Gentherm Inc

Greetings. Welcome to the GemTherm Inc. Third Quarter 2021 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, EJ Brentano, Senior Vice President of Investor Relations. Thank you. You may begin.

Thank you and good morning, everyone, and thank you for joining us today. Jentham's earnings results were released earlier this morning, and a copy of the release is available at jentham.com. Additionally, a webcast replay of today's call will be available later today on the investor relations section of Jentham's website. During this call, we may make forward-looking statements within the meaning of federal securities laws. Statements reflect our current views with respect to future events and financial performance, and actual results may differ materially. We undertake no obligation to update them, except as required by law. Please see Gentham'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 these 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 Mateo Anversa, 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 jensum.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. I'm pleased with the continued strong execution of the GenTherm team despite the unprecedented global supply chain disruption and production volatility. The automotive industry continues to face semiconductor-related customer volume reductions and plant shutdowns, escalating freight costs, and other inflationary factors. In addition, volatile changes in customer production levels are creating significant near-term challenges predominantly related to managing variable production costs. For example, light vehicle production in our key markets in the third quarter was 19% lower than what was expected just three months ago. While our automotive revenues declined 8% in the third quarter, excluding the impact of foreign currency translation compared to a year ago, we outperformed light vehicle production in our key markets by 15 percentage points. In addition, we continued our momentum on automotive awards, securing $260 million in awards from global OEMs in the third quarter. On the cost front, we continued our disciplined approach to expense and working capital management while increasing our R&D investments. In addition, we've been negotiating with our customers and suppliers on reimbursements and price increases to partially offset the near-term material cost changes that we're experiencing as a result of the supply disruptions. We are now starting to realize some financial benefits from these discussions. In spite of the significant supply chain headwinds, on a year-to-date basis, we delivered adjusted EBITDA margin rate of 15.8% and generated $117 million in cash flow from operations, 60% more than the first nine months of 2020 and nearly 40% more than the first nine months of 2019. Mateo will provide more details on our financial results in a few minutes. Now, turning to the automotive highlights on slide four. In the third quarter, we launched our automotive solutions on 11 different vehicles across six OEMs, including General Motors, Great Wall, and Nissan. We continued to see momentum on our CCS product and launched on the GM Hummer EV, Great Wall Way, and the Nissan Infiniti QX60. On the technology front, I'm pleased to share that GenTherm was recognized in our partnership with Lear as a 2021 Automotive News PacePilot Innovations to Watch award winner for the N2 thermal comfort seat powered by our ClimateSense technology. Receiving this award is the outcome of our joint efforts that has resulted in a smart solution that delivers faster passenger comfort. On the battery performance solutions front, The fastest growing product in our portfolio is our cell connecting technologies. Our production program with BMW, scheduled to launch next year, is progressing well. We also continue to win additional development projects with several customers around the world, including our very first prototype samples with embedded cell censoring. Just last week, we announced our partnership with Datong NXP Semiconductors, to jointly develop a new cell connection system, leveraging the unique capabilities of both companies. This first-of-its-kind cell connection system will integrate the Datong NXP single-cell monitoring integrated circuit with the proprietary design of GenTherm's foil-based conductor to replace complex sensor cable harnesses. We see this partnership as an important milestone that will significantly advance electric vehicle battery performance safety, longevity, and improved user feedback. We're excited that OEMs and battery manufacturers are increasingly interested in our innovative mechanical structuring process because of the increased design flexibility and the ability to enhance overall safety of the lithium ion battery pack. On the climate sense front, we continue to see growing interest from global OEM customers, and we're making great progress on advanced development projects. And more importantly, our first production program is progressing very well. Our microclimate platform incorporates multiple thermal effectors, including next-generation CCS, neck conditioning, footwell and surface heating, all coordinated by our electronics and software, which utilizes GenTherm's proprietary thermal physiology-based algorithm. As the transition to electric vehicles accelerates, GenTherm is perfectly positioned with our breadth of solutions, including our core climate comfort products, climate sense, as well as our battery performance solutions, to help OEMs achieve their electrification goals by increasing vehicle range and energy savings, all while delivering a best-in-class personalized thermal experience. Now on to slide five to discuss automotive awards. In the third quarter, we continued our business award momentum and secured $260 million in new program awards across 13 different OEM customers. Our global team won 70% of the opportunities available to us. Of note, our win rate was negatively impacted because we did not win one opportunity against an incumbent due to the very short time to launch. Importantly, I'm pleased to share that nearly 40% of our awards in the quarter were for electric vehicles. We won multiple CCS awards, including platform wins with the Dodge Ram 1500, Ford Explorer EV, and the Lincoln Aviator EV. I'd like to congratulate our Stellantis customer business unit for winning both CCS and seat heater awards for the next generation Ram 1500. I'm pleased to share that we are now the exclusive thermal seat provider for this platform as a result of this conquest win. During the quarter, we received four steering wheel heater awards across multiple OEMs, including the Buick Enclave, Ford Mustang, Great Wall Way VV7, and the Geely Lincoln Co. eSUV. On the battery performance solutions front, we continue to make progress in expanding our business, winning air cooling battery thermal management awards for the Hyundai Kona and Renault Sunwoda. While our award dollars and win rate are lower in the third quarter compared to the first two quarters of the year, we continue to see strong momentum in quoting activities leading into the fourth quarter. Now let's turn to slide six for a discussion of our medical business. During the third quarter, we saw increased demand for our medical products, especially our flagship product, Blanketrol. I'm pleased to share that we secured a large Blanketrol purchase order to replace competitive devices at the Mayo Clinic in Rochester, Minnesota. In addition, we also secured a large upgrade award from Massachusetts General in Boston. These are just two examples of how we're driving market share growth in our medical business. In addition to growth in Blanketrol unit sales, we're also seeing increased demand from hospitals that are using our Hematherm equipment to treat COVID patients. As an example, in the third quarter, HCA Healthcare in Nashville, Tennessee bought 20 hemotherm devices for use throughout their network. In the third quarter, supply chain disruptions caused by parts shortages and production labor constraints impacted our ability to fulfill all of the strong customer demand in medical. We're working hard to address these constraints in order to meet the continued strong demand going forward. To summarize, I'm proud of the GenTherm team for consistently outperforming light vehicle production in the key markets we serve. Despite the headwinds in the global supply chain, we generated significantly higher cash flow compared to the third quarter of last year. While uncertainty remains about where production rates will be for the next 12 months, we believe there is significant pent-up demand that will need to be met once the unprecedented supply chain constraints are resolved. I'm extremely proud of our team's agility, flexibility, and dedication to deliver on all of our commitments to our stakeholders in spite of these tremendous challenges. We will remain focused on operational execution, innovation, and cash flow generation, all of which position us well to continue to deliver over the long term. With that, I'll turn the call over to Matteo for a little more color on our financial results.