Q4 2024 Gentherm Inc Earnings Call
Greetings and welcome to the Gen <unk> fourth quarter and full year 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation should anyone require operator assistance during the conference. Please press star zero on your telephone.
Pat.
Speaker Change: As a reminder, this conference is being recorded it is now my pleasure to introduce your host Gregory gunshot senior director of Investor Relations. Thank you you may begin.
Gregory Gunshot: Good morning, everyone. Thanks for joining us today.
Gregory Gunshot: <unk> earnings results were released earlier this morning, and a copy of the release is available at <unk> Dot com.
Gregory Gunshot: Additionally, webcast replay of today's call will be available later today on the Investor Relations section.
Gregory Gunshot: During this call we will make forward looking statements within the meaning of federal Securities laws.
Gregory Gunshot: Thanks to reflect our current views with respect to future events and financial performance and actual results may differ materially.
Gregory Gunshot: We undertake no obligation to update them, except as required by law.
P. J.: Great P. J in terms of earnings release, and SEC filings, including the latest 10-K and subsequent reports for a discussion of our risk factors and other things that they can assumptions risks and uncertainties underlying such forward looking statements.
Gregory Gunshot: During the call. We will also discuss non-GAAP financial measures as defined.
P. J.: Regulation G.
P. J.: Reconciliations of these non-GAAP financial measures to comparable GAAP financial measures are included in our earnings release and Investor presentation.
Speaker Change: I would now like to introduce you to our new President and Chief Executive Officer, Bill <unk>, and New Chief Financial Officer, John D. R.
Speaker Change: During our comments today will be referring to a presentation deck that we made available on the investors section again in terms of on site.
Don: After their prepared remarks, we'll be pleased to take your questions and now I'd like to turn the call over to Don.
Don: Thank you, Greg and good morning, everyone before we cover the results in the fourth quarter, the full year and outlook for 2025, I want to start with a few opening thoughts.
Don: First I wanted to thank the board of directors for the opportunity to lead gender.
Don: It has to be selected and truly excited to lead the organization through its next phase of profitable growth.
Don: <unk> has a proven track record of product innovation, making it a leader in the industry with unique and defensible competitive advantages.
Don: Innovation is part of the culture agenda.
Any other team.
Don: As for Premier real Spirit here and the team is driven to win when I'm looking at Jeff.
Don: The technology company.
Don: Solutions are differentiated and we innovate with our systems focused approach to offer unique value propositions to customers.
Speaker Change: During my short time here I've been impressed at how portable and scalable the technologies are.
Speaker Change: I think this is a company that has great growth opportunities within the technology platform and core competencies that have been developed.
Speaker Change: These strengths combined to create a unique opportunity to generate shareholder value, which I am determined to do.
Speaker Change: Over the past seven weeks Ive been meeting with agenda, our leadership team as well as speaking with customers suppliers and members of the investment community.
John: John and I are quickly diving deeper into the product portfolio and business operations. So.
John: This has given us the opportunity to ask questions solicit feedback and identify where some of the greatest opportunities lie we will continue doing this and as the year progresses, we will be transparent with you regarding our top priority is to drive revenue growth margin expansion and cash generation.
John: Now turning to the deck on slide three I have outlined a few of my initial takeaways.
John: When it comes to our customers John there is a partner of choice.
John: <unk> pleased that we have direct access to the Oems and incredibly strong relationships with our tier one partners.
John: Our position as an independent provider of thermal and nomadic solutions is a real differentiator for us.
John: We worked with over 50 global Oems and dozens of tier one manufacturers around the world and any combination of those.
John: We develop systems oriented solutions utilizing our portfolio of it that'd be it.
John: Technologies to provide our customers with real value propositions, and we have proven our technology has applications outside of the seat.
John: This is a result of Jonathan investing in innovation through a disciplined approach.
John: Given our direct access to decision makers and our technology, we have all the tools needed to continue to drive conquest for profitable growth and outgrow our key markets over the long term.
John: Next I see incremental opportunities for operational improvements throughout the business by implementing business process standardization. This.
John: Isn't that unusual for a company that has moved up to speed agenda. There there have been multiple acquisitions as well as continuing footprint relocations and significant business wins.
Speaker Change: I've experienced similar situations there what's the Chambal. The company has resulted in a level of business process differentiate does throughout the organization.
Speaker Change: The way I have addressed this in the past is through the implementation of operating systems for things like fit for growth fundamentally become part of the continuous improvement culture of the company.
Speaker Change: This includes benchmarking setting standards to the ideal state.
Speaker Change: I'm fine and measuring gaps and then driving process improvements philosophically it sounds easy, but it takes a perpetual focus to integrate that mindset and the culture that is exactly what we have begun to do.
Speaker Change: Ultimately we expect these operational improvements to result in increased margins.
Speaker Change: Further the company has strategically positioned axa assets across the globe.
Speaker Change: I've had the pleasure of visiting some of our manufacturing locations and I was impressed with their operations and facilities.
Speaker Change: That said.
Speaker Change: I do see an opportunity to become more efficient with our capital by driving more volume to our existing assets.
Speaker Change: Additionally, we have recently accelerated strategic footprint plans that will read aligner production across all three regions. The planned focus is first I'm, having our production under the best locations, and then optimizing Florida space usage through layout redesign.
Speaker Change: We intend to reduce our footprint by approximately 30%, while maintaining the capacity necessary to support our expected growth and improve margins and cash flow generation.
Speaker Change: And lastly, Gen therapy has a strong technology foundation.
Speaker Change: <unk> core products, our scalable technology platforms.
Speaker Change: We think these industry, leading technologies can be leveraged to broader applications and customers ultimately driving future growth.
Speaker Change: That leads me to page four where I wanted to give some perspective on why I believe there are significant growth opportunities within our existing technology platforms.
Speaker Change: The left side of the page represents an element of gender strategy that was laid out there in the company's 2023 strategy update this.
Speaker Change: Strategy is to extend and technology leadership through things like focusing on software and electronics.
Speaker Change: The systems engineering mindset.
Speaker Change: Company has consistently and purposefully made investments into research and development, which has resulted in a strong core foundation of industry leading technologies.
Speaker Change: This focus on innovation is a differentiator for Jones or really separating us from our peers.
Speaker Change: As I look at our innovative solution I put them into board technology platforms, where we have core competency engineering debt and competitive advantages.
Speaker Change: These platforms are thermal management are moving devices pneumatic solutions and valve systems, which we have successfully deployed across the automotive and medical industries.
Speaker Change: Notably for Air moving devices, we utilize the same core technology for our Ccs portfolio for the automotive industry as we do for our warm air products for the medical industry.
Speaker Change: For thermal management, we've taken a resistive heating technology out of the sea and apply that to the medical industry.
Speaker Change: These are just a few examples of the synergies across our technology portfolio that we have capitalized on up to this point in time.
Speaker Change: We have demonstrated the technology is portable and we believe there is further opportunity to scale.
Speaker Change: We will continue our strong R&D focus taking a customer centric systems oriented approach to scaling our technologies and we will continue to leverage our proven go to market capabilities became more widespread market adoption of our innovative solutions.
Speaker Change: These industry, leading technologies are what gives me confidence in our ability to accelerate profitable growth.
Speaker Change: Now on slide five let me give you some examples of how Jennifer and who's done a phenomenal job of leveraging this foundation of strong core technology platforms to innovate next generation products and win New business Awards.
Speaker Change: Over the past few years momentum has been building as customers increasingly adopted our market leading technology.
Speaker Change: As many of you are aware in 2024, we announced wholesale awards with one diet and land Rover and today I'm excited to announce that we secured another wholesale war with BMW on the fourth quarter.
Speaker Change: I'll say as one of a kind is that utilizes our pneumatic technology includes precision micro pressure bursts the delivery pulsating massage.
Speaker Change: We have created a truly differentiated consumer experience and we are excited about the interest. This technology continues to receive from both below we are.
Speaker Change: Our new managed solutions products delivered 20% revenue growth in 2024.
Speaker Change: We remain in the early stages of growth as we deliver on previously awarded business and secure New conquest awards over the next several years.
Speaker Change: During 'twenty 'twenty four we also secured an important award from General Motors for comfort scale. Our patented next generation integrated thermal lumbar and massage hardware systems on the high volume both sides truck platform, including Chevrolet Silverado and GMC Sierra.
Speaker Change: In the past each of these components will source separately and now there are system oriented approach. We have integrated these functions into a single solution. This solution is a win for Oems due to improve performance and reduce costs in a wind project burn through increased content per vehicle.
Speaker Change: It was a great example of our value proposition and how Janssen does not just the leader in hardware, but in integrated systems and solutions provider.
Speaker Change: We continue to innovate many of our core products to stay ahead of our competition and provide value to our customers.
Speaker Change: Additional examples include the awards, we received for Ccs compact, but and for the Ccs quiet blower.
Speaker Change: These results demonstrate accelerating adoption of Gen <unk> unique and innovative solutions, leveraging our core technologies deployed across multiple product categories.
Speaker Change: As we look ahead to 2025, we expect to see continued strong demand for a gen their own products.
Speaker Change: Already this year, we secured our first seat heater award with Volvo and a future platform. This conquest win is a testament to our team's growing relationship with Volvo as well as our superior technology and flexibility to support any customer globally.
Speaker Change: Awards like these will support our future growth and build upon our market leading position now I'd like to turn the call over toward Chief Financial Officer, John <unk>, who will review, our 2024 results and 2025 outlook John.
John: Thanks, Bill I want to begin by echoing some of Bill's remarks through the first few weeks here. It is apparent that we have a strong team great culture innovative technologies, and our leading market position, which together make gens are quite compelling.
John: In addition, the company has a strong financial foundation to support future growth plans.
Speaker Change: I look forward to partnering with Bill and the global German team through this next phase of growth leveraging my experience to drive additional financial rigor and engaging with many of you over the coming months.
Speaker Change: With that let's turn to slide six where I will discuss the highlights from the fourth quarter and the full year.
Speaker Change: Our commercial momentum continued in the quarter as the team secured $640 million of automotive New business Awards.
Speaker Change: We saw success with our thermal management products, where we received 13 Ccs awards and a steering wheel heater awards.
Speaker Change: Which included hands on detection.
These awards span more than a dozen Oems and more balanced across region and powertrain.
Speaker Change: For lumbar and massage our team one fifth program the cross for Oems in the quarter, including securing two new pulse a awards with both BMW and land Rover.
Speaker Change: The C pulse say beginning to gain significant traction.
Speaker Change: Next I want to highlight key program launches in the quarter.
Speaker Change: It was another strong quarter of activity with 18 vehicle launches, including the start up production of several thermal solutions products on the high volume midsize SUV platforms, the Acura Mdx and the Nissan Murano as well as the.
Speaker Change: Next generation Dodge Charger, and all new electric Jeep Wagoneer apps from the Lantus.
Speaker Change: In addition, we launched a thermal control unit across several in production with this vehicle platform for both seat and steering wheel heat control.
Speaker Change: This conquest program with our first with this OEM and positioned us to successfully win the next generation business.
Speaker Change: In our medical segment, we delivered record financial results driven by the expansion of our global partner network.
Speaker Change: We were pleased to see the progress in that business and are optimistic about the future growth opportunities.
Speaker Change: Turning to the full year, we secured $2 $4 billion of automotive New business Awards led by increased adoption strong market acceptance of our leading innovations.
Speaker Change: We delivered record adjusted EBITDA of $183 million and expanded margin by 30 basis points compared to the prior year, despite a challenging market.
Kathy: Lastly, Kathy.
Kathy: <unk> balance sheet remains incredibly strong.
Kathy: Maintaining net leverage of approximately 0.5 turns at year end, while making significant investments in our operations and returning $50 million to shareholders through share repurchases throughout the year.
Kathy: Please turn to slide seven for a more detailed review of the financial results.
Kathy: Fourth quarter revenues decreased three 8% compared to the same period last year.
Kathy: Foreign exchange adjusted revenue decreased by three 3%.
Kathy: Our automotive climate and comfort solutions revenue grew one 7% outpacing actual light vehicle production in our key markets.
Kathy: Hundred and 30 basis points, when adjusted for FX, and one time benefits for recoveries in both periods.
Kathy: Revenues from lumbar massage increased 29% ex FX as we ramped up production for the Volkswagen <unk> platform along with several forward models.
Kathy: [noise] steering wheel heater revenue increased by 11% ex FX driven by the start of production of Lee Auto L six and new launches with Honda and General Motors.
Climate control seat and seat heater revenues decreased primarily due to lower volumes from Honda and scientists as well as some inventory corrections at the tier ones to account for lower OEM demand.
Kathy: Turning to medical.
Mentioned, we were really pleased with the team's execution of its strategic and operational initiatives for the fourth quarter revenues increased 9% ex FX compared to the same period last year, but once again improving profitability sequentially.
Kathy: The momentum is strong and we will look to continue driving revenue growth and further expanding margins.
Kathy: Moving to profitability, we achieved 41 $4 million of adjusted EBITDA in the quarter or 11, 7% of sales compared to 13, 4% in the fourth quarter of last year.
Klein was primarily driven by product mix higher freight costs, the impact of foreign exchange and costs related to our new plants opening in Monterrey, Mexico in Tangier, Morocco.
Kathy: Adjusted operating expenses were down $2 $4 million versus the prior year quarter.
Kathy: Adjusted diluted earnings per share in the quarter was 29 cents per share compared to 97 per share in the fourth quarter of last year, primarily driven by unfavorable one time tax adjustments recorded in 2024.
Kathy: For the full year revenue decreased <unk>, 9% compared to the same period last year or 0.4% when adjusted for FX.
Kathy: Revenue increases from lumbar massage and steering wheel heaters.
Offset by expected declines in cables BPM and electronics.
Kathy: 2020 for EBIT margin expanded 30 basis points compared to the prior year driven by strong material performance and productivity, partially offset by price reductions wage inflation and the cost associated with the new plants.
Kathy: Excluding the impact of prior period tax audits the effective tax rate was 26, 9%.
Moving to cash flow and the balance sheet on slide eight.
For the year, we generated $110 million of cash flow from operating activities, while deploying $65 million and net capital expenditures.
Kathy: In addition, we returned $50 million to shareholders in the form of share repurchases, leaving a $120 million under our current authorization.
Kathy: We ended the year with a net leverage ratio of zero point by Paris, and ample available liquidity of $414 million.
Kathy: Overall, it's been a solid cash generator and our balance sheet remains strong.
Kathy: In the spirit of continuous improvement opportunities remain.
Kathy: Going forward, we won't have a renewed focus on working capital and it will be a key part of the operating system that bill discussed earlier.
Kathy: In my past, they've leveraged daily management and war room approach is to drive down working capital with solid results and I look forward to seeing progress here a jump there.
Kathy: To ensure focus we are evaluating leadership objectives as well as our incentive plans to drive cash flow as a key business priority going forward.
Kathy: We believe we are well positioned to generate increased levels of cash flow over time, which will allow us to efficiently deploy capital and drive shareholder value.
Kathy: Now, let me turn to slide nine for outlook.
Kathy: Yes, there and revenue was consistently outgrowing light vehicle production in our key markets and we expect that to continue in 2025, despite an uncertain environment.
Kathy: 2025 revenue is expected to be between $1, four and $1.5 billion up approximately 2% when excluding a $35 million a year over year FX headwind.
Kathy: According to S&P Global mobility is mid February 2025 report actual light vehicle production in our key markets is expected to decrease roughly 1% for the year. So we anticipate this may be optimistic based on discussions with customers regarding near term conditions.
Kathy: We expect adjusted EBITDA margin for 2025 to be in the range of 12% to 13%.
Kathy: At the midpoint, we expect favorable material savings and productivity actions more than offset inflation and annual pricing. However, we will experience headwinds related to the impact of footprint changes.
Kathy: As Bill mentioned earlier the team has been and that's been evaluating scenarios to strategically realign our operations.
Kathy: After review we are accelerating these moves in an effort to drive improved long term profitability.
Kathy: In the short term.
Kathy: We will see an increase in one time costs as well as some disruption in production both impacting margins in the year.
Kathy: We are taking action across the globe.
Kathy: America, we will be consolidating two facilities in Monterrey.
Kathy: In Europe, we recently made the decision to close our location in the Czech Republic, and consolidate production into other facilities in the region.
Kathy: In Asia.
Kathy: Note that we will be transferring production from one of our facilities in Shanghai the Tam here.
Kathy: When our optimization plan is complete.
Kathy: Expect to reduce our footprint by approximately 30%, while maintaining the required capacity for growth as we optimize the existing floor space.
Kathy: Despite the near term headwinds associated with these footprint actions.
They will play a significant role in our margin expansion over time.
Kathy: These actions, we would've expected margin expansion of at least 50 basis points year over year.
Kathy: As we think about the quarterly cadence, we expect second half revenue to be stronger than the first half based on the lower first quarter.
Kathy: Additionally, as is typical we expect a sequentially lower first quarter adjusted EBITDA margin driven by the impact of a contractual price downs with improvements through the remainder of the year as we execute execute supplier cost improvements and productivity actions.
Kathy: At this time, we have not factored in any assumptions to account for potential changes to tariffs is there is not enough certainty with regard to implementation or timing.
Kathy: Capital expenditures are expected to be in the range of $70 million to $80 million.
Kathy: Twenty-five capex remains higher than what we would consider typical as we continue investing in the capital required to support our increased level of award and book print optimization.
Kathy: Quite challenging markets in the near term we remain excited about the long term growth prospects for Jetblue.
Kathy: This company remains uniquely positioned to outperform.
Kathy: We are exploring additional opportunities for growth, taking quick and decisive actions to drive margin improvement and focusing on generating cash flow through an investment cycle.
Kathy: That I will hand, it back to bill for a few closing remarks.
Bill: Thanks, John to close I want to reiterate our excitement for the future here.
Bill: We recognize the near term view and the automotive industry was challenging however, we remain confident in the long term growth opportunities at Genzyme.
Bill: We are acting with urgency on a few key priorities first we have a market leading technologies, where there is opportunity to scale.
Bill: We are focused on leveraging our platforms to accelerate profitable growth.
Bill: Racially.
Bill: We are implementing business process standardization across the company to drive efficiency in all aspects of the business, which will translate into higher margins and lastly, we are accelerating strategic plans that will real line or manufacturing locations across all three regions.
Bill: This will optimize our footprint for improved margins and cash flow generation.
Bill: I'm very optimistic about the future of the company and look forward to leading Gen terms next phase of growth.
Bill: As the year progresses, we look forward to keeping you apprised of our key priorities and progress and with that I will 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 one on your telephone keypad, a confirmation tone will indicate your line is from our question queue. You May press star two if he would like to remove your question from the queue for.
Bill: For those using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Matt Koranda: The first question is from Matt Koranda from Roth Capital Partners. Please go ahead.
Hey, guys good morning, maybe.
Speaker Change: Maybe bill to start with you wanted.
Speaker Change: I wanted to see if well you laid out some of the basics with respect to your views on Gen. <unk>, but are there any ways to think about your top two priorities are M. A C over the next couple of quarters.
Speaker Change: Yeah. Thanks for the question good morning.
Speaker Change: Yeah, I'll be very clear on my top two priorities right number one is.
Speaker Change: If you think back to the slide that showed the technology platforms right, we kind of break that down when we broke that down with the thermal pneumatic valves systems and air moving devices.
Speaker Change: Those technologies or platforms those technologies are core competencies so.
Speaker Change: While we think about those in terms of system design those.
Speaker Change: Those core competencies have large application outside of the seat sometimes I'm worried that we're often thought about too much and just being in the seat echo ecosystem and we've proven that those technologies.
Speaker Change: Can scale outside of the seat the same technology that's used for thermal solutions in the seat is used in other places in the vehicle that the same thermal technology is used in medical the heart of a nomadic system as valve system. The heart of a thermal systems. Many times and are moving to buy so my point in saying that is priority number one is.
John: As John and I had been deep into the product portfolio on the platforms.
John: We're aggressively working to identify opportunities that can scale those core technology platforms.
John: That's number one because the product is the lifeblood of the company number two goes back to the standardization of the operating systems.
John: And really what we're trying to do is put more standard hours per square foot or through our equipment and our floor space right and that will go through scaling those products, but we're in the process.
John: Again, standardizing our business processes and I'll just give you some examples.
John: Such that we are gapping are totally affected equipment production into what's theoretically possible in trying to close that gap. So instead of buying more assets down the road, which is maximizing utilization of the assets putting.
John: Yeah plans in place that closed theoretical shop floor, our direct labor efficiency to what's possible and then again, tying our manufacturing operating plan to our supply chain plan.
John: So that our manufacturing operating plans actually consider the impact on net working capital.
John: So really those two things and I'll, just summarize would come back to scaling the product and putting more product through our existing assets.
John: And increasing our efficient use of our assets that we're expanding margins and generating cash by lowering net working capital.
John: Very helpful. Thank you for that and then just on the third footprint reduction that you mentioned in the <unk>.
John: I think you said, 30% reduction.
John: A reduction in footprint, while maintaining sort of the capacity that you have already are there is there any way maybe John to hang numbers on the savings that could be associated with that and how that flows through over time.
John: Yeah, I think I mean, Matt when you look at it.
John: Certainly some headwinds this year, we expect roughly 50 plus basis points as we indicated in terms of impact just in terms of one time expenses and inefficiencies that will run through the P&L. This year I think as you look at the.
John: The out years or what are the benefits are not something I wouldn't necessarily want to put a number to right now, but we certainly view this as a critical piece of the equation that would get us to the mid high single digit.
John: EBIT numbers teens EBITDA numbers here over time, and so we'll come back on a more holistic sort of view as to what that looks like but I think the important thing for us.
John: As you know we wanted to take quick action to be able to reposition the footprint get rid of some of the.
John: The inefficiencies or incremental cost that's in the system and really leverage the capacity that we have to Bill's point earlier.
John: Okay Fair enough and then maybe just last one if I could ask on the 25 outlooks you match and obviously, there's yeah, there's S&P production forecast out a point or so it sounded like you guys were more downbeat Ah in terms of your expectation so what's factored in to your assumptions.
For industry production and that's built into the guide.
John: I think there is only a little bit of outgrowth I would assume implied yeah. Historically I guess Jen therm has outgrown the industry north of 500 basis points is that still the case this year.
What's the right way to think about outgrowth relative to your industry assumptions for 'twenty five.
John: Yeah, I mean, I think to your point the IHS report down roughly a point, we expect that to be maybe a point to rich or so in that range. I think as you look at us from an overall company perspective were up 2% when you exclude FX and so that's how we're thinking about it I think the other sort of context.
John: On the overall environment.
John: A macro perspective and and in autos that is just the uncertainty.
John: That exist as well so not really in a position at this point to be.
John: Okay.
John: Forward, if you will with with the guide given given the broader environment.
John: Okay I'll take the rest of mine offline. Thanks, guys.
Speaker Change: Thanks, Matt.
Speaker Change: The next question is from Luke Young from Baird. Please go ahead.
Luke Young: Good morning, Thanks for taking the questions maybe I'll continue on that line of questioning and just hoping to unpack the flat revenue assumption at the midpoint.
Speaker Change: You said the viewpoint.
Speaker Change: A few points of outgrowth from a product standpoint should we think of that mostly being driven by the nomadic part of the portfolio or are there other key growth contributors and we should be considering this year. Thank you.
Bill: Hey, good morning, it's bill presently.
Bill: Talk to you again I would say if you think of climate, our Ccs portfolio and I put the Ccs portfolio in the seat heaters together that is actually showing growth year over year.
Bill: The pneumatic are showing healthy growth year.
Bill: Year over year, and steering wheel heaters are showing some modest growth year over year.
Bill: So I would say when it comes back to our core portfolio all of those and what we would call all of them are automotive climate and comfort solutions.
Bill: You know that that performance versus IHS as you know.
Bill: Mid mid single digits at a minimum this is what we think so that's growing pretty well.
Bill: You had talked in the past about.
Bill: Proactively and consciously shedding some portfolio. So you know the battery performance system reductions are still pulling us down and then we're kind of just treading water on the automotive cables. So if you think about our again I go back to work more climate and comfort solutions in automotive growing as we would expect it to.
Bill: And what we're seeing is just pull down from some of those things that had been previously specified last year that we would be prudent pruning from the portfolio again that things like battery performance solutions and contract manufacturing electronics.
Speaker Change: Got it. Thank you for that and then second you know Billy you mentioned business process standardization several times in your remarks and as one of your two main focus areas can you maybe just help provide a little more context on where you found the organization. This in this regard and then should we understand these as growing pains.
Speaker Change: Four still Youngish company. The result of some of the recent M&A or is it really more all of the above all those things contributing.
Yeah look I think I think you're reading it right what I mean as you know if you ask my perception, where exactly where I would expect it to be you know I spent.
Speaker Change: The last 15, plus years and a couple of pretty hardcore operating companies that are that were you know <unk>.
Speaker Change: Stablish company's long legacy companies that had very strong operating systems right. When you think about Gen. <unk> company is 30 years old.
Speaker Change: There has been growth through mergers and acquisitions as there has been some you know divestitures like we've talked about in the past there's been some stuff that we're probing pruning. So the company is exactly kind of where you think it would be or for a company of this maturity.
Speaker Change: With Altmeyer I'll pick out where as an example.
Speaker Change: They have a different structure than say legacy Jonathan you look at how certain footprint moves have happened or are certain businesses have been one of the regions.
Speaker Change: And then some of the volumes have dropped off so although those are kind of needs to be knitted together and I go back to.
Speaker Change: It's where I expected it to be you know I'll use my experience from the past and we will standardize those operating systems, such that they're linked to supply chain or linked to net working capital that we build manufacturing operating plans.
Speaker Change: Mac surmise utilization of plant property and equipment, while driving down net working capital and I think that with you know John's background and financial rigor and the tools and processes that he's put in place there and his proven track record.
Speaker Change: That where we expect to be but we're very confident in the path forward and I would say the nice thing about the scale of Gen term is we think we have the ability to get there in a relatively quick fashion.
Speaker Change: Thank you and then a last question for me just you know we're fit for growth two point out fits into all of this fully recognized.
Speaker Change: Recognize you're kind of done that you want to move this more towards sort of.
Speaker Change: Our cultural view for the organization and that's something that's more discrete but in the near term am I hearing it right that some of the things that were in place from a gross margin standpoint are gonna be adders in 2025, and then kind of clicking beyond 25 should we see maybe some evolution of what was outlined as the prior approach.
Speaker Change: For fit for growth.
Speaker Change: Yeah look I think I think you read it correctly I mean, I think we view it certainly is.
Speaker Change: Cultural or part of the business system as we move forward and I think when you. When you look at the success of fit for growth historically, I think it's put up.
Speaker Change: You know relatively impressive focus on.
Speaker Change: On things like material performance, a number of the footprint actions that we have accelerated talked about accelerating here are a result of this piece of work. The team has done until there's some pillars. There that we look to continue to build off of.
Speaker Change: At all where I think you'll see a differences is talking about specific targets as it relates to fit for growth.
Speaker Change: You know from from Bill and I.
Speaker Change: But it is we plan to sort of institutionalize that into the company and we view that as.
Speaker Change: A mechanism and a muscle that we can leverage to expand margins here overtime.
Speaker Change: Got it I'll leave it there thank you.
Speaker Change: Excellent.
Speaker Change: As a reminder to ask a question. Please press star one.
Speaker Change: The next question is from Ryan Brinkman from JP Morgan. Please go ahead hi.
Ryan Brinkman: Thanks for taking my questions I, just wanted to follow up on some of the comments around footprint optimization, including how you go about during this process.
Speaker Change: Approaching like balancing.
Speaker Change: Supply chain and cost.
Speaker Change: Optimization on the one hand, you know manufacturing up with on the other hand, like redundancy resiliency or maybe tariff risk mitigation.
Speaker Change: And while I don't think you have any facilities in Canada can you just remind us again, what your exposure might be in terms of what you sourced from Mexico into the U S. And you know what early planning you might be doing in our conversations you might be having with customers.
Speaker Change: Try to go about best managing that potential risk.
Speaker Change: Yeah, I'll I'll take the first part and then John I don't know if you can jump in here, if there's something to add but yes. Our risk lies primarily with Mexico, Ryan I think you've read that correctly.
Speaker Change: We currently have five plants in Mexico that that ship servicing the north American market.
Speaker Change: Just on the footprint piece that that region is one of the regions, where we will be consolidating plants.
Speaker Change: And that's a known playing out there.
Speaker Change: With regard to tariffs, we don't know what's going to happen. So proactively what we've been doing with the customers as we've been telling them. What we view the gen <unk> impact to be to them. Once tariffs are enacted or whenever tariffs are enacted.
Speaker Change: We're trying to work proactively with our customers so that they can give us options.
Whether they want us to pre stage inventory in other areas, whether they want to pull ahead inventory at the end of the day, what we want to make sure of is that our production assumptions are tied to their production assumptions such that the ball goods continues.
Speaker Change: You know with regard to what happens to tariffs don't know, we just wanted to have absolute complete.
Speaker Change: Clarity with our customers, we want to make sure. They are aware of the impacts because ultimately those are costs that gen. <unk> can absorb and they'll they'll become part of the cost that will need to be.
Speaker Change: It recovered from the customer.
Speaker Change: John anything you want to add I mean, I think just as you think about the footprint of the company I think very strategically positioned.
Speaker Change: In China for China, and Asia to support the rest of the region.
Speaker Change: We've got Mexico, We've got open Morocco last year and have some strategic sites throughout Europe as well.
Speaker Change: As we as we look at the inefficiencies that you touched on in terms of the plant moves.
Speaker Change: View is is our Morocco.
Speaker Change: Morocco as an example, the decision's been made we're going to Morocco, we're very excited about the opportunity there how do we how do we get there faster. So that you can eliminate some of the additional fixed cost.
Speaker Change: We're an efficiency that exist in the rest of the business. So that's really where our planning has been focused.
Okay. That's very helpful. Thank you and then just lastly, and I'd be curious if in the new management's initial strategy review here, how you might be thinking about approaches to capital allocation.
Speaker Change: Your general approach might be towards M&A versus buybacks et cetera, and then how that general approach.
Speaker Change: Perhaps be swayed by current market conditions, either in terms of what multiples you might be asked to pay in the medical or automotive space versus also the price in.
Speaker Change: In multiple that your own stock trades that correctly. Thank you.
Speaker Change: Yes.
Brian: But Brian I think.
Speaker Change: I would say a couple of things I think one we're you know we're fortunate to have a strong balance sheet and.
Speaker Change: And a company that can generate cash flow and that's proven the ability to do that I think we're also fortunate that we are confident in an organic growth story.
Speaker Change: That you know, we don't necessarily need to do M&A to grow and so I think that's a good foundation to be starting from when you look at it historically I think funding organic growth has been the key priority followed by opportunistic M&A and then share repurchase in the absence of that I think in early days here that framework remains.
Speaker Change: Consistent.
Speaker Change: I think as we look at it. We're you know we're looking to build out the M&A funnel and reevaluate that.
Speaker Change: Got a bit of an elevated capex investment this year as we manage through the transitions and preparing for future growth.
Speaker Change: And certainly as we look at where the value of the company is now there's a dislocation between where we think.
Speaker Change: That is in the future and where it sits today so.
Speaker Change: As we balance those things here is certainly one.
Speaker Change: But more certain operating environment or any visibility in terms of some of the things like tariffs and other things and the impacts that may have on the industry.
Speaker Change: But we will continue to balance those and I would say it remains in that order in terms of funding organic growth.
Speaker Change: And I think M&A and then.
Speaker Change: Then repurchasing where appropriate.
Speaker Change: Thank you.
Speaker Change: Thanks, Brian.
Brian: The next question is from Brian <unk> from Craig Hallum Capital Group. Please go ahead.
Matthew Rob: Good morning, guys. This is Matthew Rob on for Ryan two questions here.
Brian:
Brian: Both sort of bigger picture questions. How do you view the awards backlog for for 2025, you know the focus of the slide deck here at least early on you're talking about strong demand for term solutions and creating other applications.
Brian: For the Tech that you guys have how quickly could those new applications come to market and then be put into the backlog.
Brian: Oh, Yeah, I will just I'll start and then John you can jump in here.
Brian: I will say that.
John: You know when you look at let's let's talk core automotive first looks pretty strong for us in 2025 again 2024 was a it was a good year 'twenty 'twenty, but it looks to be at a similar level just with the quoting activity.
Brian: That we see.
Brian: What John and I think I'll go back to had been focused on and you touched on it as you know where else can we read the technology across again, we view it as a platform we view it as a core competency I'm.
Brian: I'm just going to go back to the medical piece as an example.
Brian: You know for us the what we used in the thermal blankets is the same technology literally that we use in the steering wheels that we use in the seats. It's a form factor. So uses the same equipment uses the same processes uses the same core technology. So for US I go back to it's scalable.
Brian: Technology.
Speaker Change: What John and I are aggressively doing right now is working with the team to identify where we can scale that technology.
Brian: Optimistically.
Brian: Well you know we will spend the next six months planning out what I call strategic conquest, you probably saw the word conquest in my portion a lot which is targeted things were going after that utilized our core technology platforms. So I.
Brian: I would expect that you know within in the next six months to seven months, we have a very hard core line of conquests and.
Brian: And I would say I would expect that next year, we're rolling those into our actual booking targets.
Brian: Okay.
Brian: Morning.
Brian: Yeah.
Brian: Okay.
Brian: And then switching over to China, you know, how how do you view the Chinese domestic market.
Brian: Plan to take a more aggressive stance, there and kind of shift that revenue backlog mix up overtime.
Brian: Yeah, Let me, let me take that so I think you're spot on there. If you look at us historically in the China market, we've been 80% the multinational joint ventures, 20% domestic Chinese.
Brian: We've been taking an aggressive approach to shift that mix within the next year that mix will be 40% domestic Chinese Oems and.
Brian: And we continue to try to fill our booking funnel in the China market to more accurately represent the mix of manufacturers in the market. So that is a proactive strategy that we're actually using.
So ultimately we would like to see our mix relevant to the mix in the market.
Brian: And you know one of the things, we actually like about the China market as the development cycles are much faster in China. So that's an opportunity as we win there.
Speaker Change: Now to build up the backlog quicker by focusing on the Chinese domestic Oems and the one thing that we're hoping honestly you know what I made a trip to China last year I was impressed with the quality I was impressed with the technology that.
Speaker Change: They've come a long way in the 10 years I've been traveling back and forth. So we do expect that they're going to start penetrating other markets in EMEA and in North America, and we'd like to be a partner of choice with whoever comes across because we do have a global footprint and global capability.
Speaker Change: Okay, Great. That's it for me thank you.
Speaker Change: This concludes the question and answer session and todays teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change: [music].