Gentherm Inc

Greetings. Welcome to Gen Therm, Inc. fourth quarter and full year 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Eugenie Brittano. You may begin.

Thank you, and good morning, everyone. Thanks for joining us today. Jantham's earnings results were released earlier this morning, and a copy of the release is available at Jantham.com. Additionally, a webcast replay of today's call will be available later today on the Investor Relations section of Jantham's website. During this call, we may make forward-looking statements within the meaning of federal security laws. Statements reflect our current views with respect to future events and financial performance. We undertake no obligation to update them, and actual results may differ materially. Please see Jentham's earnings release and its SEC filings, including the latest 10-K and subsequent reports, for discussions of our risk factors and other risks and uncertainties underlying such forward-looking statements. During the call, we may discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of the non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release or investor presentation. On the call with me today are Phil Eiler, President and Chief Executive Officer, and Mattel Inversa, Chief Financial Officer. During their comments, Phil and Mattel will be referring to a presentation deck that we have made available on our website at jensen.com slash events. After their prepared remarks, we will be pleased to take your questions. Now, I'd like to turn the call over to Phil.

Thank you, Yijing. Good morning, everyone, and thank you for joining us today. 2020 was a year like no other, one that saw two polar opposite operating extremes for the company. In the first half of 2020, the global pandemic created significant hardship and challenges worldwide, which was then followed by a strong recovery of automotive demand in the second half. I'm proud of the global GenThurm team for their flexibility, dedication, and agility to swiftly pivot from preserving liquidity in the first half to delivering record results in the second half, all while maintaining the health and safety of our global team members. Our performance in the second half of the year confirms that our strategic plan to focus growth, realign our cost structure, and bring innovative solutions to market continues to deliver long-term shareholder returns. Now let's look at 2020 in a little more detail. Please turn to slide four. We finished 2020 with a record-breaking fourth quarter, generating the highest quarterly revenue and profitability in the history of the company. In automotive, we outperformed light vehicle production in our key markets by over 20 percentage points. Accomplishing these achievements in such a challenging environment clearly demonstrates strong operational execution across our enterprise. Looking back at the full year of 2020, light vehicle production declined 14% in North America, Europe, China, Japan, and Korea as a result of the pandemic. GenTherm's new launches in battery thermal management Hands-on detection enabled steering wheel heaters and other electronics, along with increasing take rates of climate and comfort solutions, enabled us to consistently outperform in automotive versus the key markets that we serve. Including the impact of foreign currency translation, our 6% decrease in full-year organic automotive revenue outperformed light vehicle production in our key markets by approximately 800 basis points. With a strong finish of $440 million in awards during the fourth quarter, we secured a total of $940 million in automotive awards in 2020. While the annual award level is lower than prior years and reflects limited opportunities as OEMs conservatively manage sourcing decisions, our strong win rate of over 90% positions us well for long-term growth. In medical, we achieved record annual revenue with double-digit year-over-year growth in 2020, driven by demand for our flagship products such as Blanketrol and Hemotherm, and the addition of Steeler blood-warming products to our portfolio. On the operations front, our global manufacturing and supply chain teams performed exceptionally well in 2020, first by swiftly responding to the negative effects of the pandemic in the first half of the year, and then shifting to meet the rebound in demand, increasing take rates and our new launches in the second half, while ensuring the safety of our employees at all times. On the cost front, we continued our disciplined approach to managing operating expenses. After adjusting for restructuring, acquisition, and divestiture expenses, we reduced operating expenses by 10% in 2020. Adjusted operating expense as a percentage of revenue improved 80 basis points from 2019 and 190 basis points from 2018. Despite the unprecedented challenges in 2020, we delivered $140 million in adjusted EBITDA, in line with the 2019 level. More importantly, we improved our total company adjusted EBITDA margin rate to 15.3% for the year, up over 60 basis points from 2019 and 190 basis points from 2018. Mateo will provide more details about our fourth quarter financial results, as well as some information on the tax asset valuation review that delayed our earnings announcement in a few minutes. Now turning to the automotive highlights on slide five. In the fourth quarter, we launched our automotive solutions on 19 different vehicles across 11 OEMs, including Audi, BMW, Ford, General Motors, Hyundai, and Volkswagen. We continue to see momentum for our CCS product, and launched on the Acura MDX, Ford F-150, Hyundai Tucson, and Hyundai Sonata. In order to best represent the breadth of all of our current and future product offerings, we recently renamed Battery Thermal Management, or BTM, product portfolio as Battery Performance Solutions, or BPS. One of the fastest growing segments of our Battery Performance Solutions portfolio is our cell connecting technologies. We have both a wire-based cell-connecting technology and our proprietary thin-foil technology. In the third quarter of 2019, we launched our wire-based solution on the BMW Mini Electric, and that demand continues to exceed our original expectations. As discussed previously, we won our first cell-connecting award based on our proprietary thin-foil technology with a premium German OEM in the fourth quarter of 2019. I'm pleased now to share that this premium OEM is also BMW, which demonstrates the confidence in GenTherm by one of the technology leaders in automotive. Our R&D team developed this innovative mechanical structuring technology that offers significant design flexibility and some exciting opportunities for new applications. We will soon be offering some of these new applications to OEM customers. We continue to make great progress on Climate Sense. which, as you'll recall, is our software-driven microclimate platform using an algorithm based on thermal physiology. ClimateSense is a critical part of our long-term strategy. We are disrupting the current thermal solutions in vehicles by significantly reducing power consumption and increasing range in extreme temperatures, all while providing best-in-class passenger comfort. I'm pleased to announce that we have launched the third phase of the development project with BMW. In addition, GenTherm and Audi have completed phase one of an advanced climate sense development project for an electric vehicle. We've been working with an Asian OEM on a climate sense project since 2019, and I'm happy to share that this OEM is Honda. And we've just kicked off the second phase of our development project with them. Our phase three development project with General Motors continues to progress well. As we previously shared, Climate Sense delivered between 50 to 69% energy savings in cold weather testing and 34% energy savings in hot weather testing. Translating these savings to range extension, in the cold weather cycle, Climate Sense increases range by 33%, or approximately 50 miles. These results demonstrate that our Climate Sense offering is a unique solution for energy efficiency. as well as passenger comfort, and it represents a significant content increase opportunity for Gen Therm in EVs in the coming years. Now onto slide six, where you can see that we continue to win new business at a pace that sets a solid foundation for future growth. In the fourth quarter, we secured $440 million in new program awards across 12 different customers. This is a strong finish to a challenging year. I'm especially proud of our global team for winning over 90% of the opportunities available to us in 2020. We won multiple CCS awards, including platform wins with the Chevy CUV, Ford F-250 350, GM Hummer EV, Range Rover, Mazda CX-5, and the Volkswagen Cross Blue plug-in hybrid. We also received eight steering wheel awards across six OEMs, including the Chevrolet Colorado, GMC Acadia, Terrain, and Canyon, and the Maserati Great Calais. Gen3rd continues to expand our strong position with General Motors. In the fourth quarter, we were able to secure an additional nine new program awards for our climate-controlled seats, seat heaters, and steering wheel heaters for both North America and China. GM is one of our longest-standing customers and continues to be an exceptional partner, not only in growing the business together, but also in developing and adopting our new technologies. In addition to growing our business with long-standing customers, we've also secured additional steering wheel and seat heat awards with one of the largest global EV manufacturers. Moving to electronics. we achieved another milestone in the fourth quarter by winning an innovative steering wheel adjustment electronic control unit award with Audi. This is a further example of where we have established credibility with a technology-leading OEM. In addition, I'm pleased to share that we just won a next-generation multifunction electronic controller award with Ford. If you'll recall, our initial win with Ford combined GenTherm's climate control solution with memory seat functionality. which utilizes our proprietary intelligent positioning system technology. We now have added other functionalities, for example, to control the power running boards, helping Ford to further increase system efficiency and reduce costs. This module will be used in Ford and Lincoln vehicles produced in North America and China for both internal combustion and battery electric vehicles. More importantly, it's compatible with Ford's next generation advanced electrical architecture, which allows for more feature flexibility, connectivity, and personalization. This module, which also will have cybersecurity and over-the-air update features. I would like to congratulate our electronics team for continued innovation and expansion of our business with global OEMs. Our track record for strong win rates coupled with a healthy pipeline of RFQs position us well for continued growth in automotive. Moving to slide seven, I'd like to share some of the growth momentum we have in the EV space. Electrified vehicle production, including mild hybrid, full hybrid, and battery electric, is expected to grow from 13% of global production in 2020 to 60% in 2030, almost a five-fold increase. GenTherm's current and future technologies will play an important role in extending the range of electric vehicles and, of course, delighting passengers with thermal comfort. Currently, we're working on 106 programs with 30 OEMs. Customers are looking to GenTherm not only for thermal comfort solutions like seat heaters, climate-controlled seats, and steering wheel heaters, but also for battery performance solutions, such as our PACE award-winning battery thermal management solution and proprietary thin-foil cell connecting and heating solutions. In addition, we're providing customers with innovative thermal ECUs and multifunction ECUs. In total for 2020, we won 32 program awards on different EV platforms, and this accounted for over 40% of our total award dollar value for the year. Looking ahead, our ClimateSense solution provides significant opportunities for future growth through the addition of our proprietary software, increased thermal content, and significant range extension. To date, we've completed seven development projects, and we're working on four more with OEMs in North America, Europe, and Asia. More electric vehicle manufacturers are now leveraging our solutions to enhance comfort while significantly improving energy efficiency and range. Now let's turn to slide eight for a discussion of our medical business. As I mentioned a few moments ago, we delivered record annual revenue in medical in 2020 with 17% year-over-year growth. The pandemic created heightened demand, especially in the first half of the year, for some of our products that play a critical role in helping to fight COVID-19. On the other hand, hospitals are delaying capital purchases due to the financial hardships created by halted or reduced electric procedures. This headwind caused a short-term impact in the fourth quarter. Nonetheless, we expanded our warm air and filtered flow patient warming systems across multiple large hospital networks including Einstein Health in Philadelphia and Pinnacle Health in Harrisburg, Pennsylvania. Despite delays in elective surgeries, we saw a tailwind in consumables that are used with blank control. In addition, we continue to make progress on innovation programs leveraging thermophysiology synergies between our medical and automotive businesses. Now let's turn to slide nine and look back at the year we just completed. I'd like to highlight a few of our accomplishments in 2020. On the customer front, we continue to exceed customer expectations. We earned the coveted Supplier Quality Excellence Award from General Motors for several of our manufacturing facilities. And for the first time in Gen Therm history, we were named a General Motors Supplier of the Year, representing the top 1% of GM's supply base. In addition, Gen Therm was named the top North American supplier by Honda, one of only 41 suppliers out of a total 735. Despite the slowdown in OEM sourcing activities in 2020, we secured several strategic awards in the year. We won our largest single vehicle production climate controlled seat award in the company's history for the global BMW 5 Series. We won a strategic CCS award for Hyundai Genesis EV platforms, and we became the exclusive provider of all CCS solutions for the Genesis brand. We also won 23 program awards from our largest customer, General Motors. With below freezing temperatures affecting hundreds of millions of people in the lower 48 states over the last few weeks, drivers and passengers are increasingly relying on our solutions for comfort while on the road. We've seen significant increase in the adoption and take rate of our products across multiple customers. We continue to add content to both ICE and electric vehicles. We successfully ramped our innovative combined steering wheel heat and hands-on detection sensor solution for Volkswagen. We won our first electronic air cooling award for infotainment and head-up displays with Mercedes for their entire future lineup of BEVs. In battery performance solutions, we won our first thin-foil cell connecting award with BMW and increased production of the battery heating solution for the Jeep Renegade and Jeep Compass. On the innovation front, our global R&D team continued to expand our technology leadership even in these challenging times. Now let me summarize. Our financial results in 2020 demonstrate the continued successful execution of our strategic plan to focus growth realign our cost structure, and bring innovative solutions to market. I'd like to thank our global team for delivering another record-setting quarter in revenue and adjusted EBITDA. I'm very proud of the agility, hard work, and commitment of the talented global Gen Therm team to overcome challenges in the market, deliver on our strategy, and improve profitability in an unprecedented year. While there is still near-term uncertainty in the macroeconomic environment, we're entering 2021 with strong momentum. This, combined with our relentless focus on operational excellence, technology leadership, and strong cash flow generation, positions the company well for profitable long-term growth. And now with that, I'll turn the call over to Matteo for a little more color on the financial results and our 2021 guidance.