Q1 2025 Gentherm Inc Earnings Call
Speaker Change: [music].
Greetings and welcome to the agenda in the first quarter 'twenty 25 earnings conference call. At this time, all participants are in a listen only mode.
Operator: Greetings and welcome to the Gentherm First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Operator: A brief question and answer session will follow the formal presentation.
A question and answer session will follow the formal presentation should anyone require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
Operator: Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Gregory Blanchette: It is now my pleasure to introduce your host, Gregory Blanchette, Senior Director, Investor Relations. Thank you. You may begin. Thank you and good morning, everyone, and thanks for joining us today. Gentherm's earnings results were released earlier this morning, and a copy of the release is available at gentherm.com. Additionally, a webcast replay of today's call will be available later today on the investor relations section of Gentherm's website. During this call, we will make forward-looking statements within the meaning of federal security laws. These statements reflect our current views with respect to future events and financial performance, and actual results may differ materially.
Gregory Gunshots: It is now my pleasure to introduce your host Gregory Gunshots Senior director of Investor Relations. Thank you you may begin.
Speaker Change: Thank you and good morning, everyone and thanks for joining us today.
Speaker Change: <unk> earnings results were released earlier this morning, and a copy of the release is available at Jeff.
Speaker Change: Additionally, a webcast replay of today's call will be available later today on the Investor Relations section of <unk> website.
Speaker Change: During this call we will make forward looking statements within the meaning of federal Securities laws.
Speaker Change: These statements reflect our current views with respect to future events and financial performance and actual results may differ materially.
Gregory Blanchette: We undertake no allegation to update them except as required by law.
Speaker Change: We undertake no obligation to update them, except as required by law.
Speaker Change: Please see Gen terms earnings release in our SEC filings, including the latest 10-K and subsequent reports for discussions of risk factors and other significant assumptions risks and uncertainties underlying such forward looking statements.
Gregory 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 significant assumptions, risks, and uncertainties underlying such forward-looking statements. 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: During the call. We will also discuss non-GAAP financial measures as defined by SEC regulation G.
Speaker Change: Reconciliations of these non-GAAP financial measures.
Speaker Change: Comparable GAAP financial measures are included in our earnings release and Investor presentation.
Bill: On the call with me today are Bill <unk>, President and Chief Executive Officer, and John <unk>, Our Chief Financial Officer.
Gregory Blanchette: On the call with me today are Bill Presley, President and Chief Executive Officer, and Jon Douyard, Chief Financial Officer. During their comments, they will be referring to a presentation deck that we made available on the Investor section of Gentherm's website.
Bill: During their comments they will be referring to a presentation deck that we made available on the investors section of <unk> website.
Gregory Blanchette: After the prepared remarks, we'd be pleased to take your questions.
Bill: After the prepared remarks, we'll be pleased to take your questions now I'd like to turn the call over to Bill.
William Presley: Now, I'd like to turn the call over to Bill. Thank you, Greg. And good morning, everyone. I'm excited to give you an update on our first quarter, the opportunities across Gentherm, and the progress we've made in the short period since joining the company at the beginning of the year. I am pleased with the energy and adaptability of the GenThern team. The team has worked aggressively to begin instituting key business process standardization actions and embrace the challenge of pushing our core platforms into markets outside of automotive. We are aligned on the need to grow revenue while expanding margins and increasing cash flow.
Bill: Thank you, Greg and good morning, everyone I'm excited to give you an update on our first quarter the opportunities across gender and the progress we've made in the short period since joining the company at the beginning of the year.
Speaker Change: I am pleased with the energy and adaptability of the Gen. <unk>. The team is working aggressively to begin shooting key business process standardization actions and embraced the challenge of pushing our core platforms in some markets outside of automotive.
Speaker Change: We are aligned on the need to grow revenue, while expanding margins and increasing cash flow. We as a company are still in the early stages of this journey, but I see great opportunities ahead for us.
William Presley: We as a company are still in the early stages of this journey, but I see great opportunities ahead for us.
Speaker Change: Let me start with some comments on the broader operating environment on slide three before diving into our business.
William Presley: Let me start with some comments on the broader operating environment on slide 3 before diving into our business. The announcement of tariffs have created an increased level of economic uncertainty. We continue to monitor developments related to tariffs daily with an internal team, and have also engaged various industry partners to help us fully understand any potential impact. We have a strategically positioned footprint focused primarily on manufacturing in region or region with Mexico supporting our North American business which is about 40 percent of Gentherm's total revenue. At this time, we believe we can largely mitigate the direct impact of tariffs.
Speaker Change: The announcement of tariffs have created an increased level of economic uncertainty, we continue to monitor developments related to tariffs daily what's an internal team and have also engaged various industry partners to help us fully understand any potential impact.
Speaker Change: We have a strategically positioned footprint focused primarily on manufacturing in region for region with Mexico, supporting our North American business, which is about 40% of Gen. <unk> total revenue.
Speaker Change: At this time, we believe we can largely mitigate the direct impact of tariffs first.
William Presley: First, the majority of our components either are not included on the listed components annex or are USMCA compliant, and therefore, we do not expect significant incremental tariffs. However, for the tariffs we do incur, we have communicated to our customers these costs will be passed through. We have been working closely with our customers to implement tariff tracking and reimbursement mechanisms. And we have mapped out our production and flow of goods to provide our customers clear visibility to where the impacts are recurring. In some cases, we have changed logistics so that the customer becomes the importer of records, eliminating the need for any tariff pass-through.
Speaker Change: The majority of our components either not included on the list and components.
Speaker Change: Or are U S. MCA compliant and therefore, we do not expect significant incremental tariffs.
Speaker Change: However for the tariffs we do incur we have communicated to our customers. These costs will be passed through.
Speaker Change: We have been working closely with our customers to implement tariff tracking and reimbursement mechanisms.
Speaker Change: And we have mapped out our production and flow of goods to provide our customers clear visibility where the impacts are recurring.
Speaker Change: In some cases, we have changed logistics, so as the customer becomes the importer of record eliminating the need for any tariff pass through.
Speaker Change: We continue to keep a close eye on demand.
William Presley: We continue to keep a close eye on demand. We're closely watching dealer inventory levels, customer EDI schedules, and collaborating with our customers to get real time data on future demand. According to S&P Global's mid-April report, the outlook for 2025 annual volume has declined 2% for our relevant markets compared with the mid-February report. More notably, looking at the last three quarters of the year, the expected decline was 3.4% for our relative markets, including 10% in North America, where we have 40% of our business. In terms of direct insights from customers, there has been limited net impact from changes to demand schedules.
Speaker Change: It closely watching dealer inventory levels.
Speaker Change: <unk> schedules and collaborating with our customers to get real time data on future demand.
Speaker Change: According to S&P Global's mid April report.
Speaker Change: For 2025 annual volume has declined 2% for our relevant markets compared with the mid February report.
Speaker Change: More notably looking at the last three quarters of the year do you expect decline was three 4% for a relative markets, including 10% North America, where we have 40% of our business.
Speaker Change: In terms of direct insights from customers. There has been limited net impact from changes to demand schedules.
William Presley: For the year, we have assessed the latest late vehicle production forecast and the impact of tariffs in place today. And while these put pressure on the midpoint of initial revenue guidance, we are still within our prior range at this time.
Speaker Change: For the year, we have assessed the latest light vehicle production forecast and the impact of tariffs in place today.
Speaker Change: While these put pressure on the midpoint of our initial revenue guidance, we're sticking with our prior range at this time.
William Presley: In summary, we have developed action plans to execute commercially and operationally based on the current environment. We are remaining nimble, allowing us to react to any policy changes that may occur. Even facing the current uncertainty, we remain confident that we are operating from a position of strength. Our balance sheet is very strong to weather any potential near-term noise.
Speaker Change: In summary, we have developed action plans to execute commercially and operationally based on the current environment. We are remaining nimble, allowing us to react to any policy changes that may occur.
Speaker Change: Even facing the current uncertainty we remain confident that we are operating from a position of strength.
Speaker Change: Our balance sheet is very strong to weather any potential near term noise longer term, we expect to grow revenue in automotive medical and other markets and we have a plan to expand margins and deliver strong free cash flows.
William Presley: Longer term, we expect to grow revenue in automotive, medical, and other markets, and we have a plan to expand margins and deliver strong free cash flows.
Speaker Change: Now, let's turn to slide four to discuss our business and the things within our control.
William Presley: Now let's turn to slide four to discuss our business and the things within our control. Since joining Gentherm on January 1st, I have been continually impressed with the team, our product portfolio, and our customer relationships. I have made multiple trips to our various locations around the globe to engage with the Gentherm team on the floors of our manufacturing facilities and technical centers. In addition, I have been meeting with our current and prospective customers, as well as members of the investment community. Everything I have heard and seen has reinforced my belief that we have the right technology platforms that have a broad market application.
Speaker Change: Since joining Jon Gardin on January 1st I have been continually impressed the teams our product portfolio and our customer relationships.
Speaker Change: I have made multiple trips to our various locations around the globe to engage with the German burn team on the floors of our manufacturing facilities and technical centers.
Speaker Change: In addition, I have been.
Speaker Change: Meeting with our current and prospective customers as well as members of the investment community.
Speaker Change: Everything I have heard and seen has reinforced my belief that we have the right technology platforms that have a broad market application.
Speaker Change: As I said on our last earnings call. We are very focused on scaling our four core technology platforms thermal management are moving devices pneumatic solutions and valve systems.
William Presley: As I said in our last earnings call, we are very focused on scaling our four core technology platforms, thermal management, air moving devices, pneumatic solutions, and valve systems. The company has historically proven the portability of these technologies and ability to scale outside of the sea into other areas of the vehicle and into the medical market. Over the past 100 days, we have been mapping out opportunities into additional markets. I want to reinforce that the team has been acting with urgency to find new markets for existing product platforms while innovating new solutions for existing markets. I am very confident in our future growth given recent automotive awards, as well as our actions to identify opportunities in other markets.
Speaker Change: The company has historically prove as affordability of these technologies and the ability to scale outside of the C into other areas of the vehicle and into the medical market.
Speaker Change: Over the past 100 days, we have been mapping out opportunities into additional markets.
Speaker Change: I want to reinforce that the team has been we're acting with urgency.
Speaker Change: New markets for our existing product platforms, while innovating new solutions or existing markets.
Speaker Change: I am very confident in our future growth given recent automotive awards as well as our actions to identify opportunities in other markets.
Speaker Change: On slide five I want to give a real example of how we are identifying new growth opportunities.
William Presley: On slide five, I want to give a real example of how we are identifying new growth opportunities. We have reinvigorated our product lifecycle roadmap with a key focus on our core technology platforms. This leads to clear visibility on the component and system level, which allows us to read specifications or needs across various markets. That's a long-winded way of saying we can now spec our existing core technology platforms against other markets to buy and scale. Through some of our early work, we have already identified several new commercial opportunities utilizing our four core platforms and are now working through margin profiles and scenarios to see how we can accelerate our speed to market.
Speaker Change: We have reinvigorated our product lifecycle roadmap with a key focus on our core technology platforms.
Speaker Change: This leads to a clear visibility on the component and system level, which allows us to reach specifications or needs across various markets.
Speaker Change: That's a long winded way of saying, we can now spec our existing core technology platforms against other markets to buying scale.
Speaker Change: There is some of our early work we have already identified several new commercial opportunities utilizing our four core platforms and are now working through margin profiles and scenarios to see how we can accelerate our speed to market.
Speaker Change: Mapping our product platforms against conquest maps and commercial opportunities will be continuously sustained action to drive profitable growth.
William Presley: Mapping our product platforms against conquest maps and commercial opportunities will be a continuously sustained action to drive profitable growth. In a short time, we have been able to identify two areas for our medical business where we believe we can leverage our existing core platforms to address emerging needs in patient and physician thermal management. We are literally taking components used in automotive applications and redefining the usage of those same components to create new systems in medical. This is demonstrating that we can drive scale of our core products and other end markets without making significant incremental investments.
Speaker Change: Short time, we've been able to identify two areas for our medical business, where we believe we can leverage our existing core platforms to address emerging needs and patient and physician thermal management.
Speaker Change: We are literally taking components used in automotive applications and redefining the usage of those same components to create new systems and medical.
Speaker Change: This is demonstrating that we can drive scale of our core products and other end markets without making significant incremental investments.
William Presley: We have completed proof of concepts on these product designs and are currently performing voice of the customer workshops to determine the potential for market adoption and pricing. The initial customer feedback has been very positive. These are two examples of opportunities to meaningfully expand our addressable market. Given these opportunities and others we are exploring, we have high aspirations for our medical business and believe it can scale to a much more meaningful percentage of our overall company revenue. This demonstrates how we are approaching growth opportunities with our methodical evaluation of all capabilities in our portfolio. As a technology leader, we believe we have the ability to unlock significant market potential that can change the growth trajectory of Gentherm.
Speaker Change: We have completed proof of concepts on these product designs that are currently performing voice of the customer workshops to determine the potential for market adoption in price at the initial customer feedback has been very positive.
These are two examples of opportunities to meaningfully expand our addressable market given these opportunities and others. We are exploring we have high aspirations for our medical business and believe it can scale to a much more meaningful percentage of our overall company revenue.
This demonstrates how we are approaching growth opportunities with our methodical evaluation all capabilities in our portfolio.
Speaker Change: As a technology leader, we believe we have the ability to unlock significant market potential that can change the growth trajectory of Gen <unk>.
Speaker Change: The Medical example, illustrates how we are fueling a key piece of the strategic framework that we rolled out across the company in March.
William Presley: The medical example illustrates how we are fueling a key piece of the strategic framework that we rolled out across the company in March. On the left side of slide 6, you see that our framework to deliver shareholder value focuses on profitable growth, operational excellence, and financial performance. On the right side are some of our initial key focus areas. As I said earlier, I am confident in our ability to scale Gentherm platforms for profitable growth. In addition to reshaping our product lifecycle management actions, we have been defining the size of the markets for our platforms and products outside of purely automotive.
Speaker Change: On the left side of slide six you'll see that our framework to deliver shareholder value focus is on profitable growth.
Speaker Change: Operational excellence and financial performance on.
Speaker Change: On the right side or some of our initial key focus areas.
Speaker Change: As I said earlier I am confident in our ability to scale <unk> platforms for profitable growth.
Speaker Change: In addition to reshaping our product lifecycle management actions, we have been defining the size of the markets for our platforms of products outside of purely automotive.
William Presley: We have met with potential customers and partners in adjacent markets to define paths to push our technology into other applications. We are committed to driving profitable growth, and our product platforms and pipeline are the key to achieving that commitment. In addition, we have made progress on improving operational excellence and vigor.
Speaker Change: We have met with potential customers and partners and adjacent markets did a fantastic Bush our technology into other applications, we are committed to driving profitable growth and our product platforms and pipeline are the key to achieving that commitment.
Speaker Change: In addition, we have made progress on improving operational excellence and vigor.
William Presley: Visits to our global locations have provided us with clear insights on opportunities to drive continuous improvement. We are doing this through implementation of standardized business processes. Early focus has been on standardized production control plans to bring inventory levels to an appropriate level based on a supply chain model we call plan for every part. These actions are supported by the standardized factory floor KPIs we have rolled out across the company that allow us to quickly benchmark our sites against one another.
Speaker Change: Visits to our global locations have provided us with clear insights and opportunities to drive continuous improvements.
Speaker Change: We are doing this through implementation of standardized business processes early focus has been.
Speaker Change: On a standardized production control plans to bring inventory levels to an appropriate level based on a supply chain model calls for every part.
Speaker Change: These actions are supported by the standardized factory floor of Kpis, we have rolled out across the company that allows us to quickly benchmark our sites against one another.
William Presley: As previously announced, we have accelerated our strategic footprint plans that will realign our production across all three regions in optimized capacity. As a reminder, in North America, we are consolidating our two sites in Monterey. In Europe, we will close our location in the Czech Republic and consolidate that production into North Macedonia and Morocco. In Asia, we are transferring production from one of our facilities in Shanghai to Tianjin. This quarter, we received production part approval in a Morocco facility and began shipping production components to the customer location. This was a critical achievement to start ramping up our Morocco facility.
Speaker Change: As previously announced we have accelerated our strategic footprint plans that were realized in our production across all three regions and optimized capacity.
Speaker Change: As a reminder, in North America, we are consolidating our two sites in Monterrey.
Speaker Change: In Europe, we will close our location in the Czech Republic, and consolidate that production into north Macedonia in Morocco in Asia, we're transferring production from one of our facilities in Shanghai and Tianjin.
Speaker Change: This quarter, we received production product approval in Morocco facility and began shipping production components to the customer locations.
Speaker Change: This was a critical achievements start ramping up our Morocco facility.
William Presley: These investments in our footprint position us for long-term margin expansion and free cash flow generation. A continued focus on product, operational excellence, and maximizing our usage of plant, property, and equipment would deliver superior financial performance.
Speaker Change: These investments in our footprint position us for a long term margin expansion and free cash flow generation.
Speaker Change: Our continued focus on products operational excellence and maximizing our usage of plant property and equipment will deliver superior financial performance.
Speaker Change: We have kicked off several work streams to identify areas, where we could enhance cash flows we're driving better utilization of our existing capital and we'll be diligent in our capital expenditures going forward to ensure we are efficiently utilizing our cash flow.
William Presley: We have kicked off several work streams to identify areas where we can enhance cash flows. We are driving better utilization of our existing capital and will be diligent in our capital expenditures going forward to ensure we are efficiently utilizing our cash flow. We are also looking at things like our entity structure to identify where we can generate cash savings.
Speaker Change: We're also looking at things like our entity structure to identify where we can generate cash savings.
Speaker Change: Let's turn to the first quarter highlights on slide seven before handing over to John I want to share a few key performance highlights for the quarter.
William Presley: Let's turn to the first quarter highlights on slide 7. Before handing over to John, I want to share a few key performance highlights for the quarter. We continue to make strong commercial progress towards driving strategic, profitable growth and solve solid new business awards in the quarter. The team continues to focus on driving operational and financial improvement, even in light of a challenging environment, and we are investing in our business to make the right strategic moves to best position us for the future. We will not overreact to current near term noise. Our priorities remain clear, scaling our technologies and optimizing our operations.
Speaker Change: We continue to make strong commercial progress towards driving strategic profitable growth, we saw solid new business awards in the quarter.
Speaker Change: Team continues to focus on driving operational financial improvement even in line with challenging environment and we are investing in our business to make the right strategic moves to best position us for the future.
Speaker Change: We will not overreact to current near term noise, our priorities remain clear scaling our technologies and optimizing our operations.
William Presley: Gentherm has unique capabilities, strong operating momentum, and additional paths for growth going forward. I am confident in our ability to succeed and drive shareholder value.
Speaker Change: <unk> has unique capabilities strong operating momentum and additional paths for growth going forward.
Speaker Change: I'm confident in our ability to succeed and drive shareholder value.
Jonathan Douyard: And now I will turn the call over to John to review the first quarter highlights and results.
Speaker Change: Now I will turn the call over to John to review, the first quarter highlights and results John.
Jonathan Douyard: John. Thanks, Bill. Please turn to slide eight. In the first quarter, our team delivered overall results that were in line with our expectations, despite a highly dynamic operating environment. As we have continued diving into the business, it is clear there is a solid foundation in place that positions us well for long-term value creation. A key piece of the foundation is commercial success, and our team had another solid quarter to start the year. In total, we secured $400 million of automotive new business awards, which included multiple strategically important wins. We were awarded our first ever Pneumatic Comfort Solutions Award with a Japanese OEM, which is a significant milestone for two reasons.
John: Thanks, Bill please turn to slide eight.
John: In the first quarter our team delivered overall results that were in line with our expectations. Despite a highly dynamic operating environment.
John: As we have continued diving into the business. It is clear there is a solid foundation in place that positions us well for long term value creation.
John: Key piece of the foundation and commercial success and our team had another solid quarter to start the year.
John: In total we secured $400 million of automotive New business Awards, which included multiple strategically important wins.
John: We were awarded our first ever nomadic comfort solutions award with the Japanese OEM, which is a significant milestone for two reasons.
Jonathan Douyard: First, we previously stated that partnering with Japanese OEMs was key for Gentherm's growth and customer diversification, and this award demonstrates the significant progress we have made. Second, it is another example of the value of the Altmaier acquisition and a great proof point of our ability to leverage Gentherm's strong customer relationships. This was a great win for the Japan team, and we believe it is just the beginning of our efforts to expand our global business with the Japanese OEM. In addition, we secured our first Climate Controlled Seat Award with Volvo on a future vehicle platform. This award was a conquest win for Gentherm and an important first step as we look to grow our relationship with Volvo.
John: First we've previously stated that partnering with Japanese Oems with key for Gen <unk> growth and customer diversification and this award demonstrates the significant progress we have made.
John: It is another example of the value of the Altmeyer acquisition and a great proof point of our ability to leverage <unk> strong customer relationships.
John: This was a great win for the Japan team and we believe it is just the beginning of our efforts to expand our global business with the Japanese Oems.
John: In addition, we secured our first climate control seat award with <unk> on a future vehicle platform.
John: This award was a conquest win for gender and an important first step as we look to grow our relationship with Volvo.
Jonathan Douyard: In China, we secured several awards in the quarter with domestic OEMs, including Great Wall, Mi Auto, and Leap Motor. As we discussed on our last call, it is a priority for us to shift our China mix towards domestic OEMs to be more closely aligned to the overall market. While the mix is not yet where we wanted, we were pleased to see further progress in the quarter. Operationally, our team continued to successfully execute new program launches with 17 in the quarter across 11 OEMs. Key highlights include the launch of our entire suite of climate and comfort solutions products on the LinkedIn Navigator and Ford Expedition, including climate-controlled seats, lumbar and massage comfort solutions, climate-controlled interiors, and electronics.
John: In China, we secured several awards in the quarter with domestic Oems, including Great Wall, <unk> and Lee Muller.
John: As we discussed on our last call. It is a priority for us to share their China mix towards domestic Oems to be more closely aligned to the overall market.
John: While the mix is not yet where we wanted we were pleased to see further progress in the quarter.
John: Operationally our team continued to successfully execute new program launches with 17 in the quarter across 11 Oems.
John: Key highlights include the launch of our entire suite of climate and comfort solutions products on the Lincoln Navigator and Ford expedition.
John: Adding climate control seats, Lombard massage comfort solutions climate control, the interiors and electronics.
Jonathan Douyard: This launch highlights not only our strong relationship with Ford, but also the strength of our industry leading technology portfolio. Additionally, we began production of our thermal and pneumatic solutions on the Audi Q5, as well as a high-volume vehicle from a global EV manufacturer. We also launched several thermal components with Chinese domestic OEMs, including with BYD, which will continue to support our growth efforts in China. Before closing this slide, I want to take the opportunity to acknowledge our global team for being recognized as General Motor Supplier of the Year. We appreciate the exclusivity of this award and are proud to have been selected for the third time.
John: This launch highlights not only our strong relationship with Ford, but also the strength of our industry leading technology portfolio.
John: Additionally, we began production of our thermal and pneumatic solutions on the Audi Q five as well as a high volume vehicles from our global EV manufacturer.
John: We also launched several thermal components with Chinese domestic Oems, including with BYD.
John: Which will continue to support our growth efforts in China.
John: Before closing a slide I want to take the opportunity to acknowledge our global team for being recognized as general motors supplier of the year.
John: We appreciate the exclusivity of this award and are proud to have been selected for the third time.
Jonathan Douyard: Our longstanding relationship with GM is built on innovative technology and strong business performance.
John: Our last long standing relationship with GM is built on innovative technology and strong business performance.
Jonathan Douyard: We have a shared vision of delivering meaningful solutions that create value for GM and for the end consumer and look forward to continuing our strong partnership.
John: We have a shared vision of delivering meaningful solution battery value for G M and for the end consumer and look forward to continuing our strong partnership.
John: Please turn to slide nine for a more detailed review of the financial results for the quarter.
Jonathan Douyard: Please turn to slide 9 for a more detailed review of the financial results for the quarter. First quarter revenues decreased 0.6% compared to the same period last year, but grew approximately 1% when adjusted for foreign exchange. Automotive climate and comfort solutions revenue increased 3.8% year-over-year, or 5.3% XFX, outpacing actual light vehicle production in our key markets by more than 300 basis points, driven by strong growth in lumbar and massage comfort solutions, partially offset by the expected declines in other automotive revenue.
John: First quarter revenues decreased <unk>, 6% compared to the same period last year, but grew approximately 1% when adjusted for foreign exchange.
John: Automotive climate and comfort solutions revenue increased three 8% year over year.
John: Five 3% ex FX outpacing actual light vehicle production in our key markets by more than 300 basis points driven by strong growth in lumbar in the size of comfort solutions, partially offset by the expected declines in other automotive revenues.
John: Our medical team delivered another strong quarter with improved financial performance for.
Jonathan Douyard: Our medical team delivered another strong quarter with improved financial performance. For the first quarter, revenues increased 6% XFX compared to the same period last year, driven by growth in Europe.
John: For the first quarter revenues increased 6% ex FX compared to the same period last year driven by growth in Europe.
John: Turning to profitability, we delivered $39 $3 million of adjusted EBITDA in the quarter or 11, 1% of sales compared to 12, 2% in the first quarter of last year.
Jonathan Douyard: Turning to profitability, we delivered $39.3 million of adjusted EBITDA in the quarter for 11.1% of sales compared to 12.2% in the first quarter of last year. The decrease was primarily driven by higher freight costs, product mix, And the costs related to our footprint realignment, partially offset by strong net material performance. Adjusted operating expenses were approximately flat versus the prior year quarter. Adjusted diluted earning per share in the quarter was $0.51 per share compared to $0.62 per share in the first quarter of last year.
John: The decrease was primarily driven by higher freight costs product mix.
John: And the costs related to our footprint realignment, partially offset by strong material performance.
John: Adjusted operating expenses were approximately flat versus the prior year quarter.
John: Adjusted diluted earnings per share in the quarter was 51 per share compared to 62 seven per share in the first quarter of last year.
Jonathan Douyard: Our balance sheet and overall financial position remains strong. In the quarter, we saw an operating cash outflow consistent with prior year, while investing approximately $11 million in net capex. Overall, Net Depth is at $99 million and our Net Leverage Ratio was 0.5 turns flat versus last year. Our available liquidity was approximately $400 million at the end of the quarter, in line with prior year.
John: Our balance sheet and overall financial position remains strong.
John: In the quarter, we saw an operating cash outflow consistent with prior year, while investing approximately $11 billion in net capex.
John: Overall net debt stood at $99 million and our net leverage ratio was 0.5 turns flat versus last year.
John: Our available liquidity was approximately $400 million at the end of the quarter inline with prior year.
John: Please turn to slide 10 for further contact center guidance.
Jonathan Douyard: Please turn to slide 10 for further context on our guidance.
John: The operating backdrop has become increasingly dynamic and uncertain as the year has progressed.
Jonathan Douyard: The operating backdrop has become increasingly dynamic and uncertain as the years progress. After reviewing key variables impacting our business, we are maintaining our prior revenue range and reducing the low end of the adjusted EBITDA margin range to reflect the impact of lower volumes and share of pass-throughs. The key assumptions that support our guidance are as follows. On tariffs, we are considering tariffs that are in effect as of today. As Bill mentioned earlier, our primary exposure relates to our Mexico operations, where we are selling product into the U.S. For any tariffs incurred, we have every indication that Gentherm will be able to pass through and recover the incremental cost.
John: After reviewing key variables impacting our business, we are maintaining our prior revenue range and reducing the low end of the adjusted EBITDA margin range to reflect the impact of lower volumes are pass through.
John: The key assumptions that support our guidance are as follows.
John: On tariffs, we are considering tariffs that are in effect as of today.
John: As Bill mentioned earlier, our primary exposure related to our Mexico operations, where we are selling products into the U S.
John: Any tariffs incurred we have every indication that Jonathan will be able to pass through and recover the incremental costs.
Jonathan Douyard: Similar to other forms of customer recovery, we may experience timing disconnects between when costs are incurred and ultimately settled with the customer. Our team is working closely with customers and suppliers to minimize the impact to Gentherm.
John: Similar to other forms of customer recovery, we may experience timing disconnects between when costs are incurred and ultimately settled with the customer.
John: Our team is working closely with customers and suppliers to minimize the impact of gender.
John: Turning to volume.
Jonathan Douyard: Turning the volume, consistently, recent industry reports indicate that global full-year vehicle production will decline further than previously anticipated. To date, we have seen limited changes in OEM demand schedules, with isolated increases and decreases resulting in an overall net impact that has been relatively unchanged. In reviewing recent industry reports specifically, we would note that S&P Mobility's mid-April report projected a 2% reduction in global light vehicle production versus their February report. This decline included a 10% reduction in North America volume across the last three-quarters of the year. As noted earlier, North America is approximately 40% of our total company revenue.
John: Instantly recent industry reports indicate that global full year vehicle production will decline further than previously anticipated.
John: To date, we have seen limited changes in OEM demand schedules with isolated increases and decreases resulting in an overall net impact has been relatively unchanged.
John: In reviewing recent industry report specifically, we would note that S&P mobility is mid April report projected a 2% reduction in global light vehicle production versus their February report.
John: This decline included a 10% reduction in North America volume across the last three quarters of the year.
John: As noted earlier North America is approximately 40% of our total company revenue.
John: Additionally, we have seen recent changes in foreign currencies versus the dollar, which we expect will have a favorable impact to the company.
Jonathan Douyard: Additionally, we have seen recent changes in foreign currencies versus the dollar, which we expect will have a favorable impact to the company. In summary, we expect lower revenue from the decline in vehicle volume with partial losses from tariff pass-through and foreign exchange favorability. Overall, we expect this to pressure margin and have updated our guidance accordingly.
John: In summary, we expect lower revenue from the decline in vehicle volume with partial offsets from tariff pass throughs and foreign exchange favorability.
John: Overall, we expect this to pressure margin and have updated our guidance accordingly.
Jonathan Douyard: As we navigate through this period, we are fortunate to have a strong balance sheet allowing us to focus on growth, improve overall financial performance, and invest in the future. We will continue to closely monitor market dynamics and will provide updates as appropriate.
John: As we navigate through this period, we are fortunate to have a strong balance sheet, allowing us to focus on growth improved overall financial performance and invest in the future.
John: We'll continue to closely monitor market dynamics and will provide updates as appropriate.
William Presley: With that, I will hand it back to Bill for closing remarks. Thanks, John. Let me wrap up with why I believe Gentherm remains a compelling long-term opportunity. First, we're innovative leaders neatly positioned for profitable growth driven by scalable technology platforms and broad market applications. The company's strong R&D mindset has built the foundation of our key platforms, including thermal management, air moving devices, pneumatic solutions, and valves. Our innovative and differentiated technologies are scalable and portable, so Jace Park can Our commercial success is within our control and not dependent on a tier one to sell our products.
Bill: With that I will hand, it back to bill for closing remarks.
Bill: Thanks, John.
Speaker Change: Let me wrap up with why I believe Jennifer remains a compelling long term opportunity first we're innovative leader is uniquely positioned for profitable growth driven by scalable technology platforms and broader market applications.
Speaker Change: Company's strong R&D mindset has built the foundation of our key platforms, including thermal management are moving devices managed solutions and valves are innovative and differentiated technologies are scalable and affordable some adjacent markets.
Speaker Change: Our commercial success is within our control and not dependent on a tier one to sell our products, we work directly with Oems to capture the voice of the customer and bring our products to market to provide the Oems with unique differentiated selling points.
William Presley: We work directly with OEMs to capture the voice of the customer and bring our products to market to provide the OEMs with unique differentiated selling points. Next, we have a continuous improvement mindset to drive margin expansion and solid cash flow conversion. Our strategic footprint realignment is underway, which will lower our variable manufacturing costs and allow us to leverage our fixed cost structure and hire future revenue. The margin profile of our lumbar and massage comfort solutions continues to expand as we wind down pre-acquisition business contracts and launch new business from the awards we secured after the acquisition.
Speaker Change: Next we have a continuous improvement mindset to drive margin expansion and solid cash flow conversion.
Speaker Change: Our strategic footprint realignment is underway, which will lower our variable manufacturing cost and allow us to leverage our fixed cost structure of higher future revenue.
Speaker Change: The margin profile of our lumbar and besides comfort solutions continues to expand as we wind down pre acquisition business contracts and launch new business from the awards. We secured after the acquisition lastly, we have a strong financial position with the ability to efficiently deploy capital and drive shareholder value.
William Presley: Lastly, we have a strong financial position with the ability to efficiently deploy capital and drive shareholder value. This will allow us to remain flexible and opportunistic with our capital allocation priorities. I remain optimistic about the future of Gentherm. As we work to navigate through some of the near-term noise, we are confident in the opportunity to generate shareholder value.
Speaker Change: This will allow us to remain flexible and opportunistic with our capital allocation priorities.
Speaker Change: I remain optimistic about the future of agenda as.
Speaker Change: As we work to navigate through some of the near term noise, we're confident in the opportunities to generate shareholder value.
William Presley: We look forward to keeping you informed of our progress throughout the year.
Look forward to keeping you informed of our progress throughout the year with that I will turn the call back to the operator to begin the Q&A session.
Operator: With that, I will turn the call back to the operator to begin the Q&A session. Thank you. We will now be conducting the Q&A session. If you would like to ask a question, please press star 1 on your 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 question from the queue.
Speaker Change: Thank you.
Speaker Change: Will now be conducting the Q&A 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 in the question queue.
Speaker Change: Press Star two if you would like to remove your question from the queue.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start One moment, please, while we pull through.
Speaker Change: For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment. Please poll for questions.
Speaker Change: Yeah.
Speaker Change: The first question is from Ryan Macdonald from Craig Hallum Capital Group. Please go ahead.
Ryan Sigdahl: The first question is from Ryan Sigdahl from Craig Hallam Capital Group. Please go ahead. Hey, good morning, guys. Appreciate the update on certainly a lot going on in the industry right now and the world.
Ryan Macdonald: Hey, good morning, guys I appreciate the update on are certainly a lot going on in the industry right now and the world I want to start with the guidance and the tariff impact so how much pass through revenue is incorporated in the guidance and then.
Jonathan Douyard: I want to start with the guidance and the tariff impact. So how much pass through revenues incorporated in the guidance and then with the decremental margin on the low end of the EBITDA guidance, how much of that is passed through revenue versus core operating performance? Good morning. You know, as of now, you know, as we talked about in the messaging, I mean, we're talking about the tariffs that are in place as of today, which is a smaller portion of potentially what's to come. I think what, you know, what we tried to do is lay out, you know, the overall impact being focused more on Mexico and in North America, with the overall business being about 40% of total junk term.
Ryan Macdonald: The decremental margin on the low end of the EBITDA guidance, how much of that is pass through revenue versus core operating performance.
Speaker Change: Yeah, Ryan good morning.
Speaker Change: You know as of now you know as we've talked about in the messaging and then we're talking about the tariffs that are in place.
Speaker Change: Today, which is a smaller portion of essentially for what's to come.
Speaker Change: I think what we tried to do is lay out.
Speaker Change: The overall impact being focused more on Mexico and in North America with the overall business being about 40% of total Gen therapy.
Jonathan Douyard: I think as you look at that today, you know, the impact is relatively limited. In terms of the amount of tariffs that we're actually talking about passing through, and so there's, you know, you know, there's certainly some, a couple 10 Bips of Impact on the Dilution, but it's not overly consequential. I think the big piece and where the most uncertainty lies is really around what industry volumes will do and the impacts there, and I think we were pretty transparent in how we laid that out.
Speaker Change: I think.
Speaker Change: As you look at that.
Speaker Change: Bad today.
Speaker Change: Yes.
Speaker Change: Impact is relatively limited.
Speaker Change: In terms of the amount of tariffs that were actually talking about passing through and so there as you know.
Speaker Change: Yes, there is.
Speaker Change: Certainly some a couple.
Speaker Change: Tens of bps of impact on the on the dilution, but it's not overly consequential I think the big piece. We're the most concerned lives is really around what industry volumes will do and the impacts there and I think we were pretty transparent.
Speaker Change: Hello.
Speaker Change: Okay.
Speaker Change: Yeah, Thanks, John M S.
Ryan Sigdahl: Yep, thanks, John. As you, excuse me, as you think about medical, and you talked a lot about adjacencies you have, since you guys have come in here, the opportunity to expand into other automotive, but also non-automotive medical applications. Gentherm, going back over the past decade, has tried this in the past to then kind of refocus the business back on core markets over the past several years. I guess, why is this different? How do you think about staying focused, really doing this in an efficient, smart and strategic way, but just any clarity kind of looking at Gentherm over the past 10 years and trying to get into adjacent markets versus what you guys are looking at now?
Speaker Change: As you can.
Speaker Change: Excuse me as you think about medical and you talked a lot about Adjacencies you have since you guys have come in here the opportunity to expand into other <unk>.
Speaker Change: The motive, but also non automotive medical applications Gen term going back over the past decade has tried this in the past to then kind of refocus the business back on core markets over the past several years I guess why is this different how do you think about staying focused really doing this in an efficient smart and strategic way.
Speaker Change: But just any clarity kind of looking at jump them over the past 10 years and tried to get into adjacent markets versus what you guys are looking at now.
William Presley: Yeah, Ryan. Good morning, Phil. Good to hear from you. Um, yeah, let me be clear. I think in the past, when we've looked at it, there was a push into adjacent markets, as you've said. But our focus is very different. Our focus is taking the core technology platforms and pushing those specifically into adjacent markets. And just to be super clear, You know, the two proof of concepts we talk about in medical, what's important there is the methodology we went through to create these new proof of concepts. So, we talked about surgeon and patient warming. We have literally 100% taken the heating technology that we use in the seating, which is the same heating technology that we use in the steering wheels, which is the same heating technology that we use in climate and comfort interiors, and found an application for that exact same technology, unadulterated, other than shade, for the medical market.
Bill: Yeah, Ryan Good morning, it's bill good to hear from you.
Bill: Yeah, let me be clear I think in the past when we've looked at it there was a push into adjacent markets as you've said.
Bill: Our focus is very different our focus is taking the core technology platforms and pushing those specifically into adjacent markets and just to be super clear.
Bill: You know the two proof of concepts, we talk about in medical what's important there is the methodology methodology. We went through to create these new proof of concepts.
Bill: So we talked about surgeon and patient warming, we have literally 100% taken the heating technology that we use in the seating which is the same heating technology that we use in the steering wheels, which has the same getting technology that we use and climate comfort interiors and found an application for that.
Bill: Exact same technology, an adult or other than shape for the medical market. So this is really an approach.
William Presley: So, this is really an approach, not about new products for new markets, but about scaling existing technologies, utilizing existing floor space and existing capital equipment and pushing them into new markets. So, it's a very different approach. And, you know, you and I have talked, and you've heard me say this, if it's the exact same technology, don't care what market it's in, as long as it's coming off the same machine in my plant.
Bill: Not about new products for new markets, but about scaling existing technologies utilizing existing floor space and existing capital equipment and.
Bill: And pushing them into new markets. So it's a very different approach.
Bill: And you know you and I have talked and you've heard me say this.
Bill: It's the exact same technology don't care what market as soon as long as it's come off the same machine in my plants.
Bill: Very helpful. Thanks, Bill Good luck guys.
Ryan Sigdahl: Very helpful. Thanks, Bill. Good luck, guys. Thank you.
Bill: Thank you everyone.
The next question is from Matt Aranda from Roth Capital. Please go ahead.
Matt Aranda: The next question is from Matt Aranda from Ross Capital. Please go ahead. Good morning, guys.
Bill: Good morning, guys. It's Joseph on for Matt Today, just in regards to your New program Awards. It looks like it's one of the lower quarterly award figure since 'twenty 'twenty. Two could you just discuss booking dynamics in one queue, where there are fewer programs up for bid.
Jonathan Douyard: It's Joseph on for Matt today. In regards to your new program awards, it looks like it's one of the lower quarterly award figures since 2022. Could you just discuss booking dynamics in 1Q, where there are fewer programs up for bid? Yep, I would say, um... It's been in line, I mean, historically, with what we've done in Q1. If you go back and look through history, we've had some hot months just based our hot quarters in the past based on what was awarded. But I would say the first quarter came in right about where we expected it to come in.
Bill: Yes, I would say.
Bill: It's been in line I mean, historically with what we've done in Q1, if you go back and look through history. We've had some hot months just based on our high quarters in the past based on what was awarded but I would say the first quarter came in right about where we expected it to come in so well it might look a little light. It was exactly what we expected based on the texturing we see.
Jonathan Douyard: So, while it might look a little light, it was exactly what we expected based on the texturing we see in our roadmaps for when the original equipment manufacturers are asking us to quote. So, with all that said, everything we've seen full year, we have a very rigorous process for how we map out our opportunities and when they're available and how we're going to quote them and address them. So, we should have a very robust year again this year. I see nothing that says different.
Bill: And our Roadmaps for when the original equipment manufacturers are asking us to quote so with all that said everything we've seen full year, we have a very rigorous process for how we map out our opportunities and when they are available on how we're going to quote them and address them.
Bill: So as we should have a very robust year again this year I see nothing that says different.
Bill: Got it. Thank you for that and then if I could just squeeze in one more on your 2025 got it just looks like the revenue guide remains unchanged. Despite the weaker industry forecast could you just speak on what's enabling you guys to hold up sale. The sales guide despite the erosion in production.
Jonathan Douyard: Got it, thank you for that. And then if I could just squeeze in one more on your 2025 guide, just looks like the revenue guide remains unchanged despite the weaker industry forecast. Could you just speak on what's enabling you guys to hold up sales, the sales guide despite the erosion and the production expectations, especially in the North American market? Yeah, you know, I think if we look at the guidance, the prior midpoint was $14.50, current midpoint is $14.50. I think, you know, the biggest piece of that is the North American volume, which we highlighted. I think we put information out there in the back in terms of the amount North Americans contribute to the business, what industry reports we're looking at in terms of 10 percent declines for the balance of the year.
Bill: Production expectations, especially in the North American market.
Bill: Yeah.
Bill: I think as we look at the guidance prior midpoint.
Bill: <unk> was $40 50 per midpoint is $14 50 I think.
Bill: The biggest piece of that is the north American volume, which we highlighted.
Bill: <unk> out there in the back in terms of the.
Bill: The amount of North American <unk> contributes to the business what industry reports, we're looking at in terms of 10% declines for the balance of the year.
Jonathan Douyard: And, you know, that certainly puts pressure or takes our midpoint guidance down to the towards the lower end. We do see some. Some favorability from FX, which will offset a portion of that. We will see the pass-through recovery of tariffs impact on revenue as well. And so, as we've looked at it, particularly with the uncertainty on where industry volumes will actually come in, you know, we put that map together and said we'll still be in the range, albeit it may be towards the lower end of that range, but still comfortable putting that out there, given the fact that there's so many moving dynamics right now.
Bill: Yeah.
Bill: That certainly puts pressure or takes our midpoint guidance down to the towards the lower end.
Bill: We do see some.
Bill: Some favorability from FX will offset which will offset a portion of that would be both season pass through recovery of tariffs impacting revenue as well so.
Bill: We've looked at it, particularly with the uncertainty on where industry volumes will actually come in.
Bill: We put that math together and said, we'll still be in the range, albeit it may be towards the lower end of that range, but still comfortable putting that out there given the fact that there's so many moving dynamics right now.
Bill: I appreciate it thank you.
Matt Aranda: I appreciate it, John. Thank you.
Bill: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one.
Operator: As a reminder, to ask a question, please press star 1.
Speaker Change: The next question is from Ryan Brinkman from Jpmorgan. Please go ahead.
Ryan Brinkman: The next question is from Ryan Brinkman from J.P. Morgan. Please go ahead. Right, thanks for taking my questions.
Ryan Brinkman: Thanks for taking my questions starting with I'm curious if you might've seen any benefit during the quarter from automaker orders for parts exceeding what they would ordinarily purchase to support concur.
Jonathan Douyard: Starting with I'm curious, if you might have seen any benefit during the quarter from automaker orders for parts exceeding what they would ordinarily purchase to support concurrent production, as they sought to maybe atypically stockpile components ahead of production, in an effort to mitigate tariff impact. Is that something that you're seeing? I haven't really seen anything meaningful on the production side. I would say the variances that we saw in production orders from the customer in the first quarter fell within what we would consider being standard variances. So we haven't seen a heavy pull to try to stock ahead of the tariffs.
Speaker Change: Concurrent production.
Speaker Change: They thought to maybe eight typically stockpile components ahead of production and effort to mitigate tariff impact is that something that you're seeing.
Speaker Change: I haven't really seen anything meaningful on the production side.
Speaker Change: I would say the variances that we saw on production orders from the customer in the first quarter balance than what we would consider to be standard variances. So we haven't seen at all to try to stock ahead of the tariffs.
Ryan Brinkman: That's helpful, thanks.
Speaker Change: That's helpful. Thanks, and then just a couple of follow ups on that.
Ryan Brinkman: And then just a couple of follow-ups on, you know, the tariff impact on the full-year results. Firstly, relative to the comment that many or most of your products are not subject to tariff because they are either not included in the categories of tariff components or because they are US MCA compliant, are you able to say how much is because they are not in the tariff categories versus how much is because they are US MCA compliant? And then secondly, and relatedly relative to your comment that the guide incorporates tariffs in effect as of today, does that assume then that the temporary exemption on US MCA compliant parks that last through May 3, that that continues?
Speaker Change: The tariff impact on the full year results firstly relative to the comment that many or most of your products are not subject to tariffs because they're either not included in the categories of tariff components or because their U S. M. C. A complaint are you able to say how much is because they are not in the tariff categories versus how much is because they are U S.
Speaker Change: C. A compliant and then secondly, and Relatedly relative to your comment that the guide incorporates tariffs and in fact as of today does that assume then that the temporary exemption on U S. M. C. A compliant parks that last through May three that that continues or do you assume that the exemption period ends or how to think about that.
Jonathan Douyard: Or do you assume that the exemption period ends or how to think about that?
Speaker Change: Yeah, I mean, I think as we look at it we're certainly not going to predict what direction. These things go just based on the <unk>.
Jonathan Douyard: Yeah, I mean, I think, you know, as we look at it, we're certainly not going to predict what direction these things go, just based on the, you know, the changes that happened seemingly by the day here. I think what we're, as we look at it, where we, we sort of take comfort in what we talked about in the prepared remarks is we have the mechanisms in place to be able to recover these and are working with customers closely to be able to do that. And so, to the extent that those go into effect, there would be more expense incurred that would be expected to fully pass on to the customers and therefore recover.
Speaker Change: Does that happen are seemingly by the day here.
Speaker Change: I think.
Speaker Change: As we look at it where we sort of take comfort in what we've talked about in the prepared remarks is we have the mechanisms in place to be able to recover these.
Speaker Change: We're working with customers closely to be able to do that and so to the extent that those go into effect.
Speaker Change: There would be no more expense incurred that would be we would expect to fully pass onto the customers and therefore, our recoveries. So the dilution impact on the margin.
Jonathan Douyard: So the dilution impact on on the margin would be a little bit higher than what we've contemplated in. range, but we still feel by tweaking the lower end of the range that we're still within that 11.5% to 13% from an adjusted EBITDA perspective for the year.
Speaker Change: Would be a little bit higher than what we've contemplated in.
Speaker Change: The range, but we still feel by by tweaking the lower end of the range that.
Speaker Change: That we're still within that 11, 5% to 13% from an adjusted EBITDA perspective for the year.
Speaker Change: Great very helpful. Thanks, so much.
Ryan Brinkman: Great. Very helpful. Thanks so much.
Speaker Change: Yeah.
Speaker Change: This concludes the question answer session as well as today's call.
Operator: This concludes the question and answer session as well as today's call. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: May disconnect your lines at this time, thank you for your participation.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [music].