Gentherm Inc

Greetings and welcome to the GenTerm Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce our host, Yejin Brentano, Corporate Development and IR. Thank you, ma'am. You may begin.

Thank you and good morning, everyone, and thanks for joining us today. GenThum's earnings results were released earlier this morning, and a copy of the release is available at GenThum.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 security 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 JANTHEM'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, including certain pro forma measures related to the Elfmeyer acquisition. 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 jensdom.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 am pleased with the continued strong execution of the Global Gen Therm team as we delivered another solid quarter of financial and operating results. While we have seen some stabilization in automotive production and signs of easing inflation, we continue to strengthen our operational execution and further improve productivity. For the second quarter, we achieved record revenue of $372 million growing 43% year over year. These outstanding results also included record quarterly organic revenue of over $300 million, the highest ever quarterly revenue for our climate-controlled seats and the highest ever quarterly revenue for steering wheel heaters in the company's history. Demand for our thermal comfort, massage, and lumbar solutions continues to accelerate. This momentum has carried into 2023. In the second quarter, we achieved a quarterly record of $670 million of new automotive business awards. Year-to-date, we have secured nearly $1.2 billion of new awards. Recall that in 2022, we secured record wins of $1.8 billion for the full year. With this extraordinary strength and new business wins, we're preparing to gear up to meet the production demands of our customers, along with creating a more optimal cost structure in our manufacturing footprint. And I'm pleased to announce that we are investing in two new manufacturing plants, one in Morocco and one in Monterrey, Mexico. The new factories will be ready for production in 2024. These new plans will not only allow us to meet the capacity requirements of our record levels of new business awards, but also support our plan to keep expanding gross margins. Turning back to our Q2 results, which Mateo will cover in more detail in a few minutes, our adjusted EBITDA margin rate improved 300 basis points year-over-year on a pro forma basis. We generated $34 million of cash flow from operations, repaid $16 million of debt, and repurchased $10 million of shares in the quarter. We have officially kicked off our Fit for Growth 2.0 program to execute our previously announced profitability improvement plan to reach high teens adjusted EBITDA margin rate by 2026. Specifically, we have identified several hundred initiatives to reduce product costs through value engineering, sourcing excellence, improve manufacturing productivity through automation, and implement lean best practices across our network. Additionally, the program will drive operating expense efficiency to leverage scale as we continue our growth path towards our target of over $2 billion by 2026. Now, turning to the automotive highlights on slide four. In the second quarter, we launched our automotive solutions on 20 different vehicles across 10 OEMs, including Ford, General Motors, Great Wall, Hyundai, and Toyota. We continue to see tremendous momentum for our CCS solutions. In the second quarter, our CCS solutions were launched on the Buick LaCrosse, Buick E4 EV, Chevrolet Blazer EV, Ford Mustang, Hyundai Verna, as well as several EV models of Great Wall vehicles in China, including the Tank 700, the plug-in hybrid Blue Mountain SUV, and Haval Xiaolong Max. Now, let me give you a quick update on ClimateSense. We are progressing well in preparing for the flawless launch of the two upcoming production programs with General Motors, And in addition, we continue to work on several development projects with OEMs around the world, including recent work with a few electric vehicle manufacturers. The demonstrations of range extension enabled by ClimateSense have also driven higher thermal content, higher take rates, and adoption on electric vehicles, which have resulted in a significant number of awards in the quarter. In addition to climate sense, our advanced engineering team continues to integrate thermal with lumbar and massage to create innovative full system solutions. The combination of heating and cooling the body with our proprietary pulsating massage is opening vast opportunities for health and wellness experiences, alertness enhancements, and physical recovery in the car. We are perfectly positioned to be a major player in the software-defined vehicle of the future by integrating our proprietary software and algorithms. Our Alfmeyer integration continues to deliver more value for our customers. We are now the clear market and technology leader in thermal and pneumatic lumbar and massage solutions. Our strong position as the largest independent provider is a powerful differentiator with our customers. We are actively engaged with OEMs and Pier 1 seat manufacturers in North America, Europe, and Asia to collaborate on breakthrough integrated comfort solutions. These solutions provide industry-leading comfort performance, reduced space requirements in the seat and the interior, less weight, and a significant improvement in seat assembly efficiency through reduced complexity. As a partner to over 25 seat manufacturers around the world, our scale and capabilities are unparalleled. As the leading innovator in this market, we can collaborate with our customers to create customized solutions and leverage GenTherm's scalable platform across multiple customers. Also, our engineers are simply the world experts in integration, as we work with nearly every car manufacturer and every seat maker and configuration. We believe our partnership model is a unique and sustainable competitive advantage.