period. Speaker 400:15:46Adjusting for the $65,000,000 contribution from Alfmeier and foreign currency translation, automotive revenues increased by 19%, and this compares to an 18% increase in the actual light vehicle production in our key markets of North America, Europe, China, Japan and Korea. We outperformed the light vehicle production volume by over 100 basis points. Excluding the non automotive electronics business, which we are in the process of phasing out in last year's one time benefit from spot buy recoveries, we outperformed production volume by nearly 400 basis points in the quarter, over 600 basis points year to date. We saw significant growth in the majority of our product lines And more specifically, steering wheel heater's revenue increased by 35% compared to the prior year period due to higher demand and production volume on multiple GM platforms and a major global EV OEM, as well as increased content on VW as a result of our hands on detection enabled steering wheel heater. CCS revenue increased by 26% due to higher production volume of GN trucks and SUVs, as well as higher take rate on several models with Honda, Kia, JLR, Honda, BMW and Ford. Speaker 400:17:22Lampe and massage revenue increased 20% on a pro form a basis due to the ramp up of several platforms on BMW, Mercedes and VW, as well as higher production volume with a major global EV OEM. CTITA revenue increased by 19% due to higher production volume of trucks and SUVs at GM, increased take rate with Ford as well as increased content on the key ateluride as a result of the 2nd row adoption. All participants are in the line with Mercedes, General Motors and the start of production of our proprietary thinfoil self connecting board on the BMW 7 Series plug in hybrid. All lines are open. Cable revenues increased 5% due to higher sales with VW, Honda, IKEA and Ford. Speaker 400:18:21All participants are in the range of 2% to 3% to 4% to 4% to 4% And electronics revenue decreased 9% due to the phase out of non automotive electronics. Turning to medical. Medical revenues decreased 7%, primarily as a result Moving to adjusted EBITDA. Adjusted EBITDA in the quarter was $42,400,000 up from $24,800,000 in the prior year period $26,100,000 in the prior year pro form a. The adjusted EBITDA rate in the 2nd quarter was 11.4% and this compares to 8.2% in the year ago period on a comparable pro form a basis. Speaker 400:19:24The 320 basis points year over year improvement productivity at the factories and lower freight costs. These were partially offset by material and wage inflation And the negative impact of foreign exchange, primarily due to the appreciation of the U. S. Dollar compared to the Chinese RMB and the Korean won. It is worth noting that excluding the impact of the Alzheimer acquisition, legacy Gentherm adjusted EBITDA margin rate all participants rose to 13% over the 9.5% recorded in the prior year quarter on a comparable basis, corresponding to a 350 basis point improvement year over year. Speaker 400:20:16Operating expenses were $83,700,000 in the quarter compared to $51,600,000 in the prior year period. If we adjust for the acquisition, integration and restructuring costs as well as non cash stock compensation expenses and the non cash goodwill impairment in both periods, operating expenses were $58,600,000 up our earnings call from $44,100,000 in the Q2 of last year. The year over year increase of approximately $40,000,000 was primarily driven by the additional expenses from the acquired businesses as well as higher compensation expenses operating expense as a percentage of revenue improved 100 basis points year over year. Speaker 200:21:10All participants are now ready Speaker 400:21:11for questions. Now during the Q2, Medical did not perform in line with the forecasted results, As a result, an indicator of impairment was identified and an interim quantitative assessment was performed. All participants are in the range of $1,000,000 and the results of this assessment indicated that the carrying value of the reporting unit exceeded the fair value. All participants are in the press release earlier this morning, we recorded a non cash goodwill impairment charge in our medical business of $19,500,000 or $0.52 per share after tax to align the reporting unit's book value with its fair value. All participants are in the range of $1,000,000,000 Excluding the impact of this non cash goodwill impairment charge, our adjusted effective tax rate in the quarter was approximately 32%, in line with the prior quarter. Speaker 400:22:14And finally, adjusted diluted earnings per share in the quarter our operating profit was $0.58 per share compared to $0.25 per share in the Q2 of last year. Speaker 200:22:27All participants are now ready to take questions. Speaker 400:22:28Now moving to the balance sheet on Slide 8. Our cash position at the end of the quarter was approximately $169,000,000 During the quarter, we reduced our net debt to $49,000,000 from $68,000,000 our Q2 was 0.3 at the end of the second quarter, down from 0.5 at the end of March and well below our target OVA of 1.5 times. Based on the trailing 12 month consolidated adjusted EBITDA ended June 30, we had approximately $283,000,000 of remaining availability on our line of credit and the total available liquidity as of June 30 was $451,000,000 up from $433,000,000 at the end of March. Speaker 200:23:26All participants are ready to take questions. Speaker 400:23:27Now let me turn to Slide 9 for our 2023 guidance. As we did in the last earnings call, for comparison purposes, we included the actual results as reported for 2022 as well as the pro form a 2022 values if we had incorporated the results of Alfmeier since the beginning of the year. We are maintaining our 2023 guidance as discussed in the prior earnings call. For 2023, we are expecting revenue to be in the range our call is now open to our call to our call today. Thank you, sir. Speaker 400:24:02Thank you, sir. Our first question comes from the line of our operating margin growth at a mid single digit rate in 2023 versus 2022. The midpoint of our guidance implies a growth rate we continue to expect adjusted EBITDA margin rate to be in the range of 11.5 to 13.5% for 2023. We still expect our adjusted full year effective tax rate, excluding the impact of the goodwill impairment, to be in the range of 28% to 32% and capital expenditures to be on the lower end of the guided range of $60,000,000 to $70,000,000 So with that, I will turn the call back to Phil. All Speaker 300:24:52Thanks, Matteo. Now let me summarize. I'm proud of the global Gentherm team for continued strong momentum in winning awards, Delivering record revenue and expanding profitability. In the second quarter, we secured a record Speaker 500:25:08our Company's earnings call will Speaker 300:25:08be $670,000,000 in new automotive business awards, bringing us to nearly $1,200,000,000 in the first half. Speaker 400:25:17All participants are in the Speaker 300:25:17range of $1,000,000. Leveraging Alfaemeyer's industry leading technologies and Gentherm's strong customer relationships, we have won 6 all participants are in the same period. We are now in the Q1 of 2019. We are now in the Q1 of 2019. We are We're investing in 2 new manufacturing plants and implementing our Fit for Growth 2.0 initiatives to deliver high teens adjusted EBITDA margin rate by 2026. Speaker 300:25:46The momentum on revenue and awards, combined with the steps we're taking to optimize our footprint and cost structure, will drive Gentherm's flywheel of profitable growth. All participants are ready Speaker 200:26:01to take questions. Operator00:26:03Thank you. We will now be conducting a question and answer Speaker 200:26:37Our first question comes from Ryan Siegel with Craig Hallum Capital Group. Please go ahead. Speaker 500:26:45Good morning, guys. Thanks for taking my questions. Speaker 300:26:49Good morning. Hey, Ryan. Speaker 500:26:53Maybe we'll just start with medical and then we'll move over to auto. But given the challenges there, does it make sense to operate that business Given kind of post COVID changes and given it's becoming increasingly small relative to the auto business with HealthMeyer and all the traction you have there? Speaker 300:27:12Well, we think so. We certainly continue just to link it back to the automotive business. Remember, one of the huge value propositions for us is that through our medical business, we developed Strong skills in the science of thermophysiology, which ties right back to our ClimateSense development. So those synergies back to automotive are getting stronger and stronger. No doubt that at least for the moment, the med device all industry, especially related to hospitals financial struggles is stressed, and that's what we've been dealing with for the last several quarters. Speaker 300:27:54But we really believe we have a plan to grow that business and to make it accretive for the company. And one of the all the adaptions that we're making that we're working on making right now is to kind of pivot, especially in North America market And one of those we announced was the partnership with SourceMark. I've been personally involved with that team at SourceMark and They have very established relationships with the GPOs and the hospitals, and I think that's going to accelerate our growth. We have great product. Our teams in automotive and medical are collaborating very well. Speaker 300:28:41So I still feel pretty good about our roadmap. All participants are ready. Speaker 500:28:47Good. Noam Mova Varnado. A couple of questions there. So congrats on the breakthrough lumbar massage award with Stellantis, curious what model year or when that starts will start to impact the financials and the shipments start there? And then secondly, How much additional opportunity do you think there is to expand beyond those initial models? Speaker 300:29:08Yes, it was a huge win. I believe it's Model 26 That it would launch. But anytime you win a first platform with a new customer, it's your opportunity to prove yourself and to scale across Other platforms within the customer. So certainly, that's the way we are viewing this. And our job now is to go FAQ In a world class way. Speaker 500:29:36And then on all the new CCS EV awards, a lot of the trucks, kind of going into EVs have been higher lower than kind of other core CCS platforms with those OEMs. And then, I'll maybe stop there, then one more. Speaker 300:29:58Yes. I mean, first of all, we are so excited about the win rate of CCS. And I think it shows by some of the announcements that we're making on It's going to make a difference for EV Manufacturers. And as we called out, the many, many The collaborations and partnerships that we've done on ClimateSense have really opened the door for us to show the value of not only ClimateSense, but CCS In terms of power consumption savings and range extension. So we're really excited about that. Speaker 300:30:41We announced the specific CCS Active product on the 7 and IX7. But for the most part, we're still seeing vent ventilated CCS as the primary technology. Speaker 500:30:59All Great. Well, last one for me, just on the industry out production. So even if you adjust for the various FX and Elf Meijer and the one time kind of spot purchases last year, I mean, 400 bps of outperformance, you guys had been trending quite a bit better than that. You had award kind of book to bill a lot higher in the past several years. I guess curious if there's anything else in the quarter to call out because it was a little bit of a detail. Speaker 300:31:28Yes. We kind of look at it as 400 basis points of outperformance year to date, 600. And essentially, most things happened as expected. The one thing that was an anomaly was related to couple of Japanese OEM customers. We have, in fact, 2 that had some pretty significant production downtime For various reasons. Speaker 300:31:55And then there's a couple of vehicles that are ICE sedans that last year we had some Pretty high content. They're changing out those vehicles, so it's a little bit of a timing issue. We expect all that to normalize and we expect to continue our outperformance trends. Speaker 500:32:13Thanks, Phil. Good luck, guys. Thank you. Operator00:32:19Our next question comes from Glenn Chin with Keyport Research Partners. Speaker 200:32:25Please go ahead. Speaker 600:32:29Good morning, folks. Thank you. Hello. Good morning, Michael. Just a couple more follow-up. Speaker 600:32:37Hi, Michael. A couple of follow-up questions on bookings. So you mentioned that you've had 6 Conquest, Pneumatic and Lumber awards since the acquisition. I don't recall the operating in the press release, but it seems to allude that, they are revenue synergistic, meaning that they would participants have been less likely to happen with Altair on its own. Can you confirm that? Speaker 600:33:06Is that is my reading of that word incorrect? Speaker 300:33:10Yes. I think you stated it perfectly. Speaker 500:33:12Okay. Speaker 600:33:14Okay, very good. And I think you said that the majority of the bookings were thermal comfort wins versus pneumatic. Can you give us the split between the 2 this quarter as well as last quarter? Speaker 300:33:32No, we haven't been splitting that, but definitely this quarter was the majority thermal. And we're actually really excited about that because the pipeline of pneumatic awards is really strong. We pointed out that the Stellantis win was in July, so it was outside of the quarter. A lot of opportunities in the back half On the pneumatic side as well. But the confidence I have on our thermal business and the partnership model that we've created is very high. Speaker 300:34:04We are the largest independent supplier in the space. We can work with any OEM, any Tier 1 seat manufacturer And I think that is really picking up momentum. Speaker 600:34:18Yes. Good to hear. And just a clarification on the all the So is that to say that they were not an Alfmeier and Pneumatic customer Prior to this? Speaker 300:34:33That's right. They've never supplied Stellantis in Pneumatics, yes. Speaker 600:34:39Yes. Okay. Very good. And can you just talk to us about your win rate? Has it been I know it's been elevated. Speaker 600:34:49Has it moved up or down significantly? Speaker 300:34:54Continues to be very strong. I think you can look at a lot of the nameplates that we're winning and many of those are head to head competitive wins. So it's a very strong win rate. Speaker 600:35:07Yes, seems to run the gamut. Okay. And then last question. So one of your competitors this morning in their earnings release, in their press release, it it seems like they're attempting to encroach upon climate census turf. They say that they've agreed with Vallejo to explore integration of HVAC and Radian Panel Technologies with Ferris Thermal Comfort Seating Technologies to optimize this is a quote, document comfort and user experience by extending EV range. Speaker 600:35:44Any You can tell us about Valu's capabilities there. I wasn't aware that they had. Speaker 300:35:55Yes, sure. Well, I think it's the best thing for me to do is talk about our strategy and go to market model with ClimateSense. First of all, as you know, we've developed our own our ClimateSense software and algorithm that can control the microclimate of every position in the vehicle. And that is done by integrating our software with any HVAC controller on the market. And we've developed our software that has an easy API, one platform that can be integrated with any HVAC I think it's really important and we've obviously had worked with almost every OEM around the world and it's important to understand the dynamics HVAC as it stands today, OEMs by and large Develop in house their own HVAC controls and their own HVAC algorithms and software. Speaker 300:36:59Our ClimateSense integrates with the OEMs developed software and algorithms. They also architect their own HVAC systems for the most part and basically purchase the individual modules and components, Create that integrated system in the car. So our model has been to work directly with the OEMs. And I believe that's The right model for us. It's paid off so far. Speaker 300:37:25So that's kind of where we're at. We have all of our own proprietary Thermal effectors including radiant panels in house. So I think we're really well positioned. That said, we're As OEMs desire, we're happy to work with anybody. We can partner with anybody and that's been our model, that kind of open Partnership model and we're excited about that moving forward. Speaker 600:37:55Yes. And I know in the past, Troy, you've talked about A lot about the software component of the ClimateSense system. Is it fair to say that is the, I don't know, for lack of a better term, the secret sauce, so to speak? Speaker 300:38:13Definitely, Definitely. I mean, well, we certainly believe we have next generation innovation on all of our devices. But the ClimateSense software is it's the heart of ClimateSense and It can be employed on a full system, where you have all the components in the vehicle plus you're controlling the interface with the HVAC software, but it can also as you'll recall, we've also set up more scalable model where we've integrated The ClimateSense software into smart devices. So essentially the smart CCS or the smart heat, Smart Neck Conditioning, Smart Gradient Panels, those can all on their own Integrate with an HVAC control architecture. So we have really ability to scale ClimateSense In any way that helps an OEM. Speaker 300:39:16I think that's really been appreciated by the OEMs and we expect to see Continued momentum. Speaker 600:39:25Yes. And can you clarify, Phil, is the software In ClimateSense patent protected? Speaker 300:39:34Yes. Speaker 600:39:36Okay, very good. That's it for me. Thanks very much. Speaker 200:39:40All participants. Operator00:39:44Our next question comes from Matt Koranda with ROTH MPM. Please go ahead. Speaker 700:39:53Hey guys, good morning and thanks for getting me into the queue. Just a few have been answered, but I wanted to kind of focus in on the outlook for the year that you guys provided. So There's a, I think, a decent amount of outperformance versus industry production implied in the second half outlook. So just wondering if you could maybe call out, Is there a pickup in take rate or just vehicle mix that you're seeing in the releases that you've got from customers that you can call out To give us a little bit more confidence in the back half numbers. Speaker 300:40:24Sure. New launches is going to be one of the heavy drivers for us. We've got a lot of those queued up for the second half. We expect some recovery. We talked about the Japanese OEMs, those we don't see persisting in the second half. Speaker 300:40:40And those are the primary drivers. We have clear visibility in our with our releases. So That's what created the forecast. Speaker 700:40:50Okay, fair enough. And then on the margins for the back half, I think you've got to be kind of north of 13% to hit the midpoint of your EBITDA margin guide. So maybe Matteo, if you could Bridge us from the first half performance, which I think was in the mid-11s into that kind of mid-thirteen percent range. How do we get there? What are the big elements and levers of improvement? Speaker 700:41:15Maybe, I mean, whether you want to do that via some of the buckets that you called out Gross margin in the release or core Genthermorgins versus Altmyer? I'll let you take your pick on that. Speaker 400:41:28Yes, sure. I'll do it both ways. So you're right, the first half was about 11.5%. We need in order to hit the midpoint, We need the second half to come in at about 13.5%. So you have a 200 basis point lift sequentially. Speaker 400:41:45And there are really 3 drivers. 1 is volume. So that would give us as we are expecting revenue in the second half to be a little higher than the first half will give us a lift of about 100 basis points. The second aspect is Alfmeier. Alfmeier has been running in the first half of the year At the low single digit EBITDA rate, we're expecting to hit mid single digit by the end of the year. Speaker 400:42:14So you're going to have a lift On the Aspire rate, and that's fundamentally driven by further acceleration on the price recoveries, where Aspire has been a little bit behind compared to the legacy Gentherm business. So that's about 40 bps of expansion sequentially. The rest will come through sourcing savings. As you know, most of the sourcing savings, particularly around rebates all will come later in the year as well as a little bit of a further improvement in productivity of the plants in the legacy Gentherm business. Let's start with the walk. Speaker 400:42:55One, I think, important thing to note, particularly as it pertains to the revenue, is that the current outlook that we provided this morning does not assume any impact of a potential UAW strike, which clearly is unknown right now. Speaker 700:43:12All Okay. That's great and very clear on the breakouts there. Thanks, Matteo. And then I guess just the last one, I wanted to address was the plant expansion in Morocco and Mexico, maybe just speak to the capabilities in the facilities, what that provides you, why the footprint expansion and then just in terms of the It sounded like you said you're going to be in the lower end of your CapEx guide. Does your CapEx outlook for this year incorporate costs from those new plants? Speaker 700:43:45And then maybe just if you could address total costs in terms of expansion there? Speaker 400:43:51So let me maybe address the CapEx question first and Phil you can address the rest. So CapEx in the first half is about $14,000,000 which is But even split between maintenance and growth, we are expecting the second half to be in the range of about $35,000,000 $40,000,000 And that includes a little bit of CapEx for continue to building some contingency related to Ukraine And then a $5,000,000 to $10,000,000 CapEx related to the expansion that you just talked about. And then the rest is really primarily split between growth to fund the new programs that we won and a little bit of maintenance. So that's kind of what we are seeing on the CapEx. Speaker 300:44:34Yes, Matt, I'll just talk about the plants. First of all, we've done an extensive search for the appropriate location and we're very excited about expanding our footprint in Morocco and Monterrey for multiple reasons. And What's really driving it, to be honest, is just growth. We've got our record awards within a couple of years. We're going to out Expanding in these locations is going to give us a lot more flexibility to optimize our footprint and how we manage our high labor content Production in the most cost effective way. Speaker 300:45:20So we believe not only it's going to allow us to reach the growth in front of us, But also to drive our gross margin improvement. Speaker 700:45:29Okay. Excellent. I'll leave it there, guys. Appreciate it. Speaker 200:45:32All participants Speaker 300:45:33are ready. Thanks, Matt. Speaker 200:45:36Our next question comes from Luke Yunck with Baird. Please go ahead. Speaker 800:45:43Good morning. Thanks for taking the questions. Just 2 for me this morning. Phil, for starters, I was just hoping you could discuss some of your puts and takes in terms of maintaining the sales guidance. Think you're now expecting mid single digit production growth versus low single digit previously, but we also know there are some risks in the second half in terms of macro and whatnot, just wondering what the offset is that's leaving your guidance unchanged and then just low end versus high end, how you're thinking about that range of all participants sitting here mid year on the top line. Speaker 300:46:15Yes. I mean, we first of all, we do it bottoms up. So we're looking at all the releases from our customers, the vehicle launches, the timing. It's a very precise process that we go through as we're putting it together, of course, in some ways by vehicle, we'll have to look at the S and P forecast that's provided. But frankly, this is a bottom up build and this is the way this is what's leading to The overall plan. Speaker 800:46:50Okay, fair enough. And then for my follow-up, just hoping bigger picture you could expand on what you're seeing in the Chinese market more broadly right now, especially is animated by your bookings. We know there are some competing forces there in England thinking the desire by some Chinese OEMs to keep things in house versus the drive to include more tech and comfort features in the car, which you can obviously help with. Just where do you see that pendulum today and reflected in the conversation that you've had this year with those customers. Thank you. Speaker 300:47:22Sure. Well, obviously, the rate At which EVs are coming out in China is very high. And we I think that's pretty clear on our part by the announcements that we made. And along with that, there's 2 things, 2 dynamics happening with the EVs in the space. Number 1 is, It's very competitive to grab the attention of consumers. Speaker 300:47:47And so The OEMs are desiring to add more features to differentiate their offering. And obviously, thermal comfort, lumbar massage, comfort are things that help OEMs differentiate. The other thing is that clearly we're doing the best we can and I think a really good job all of us are communicating the power consumption savings of our thermal products in the car and believe that's also having Good impact on the win rate. We have a very strong footprint in China, both from a product development side, sales side, all participants are in the line with the customer management side and of course production. So it's a very localized business model. Speaker 300:48:31China moves at an incredible pace And you have to be there responding 24 hours a day basically to be successful. And I'm really proud of our team. We have just an awesome team in China that is competing hard and winning in that market. Operator00:48:58That concludes our Q and A session in today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Have a good day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallGentherm Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Gentherm Earnings HeadlinesGentherm (NASDAQ:THRM) Shares Up 3.5% on Insider Buying ActivityMay 1 at 1:17 AM | americanbankingnews.comGentherm Incorporated (NASDAQ:THRM) Q1 2025 Earnings Call TranscriptApril 29 at 8:59 AM | msn.comBuffett’s favorite chart just hit 209% – here’s what that means for goldA Historic Gold Announcement Is About to Rock Wall Street For months, sharp-eyed analysts have watched the quiet buildup behind the scenes. Now, in just days, the floodgates are set to open. The greatest investor of all time is about to validate what Garrett Goggin has been saying for months: Gold is entering a once-in-a-generation mania. Front-running Buffett has never been more urgent — and four tiny miners could be your ticket to 100X gains.May 1, 2025 | Golden Portfolio (Ad)Gentherm (NASDAQ:THRM) Price Target Raised to $28.00 at Robert W. BairdApril 28 at 2:20 AM | americanbankingnews.comBreaking Down Gentherm: 4 Analysts Share Their ViewsApril 27, 2025 | nasdaq.comGentherm price target raised to $28 from $27 at BairdApril 26, 2025 | markets.businessinsider.comSee More Gentherm Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Gentherm? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Gentherm and other key companies, straight to your email. Email Address About GenthermGentherm (NASDAQ:THRM) designs, develops, manufactures, and sells thermal management and pneumatic comfort technologies in the United States and internationally. The company operates in two segments, Automotive and Medical. The Automotive segment offers climate comfort systems, which include seat heaters, blowers, and thermoelectric devices for variable temperature climate control seats and steering wheel heaters that are designed to provide thermal comfort to automobile passengers; integrated electronic components, such as electronic control units; and other climate comfort systems, including neck and shoulder conditioners and climate control system products for door panels, armrests, cupholders, and storage bins. It also provides battery performance solutions comprising cell connecting devices and battery cable technologies used for various types of automotive batteries; thermal management products for heating and cooling; and automotive electronic and software systems, including electronic control units for climate comfort systems, as well as for memory seat modules and other devices. In addition, it offers lumbar and massage comfort solutions, such as lumbar support, side bolster adjustment, multi-contour seats, and massage systems; automotive cable systems, including ready-made individual cables, and ready-to-install cable networks; and valve systems products consisting of applications that offer solutions in fuel management, and other valves for brake and engine systems. This segment serves light vehicle original equipment manufacturers and tier 1s, such as automotive seat manufacturers, and aftermarket seat distributors and installers. The Medical segment offers patient temperature management systems. The company was formerly known as Amerigon Incorporated and changed its name to Gentherm Incorporated in September 2012. Gentherm Incorporated was incorporated in 1991 and is headquartered in Northville, Michigan.View Gentherm ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Amazon's Earnings Will Make or Break the Stock's Comeback CrowdStrike Stock Nears Record High, Dip Ahead of Earnings?Alphabet Rebounds After Strong Earnings and Buyback AnnouncementMarkets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Texas Instruments: Earnings Beat, Upbeat Guidance Fuel RecoveryMarket Anticipation Builds: Joby Stock Climbs Ahead of Earnings Upcoming Earnings NatWest Group (5/2/2025)Shell (5/2/2025)Exxon Mobil (5/2/2025)Chevron (5/2/2025)Apollo Global Management (5/2/2025)Eaton (5/2/2025)The Cigna Group (5/2/2025)Palantir Technologies (5/5/2025)Vertex Pharmaceuticals (5/5/2025)Realty Income (5/5/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 9 speakers on the call. Operator00:00:00Greetings, and welcome to the Gentherm Second Quarter Earnings Conference Call. At this time, all as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Yijing Brentano, Corporate development and IR. Thank you, ma'am. You may begin. Speaker 100:00:38Thank you, and good morning, everyone, and thanks for joining us today. Gentherm's earnings results were released earlier this morning and a copy 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 may make forward looking statements within the meaning of federal securities laws. Statements reflect our current views with respect to future events and financial performance, all participants may differ materially. Speaker 100:01:18We undertake no obligation to update them except as required by law. Speaker 200:01:23All participants are ready to take questions. Speaker 100:01:24Please 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 risks and uncertainties underlying such forward looking statements. During the call, we may discuss non GAAP financial measures as defined by SEC Regulation G, including certain pro form a measures related to the Elfmeier acquisition. Reconciliations of these non GAAP financial measures to the comparable GAAP financial measures are included in our earnings release or investor presentation. All participants are on the call with me today are Phil Eiler, President and Chief Executive Officer and Matteo Anversa, Chief Financial Officer. During their comments, Phil and Matteo will be referring to a presentation deck That we have made available on our website at janthem.com/events. Speaker 100:02:26After their prepared remarks, we will be pleased to take your questions. Now, I'd like to turn the call over to Phil. Speaker 300:02:36Thank you, Yijing. Good morning, everyone, and thank you for joining us today. I am pleased with the continued strong all participants are ready to take questions. While we have seen some stabilization in automotive production and signs of easing inflation, we continue to strengthen our operational execution and further improved productivity. For the 2nd quarter, we achieved record revenue of $372,000,000 all participants are now in the range of $1,000,000,000 growing 43% year over year. Speaker 300:03:12These outstanding results also included record quarterly organic revenue all the necessary ever quarterly revenue for steering wheel heaters in the company's history. Demand for our thermal comfort, Massage and Lumbar Solutions continues to accelerate. This momentum has carried into 2023. All participants are in the Q2, we achieved a quarterly record of $670,000,000 of new automotive business awards. All participants are in the range of $1,200,000,000 of new awards. Speaker 300:03:53Recall that in 2022, we secured record wins of $1,800,000,000 for the full year. With this extraordinary strength in new business wins, we are preparing to gear up to meet the production demands of our customers along with creating a more optimal cost structure in our manufacturing footprint. And I'm pleased to announce that we are investing in 2 new manufacturing plants, 1 in Morocco and 1 in Monterrey, Mexico. The new factories will be ready for production in 2024. These new plants will not only allow us to meet the capacity requirements our record levels of new business awards, but also support our plan to keep expanding gross margins. Speaker 300:04:38Turning back to our Q2 results, which Matteo will cover in more detail in a few minutes. Our adjusted EBITDA margin rate improved 300 basis points year over year on a pro form a basis. We generated $34,000,000 of cash flow from operations, all of our shareholders are paid $16,000,000 of debt and repurchased $10,000,000 of shares in the quarter. We have officially kicked off our Fit for Growth 2.0 program to execute our previously announced profitability improvement plan to reach high teens adjusted EBITDA margin rate by 2026. Specifically, we have identified several 100 initiatives To reduce product costs through value engineering, sourcing excellence, improve manufacturing productivity through automation And implement lean best practices across our network. Speaker 300:05:33Additionally, the program will drive operating expense efficiency Speaker 200:05:44all participants are now ready to take questions. Speaker 300:05:46Now turning to the automotive highlights on Slide 4. In the Q2, we launched our automotive solutions on 20 different vehicles all participants are in the range of 10 OEMs, including Ford, General Motors, Great Wall, Hyundai and Toyota. We continue to see tremendous momentum for our CCS solutions. In the Q2, our CCS solutions were launched on the Buick LaCrosse, all comes from the line of the company's Q4 EV, Chevrolet Blazer EV, Ford Mustang, Hyundai Mariner, as well as several EV models of Great Wall Vehicles in China, including the Tank 700, Now let me give you a quick update on ClimateSense. We are progressing well in preparing for the flawless launch of the 2 upcoming production programs with General Motors. Speaker 300:06:43And in addition, we continue to work on several development projects with OEMs around the world, including recent work with a few electric vehicle manufacturers. The demonstrations of range extension enabled by ClimateSense have also driven higher thermal content, higher take rates and adoption on electric vehicles, which have resulted in a significant number of awards in the quarter. All participants are in the line with our advanced engineering team continues to integrate thermal with lumbar and massage all participants are ready to take questions. The combination of heating and cooling the body with our proprietary pulsating massage is opening vast opportunities for health and wellness experiences, alertness enhancements and physical recovery in the car. We are perfectly positioned to be a major player in the software defined vehicle of the future by integrating our proprietary software and algorithms. Speaker 300:07:47Our Alkmaier integration continues to deliver more value for our customers. We are now the clear market and technology leader Our strong position as the largest independent provider is a powerful differentiator with our customers. We are actively engaged with OEMs and Tier 1 Seat Manufacturers in North America, Europe and Asia to collaborate on Breakthrough Integrated Comfort Solutions. These solutions provide industry leading comfort performance, reduced space requirements in the seat and the interior, Less weight and a significant improvement in seat assembly efficiency through reduced complexity. As a partner to over 25 seat manufacturers around the world, our scale and capabilities are unparalleled. Speaker 300:08:43As the leading innovator in this market, we can collaborate with our customers to create customized solutions As we work with nearly every car manufacturer and every seat maker and configuration, we believe our partnership model is a unique and sustainable competitive advantage. Now on to Slide 5, where we'll discuss our record awards. While the pipeline of pneumatic opportunities remains very strong, the majority of the new awards secured in the 2nd quarter were for thermal solutions, Where we had a truly breakthrough quarter. We won CCS awards on the Chevrolet Silverado EV, GMC Sierra EV, Ford Explorer EV, Ford F-one hundred and fifty Lightning EV, Kia EV9 and the Subaru Forester. We continue to gain momentum in China. Speaker 300:09:51We won CCS awards for the Chevrolet Equinox EV, several Great Wall Plug in Hybrid Models, Honda CRB and Lee Auto's Electric MPB. Of special note, we won our 2nd climate controlled seat award with the world's largest EV manufacturer by volume BYD for its popular Song EV. Importantly, we won a highly desirable and contested award with BMW. Our CCS solutions all the ix7 and the IX5, IX6 and IX7. In fact, all participants are ready to take questions. Speaker 300:10:42The new BMW X7 and IX7 will also feature Gentherm's active CCF solution. All participants are in the Q2. In the Q2, we also received 11 steering wheel heater awards across 7 OEMs. These included bright drop bands from General Motors, Honda Ridgeline, Nissan Murano and the Renault Megane. In addition, we won hands on detection enabled all the speakers Speaker 200:11:08are in the same Speaker 300:11:11period. If you recall, we had an extremely strong Pneumatic Comfort wins in the Q1, including breakthrough conquest wins with Jaguar Land Rover and General Motors. All participants are in the Q2, we won a Pneumatic Lumbar Award for the Audi A 4. In addition, all participants are ready to take questions. I'd like to congratulate our team in China for winning a combined thermal comfort lumbar and massage full system award And the acquired Altmyer. Speaker 300:11:51The momentum of Pneumatic Lumbar and Massage Awards is accelerating rapidly. And I am pleased to share that we just won in July our 1st lumbar and massage award with Stellantis on the Jeep Compass, Alfa Romeo Stelvio, Alfa Romeo Giulia and Maserati Levante. This conquest award was enabled by Gentherm's strong customer relationships and Alkmaier's industry leading technologies. Let me remind you that we have already won 6 Conquest Pneumatic Lumbar and Massage Awards since the close of the acquisition, we are well ahead of our revenue synergy plans. Now on to Battery Performance Solutions. Speaker 300:12:36All participants are in the Q2, we won an air cooling battery thermal management award for Hyundai across 6 electrified vehicle platforms. All participants will be cooling 80% of Hyundai's mild hybrid and plug in hybrid vehicle batteries. All participants are in the Q2. So in summary, our record awards in the Q2 are strong proof points of our ability to grow market share through conquest wins, as well as growing penetration of thermal and pneumatic comfort solutions. Now let's turn to Slide 6 for a discussion of our Medical business. Speaker 300:13:15As a result of continued financial pressures and muted capital spending at hospitals in the United States and a large one time order by the United Nations in the Q2 of last year, we saw a reduction in medical revenue in the quarter. All participants are in the range of $1,000,000 Given the change in purchasing behaviors in the medical device space post COVID, we are working on bold moves to adapt our medical go to market model strengthening our partnership with SourceMark Medical, a certified minority supplier headquartered in Nashville, Tennessee, all participants are ready to provide world class patient warming solutions to the U. S. Healthcare market. SourceMark has a proven track record of driving growth our operating performance by providing superior service and solutions to hospitals and medical providers. Speaker 300:14:14With this partnership, we expect to we continue to win new accounts and hospitals in China. In the Q2, we added 24 new hospital accounts in China, replacing competition. And in the U. S, we added more units to the existing fleet of Blanketrol III systems at the Boston Children's Hospital all participants are ready to support expanded usage. In addition, we were awarded the Blanketrol 3 and Cool Kit Business at Children's Healthcare of Atlanta, a brand new hospital. Speaker 300:14:55We are confident that these actions will help us accelerate our growth in the patient temperature management solutions. All participants are ready to turn the call over to Matteo for a little more color on the financial results. Speaker 400:15:10Thank you, Phil. Let me turn to Slide 7 and focus on the most significant items in our 2nd quarter results. So for the quarter, product revenues increased by 43% compared to the same period of last year, including the contribution from the acquisitions. If we adjust for the impact of acquisitions and FX, our overall product revenue increased by 18%. Starting with the automotive segment, automotive revenues were $362,000,000 reflecting a 45% increase compared to the prior year period. Speaker 400:15:46Adjusting for the $65,000,000 contribution from Alfmeier and foreign currency translation, automotive revenues increased by 19%, and this compares to an 18% increase in the actual light vehicle production in our key markets of North America, Europe, China, Japan and Korea. We outperformed the light vehicle production volume by over 100 basis points. Excluding the non automotive electronics business, which we are in the process of phasing out in last year's one time benefit from spot buy recoveries, we outperformed production volume by nearly 400 basis points in the quarter, over 600 basis points year to date. We saw significant growth in the majority of our product lines And more specifically, steering wheel heater's revenue increased by 35% compared to the prior year period due to higher demand and production volume on multiple GM platforms and a major global EV OEM, as well as increased content on VW as a result of our hands on detection enabled steering wheel heater. CCS revenue increased by 26% due to higher production volume of GN trucks and SUVs, as well as higher take rate on several models with Honda, Kia, JLR, Honda, BMW and Ford. Speaker 400:17:22Lampe and massage revenue increased 20% on a pro form a basis due to the ramp up of several platforms on BMW, Mercedes and VW, as well as higher production volume with a major global EV OEM. CTITA revenue increased by 19% due to higher production volume of trucks and SUVs at GM, increased take rate with Ford as well as increased content on the key ateluride as a result of the 2nd row adoption. All participants are in the line with Mercedes, General Motors and the start of production of our proprietary thinfoil self connecting board on the BMW 7 Series plug in hybrid. All lines are open. Cable revenues increased 5% due to higher sales with VW, Honda, IKEA and Ford. Speaker 400:18:21All participants are in the range of 2% to 3% to 4% to 4% to 4% And electronics revenue decreased 9% due to the phase out of non automotive electronics. Turning to medical. Medical revenues decreased 7%, primarily as a result Moving to adjusted EBITDA. Adjusted EBITDA in the quarter was $42,400,000 up from $24,800,000 in the prior year period $26,100,000 in the prior year pro form a. The adjusted EBITDA rate in the 2nd quarter was 11.4% and this compares to 8.2% in the year ago period on a comparable pro form a basis. Speaker 400:19:24The 320 basis points year over year improvement productivity at the factories and lower freight costs. These were partially offset by material and wage inflation And the negative impact of foreign exchange, primarily due to the appreciation of the U. S. Dollar compared to the Chinese RMB and the Korean won. It is worth noting that excluding the impact of the Alzheimer acquisition, legacy Gentherm adjusted EBITDA margin rate all participants rose to 13% over the 9.5% recorded in the prior year quarter on a comparable basis, corresponding to a 350 basis point improvement year over year. Speaker 400:20:16Operating expenses were $83,700,000 in the quarter compared to $51,600,000 in the prior year period. If we adjust for the acquisition, integration and restructuring costs as well as non cash stock compensation expenses and the non cash goodwill impairment in both periods, operating expenses were $58,600,000 up our earnings call from $44,100,000 in the Q2 of last year. The year over year increase of approximately $40,000,000 was primarily driven by the additional expenses from the acquired businesses as well as higher compensation expenses operating expense as a percentage of revenue improved 100 basis points year over year. Speaker 200:21:10All participants are now ready Speaker 400:21:11for questions. Now during the Q2, Medical did not perform in line with the forecasted results, As a result, an indicator of impairment was identified and an interim quantitative assessment was performed. All participants are in the range of $1,000,000 and the results of this assessment indicated that the carrying value of the reporting unit exceeded the fair value. All participants are in the press release earlier this morning, we recorded a non cash goodwill impairment charge in our medical business of $19,500,000 or $0.52 per share after tax to align the reporting unit's book value with its fair value. All participants are in the range of $1,000,000,000 Excluding the impact of this non cash goodwill impairment charge, our adjusted effective tax rate in the quarter was approximately 32%, in line with the prior quarter. Speaker 400:22:14And finally, adjusted diluted earnings per share in the quarter our operating profit was $0.58 per share compared to $0.25 per share in the Q2 of last year. Speaker 200:22:27All participants are now ready to take questions. Speaker 400:22:28Now moving to the balance sheet on Slide 8. Our cash position at the end of the quarter was approximately $169,000,000 During the quarter, we reduced our net debt to $49,000,000 from $68,000,000 our Q2 was 0.3 at the end of the second quarter, down from 0.5 at the end of March and well below our target OVA of 1.5 times. Based on the trailing 12 month consolidated adjusted EBITDA ended June 30, we had approximately $283,000,000 of remaining availability on our line of credit and the total available liquidity as of June 30 was $451,000,000 up from $433,000,000 at the end of March. Speaker 200:23:26All participants are ready to take questions. Speaker 400:23:27Now let me turn to Slide 9 for our 2023 guidance. As we did in the last earnings call, for comparison purposes, we included the actual results as reported for 2022 as well as the pro form a 2022 values if we had incorporated the results of Alfmeier since the beginning of the year. We are maintaining our 2023 guidance as discussed in the prior earnings call. For 2023, we are expecting revenue to be in the range our call is now open to our call to our call today. Thank you, sir. Speaker 400:24:02Thank you, sir. Our first question comes from the line of our operating margin growth at a mid single digit rate in 2023 versus 2022. The midpoint of our guidance implies a growth rate we continue to expect adjusted EBITDA margin rate to be in the range of 11.5 to 13.5% for 2023. We still expect our adjusted full year effective tax rate, excluding the impact of the goodwill impairment, to be in the range of 28% to 32% and capital expenditures to be on the lower end of the guided range of $60,000,000 to $70,000,000 So with that, I will turn the call back to Phil. All Speaker 300:24:52Thanks, Matteo. Now let me summarize. I'm proud of the global Gentherm team for continued strong momentum in winning awards, Delivering record revenue and expanding profitability. In the second quarter, we secured a record Speaker 500:25:08our Company's earnings call will Speaker 300:25:08be $670,000,000 in new automotive business awards, bringing us to nearly $1,200,000,000 in the first half. Speaker 400:25:17All participants are in the Speaker 300:25:17range of $1,000,000. Leveraging Alfaemeyer's industry leading technologies and Gentherm's strong customer relationships, we have won 6 all participants are in the same period. We are now in the Q1 of 2019. We are now in the Q1 of 2019. We are We're investing in 2 new manufacturing plants and implementing our Fit for Growth 2.0 initiatives to deliver high teens adjusted EBITDA margin rate by 2026. Speaker 300:25:46The momentum on revenue and awards, combined with the steps we're taking to optimize our footprint and cost structure, will drive Gentherm's flywheel of profitable growth. All participants are ready Speaker 200:26:01to take questions. Operator00:26:03Thank you. We will now be conducting a question and answer Speaker 200:26:37Our first question comes from Ryan Siegel with Craig Hallum Capital Group. Please go ahead. Speaker 500:26:45Good morning, guys. Thanks for taking my questions. Speaker 300:26:49Good morning. Hey, Ryan. Speaker 500:26:53Maybe we'll just start with medical and then we'll move over to auto. But given the challenges there, does it make sense to operate that business Given kind of post COVID changes and given it's becoming increasingly small relative to the auto business with HealthMeyer and all the traction you have there? Speaker 300:27:12Well, we think so. We certainly continue just to link it back to the automotive business. Remember, one of the huge value propositions for us is that through our medical business, we developed Strong skills in the science of thermophysiology, which ties right back to our ClimateSense development. So those synergies back to automotive are getting stronger and stronger. No doubt that at least for the moment, the med device all industry, especially related to hospitals financial struggles is stressed, and that's what we've been dealing with for the last several quarters. Speaker 300:27:54But we really believe we have a plan to grow that business and to make it accretive for the company. And one of the all the adaptions that we're making that we're working on making right now is to kind of pivot, especially in North America market And one of those we announced was the partnership with SourceMark. I've been personally involved with that team at SourceMark and They have very established relationships with the GPOs and the hospitals, and I think that's going to accelerate our growth. We have great product. Our teams in automotive and medical are collaborating very well. Speaker 300:28:41So I still feel pretty good about our roadmap. All participants are ready. Speaker 500:28:47Good. Noam Mova Varnado. A couple of questions there. So congrats on the breakthrough lumbar massage award with Stellantis, curious what model year or when that starts will start to impact the financials and the shipments start there? And then secondly, How much additional opportunity do you think there is to expand beyond those initial models? Speaker 300:29:08Yes, it was a huge win. I believe it's Model 26 That it would launch. But anytime you win a first platform with a new customer, it's your opportunity to prove yourself and to scale across Other platforms within the customer. So certainly, that's the way we are viewing this. And our job now is to go FAQ In a world class way. Speaker 500:29:36And then on all the new CCS EV awards, a lot of the trucks, kind of going into EVs have been higher lower than kind of other core CCS platforms with those OEMs. And then, I'll maybe stop there, then one more. Speaker 300:29:58Yes. I mean, first of all, we are so excited about the win rate of CCS. And I think it shows by some of the announcements that we're making on It's going to make a difference for EV Manufacturers. And as we called out, the many, many The collaborations and partnerships that we've done on ClimateSense have really opened the door for us to show the value of not only ClimateSense, but CCS In terms of power consumption savings and range extension. So we're really excited about that. Speaker 300:30:41We announced the specific CCS Active product on the 7 and IX7. But for the most part, we're still seeing vent ventilated CCS as the primary technology. Speaker 500:30:59All Great. Well, last one for me, just on the industry out production. So even if you adjust for the various FX and Elf Meijer and the one time kind of spot purchases last year, I mean, 400 bps of outperformance, you guys had been trending quite a bit better than that. You had award kind of book to bill a lot higher in the past several years. I guess curious if there's anything else in the quarter to call out because it was a little bit of a detail. Speaker 300:31:28Yes. We kind of look at it as 400 basis points of outperformance year to date, 600. And essentially, most things happened as expected. The one thing that was an anomaly was related to couple of Japanese OEM customers. We have, in fact, 2 that had some pretty significant production downtime For various reasons. Speaker 300:31:55And then there's a couple of vehicles that are ICE sedans that last year we had some Pretty high content. They're changing out those vehicles, so it's a little bit of a timing issue. We expect all that to normalize and we expect to continue our outperformance trends. Speaker 500:32:13Thanks, Phil. Good luck, guys. Thank you. Operator00:32:19Our next question comes from Glenn Chin with Keyport Research Partners. Speaker 200:32:25Please go ahead. Speaker 600:32:29Good morning, folks. Thank you. Hello. Good morning, Michael. Just a couple more follow-up. Speaker 600:32:37Hi, Michael. A couple of follow-up questions on bookings. So you mentioned that you've had 6 Conquest, Pneumatic and Lumber awards since the acquisition. I don't recall the operating in the press release, but it seems to allude that, they are revenue synergistic, meaning that they would participants have been less likely to happen with Altair on its own. Can you confirm that? Speaker 600:33:06Is that is my reading of that word incorrect? Speaker 300:33:10Yes. I think you stated it perfectly. Speaker 500:33:12Okay. Speaker 600:33:14Okay, very good. And I think you said that the majority of the bookings were thermal comfort wins versus pneumatic. Can you give us the split between the 2 this quarter as well as last quarter? Speaker 300:33:32No, we haven't been splitting that, but definitely this quarter was the majority thermal. And we're actually really excited about that because the pipeline of pneumatic awards is really strong. We pointed out that the Stellantis win was in July, so it was outside of the quarter. A lot of opportunities in the back half On the pneumatic side as well. But the confidence I have on our thermal business and the partnership model that we've created is very high. Speaker 300:34:04We are the largest independent supplier in the space. We can work with any OEM, any Tier 1 seat manufacturer And I think that is really picking up momentum. Speaker 600:34:18Yes. Good to hear. And just a clarification on the all the So is that to say that they were not an Alfmeier and Pneumatic customer Prior to this? Speaker 300:34:33That's right. They've never supplied Stellantis in Pneumatics, yes. Speaker 600:34:39Yes. Okay. Very good. And can you just talk to us about your win rate? Has it been I know it's been elevated. Speaker 600:34:49Has it moved up or down significantly? Speaker 300:34:54Continues to be very strong. I think you can look at a lot of the nameplates that we're winning and many of those are head to head competitive wins. So it's a very strong win rate. Speaker 600:35:07Yes, seems to run the gamut. Okay. And then last question. So one of your competitors this morning in their earnings release, in their press release, it it seems like they're attempting to encroach upon climate census turf. They say that they've agreed with Vallejo to explore integration of HVAC and Radian Panel Technologies with Ferris Thermal Comfort Seating Technologies to optimize this is a quote, document comfort and user experience by extending EV range. Speaker 600:35:44Any You can tell us about Valu's capabilities there. I wasn't aware that they had. Speaker 300:35:55Yes, sure. Well, I think it's the best thing for me to do is talk about our strategy and go to market model with ClimateSense. First of all, as you know, we've developed our own our ClimateSense software and algorithm that can control the microclimate of every position in the vehicle. And that is done by integrating our software with any HVAC controller on the market. And we've developed our software that has an easy API, one platform that can be integrated with any HVAC I think it's really important and we've obviously had worked with almost every OEM around the world and it's important to understand the dynamics HVAC as it stands today, OEMs by and large Develop in house their own HVAC controls and their own HVAC algorithms and software. Speaker 300:36:59Our ClimateSense integrates with the OEMs developed software and algorithms. They also architect their own HVAC systems for the most part and basically purchase the individual modules and components, Create that integrated system in the car. So our model has been to work directly with the OEMs. And I believe that's The right model for us. It's paid off so far. Speaker 300:37:25So that's kind of where we're at. We have all of our own proprietary Thermal effectors including radiant panels in house. So I think we're really well positioned. That said, we're As OEMs desire, we're happy to work with anybody. We can partner with anybody and that's been our model, that kind of open Partnership model and we're excited about that moving forward. Speaker 600:37:55Yes. And I know in the past, Troy, you've talked about A lot about the software component of the ClimateSense system. Is it fair to say that is the, I don't know, for lack of a better term, the secret sauce, so to speak? Speaker 300:38:13Definitely, Definitely. I mean, well, we certainly believe we have next generation innovation on all of our devices. But the ClimateSense software is it's the heart of ClimateSense and It can be employed on a full system, where you have all the components in the vehicle plus you're controlling the interface with the HVAC software, but it can also as you'll recall, we've also set up more scalable model where we've integrated The ClimateSense software into smart devices. So essentially the smart CCS or the smart heat, Smart Neck Conditioning, Smart Gradient Panels, those can all on their own Integrate with an HVAC control architecture. So we have really ability to scale ClimateSense In any way that helps an OEM. Speaker 300:39:16I think that's really been appreciated by the OEMs and we expect to see Continued momentum. Speaker 600:39:25Yes. And can you clarify, Phil, is the software In ClimateSense patent protected? Speaker 300:39:34Yes. Speaker 600:39:36Okay, very good. That's it for me. Thanks very much. Speaker 200:39:40All participants. Operator00:39:44Our next question comes from Matt Koranda with ROTH MPM. Please go ahead. Speaker 700:39:53Hey guys, good morning and thanks for getting me into the queue. Just a few have been answered, but I wanted to kind of focus in on the outlook for the year that you guys provided. So There's a, I think, a decent amount of outperformance versus industry production implied in the second half outlook. So just wondering if you could maybe call out, Is there a pickup in take rate or just vehicle mix that you're seeing in the releases that you've got from customers that you can call out To give us a little bit more confidence in the back half numbers. Speaker 300:40:24Sure. New launches is going to be one of the heavy drivers for us. We've got a lot of those queued up for the second half. We expect some recovery. We talked about the Japanese OEMs, those we don't see persisting in the second half. Speaker 300:40:40And those are the primary drivers. We have clear visibility in our with our releases. So That's what created the forecast. Speaker 700:40:50Okay, fair enough. And then on the margins for the back half, I think you've got to be kind of north of 13% to hit the midpoint of your EBITDA margin guide. So maybe Matteo, if you could Bridge us from the first half performance, which I think was in the mid-11s into that kind of mid-thirteen percent range. How do we get there? What are the big elements and levers of improvement? Speaker 700:41:15Maybe, I mean, whether you want to do that via some of the buckets that you called out Gross margin in the release or core Genthermorgins versus Altmyer? I'll let you take your pick on that. Speaker 400:41:28Yes, sure. I'll do it both ways. So you're right, the first half was about 11.5%. We need in order to hit the midpoint, We need the second half to come in at about 13.5%. So you have a 200 basis point lift sequentially. Speaker 400:41:45And there are really 3 drivers. 1 is volume. So that would give us as we are expecting revenue in the second half to be a little higher than the first half will give us a lift of about 100 basis points. The second aspect is Alfmeier. Alfmeier has been running in the first half of the year At the low single digit EBITDA rate, we're expecting to hit mid single digit by the end of the year. Speaker 400:42:14So you're going to have a lift On the Aspire rate, and that's fundamentally driven by further acceleration on the price recoveries, where Aspire has been a little bit behind compared to the legacy Gentherm business. So that's about 40 bps of expansion sequentially. The rest will come through sourcing savings. As you know, most of the sourcing savings, particularly around rebates all will come later in the year as well as a little bit of a further improvement in productivity of the plants in the legacy Gentherm business. Let's start with the walk. Speaker 400:42:55One, I think, important thing to note, particularly as it pertains to the revenue, is that the current outlook that we provided this morning does not assume any impact of a potential UAW strike, which clearly is unknown right now. Speaker 700:43:12All Okay. That's great and very clear on the breakouts there. Thanks, Matteo. And then I guess just the last one, I wanted to address was the plant expansion in Morocco and Mexico, maybe just speak to the capabilities in the facilities, what that provides you, why the footprint expansion and then just in terms of the It sounded like you said you're going to be in the lower end of your CapEx guide. Does your CapEx outlook for this year incorporate costs from those new plants? Speaker 700:43:45And then maybe just if you could address total costs in terms of expansion there? Speaker 400:43:51So let me maybe address the CapEx question first and Phil you can address the rest. So CapEx in the first half is about $14,000,000 which is But even split between maintenance and growth, we are expecting the second half to be in the range of about $35,000,000 $40,000,000 And that includes a little bit of CapEx for continue to building some contingency related to Ukraine And then a $5,000,000 to $10,000,000 CapEx related to the expansion that you just talked about. And then the rest is really primarily split between growth to fund the new programs that we won and a little bit of maintenance. So that's kind of what we are seeing on the CapEx. Speaker 300:44:34Yes, Matt, I'll just talk about the plants. First of all, we've done an extensive search for the appropriate location and we're very excited about expanding our footprint in Morocco and Monterrey for multiple reasons. And What's really driving it, to be honest, is just growth. We've got our record awards within a couple of years. We're going to out Expanding in these locations is going to give us a lot more flexibility to optimize our footprint and how we manage our high labor content Production in the most cost effective way. Speaker 300:45:20So we believe not only it's going to allow us to reach the growth in front of us, But also to drive our gross margin improvement. Speaker 700:45:29Okay. Excellent. I'll leave it there, guys. Appreciate it. Speaker 200:45:32All participants Speaker 300:45:33are ready. Thanks, Matt. Speaker 200:45:36Our next question comes from Luke Yunck with Baird. Please go ahead. Speaker 800:45:43Good morning. Thanks for taking the questions. Just 2 for me this morning. Phil, for starters, I was just hoping you could discuss some of your puts and takes in terms of maintaining the sales guidance. Think you're now expecting mid single digit production growth versus low single digit previously, but we also know there are some risks in the second half in terms of macro and whatnot, just wondering what the offset is that's leaving your guidance unchanged and then just low end versus high end, how you're thinking about that range of all participants sitting here mid year on the top line. Speaker 300:46:15Yes. I mean, we first of all, we do it bottoms up. So we're looking at all the releases from our customers, the vehicle launches, the timing. It's a very precise process that we go through as we're putting it together, of course, in some ways by vehicle, we'll have to look at the S and P forecast that's provided. But frankly, this is a bottom up build and this is the way this is what's leading to The overall plan. Speaker 800:46:50Okay, fair enough. And then for my follow-up, just hoping bigger picture you could expand on what you're seeing in the Chinese market more broadly right now, especially is animated by your bookings. We know there are some competing forces there in England thinking the desire by some Chinese OEMs to keep things in house versus the drive to include more tech and comfort features in the car, which you can obviously help with. Just where do you see that pendulum today and reflected in the conversation that you've had this year with those customers. Thank you. Speaker 300:47:22Sure. Well, obviously, the rate At which EVs are coming out in China is very high. And we I think that's pretty clear on our part by the announcements that we made. And along with that, there's 2 things, 2 dynamics happening with the EVs in the space. Number 1 is, It's very competitive to grab the attention of consumers. Speaker 300:47:47And so The OEMs are desiring to add more features to differentiate their offering. And obviously, thermal comfort, lumbar massage, comfort are things that help OEMs differentiate. The other thing is that clearly we're doing the best we can and I think a really good job all of us are communicating the power consumption savings of our thermal products in the car and believe that's also having Good impact on the win rate. We have a very strong footprint in China, both from a product development side, sales side, all participants are in the line with the customer management side and of course production. So it's a very localized business model. Speaker 300:48:31China moves at an incredible pace And you have to be there responding 24 hours a day basically to be successful. And I'm really proud of our team. We have just an awesome team in China that is competing hard and winning in that market. Operator00:48:58That concludes our Q and A session in today's teleconference. You may disconnect your lines at this time. Thank you for your participation. 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