Gentherm Inc (THRM) 2003 Q4 法說會逐字稿

Good morning and welcome to the Amerigon fourth-quarter and year-end results conference call. At this time, all parties have been placed on a listen-only mode and the floor will be open for your questions following the presentation.

Now, it is my pleasure to turn the floor over to your host, Ms. Jill Bertotti of Allen & Caron. Ma'am, the floor is yours.

Good morning and thank you for joining us for the Amerigon Incorporated fourth-quarter and year-end results conference call. Before we start today's call, there are a few items that I would like to cover with you.

First, in addition to disseminating through PRNewswire this morning today's news release announcing Amerigon's results, an e-mailed copy of the release -- (technical difficulty) -- 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 -- (technical difficulty) -- www.(indiscernible).com.

(indiscernible), I have been asked to make the following statement -- certain matters discussed in 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 and/or expectations of the management or the Company or that are not (indiscernible) statements 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 assaults to differ materially from expected results.

Factors that could cause the Company's actual results differ materially are discussed in the Company's recent filings with the Securities and Exchange Commission and 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 Bud Marx, Chairman; Dan Coker, President and CEO; and Bill Wills, Chief Financial Officer. Each will provide a commentary on (indiscernible), after which there will be a question-and-answer period.

I would now like to turn the call over to Bud. Good morning, Bud.

Good morning, Jill, and good morning, everyone who has signed on.

By almost any measure, the fourth quarter of 2003 and the year 2003 were very positive and very significant milestones for Amerigon. During the fourth quarter, we sold about 139,000 units worth of product, which was a record for us. Our sales were 8.9 million and that enabled us to rack up 29 million for the year which, as our press release says, was up 90 percent.

Our margins were about 21 percent for the year and we have plans to improve those margins over the next two years. So, we are looking at that as part of a significant contribution to profitability and cash flow for the future.

We recorded a profit in the fourth quarter of 2003. Our historians tell us that once before, long ago, maybe as long ago as eight years ago or so, we did record a quarterly profit previously but this is the first profit with the Climate Control Seat as the main focus of our business. So, we're very proud about that, very excited about it; 265,000 to the positive is certainly significantly better than prior quarters and the prior quarter a year ago, where we had a loss of 1.1 million.

Humility requires me to observe that most of this improvement took place after I turned the CEO-ship over to Dan, so he should take justifiable credit and the Amerigon team for what has been accomplished this year.

A couple of things that are I think also inside of the numbers that are well worth talking about -- the results for the year 2003 include a non-cash charge of about $676,000 for the Black-Scholes valuation of warrants that we issued to Ford Motor Company for achieving its volume targets in 2003. Those do not affect cash flow and they're in our SG&A numbers. So if you were to kind of look at our running rate on SG&A, we have recorded a very significant improvement over prior years. What we have said along is that that included a number of unusual charges that we expected to come down when we got to sort of steady-state operation but still not where we want it to be ultimately as a percentage of sales but it is becoming far more normal, far more reasonable, and we will come into line as our revenues grow in the future.

I want to mention be BSST because it is a significant investment by the Company and progress here has been significant as well. You'll see that, in the fourth quarter, we actually earned a profit in BSST of a couple of hundred thousand dollars, 228,000. That compares with a 244,000 loss in the fourth quarter of last year. You can see that we were quite close to break even for BSST for the year at about $121,000, compared with investing more than one million in prior years. So, we have SET all along, we intend with research and development contributions of our large partners in the various markets that we are intending to crack, that we really want to reduce the drain on Amerigon but not to change at all our investment in the new technology for thermoelectrics. I believe we are well on the way to accomplishing that.

The results for BSST actually include something that we have not anticipated, which was hitting a milestone of development early, so they are probably a couple of hundred thousand above what a normal running rate would be. But if you walk past all the numbers, we have a $206,000 charge in the fourth quarter for the Ford warrants that we expensed in the fourth quarter as part of the full-year charge. By any measure, we achieved good cash flow and good profitability in our base business.

I think that is really all I would like to talk about. I am going to turn it over to Dan -- let him go through more of the numbers and talk about how the business is going. Then we will look forward to hearing comments and questions from the audience. Thanks very much.

Thank you, Bud. This is Dan Coker speaking from our headquarters in snowy Dearborn, Michigan today. I would like to take just a few minutes and walk through some of the numbers that have been released in our press release.

Again, as Bud pointed out, this has been a very, very good year for us; it is historic in many occasions. Our revenues are at a record level and we have achieved our first operating profit based upon our current structure.

In 2003, for the full twelve months, we did generate about $29 million worth of revenue, which was up about 90 percent from 2002's 15.3 million. Again, this is a record revenue number for us and we are quite pleased with the numbers that have continued to move up.

The fourth-quarter revenue was $8.9 million, up about 39 percent above the 2002 figure of 6.4 million. Total units that comprise those revenue dollars in 2003 -- we shipped 446,000 seat sets of material, which has just about doubled the 225,000 seat sets for 2002.

Our fourth-quarter units in both periods -- 2003, we shipped about 139,000 units, as Bud had mentioned, and that is compared to abound 95,000 in 2002.

Gross margins for 2003 for the full twelve months were about $6 million, or about 20.8 percent, which compares to 2002's 3.3 million and about 21.5 percent. We did see some pressure on margins in the second half of the year due to some increased sales of our MTM product, which includes the cost and revenue for some pass-through material on electronic control modules. As Bud mentioned, we do have plans to work on improving those margins in the future.

On the earnings front, the net loss for 2003 full twelve months was $1.4 million, or about 12 cents per share. This number is down considerably from 2002's twelve-month results of the $6.3 million loss, or about 64 cents per share. Again, the net loss for 2003 included a non-cash charge of about $676,000, which books the transactional cost of issuing Ford Motor Company a warrant for the purchase of 216,900 shares of Amerigon stock at $5.75 per share as they exceeded their volume targets, which were set forth in the Value Participation Agreement between Amerigon and Ford for 2003.

As Bud has pointed out, I am quite proudly so -- all of us have worked very hard to achieve this goal -- the Company made a profit on operations in the fourth quarter of 2003 earning $265,000 or about 2 cents per share for the fourth-quarter period. This modest profit in the fourth quarter compares to a loss of $1.1 million in the fourth quarter of 2002, or about 11 cents per share in the fourth quarter of 2002.

The fourth quarter of 2003 also included $206,000 of the Ford warrant charge, which totaled 676,000 for the year for the full twelve months.

R&D expense for 2003 was 2.5 million, down 36 percent from 2002's 3.9 million. The decrease was mainly attributable to customer funding that we received for our BSST subsidiary. BSST generated about 1.1 million in customer funding programs in 2003. We also had lower prototype costs and engineering costs due to the launch of our MTM product, compared to the second half of 2002.

The selling and -- SG&A expenses decreased to 5.1 million in 2003 from 5.6 million in 2002. It also included the aforementioned $700,000 worth of Ford warrant expense in that area. So, in reality, without that Ford charge, SG&A was running at about a 4.4, $4.5 million rate. This is something we have been predicting -- we should normalize in the future. We're beginning to see signs of that nominalization (ph) as our company stabilizes and we're able to move forward with funding.

Summarizing -- in Q1 of '03, we shipped about 80,000 units, generated $5.2 million in revenue and lost about $925,000. In Q2, we shipped about 92,000 units, generated $5.6 million in revenue and lost $609,000. In Q3, we shipped 135,000 units, generated 9.2 million in revenue, lost 146,000 and in Q4 of 2003, we shipped 139,000 units, generated $8.9 million in revenue and generated a $265,000 profit. We think that's a very good reflection of effort on a lot of people's parts this year and we're very pleased with those performances.

We ended 2003 with 14 vehicle lines offering CCS as an option or as standard equipment. And we also saw a very important note; several vehicles are offering CCS systems in rear seats as well as the front seats for the first time. We think this trend is very exciting for us and it shows that multiple vehicles are now moving seat thermal comfort to all four seat positions in vehicles.

The Company expects to see revenues to expand in 2004 by about 25 to 35 percent, based upon current market conditions.

As Bud mentioned, we are all quite pleased about the effort that BSST and our BSST team has made in trying to significantly improve the efficiency of the basic thermoelectric device. We are now generating customer funding to support this project. Amerigon and Visteon, one of our key partners on these projects, are working jointly to develop an array of environmentally friendly heating and cooling products for the automotive industry, based upon these new TED designs. We also expect this new, improved thermoelectric device to lead to other nonautomotive applications.

Just a couple of notes, if I could on a balance sheet. We ended the year with $844,000 of cash; that's compared to 274,000 in 2002. Our Accounts Receivable wound up 5.9 million, compared to 4.5 million in the previous year. Our inventory was 2.5 million, compared to 1.9 million in 2002. Total assets wound up being 11.2, compared to 9.2.

Looking on the liability side, it's kind of important to note, I think, that we used none of our bank loan at the end of the year. We had a bank loan outstanding balance of 0 whereas at the end of (indiscernible), we had a balance of about $670,000. (indiscernible) this with total liabilities of about $6.6 million for 2003 year-end and 7.5 million at year-end 2002.

Total shareholder equity increased from 1.7 million at the end of 2002 to 4.6 million at the end of 2003.

To reiterate what Bud mentioned earlier, this has been a very good year for Amerigon. We have had some strong success in the marketplace. Our operational performance has been very good to outstanding. Our team, including all of our employees and all of our vendors and of course, we would like to include all of our investors, have worked very hard and very long to get to a point where we think we could run at a profitable rate. We believe we have achieved these levels in 2003 and expect to see improved performance in 2004 and beyond.

With those comments, I think I will turn it back over to the crowd and see if we have any questions. I invite (indiscernible) operator, you will have to instruct us as to how the questions are launched but we're standing ready for questions now.

(Operator Instructions). Steve Gish of Roth Capital Partners.

Good morning, several questions for you. The warrants expense due to the warrants granted to Ford for meeting those volume targets -- are there additional -- could we see, in 2004, additional expenses related to issuing a warrant to Ford or any other manufacturer?

Why don't I take that one. We are, at this point, not going to issue a forecast of Ford's volumes and whether they would earn the warrants or not. We typically take a look at midyear to figure out if we should begin accruing as we did in 2003.

The amount of warrants that Ford could earn in 2004 is the same 216,000 that they earned in 2003. Those would be issued if they were earned at a straight price of $6.75. I will point out that the Ford volume targets do increase over 2003 so that just repeating 2003's performance would be well short of achieving the volume goals for 2004. So, I think, basically on balance, we would love to see Ford earn them because it would mean that their volume contribution to our results for sales and profitability would be increased over 2003. But it is a little premature to make a forecast, but I think I've probably now sort of dimensioned it for you one way or the other.

Okay, that's great. In terms of those warrants, can Ford sell those to another party?

They are exercisable. I don't think the warrants themselves are saleable but certainly, they would be within their rights if they exercise the warrants that they had earned and then sold them in the open market. That has not occurred up until now. Again, the amount of warrants that Ford presently holds is the 216,000 that they earned last year plus 108,000 when we signed our original agreement with them. Incidentally, that agreement expires at the end of 2004, so beyond 2004, barring something that we don't foresee, there is no further warrant exposure.

Great. You mentioned the 14 automotive platforms that CCS is now being offered on. Could you help to break that up maybe? In 2003, how many of those platforms are -- actually generated revenue last year? Then, how many of those are actually standard equipment versus option? Then if you could at least -- you mentioned some of these platforms are using the product in the backseats as well. Is that one or two or is that more than that?

Over to you, Dan.

Let me take a stab at that. There are two vehicles that offer heated and cooled seats as standard equipment. There are -- I believe there are -- the Escalade offers all four seats positions and the Lexus LS 430 now offers all four seats positions heated and cooled. Not in this market but the Hyundai Equus is also scheduled to offer all four seats heated and cooled.

I'm not really sure of what the rest of the question was. Steve, can you remind me? I'm just running through the numbers here.

I think you basically answered it. In terms of expectations for 2004, can you give us a sense of how many platform announcements we might see this year for 2005 models? Could it be five to ten?

It could not. Actually, that is more than we have ever had in any year. It will be a lot lower than it was in 2003. We have not actually given any forecast as to what that is; we have actually shied away from that. There are too many variables that could cause those programs to either push out, slide or be delayed, so we do not give forecast as to how many platforms we plan to attack. There will be a couple and there will be some significant news in terms of the volume but we're not issuing any forecast as to the number of specific platforms that will be coming forth in 2004.

Okay. Dan, just in terms of timing, some of the manufacturers are already introducing the 2005 models. When would we see those announcements? Would they be in the summer or in the fall?

They would be in the fall. Most of the manufacturers are not introducing the '05 models and don't until they get a little further into the year. But they would be available into the market sometime after September.

Okay, I think that first part of my question was for 2003 -- well, you have 14 platforms currently. How many of those actually were generating revenue in '03?

Let me do it the other way around, if you don't mind. It will be easier on me. I'll name the ones that are just beginning to generate revenue. The Nissan Cima is just beginning to generate revenue. The Escalades made very slow revenue or very small revenue gains in the fourth quarter of last year, as did the XLR roadster. All of the other vehicles that we mentioned -- I'm sorry, with the exception of the Monterey minivan, the Mercury Monterey minivan -- all are expected to generate volume for us beginning in a full quarter, probably in the first quarter of this year.

Okay. Then a question with BSST -- your R&D investment was offset by the (indiscernible) investment from Visteon. Do you expect that funding to continue through '04?

I could answer that. Our objective in Visteon -- with all of our development partners, of which Visteon is certainly the major one -- but there are others -- would be to be essentially profit neutral in 2004.

As I mentioned, we had some what I will call (indiscernible) because we were successful in achieving an early milestone with our development with Visteon and picked up a couple of hundred thousand dollars in the fourth quarter of 2003 that logically would have fallen in 2004.

At this point, I am prepared to say that we still believe that BSST will be essentially neutral in 2004. But I would say, continuing the development programs -- so there's no cutback in the amount of resources that we are putting to the development of more efficient thermoelectrics and products based on that. Instead, what we're getting is what I would say very strong support from a number of quarters where the promise of the thermoelectrics is bringing partners to support us as we develop the technology.

Okay, thanks, Bud.

(Operator Instructions). Steve Gish of Roth Capital Partners.

I though I'd give someone else an opportunity. Looking at the balance sheet, from what looks like here, you currently don't have any outstandings on the revolver?

That is correct.

What is your credit line?

We have a $3 million credit line and because of the strong positive cash flow, you can see that we have not needed to exercise that. It's a very useful anchor to windward, so we have continued to essentially pay what I will call the reservation or standby fee, which is pretty nominal. That will be an available to us throughout 2004.

Okay. What was the cash flow from operations for the year?

Over to you, Dan. I hand all of the hard ones over to (inaudible).

Just a quick point on the bank loan, Steve, we have not touched our bank loan in quite a while. I think the last time we used it was in October. But the bank loan -- the bank instrument itself -- has been extended at year end for about 18 months, under the current circumstances, with a slightly better interest rate. So we are fairly pleased that our cash situation has settled down for us.

Okay.

I will let Bill Wills, our CFO, address the cash flow for you.

Steve, your question was relating to net cash flow from operations?

Correct.

Well, (indiscernible) 1.9 deficit, we have funded losses from the first three quarters of the year and had some build and working capital in receivables in inventory. But that was offset by our equity and warrant exercises in quarters two, three and four. So, we wound up with a positive cash flow of over 800,000 for the year.

Well, just focus on the fourth quarter, if you will. Were we cash flow positive from operations in the fourth quarter? I'm sorry to say I don't have that at my fingertips.

I can get that from you later today. When you say positive 800,000, is that net cash for the year?

Yes.

Okay. Then (indiscernible) you had mentioned opportunities to improve the gross margins over the next two years. Could you maybe give us a little bit of specifics of what your strategy is there?

We have the opportunity now that we have outsourced the manufacturing to Mexico and the second generation to China. The supply lines there are now stable and our design is, I would say, well stabilized and in production. We now have the opportunity to concentrate on first improving the designs and we have clear plans for that, and secondly to optimize the supply base and improve the margins from both our design actions and from our higher volume and with better ability to establish stable and efficient supply -- second-tier supply sources. So on balance, we have the opportunity to bring our engineering resource capability and our supply capability to bear to improve the margins over the next 18 months.

Okay. In terms of an improvement, is it realistic that you might be able to squeeze out 100 or 200 basis points or -- (multiple speakers)?

It was just a forecast. Okay?

I'm sorry?

It's clearly our target to improve our margins in an important way.

That's fair. Then lastly, there's a lot of options and warrants outstanding. As the Company becomes profitable throughout this year, how will that impact your share count?

Let me just address that in a second. There was another thought that occurred to me on this margin side. As Dan mentioned, the reason that our margins declined on a year-to-year basis was because our new design includes the control system for a significant number of our customers. That is a -- (technical difficulty) -- item but it is a very significant dollar item. So we have what I would call an increase in empty revenue in the near-term but having control of that electronic content gives us the opportunity to bring our design capability to bear on that now to reduce it with -- improvement (inaudible) to our margin. We are hard at work on that. I think we will be successful. I didn't want that point to slip by unnoticed.

That is the control system that you're talking about? Is that only for the next generation CCS or is that on both?

It's only on the MTM 1.5 and it continues forward but it's the first time that we have included the control system previously that had been bought separately by most of our customers.

Now, back your question on the warrant exercises and the balance sheet, I don't have the precise figure at my fingertips but we found a price (inaudible) in the marketplace was reached this year that enables us to call the warrants that were issued as part of the most recent financing, which are $2 warrants. There are roughly 3 million of those warrants outstanding, so we could see another cash infusion in the broad order of magnitude of about $6 million by the end of July, which is kind of the call period then the exercise period. So again, we see a very strong positive cash flow.

First, we achieved from in 2003 (sic). Secondly, beginning to be cash flow positive from operations and finally, we do expect significant warrant exercises in the sort of June/July period. So that's very positive.

I should mention that, with those exercises, we will be at about 22 million plus shares outstanding fully diluted, not that those take us there but we have the convertible preferred and some other warrants and options outstanding. That means that our fully diluted earnings per share in the fourth quarter are like one cent rather than two cents because obviously your divisor is larger on a fully diluted basis.

Right.

Well, on balance, that's a very strong position for us. We expect positive cash flow and a sign that our investors have high confidence in our future.

So, just to clarify those, you expect the Company to generate positive cash flow, excluding calling the warrants?

Yes.

Thanks.

Thank you. I'm showing no further questions at this time. I will now turn the call back over to the speakers for any further or closing comments.

Bud, why don't you go ahead and summarize for us and we will sign off.

Well, again, we appreciate the interest of all you. I will take the lack of questions to simply signify that we have exhausted you with the level of detail and that, in fact, we have a positive story to tell for those that are following us. So, I appreciate the time and effort of the folks who have signed on and also the fact that you have voted with your resources to become shareholders. Thank you.

Thank you, operator, and good bye.

Thank you. This does conclude this afternoon's teleconference. You may disconnect your lines and enjoy your day.