Q1 2021 Gentherm Inc Earnings Call
[music].
Hello, and welcome to the debt term, Inc. First quarter 2021 earnings conference call.
At this time all participants are in a listen only mode.
Russia and answer session will follow the formal presentation. As a reminder, this conference is being recorded its now my pleasure to turn the call over the <unk> Brentano Investor Relations. Please go ahead.
Thank you and good morning, everyone and thank you for joining us today.
And from the earnings results what are the earlier this morning, and a copy of the release is available and Jonathan Bock.
Additionally, a webcast replay of today's call will be available later today on the Investor Relations section of gender website.
During the call we may make forward looking statements within the meaning of federal Securities law.
The statements reflect our current views with respect of future events and financial performance.
We undertake no obligation to update them and actual results may differ materially.
Please see Jensen the earnings release, and SEC filings, including the latest 10-K and subsequent reports with the discussion 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.
Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings for the core investor presentation.
All of the call with me today are Phil Eyler, President and Chief Executive Officer, and the Taylor and versa Chief Financial Officer.
And their comment.
And the tail will be referring to a presentation deck that we have made available on our website at <unk> dot com slash of events.
After their prepared remarks, we will be pleased to take your questions.
Now I'd like to turn the call over to Phil.
Thank you Jamie good morning, everyone and thank you for joining us today.
I am pleased with the strong execution of the <unk> and we continued our momentum of the top line.
And delivered solid financial results and the first quarter.
This despite significant supply disruption, including semiconductor shortages.
Port congestion and other inflationary factors.
Excluding the impact of foreign currency translation, we delivered 24% organic revenue growth and automotive year over year and the first quarter.
Outperforming light vehicle production and our key markets by 850 basis points.
While light vehicle production declines of 8% sequentially from the fourth quarter of 2020 for the first quarter of 2021, reflecting the challenges and the global supply chain.
Our automotive revenue remained flat for the fourth quarter still a company record levels.
In addition, we continued our momentum on the automotive awards from the fourth quarter.
Securing 400 billion and awards from global Oems with a strong 90% win rate and the first quarter.
All of the cost from.
Our disciplined approach to managing expenses allowed us to further reduce operating expenses from the for quarter of 2020.
In addition, when compared to where we were two years ago operating expenses and the first quarter of 2021 were 12% lower and the same period of 2019.
We continue to deliver adjusted EBITDA margin rate and the high teens and generated strong free cash flow, even considering increased capital expenses as we prepare for new launches and invest and new technologies.
The data we will provide more details about our first quarter financial results and a few minutes.
Now turning to the automotive highlights on slide four.
For the first quarter, we launched our automotive solutions on 10 different vehicles across eight Oems, including great wall, Honda, Hyundai and Nissan the Lantus and Volkswagen.
We continue to see momentum for our Ccs product and launched on the Acura Mdx and.
Jeep Grand Cherokee and.
He has supported the Lantus DS nine and China, and the VW Cross Blue and takeaway.
We continue to make great progress on our climate for them.
Our software driven microclimate platform using an algorithm based on the thermal physiology.
Our development projects are advancing well and phase III with both general Motors and BMW as well as phase II with Honda.
If you recall congresses deliver between 50% to 69% energy savings and cold weather testing based on our development project with GM.
I am pleased to share that we have seen even greater energy savings and cold weather testing with another OEM.
The addition, we continue to work with our strategic partner for our Hopper to enhance our human based thermal comfort measurement model, which measures the performance of localized heating and cooling solutions.
We're in discussions with multiple Oems the transition to the innovative thermal and measurement methodology.
Climate sense of the critical part of our long term strategy.
We are disrupting the current thermal solutions and vehicles by significantly reducing power consumption and increasing range of this.
And all while providing best in class passenger comfort.
Now on to slide five where you can see that we continued our business award momentum from the fourth quarter.
And the first quarter, we secured $400 million and New program awards across 10 different customers.
I'm proud of our global team for continuing to win 90% of the opportunities available to us.
We won multiple Ccs awards, including platform wins with the update Genesis EQ 900.
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Toyota Tacoma and Volkswagen for FOP.
We received 10 steering wheel heater awards across eight Oems, including the <unk>, one and Q3.
For transit City Van Honda CRV Jeep Grand Wagoneer.
<unk>, <unk> and <unk> S and Volkswagen polo for Sop and Tiguan.
I'm also very excited to share that we've won a significant business award with Volkswagen group and the quarter.
In addition to the Tcs and steering wheel heater awards that are already mentioned.
We also won seat heater awards for Volkswagen Tiguan, and the peso scope of Super <unk>.
<unk> for a five six and seven.
I'd like to congratulate our global team for growing our business with the Volkswagen Group.
On the battery performance solutions front, we continued to make progress and expanding our business winning multiple air cooling battery thermal management awards with both Hyundai and Kia.
And of electronics, we continue to expand our standalone of electronic control unit business by winning of power Electronics Award.
With Shanghai General Motors.
As we've discussed previously just sort of is very well positioned to capitalize on the tailwind of EV adoption.
During 2020, we won 32 program awards on different EV platforms, which accounted for over 40% of our total 2020 of award.
And the first quarter of 2021, we continued to secure additional awards with leading EV manufacturers across North America, Europe and Asia.
Consistent with 2020 the results.
40% of our first quarter award for on EV platforms.
Just the current and future technologies will play an important role and extending the range of Evs and the lighting passengers with thermal comfort.
Now, let's turn to slide six for a discussion of our medical business.
The pandemic continues to create challenges for our medical business with COVID-19 restrictions and canceled for the electric procedures.
That said, we saw some linked quarter recovery and Blake of for all equipment demand and the U S and Asia.
If you recall, we received five 10-K clearance from the FDA and added the Asheville pad patient forming system for our product portfolio and the United States and 2020.
Starting to see strong interest from ambulatory surgery centers for <unk>.
And what can we expect to convert the sales and the upcoming quarters.
The introduction of Astro pad patient warming system is a strong proof point, how we're able to leverage technology from our automotive business to provide the advancements and patient temperature management and our medical business.
To summarize I am pleased with the continued strong execution by the <unk>, despite the headwinds and the global supply chain.
We continued to outperform and automotive versus the key markets, we serve and achieved record first quarter revenue and adjusted EBITDA.
In addition, we secured $400 billion of New awards from automakers around the world and we continue to make progress on climate.
While there is still uncertainty of the supply chain and I'm proud of our global team for maintaining the momentum on the top line and delivering strong operating performance, while continuing to expand technology leadership.
With that I'll turn the call over to the sale for a little more color on the financial results.
Thank you Phil and thank you to everyone joining the call today.
So let me turn to slide seven to focus on the items the most significantly impacted our first quarter zone.
And for the quarter total.
Revenues increased by 26% compared to the same period of last year.
And if we adjust for the impacts of all the things our overall product revenue increased by 21%.
Starting with your automotive segment revenue was 279 million corresponding to a 29% increase compared for the prior year period.
Adjusting for foreign currency translation automotive revenue increased by 24%.
And even by higher volume and as a result of new launches and how your take rate and.
As well as the negative impact of COVID-19, and the price.
And comparison according to IHS the anesthesia ninth vehicle production for our key markets of North America, Europe, China, Japan, and Korea increased by approximately 16% over the prior year quarter and.
As Phil mentioned earlier, we outperformed light vehicle production by 850 basis points.
We saw strength and all of the automotive product lines and more specifically.
EPS for revenues increased 58%.
As a result of new launches with Mercedes.
The strength of the share clinic and gross solution launched on the BMW.
And the of turmoil.
Thermal management comment the summer.
And that's on the cheaper and the game.
Excluding the wheel heaters revenue increased by 50% compared for the first quarter of last year.
First of all of the hands on detection enabled heater and B W.
The ramp up of the Audi Q, five and Tesla model y.
Electronics revenue increased almost 46% due to higher revenue from automotive Inc.
Truly the memory seat module program with for as well as RV products.
Ccs revenues increased 32% to 190 million and the second highest quarter and the Companys history due.
Due to higher volumes and take rate and Ikea.
General Motors trucks, and Suvs and <unk>.
The next class and several different models.
<unk> revenue increased by 19%, primarily due to higher volumes with Mercedes and BMW.
And finally cables revenue increased almost 10% due to higher volumes with bush.
The loans.
And if we move to the medical segment, let me remind you that last year's first quarter.
From the extremely strong blanchet from sales to health and temperature management of COVID-19 patients and these are the.
Revenue from the first quarter decreased 25% year over year.
In addition, the man.
And for Black and sort of equipment hemal term products and <unk> was down this year due to the pro profit negative impact of the COVID-19 pandemic on the elective surgeries.
And we expect both of the strength to continue at least for one more quarter.
If we move for the gross margin gross margin rate for the first quarter was 34%.
This compares to 28, 9% the year ago period.
The 150 basis point increase was driven by positive effects, primarily due to the appreciation of the euro compared for the U S farmer.
Labor costs, you could get the factories and fixed cost leverage due to the higher volume.
These were partially offset by the annual customer price reductions wage inflation and the negative impact from the industry wide supply chain disruptions.
These disruptions included the semi conductor and shortages.
The new shortages for from sanctions as.
As well as the customer plant shutdowns.
We estimate the increase resulted in approximately 5 million thus the revenue per tractor.
And approximately $3 million and high.
Cost of goods sold.
Due to higher material costs increased premium freight and overtime.
Moving to operating expenses, which were $46 9 million and the quarter.
Compared to 47 4 million the prior year period.
The current year first quarter of amount included <unk> 8 million of restructuring charges.
And this compares to last year's first quarter, when we incurred $3 8 million of restructuring charges.
And if we adjust for restructuring expenses in both periods.
Operating expenses were $46 1 million.
Up from $43 6 million in the first quarter of <unk>.
The year over year increase of approximately 6%.
And was primarily driven by increased stock based compensation expenses.
And as a result of mark to market adjustments and cash settled stock appreciation rights.
As well as higher R&D expenses, partially offset by higher R&D income and reduced total cost.
Adjusted EBITDA of $52 million increased by 19 million of 15% from the prior year period.
And Additionally, adjusted EBITDA rate of 18% and <unk>.
Moving on the 70 basis points.
Finally, adjusted diluted earnings per share in the quarter was $1 per cent per share.
Compared to 51 cents per share and the first quarter of last year.
And our effective tax rate in the quarter was 18, 7%.
Now moving to the balance sheet on slide eight.
Our cash position at the end of the quarter was $171 million down from 268 million as of December 31st of all anyway.
The decrease of 97 million using our cash position was the result of 130 million of repayments of deepwater.
And I'll show you offset it by the free cash flow generation for the first quarter.
We generated $20 million and free cash flow in the first quarter of 2021.
Up from 26 million in the prior year per unit.
The increase was due to higher cash flow from operating activities.
Partially offset by higher energy costs and expenditures are so.
With the investment.
These costs.
Okay.
Net debt decreased sequentially by 33 million and total debt stood at 62 of them.
So we closed the first quarter net net cash position as cash.
And on hand exceeded the gross debt.
Based on the trailing 12 month consolidated adjusted EBITDA ended March 31.
We had for $119 million of remaining availability on our line of credit.
Up from 289 at the end of the conference.
Total available liquidity as of March 31.
Was $590 million up from eight months of $57 million at the.
And what kind of thing.
I am also pleased to share that given our strong cash flow generation and the last 12 months.
We have now repaid all of the $169 million drawdown of the revolving credit facility that occurred in the first quarter of last year.
Zone of the.
COVID-19 from there.
Okay.
Now, let me turn to slide nine for the.
The 2021 guidance.
So let me start by saying that we continue to see significant uncertainty and industry.
Due to the global supply chain challenges that I just discussed.
And as mentioned earlier.
We believe this negatively impacted our revenues and the first quarter.
<unk> 5 million.
As well as our cost of goods sold by approximately 10 of them.
And in spite of the lingering impact of the supply chain disruptions and I just mentioned.
We are reiterating the guidance, we provided on our last earnings call.
On the performance of the team delivered in the first quarter.
We're still expecting product revenues to be and the range of one unified to $1 13 billion.
Sumit effects remains of the credit level.
And light vehicle production and our relevant market grows and low teens rate and 2021 versus plan.
As we mentioned previously the midpoint of our guidance implies and organic growth rate of 17%.
Additionally, we still expect adjusted EBITDA margin rate to be in the range of 17% to 19%.
And the consequent expenditures to be in the range of 50 to 60 million.
With that I'm going to turn the call back from the operator to begin the Q&A session.
Thank you.
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One moment, please while we pull for questions.
Our first question for me is coming from Matt Koranda from Roth Capital Partners. Your line is now live.
Hey, guys. Thanks for taking the questions.
Just curious if you can provide a little bit more.
And the color on the cadence of revenue growth expectations for the rest of the year here.
Especially of <unk> I know that some.
Some of your customers of sort of.
Talking about losing quite a bit of production given the semiconductor shortage and just wanted to get your take on sort of how we should be thinking about the progression of revenue and margin for the rest of the year. Obviously, we can kind of for the Youre still guiding to some outperformance relative to the light vehicle production for the rest of the year here, but.
Just like a little bit more color on debt.
Good morning, Matt.
Going to take this one so the.
As I mentioned.
The overall.
Fly chain and disruptions.
And we faced and the first quarter impacted us.
And the lost revenue for the first quarter and when you look at.
The gross margin rate.
Under the 20 bps pressure.
Pressure and the first quarter.
So currently we have seen Inc.
A slightly bigger impact and the second quarter I would think.
As we continue to see Oems, particularly in North America.
All of the FCA for GM announced.
The more cash shutdowns.
Semiconductor shortly and so we've seen a little bit and impacting the second quarter.
And we don't give quarterly.
Quarterly guidance so.
And I think the way.
For financing.
See you.
We are confirming the guidance that we gave for the year.
So I think in our thinking.
The guidance that we have today.
Both from the revenue side and on the profitability reflects the.
The best knowledge that we have.
Around the.
And the supply chain these auctions.
The industry spacing I would say the there's still a lot of uncertainty.
And we are.
Thinking debt.
It seems to flow some of them.
Somewhat and again, a little better towards the second half of debt.
The kind of the peso our knowledge right now.
Okay, that's fair and.
And then just.
And any concern that you guys are pulling forward any revenue in this environment, obviously with the.
The Oems prioritizing sort of the higher profitability vehicles hired from level vehicles the <unk>.
The improved your take rates quite a bit I would assume and so any concern as we sort of normalize.
And as the shortages of Bates whenever that maybe.
The mix shift back to sort of of more base level of vehicle may impact you in and outside of the way.
Yes, I would say the huge amount we are watching a couple of customer for the take rate came a little bit higher.
But we are fortunate that the vehicles, where we have the highest penetration has been the vehicles that have been the focus of maintaining production.
Many of those are running as expected take rates.
So and we'll expect to see a change there, but built into our guidance is a little bit of softness on the few customers that we think are running a little bit hot.
Okay great.
And then maybe just wondered if you could talk a little bit bill about the current bookings environment. It looks like we're back to a pretty solid level with the.
$400 million.
And just the and you highlighted some nice wins on some pretty high volume.
Platforms and so just curious if you could talk a little bit about what youre seeing and the.
And sort of the bookings environment has that changed at all just given.
Assume Oems are somewhat all hands on some of the production issues.
And it doesn't seem like it's the case, but I just wanted to see if you could kind of provide a little bit more color on the current bookings environment that youre seeing.
Obviously, we're pleased with the quarter both on the overall board and the win rate and.
The.
The the.
The profile, we see over the course of the year. So far looks strong so were pretty excited about for about the year, where we're expecting to get back up to close to the run rate we had and.
The 1918 that kind of level of 17, so and that ballpark could be higher could be lowered and the timing but.
But it's pretty busy out there right now.
Okay, and then last one just on the inventory and gross margin front.
It looks like you guys of managed through that really well, obviously theres going to be and impact no matter what the year just in the environment that we're in but could you guys call out of just any particular raw materials.
Or any sort of components that you purchased that are in short supply or that are seeing outsize.
Inflationary pressure I'm, just curious how you're managing through that it looks like higher level.
And very well, but anything to call out that we should be sort of noting and as we think about gross margins for the remainder of the year.
Sure. So let me maybe address the.
The inventory question first and then and we'll talk about the patient.
And as you look at our balance sheet actually we increased our inventory by about almost $10 million since the deal.
And the end of the year and the.
The philosophy for US has been we have a very strong cash generating company the balance sheet is extremely strong.
Before we using debt to our advantage and also to make sure that and we have enough inventory to cash.
Customer demand. So if you breakdown. The this increase of inventory really half is driven by the.
To make sure that and we can.
Mitigate some of the pressures due to the port congestion.
And the west coast and others.
And have used to make sure that we have enough and a total mix and semiconductors and we can fulfill customer. So that's the rationale and the inventory and the strategy net.
And so really net.
Average net price of the balance sheet to our advantage and the customer.
On the inflationary side.
Interest.
The raw material and will be consumed Matthews.
As color, we don't buy copper per se.
Bye.
Semi finished products.
And so while we are keeping the lawyer magna and volume at all and copper.
So we are obviously facing the.
Completion of our pressure the comprehensive.
40% is pass through and then the rest is.
We have of working selectively and with some customers on the on price increases and tight.
And mitigate this pressure, but to your point I think.
The thing that the team has done.
For the job and continuing to deliver strong gross margin rate performance despite supply.
Supply chain the assumptions.
All of them.
Okay very helpful. Thank you Matteo and thanks, Phil and I will jump back in queue here.
Thank you Max.
Thanks for your next question today is coming from Ryan <unk> from Craig Hallum Capital Group. Your line is now live.
Great. Good morning, guys and thanks for taking the quiet right alright.
Alright.
Curious on and see the 10 nameplate launches in Q1, and I was quite a bit lower than the 20 to 40 ish per quarter cadence looking back over the last couple of years, just curious why the deceleration there.
I was just launched side of it.
That's the easy announced the pilot for vehicle launches.
Good.
And then when do you think.
And as we talk about the chip supply supply chains et cetera, there are fairly wide expectations out there from companies. So I'm. Just curious what are you guys thinking and do you expect those challenges to persist into 2022.
Yes, and we've taken we.
We have to.
Two data points one is of course our.
Semiconductors that we purchased from select suppliers. So we certainly are the deepest we can get with those suppliers and and using that intelligence to forecast the best we can.
But probably even bigger would be the impact of our customers and.
Looking at the releases that we're getting from customers and the feedback we're getting from customers on top of that.
The public information of that Theyre sharing.
With everyone. We're looking at all of those elements and.
Kind of putting our best estimates out there.
So we feel like we've done the best we can with the information at hand.
Since the change relatively quickly.
<unk> listened to all of those.
The data points those points of some kind of relief coming and the.
Sometime in the second half of the year, but.
But we also believe that in general of the problem will persist.
Some level probably into next year.
So it's going to be a challenge and as the tail of pointed out.
There is continued uncertainty and we'll have to watch it real closely and we built into the best knowledge, we have into our forecast.
And then you don't.
Two on <unk>, I guess I don't know if you've ever quantified it or if you can but any idea of what type of market share you have on evs from your cell connecting the battery performance solutions and then secondly on climate sense any update to you on the third development project with G M and BMW and it's the same update.
I believe you had last quarter. So I guess curious if there is the timeline for that phase of development and then any update specifically on those two Oems kind of over the last few months within the development program.
Sure.
I'll start and CPB the cell connecting board.
Pretty low market share right now and Thats because most of <unk> had already been lost before we developed are.
And what we consider very innovative competitive products.
So that's that's ground will have to make up with new and.
New awards going forward.
The feedback is great. We are of a ton of activity on that.
And we think we will gradually start replacing what right now is and the market primarily buyer base debt and <unk>.
The.
And then oil chemical etch product.
But we believe we have a nice advantage there and we continue to advance that so.
Pretty excited about the potential growth of cell connecting assets, that's a big growth engine for for us and the future we think.
On the client of sense side.
Bill I would say those some of those phases that we announced and the last quarter. We're relatively early and so we're just kind of the middle of those and continue to make good progress of the one data point that I share does that.
With one of the Oems.
They did the cold weather testing and it actually showed the power consumption performance that would be even better than we have seen and other testing. So a lot of good validation of the at least the power consumption side of of the product and.
And everything continues to move forward. So we're working hard on it we've got a ton of of resources.
And.
We know that we eventually have to get to the point of an award and we expect that.
Yes.
And the not too distant future.
Great. Thanks, Bill Good luck guys. That's it for me.
Thank you for pleasure. Thank you.
Thank you we reached the end of our question and answer session I would like to turn the floor back over to Phil for any further of closing comments.
Sure. Thanks, everyone for joining the call today as we've consistently shared and the path. We remain very focused on operational execution innovation and cash flow generation.
And I'm really proud of our team's agility flexibility and dedication to deliver all of our commitments to all of our stakeholders.
While we certainly expect continued industry headwinds and the remainder of 2021.
Our momentum of New awards, along with the demand for our new technologies. Our continued focus on productivity position of wells to deliver significant long term shareholder value.
We appreciate your interest and support and look forward to keeping you apprised of our progress going forward.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.
Okay.