Gentherm Inc

Good morning, and welcome to the GenTerms 2022 3rd Quarter Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad.

to withdraw your question. Please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Agent Brentano.

Please go ahead.

Thank you and good morning, everyone, and thanks for joining us today. GenThem'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 Gensum'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 Mattel 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 gentham.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 solid performance of the third quarter, during which we achieved the highest quarterly revenue in company history on an organic basis. In addition, during the quarter, we closed the acquisitions of Alfmeyer and Dachen Medical, which expanded GenTherm's value proposition in both automotive and medical. With the addition of Alfmeyer and Dachen, we grew 37% year-over-year, or 44%, excluding the impact of foreign currency translation. Adjusting for foreign currency translation and the Alfmeyer acquisition, automotive revenues increased 29% year-over-year in the third quarter. outperforming actual light vehicle production in our key markets by nearly 300 basis points. The integration of the two acquired businesses is well underway. I'm pleased to share that we are progressing on schedule and have already implemented actions that will enable us to realize 20% of our cost synergy goals starting in 2023. More importantly, our customers are already benefiting from GenTherm's expanded value proposition. Demand for our thermal and pneumatic massage and lumbar comfort solutions, especially in the EV market, continues to be strong, evidenced by the milestone achievements of our third quarter. First, we won our inaugural combined award for thermal and pneumatic comfort with one of the largest global EV manufacturers, which is also one of the largest awards on a single EV in our history. Second, we recently announced that the 2024 Cadillac Celestique EV will be the first to market vehicle to feature GenTherm's ClimateSense four-zone microclimate system as standard equipment. These awards underscore the growing traction of our innovative solutions. During the third quarter, we continued to face one of the toughest operating environments. With material and labor cost inflation, semiconductor shortages, and other supply chain challenges. Nevertheless, our margin performance improved from the second quarter level as a result of our stringent cost management and negotiation of appropriate cost recoveries from customers. I'd like to thank our global team for all their efforts in growing profitability year over year and sequentially. Matteo 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 18 different vehicles across 12 OEMs, including BMW, General Motors, Great Wall, Honda, Mercedes-Benz, Toyota, and Xpeng. We continue to see momentum for our CCS solutions on both ICE and electric vehicles. In the third quarter, our CCS solutions were launched on the BMW 7 Series, Great Wall Haval H6 crossover SUV, and XPAL pickup truck, the Honda XRV and Vezel, as well as XPANG G9 SUV. A couple of weeks ago, Gen Therm participated in the Cadillac Celestique vehicle debut event in Los Angeles. We partnered with Cadillac to include a ClimateSense interactive display at this event. The inclusion of ClimateSense in Cadillac's global reveal of the Celestique is demonstrative of GenTherm's contribution to the design of this extraordinary new vehicle. The Cadillac Celestique will feature the industry's first deployment of our ClimateSense system that offers advanced cabin climate technologies, electronics, and software algorithms that help deliver luxurious, efficient, and personalized comfort for every occupant. The Celestique demonstrates the future potential for significant content increase for GenTherm. with a four-zone microclimate system as standard equipment. The system features 33 unique microclimate devices that allow each occupant to personalize their desired level of heating and cooling while working in conjunction with advanced airflow technologies to create truly individualized comfort. The ClimateSense system on the Celestique marks a turning point in how automakers can improve cabin comfort while maximizing energy efficiency and optimizing driving range. In addition to preparing for the flawless launch of the production programs with General Motors, we continue to make progress on development projects with other OEMs across multiple regions. There has been tremendous amounts of innovation, creativity, and hard work by our teams across the globe since Climate Sense began as an idea on a whiteboard. I'm truly proud of what this milestone means as an achievement for our company and it's one of many important stepping stones towards our future growth. Now onto slide five, where you can see that in the third quarter, we secured $430 million of awards in automotive. Since the announcement of the Alfmeyer acquisition, our customers have resoundingly expressed support and excitement to see Gen Therm further expand its value proposition beyond thermal to include pneumatic solutions in comfort, health, wellness, and energy efficiency. The pipeline of opportunities for the combined company remains strong. As I mentioned earlier, we won our first combined award for thermal and pneumatic comfort for one of the largest global electric vehicle manufacturers in the third quarter. This award is incremental to the strong book of business we already have with this OEM. I'd like to congratulate the OneGenTherm team for continuing to grow our relationship with this important EV customer. I'm also pleased to note that we won multiple CCS awards in the quarter, including on the next-generation Buick Enclave, GMC Acadia, Hyundai NX4, and Palisade LX3, and on the Land Rover EMA multi-vehicle platform. In the third quarter, we also received eight Steering Wheel Heater Awards across six OEMs. These included Chili's Zeker EV brand sedan, Honda CR-V, Nissan Silphy, as well as multiple models from Volkswagen and Audi. With the integration of Alfmeyer well underway, one of the key focus areas is to leverage the combined technologies, teams, and capabilities to offer more compelling and high-value solutions across complementary customer relationships. Our teams are working diligently to integrate the highest performing comfort and wellness solutions in the most space-efficient manner, which is especially important for electric vehicles that demand compact, integrated designs. And as we continue to bring innovative solutions to our customers, GenTherm is well positioned to significantly increase content per vehicle as electric vehicles expand in the market. Now let's turn to slide six for a discussion of our medical business. Hospitals are facing increasing financial pressures and are carefully managing their spending. This has led to a reduction in capital spending and, in some cases, purchasing freezes. Medical revenue in the third quarter grew 4% XFX year over year, primarily driven by our acquisition of Dachshund Medical. In the third quarter, Dachin won competitive awards in eight large Chinese hospitals. As a solution for hospitals that need capital equipment but don't have the budgeted funds for purchase, we recently entered the equipment rental market with a partnership with U.S. MedEquip, a company that provides short-term and long-term rentals to hospitals with capital equipment needs. I'm pleased to share that we received a key Blanketrol 3 order from this rental partner in the third quarter. In addition, University Hospital in Newark, New Jersey, and Virginia Hospital Center in Arlington, Virginia, both added to their existing fleet of Blanketrols to expand use throughout their hospitals. In the third quarter, we also grew our international businesses with Hemotherm, WarmAir, and AstoPAD System Awards in South America. Now let me summarize. Our third quarter results validate the effectiveness of our focused growth strategy and demonstrate our unique positioning to capitalize on industry megatrends in the mid and long term. We continue to operate in an extremely challenging industry environment. Nonetheless, we delivered the highest quarterly revenue in company history and secured our first combined award for thermal and pneumatic comfort. We believe that inflationary pressures and supply chain challenges will continue for some time. We will remain focused on innovation, execution, and aggressive cost management while continuing to collaborate with our customers for reasonable cost recovery in order to deliver profitable long-term growth. With that, I'll turn the call over to Matteo for a little more color on the financial results.

Thank you, Phil. Let me turn to slide seven and focus on the items that most significantly impacted our third quarter results. For the quarter, product revenues increased by 37% compared to the same period of last year, including the contribution from the acquisitions. If we adjust for the impact of acquisitions and effects, our overall product revenue increased by 27%. Starting with the automotive segment, automotive revenues were $322 million, corresponding to a 38% increase compared to the prior year period. Adjusting for the $41 million contribution from Alfmeier and foreign currency translation, automotive revenue increased by 29%. This compares to a 26% increase in the actual light vehicle production in our key markets of North America, Europe, China, Japan, and Korea. And as Phil just mentioned, we outperformed the light vehicle production volume by nearly 300 basis points. Excluding FX impact, revenue increased in all the automotive product lines compared to the prior period. And more specifically, steering wheel heaters revenue increased 38% year-over-year, primarily due to higher sales on multiple GM platforms, as well as continued growth from one of the largest global EV manufacturers. EPS revenue increased 35% due to higher demand of our proprietary battery thermal management solutions on the Jeep Renegade and Wrangler. CCS revenues increased by 31% due to higher sales to GM, Ford, and Stellantis for their trucks and SUVs. Ctiter revenue increased by 30% due to higher sales on GM SUVs and several Toyota and Honda models. Electronics revenue increased by 6% due to higher sales of our multifunction ECUs to Ford, and the growth in automotive electronics was significantly offset by decline in non-automotive electronic sales. Table revenues increased by 4% due to higher sales with several customers. Outer automotive revenue increased by 33% due to higher sales of neck conditioners and automotive interiors. And finally, Alfmeyer grew 17% from the comparable prior year two-month period, excluding the impact of foreign exchange. Moving to the medical segment, revenue was flat compared to the prior year, or up 4% if we exclude FX, driven by the contribution of Dacheng Medical. Adjusting for the contribution of Dacheng and FX, medical revenues declined 8%

primarily due to the reduction in capital spending in the U.S. hospitals. Turning next to gross margin, gross margin rate for the third quarter was 24.1%.

This compares to 28.5% in the year-ago period. The 440 basis point decrease was primarily driven by inflation associated with wages, material, and freight costs. The impact of Altmeier which has a lower gross margin rate relative to our organic business, as well as the negative impact of foreign exchange. These were partially offset by fixed cost leverage and higher sales volume, as well as cost recoveries and negotiated price increases from customers. Sequentially, gross margin rate increased from 22.8% in the second quarter of 2022 to 24.1% in the third quarter, The 130 basis point sequential improvement was driven by higher fixed cost leverage on higher sales volume, higher cost recoveries from customers, higher productivity at the factories, partially offset by the impact of Altmeier. It is worth noting that excluding the acquisitions, Jenton delivered approximately 27% gross margin rate, up from 22.8% in the second quarter. If we move to operating expenses, which were $57.5 million in the quarter compared to $48.7 million in the prior year period, the current year third quarter amount included $7.5 million of acquisition expenses, and this compares to last year third quarter when we incurred approximately $0.8 million of restructuring and acquisition expenses. If we adjust for the acquisition and the structuring cost in both periods, operating expenses were $50 million, up from $47.9 million in the third quarter of last year. The year-over-year increase of approximately $2 million was driven by additional expenses from the acquired businesses, partially offset by lower SG&A in our organic business due to lower incentive compensation and tight cost controls. Please keep in mind that the favorable impact from incentive compensation adjustment was approximately $5 million in the quarter, and that we do not expect the same adjustment to occur in the fourth quarter. In addition, the third quarter operating expenses included costs for only two months of the acquired businesses. Adjusted EBITDA of $43.2 million Increased approximately $12.7 million from the prior year period. Adjusted EBITDA margin was 13%, up from 12.5% in the prior year period, and up from 8.2% in the second quarter. The diluted impact of the acquisitions on the adjusted EBITDA margin was approximately 180 basis points in the quarter, of which approximately 60 basis points were driven by temporary costs to address discrete operational issues. Finally, adjusted diluted earnings per share in the quarter was $0.70 per share compared to $0.51 per share in the third quarter of last year. Our effective tax rate in the third quarter was approximately 37%, slightly above the prior quarter due to unfavorable geographic mix of earnings.

If we move now to the balance sheet on slide 8,

Our cash position at the end of the quarter was approximately $139 million, down from $157 million at the end of June. We closed the quarter in a net debt position of $96 million compared to net cash of $120 million at the end of the second quarter. The change was driven by the borrowing on our revolver to fund the Alfmeyer and Da Cheng acquisitions, and as a result, our net leverage increased from negative 0.99 in the prior quarter to positive 0.79, still well below our target of 1.5. Based on the trading 12-month consolidated adjusted EBITDA and the September 30th, we had approximately $264 million of remaining availability on our line of credit, and the total available liquidity as of September 30th, 2022, was $404 million. Now let me turn to slide nine for our 2022 guidance, which includes the expected results of the acquired businesses since their respective date of acquisition. We are maintaining our total company full year 2022 guidance as discussed in the prior earnings call. We continue to expect product revenues for the year to be in the range of 1.15 to 1.25 billion Assuming effects remains at the current levels. We expect adjusted EBITDA margin in 2022 to be in the range of 10% to 12%. Our guidance now assumes approximately 100 million of revenue and low single-digit adjusted EBITDA margin rate from the full acquisitions. We expect our full-year effective tax rate to be towards the higher end of the guidance range of 29% to 31%. and capital expenditures to be at the lower end of the range of 50 to 60 million.

And with that, I'll turn the call back to the operator to begin the Q&A session. Thank you very much.

We will now begin the question and answer session. To ask a question, you may press star and one on your telephone keypad. if you're using a speakerphone please press please pick up your handset before pressing the keys to withdraw your questions please press star then doom at this time we will pause momentarily to assemble our rosters thank you the first question

comes from the line of Matt Coranda with Rod's Capital.

Please go ahead.

Hey guys, good morning and thanks for taking the questions. Just wanted to start off with the award environment and wanted to see, I think last quarter you guys were able to break out Alfmeyer versus sort of Core Gen Therm awards. Wanted to see if you could at least maybe directionally speak to the breakdown there. And then also on the thermal and pneumatic awards, is there more in the pipeline that combines the two, or is that just sort of a one-off win that was kind of a quick one that was opportunistic? Or maybe if you could just kind of characterize the size of the pipeline that has the combined awards, that'd be helpful.

Sure. Thanks, Matt. First of all, pretty pleased with the The amount of awards in the quarter, typically that quarter is a little bit on the lighter side just in terms of activity. So it was a good quarter. In terms of the breakdown, as our typical practice, we're not going to break down the specific products in our awards portfolio. But I will say that the thermal awards were significantly higher than the pneumatic awards in the quarter. Getting to your second question about the combined awards, yeah, we definitely see that interest starting to build with several customers. You know, it makes a lot of sense for a couple reasons. One is to bundle some of the technology integration, and the second one is, you know, it's from a purchasing standpoint, you're typically going through the same decision-makers at the OEMs, and so it makes a lot of sense for them to negotiate a package. So that's kind of what we're seeing, but we're certainly really excited about that first combined win with large global EV manufacturer.

Okay, great. Thanks for that. And then just on the outperformance versus production in your respective regions, I mean, not to nitpick, but you guys are typically a little bit higher in terms of outperformance relative to production. Just curious if you maybe can give a little bit of color on sort of what you're seeing in terms of maybe production mix or any kind of holdups on the supply chain front that are causing that kind of lower level of outperformance relative to production in the regions.

Good question, Matt. Yeah, it was, in many regards, very good outperformance quarter. Unfortunately, we did have a couple unique headwinds that I'll point out. On the good side, demand was very high for our core products, especially CCS and steering wheel heat. Those grew significantly with higher take rate and launches. Saw a nice increase in BPS. In fact, I think it was the highest quarter on record for us with BPS. And that's with a lot of the ramp-ups of the Jeep battery heater. And then, of course, we launched the BMW 7 Series plug-in hybrid in the quarter. So a lot of good momentum there, you know, compared to market. Headwind-wise, there are two factors. The first one is if you look back at 2021 third quarter, we actually had a 15 percentage point outperformance versus 2020 third quarter. So it was a pretty tough comp. That quarter included a lot of new launches, which typically bring kind of a spike at the beginning of the launch. So, you know, that comparison was a little bit difficult. And then the second one, which is meaningful, is around electronics and some unique activity in the quarter, which Mateo mentioned. We have a non-automotive electronics business that's kind of built into our overall automotive revenue base. That's a result of the Etratech acquisition that happened several years back, back in 2017. We made the conscious decision to start phasing out some low-margin customers in a quarter and saw a decline in revenue as a result of that. And then also, within that bundle of products and customers, there were some customers where we withheld shipment during inflationary cost recovery negotiations. Actually, if you just look at that non-automotive electronics and take that out of the mix, we would have outperformed 600 basis points rather than 300 basis points just on that factor alone. So that's the breakdown for it.

Okay. Super detailed and helpful. Appreciate that, Phil. And then just on the gross margin front, maybe one from Mateo. Wondered if maybe you could kind of disaggregate some of the puts and takes on gross margin within the quarter on a year-over-year basis, just because you called out wage, material, freight. I think Altmeier is a bit lower on the gross margin front. And then FX impacted. So just wondered if you could kind of maybe at least give us relative sizing of those negative headwinds on gross margin so we can get a better sense for how to model going forward. And then how much did, I guess, volume and price sort of help you to the good side on gross margin?

Sure, Matt. Hi. Good morning. So let me take that. So first of all, I think the dilutive impact of the acquisitions on the gross margin rate in the quarter was about 280 basis points. If you normalize by that, you really see a decline year-over-year from 28.5% of last year to 27% on a comparable basis. So it's about 150 basis points. And let me start with the pressures. About 230 basis points was driven by the material and wage inflation. Then Higher regular freight and UDs was about another 230 bps. And then the FX impact due to the depreciation of the Euro and the Korean won primarily compared to the U.S. dollars was about 70 bps. So these were the primary negative drivers. On the positive side, you see that the volume increased. was the was the bigger one and and then also the positive impact of the price recoveries from from customers that we you know started to talk about in the last earnings call and we are pretty pleased on how things are progressing so that's kind of the uh the breakdown okay all right very helpful um and then just last one for me on the outlook it looks like not a whole lot has changed although

I did notice that in the EBITDA margins from acquisitions, it looks like you did bring that one down a little bit to low single-digit EBITDA margin. Just wondered if you could give a little bit more color on sort of what you're seeing on that front, and then I'll leave it for others.

Yeah. So, if I, you know, look back what we were expecting about three months ago, I would The organic business performed a little better than what we were thinking in the last earnings call. If you recall, we were expecting for the second half the organic business to be at about 13% EBITDA rate and actually legacy gen term closed at about 14.8% in the quarter. I would say the organic business was a little better, and maybe the acquisitions were a little worse. And we can talk through quickly about primarily Alfmeyer. We had a couple of discrete items that occurred in the quarter, primarily on the manufacturing side. and that we are working through with the team, and that created a drag of about 60 basis points in the quarter, which we are expecting also to continue in the fourth quarter. So that's really the dynamic that is happening, but overall, you know, given our year-to-date performance, in order to hit the midpoint of our annual guidance, we are expected to deliver about a similar amount of revenue in the fourth quarter compared to the third, which is maybe a little more conservative, pessimistic than what IHS or S&P Global is currently forecasting for our relevant market in the fourth quarter. And then on the margin, we need to achieve about a little bit above 11% EBITDA margin in the fourth quarter, which is really in line with With what we did in the third, if you adjust for the incentive compensation adjustment that I mentioned in my prepared remarks, plus one extra month of OPEX coming from the two acquisitions. So that's how we are seeing it for the remainder of the year.

OK, great. Maybe I have to just follow up on the Alfmeyer manufacturing issue that you mentioned. Just any more color on sort of what specifically that is that you can kind of share with us?

Sure. I'll jump in on that one. Well, first of all, I think that when you look at the core Alfmeyer business, you know, withstanding some of these short-term effects, it would have been pretty close to what we expected. But there definitely are some short-term issues. One example of that is the ramp-up of the next-generation SMA valve set for the pneumatic product. We're launching a new valve that controls all of the future product, and that's right in the middle of a ramp-up. And as typical for new technologies, the upfront costs of those ramp-ups tend to be pretty high, and that's kind of what we're working through.

But good line of sight to get that worked out over the next couple quarters. Okay. Appreciate it. I'll jump back into you guys. Thanks. Thanks, Matt.

Thank you. The next question comes from the line of Luke Young with Bread. Please go ahead.

Good morning. Thanks for taking the question. Just a A couple for me. First, I want to start with a question on the joint thermal and pneumatic when, you know, two parts to this question. First, with Alphamire only closing in August, can you just speak about the speed that this came together at and what it signals about the state of that integration overall? And then second, as you had this conversation and are having other conversations, I'm just wondering how customers are looking at thermal and pneumatic. Is this a case of two products being jointly booked, or are you starting to see real integration between the two products that customers are already contemplating? Thanks.

Sure, Luke. Yeah, I mean, the timing was good on the first award. You know, there were two packages that were out at the same time, and immediately when we made the announcement, a lot of interest by that OEM came together and looked at the opportunity to bundle that. But that is very consistent now with what we're seeing with other customers. It makes a lot of sense to have where you can have one supplier who can integrate these things because you can do it a little bit more effectively. So I would say, to be honest with you, the interest from customers is almost more than we can handle in combining these products, both in terms of bundling. So You know, there is that factor of, you know, bundling up from a purchasing standpoint, but there's a lot of interest on, you know, how do we make the combined products more effective and efficient for the OEMs, you know, especially for the end consumer performance, you know, but also from a technology and cost standpoint. So, those are a little bit longer term because, you know, in those cases, we're going to work with the customers on, you know, potential literal integration of product. As an example, electronics makes a lot of sense to combine in these two technologies. And of course, there are opportunities to kind of put together the physical thermal product with the pneumatic product. Those are going to take a little bit more time, but certainly this idea of bundling the awards is something that we see going forward.

Okay, great. Thank you for that. Second question, either Phil or Mateo, it might make sense to address this one. Just want to better understand what's in the gross margin right now. So, of course, this is the first quarter of Elfmeyer, which calling that out was super helpful. Thank you for that. What I'm wondering about is the cost recovery component that is in the margin today and not how that looks in absolute terms, but if we zoom out and look from 10,000 feet, just to what extent the recoveries are in the third quarter margin relative to your bigger expectation for recovery in total and what might still be coming as we look to the fourth quarter and beyond as you progress in those conversations? Thank you.

So let me start with the first part. So overall, what we experienced in the third quarter, and I'm talking Right now, Luca, this is legacy Gentern. We had about $40 million of lost revenue due to the supply chain disruptions, the majority of which is driven by customers that shut us down due to shortages that are independent from Gentern. And then an incremental about $8 million cost of goods sold in the form of premium freight, spot buys, incremental normal freight costs that we continue to see in the quarter, net of recoveries, right? So when you adjust for that, also in the third quarter, similar to what we said in the prior quarters, you really have still about 200 basis points negative impact in the gross margin due to the supply chain dynamics that we are still seeing. Things are a little better in the third quarter compared to the second, but we still are incurring these type of calls. To your second part of the question on the recovery, on the price, you know, overall, we are pleased with the performance of the recoveries. And here, I'm really talking about the work that our team is doing to recover the more systemic part of the inflation, which is really the material, the wage, and the normal freight. So I'm setting aside the spot buys. As you may recall, we really took an holistic approach. We went after it in four different ways. Number one, reimbursement of one-time cost of the expedited freight and the spot buys, which in the quarter were actually about 70% we were able to recover, which is a little higher rate than what we had in prior quarters. So we are pleased with that. But then also the other side was really negotiate price increases and lower annual price reduction with our customers to offset the material and the freight inflation. And then obviously last, is the achieving better terms on our new business awards, again, in the form of higher prices and better margins. And as you know, we really established a process to partner with our OEMs to try to get appropriate recoveries. And we think that the strategy of delay a little bit of the negotiation of the recoveries until we had the full pictures in order to avoid to go back to the customer several times is really paying off. So far, we were expecting in the second half to achieve about $15 million of price increases. We were able to negotiate about 70% of those, and we have line of sight in negotiating the remaining 30% in the fourth quarter. So I think we are pleased on how the team is progressing in the areas of price recoveries.

Thank you both for the color. Very helpful. I'll go ahead and leave it there. Thank you, Luke.

Thank you. The next question comes from Glenn Chin with Seaport Research Partners. Please go ahead.

Thank you. Good morning, folks. Phil, may I just ask you to expand upon your comment that you expect, I think you said supply chain issues, you expected them to persist for some time. Just what you're seeing out there. What leads you to conclude that? And then sort of a related issue, what you're seeing from your customers just, you know, in terms of OEM production and schedule volatility, et cetera?

Yeah. Well, definitely we're – while we definitely have seen improvements in the quarter and even seeing some more gradual improvement in the early stages of Q4, it's still – pretty darn volatile out there you know typically there are just surprises that pop up from specific semiconductor suppliers one of the big challenges in general is just the visibility that we're getting from the suppliers is much less than in the past we're typically seeing somewhere between call it five to eight weeks of visibility And that's it. Beyond that, none of the semiconductor suppliers are willing to give firm commitments. So outside of that window, we're just doing our best to try to stay in front of the suppliers and maintain our allocation properly. But there were definitely cases where promised shipments came in short. We had to expedite. We had to readjust our factories. but all in all, I think our teams did an excellent job of keeping the flow to the best level possible. Definitely on the second part of that, we continue to see, again, not at the same level, but we continue to see pretty significant OEM delivery shortfalls in a short window of time, and that causes quite a bit of disruption in the factories. You get a lost productivity in the time when you aren't producing. And then, you know, this is, we're seeing a little bit more of the, within a couple of weeks, the volume comes back and then we're working overtime and hustling to try to get the parts out. And then, you know, even in some cases, you know, spending money on expedited freight, which we typically get mostly reimbursed. Those are the big dynamics we're seeing, still seeing it. Unfortunately, it's a little bit better rate. I don't see anything right now that tells me we're nearing the end. So I think we're going to have to watch it really closely. We have to be agile, which I think we've done a good job at. And hopefully in the next several quarters, this will alleviate.

Yep. Okay, great. Thank you for all the detail. And then I guess just on the competitive environment, Phil, can you just tell us – Have things changed there at all? I mean, yesterday, one of your recently acquired primary competitors was talking about some business wins. I don't know if those are conquests or if it's new business. And likewise, I don't know if the business you guys have won or booked this quarter was conquest or a new business. Can you tell us our...

Are you gaining share or are they gaining share or is the pie just growing bigger?

Sure, sure.

Well, I think one important point for us is this quarter was among the highest win rate quarters that we've ever had in our core business. So we're really excited about that. It tells us that customers still value our product and they're coming to us for those. opportunities. You know, in general, kind of the way the market is shaping out, we still see, you know, the same dynamics in terms of direct source from our OEMs. We haven't seen any material change there in the mix. You know, that said, there are and have always been certain customers and programs that are uh you know awarded to the tier c tier one seat manufacturer for you know decision on sourcing and uh you know so certainly you know there's going to be a mix of opportunities there for us the competitor you mentioned you know it's probably going to keep a lot more product in-house uh although you know lear remains an important customer for us and we see opportunities with them uh secondly we we actually see increases in award momentum from other Tier 1s when they have the opportunity to choose. We're really excited about our strengthening relationship with Adiant, as an example. We're becoming a preferred collaboration partner with them for both thermal and pneumatic, and so that's pretty exciting for us.

But all in all, we're seeing good momentum.

Okay, very good. That's it for me. Thank you for all the details.

Operator, do we have any more questions on the line?

Yes, sir. We take the next question from the line of Ryan Fickdell from Kate Hallam Capital Group. Please go ahead.

Morning, guys. Just one for us. So on ClimateSense, we've seen – or it seems like, I guess, thermal, pneumatic comfort, kind of a lot of your advanced technologies are really pulling through, especially on EVs. But we have one OEM for ClimateSense, two models there now. But I guess – What's the pipeline look like? Why is other technology, advanced technologies, pulling through better? Talk through kind of how you expect the next several quarters and years to play out for ClimateSense. Thanks. Sure thing.

Well, obviously, we're quite excited about the momentum we're making with General Motors on ClimateSense, you know, Celeste Teak, and we've got another win in the pipeline. And obviously, you know, we're heads down executing well. on that. We get one shot at the first, you know, first go to market. And, uh, and we obviously want to be successful there and then win more, uh, for them. So that's, that's our top priority, uh, is to really deliver for them. Uh, there are development projects that are, that are happening right now with other customers. We're being very selective about that to make sure that they have a pathway to something that's beneficial. And, uh, I think we're executing and showing good results as expected with those projects, both in the thermal performance for the consumer in the vehicle, but also, importantly, the gains in battery efficiency and range. You know, that said, these changes are big changes from an infrastructure standpoint on the vehicle, and they require a long lead time to integrate climate sense with the overall thermal design of the vehicle to make them standard equipment, which is where you see the most benefit. And so when you talk about full climate sense, you have to match that up with the right timing with an OEM. And as you know, the car companies are at a fever pitch race to get EVs to the market. So making those big infrastructure changes sometimes has to fall at the right time. There's definitely lots of interest People get it. They know this is where the future has to go. It's just going to take some time. In terms of the other technologies, especially on the thermal side, a lot of those new technology wins are kind of an effect of our climate sense development. When we're able to show climate sense to customers, they start to get excited about not just the full climate sense solution, but some of the different elements of it, some of the different effectors like energy. neck conditioning or more steering wheel heat, you know, penetration or putting heat and CCS in the rear seats. So we're seeing more and more of that start to flow through at the same time. And, you know, obviously now that we have the pneumatic solutions, lumbar and massage to go along with it, all that falls right in line with the OEMs movement towards improving the health and wellness and comfort of their passengers, which is a huge differentiator for the car companies.

Thank you, guys. Thank you. Thank you.

As there are no further questions, this concludes our question and answer session. I would like to turn the conference back to Phil Eiler for closing comments. Over to you, sir.

Thanks, everyone, for joining our call. I'm extremely proud of the Global GenTherm team for continuing to drive groundbreaking innovation, outperforming S&P global mobility production metrics, and delivering record quarterly revenue despite a challenging industry backdrop. As I've consistently shared in the past, we remain very focused on operational execution, innovation, and cash flow generation. While we expect continued market-wide changes in the near term, the momentum that we're seeing on the top line, coupled with our stringent cost management, position us well to deliver significant shareholder value over the long term.

We appreciate your interest and support and look forward to keeping you apprised of our progress. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.