Gentherm Inc Q3 FY2024 earnings call

• Three 2024 priorities: leading with automotive new business awards (YTD $1.8B secured, Q3 record $600M awards), Fit for Growth driving margin expansion, and proprietary innovations like ClimateSense launch. - Automotive highlights: launched solutions on 30 vehicles across 11 OEMs, including ClimateSense on Cadillac Escalade IQ; CCS solutions launched on multiple vehicles; steering wheel heaters launched on 20 vehicles with 14 using hands-on detection; lumbar and massage revenue at record levels. - Medical: double-digit revenue growth, improved profitability due to new go-to-market strategy.

Automotive Climate and Comfort Solutions revenues increased by 3.3% compared to the same period last year, adjusting for foreign currency translation and one-time benefits. Excluding Asia, the outperformance would have been approximately 14 percentage points. Revenues from lumbar and massage comfort solutions increased by 46% ex-FX due to ramp-up of Volkswagen MQV platform, etc. Steering wheel heaters revenue increased 11% ex-FX. Medical revenues increased 10% ex-FX. Adjusted EBITDA was $48.1 million in the quarter, with an adjusted EBITDA margin rate of 12.9% compared to 13% in the third quarter of last year. Margins were expanded through Fit for Growth initiatives but offset by start-up costs from new plants in Mexico and Morocco.

Updated 2024 full-year revenue guidance to $1.45 billion to $1.47 billion, expecting light vehicle production in relevant markets to decline at a low to mid-single-digit rate for the full year. Adjusted EBITDA margin is expected to be near the midpoint of the original range of 12.5% to 13.5%. Full year effective tax rate and capital expenditures guidance remain unchanged.

• Challenges in forecasting light vehicle production. - Supply chain inventory adjustments, especially by Tier 1 customers. - Start-up costs from new plants in Mexico and Morocco causing near-term headwinds.

Q: Good morning. Maybe just starting off on the bookings line. So last year, I think in the fourth quarter, you had pretty significant bookings. So just remind us any large programs that we're comping against from last year? And then, any significant opportunities that could send awards sequentially higher in the fourth quarter? I'm just curious, mostly about Comfort Scale. Are there opportunities in the pipeline that could shake loose in the fourth quarter? Maybe just a little bit more color on sort of the bookings environment here?

A: Thanks, Matt. Yes, obviously, if you look at the third quarter, we're extremely proud of the $600 million in awards, which was a record for the third quarter. That takes us to $1.8 billion for the year. So I think we're well on track to exceed $2 billion. We have several interesting possibilities in the fourth quarter. I think $900 million, which we achieved last year in the fourth quarter was very high. So, probably difficult to achieve that given what we see in the pipeline, but we expect a solid fourth quarter, and I think we'll end up with pretty nice results. And if you look at the -- just the mix of awards over the year, it's been really well-distributed with our thermal products and a very strong year with pneumatics and of course, our first ComfortScale award with General Motors. We're excited about a few Pulse A opportunities that are in front of us that hopefully, we can get nailed down in the not-too-distant future as well when those are relatively high content. So, we're really excited about the progress, and we have a nice portfolio of opportunities heading into 2025 as well.

Q: Good morning. Thanks for taking my questions. Phil, hoping we could start with just near-term production impacts, launch impacts, specifically in CCS and seat heat in near-term. I guess I was a little surprised to see CCS underperform versus production a bit this quarter, in particular. Is that some of the destocking at Tier 1 showing through in CCS that you mentioned in your comments? And if so, just how long do you think that might take to work through? Thank you.

A: Yeah. Most of it is the impact of Asia, Luke. The two elements being the -- especially the global OEM declines in China and then kind of uniquely, we saw Hyundai pullback on vehicle production for the Korean market, and that -- those have pretty high content for us. Actually, if you exclude the Asia headwinds, we would have been about flat on the combined CCS and seat heat business. We did have other headwinds in there, especially those things that are I would call it, the sharper declines in the tail end of the quarter in September, especially with Stellantis. The Jeep and Ram are high content vehicles for us. And I think it's well publicized what's happening with Stellantis on their inventory corrections. Also Europe, some of the Mercedes vehicles that have high content, we've seen some declines there. And again, these have been relatively steep in September and October. But we did see strong growth in terms of CCS and heat with a large global EV manufacturer, really strong performance there with Li Auto, also with BW as we rollout CCS across new vehicles. So those are kind of the puts and the takes on that front. And then, we continue to see the -- I guess that answers your question on the CCS and heat.

Q: Good morning. Thanks for taking my question. Maybe first around ComfortScale, I think it's interesting that your first award there is with General Motors, they're also the first to partner with you on ClimateSense. How should we think about the relative content per vehicle opportunity associated with ComfortScale in relation to ClimateSense? It sounds like ComfortScale might be more value oriented. Also, it looks like maybe it's like more plug-and-play with regard to integration into the vehicle design perhaps. How do you see the relevant market opportunity, content per vehicle prevalence and ability to ramp for a product like ComfortScale in relation to ClimateSense?

A: Well, let me start. Just to give you a sense of what ComfortScale is for us. It is a truly integrated solution that includes basically all of our thermal products and pneumatic products. And essentially, we take many different end item part numbers and consolidate those to one or two. And those are what we would end up shipping to the seat manufacturer that's selected by an OEM. And we've designed it in a really scalable way so that it can be integrated with virtually any type of application. That's with only minor modifications. So we're very excited about that. That brings more content into our solution. So we're adding components and obviously adding value from our side. But on net, it reduces more cost for the car company because they're moving this assembly into our hands. So we're really excited about that. With General Motors, obviously, we did a fairly good job of partnering with them and convincing them that we're rolling out on their highest revenue platform across their company. So obviously, there's a lot of trust there. We're excited about that and excited about working with them. And we see this as a big opportunity to take the same platform to different customers around the world.

Q: Good morning, guys. I want to stick on the topic of kind of the European OEMs versus Chinese. We're seeing kind of a cannibalizing where Chinese OEMs are having good traction in Europe. There's tariff conversations back and forth, et cetera. But I guess, how do you think about balancing the two between your, kind of, core European OEMs and then the success you're seeing with the Chinese domestics?

A: Well, obviously, we're very proud of our partnerships with the European OEMs. Let me start there with BMW, with Volkswagen, with Mercedes, Audi, and we're doing very well. I mean, if you look at Europe, we outperformed the market pretty significantly in Europe on our core climate and comfort products. And a lot of that is with new CCS rollouts, obviously, fast-growing pneumatics products with BW. We've got lots of wins with pneumatics with BMW that will be -- continue to ramp up over the coming quarters and years. So, we're pretty excited about Europe. Obviously, there's a lot of struggles in Europe with vehicle production, but we continue to see outperformance there. When it comes to the Chinese OEMs, I think we have a pretty disciplined strategy of working with select domestic manufacturers in China. And if some of those also export to -- export or produce in Europe, we'll be able to capitalize on that.