Q4 2022 Gentherm Inc Earnings Call

Speaker 1: That.

Speaker 2: Greetings, and welcome to the GenTherm fourth quarter and year-end 2022 earnings conference call and strategy update. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

Speaker 2: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Yijing Brentana, Senior Vice President of Strategy, Corporate Development, and Investor Relations. Thank you. Thank you.

Speaker 3: Thank you and good morning everyone and thanks for joining us today.

Speaker 3: JENSM earnings results were released earlier this morning. A copy of the release is available at jensm.com.

Speaker 3: In addition to discussing fourth quarter and full year 2022 results, Phil Eiler, our President and CEO , and Matteo Inversa, our CFO , will also share Gen Therm's strategic plan for 2023 and beyond.

Speaker 3: You will be able to see the slides on your webcast screen when we advance through them here in the room.

Speaker 3: A copy of the complete slide deck will be posted under the Events tab in the Investor Relations section of Jensim.com immediately following the completion of Phil and Matteo's prepared comments. Project

Speaker 3: In addition, an audio replay of this event will be available for 90 days.

Speaker 3: Additionally, a webcast replay of todayís call will be available later today on the Investor Relations section of Jenthemís website.

Speaker 3: During this call, we may make forward-looking statements within the meaning of federal security laws.

Speaker 3: Statements reflect our current views with respect to future events and financial performance.

Speaker 3: And actual results may differ materially due to a variety of important factors and risks.

Speaker 3: All statements that address future operating, financial, or business performance, or gentsam strategies or expectations are forward-looking statements.

Speaker 3: In making these statements, we rely on assumptions and analysis based on our experience and perception of historical trends.

Speaker 3: current conditions and expected future developments, as well as other factors we consider corporate under the circumstances.

Speaker 3: We undertake no obligation to update them except as required by law.

Speaker 3: Please see Jensim's earnings release and its SEC filings, including the latest 10K and subsequent reports, for discussions of our risk factors and other risks and uncertainties underlying such forward-looking statements.

Speaker 3: During the call, we may discuss none GAAP financial Measures of Defined by SEC Regulation G.

Speaker 3: Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release or investor presentations.

Speaker 3: After Phil and Mateo's prepare remarks, we will have it Q&A session.

Speaker 3: Now, I'd like to turn the call over to Phil.

Speaker 2: Thank you, Eugene. Good morning, everyone, and thank you for joining us today.

Speaker 2: First, let me outline the agenda for our enhanced earnings call this morning.

Speaker 2: We will begin with a brief review of Q4 and full year 2022 results and 2023 guidance.

Speaker 2: We'll then review our mid-term strategic plan in detail and provide 2026 financial goals.

Speaker 2: We would encourage you to follow along on the webcast as we will kick off the strategy update with a short video.

Speaker 4: And finally, we'll conclude with a Q&A session.

Speaker 4: Now turning the slide 4 for some 2022 highlights.

Speaker 4: I am extremely proud of what the Gen 3 team achieved in 2022.

Speaker 4: despite a continuously challenging operating environment.

Speaker 4: During the year, we closed the acquisitions of Alphmeyer and Doctin Medical, which expanded GenThorm's value proposition in both automotive and medical.

Speaker 4: We also achieved record revenue in the fourth quarter and for the full year 2022.

Speaker 4: Of special note, we achieved record annual revenue for climate control seats, steering wheel heat, and battery performance solutions in 2022.

Speaker 4: With the addition of Alfmeyer and Dachshund, revenue grew 38% year-over-year in the fourth quarter, or 43%, excluding the impact of foreign currency translation.

Speaker 4: Adjusting for both foreign currency translation and the out-mire acquisition, automotive revenues increased 23% year-over-year in the fourth quarter, outperforming actual light vehicle production in our key markets by nearly 20% percentage points.

Speaker 4: For full year 2022, revenue rose 15% year-over-year or 23% adjusting.

Speaker 4: for the impact of foreign currency translation.

Speaker 4: Adjusting for both foreign currency translation and the out-mire acquisition, automotive revenues increased 11 percent year-over-year in 2022.

Speaker 4: outperforming actual light vehicle production in our key markets by over 600 basis points.

Speaker 4: In addition, we secure new automotive business awards of $1.8 billion in 2022.

Speaker 4: setting another record in company history.

Speaker 4: Our milestone achievements on revenue and awards are strong proof points of increasing demand for our thermal and pneumatic massage and lumbar comfort solutions.

Speaker 4: especially in the EV market.

Speaker 4: In addition, we continue to innovate with differentiated proprietary solutions such as climate and our DIN boil self connecting systems.

Speaker 4: These innovations are expected to significantly increase just-thirms content per vehicle as the electric vehicles expand to the market.

Speaker 4: On the cost front, we continued our discipline approach to managing operating expenses.

Speaker 4: After adjusting for restructuring, acquisition, and divestiture expenses, operating expense as a percent of revenue improved nearly 100 basis points from 2021 and over 500 basis points from five years ago.

Speaker 4: Before I turn the call over to Mateo to briefly review the Q4 and full-year results, as well as our guidance for 2023, let me touch upon a few key operational highlights in the Q4 on slide five.

Speaker 4: In the fourth quarter, we launched our automotive solutions on 20 different vehicles across 11 OEMs.

Speaker 4: including CCS watches on the Chevrolet tracks.

Speaker 4: Several great wall models, the Honda Pilot in the US.

Speaker 4: the Kia Optima, KX5 and Sportage.

Speaker 4: Since the announcement of the Alphamir acquisition, our customers have resoundingly expressed support and excitement to see each and third further expand its value proposition beyond thermal to include pneumatic solutions in comfort, health, wellness and energy efficiency.

Speaker 4: Since the close of the acquisition, our teams have presented a number of technology days at multiple OEMs showcasing our latest innovations in both thermal and pneumatic comfort.

Speaker 4: It's clear that customer interest in our extensive product portfolio continues to grow.

Speaker 4: In the fourth quarter, we secured $560 million of automotive new business awards.

Speaker 4: Bringing us to $1.8 billion of wins in 2022, including three-fold quarters of Althmeyer.

Speaker 4: Setting another company record.

Speaker 4: A highlight in the quarter was two important wins with our long-time customer still-antus.

Speaker 4: We were awarded an intelligent, closed-cabinet conditioner and a conquest thermal electronics and software module, our first with this OEM, which we believe will open the door for many future opportunities.

Speaker 4: We won multiple CCS awards, including on the Ford Mustang Mach Ead.

Speaker 4: View Accon Clay, Land Rover Defender, and Lee Auto's ESUV.

Speaker 4: In the fourth quarter, we also received 12 Steering Wheel Heater Awards across 7 OEMs.

Speaker 4: In addition, we want a significant multi-carline award for our pneumatic Lombar and massage our solution with Volkswagen.

Speaker 4: This is another strong proof point of our ability to grow market share by winning business from competitors, as well as grow penetration of pneumatic comfort solutions into vehicles that do not offer the future currently.

Speaker 4: On the medical front, hospitals continue to face financial pressures and are carefully managing their capital spending.

Speaker 4: Medical revenue grew 4% XFX year over year in the fourth quarter, primarily driven by our acquisition of DOTCHAN Medical.

Speaker 4: In the fourth quarter, the University of Colorado and Denver purchased 10 blank-a-trol units to expand usage throughout their facility.

Speaker 4: In addition, Meyer Hart Hospital in Lansing, Michigan, a part of Spectrum Health, has adopted our patient temperature management product based on resistive technology.

Speaker 4: Astopad and their cardiac operating rooms replacing competitive air blankets.

Speaker 4: And with that, I'll turn the call over to the tail for a little more color on the financial results and to provide 2023 guidance.

Speaker 5: Okay, thank you Phil. Let me turn to slide six and focus on the items that most significantly impacted our fourth quarter results.

Speaker 5: For the quarter, product revenues increased by 38% compared to the same period of last year, including the contribution from the acquisitions.

Speaker 5: If we adjust for the impact of acquisitions and effects, our overall product revenue increased by 21%.

Speaker 5: Starting with your automotive segment, automotive revenues were $332 million, reflecting a 40% increase compared to the prior year period.

Speaker 5: Adjusting for the 58 million contribution from Alf Meyer and Foreign Currency Translation.

Speaker 5: or the model revenue increase by 23%.

Speaker 5: And this compares to a 2% increase in the actual light vehicle production in our key markets of North America, Europe , China, Japan and Korea.

Speaker 5: As Phil mentioned, we outperformed light vehicle production volume by nearly 20% of points.

Speaker 5: We have provided the detail on revenue growth by product category in our earnings press release and associated materials that are available on our Investor Relations website.

Speaker 5: Turn into the fast finger

Speaker 5: Adjusted to be done in the quarter was 38 million up from 31 million in the prior year period.

Speaker 5: The adjusted EBDA rate 44th quarter was 11.1%.

Speaker 5: This compares to 12.5% in the illegal period.

Speaker 5: The 140 basis points decrease.

Speaker 5: was driven by higher material and wage inflation.

Speaker 5: Negative impact of foreign currency exchange primarily due to the appreciation of the US dollar by give bonus card price.

Speaker 5: as well as the impact of off-mire which has a lower profitability rate than the legacy business.

Speaker 5: These were partially offset by fixed cost leverage on high OCO's volume.

Speaker 5: as well as cost recoveries and negotiated price increases for customers.

Speaker 5: It is worth noting that the deluded impact to the adjusted EBDA margin rate of al-Mayer in the quarter was approximately 170 basis points.

Speaker 5: Legacy-Genter adjusted EBDA margin rose to 12.8% in the quarter compared to the prior year.

Speaker 5: Operating expenses were 66.2 million in the quarter compared to 45.5 million in the prior year period.

Speaker 5: If we adjust for impairment, acquisition and restructuring costs in both periods.

Speaker 5: Operating expenses were 55.6 million up from...

Speaker 5: 45.1 million in the fourth quarter of last year. The year of year increase of approximately 10 million was primarily driven by the additional expenses from the acquired businesses.

Speaker 5: As a percent of revenue, the rate improved to 100 basis points compared to the fourth quarter of 2021. Finally, adjusted deluded earnings per share in the quarter was 47 cents per share compared to 61 cents per share in the fourth quarter of last year.

Speaker 5: I will adjust the earnings per share for total year 2022 was a dollar and 82 cents per share compared to three dollars and one cents per share in 2021.

Speaker 5: Our effective tax rate in the year was approximately 36% above our guided range of 31%.

Speaker 5: primarily due to the impact of the impairments related to the exit of the non-automoral electronic business.

Speaker 5: Now moving to the banner sheet on slide 7.

Speaker 5: Our cash position at the end of the quarter was approximately 154 million up from 139 million at the end of September .

Speaker 5: We close the quarter in a net depth position of 81 million compared to net depth of 96 million at the end of the third quarter.

Speaker 5: The reduction in net debt was primarily driven by approximately 20 million of cash received from the sellers of Alfmeyer in connection with the finalization and settlement of actual working capital adjustments.

Speaker 5: As a result, our net leverage decreased from 0.99 in the prior quarter to 0.63 will be below our target of 1.5.

Speaker 5: Based on the training 12 month, consolidated adjusted EBDA and the December 31st.

Speaker 5: We had approximately 265 NERGIN of remaining availability on our line of credit.

Speaker 5: And the total available liquidity, as on December 31, 2022, was 419 million up from 404 million at the end of September .

Speaker 5: Now let me turn to slide 8 for our 2023 guidance.

Speaker 5: For comparison purposes.

Speaker 5: We included the actual results as reported for 2022, as well as the performance 2022 values if we had incorporated the results for us, Meyer, since the beginning of the year.

Speaker 5: Additionally, starting with our

Speaker 5: 2020-23 reporting, we will exclude the impact of non-cash stock-based compensation from our adjusted EBITDA results.

Speaker 5: We are presenting comparable data for 2022 for your reference.

Speaker 5: So for 2023

Speaker 5: We are expecting revenue to be in the range of 1.45 to 1.55 billion.

Speaker 5: Assuming a Euro to US Dollar Exchange Rate of 1.05

Speaker 5: and light vehicle production in our relevant markets to grow at a low single digital rate in 2023 versus 2022.

Speaker 5: Adjusting for approximately 150 basis points of effects pressure year-to-year

Speaker 5: The midpoint of our guidance implies an organic growth rate of 13%.

Speaker 5: Our guidance also assumes higher revenue in the second half compared to the first staff.

Speaker 5: As a result of new program launches.

Speaker 5: Adjust the EBDA margin rate is expected to improve to 11.5 to 13.5%.

Speaker 5: We do expect our profitability in the first quarter to be below our full year adjusted to be down margin guidance range.

Speaker 5: Due to the revenue cadence, I discussed earlier and the impact of contractual price downs, which will be offset in the second half of the year by gradually increasing price recoveries, supplier cost improvements and productivity actions.

Speaker 5: We expect the adjusted bidamargin rate to steadily improve throughout the year.

Speaker 5: At the midpoint of our guidance, we expect our adjusted EBDA dollars to increase nearly three times the revenue growth rate versus pro forma 2022.

Speaker 5: A strong proof point of our value creation for shareholders.

Speaker 5: We expect our full year tax effective tax rate to be in the range of 28 to 32%.

Speaker 5: and capital expenditures to be in the range of 60 to 70 million.

Speaker 5: This is higher than prior years due to the full year impact of VASMIRE and increasing investment for the ramp up of new capacity as a result of higher win rate of new awards.

Speaker 5: With that, I'll turn the call back to field to start our midterm strategy update.

Speaker 4: Thanks, Mateo. Before we get started with the detailed review of our midterm strategic plan, we will show you a short video about Jim Thurm.

Speaker 4: We encourage you to join via the webcast. You'll be able to see the video and slides on a webcast screen when we advance through them here in the room.

Speaker 4: For those of you remaining only on the phone line, you'll hear just a few minutes of silence while the video is playing for the next couple minutes.

Speaker 4: We will now start a detailed review of our midterm strategic plan and 2026 financial goals and we'll conclude with the Q&A session.

Speaker 4: In 2018, we established our clear mission.

Speaker 4: creating and delivering extraordinary solutions that make meaningful differences in everyday life by improving health, wellness, comfort, and energy efficiency.

Speaker 4: And we remain laser focused. This has been our true North every day.

Speaker 4: We are truly a purposed driven company and we believe that our purpose differentiates us from the competition.

Speaker 4: Health, wellness, comfort, and energy efficiency drives everything we do from law-term strategy to daily execution.

Speaker 4: This mission drives our entrepreneurial innovation around the world.

Speaker 4: You will certainly remember us and our mission on those winter mornings when you experience our thermal solutions in your car or if you or a loved one are treated by our patient temperature management products in a hospital and realize an improved outcome and faster recovery.

Speaker 4: You're going to hear more today about the reason why Genthurm is a compelling investment.

Speaker 4: And during the presentation, we'll walk you through more details on the point shown here.

Speaker 4: We are a pure play leader in thermal and pneumatic technologies.

Speaker 4: We continue to sharpen up portfolio to capitalize on our core competencies.

Speaker 4: Significant tailwinds for growth remain through a massively under penetrated market as consumers demand more of the features we offer.

Speaker 4: Our best-in-class innovative technologies not only improve consumer experience, but importantly, play a significant role in improving power consumption in electric vehicles.

Speaker 4: Particularly with respect to extending driving range.

Speaker 4: Our talented product development team has achieved some amazing results in creating new products and technologies that we believe will be in high demand on vehicles of the future.

Speaker 4: Our global reach is remarkable for the size of our company.

Speaker 4: We can support every customer who seeks our innovative solutions around the world.

Speaker 4: Our execution is proven. For five solid years, we have delivered consistently on our milestones, while constantly pivoting to address unprecedented volatility.

Speaker 4: And on the cost side, we are proud of our ability to drive results in turbulent times.

Speaker 4: We have transformed the talent and culture at Gen 3 through development and refreshment.

Speaker 4: Talent is a competitive strength.

Speaker 4: Finally, our Board and Executive Team have partnered to continue our path forward.

Speaker 4: Delivery results with strong governance.

Speaker 4: We have all certainly been tested in the storm and we are proven.

Speaker 4: This combination of attributes makes us poised for high return growth outpacing the market.

Speaker 4: Our diverse board is highly engaged.

Speaker 4: Bringing talent from multiple relevant domains to guide our strategy and provide sound oversight.

Speaker 4: There's a very prudent blend of highly experienced Jent Thurmbor members who helped us navigate the transformation of the company and the unprecedented challenges.

Speaker 4: In addition, several key positions were refreshed to assure strong governance and fresh oversight.

Speaker 4: Our Executive Leadership team is highly talented.

Speaker 4: with broad management experience from companies such as BMW, Pepsi, Infinion, General Electric, General Motors, Visityon.

Speaker 4: SPREPT Mobile and Harmon Zanzong.

Speaker 4: This diverse team has together led a strong transformation of gender and built a company with remarkable, resilient culture as we move to the next chapter.

Speaker 4: While our broad penetration of global customers is a strong competitive advantage,

Speaker 4: We maintain that edge by assuring that we can support our customers with localized technical support, sales, engineering, and local manufacturing and distribution.

Speaker 4: A remarkable global footprint with 14,000 employees in over 30 locations.

Speaker 4: was especially powerful during the extreme supply chain challenges for the past few years.

Speaker 4: Our teams quickly pivoted to support customers in real time, tapped into a multi-regional network, and adapted our local supply as needed regardless of the continent.

Speaker 4: Over the past five years, our global ecosystem has led to an improved and balanced regional mix of revenues.

Speaker 4: For example, a revenue has grown to $1.3 billion.

Speaker 4: And Asia, including China, Japan, and Korea, has grown from just over 20% in 2018 to nearly 28% of our company's revenue.

Speaker 4: We are extremely well positioned with our broad global reach to take our growth to much higher levels.

Speaker 4: With our industry leading technology and market share, we serve over 50 different OEM customers worldwide.

Speaker 4: Our list of customers continues to expand as manufacturers add thermal and pneumatic applications to improve comfort and battery efficiency.

Speaker 4: I'm very proud of our continued international expansion with customers in Asia and Europe .

Speaker 4: Our strong and trusted relationships, built on our innovative, value creating products, continue to deepen with our customers.

Speaker 4: as we've been a key partner to help them endure the global COVID disruptions and supply chain volatility.

Speaker 4: We certainly came through for our partners.

Speaker 4: And our customers recognize this.

Speaker 4: For example, General Motors has named us supplier of the year for two years in a row, and Honda bestowed upon us their Excellence in Value Award.

Speaker 4: While our core thermals comfort solutions continue to be our most prevalent segment,

Speaker 4: We significantly diversified our product offerings over the past five years by adding solutions that help us provide value to our customers while saying true to our mission.

Speaker 4: For example, in 2018 thermal comfort was 87% of our revenue.

Speaker 4: Compare that to 65% today.

Speaker 4: As we progress on our journey, the additional product segments will provide incremental growth to support our aspiration.

Speaker 4: Five years ago, we formalized our sustainability journey by building a people, planet, and places framework and implemented it at every gender location.

Speaker 4: Since then, we've enhanced that framework to also highlight our efforts in developing technologies that promote increased energy efficiency and driving range by reducing power consumption of an electric vehicle.

Speaker 4: Our framework is science aligned and conforms to industry standards such as sustainability accounting standards board or SASB.

Speaker 4: and the automotive industry action group.

Speaker 4: While we're still at the early stages of our sustainability journey, we achieve our initial seven-year environmental targets in less than half the forecasted time.

Speaker 4: In addition, we are being recognized for our sustainability efforts.

Speaker 4: We've been named as one of America's most responsible companies by Newsweek.

Speaker 4: One of Investors Business Daily, 100 Best ESG Companies.

Speaker 4: Name to the Detroit Free Presses list of Michigan top workplaces and the top employer for engineering from Germany's top employers institute.

Speaker 4: Just the name of you. At GEN-TOM, we strive to positively impact lives.

Speaker 4: I'll share more later in the presentation about how our products have a significant impact on sustainability.

Speaker 4: ESG is at the core of Jim Thurms' identity.

Speaker 4: Our industry is going through a transformation and Jim Thurm works to exceed our customers expectations.

Speaker 4: sometimes even before they are aware of them. Almost every major trend in our industry provides strong tailwinds for profitable growth for Jim Thurm.

Speaker 4: One of the most significant purchasing decision factors for automotive consumers revolves around the end cabin experience.

Speaker 4: You don't have to look far to see OEMs touting their enhancements for entertainment, user experience, comfort, health, and wellness.

Speaker 4: with the goal of differentiating for their customers on these most sought-after features.

Speaker 4: Jim Thorpe is clearly at the nexus of health, wellness, comfort, and energy efficiency with our best in class, thermal, and pneumatic solutions.

Speaker 4: Our Human-Centric Design Approach, along with the integration of software and intelligent algorithms, makes us a very attractive partner to deliver personalization, which is the holy grail for the car of the future.

Speaker 4: As the electric vehicle stakeholders are comfort and battery performance solutions, with the proven ability to help reduce power consumption and extend EV range are positioned perfectly.

Speaker 4: In the medical industry, more and more clinical studies are showing that maintaining patient temperature at the appropriate level can lead to improved outcomes.

Speaker 4: reducing recovery time and enhancing quality of life.

Speaker 4: It will come as no surprise to you all that we are in the midst of an accelerating transition to electrification in this decade.

Speaker 4: In fact, S&P Global Forecast that less than 20% of vehicles produced in 2030 will utilize non-electrify traditional internal combustion engines.

Speaker 4: And in fact, the vast majority are now expected to be high voltage, full EV, or plug-in hybrid, as opposed to the 2018 estimate of higher concentrations of mild hybrid 48 volt.

Speaker 4: The need for efficient thermal solutions to support range extension and comfort will be dramatic.

Speaker 4: I'm excited to share that our proactive transition over the past five years has resulted in a provis portfolio that is highly aligned to benefit from the EV transition. We're already there.

Speaker 4: In fact, over 85% of our automotive revenue is from products that can either enable or are specifically engineered to support electrified vehicles.

Speaker 4: We're already reaping the benefits in three ways.

Speaker 4: More vehicle platforms adopting our technology, higher penetration rates, and increased content for vehicle.

Speaker 4: Building upon our success and internal combustion engines, where we've seen steady gains in content and penetration over the years.

Speaker 4: We expect an accelerated revenue growth opportunity with electric vehicles.

Speaker 4: Our thermal and pneumatic solutions help improve comfort, reduce weight, and decrease power needed by the central H-back system, which is proven to increase range.

Speaker 4: Thus, EV manufacturers are adding those solutions to more platforms.

Speaker 4: Increasing applications as well as more seats per vehicle.

Speaker 4: Our multifunction electronic control units, which operate both the thermal functions as well as the control motors and other actuators, are increasingly in demand as OEMs look to combine ECUs and remove sensors to decrease weight and complexity.

Speaker 4: Our multi-function electronic control units, which operate both the thermal functions as well as the control motors and other actuators, are increasingly in demand as OEMs look to combine ECUs and remove sensors to decrease weight and complexity. And the pinnacle for us is climate sense.

Speaker 4: which will transform one of the most inefficient functions in a car. But more on that in a bit.

Speaker 4: Climate Sents can deliver up to four times the content of thermal products. Our innovative battery performance solutions will drive incremental content as well.

Speaker 4: And in total, we see the content for vehicle increasing from between 30 to $300 on ICE vehicles.

Speaker 4: to $150,000 on electric vehicles.

Speaker 4: And while we're passionate about our thermal solutions and the impact on human experience, health and wellness.

Speaker 4: Don't just take our word for it.

Speaker 4: to take our word for it. We've recently partnered with F-Quant.

Speaker 4: A company well-known in the automotive industry for consumer research.

Speaker 4: We wanted to know how consumers are responding to our products when they experience them in their cars.

Speaker 4: We surveyed about 3,000 people in North America, Europe , and China.

Speaker 4: and another speak for themselves. 90%

Speaker 4: Of people globally are very satisfied with heated and cooled seats.

Speaker 4: and heated steering wheels. And the vast majority of them want to see the product on their next vehicle.

Speaker 4: Now, before we review our Go Forward Strategy with you, we wanted to take a moment to review our progress on the path we shared with you in June of 2018, as shown on Slide 18.

Speaker 4: At that time, we articulated four major strategic comparatives.

Speaker 4: Focus growth.

Speaker 4: Bro, extend our technology leadership.

Speaker 4: Expand margins and return on invested capital.

Speaker 4: and return on invested capital, and finally optimizing capital allocation.

Speaker 4: I'm proud to say that Jim Thurham has executed relentlessly on this strategy and delivered outstanding results.

Speaker 4: This relentless execution was certainly not done within the context of a stable environment.

Speaker 4: The past few years, as you all know, have presented more volatility than most of us have seen in our careers. Jenther has been significantly impacted by all of the major macro events.

Speaker 4: COVID, semiconductor shortages, inflation, and both supply and geopolitical disruption. Yet we remain strong and flexible, implementing aggressive measures along the way to de-risk the business, and most importantly, to continue to deliver on our strategic milestones.

Speaker 4: We are now more than ever, a company with the resilience to deal with the uncertainty ahead and deliver profitable growth.

Speaker 4: The Global Headwinds have had a monumental effect on vehicle production compared to what was forecasted back in 2018.

Speaker 4: One key milestone year in our plan was 2021.

Speaker 4: where actual vehicle production came in a staggering 24% lower than was expected in 2018.

Speaker 4: And in 2022, it did not get much better.

Speaker 4: In fact, January forecast by S&T Global don't show a return to 2018 production levels throughout our current decade.

Speaker 4: Despite the market headwinds and vastly reduced vehicle production,

Speaker 4: Jenthirmed to liver on our strategic milestones and generated industry leading results.

Speaker 4: We grew our climate comfort thermal business significantly through take rates and expanded products.

Speaker 4: In fact, our climate control seat products are at the highest revenue levels in our history.

Speaker 4: despite the lower vehicle production.

Speaker 4: We significantly increased our revenue in Asia.

Speaker 4: For example, Hyundai has grown to be our second largest automotive customer and we more than doubled our China revenue.

Speaker 4: We successfully introduced a scalable climate-sense platform and ticked out the industry's first award to launch on the Cadillac Sylestec.

Speaker 4: followed by a second General Motors of EV in 2025.

Speaker 4: We launched several new products that drove a seven-fold growth in our battery performance solution segment with proprietary solutions.

Speaker 4: Through product portfolio expansion, we continue to grow our patient temperature management business.

Speaker 4: A great measure of our effectiveness is our growth versus vehicle production.

Speaker 4: If you look at the past three years, we have outpaced the market by an average of over 900 basis points.

Speaker 4: Our steady commitment to investment in technology development led to several game-changing new products introductions.

Speaker 4: ranging from innovations in our core solutions, such as our next generation thermal electric-based CCS, called IMTM or intelligent micro-fermal module.

Speaker 4: ranging all the way to our revolutionary climate-sense system.

Speaker 4: It's especially gratifying to see these new industry best solutions with increased levels of electronics and software.

Speaker 4: We've really made a shift from component to system level product engineering.

Speaker 4: Some of you may recall, we instituted a program called Fit for Growth in 2018 to help us make strong moves in cost management and to reset the discipline for the future.

Speaker 4: I'm pleased to say that we have built this cost management and control in DeGinthorms DNA.

Speaker 4: We've proven the ability to reach high teens adjusted even though margins.

Speaker 4: And while the impact of inflation and instability has been a significant challenge, our team responded. Sustaining profitability and positioning us with a clear path to return to high teams adjusted even on margin in the midterm.

Speaker 4: We also clarified a decisive capital allocation strategy and we've used it to guide us.

Speaker 4: We weathered multiple storms while maintaining strong liquidity, funded our own innovative growth, returned capital to shareholders through repurchases, and made targeted key acquisitions.

Speaker 4: We weathered multiple storms while maintaining strong liquidity, funded our own innovative growth, returned capital to shareholders through repurchases, and made targeted key acquisitions. Mateo will cover more of this in detail in a few minutes.

Speaker 4: As a result of consistent and dedicated execution of our strategy, shareholders have benefited, with Jim Thurne delivering best in class total shareholder return.

Speaker 4: We delivered nearly 110% return since year end 2017 and increased our market cap from 1.4 billion dollars to 2.2 billion dollars.

Speaker 4: significantly outperforming the market and peer averages in a five-year timeframe.

Speaker 4: Now, let me transition to discuss our future.

Speaker 4: Starting with slide 25.

Speaker 4: Our journey to deliver on our mission continues to evolve.

Speaker 4: Our roots will always be our industry leading innovative thermal technologies.

Speaker 4: where we began as a startup from Caltech University in 1991.

Speaker 4: We're now taking steps to expand our human-centric value proposition beyond thermal within comfort, health, and wellness.

Speaker 4: Our first major step was the addition of pneumatic lumbar and massage comfort to greatly enhance the occupant experience.

Speaker 4: Those major steps were the addition of pneumatic lumbar and massage comfort to greatly enhance the occupant experience. And we won't stop there.

Speaker 4: Over the past five years, we've accelerated our company's transition from a world-leading thermal and electromechanical driven device company.

Speaker 4: to a more complete system solution innovator driven by software algorithms and intelligence.

Speaker 4: This has all been built on the core science of the company.

Speaker 4: Thermophysiology and physiotherapy.

Speaker 4: Our focus has always been not just on the car, but on the human beings in the car.

Speaker 4: Our OEM customers tell us that we are the only player in our space with this deep human-centric scientific expertise.

Speaker 4: As we progress, we will continue to evolve and expand these skills to generate incredible solutions in the car of the future and in operating rooms in hospitals.

Speaker 4: I can certainly talk about the technical details of our product, which I certainly will in a few minutes.

Speaker 4: But I think the next three vignettes will better illustrate our vision for the future.

Speaker 6: First.

Speaker 4: Imagine you're on your way home from the gym, or a tennis game, or perhaps around a golf.

Speaker 4: You're tired and a little sore.

Speaker 4: We see a future where your vehicle activates contrasting temperature therapy that alternates between heat and cooling.

Speaker 4: Plus, pneumatic muscle massage synchronized with uplifting music, soothing light and a refreshing scent.

Speaker 4: By stimulating five scientifically proven comfort enhancing features, your future vehicle has the potential to aid in your recovery on a way home.

Speaker 4: Next, during a rush hour commute or traffic, it's common for drivers to feel stressed or anxious.

Speaker 4: With our climate-sense technology, we see the opportunity to read the vehicle environment and instantly respond with heating or cooling to create individualized zones of enhanced comfort.

Speaker 4: Combining scientifically proven benefits of massage and thermal therapy to reduce stress hormone cortisol and to induce a state of calm.

Speaker 4: You're likely to take the long way home.

Speaker 4: The final scenario I'll share with you today is one that I'm sure we've all experienced at one time or another.

Speaker 4: And that's the feeling of drowsiness behind the wheel.

Speaker 4: Through a partnership, we see the opportunity for climate sense to work in coordination with future alertness features to stimulate the skin with cooler temperatures that increase brain wave activity and alertness.

Speaker 4: At the same time, rapid intermittent massage across the lower back stimulates the body while the seat position tilts to alter the driver's posture and bokeh alertness and restoring driver attention.

Speaker 4: This is just the beginning of where we see our technology driving health, wellness and comfort in vehicles of the future.

Speaker 4: And now let me dive into our strategy evolution.

Speaker 4: While we're proud of our company's progress, we know this is only the beginning of our journey, and we must continue to evolve our plan to stay ahead of competition and drive above market performance for our customers, employees, communities, and shareholders.

Speaker 4: Our 2023 and beyond strategic apperatives comprise four elements that are closely bound to help us create a flywheel of profitable growth.

Speaker 6: First.

Speaker 4: through leveraging and expanding our world-class talent and culture. We will drive, we will extend, our technology leadership.

Speaker 4: This will drive focus growth in areas where we have a right to win, which will in turn deliver strong financial returns. And this will fuel the cycle again to further attract world class talent. As we continue to execute on these four strategies, the fly will continue to gain momentum.

Speaker 4: Our growth aspiration is to get to over $3 billion in revenue by 2030.

Speaker 4: Let me touch on each of these strategy elements starting with talent.

Speaker 4: When I joined the company at the end of 2017, it was clear to me that several key elements of a winning culture already existed here.

Speaker 4: Most importantly, the culture of innovation, entrepreneurial spirit, and a focus on science, all were the building blocks of a strong foundation.

Speaker 4: But as we move forward to transform the company, there were four areas that we needed to take to another level in order to build the capabilities and discipline necessary to scale.

Speaker 4: These four winning culture behaviors are customer focus.

Speaker 4: Employee, engagement and inclusion.

Speaker 4: Global mindset and performance and accountability.

Speaker 4: And we have ingrained these winning culture behaviors into the fabric of our company.

Speaker 4: We've seen a dramatic enhancement of talent through internal development and recruitment.

Speaker 4: We've established DE&I as a foundation of the company with remarkable results.

Speaker 4: We've implemented an industry-leading manufacturing culture and environment. This is illustrated by our best-in-class safety results and strong community outreach in all the locations where we operate.

Speaker 4: Finally, we've been recognized through the adoption of leading board and governance best practices.

Speaker 4: All of this is set up a strong foundation for future acceleration.

Speaker 4: We believe that companies don't compete. People do.

Speaker 4: Now to strategy 2 on slide 30.

Speaker 4: Technology and innovation are at the foundation of everything we do at Gen-Thur.

Speaker 4: In fact, it's where we came from.

Speaker 4: Our company was founded by a rocket propulsion scientist from Caltech University.

Speaker 4: was founded by a rocket propulsion scientist from Caltech University, which explains our obsession with science.

Speaker 4: We have been at multiple product categories, such as heated and cooled seats and pneumatic seat massage.

Speaker 4: Our rapid growth was and continues to be driven by our significant investment in research and development.

Speaker 4: There are five underpinning technology domains that are key to our ability to bring the very best solutions to market and help us move towards our systems vision.

Speaker 4: At their center of it all is our core thermal and pneumatic device innovation.

Speaker 4: Finding the next level solution that delivers comfort faster, more efficiently, and less space is never ending. We constantly obsess about how to become better at our core.

Speaker 4: Software and electronics are fundamental to our strategy.

Speaker 4: We have significantly increased our resources and competency.

Speaker 4: from embedded devices to algorithm driven connected solutions.

Speaker 4: And to move towards our vision of the future, we are advancing in systems engineering, the ability to integrate hardware, software, external inputs and sensors seamlessly into the vehicle architecture.

Speaker 4: We're building advanced sensing and machine learning expertise as well as partnerships to enable our systems to quote unquote close the loop with the occupant and the environment.

Speaker 4: This is key to platforms such as climate sense.

Speaker 4: Finally, what separates gender and the most from our competition is our human-centric, scientific practices of thermophysiology and physiotherapy.

Speaker 4: Thermophysiology is the science of human temperature regulation.

Speaker 4: And physiotherapy is a range of physical interventions that maintain, restore, and improve human function and movement to improve quality of life.

Speaker 4: Our PhDs and scientists are engaged in our product development of today and tomorrow across both automotive and medical.

Speaker 4: Jim Thurman is also perfectly positioned to empower the software defined vehicle of the future.

Speaker 4: For those of you who are new to the concept of the software defined vehicle.

Speaker 4: It's any vehicle that manages its operations, adds functionality, and enables new features primarily or entirely through software. To illustrate the potential of gender and suite of advanced technology capabilities, our vision is to bring our integrated devices and system solutions to the software-defined vehicle of the future.

Speaker 4: A vehicle outfitted with our latest thermal and pneumatic devices will assure the most effective delivery of comfort and wellness to the body.

Speaker 4: The breakthrough will be that our software will enable countless features and therapies beyond basic comfort.

Speaker 4: Wellness and refresh modes, mood enhancements, alertness response for safety, pain management, and the list will keep on growing.

Speaker 4: Our system, when integrated with a connected vehicle, will allow post-car sale delivery of these new modes as our scientists continue to develop them through over-the-air updates throughout the life of the vehicle.

Speaker 4: Now, let me dive into how we will take our vision to market through our focus growth pillars.

Speaker 4: We continue to believe in a carefully selected mix of innovative and complimentary product solutions to maximize our growth and returns based on clear differentiated strengths.

Speaker 4: We will continue to funnel our investments and resources to those areas where we have a strong competitive advantage.

Speaker 4: Driving forward our mission and delivering strong financial returns.

Speaker 4: Killer 1 is to accelerate growth in our core thermal comfort product lines.

Speaker 4: Thermal remains central to who we are, and we will seek to accelerate this across our full continuum of solutions from seat heating all the way to our crowd-jewel katers.

Speaker 4: Killer 2 is to grow pneumatic comfort.

Speaker 4: As a result of the outmire acquisition, we are now the global leader in pneumatic lumbar and massage solutions. And we see strong opportunities ahead.

Speaker 4: particularly with combined thermal and pneumatic solutions.

Speaker 4: At pillar 3 is to drive battery performance solutions.

Speaker 4: We will do this with our unique technologies where we can add value for customers and produce strong financial returns.

Speaker 4: In pillar 4, we will continue to leverage our expertise in thermal physiology to further expand our patient thermal solutions in the medical device market.

Speaker 4: Until before, we will continue to leverage our expertise in thermal physiology to further expand our patient thermal solutions in the medical device market, capturing incremental share with our innovative solutions.

Speaker 4: All of this will be enabled by our ever increasing digital and software content.

Speaker 4: allowing GENTHROM to continue on the journey to a full system provider. Now let me dive into each of our growth pillars in more details.

Speaker 4: allowing GEN-THROM to continue on the journey to a full system provider. Now let me dive into each of our growth pillars in more details. First, our largest business thermal comfort.

Speaker 4: This is the heart of our company. We offer customers some of the most innovative devices and solutions in the industry. From seat heating, climate control seats, steering wheel heat, which is increasingly enabled with our hands-on detection,

Speaker 4: Net conditioning, radiant heating, and many others. All of this culminating with our complete microclimate solution named climate sense.

Speaker 4: As I mentioned, consumers are demanding more of these thermal technologies and OEMs are responding by rolling out more and more vehicle platforms that offer them.

Speaker 4: To illustrate the market tailwinds are forecast is that the penetration of climate control seats and seat heating of the total share of vehicle production in our key markets.

Speaker 4: will increase from 45% today to 65% by 2030.

Speaker 4: Similarly, steering wheel heat penetration is expected to increase 16 percentage points by 2030 to approximately 35%.

Speaker 4: If you already have a heated steering wheel in your car like we do, you might be wondering what the remaining 65% of vehicle owners are waiting for.

Speaker 4: Jim Thurne's market share in our core product line shows our global leadership as the largest independent innovator of thermal solutions.

Speaker 4: With 60% market share of heated and cooled seats, 60% share of heated steering wheels, and 40% share of the more mature heated seats.

Speaker 4: We maintain this share through innovative, differentiated solutions and impeccable customer service.

Speaker 4: With the growing penetration and content for vehicle of thermal solutions, we have discussed.

Speaker 4: The forecast is at 9% compound annual growth rate of the total available market between 2022 and 2030.

Speaker 4: Compare this to the 2% compound annual growth rate of vehicle production in our key markets over that same time.

Speaker 4: Let me discuss the key sustainable competitive advantages that allow us to maintain our leading market share.

Speaker 4: We are the largest independent supplier.

Speaker 4: This independence is key and supports our selection by OEMs who directs source the majority of thermal awards as well as with key partner Tier 1 seat manufacturers.

Speaker 4: Regardless of customer, our focus on the most innovative high-value solutions provides us with a real competitive advantage.

Speaker 4: Our solutions include our own design and manufactured electronics and software, a true differentiator.

Speaker 4: We have a long and proven track record of bringing the next generation of technologies to market.

Speaker 4: We have the broadest, deepest customer portfolio and relationships in our space.

Speaker 4: We are at the table when OEMs are working on challenging thermal problems in the cabin.

Speaker 4: Our industry-leading R&D and manufacturing footprint are unparalleled, giving us the best scale and ability to flex quickly with our global or regional customers.

Speaker 4: Finally, our cutting edge use of thermophysiology is at the heart of our human-centric designs. Now let me talk about the anchor to our future, our breakthrough climate-sense micro-climate solution.

Speaker 4: The traditional HVAC system is simply not sufficient going forward.

Speaker 4: Using high volumes, a heated or cooled air to bring the temperature in the whole cabin to a desired level is highly inefficient.

Speaker 4: In fact, the HVAC system is the second largest power drain on an ED battery next to the actual drive tim. Green screen is also a

Speaker 4: The accelerated movement to connective and electrified vehicles is driving the need for much more efficient and personalized climate.

Speaker 4: specific for each individual occupied.

Speaker 4: and only for the occupants in the car. Why waste energy on an empty area of the cabin?

Speaker 4: And we have anticipated this need for years and have created the solution and it's ready now. Our complete suite of thermal devices surround the body and are driven by our proprietary software climate-sense algorithm based on thermal physiology principles and delivers heating or cooling to the optimal location of the body at the right time.

Speaker 4: and for the right duration to assure the fastest time to comfort, but utilizing only the minimal power to get there.

Speaker 4: The benefits are significant.

Speaker 4: Reduced energy consumption, our customers have shown 70% reduction in the cold cycle, correlating to an over 30% range extension, and a 35% reduction in power in the hot weather cycle.

Speaker 4: In addition to range extension, climate assistance provides the best performing thermal comfort available.

Speaker 4: and the enablements of reduced size and cost of the Central HVAC system lead to much greater cabin design freedom and weight reduction in the car.

Speaker 4: We are thrilled that we will watch for the first time on the 2024 Cadillac Selected and follow soon thereafter with a second General Motors Electric Vehicle.

Speaker 4: Customer interest continues to grow as the market sees the impact of this technology.

Speaker 4: I want to point out a critical design concept that we have implemented with climate Regardless, in terms of commitment, towards four different organisms.

Speaker 4: We've developed a solution as a scalable platform that can be incrementally integrated into today's EV architecture, or it can be unleashed for the next generation of heating and cooling visions for our OEM customers.

Speaker 4: who are ready to more completely update the heating and cooling architecture. Our proprietary Smart Effectors, which can be installed on a modular, building block platform, will allow customers to take advantage of a continuum of implementation based on their current ED migration and their product strategy.

Speaker 4: This allows us to scale our content to support steady increases in energy efficiency and thermal performance from incremental all the way to the fully implemented climate-sense content.

Speaker 4: Our thermal content can then grow to between two and four times our best systems on the market today.

Speaker 4: So how do we expect it to capture above market growth for thermal comfort?

Speaker 4: First, we will continue to drive increased take rates.

Speaker 4: While the market tailwinds will certainly give us natural growth, we've developed a playbook to work with OEMs to increase take rates.

Speaker 4: through initiatives such as improved option packages and regional extensions.

Speaker 4: Our constantly growing set of solutions that add wellness and comfort will also enable us to increase content for vehicle, such as additional seats using our technology, adding net conditioning, surface heating, radiant heating, and continued increases in electronics and software content.

Speaker 4: We will build on our strong global customer relationships to deepen our problem solving and value for these partners.

Speaker 4: achieving adoption by more vehicle nameplate offering our solutions.

Speaker 4: especially on lower priced mass market vehicles, where we're seeing good momentum for additions.

Speaker 4: We see opportunities to continue to add and extend our business with new customers.

Speaker 4: and grow where our take rate and content is low. This will primarily play out in Japan and China. I'm very excited about our momentum in these countries.

Speaker 4: Finally, the game changer is climate sense. With two support times the content and potentially near 100% take rate on vehicles that will rely on the integration of climate sense as part of an overall vehicle climate architecture.

Speaker 4: Now to pillar 2, which is our newest growth vector.

Speaker 4: Now, to pillar 2, which is our newest growth vector, grow pneumatic comfort.

Speaker 4: Capitalizing on what we believe is the next wave of momentum can help wellness and comfort in the vehicle.

Speaker 4: Physiotaropy through lumber, lumbar, and massage technologies.

Speaker 4: We acquired Outfire, an innovative market leader of automotive Lumbar and massage comfort solutions with a 50-year-old culture of innovation that often puts them one generation ahead of the competition with respect to technology.

Speaker 4: This is resulted in a strong IT leadership position with more than 200 patents, including significant coverage for advanced shape memory alloy technology or SMA. Alphmyre pioneered the use of SMA valve and pump actuator technology for automotive seat comfort systems.

Speaker 4: which delivers quiet, high speed, pneumatic lumbar and massage performance.

Speaker 4: And we're excited to offer more compelling and high-value solutions across complementary customer relationships.

Speaker 4: leveraging the combined technologies, teams, and capabilities.

Speaker 4: Outmir is built a strong customer portfolio, especially with European OEMs.

Speaker 4: Some of the customers that we both serve are BMW, Volkswagen, Mercedes-Benz, Ford and Tesla.

Speaker 4: Similar to GEN-ThIRM, the majority of Alph Myers business is direct source by OEMs.

Speaker 4: We are well positioned to increase our pneumatic comfort market share by capitalizing on Jim Thurms' market-leading customer base, especially in North America and Asia.

Speaker 4: As we discussed, automotive customers are increasingly demanding features that enhance comfort and well-being.

Speaker 4: In addition to thermal, we see significant tailwinds for features that enhance the driving experience to allow occupants to leave the vehicle feeling better than when the drive started.

Speaker 4: While there is approximately 39% of vehicle production in our key markets that offer Lumbar or massage solutions.

Speaker 4: The reality is that the vast majority, 34% are mechanical or electro-mechanical mechanisms. These devices are heavy, take up significant seat space, and can use too much power.

Speaker 4: We are seeing fast growth in pneumatic solutions, which use low-profile bladder networks.

Speaker 4: and small scale electronics and valve systems.

Speaker 4: are much lighter, quieter, and use less energy while increasing comfort.

Speaker 4: The demands to grow and replace the larger mechanisms continues to build steam.

Speaker 4: A great example is Volkswagen, who is expanding the penetration of massage and lumbar and switching many vehicles.

Speaker 4: especially EVs from the electrical mechanical systems.

Speaker 4: electrical mechanical systems to gen-thirms pneumatic solutions.

Speaker 4: The market is approximately $1 billion today and we expect it to grow and to shift dramatically towards pneumatic solutions over the coming years.

Speaker 4: Through our acquisition of Althmeyer, we are now the market leader in pneumatic lumbar massage.

Speaker 4: In fact, Alphmyre invented the category in 1995 on the Mercedes-S class.

Speaker 4: Our innovative technology is leading the market. We introduced the shape memory alloy driven valve system first to the market in 2005, and we continue to have the industry leading technology and value creating solutions.

Speaker 4: Our software-driven modular platform can scale from a simple one-blatter lumbar solution.

Speaker 4: all the way to a 50 plus bladder intense massage system.

Speaker 4: Our customers tell us this is the perfect architecture to scale across name plates and trim packages.

Speaker 4: As we think longer term, the benefits of system design, including thermal, pneumatics, electronics and software, and our scientific expertise in thermal physiology and physiotherapy and one efficient scalable platform will be GenThorms GameChanger.

Speaker 4: Not only will we be able to address comfort, but the implications of increasing wellness therapeutics to support health and pain management of occupants will be unlocked.

Speaker 4: To conclude on New Maddocks, we see several avenues to outpace the market with growth initiatives.

Speaker 4: First, we will maintain a laser focus on delivering for our long-time customers where we continue to see big growth opportunities.

Speaker 4: such as with VW, BMW, Mercedes, Tesla and Ford.

Speaker 4: Using the playbook we have introduced in our thermal solution segment, we will proactively work with OEObs to increase take rates and content for vehicle.

Speaker 4: For example, we see the rear seat and the blank canvas.

Speaker 4: Our most significant near-term growth will come as we expand pneumatic cover into Jim Thurms' vast customer portfolio.

Speaker 4: especially in North America and Asia, where Alphmyre only minimally participated previously.

Speaker 4: Our powerful relationships with North American customers and also our broad OEM base in Japan and Korea provides significant opportunity.

Speaker 4: We're already working with several customers on potential introductions. Finally, we see the opportunity to launch proprietary technology in this space.

Speaker 4: Our next big thing is a pulsating massage solution called Pulse A.

Speaker 4: This proprietary game-changing pulsate pneumatic system combines massage with high frequency pulsation.

Speaker 4: which can stimulate muscles and alleviate pain and tension.

Speaker 4: We are excited and expect to see pneumatics grow at the same or even higher rates than thermal comfort in automotive.

Speaker 4: Focus Growth Pillar 3 is driving battery performance solutions that help EV manufacturers improve efficiency and performance.

Speaker 4: The early growth for GEN-ThIRM in this area has been our PACE Award-winning thermal electric battery thermal management system.

Speaker 4: which has helped our customers such as Mercedes and Jeep deliver 48-volt mild-hybrid systems at high volume while ensuring proper battery heating and cooling in extreme environments. We are very proud of this innovative product and it's given us strong credibility in the EV space.

Speaker 4: While this is a great product, its growth will be limited in the future as a result of OEM's decision to jump ahead quickly to high voltage, plug-in hybrid, and full battery electric vehicles.

Speaker 4: Fortunately, we had anticipated this change in the market, and we've been working hard to develop and launch a suite of products that add strong value to high voltage battery systems.

Speaker 4: Most significantly, GEM-Them has invented an innovative and proprietary thin foil flexible circuit product line that can be used either as a battery cell heater or a cell connecting device opening up meaningful possible growth. In addition,

Speaker 4: Our portfolio of battery products includes intelligent battery air cooling devices and certain high voltage battery cables.

Speaker 4: Our team has deep proven expertise in battery thermal and connection systems that have been built.

Speaker 4: giving us strong credibility with the most demanding customers.

Speaker 4: Now, let me talk about our most important BPS development, our proprietary cell connecting technology.

Speaker 4: This product takes advantage of the industry's first mechanical structuring process to create a thin, multi-purpose, flexed oil.

Speaker 4: This mechanical structured flex foil has significant advantages when compared to the state of the art on the market today.

Speaker 4: which are complex cable harnesses and chemically etched flex circuits.

Speaker 4: Our technology is fully automatic with industry leading production speed and very low production complexity.

Speaker 4: Our FlexPoyle technology allows OEMs or battery makers more flexibility in material selection. For example, aluminum is a desirable choice compared to copper and we can deliver this.

Speaker 4: In fact, aluminum is the solution chosen by our first launch customer, BMW, which launched on the BMW 7 Series Plug-in Hybrid EV.

Speaker 4: while the technical performance of this product is compelling.

Speaker 4: It's our incredible sustainability impact that is truly transformative.

Speaker 4: Our solution is environmentally friendly with essentially always fully recyclable.

Speaker 4: In a study performed by the Fronthofer Institute, our solution improved environmental impact by 99% compared to chemically-edged solutions.

Speaker 4: study performed by the Fraunhofer Institute, our solution improved environmental impact by 99% compared to chemically-edged solutions. Let me put this in perspective.

Speaker 4: If one million vehicles replaced chemical etch with our aluminum-lex boil solution.

Speaker 4: It would save over 186,000 tons of greenhouse emissions.

Speaker 4: Just for perspective, that's equivalent to all the emissions made by 40,000 gasoline-powered cars driven for a year.

Speaker 4: In addition, this FlexFoyle technology works very well for productive battery-cell-eating solutions.

Speaker 4: This looks well quickly conduct heat to the battery cell and challenging designs to assure proper battery performance and longevity in cold environments.

Speaker 4: The quick heating also can benefit rapid charging as a pre-warm battery can be charged at a higher rate.

Speaker 4: We're proud to see our proprietary Flexfoil battery heater launched on deep-fluff programs and soon to follow with launches on Renault EVs.

Speaker 4: So how will we continue to drive battery performance solutions?

Speaker 4: We are still in the early stages of adoption of our flexible circuit cell connecting.

Speaker 4: But we're convinced of its differentiated technology to solve the needs of electric vehicles.

Speaker 4: The launch on BMW vehicles will get us much needed credibility.

Speaker 4: We have several interested customers and are selectively engaging in quotations.

Speaker 4: What we're confident in the value of this self-connecting product, which falls into a category with a multi-billion future total addressable market.

Speaker 4: We are also only pursuing product projects with appropriate financial returns.

Speaker 4: We believe the favorable environmental impact and material flexibility of our solution is superior and will look for customers who value this and are willing to partner with us.

Speaker 4: As we look to the future for Flexfoil battery cell connecting, we're developing concepts that move intelligent battery health monitoring closer to the cell, mounting days to the Flexfoil.

Speaker 4: We call this ECCB and have been partnering with the Tong NXP on early concepts.

Speaker 4: In fact, these early tests, especially around impeded spectroscopy, which can detect early thermal issues in a battery, has shown promise.

Speaker 4: Finally, we see incremental growth with our high quality battery air cooling solutions.

Speaker 4: and our high voltage battery cables. While we are very selective in these projects based on differentiation and margin profile, we've been approached and are launching with customers such as RIVIEN, PORF and Nikola.

Speaker 4: Jithur's only non-automotive growth pillar is number four on the list, expanding patient thermal solutions within the medical device market. This product line is in the medical device vertical. The space is attractive and has meaningful synergy with our core automotive

Speaker 4: broad product portfolio and encompassing more modes of thermal delivery than any competitor.

Speaker 4: The medical business has a superior contribution margin compared to our core automotive business.

Speaker 4: That coupled with consistent and sustainable demand should help offset some of the seasonality of the automotive business.

Speaker 4: The investment required for growth is low relative to our automotive business which can drive superior returns.

Speaker 4: Most importantly of all, the synergies with our automotive business are significant and differentiates us from the competition.

Speaker 4: Our deep understanding of the human body and thermophysiology utilized to help save lives in the hospital is directly brought to bear on our automotive thermal solutions for comfort and wellness. This brings remarkable credibility with OEMs. We are the only company in the industry with this capability.

Speaker 4: As I mentioned, GEMTHERM has expertise in all three modalities, liquid, resistive, and air. This extensive selection of products offer medical practitioners the most flexibility in the operating room.

Speaker 4: We can provide solutions at every stage of the patient experience.

Speaker 4: Seenlessly maintaining temperature from the Priyot all the way to hospital discharge.

Speaker 4: We're excited about our growth opportunities in medical and will leverage key initiatives.

Speaker 4: In partnership with our automotive research and development team, we have a compelling pipeline of new product and technology.

Speaker 4: We will take share with our differentiated resistive warming, which can reduce airborne infection risk.

Speaker 4: We will expand in Europe and China through our acquisitions of Steeler and Dot-10 in those respective regions.

Speaker 4: and we're working to diversify our go-to-market channels.

Speaker 4: such as utilizing OEM direct sourcing.

Speaker 4: white label and equipment rentals. And now I'd like to transfer to Mattel who will walk you through the details of our strategy for the liver financial excellence.

Speaker 5: Thank you, Phil. Let me start the financial section on slide 59 by taking a step back and look at where we have been.

Speaker 5: As Phil mentioned earlier, in the middle of 2018, we launched our Fit4 Growth Initiative.

Speaker 5: centered around a few key strategies. Overall, company simplification, which resulted in the disposition of non-profitable businesses, as well as the whole team of expenses in areas that were not part of our course strategy. Footprint rationalization.

Speaker 5: which led us to the restructuring of our electronics manufacturing and the closure of a few facilities in North America and Asia.

Speaker 5: sourcing and manufacturing excellence in S-GNA rationalization.

Speaker 5: which resulted in a reduction of operating expenses by 15%.

Speaker 5: The Feed for Growth Program was extremely successful and generated more than 75 million of growth savings.

Speaker 5: that allow us to improve the profitability of the business up to high teams adjusted EBITDA rates at the end of 2020.

Speaker 5: On a banan sheet standpoint, we significantly improved our cash conversion through working capital optimization and tire controls on capital expenditures. We generated approximately 370 million of free cash flow over the 2018-2021 period.

Speaker 5: deploying the cache towards strengthening the balance sheet and opportunistic share by bags.

Speaker 5: 2022 was a year of transition for the company. We entered the year in a net cash position of approximately 150 million.

Speaker 5: which allow us to successfully weather the supply chain these options around the semi-conductor shortages and build inventory to protect our customers.

Speaker 5: Our strong balance sheet enabled us to play offense and complete the off-mire and dutching acquisitions in the summer of last year.

Speaker 5: And we were able to mitigate the impact of the supply chain disruptions and material inflation.

Speaker 5: through tight cost control on SGNA, a more than 20 million price recoveries from customers.

Speaker 5: As we look forward, our goal is to return to our team's adjusted EBDA rates as we fully integrate Alfmeyer and bring the combined energy to the level of profitability our legacy business used to enjoy prior to 2022.

Speaker 5: We will focus on strong cash flow generation by improving as a lower earning technology in sales, better.

Speaker 5: and continue to maintain a strong balance sheet. Now let me walk you through the details in an extra few pages.

Speaker 5: On the right-hand side, we are projecting to grow on an organic basis with a mid-teens compound annual growth rate between 2023 and 2026.

Speaker 5: Continuing to outpace the production growth in our relevant market.

Speaker 5: The majority of the growth will come from thermal comfort. We are expecting to grow faster than automotive production, but continuing to drive increasedentech rates.

Speaker 5: Launching new products that will increase our content per vehicle and driving the adoption of our new micro-crime solution climate sense.

Speaker 5: Numeric comfort will grow in the range of 75 to 125 million for two key reasons. First, continue growth with existing as-myers customers such as BMW, VW and Tesla.

Speaker 5: as well as second to the extension of pneumatic comfort solutions into the broader, gentle customer portfolio across Asia and North America. BPS growth will be driven by our proprietary FlexFoyle Cell Connecting where we have good visibility to a pipeline with several selected customers.

Speaker 5: And medical will grow organically due to new product launches and a diversification of our go-to-market channels.

Speaker 5: As a result of all these factors, we expect to generate revenues between 2.05 and 2.35 billion by 2026.

Speaker 5: In addition to the volume leverage from the revenue growth,

Speaker 5: We have outlined the building blocks of our profitability improvement program over the next three years to achieve high teams adjusted EBITDA margins on slide 61. We expect to capture 80 million of increased profitability net-of-inflation at the midpoint.

Speaker 5: the building blocks of our profitability improvement program over the next three years to achieve high-teens adjusted EBITDA margins on slide 61. We expect to capture 80 million of increased profitability net of inflation at the midpoint through three specific initiatives.

Speaker 5: First, 30 to 50 million savings from manufacturing productivity.

Speaker 5: Through automation on our program lines, leveraging lean best practices across our network.

Speaker 5: Continuing to reduce material usage and scrap, particularly now smaller.

Speaker 5: taking cost out of our bill of material to value engineering and reassessing our manufacturing footprint by moving production to best cost companies.

Speaker 5: Second, we will deliver 20 to 40 million savings from our sourcing excellence program.

Speaker 5: By focusing on design to look cost, establishing multi-sourcing strategies to increase negotiating power, flexibility, supply continuity and resilience, as well as implementing continuous cost reduction initiatives.

Speaker 5: Finally, we will deliver 10 million of cost synergies from the Affamir acquisition by consolidating supply-based primarily on electronics.

Speaker 5: footprint rationalization and SNS-Gen air reduction. We will continue to look for opportunities beyond synergies to improve of my profitability to be closer to the company average.

Speaker 5: Slide 62 summarizes the impact on the adjusted EBITDA margin of all the initiatives that I just talked about.

Speaker 5: And as you can see, fixed cost leverage from revenue growth will be the largest driver of margin expansion, as we are assuming a normalization of the supply chains.

Speaker 5: We are expecting to face a more challenging pricing environment compared to what we faced in 2022.

Speaker 5: Conversely, the source in savings and productivity actions will all more than offset the annual price downs.

Speaker 5: and will help us expand our margins as we have historically done.

Speaker 5: We will continue to manage cost-titling and we will deliver 10 million of us to higher cost synergies.

Speaker 5: Through the initiatives that I just described, we are expecting to achieve high teams adjusted the EBITDA rates by 2026. Now moving to the balance sheet, let's do this 63.

Speaker 5: We have historically maintained a conservative balance sheet and we plan to continue to do the same in their coming years.

Speaker 5: In 2018 through 2021.

Speaker 5: In 2018 through 2021, we focused on reducing our debt.

Speaker 5: Through superior cash flow generation, which allow us to enter the pandemic in a net cash position.

Speaker 5: and opportunistically deploy the cash to acquire of myron Dutching Medical.

Speaker 5: During the 2024-26 plan period, we expect to strengthen our free cash flow conversion while increasing capital expenditures to 4% to 5% of revenue in order to fund capacity growth and innovation projects.

Speaker 5: Finally, on capital location, in the last four years we have been diagnosed in our approach.

Speaker 5: by focusing on that paydown first, deploying 220 million towards strategic acquisitions.

Speaker 5: and a 165 million towards organic growth.

Speaker 5: We have also returned 204 million of cash to our shareholders in the form of opportunistic shared repurchases while maintaining our net leverage well below our target of 1.5 times. In the future we will continue to talk fully balanced.

Speaker 5: their location of cabral between funding, organic growth, considering select MNA opportunities.

Speaker 5: opportunistic share by backs and maintaining a appropriate leverage.

Speaker 5: On the amen-side, our priorities have not changed.

Speaker 5: As we successfully done in the last couple of years, any future acquisition would fit within the focus growth strategy by expanding our content per vehicle and technology capabilities.

Speaker 5: as we successfully done in the last couple of years, any future acquisition would fit within the focus growth strategy by expanding our content per vehicle and technology capabilities, enhancing our original presence.

Speaker 5: and expanding our technology in medical. In addition to the above, we have said high financial and process hurdles that have to be met before executing an amenate transaction.

Speaker 5: including a compelling financial profile and land of sites to integration benefits in addition to the strategic Fed that I just mentioned.

Speaker 5: I am extremely pleased with improved talent and process discipline Jentrum has developed, especially related to due diligence and integration processes.

Speaker 5: And we will remain disciplined in our LMNA strategy. So now let me summarize on slide 66. Over the next four years, we will focus on returning to IT in adjusted EBDA margin, strengthening free cash flow conversion.

Speaker 5: maintaining a strong balance sheet and a balanced capital allocation. And with that, I will turn the call back to Phil for the wrap up.

Speaker 4: Thanks, Mateo. Now let me close. I believe Jent Thorne presents a strong investment thesis.

Speaker 4: Simply put, our best-in-class, innovative technology, industry-leading manufacturing, our deep customer relationships, and proven execution create a sustainable competitive advantage for the company. As I pointed out, the market is large and under-pennetrated.

Speaker 4: And we're going to capitalize on our independent market leading position and our capabilities to drive high return growth outpacing the market.

Speaker 4: And finally, we will leverage our operational excellence to deliver strong cash flow and shareholder returns.

Speaker 2: With that, I'm going to turn the call over to the operator to start the Q&A. Thank you. We will now be conducting a question and answer session. If you have a join, via the audio bridge and would like to ask a question, please press star 1 on your telephone keypad.

Speaker 2: A confirmation tone will indicate a line is in the question queue. If you have joined via the webcast, please refer to the Ask a Question box on the webcast screen. Simply type in your question and click Enter on your keyboard to submit. One moment please, while we pull for your questions. Our first questions come from the line.

Speaker 7: 2023 even a margin assumption I'm thinking in terms of gross margin incremental investments underline leverage in the business can you just help us understand some of the key drivers 22 into 23 and the even a margin thinking. Good luck thanks for the question good morning so let me start with the

Speaker 5: point of our guidance. We are on the revenue side projecting a 13% organic growth. The S&P global right now has a growth of about 3 to 4% for our relevant market. So that equates

Speaker 5: flow through about 30% of growth margin, the about 190 basis points expansion on our EBDA rate due to the volume.

Speaker 5: Then we are expecting about 70 basis points of margin expansion from pricing activities. So very similar to what we have accomplished in 2022 with some of the recoveries.

Speaker 5: about certainly the basis points, improvement also coming from manufacturing productivity, value engineering, net of the labor inflation.

Speaker 5: So these are the positive side. Then on the pressures, we are assuming about 120 basis points pressure due to material inflation, which we are still seeing being pretty high, particularly entering the year, considering that we were able to push out some of the material inflation out of 22.

Speaker 5: and then effects is a drag of about 120 frames. So that's how you get to this, at the midpoint of guidance, the 200 basis points, maybe the margin improvement compared to where we closed on a performance basis, 2022.

Speaker 5: Maybe on your question on the capital, sorry, go ahead.

Speaker 5: Yeah, sorry, I didn't intend to interrupt. You were, I think you asked a question on capital and investments. So let me talk maybe first on the income statement on the operating expenses. So we are assuming operating expenses to be in total, you know, still at about 16% of revenue, very pretty much in line with

Speaker 5: the performance of 2022. And primarily this is driven by investments on the R&D as we continue to fund new programs on BPS, on climate science and some of the new technologies of Alzheimer's.

Speaker 5: And then we also have to manage labor inflation, which is not only impacting on the the labor cost, but the supplies also to the operating expenses.

Speaker 5: And then on topics, you saw we guided a little higher than our normal ground rate, and that's again driven by some of the investment that we have to make in order to fulfill the high wind rate that we had on awards.

Speaker 7: in the recent months. That is all very helpful. Thank you for that. And then, you know, pivoting to a longer term view, still maybe if we could just kind of put a capstone on all the strategic updates this morning. And I'm just kind of want to think about the evolution of the market since you last gave a strategic update in 2018 in terms of...

Speaker 7: those dynamics and specifically the changes in the company's strategy today that maybe you want to spike out with a little more emphasis relative to four or four years ago.

Speaker 7: specifically the changes in the company's strategy today that maybe might spike out with a little more emphasis relative to four or four years ago. Sure.

Speaker 4: Well, I think that we're really excited as we look to the years ahead. The one area that I think has accelerated pretty dramatically is...

Speaker 4: the momentum towards full EV as we proceed. And I think that's a big benefit for us.

Speaker 4: and really kind of highlights.

Speaker 4: When we look at thermal especially to a similar extent, pneumatic product for growth vectors for us.

Speaker 4: that we're really doubling down on. You get the basic, the first pillar is production. So that's what most of us look for is the vehicle production growth. Of course, it's not huge, but that's the first one, the second one.

Speaker 4: is adoption. One thing we're seeing with EVs and to a similar extent, the high volume mass market vehicles is more name plates adopting thermal and pneumatic technologies. And this is, I think, driven by a couple factors. The consumers are demanding it. We talked a little bit about the consumer studies that we've done.

Speaker 4: our strategic initiatives. The third one is take rates. So we're really optimistic and excited to see what customers have done in the past year or so and especially what we see in the coming couple years that vehicles that offer our product are increasing the take rates.

Speaker 4: for the same reason I just mentioned. And then the fourth one is content for vehicle.

Speaker 4: And we've lost a lot of new technologies and new products that are, we think, perfectly positioned to enhance both the consumer experience and efficiency. And some examples are intelligent net conditioner. And the net conditioner we think is a game changer and it's very, very low penetrated so far.

Speaker 4: and the interest is very high. Electronics and software, we mentioned earlier, our strategic win with Stellantis, is our first thermal ECU win with them, and we see more opportunities coming as our expertise in software becomes recognized. Add to that, beyond the seat, steering wheel.

Speaker 4: Radiant panels, surface heating, foot well. There's a lot of areas for us to increase content for vehicle.

Speaker 4: And then of course you add in the pneumatic side of the business, which is, you know, we think is kind of a way that's following how thermal has grown. More and more opportunities to enhance the consumer experience in the car through physiotherapy. Of course, there's the comfort side of that.

Speaker 4: And as we discussed, you know, several times in the strategy review, we see the opportunity that's really unique to us to utilize our scientific expertise and we're investing really heavily in this to develop therapies and treatments that support renewal of beyond service

Speaker 4: the ability for consumers to feel better after they leave the car than they did when they enter and You know if you look at our new pneumatic business I also want to just highlight the area that you know that we're focused on and that's making sure that our product not We performed well, but it's light doesn't take up a lot of space

Speaker 4: and can help OEMs replace the motorized mechanical lumbar massage systems, which it really aren't gonna be a great fit for electric vehicles. You add into that modest medical revenue from an absolute standpoint, growth between now and the 2026.

Speaker 4: And I think we've got some great opportunities with multiple vectors to achieve that growth. So I think that's what gives us the confidence to hit that target.

Speaker 7: Great. And then if I could just ask one more question, Bill, in the video, you know, clearly a focus on climate sense. And you know, one of the things in the video, many more partnerships with OEMs, sure to follow and hoping you could just put a finer point, maybe a little bit of a...

Speaker 7: of the union and climate sense in terms of your current engagement with customers and what your line of sight is beyond.

Speaker 4: the two vehicles that you've already booked in terms of near-term developments in the next 12 to 18 months on the business development. Well, obviously we're extremely focused on launching successfully with General Motors, who is our largest customer, and we're so honored to be partnering with them on these types of technologies, and clearly, Cadillac Celestec.

Speaker 4: is critical to us and then we've got a follow-on award past that and we want to keep building that partnership with who we perceive as one of the most ambitious EV companies out there and clearly they're excited about the technology. So that's...

Speaker 4: That's a big part of our focus, and I don't want to downplay that. That said, the Cadillac's holistic announcement and a lot of the press that has come from GM and from us has opened up even more interest from other potential customers.

Speaker 4: So, you know, we're selectively doing development projects, assessing potential vehicle rollouts, and, you know, obviously we're excited about opportunities to come with new customers. And, you know, one area I think that positions us pretty well, and this is why we highlighted it so much in the strategy chat.

Speaker 4: was that we created a scalable platform. It's kind of like a building block migration to...

Speaker 4: full-blown climate sense and I think that's a relatively new development for us and it's really coming together and If you look at the midterm plan to 26 it certainly I would say we have pretty modest Expectations for climate sense growth from a full system perspective in there

Speaker 4: But what we do see and where we expect a pretty good fuel to our growth rate is adding the smart effectors that come from the scalable platform and more content for vehicle as we see OEMs make the migration to full-blown climate sense.

Speaker 7: Great, thank you for all of that and I'll go ahead and leave it there for now.

Speaker 2: Thank you, Luke. Thank you. Next questions come from the line of Matt Caronda with Roth.

Speaker 4: Hey guys, good morning and thanks for all the detail with the strategy update. I'll do a couple...

Speaker 4: near term ones and then a couple long term as well. So maybe just Mateo, maybe I missed it, but just could you...

Speaker 4: maybe break out the drag on EBITDA margin in 23 from Alpmyer, just sort of how we should be thinking about that headwind to versus Corey Bidah improvement in 23. And then maybe also just speak to the progression of EBITDA margin throughout the year you did mention first.

Speaker 5: So let me start with the first question. So as my year today, if you look at where we closed 2022, is in the low single digit EBITDA rate, and we're expecting that to improve throughout the year to about mid single digit EBITDA rate.

Speaker 5: And then the further improvement will come as we can, the full synergies and continue to work also on productivity projects that are included in the midterm strategy and financials that we provided this morning. But that's midterm, mid-single-digit, mid-single-digit, mid-single-digit.

Speaker 5: would be what we have factoring in our guidance for 2023. In terms of your cadence question, you're right. I mentioned that regarding the first quarter, I think let me break this down for you. I think it's important to start where we finished 2022. So if you look at the fourth quarter profitability,

Speaker 5: that we had in 2022, that profitability benefited from a portion of the pricing recoveries that were actually negotiated earlier in the year. So if we normalize the pricing recoveries and exclude also the impact on the non-cash stock Sombre Cobble.

Speaker 5: the EBDA rate in the fourth quarter would be around 10%. So this is how we enter.

Speaker 5: in the fourth quarter, it would be around 10%. So this is how we enter 2023.

Speaker 5: The other aspect that I think Matt, we always have to consider is that our earnings tend to be seasonal. So in the first half of each year, our margins are negatively impacted by the annual price downs.

Speaker 5: All the cost recoveries and pricing actions are negotiated through the year. So the impact, the positive impact of those generally come later in the second half. And the same applies actually with some of the sources savings. If you think about volume rebates.

Speaker 5: from suppliers, they always tend to come in the third and the fourth quarter. So, I would also add one other thing that I think everybody is currently facing, which is labor inflation, which is still pre-elevated, both at the factories on the variable side, as well as on the Saturday.

Speaker 5: will steadily improve throughout the year as the impact of price recovery, price negotiations, productivity of the factories and supplier cost reduction will be taken later in the year.

Speaker 8: Okay, very helpful. I'm just shifting to the longer term outlook and strategy presentation. I was just wondering if...

Speaker 8: You can provide a few concrete examples of the content per vehicle shift. One of the slides I think you'd shown shows a sort of a $30 to $300 current opportunity versus like upwards of $1,000 in CPV. And I'm just curious.

Speaker 8: How much of that shift relies on the underlying mix of vehicles changing toward full battery electric and how much of the, I guess, the 26 outlook in terms of growth takes a view on sort of the mix shift and sort of battery electric versus ice in the car park.

Speaker 4: Sure, I'll take that one. Let me talk about first of all, the building blocks to get the increased content. I think what we typically look at on an ICE is as our full suite is kind of two seats of CCS and a steering wheel. And where we see that gradually building in the transition to full EV.

Speaker 4: is adding rows, so more seats in the vehicle. That's a clear adder. Obviously, the different effectors that help not only with copper, but help to step wise improve efficiency and those I mentioned earlier, neck conditioning.

Speaker 4: footwell conditioning in heated interior surfaces, potential radiation, and then you add in when we get to climate sense more electronics and more software.

Speaker 4: And you can start to get a sense and then of course you add in the pneumatic side on top of that and you start to get a sense of you know all the potential component additions that we get on the comfort side and then on top of that of course our battery performance solutions you know if we were able to get you know the full blown

Speaker 4: We basically built in the cars in our pipeline that we know of is the way. 26, if you think about it, an awful lot of that is either already awarded or we have a very clear path for the RFQs that will come in the next 18-24 months.

Speaker 4: And those are what's built into our growth rate. So there's not a lot of speculation to be honest with you. Obviously we have to execute and we have to drive a lot of wins, or at least a fair not a real wins in that time period.

Speaker 4: But I think 26 is fairly well known. And then the acceleration then beyond 26 to 2030 is where we start to see more climate sense, deeper penetration of a BPS and continued scaling content for vehicle. OK, makes a lot of sense.

Speaker 8: And then just lastly, maybe from a tail, one is to talk about the EBITDA bridge over the next couple of years and you have a pretty decent size assumption in there for manufacturing productivity of 40 million. Just curious if you could maybe speak to does that require any manufacturing footprint shifts, what kind of capital investments?

Speaker 8: Do we need to pencil in to assume you hit the 40 million in manufacturing productivity and then any concrete examples on the purchasing cost saving with 30 million that you got penciled in there would be very helpful.

Speaker 5: So let me start with the productivity side.

Speaker 5: So really we are looking at this 30 to $50 million savings net of inflation. We have a couple of this how I will break it down. 60% of it of the savings will come from pure manufacturing productivity. This is in the form of...

Speaker 5: material usage of optimization, process flow, lean improvements across all our networks, fixed cost reduction, as well as

Speaker 5: heavy focus on manufacturing automation in some of our key lines. So that's about 60% of the benefits. 15% roughly is coming from value engineering, so really taking cost out of the bill of material.

Speaker 5: And then the remaining 20% to the second part of your question is only coming from the footprint optimization that we talked about in the prepared remarks.

Speaker 5: So, for your second part of your question in terms of CAPEX, so we will expect CAPEX in the next, you know, throughout the planning period to be between 4 and 5% of revenue, and this is how we will be indicated in the prepared remarks and this CAPEX includes. Thank you.

Speaker 5: any investments that are related to capacity that will be required to fund the growth that we have on the top line.

Speaker 5: Okay, great. And then just on the, sorry, then you had another on the purchasing, sorry.

Speaker 5: I was forgetting the purchasing portion that the for the purchase inside I think the majority of the savings really will be generated through design to low-cost initiatives

Speaker 5: multi-sourcing strategies, particularly in electronics and connectors, for example, that's where we're looking at. Localization of suppliers for materials such as fleece and plastics and then continuous cost improvements activities such as eoptions and carosells that we do with several of our suppliers. Let's...

Speaker 5: That's what these are the building blocks of the source in savings that we talked about. Okay, great. I'll jump back and thank you guys. Thank you.

Speaker 2: Thank you. Our next question is coming from the line of Ryan Siddhal with Craig Callan. Please proceed with your question.

Speaker 2: Good morning guys. One of the 2026 business plan. Here's so much of that has been awarded versus anticipated new business. And then secondly, if you've factored any acquisitions into that, both 2026 and 2030 targets, or if that's all organic. Only good, anyone else.

Speaker 4: Yeah, when you look at the award rate, it's over 60% awarded for 26. If you look at our core business, the thermal business, it's over 70%. Obviously, with pneumatics, there's a lot of activity with new customers. When I say new customers, gen-thirms, traditional customers that aren't currently customers for pneumatics. So, it's...

Speaker 4: We're building in a reasonable win rate for that. Then BPS, of course, is less awarded between now and then. Great news though. We do have a clear pipeline of bids that we're going for there. So that's kind of the picture there. When you look at 2026, there's no, that's pure organic.

Speaker 4: There's no M&A built into the 2026 plan. And frankly, when you look at the 2030, the 3 billion plus goal that we have, that's assuming organic growth as well. And then maybe just a follow-up. What's the...

Speaker 7: timeline from award to production on DIMADIC and BPS. Is it similar to kind of core auto awards? Or is it two to three year or is it shorter longer, etc.?

Speaker 4: It's the same. It's, you know, two years. You get some with 18 months and some a little bit longer, but right about two years.

Speaker 9: Just maybe one just higher level one. But here's some of the timing to give the strategic update, 2026, 2030, etc. Target's this morning given the macro uncertainties, everything we're dealing with. I guess just talk to management's thoughts around timing now. Some find it goodbye.

Speaker 4: Yeah, you know, it's been five years plus since we did it last time and there, you know, there's been so much evolution of our strategy and direction. You know, to be honest, we've postponed it a couple times because of the same reason, the macro environment and, you know, we just felt that at some point we just had to make a decision and.

Speaker 4: and lay out our vision for the future. So that's what drove this. Great. Maybe one more if I can sneak it in. Is there any climate sense included in the 2026 besides the 2G MORs? There is, but it's conservative.

Speaker 2: Thanks, Bill. Good luck, Ed. Thank you, Ed. Thank you. Our next question has come from the line of Glenjane with Keyport Research Partners. Please proceed with your questions. And thanks for all the detail, folks. So first, just on the near term, in the press release, there wasn't really much mention of questions.

Speaker 2: supply chain issues. I don't presume they're behind you. Can you just give us an update fill on What developed in the fourth quarter and then what you see going forward? It's still a volatile time. Glenn. It's not as volatile as it has been, especially if you look a year ago, but we still seeing

Speaker 4: a couple areas that are presenting challenges. And that has led even into the first six weeks of the current fiscal year. Customer order volatility is still meaningful. But we're especially seeing that in Europe . And when I talk about that, I mean orders that come in. We ramp up our plans.

Speaker 4: Put our people in place and then the orders are canceled and that causes productivity causes overtime causes inventory bubbles We see that still to maybe a little bit lesser extent in North America and Asia But those are still challenges and you know, we see those as being tied mainly to still

Speaker 4: still occurring, some eye-conductor shortages and also some market issues. Obviously, China was a significant impact in the fourth quarter and in the early part of the year with the impact of shutdowns. And that COVID-related shutdowns, of course, that's been opened up now. And we did see a little bit of an extension in terms of demand.

Speaker 4: shortfall with the Chinese New Year celebrations. Good news is we're starting to see that pick back up. Then semiconductor shortages in general, although thankfully it's not nearly to the magnitude as it was, it's still a constrained environment with certain nodes of semiconductors and we face those. Our team still.

Speaker 4: is in Task Force mode with many suppliers, and we still see OEMs run into shutdowns related to semiconductor shortages, so it's certainly not behind us. We are planning for and continue to number one C from our perspective and hear from our customers.

Speaker 4: steady improvement over the course of the year and the year being 20-23. Okay, very good. Thank you.

Speaker 2: And then kind of a related question, maybe for Mateo. So in your 2026 outlook, you talk about improving free cash flow conversion. So what can we expect Mateo with respect to the inventory buildup? When might that unwind or do you not see unwinding between now and 2026 end? So...

Speaker 2: than just more broadly in 2023 and any other working capital puts and takes we should keep in mind.

Speaker 5: So, if you look at historically, if you take the last four to five years, our freak afloat conversion over adjusted EBITDA has been roughly in the mid-40s. Now, 2022 was an exception obviously due to the sublations, disruptions that we faced. So, when I talked about...

Speaker 5: going back to the conversion rates, what we are expecting is that we will return to a free cash flow conversion in the mid-40s in the planning period. Now the geography is going to be a little different from what we have done in the past. You will see an increase.

Speaker 5: the eCAPEX is a percentage of revenue as we discussed earlier and this will be offset by higher cash flow from operations. And really, this is going to be coming from two key areas. Number one, improvement on the inventory terms and then negotiate in better payment terms with suppliers.

Speaker 5: So these are the two key areas that we're focusing on on the midterm plan and I think that this would apply also for 2023.

Speaker 5: two key areas that we're focusing on on the midterm plan and I think that this would apply also for 2023. Okay, very good. Thank you.

Speaker 2: And then longer term, say I'll know that you guys have had a smile or you have these work-grossed players. Any other pillars?

Speaker 2: And then longer term. So now that you guys have had a smile or you have these work-grows pillars, any other pillars you'd think you'd want or need.

Speaker 4: Well, we thought obviously we felt really good about the pillars we have at the moment and it's keeping us very busy. But, you know, I would say...

Speaker 4: As we've been consistent over the last several years, we're really focused around our mission. And our mission is around health, wellness, and comfort in the car. It's in the cabin to improve the lives of passengers. And then it's obviously in the operating room in hospitals. So if we see opportunities that we think we can add a lot of value and fall into

Speaker 2: software numerous times. Any thoughts on what percent of revenue that may comprise free guys as a percent of total in the future?

Speaker 4: You mean software itself? Yes. Yeah, we don't break that out. I would call software more a part of our complete system solutions. They're definitely our cases where we have customers interested in purchasing software.

Speaker 4: to embed in other electronics and a lot of that revolves around the specific algorithms that we've developed. But for the most part, we see it more as an enabler of our full system.

Speaker 4: And obviously it differentiates our product and our solution.

Speaker 4: And we expect that to drive higher margins for our products. Yeah, okay, fair enough. Thank you.

Speaker 4: We expect that to drive higher margins for our products. Yeah, okay, fair enough.

Speaker 3: Thank you. I will now turn the call back over to E. Shane, Bronchano for the webcast question and answer session of today's call. We have time for one question from the webcast and here's the question. How should I think about the cadence of revenue growth and profitability improvements from 2020?

Speaker 4: on the 2026 side and I'll talk specific and then more high level.

Speaker 4: The first of all, if you look at the revenue for 2026, a lot of that's coming from either awarded business, I mentioned the percentages, and a known pipeline. That entire build-up was created around what we know is ahead of us. So it's a fairly short time frame between now in 2026.

Speaker 4: And then, you know, the factors that give us confidence in the outperformance over that time frame are really the four vectors that I mentioned earlier, especially with thermal and pneumatic. The first one is production growth. The second one is adding new name plates. And that's what we're seeing in the pipeline between now in 2026 is a healthy rate of whipping machine. At

Speaker 4: new name plates, new cars that we will be able to launch on. The third is take rates. I mentioned this many times throughout our last couple hours together is more and more consumers are demanding thermal technologies and that's accelerating with the transition to electric vehicles.

Speaker 4: And finally, content for vehicle. More of the opportunities in front of us are beyond our climate control seats to include devices that surround the body. And those are all going to enhance the experience of consumers as well as add more efficiency to electric vehicles.

Speaker 4: So those core vectors are really important. I'll throw on a couple others that are really incremental. The BPS is clearly incremental growth for us as we take up more winds with our cell connecting. And on the pneumatic side beyond the four vectors I mentioned, there's a replacement process that's happening where pneumatics.

Speaker 4: We'll transition and take over more of the share from the motorized mechanical Lombard massage and of course modest Medical growth on top of that so a lot of areas for us to To drive that growth between now in 2026 So

Speaker 5: to talk about the profitability side of the question. I think, so first of all, at a high level, I think we have proven through our fit for growth initiatives that we were able to deliver 75 to 80 million dollar of savings through fit for growth. So that's why we feel comfortable.

Speaker 5: that we can deliver the 80 million of cost-out actions that we talked in the benchmarks. And also quite frankly, if we look at the execution of the last five years, which have been for sure one of the most difficult operating environments that the company has faced,

Speaker 5: We were able to really work with our customers to bring innovative solutions to grow, but at the same time to negotiate price recoveries and also to really manage cost very tightly. So I think the combination of the anticipated revenue growth and the productivity

Speaker 5: some what the the can is to be pretty linear, maybe just the exception of BPS which will probably be a little bit more back unloaded in terms of profitability.

Speaker 5: The leverage from the revenue increase will follow the revenue growth. There are a couple of actions that I mentioned to achieve the 80 million cost improvement, such as the footprint optimization and the off-mire synergy, which will come a little later in 25 and 26. But that's how I would model.

Speaker 4: the profile. Thank you. I will now hand the call back over to Phil Irland for any closing remarks.

Speaker 4: Great. Thank you everyone for joining our Strategic Update this morning. We are committed to executing on our four closely balanced strategic comparatives, focus growth, extending technology leadership.

Speaker 4: deliver financial excellence and leveraging world-class talent and culture a flywheel to profitable growth. We have built and will continue to build a portfolio of industry-leading products that will shape the future and positively impact people's lives around the world.

Speaker 4: While we continue to effectively navigate the macro environment as it evolves, we remain laser focused on capitalizing on the exciting opportunities ahead of us and driving significant shareholder value in a long term.

We appreciate your interest and your support and look forward to keeping you apprised of our progress. This does include today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.