Gentherm Inc (THRM) 2003 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Amerigon Inc. third quarter and nine-month results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. (Operator Instructions). As a reminder, this conference is being recorded Wednesday, November 12, 2003. I would now like to turn the conference over to Jill (indiscernible), Allen and Carron (ph).

Good morning and thank you for joining us for the Amerigon Inc. third quarter and nine-month results conference call. Before we start today's call, there are a few items I'd like to cover with you. First, in addition to disseminating through PRNewswire this morning today's news release announcing Amerigon's results, an e-mail copy of the release was also sent to a large number of conference call participants. If any of you did not receive a copy of the news release, please call our California office at 949-474-4300 after the call and we will e-mail you a copy. Additionally, a replay of the conference call will be available on the Internet for ten days via a link provided at www.viavid.net.

Finally, I have also been asked to make the following statements. Certain matters discussed on this conference call are forward-looking statements that involve risks and uncertainties and actual results may be different. These forward-looking statements include any statements that relate to the intent, belief, plans or expectations of the Company or its management or that are not a statement of historical fact. Any forward-looking statements made on this conference call are based on current expectations and beliefs and are subject to numerous risks and uncertainties that could cause actual results to differ materially from expected results. Factors that could cause the company's actual results to differ materially are discussed in the Company's recent filings with the Securities and Exchange Commission. Amerigon disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this conference call. Also this call is copyrighted material of Amerigon. No recording, broadcast or other distribution of this call or any part of this call in any form is permitted without the Company's written permission. On the call today from Amerigon, we have been Bud Marx, Chairman; Dan Coker, Chief Executive Officer and Bill Wills, Chief Financial Officer. Each will provide a review of the results. Afterwards, there will be a question-and-answer period. I would now like to turn the call over to Bud.

Hi. Good morning Jill and morning other participants on our call this morning. The format will be as usual, that I will take the high road, the 40,000 foot view and then turn all of the hard stuff over to Dan, and especially any hard questions that you have. That is the prerogative of an executive chairman.

We had a very good quarter in our judgment for this quarter ended September 30. We continue our track record of more than doubling our revenues for the quarter, compared with the prior year's quarter. So for the three months ended September 30, 2003, we sold 9.2 million in product. That compares with about 4.5 million in product for the prior year's third quarter and our unit volumes also were more than double that prior period. For the nine months, we reached the $20 million mark in sales, 20.1 million compared with 8.8 million in the prior year's nine months. So on balance, a very strong growth in revenue. That was reflected in our profit position. We lost $146,000, or a penny a share in the third quarter. That compares very favorably with the prior year’s quarter results of a 13 cent loss and our nine-month record was a 15 cent loss compared with a 54 cent loss. So we see ourselves as making very significant progress quarter-by-quarter, not only in revenue, but in getting to the critical mass to achieve profitability, which after all, is the end objective of our business as with others.

Importantly, that $146,000 loss included a non-cash charge for the continued accrual of our potential award of warrants to Ford Motor Company if they reached their volume targets at the end of this year. And so operationally, we see even more a positive result. Our gross margin for the third quarter was 19.5 percent, that compares with 22.2 percent in the prior year's three months ended September 30. And I think it is important to talk about a couple of the factors that are affecting our gross margin. Our MTM includes the revenue and cost for the controller of our system on basically a cost pass-through basis, and so we have a significant, almost $1 million of what I will call controller revenue that is not part of our normal revenue picture. And that is depressing the margin. But in our view, this is actually a very positive situation because it gives us control of the complete system and the ability to work on that entire system to optimize cost and function. So we expect to make progress in this area over the next year and 18 months, so we see it as a positive that it will affect our revenue and our margin in a way that is different from the prior periods. We have described the decline in the margin as principally reflecting the effect of the inclusion of this controller revenue, which at this point is matched by controller cost, plus some low-volume startup penalties on the MTM.

Turning to some of the operating costs and expenses, there are a couple of items that are well worth mentioning. In the third quarter, we spent a net amount of $602,000 on R&D, which is down more than $300,000 from the prior three-months period of the prior year. But in fact included in that R&D is a credit for development work that we're doing, principally as part of our joint venture with Visteon Corporation which intends to develop thermoelectric technology for other automotive applications besides seats. So we had a full quarter of operation under that agreement, it significantly lightens our R&D load and we see that as a good thing in the near-term. But I think the important thing is that in an operational sense, we're making very, very good progress with Visteon on the ultimate objective of developing new product for the automotive market.

Similarly in selling, general and administrative, our costs are down about $100,000 and those costs include a couple of onetime elements. We mentioned the non-cash charge for the Ford warrant accrual of 160,000, and there is also a onetime reimbursement of startup and preproduction costs at our contract manufacturers' Mexican operation. So we're making steady progress at reducing the selling, general and administrative. I think that is very positive because those numbers have (indiscernible) large for us. We are looking forward to turning the corner on profitability and I will let Dan talk about that in a minute.

There is one wildcard I should mention, and that is the Ford warrants are subject to valuation by Black-Scholes, which is a fairly complicated set of statistics, but it is importantly influenced by Amerigon's stock price. We have a valuation included that we think is reasonable, but if there are affects of the stock price that could affect this non-cash charge in a way that not only would affect the fourth quarter, but would have us revaluing the third and second quarters' accruals. So I think people will look past that one way or another, but I do want to mention it because it is the only sort of thing we see on the horizon that we want to worry about as we enter the fourth quarter and look for profitability.

A comment on our cash resources and liquidity. We have on the balance sheet as of the end of September, about a half a million of borrowings under our credit line with Comerica, and we have therefore ample borrowing capacity to fund any retirements, but frankly, we're moving to a position where we expect to over the periods that come generate cash rather than eat cash. So we feel quite comfortable with our liquidity and our resources that back us. With that, I'll turn it over to Dan.

Thank you very much. You have done your usual good job of all of the details, as well as the overview, so I will leave myself to talk about some of the generalities of the program. I think the most important thing that happened to us during the quarter was that we had a very strong launch of the GM Cadillac DeVille program. We're seeing extremely strong response from the General Motors Cadillac customers, and also from our program and being able to deliver the product in a timely and accurate basis. They generated a full quarter's worth of revenue. Bud has mentioned that that revenue also includes the cost of a controlling device which allows us now complete management control of the total system and gives us a challenge and we have accepted that challenge of trying to reduce the overall total system cost to improve our margins and we're taking that challenge on. And as Bud mentioned in the next 12-18 months, we see improved margins coming from that business as well as growth.

The second thing that I think we should note is that kind of from a historical perspective, we ended the quarter with 13 platforms either announced or in production, and we had one additional platform announced immediately after the end of the quarter. So we now have 14 vehicles around the world that are either currently supplying or have announced to be eminently supplying heated and cooled seats to their customers. And we compare that to last year at this same time where we had about seven platforms. We have literally doubled the number of vehicle lines that are offering our product, and that means that we have added seven lines in 2003. That has been a very, very large task and our team and our suppliers have been able to work with our customers the seat suppliers to deliver our product to our customers in a very positive fashion and it has improved our business conditions, our revenues and our margins, but it has been a Herculean task, and I like to congratulate our entire team on being able to accomplish that task. It also puts us in position for continued growth in the future in 2004. We move into 2004 with these 14 platforms generating revenue for us and we're expecting to see somewhere around 25-30 percent revenue growth next year. That's slightly less than this year, but it's still a pretty good step in the right direction.

The other thing we would like to mention is that Bud mentioned the transfer cost to Mexico. The Mexican operations, our contract manufacturing assembly plants are working very well for us at the moment. We're seeing very positive results, we're beginning to see smooth and efficient lines running and we're quite pleased with that transition and the decision to go to a contract manufacturing strategy. Bud mentioned the Ford DBA (ph) warrant. Just to concentrate, I did not mention specifically -- in the 14 vehicles we did have during the quarter or the immediate month at the end of the quarter three new announcements. One is the Hyundai Equus, which is a luxury vehicle sold exclusively in Korea by Hyundai. It is their flagship vehicle. We're quite pleased to have that vehicle in our line. It is the first of our programs with Hyundai. We were also awarded the Nissan Sema (ph), again a very, very popular vehicle in Japan sold only in Japan. And here in the U.S., we're beginning to see activity on the brand-new Mercury Monterrey minivan, which is our first minivan program in the world. And we are quite pleased to announce and bring all three of these new vehicles and their customers into the climate control seat market arena. We see a very strong fourth quarter coming ahead of us. We think we should be able to repeat the revenue numbers and the volume numbers we hope for the fourth quarter and finish this year on a very positive and upbeat fashion. I think with all of the information that Bud has given you and my general overview, we should be able to open ourselves for questions and would be delighted to hear anything. Bud, would you like to say anything before we open to questions?

Yes. I think your comment on the Amerigon team is very appropriate, because this was a very tall mountain to climb this year, in terms of product launches and successful product introductions. And I think the congratulations extend to our contract manufactures, both in China, Ferotec (ph) and SKC (ph) and to Millennium in Mexico. So I think this strategy has been validated and it has a lot of advantages for us going forward.

Okay, operator, we're prepared to address any questions if we missed anything in our detailed explanation.

(Operator Instructions). Ian Ellis (ph), (indiscernible) Capital.

Good morning, gentlemen, congratulations. I just wanted to focus on MTM for a moment. Were the first revenues for pass-through revenues on the controller in this quarter, or were there any in the second quarter? And then could you give us an idea of what your gross margin for this current quarter just reported quarter would have been if you had actually not been passing through that line item? And then more qualitatively, Dan obviously mentioned the DeVille, which I believe is the first product with the MTM technology is getting very good reception. Is that coincidence, or is that because it is an MTM technology in your view? And then the last area is -- obviously a lot of new platforms under the last year. How do you see the next 12 months shaping up, in terms of new platforms, and are they all going to be MTM?

Back at the (technical difficulty) question, and I'll let Dan think about the broader implications you're asking about. Basically, (technical difficulty) third quarter margin would have been about equal to the prior year's third quarter margin, if you at what exclude the pass-through revenue and some onetime penalties we had in the third quarter, they will disappear as we move into the fourth quarter.

Right. That is interesting, that's good to hear. I think, historically, you had talked about getting some margin expansion out of MTM, do you still feel that is a likelihood or are you actually going to give that benefit through to the customers?

Frankly, I am pleased that we have the controller included in the our (technical difficulty) bailiwick (ph), because I think it gives us another element of our system cost to work on that was a little bit outside of our control in prior times. It was in many cases purchased directly by the auto company. So I think I will stick by our forecast that we expect to improve our margins in the next 12 to 18 months importantly by working on the MTM.

Thank you. Dan, is this independent, or is this because it is an MTM technology you're using on the DeVille?

I think they are dependent. I think that the DeVille customer has been looking for a heating and cooling seat comfort feature. And the fact that our new MTMs are more efficient than our previous devices have increased its appeal. Our seat partner here at JCI has done an excellent job of packaging this device, these devices, and the performance of the device is exceptional. And I think that when the people go to the dealerships and they sit on the seat and they test it and they feel it, they buy it, and they're buying it in very big numbers. We're seeing very, very strong take rates out of the DeVille product.

As high as you say on (indiscernible) out of the Ford portfolio?

In the class of product that it is, it is the highest that we have seen. It is very, very positive.

(multiple speakers) as against SUVs, which are presumably very high?

Some of the SUVs have been very high, but in general, it's among the highest take rate we've seen of any of the vehicle lines we've had.

That's great. Thank you.

I think also Dan mentioned JCI partner in the supply-side of this. They are a customer, but I think what we have also seen is the seating companies have begun to accept that heated and cooled seats, particularly the cooled feature, are going to be a part of the business proposition for the coming years. And we are, I believe, progressing way beyond being stuffed in as an afterthought and as an annoyance by the seat manufactures, and they're seeing this is an important part of the business that is emerging. That is very positive for us.

That's great. So you're becoming a standard, in terms of a high-end offering -- is that what you're saying?

Becoming more standardized.

Thank you.

Steve Gish (ph), Roth Capital Partners.

Hi Dan, Bud. Dan, if maybe in terms of the 13 vehicle lines in Q3, how many of those were actually in production? And then if you could give me the actual volume for the quarter, this quarter versus last year, and then maybe if you could address the deferment of vehicle platforms expected in 2004 and 2005?

Sure. Let me see if I can take a swat at those in order -- you may have to remind me what the questions were. I believe that right now, we're getting revenue from nine of the platforms that have been unidentified. A couple of those are starting up in the fourth quarter. We should see revenues on our side as the vehicle programs launch in '04, but we will begin to see some small revenues on this side. The second question was what, Steve?

Total volume for the quarter?

The total volume for the quarter was 135,000 seat systems shipped this year, and I just had that in front of me. I just closed my notes.

Do you know what it was last year?

It was 135,000 this year. Last year at the same quarter, it was 66,000. And for the year-to-date, this year has been 227,000 units, last year was about 100 (technical difficulty). I'm sorry they're pointing me out the wrong numbers here. 307 for this year, as compared to 130 for last year.

The last question was with respect to the possible pushout or launch of several platforms in 2004 and 2005. Can you comment on that and perhaps quantify that?

Quantify it, no, but I can comment on it. In the current economic conditions, there have been a lot of retrenchments and several of the car companies, several of them and are dealing with Amerigon. In tough economic times, the car companies do tend sometimes to look at their expenses for introducing new features and new products, and in some cases, in extreme cases, they actually push out the launch of new platforms and new programs. Unfortunately, we're seeing some of that occur to platforms that we're working on and programs that we're working on, and several of the programs that we were looking forward to launching in '04 are going to launch in '05 and some of the '05s are going to launch in '06. However, we do still see '04 being 25-30 percent higher than this year’s record year, even with those program pushouts.

Thank you.

(Operator Instructions). Ian Ellis, Micro (ph) Capital.

Just on the last part of my earlier questions, what sort of number of new platforms can we realistically expect to a range that we can reasonably expect for the next 12 months?

We typically don't give prognostications of that. We're not completely in control of what is going to happen there. The car companies themselves are in final control. But the number will be smaller than we saw before, but it is still going to be a good year for us.

Does your revenue guidance for next year include any revenues from additional platforms or not?

It does.

Just a comment on this 25-30 percent, part of that sort of flattening is we have done better this year than we expected to. So our base by which we have to keep jumping over the hurdles has actually risen a bit faster than we expected to this year. So all in all, I think we're looking forward to quite a very good year next year.

One last question. Obviously the GM's on board now. And looking at the new platforms that you are looking at, do you see any major new customer groups or are you going to be working within your existing ones?

I'd say that, generally speaking, we're continuing to work in all markets, we're continuing to make progress as you've seen in the U.S. and in Asia, and we see Europe as a coming opportunity for us as well. So we do see expanding beyond our current market successes.

Great. Thank you gentleman.

There are no further questions at this time. I would now like to turn the call over to you.

Bud, why don't you summarize?

First, we appreciate the interest and the questions from all those who are on the line and the lack of questions from those who were on the line that could ask even harder ones. But again, I think this is another quarterly progression for us. As I said on our last conference call, some of our results are going to bounce around a little bit because we're still a small company and onetime things can have a disproportionate effect. But if you look backward over the string of quarters, I think there is a consistent track record of growing revenue, very strong additions of new customers and new vehicle lines, as Dan has pointed out; significant cost reduction from prior levels and the clear emergence of a resource base on which we can the confident to plan for the coming year. So on balance, I am quite pleased with how the Amerigon group has put the quarter together.

Thank you very much.

Thank you very much. Ladies and gentlemen, that does conclude the conference call.