Q3 2024 Gentherm Inc Earnings Call
Speaker Change: The End
Speaker Change: Greetings and welcome to Gentleman 3rd Quarter 2020 24 earnings conference call.
Speaker Change: At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference,
Speaker Change: Please press star 0 on its telephone keypad. As a reminder, this conference is being recorded. It is now much pleasure to introduce your host, Mr. Greg Blanchette, Senior Director of Immortal Relations. Thank you Mr. Blanchette, you may begin.
Greg Blanchette: Thank you. Good morning everyone and thanks for joining us today.
Greg Blanchette: Jentherm's earnings results were released earlier this morning, and a copy of the release is available at jentherm.com.
Greg Blanchette: Additionally a webcast replay of today's call will be available later today on the investor relations section of GenTherm's website.
Greg Blanchette: During this call, we will make forward-looking statements within the meaning of federal securities laws. These statements reflect our current views with respect to future events and financial performance, and actual results may differ materially.
Greg Blanchette: We undertake no obligation to update them except as required by law.
Greg Blanchette: Please see GenTherm'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.
Greg Blanchette: During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release and investor presentation.
Speaker Change: On the call with me today are Phil Eyler, President and Chief Executive Officer, and Melissa Clark, Executive Director of Global Financial Planning and Analysis. During Phil's comments, he will be referring to a presentation deck that we have made available on our website at gentherm.com slash events.
Greg Blanchette: After the prepared remarks, we'd be pleased to take your questions. Now I'll turn the call over to Phil.
Phil Eyler: Thank you, Greg, and good morning, everyone. Thank you for joining our third quarter 2024 earnings call.
Phil Eyler: I am very proud of the Gentherm team for their commitment and focus on delivering strong financial and operating results for the quarter.
Phil Eyler: As you'll hear today, our continued focus on flexible and innovative solutions and strong customer relationships positions us well for long-term growth despite challenging market conditions.
Phil Eyler: I want to start with a review of the three priorities we laid out for 2024 at the beginning of the year and how we're executing against each of these.
Phil Eyler: Our first priority is to lead the industry with new automotive business awards and executing on an unprecedented award backlog.
Phil Eyler: Year-to-date we have secured 1.8 billion dollars of automotive new business awards with a win rate exceeding 80 percent.
Phil Eyler: This keeps us on track for annual awards of over $2 billion for the second consecutive year.
Phil Eyler: Our record awards are proof points that customers value our partnership model.
Phil Eyler: We work with 50-plus car manufacturers and 30-plus seat makers across the globe.
Phil Eyler: Our position as the largest independent provider of thermal and pneumatic solutions is a key differentiator with both our OEM and Tier 1 customers.
Phil Eyler: We're executing on our backlog through dozens of new program launches, including Pneumatics for the Volkswagen MQB platform.
Phil Eyler: CCS solutions on the BMW 5 Series, our first ever CCS launch on the Toyota Camry, as well as our hands-on detection enabled steering wheel heat solutions on multiple vehicle platforms.
Phil Eyler: We're also launching content with new Chinese OEM customers, such as Li Auto, where we launched our CCS solutions, our pneumatic solutions, and hands-on detection-enabled steering wheel heat solutions on multiple vehicle platforms.
Phil Eyler: Second, our Fit for Growth initiatives continue to drive improved financial performance.
Phil Eyler: with year-to-date adjusted EBITDA margin expansion of nearly 100 basis points.
Phil Eyler: even as we experienced lower production volumes than the prior year and significantly lower than S&P global production volume estimates at the beginning of 2024.
Phil Eyler: This highlights our agility to react to fluctuating demand.
Phil Eyler: And third, we're making significant progress delivering industry-leading proprietary innovations.
Phil Eyler: For the first time in the third quarter, our ClimateSense software solution launched on a vehicle. We are demonstrating WellSense with several OEMs and conducting consumer clinics that continue to validate our thesis around consumers' interest and willingness to pay for WellSense.
Phil Eyler: And finally, we have secured our first production awards for Pulse A with Hyundai and expect further awards very soon.
Phil Eyler: We were also awarded Comfort Scale with General Motors.
Phil Eyler: These innovative technologies continue to position us well for long-term growth.
Phil Eyler: This execution is leading to continued outperformance versus market.
Phil Eyler: Our Automotive Climate and Comfort Solutions revenues outperformed light vehicle production in our key markets by nearly 800 basis points in the third quarter.
Phil Eyler: When we started the year, we set out these three strategic priorities, and as you can see, we are executing strongly against our plan in a challenging environment.
Phil Eyler: Now, turning to slide 5 for our third quarter automotive highlights.
Phil Eyler: We launched our automotive solutions on 30 different vehicles across 11 OEMs, including BMW, BYD, Geely, General Motors, Toyota, and Volkswagen.
Phil Eyler: I'm excited to announce our first ever launch of ClimateSense on the Cadillac Escalade IQ.
Phil Eyler: Over the past three years, we have been working diligently with General Motors to develop and deliver this unique microclimate solution.
Phil Eyler: Our Climate Sense feature is prominently displayed on the Cadillac website.
Phil Eyler: highlighting the value it brings to this vehicle.
Phil Eyler: I'm very proud of the team for bringing this innovative solution to market.
Phil Eyler: We look forward to continuing our work with General Motors on ClimateSense for the Cadillac Celestic and applying our ClimateSense software to future architecture, General Motors ICE and electric vehicles.
Phil Eyler: Our CCS solutions were launched on the Kia K4, Volkswagen Passat Pro, BYD's Yongwang U9, Skoda Kodiaq,
Phil Eyler: VW Magoton, the BMW 5 Series in Asia, and the Audi A5.
Phil Eyler: On this vehicle, we launched our CCS heat and vent, our lumbar and massage comfort solutions, multifunction electronics, and steering wheel heater with hands-on detection.
Phil Eyler: This is clear evidence of our market-leading position in both thermal and pneumatic comfort solutions.
Phil Eyler: During the quarter, we launched steering wheel heaters on 20 vehicles, and 14 of these were with hands-on detection technology.
Phil Eyler: Our lumbar and massage comfort solutions were launched on the Audi A5 and Q6 Sportback e-tron, BMW 1-series, BMW X3, and Volkswagen Wagon.
Phil Eyler: Another highlight of the quarter was the continued acceleration of lumbar and massage comfort solutions.
Phil Eyler: We achieved record quarterly revenue for lumbar and massage, an increase of 46% XFX compared to the same period last year.
Phil Eyler: Customer demand for our pneumatic solutions remains strong and we expect us to drive continued long-term growth for Gentherm.
Phil Eyler: On to slide six to discuss our awards.
Phil Eyler: In the quarter, we secured a third-quarter record $600 million of automotive new business awards, a key indicator that demand for our products remains strong.
Phil Eyler: For Thermal Solutions, we won several CCS awards in the third quarter.
Phil Eyler: including several Hyundai vehicles.
Phil Eyler: The Toyota RAV4, Audi Q5, a great wall vehicle, the Haval Dargo, a six-seat model in China for one of the largest global EV manufacturers, and the Honda CR-V.
Phil Eyler: and we continue to innovate our CCS solutions.
Phil Eyler: Our CCS Award with Great Wall is for our CCS Compact Vent Solution.
Phil Eyler: To remind you, CCS CompactVent is our proprietary modular system which combines a quieter, more compact blower with a novel air distribution module.
Phil Eyler: It provides cost savings to our OEM customers while also generating a better end-user experience through improved airflow with less noise.
Phil Eyler: We expect continued customer demand for this innovative and integrated solution.
Phil Eyler: Thank you.
Phil Eyler: As another example of CCS innovation, we're introducing a new low-profile quiet blower that helps our OEM customers significantly improve in-vehicle acoustics and noise performance.
Phil Eyler: This was awarded by a large global EV manufacturer for its new six-seat model in China.
Phil Eyler: This award also includes CCS for the rear seats, which demonstrates the growing consumer demand for entire vehicle thermal content.
Phil Eyler: We believe this increased content per vehicle will be a key growth driver for us over time.
Phil Eyler: As the market dynamics in China continue to evolve, we have made great progress over the
Phil Eyler: in diversifying our customer base.
Phil Eyler: through our proactive effort to grow our business with carefully selected Chinese domestic OEMs such as BYD, Li Auto, Huawei, Geely, Great Wall, and Xiaopeng.
Phil Eyler: and I'm excited to announce we recently won Breakthrough Awards with two new Chinese OEMs.
Phil Eyler: Leap Motor, and Xiaomi's Mi Auto, both new customers for Gentherm.
Phil Eyler: For Mi Auto, we will provide our thermal solutions, CCS heat and vent, as well as steering wheel heaters with hands-on detection solutions.
Phil Eyler: And for LeapMotor, we were awarded thermal and pneumatic content, including CCS heat and vent, and pneumatic lumbar and massage comfort solutions.
Phil Eyler: The award with LeapMotor is our 10th new Global Conquest Customer Award for pneumatic massage and lumbar business.
Phil Eyler: Awards like these will support our continued growth in China.
Phil Eyler: Further, on Thermal Awards, as we brought our ClimateSense solution to customers, we've demonstrated the EV range extension and superior thermal comfort.
Phil Eyler: This has led to an increase in in-vehicle thermal content.
Phil Eyler: also higher take rates and adoption rates for our thermal solutions.
Phil Eyler: And in particular, we have seen growing interest in interior heated surface solutions.
Phil Eyler: In the third quarter, we won another Interior Heated Surface Solution Award with Honda on the Honda Pilot EV.
Phil Eyler: Heated automotive interior systems is a growing market that we expect will provide additional growth opportunities for us, as well as increased content per vehicle.
Phil Eyler: We're well positioned to benefit from this development with our unique solutions.
Phil Eyler: Beep Beep
Phil Eyler: For steering wheel heaters, we received 13 awards across 8 OEMs, and 8 of these awards include hands-on detection functionality, including awards for General Motors full-size truck and large SUV platforms.
Phil Eyler: This Steering Wheel Heater Award on the General Motors Full Size Truck Platform caps off a nearly complete sweep of all interior thermal and pneumatic comfort solutions for the General Motors Full Size Truck Platform.
Phil Eyler: This leads me to slide 7.
Phil Eyler: I'm excited to share more about our first Comfort Scale award, which we secured during the third quarter.
Phil Eyler: It can be integrated with any foam and with any seat, and it's adaptable for all OEMs and all Tier 1s.
Phil Eyler: It's scalable from an entry-level lumbar and heat system all the way to a high-end Pulse A massage and CCS system.
Phil Eyler: ComfortScale is expected to drive significant performance improvement for our customers.
Phil Eyler: as well as meaningful reduction in complexity, labor cost, and logistics for the OEMs and seat manufacturers, which is becoming an increasingly more important focus point due to rising costs.
Phil Eyler: For these reasons, along with our outstanding relationship with General Motors, we were able to secure our first Comfort Scale award on the full-size truck platform, including the Chevrolet Silverado and GMC Sierra.
Phil Eyler: Gentherm is well-positioned for future Comfort Scale Awards, which we believe is a win-win for OEMs and Gentherm, due to improved performance and reduced costs, while continuing to increase our content for vehicle over time.
Phil Eyler: I'm extremely proud of the team and the speed at which they brought this new innovation to market.
Phil Eyler: Now moving to the next page for a discussion of our medical business.
Phil Eyler: In the third quarter, the medical team delivered double-digit revenue growth year-over-year, led by strong execution and market share gains in patient warming products across Europe, and strong sales of our flagship Blancatrol product in the U.S.
Phil Eyler: Thanks, in part, to our deployment on several U.S. Navy military vessels.
Phil Eyler: including the USS Theodore Roosevelt, USS Somerset, USS New Orleans, and USS America.
Phil Eyler: We're excited about the momentum we are creating with our patient temperature management solutions for the medical industry and the added scientific credibility this gives us with our automotive customers.
Phil Eyler: And now I want to turn to slide 9 for more color on the financial results.
Phil Eyler: For the quarter, product revenues increased by 1.5% compared to the same period last year.
Phil Eyler: If we adjust for the impact of foreign exchange, our overall product revenue increased by 1%.
Phil Eyler: Revenues from our automotive climate and comfort solutions increased by 3.3% compared to the same period last year.
Phil Eyler: Adjusting for foreign currency translation and the one-time benefits from recoveries in both periods.
Phil Eyler: Actual light vehicle production in our key markets of North America, Europe, China, Japan, and Korea decreased approximately 4.5% year-over-year, resulting in a revenue outperformance of nearly 800 basis points.
Phil Eyler: It's worth noting that excluding Asia, our outperformance would have been approximately 14 percentage points.
Phil Eyler: While the production environment remains challenging to forecast, we continue to expect strong revenue growth over market, over time.
Phil Eyler: Driving revenue growth in the third quarter was our pneumatic, lumbar, and massage comfort solutions.
Phil Eyler: and our steering wheel heaters.
Phil Eyler: Revenues from lumbar and massage increased by 46% XFX due to the ramp-up of the Volkswagen MQB platform, several models with Ford, and increased volumes with a large global EV manufacturer.
Phil Eyler: Steering wheel heater's revenue increased 11% XFX due to the start of production of the LiAuto L6 and ramp up volumes with BMW, General Motors and Mercedes
Phil Eyler: The remainder of our automotive revenue that was not related to automotive climate and comfort solutions decreased as expected.
Phil Eyler: This is due to our previously announced plan to phase out certain non-automotive electronics and battery performance solutions products.
Phil Eyler: and our strategic decision to begin pruning lower-growth, lower-margin programs in our cable business.
Phil Eyler: The results for the third quarter demonstrate our ability to grow revenue even in a declining production environment.
Phil Eyler: Turning to medical, revenues increased 10% XFX.
Phil Eyler: The medical team improved profitability sequentially for the second consecutive quarter as a result of the new go-to-market strategy I discussed earlier.
Phil Eyler: Now moving to adjusted EBITDA, in the quarter we achieved $48.1 million.
Phil Eyler: The adjusted EBITDA margin rate for the third quarter was 12.9% compared to 13% in the third quarter of last year.
Phil Eyler: The adjusted EBITDA margin rate was relatively flat year-over-year.
Phil Eyler: We expanded margins through our continued fit for growth initiatives, including supplier cost reductions and value engineering activities.
Phil Eyler: This was, however, offset by headwinds from the startup costs from our new plants in Mexico and Morocco.
Phil Eyler: While the one-time costs associated with opening the new facilities are near-term headwinds,
Phil Eyler: These plants will play a significant role in our fit-for-growth margin expansion over time.
Phil Eyler: Operating expenses were $62.5 million in the quarter, relatively flat compared to the prior year.
Phil Eyler: Finally, adjusted diluted earnings per share in the quarter were 0.75 cents per share compared to 64 cents per share in the third quarter of last year.
Phil Eyler: The year-to-date effective tax rate was 25 percent.
Phil Eyler: Moving to the balance sheet on slide 10, our cash position at the end of the quarter was approximately $150 million and our net debt stood at $71 million, a decrease of $27 million from the prior quarter.
Phil Eyler: We generated $46 million of cash flow from operating activities, which was deployed to $20 million of capital expenditures and $20 million of share repurchases.
Phil Eyler: And we have repurchased more than $130 million of shares since the beginning of 2023.
Phil Eyler: In line with our capital allocation strategy, we opportunistically repurchase shares given our strong belief in the value of our business.
Phil Eyler: Our net leverage ratio was 0.4 at the end of the third quarter.
Phil Eyler: And based on the trailing 12-month consolidated adjusted EBITDA ended September 30th, we had $278 million of remaining availability on our line of credit.
Phil Eyler: Total available liquidity as of September 30th was $428 million.
Phil Eyler: Now let me turn to slide 11 for our 2020 board guidance.
Speaker Change: Based on our results for the first nine months of 2024, including lower third quarter revenue than we expected, and our outlook for the fourth quarter, we are updating our 2024 full year guidance.
Speaker Change: Due to continuing deterioration of light vehicle production in our relevant markets, which began accelerating in September, as well as supply chain inventory adjustments, especially by our Tier 1 customers as they adjust to lower demand from OEMs.
Speaker Change: We are now expecting revenue between $1.45 and $1.47 billion.
Speaker Change: This assumes light vehicle production in our relevant markets decreasing at a low to mid single-digit rate for full year 2024 versus 2023.
Speaker Change: as well as mid-single-digit decline in the fourth quarter of 2024, lower than S&P Global Mobility's mid-October forecast.
Speaker Change: This is based on the latest information we have from our customers and our expectations of near-term conditions.
Speaker Change: This also assumes a Euro to U.S. dollar exchange rate of 1.08 for the remainder of the year.
Speaker Change: Despite the market declines, we expect our fourth quarter automotive climate and comfort solutions revenues to outpace production in our relevant markets at a similar level as the third quarter.
Speaker Change: Even in the midst of the challenging production and revenue headwinds, we continue to execute on our Fit for Growth initiatives, which we expect will help us deliver an adjusted EBITDA margin rate near the midpoint of our original provided range of 12.5% to 13.5%.
Speaker Change: Our full year effective tax rate and capital expenditures guidance remain unchanged.
Speaker Change: Now, wrapping up with a summary of our progress on our 2024 priorities.
Speaker Change: We are winning record awards and executing on new launches. We've expanded our EBITDA margin by nearly 100 basis points year-to-date, while light vehicle production is down over that same period of time.
Speaker Change: The demand for our new innovative solutions is accelerating. This is driven by consumers' growing demand for interior climate and comfort experiences, and OEM's response to increased vehicle adoption, content per vehicle, and applying higher take rates.
Speaker Change: As a result, this continues to position us well for long-term growth.
Speaker Change: I'm proud of the team's achievements year to date, which clearly demonstrates significant progress towards our key priorities as we look to finish the year strong.
Speaker Change: And with that, I'll turn the call back to the operator to begin the Q&A session.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on the telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
Speaker Change: The first question comes from the line of Matt Coranda with Roth Capital Partners. Please go ahead.
Matt Coranda: Hey guys, good morning.
Matt Coranda: Maybe just starting off on the bookings line. So last year, I think in the fourth quarter, you had pretty significant bookings. So just remind us any large programs that we're copying against from last year and then any significant opportunities that could send awards sequentially higher in the fourth quarter. I'm just curious mostly about comfort scale. Are there opportunities in the pipeline that could shake loose in the fourth quarter? Maybe just a little bit more color on sort of the bookings environment here.
Speaker Change: Thank you for watching!
Speaker Change: Thanks, Matt. Yeah, obviously, if you look at the third quarter, we're extremely proud of the $600 million in awards, which was a record for the third quarter. That takes us to $1.8 billion for the year.
Speaker Change: So, I think we're well on track to exceed $2 billion. We have several interesting possibilities in the fourth quarter.
Speaker Change: I think $900 million, which we achieved last year in the fourth quarter, was very high, so probably difficult to achieve that, given what we see in the pipeline, but we expect a...
Speaker Change: a solid fourth quarter and I think we'll end up with pretty nice results.
Speaker Change: If you look at just the mix of awards over the years, it's been really well distributed with our thermal products and a very strong year with pneumatics, and of course our first comfort scale.
Speaker Change: award with General Motors. You know, we're excited about
Speaker Change: a few Pulse A opportunities that are in front of us that hopefully we can get nailed down in the not too distant future as well and those are relatively high content, so we're really excited about the progress and we have a nice portfolio of opportunities heading into 2025 as well.
Speaker Change: Okay, great. And then, just with the guidance cut for the top line, I'm curious if you could parse out for us, like, how much is related to just the general lower production expectations overall versus just maybe some lumpier programs that you expected in the fourth quarter that got pushed into the 25. Just a little bit more detail around the recalibration there on the top line would be great.
Speaker Change: Sure.
Speaker Change: Well, it starts with Q3, we came in about $10 million lower than we expected, and most of that was driven by steeper drops in September.
Speaker Change: And this really just continued into October to start off Q4.
Speaker Change: The decline in the guide is related to a fourth quarter.
Speaker Change: kind of high-level. Obviously, the light vehicle production in our relevant markets is declining 4% based on S&P Global Mobility's outlook.
Speaker Change: We actually believe this is understated based on the order cuts that we're seeing early in the quarter and the outlook for the rest of the quarter. That's most of the driver, to be honest with you, and if you kind of break some of that down...
Speaker Change: In terms of directly how it affects us, we see continued deterioration in Asia for the reasons I mentioned earlier, primarily in China.
Speaker Change: and then with select vehicles that are produced and sold in Korea by Hyundai. And then, you know, BPS and cables are both worse in Q4 than expected. Not too surprising given that they're tied to, really directly to vehicle production of ICEs.
Speaker Change: We continue to see pretty significant drops by Stellantis and by a few of the European OEMs. I'd say Mercedes would be leading the pack for us.
Speaker Change: and then several EV delays which continue to be, you know...
Speaker Change: pushed out longer than than we originally expected. There's a list of those that that are kind of causing this so
Speaker Change: That said, we are excited by some nice growth.
Speaker Change: that we're seeing with several products and customers throughout the fourth quarter, especially driven by the pneumatic lumbar massage products.
Speaker Change: and you know that's putting us in a position that we expect to outperform the market in Q4 on our core climate and comfort products in a similar manner as we did in Q3.
Speaker Change: So, all in all, indications remain strong. The consumer demand for our solutions, you know, all indications are we're seeing more vehicles.
Speaker Change: adopt the technology. We're seeing higher content in the vehicles. It's really tied to some of the dynamics in the vehicle production environment.
Speaker Change: On top of that, I'm really proud of our team's continued focus on fit for growth. We are ahead of all of our expectations on fit for growth so far, that along with tight cost controls.
Speaker Change: put us in a position to expect our EBITDA margin near the midpoint of the original guidance.
Speaker Change: even in the midst of these dramatic production declines.
Speaker Change: Okay, yeah, that's very helpful and fits well with my last question here, which is just, I guess if I parse out the midpoint of the full year guide,
Speaker Change: It looks like, you know, despite the lower revenue sequentially in the fourth quarter,
Speaker Change: We're going to see a higher adjusted even a margin relative to the third quarter So just wanted to get a sense for what that split looks like between gross margin And sort of some of the op-ex savings that are coming through from pit for growth
Speaker Change: and maybe just, you know, so that you get a little color around why the expectation that we see margins improve despite the lower revenue base.
Speaker Change: Yeah, I mean, it's fit for growth.
Speaker Change: and Value Engineering around those. Those are starting to come through. Those generally, as we implement those, they ramp up throughout the course of the year.
Speaker Change: Obviously, we've got other programs going on that cover different cost elements.
Speaker Change: that will also be at their, I would say, high point for the year in the fourth quarter. Those will be offset by headwinds from the startup of our plant in Monterey and Morocco.
Speaker Change: Most of that is in the fourth quarter. The headwind is going to come from the launch of Monterey. As you might know, we have now shut our plant down in South Carolina and moved all that production to our Monterey operation.
Speaker Change: On top of that, if you look at the North America growth with our pneumatics product, all that production is done in Monterey. So, as you can imagine, there's a lot happening in Monterey. We're very proud of the team. They're doing a great job of ramping up.
Speaker Change: all indications are it's going to be a terrific operation but you know as with any startup you see a lot of one-time costs associated with that ramp up. So those kind of balance each other out and yes we would we expect to see higher EBITDA in the fourth quarter than the third.
Speaker Change: Okay, super helpful. I'll leave it there. Thanks, Phil.
Speaker Change: Thank you. Next question comes from the line of Luke Young with Baird. Please go ahead.
Luke Young: New term production impacts, launch impacts, specifically in CCS and CTE in near-term guests. I was just a little surprised to see CCS underperform versus production a bit this quarter in particular. Is that some of the destocking at Tier 1 showing through in CCS that you mentioned in your comments? And if so, just how long do you think that might take to work through? Thank you.
Speaker Change: Yeah, most of it is the impact of Asia, Luke, the two elements being especially the global OEM declines in China.
Speaker Change: And then, kind of uniquely, we saw Hyundai pull back on vehicle production for the Korean market, and those had pretty high content for us.
Speaker Change: Actually, if you exclude the Asia headwinds, we would have been about flat on the combined CCS and seat heat business.
Speaker Change: We did have other headwinds in there, especially those things that are, I would call it the sharper declines in the tail end of the quarter in September, especially with Stellantis. The Jeep and Ram are high content vehicles for us.
Speaker Change: and I think it's well publicized what's happening with Stellantis on their inventory corrections.
Speaker Change: Also Europe, you know, some of the Mercedes vehicles that have high content. We've seen some declines there and Again, these these have been relatively steep in in September and October But you know, we we did see strong growth
Speaker Change: And then, you know, we continue to see the not, you know, I guess that answers your question on the CCS and HEAT.
Speaker Change: Yeah, I mean that kind of goes into the next part of the question Phil, just be you know conversely lumbar massage stepping up again sequentially I guess I'm just trying to get a sense of the launch schedule from here. I mean it still feels like we're quite early at this point but at the same time just don't want to get over my skis in terms of extrapolating two very strong quarters and the second quarter in the third quarter just kind of new term guide rails for lumbar massage
Phil Eyler: Yeah, I mean obviously we're very excited. We've got new vehicle platforms across VW that continue to ramp up.
Phil Eyler: Ford, seeing very nice...
Phil Eyler: additions of massage and lumbar in Ford vehicles and higher take rates ramping up.
Phil Eyler: and then also with a large global of EV manufacturer you were seeing you know higher adoption and penetration there. Those are a few examples. Li Auto also is launched with Massage. Now looking forward there are many many new awards that are still to be launched.
Phil Eyler: So we are still very early in this growth curve. So, you know, as we start to roll out with new customers like GM, with Stellantis.
Phil Eyler: with Jaguar Land Rover. These are all new programs that have been awarded post the acquisition of Alfmyr. So we think this is this we're going to see steady steady growth for all.
Phil Eyler: Pretty extended period of time. It's never going to be linear, of course. There's always going to be comps to deal with and timing of launches, but we're certainly expecting continued growth into fourth quarter and into next year.
Speaker Change: Mr. Yang, are you done with the questions?
Speaker Change: Sorry about that. Lastly, Phil, just my last question. You made a comment in the release that you're seeing acceleration in new technology wins. Obviously, you're seeing the Comfort Scale award coming through this quarter as well. Just hoping you could expand on any particular areas where you might see an uptick in awards in the near-term, technology-related.
Phil Eyler: Yeah, I mentioned Pulse A. We've got a lot of activity happening around Pulse A, which is a
Phil Eyler: a strong content adder for our massage product line. We had already announced Hyundai, but there's a couple more in the...
Phil Eyler: in the pipeline. Hopefully, we can get those closed here soon. Obviously, the comfort scale, lots of discussions happening with multiple customers on comfort scale on the heels of the announcement we made for General Motors.
Phil Eyler: We mentioned this new technology called CompactVent, which we're very excited about. We think this fits perfectly into lower profile seats and tougher applications, especially we mentioned this.
Phil Eyler: CCS award on a large global EV manufacturer
Phil Eyler: for China on a six-seater that's going to be coming out and, you know, those types of applications where you're applying in the rear seat, this compact event solution is, we think, pretty exciting. So those are a few examples. Obviously, more discussions happening with several customers on ClimateSense and WellSense.
Phil Eyler: that give us even a longer view of innovative technology launches.
Speaker Change: Got it. All very helpful. I'll leave it there. Thanks, Phil.
Phil Eyler: Thank you, Luke.
Speaker Change: Thank you. Next question comes from the line of Ryan Brinkman with J.P. Morgan. Please go ahead.
Ryan Brinkman: Hi, thanks for taking my question. Maybe first around comfort scale. I think it's interesting that your first award there is with General Motors. They were also the first to partner with you on climate sense. How should we think about the, you know, relative content per vehicle opportunity associated with comfort scale in relation to climate sense? Sounds like comfort scale might be more value-oriented. Also, it looks like maybe it's like more...
Ryan Brinkman: plug and play with regard to integration into the vehicle design, perhaps. How do you see the relevant market opportunity, content for vehicle, prevalence, and ability to ramp for a product like Comfort Scale in relation to Climate Sense?
Speaker Change: Well, let me start just to give you a sense of what ComfortScale is for us. It is a truly integrated solution that includes, you know, basically all of our thermal products and pneumatic products.
Speaker Change: and essentially we take many different end item part numbers and consolidate those to one or two.
Speaker Change: and those are what we would end up shipping to...
Speaker Change: the seat manufacturer that's selected by an OEM. And we've designed it in a really scalable way so that it can be integrated with virtually any.
Speaker Change: type of application. You know, that's with only minor modifications. So we're very excited about that. That brings more content into our solution. So we're adding components and obviously adding value from our side, but on net, it reduces more cost.
Speaker Change: for the car company because they're moving moving this assembly into our into our hands. So we're really excited about that You know with General Motors
Speaker Change: Obviously, we did a fairly good job of partnering with them and convincing them that we're rolling out on the...
Speaker Change: on their highest revenue platform across their company. So obviously there's a lot of trust there. We're excited about that and excited about working with them. We see this as a big opportunity to take the same platform to different customers around the world.
Speaker Change: Okay, thanks. And then, you know, we've been hearing from some companies about a potential slowdown in global luxury demand that is largely, but not exclusively, a China phenomena. And I just thought to ask you, you know, we've seen some profit warnings from BMW, Mercedes, Aston Martin, some of the other high-end brands. And I know you're on high-end vehicles, not necessarily luxury vehicles exclusively, of course, you're, you know, expensive pickups and SUVs, a lot of your business, I think, but you do do a lot of business with the high-end brands. I was just curious if that is a theme that you might be detecting, or what you think the end market demand for your, the products that you supply into it, the higher end, how that might be tracking? Gregory Blanchette
Speaker Change: Well
Gregory Blanchette: Yeah, we're watching that very closely. Maybe to, first of all, to frame the way our business is set up. We obviously have business and content on luxury, high-end, but we also have content.
Gregory Blanchette: you know relatively good content on even the mid-level mass market products or even even towards the What would be considered low-end so we're fairly well diversified there
Gregory Blanchette: The impact if volume, which happened in this past quarter with Stellantis where they reduced production of the RAM and Grand Cherokee, obviously those are higher content for us.
Gregory Blanchette: does have a little bit of a headwind effect. So that's something we're watching. We're not seeing any indications of take rate shifts that are significant across the industry. It's more just about select vehicle production in the mix of different vehicles that are produced.
Speaker Change: Okay, very helpful, thank you.
Speaker Change: Thank you. Next question comes from the line of Glen Chin with Seaport Research Partners. Please go ahead.
Speaker Change: Good morning. Thanks for taking my question.
Glen Chin: So, along similar lines, Phil,
Glen Chin: So comfort scale on GM are going to be on the full-size platform. That's a very large platform. Can you just share with us that the type of trim levels this will be on? And I guess relatedly...
Glen Chin: CCS is pretty widespread on that platform. Presumably, this supplants CCS content.
Glen Chin: I guess penetration or take rates, do you expect them to be similar or higher?
Speaker Change: Well, I don't want to specify anything on, I mean, that's really up to the car company to answer most of the questions you just asked, but I'll talk more generally about how the comfort scale works. It basically...
Speaker Change: if you want to call it supplant, but basically we would integrate the components that normally would be shipped one by one to the customer. So then our job is to.
Speaker Change: If there's a trim that's going to have, for example, only heat and lumbar, then we would create one product that has heat and lumbar.
Speaker Change: If it's going to have, in addition, CCS and massage, then that would be integrated into the product and shipped as a unit.
Speaker Change: So it's basically kind of shifting the way that those would be applied and shipped to the customers. And there are other components that are added because now we're kind of creating this fully assembled module for them.
Speaker Change: Now, I do think it makes it, and again, I'm not speaking for General Motors here, but in general, it makes it much easier to make the decision to run at a higher penetration rate.
Speaker Change: because these units are, you know, they're going to be assembled at the same point in the line, in the assembly line with, you know, the same operator. We're hoping that that...
Speaker Change: leads to higher take rates but that's not something that I would speak for the customer on.
Speaker Change: Okay, understood. And when does that launch still?
Speaker Change: Twenty-six.
Speaker Change: OK. Calendar year or model year?
Speaker Change: at some time in that calendar year.
Speaker Change: Okay.
Speaker Change: and similarly these these awards that you
Speaker Change: just had with these Chinese OEMs. When do those launch?
Speaker Change: We haven't called that out, but a lot of times these happen quicker than you would expect via a global OEM.
Speaker Change: Probably at least one would launch in 2025, yeah.
Speaker Change: Wow, okay.
Speaker Change: Okay, and then, I don't know if it's just me, but it looks like...
Speaker Change: with respect to the guidance.
Speaker Change: As outlined in the slide deck, it's slightly different from...
Speaker Change: that outlined in the press release. Can you just confirm? I'm assuming since you spoke to the slides.
Speaker Change: That is the one we should work off.
Speaker Change: I think you can reference my script. I'm not sure what you're referencing.
Speaker Change: Thank you for watching!
Speaker Change: Okay, yeah, just it's a reference of product revenue and adjusted EBITDA margin rate. It's slightly different. Slide deck presents the press release.
Speaker Change: But that's fine. We'll work off the slide deck. Yeah, I mean basically to restate it the revenue guidance is 1.45 billion to 1.47 billion
Speaker Change: EBITDA margin would be the midpoint of 12.5 to 13.5 percent.
Speaker Change: And we have left CapEx and tax rate the same as the original guidance. Hopefully that helps.
Speaker Change: Okay, very good. Thank you.
Speaker Change: Thank you. Next question comes from the line of Ryan Sigdal with Craig Hallum Capital Group.
Ryan Sigdal: Hey, good morning, guys.
Ryan Sigdal: Want to stick on the topic of kind of European OEMs versus Chinese. We're seeing kind of a cannibalizing where Chinese OEMs are having good traction in Europe. There's tariff conversations back and forth, etc. But I guess how do you think about balancing the two between your kind of core European OEMs and then the success you're seeing with the Chinese domestics?
Speaker Change: Well obviously we're very proud of our partnerships with the European OEMs. Let me start there, you know with BMW, with Volkswagen, with
Speaker Change: Mercedes, Audi, and we're doing very well. I mean, if you look at Europe, we outperformed the market pretty significantly in Europe on our core climate and comfort products.
Speaker Change: And a lot of that is with new CCS rollouts, obviously fast-growing pneumatics products with VW. We've got lots of wins with pneumatics with BMW that will continue to ramp up.
Speaker Change: Thank you for watching!
Speaker Change: struggles in Europe with vehicle production, but we continue to see outperformance there. When it comes to the Chinese OEMs...
Speaker Change: I think we have a pretty disciplined strategy of...
Speaker Change: working with select domestic manufacturers in China and you know if some of those also export to export or produce in Europe we'll be able to capitalize on that.
Speaker Change: Maybe just a higher level question, but you've had solid industry outperformance again this quarter. If I look at the auto awards you guys have reported over the last 3 years and inclusive this year, it seems to imply that the outperformance should accelerate at some point soon. Do you agree with that? Or is it not as simple as looking at awards versus kind of current revenue run rates?
Speaker Change: Well yeah I mean obviously the the awards indicate, are indicators that you could use to determine growth in the future and you know we we continue to do very well there so we're very confident in the growth profile that we have ahead of us and expect that to lead to to solid out performance.
Speaker Change: We generally don't forecast outperformance because there are lots of dynamics and regional mix changes that happen, you know.
Speaker Change: at different times, but as we, at least in the short term, we can point out the 800 basis points out performance in Q3 on our core climate and comfort business, and then we expect to see similar results in Q4.
Speaker Change: all right
Speaker Change: You know, we'll see how that plays out as we go forward.
Speaker Change: Thanks, Phil.
Phil Eyler: Sure thing. Thank you, Ryan.
Speaker Change: Thank you. Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Phil Eyler for closing comments.
Phil Eyler: Great, thank you. To close, I want to thank the Global GenTherm team, our partners and suppliers for another strong quarter of execution.
Phil Eyler: Despite the market headwinds, we continue to aggressively execute against our plan with a clear focus on innovation, bringing unique solutions to the market and a strong commitment to customer relationships.
Phil Eyler: We are excited about the future of Gentherm and remain committed to delivering shareholder value.
Speaker Change: Thank you. This concludes our today's study conference. You may disconnect your lines at this time. Thank you for your participation.
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