Gentherm Inc (THRM) 2005 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. My name is Ian and I will be your conference facilitator today. At this time I would like to welcome everyone to the Amerigon fourth quarter and year end 2005 results conference call. [OPERATOR INSTRUCTIONS] It is now my pleasure to turn the floor over to your host, Jill Bertotti of Allen & Caron. Ma'am, you may begin your conference.

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

First, in addition to disseminating through PR Newswire 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 one year via a link provided at the Company's website at www.amerigon.com.

Finally, I have 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. Important factors that could cause the Company's actual results to differ materially from its expectations on this call are risks that sales may not significantly increase, additional financing if necessary may not be available, new competitors may arise and adverse conditions in the automotive industry may negatively affect its results.

The liquidity and trading price of its common stock may be negatively affected by these and other factors. Please also refer to Amerigon's Securities & Exchange Commission filings and reports including but not limited to its Form 10-Q for the period ending September 30, 2005, and its Form10-K for the year ended December 31, 2004. On the call today form Amerigon we have Bud Marx, Chairman; Dan Coker, President and CEO; and Barry Steele, Chief Financial Officer. Management will provide a review of results after which there will be a question and answer period.

For those of you participating on the call via the webcast or internet and who wish to submit a question to be considered for the question and answer period you can do so by e-mailing me at jill@allencaron.com. Please submit your questions as early in the call as possible and questions from the internet will be taken as time permits. I'd now like to turn the call over to Bud. Good morning, Bud.

Hi, good morning, Jill. One of these days we're going to ask you to do that all without taking a breath. See if you can manage it. Good morning, everyone. We're very pleased with the results for Amerigon, both in the year ended December 31, '05 and also particularly with the three months ended December 31, '05.

The quarter was a very strong quarter for us. We sold $10 million worth of product which was up 28% from the prior year's quarter, and is a record for us. We probably should have said so in the press release, but it is -- and it is obvious, but the year is a record for us in sales and profits and the quarter is a record for us in sales and profits. By any stretch of measure, the business is going well for us. All elements to me seem to be running well. I will have a little more to say about BSST, our high tech subsidiary a bit later.

Our profitability has actually been so consistent and strong that the outside auditors said to us that it was time to recognize our net operating losses as an asset which up until now because of our prior history of not having profits was not possible, so we had been zeroing those out with a reserve, and now they've been recognized as an asset on the balance sheet and also as a large addition to our fourth quarter income. I think for me the key word here in the operations as I look forward is that we've achieved balance. In our early days we were -- had one customer or two and one vehicle line or two, presently we have five large customers, all of them very strong and prominent in the auto industry.

Our balance between SUVs and Luxury Sedans is, I would say, very positive. Luxury Sedans account for almost 70% of our sales dollars compared with about 32% in SUVs. So we have about 20 vehicle lines that are using our product and, as Dan will tell you, more in prospect. Looking forward, our production orders are strong despite the unsettled industry conditions. We expect 2006 to be in line with our guidance of 25 to 30% growth over 2005.

As I look at the operation, I think the Amerigon team has turned in a very, very positive record in 2005, and we look forward to improvements in '06. With that, over to you, Dan.

Thank you, Bud. Thank you, everybody, for joining us this morning. We at the management team do share Bud's opinion that this was a very good year for Amerigon.

We established a lot of new products. We established a lot of good cost programs we carried through, and we've continued to trend expanding our revenues and our bottom line even in a tough market. With Bud's rather generous overview, about the only thing we're left to talk about is the fact that it is a very tough market that we survive in every day in the automotive industry and 2005 was a particularly tough business for several of our customers, particularly the North American marketplace where the middle part of our year, the second and the third quarter, were impacted by the high energy costs and the sudden rush from certain types of vehicles in the North American market.

We were able to manage our way through that problem and we were also able to rely on our new balance that we've been able to achieve with our Asian marketplace with still a growing expanding market. It more than offset for the slow down and the short falls we had in our North American marketplace. We wound up the year at about 9.3% gain revenue year-over-year 2005 over '04, and, as Bud has just mentioned, we are also looking forward, and we see a very strong year in '06. We see and are projecting, based upon the commitments we have in place today, about a 25 to 30% increase in revenue year-over-year, '06 over '05.

I am going to go ahead and pitch it over to Barry and let him give you an overview of some of the financial numbers, and then we'll come back to Bud and get a brief update on how our advanced technology team has been doing and then we'll summarize and open for questions. Barry.

Thank you, Dan. I just want to point out a few details in the financial statements. First of all, the product revenue growth comes largely on new products.

The Buick Lucerne, the Lincoln Zephyr were both launched late in the third quarter of 2005 and the Cadillac Escalade was launched very near the end of the fourth quarter of 2005. We expect that the Escalade will hit full stride sometime toward the end of the first quarter 2006, and that will contribute largely to the 25 to 30% growth for 2006 that we expect.

A couple other things on the revenue line, we have continued strong sales to our Asian customers. In fact, our diverse -- we've diversified a little further towards the Asian customers. They now represent 37% of our sales versus 28% in 2004. We're happy about that.

As we mentioned in previous calls, our North American manufacturers, North American customers, on existing programs were weak for the year. That offset some of the sales growth for the year. Moving on to the gross margin, in the fourth quarter our gross margin was 31% compared to 32% in the third quarter, but 29% in the prior year fourth quarter.

Overall, for the full year, our gross margin was up to 30%, up from 26% in 2004. Our margins continue to be strong. We expect that 30% is about the right number for the future as we continue to grow. Moving on, our research and development expenses increased for the year by 431,000 or excuse me, for the quarter, and 2.2 million for the year. That's due primarily to the advanced technology team working on advanced thermoelectrics, but we'll talk a little bit more about in a moment, actually with 80% of that increase. We also had some increases on new program development on the programs that we launched that I mentioned before.

Our SG&A decreased slightly for the quarter, but was about the same for the year. We expect modest increase in 2006 for SG&A. Also, as Bud has mentioned, there is unusual benefit on the P&L for the deferred tax provision. This is a largely non-cash tax provision. We do what we will pay a small amount in alternative minimum tax, but a very small amount.

We have net operating losses available to us of about 33.6 million, and we also have some R&D tax credits that we'll be able to use as we go into the future. As we move into 2006, we'll be recording a tax provision of approximately 35%, and again that will be largely non-cash, so you will see that in future P&L's.

Just a couple things on the balance sheet. Our short term investments and cash position, our reserves basically for the future, is now at 11.3 million. Our operating cash flow for the year was 2.5 million, and that was reduced by a small -- well, investment working capital of 1.1 million in the fourth quarter as we support our higher sales level.

With that I will turn it back over to Dan.

Actually we're going to turn it back over to Bud and get Bud to give us an update on how things are going in the advanced technology world.

Well, out here in sunny California things are good.

We continue to work with our major development partners, and I think increasingly what we're moving from is the R part of R&D into product development, and so with Visteon and with United Technologies, Carrier and UTRC, both, we are beginning to work on taking our demonstrated doubling of efficiency from our technology in thermoelectrics and incorporating it into products that the customer then can look at and say those products seem like they would be products we would like to offer in our vehicle or in our home or wherever.

So I am seeing progressively more movement from the theoretical to the area that I am most comfortable, which is real, which leads to product and revenue and ultimately to, I think, a very strong second suit for Amerigon beyond its very attractive seat heating and cooling business. We are also encouraged by what we're seeing in the new materials which we've always said are required for the ultimate realization in product in heating and cooling vehicles or heating and cooling rooms, and we may spend some modest sums in 2006 to try to encourage these new materials in their progress toward again coming out of the labs and being ultimately available to enhance the efficiency of our technology and thermoelectrics and products.

I think that's probably -- oh, the other side of the switch is the power generation, which I personally believe will be as large or larger than heating and cooling. This is putting heat into the thermoelectrics and getting from them electricity. We announced that we had been awarded Phase II by the Department of Energy which is intending to use this technology to demonstrate that fuel economy can be improved, and the target was to show that we could achieve 10% improvement in fuel economy.

We did that on a theoretical basis which permitted the DOE to move us forward and begin to take these concepts and again begin to realize them first in bench kind of prototype hardware and ultimately we expect in products that will be very important for energy self sufficiency in America. I think that's probably as much as I know and maybe more. Over to you, Dan.

Okay. Thank you very much, Bud. We're all excited about the potential for a highly efficient thermoelectric device used more broadly in the marketplace.

I think we should open it up for questions at this point and see if we have anybody interested in what we've been doing in the past year. So operator, we'll go ahead and allow questions.

[OPERATOR INSTRUCTIONS] Our first question comes from Steve Denault with Northland securities.

Good morning, everybody. Great quarter.

Thank you.

Thank you.

Let me ask, what is assumed from a model standpoint for the 25 to 30% top line growth in 2006? Is it still too significant volume out?

I didn't understand the last part of your question.

Well, I will ask open endedly. What's assumed in that 25 to 30% growth for new models, new platforms?

We do have a few new models coming in next year plus we'll also get the benefit of the late '05 models introduced in terms of growth. As you know, we don't identify anything in advance of the introduction by the customer and certainly aren't allowed to name them until the customer does.

We're not being obtuse about that. We would get shot if we did.

Sure absolutely. I would imagine you don't have a lot of [gratuity] on the new GMT platform you don't have a lot visibility at this point in time. I would imagine there can be some surprises in there.

Well, we have pretty good visibility and yes, you're right. One of the highlights of 2005 was getting ourselves preengineered into the GMT 900 programs, and the first of those programs, very first platform, the Escalade standard version has introduced in the fourth quarter and just started generating volume for us, and there are other GMT-900 program vehicles that will be introduced over the next eighteen months.

Right. Okay. The reference to gross margins of 30% on a going forward basis, is that -- you have realized sequential improvements in gross margins but sounds like we're at a point where that's you're at a point you feel pretty good about 30%.

Considering where we've been in the past, 30% is an excellent benchmark to use. We have to fight and struggle for every tenth of a point we post in gross margins. It is a very difficult, tough business. We deal in a lot of volume. It is a very complex world we deal in. We work very hard on keeping our cost down so we can keep ourselves competitive in our marketplace. It is a very difficult thing to pinpoint exactly what the margins are going to be, but we have tried our best to do better every year, and improve the pricing structures to our customers.

Okay. Where are we in terms of -- in other words, how many years out do you think we could potentially see some commercially available product within the BSST initiative?

Yes, I think 2008 is a year in which we could see somewhat I will call modest revenues. It is possible we might see something from customers that have shorter lead times earlier than that, but I think the main products and the main customers we're working with 2008 is probably a reasonable target. Let's put it that way.

Okay. In the world of thermoelectric technology, it sounds like you've gotten to a point where you've been able to meet or exceed that ratio of energy into energy out, such that makes good economic sense? Are we still not there yet?

Well, I think this year will be the year in which we take a lot of the fundamental work that's been done and turn it into hardware where the power-in, power-out equation can be demonstrated but also cost value can be demonstrated. To me this is an important year to essentially become real in terms of the hardware functioning and delivering what we believe it will deliver, and we believe it will deliver a favorable equation and power in and power out.

If I could add to that, Bud, the advancements that we have shown and are able to demonstrate today, these while they're not the ultimate goals, they do allow us to approach certain applications that are want being very well served today by an alternative technology. There are some things we can do that are that don't require the absolute perfect advance material.

Okay. One last question if I could. In your '06 guidance on a net income basis you talk about year-over-year improvement. Is that assuming the tax accrual that you will make in '06? So it is truly net?

It does not include the tax provision in terms of year-over-year increase. We just posted a $14 million one-time non-cash gain on the books. That's not intended to be an annual event.

I think the thrust of what is being asked is is the net, exclude the tax gain in '05, will there be a year-over-year net income and I think we ought to take a save on that one. I think we're confident if the operating profitability line we'll see gains, but to show year-over-year we would have to show a 35% improvement by definition, right, because the tax applies to '06 and not to '05, so I am not saying we won't. I am just saying I think it is way early to be making that kind of forecast.

Thank you.

Any other questions Steve.

Operator. Our next question comes from Kevin Tynan with Argus Research.

Hey, guys, good quarter. Barry, Dan, can you touch on the receivables line and the increase there relative to revenues and previous quarters and is there anything to read into there with the situation at the tier 1 level and specifically your customers?

Yes. A couple things. There is a couple things that drive the increase. One is obviously in the fourth quarter our sales are much higher this year than they were last year. Other things we have I don't know what the exact number is. We have a good number in there for tooling reimbursement owed from our customers. That's pushing it up a little bit. I think it is 500,000, maybe a little bit more. I don't have any specific concerns on any one tier 1 customer. Everybody is a good payer. It is more driven by the business than it is late collections or anything else.

That's fine. Just real quick I don't know if you mentioned it. Did you give a unit number for the quarter?

135,000 units for the quarter.

Very good.

114 for the prior year quarter.

Very good. Thank you.

Thank you, sir.

Our next question is from Tyson Bauer with Wealth Monitors.

Barry, did you not mention that SG&A would be relatively flat or static year-over-year, '06 to '05

I think what I said is it would be modestly increased.

Relative to revenues, otherwise given your statements of revenue growth with a 30% gross margin and depending on what you mean by modest, we could potentially see a pre-tax number significantly almost double what you performed in '05?

When I say modest, I am talking year-over-year. It will not be a 35% growth along our sales line. It will be somewhat less than that.

Right.

Bear in mind in 2006 we're going to begin to have to expense option grants which have not been expensed in prior years. Those alone will add something to the SG&A side.

Bud, you're only going to do that if they perform well, right.

We're expecting to perform well. We think 25 to 30% revenue and improved profits are good performance. That's a fair comment.

That expense will be on existing options, not so much on new options.

That's true.

Are we forecasting or looking at sequential improvement as you talk about a lot of these models being more impacted in Q1 especially the Cadillac lines so we should see a sequential improvement here?

Yes, I believe you should see a sequential improvement also you mentioned where you're having difficulty being able to talk about the new vehicles that you're on even though you're on them, you're just not getting the okay by your OEM's to allow you to discuss those. In the last show we can discuss since you can I will, we saw the 2007 Lincoln two new models potentially coming out later this year, MKX and the -- MKS that will be coming out highlighted having heating and cooled seats and given your relationship with Lincoln and Ford, would it be presumed you would be the supplier of those heated and cooled seats?

That is certainly our assumption. As we've said we've not been allowed to say anything about that.

That's why I'm saying it. That would not be in any of your revenue assumptions going forth; correct.

I wouldn't say that completely. We have a very good visibility of what we're going to be on in a twelve-month rolling period, and we don't specifically pinpoint any particular model or vehicle again until they're discussed and openly talked about by the OEM.

If we know we're going to be on them, they're included in our guidance. Let's put it that way.

That's correct.

We have the Geneva auto show going on currently and a couple other European shows coming up. Dan, you mentioned in previous calls you expect to be on a couple European models or be able to announce these in '06. Would those models be where people could see those in those shows?

I believe the one model we're talking about in particular may be on display.

And the last question that I have is when you go to the different luxury vehicles, the S class, Mercedes, BMW, Saab, they offered cooled seats. Obviously you haven't announced your involvement with those companies at this point. That would either imply those are passively cooled or have an alternative technology. Which is the case?

Actually, if you look at what they offer, they very clearly say they offer ventilated seat, which is not our particular for take at the moment and they are not customers of Amerigon at the present.

You are still the only actively cooled seat manufacturer?

That is correct. We're the only actively cooled and heated system available and as we mentioned in past calls, Mercedes, BMW, Saab and a few others offer a substitute product, which is a ventilated seat, which relays completely upon the [Ebian] Air Condition to provide some early levels of comfort from ventilation only.

You also mentioned that you expect in the GMT 900 platform to work your way down from the luxury and work your way down steadily throughout this year. Is there some play in your revenue assumptions that could shift those depending on how quickly GM were to implement [intra] platform introductions of your options?

We have the schedule they gave us. Obviously if they accelerate their schedule and completely honestly they did accelerate their schedule for the Cadillac Escalade line, and they are -- I don't know they're planning to do it. If they did, obviously that would change our schedules as well.

Sounds great. Thanks a lot.

Our guidance reflects what we know to date basically.

That's correct.

Our next question comes from Richard Holt with Wealth Monitors.

Thank you, I have a couple of book keeping questions, sorry, Tyson and I are in two different places today. Also forgive me. I got disconnected from I a couple minutes. You may have answered these questions. Depreciation and amortization for the quarter? Hold on. Barry is scrambling through his pile of paper.

442,000 for the full year.

442,000 for the year. Okay. What would your cash tax rate have been?

Roughly 35%.

And when do you anticipate paying full taxes?

It will be at least four years we're looking at before a full cash taxpayer on the federal level. Probably a couple shorter than that on the state level.

Okay. Thank you.

Our next question is from Walter Ramsley with Walrus Partners.

Great year. Great quarter. Just had a couple of things. The warranty costs, are they still pretty negligible or anything to report on them?

Actually very negligible.

Good to hear it. The take rates, any changes that you can report on how that's trending?

Actually the trends continue to be very strong for our options where we are on option. We are taken at least double what the old heated seats were. I would say we average somewhere between 60 and 70% on all of our platforms today.

That sounds pretty hefty. Is there any room for improvement, do you think, or is that what it should level out at, do you think?

Actually quite pleased with that response from the consumer. There are an awful lot of people making a conscious choice to pick our product out over the other options, and we're quite pleased with that. I don't see that -- we obviously can't really directly influence that. We make our product available, the OEM's make our product available, and the consumer chooses to spend his money on features that appeal to him.

Okay. Sounds good. And then earlier in the call it was mentioned that the Asian manufacturers generated 37% of the unit volume, I guess. Do all of these cars get sold in the United States or are foreign consumers beginning to buy the seats as well?

Actually the -- we track the cars by where they're built. They are sold in Asia and North America and a few are now being sold in Europe as well.

Thanks again.

Thank you.

[OPERATOR INSTRUCTIONS] I would like it turn it back to Jill Bertotti. She has received a few question via the internet.

The first question is relating to the BSST technology and where you see the technology being applied to alternative energy programs which you sort of addressed, but they were asking for a few examples as well as whether or not there might be applicability for hybrid vehicles.

Interesting question. We think that the technology will first be deployed for what we call ill served customers where I think the last place we'll apply it is to rip the compressor out of the Crown Victoria. I see an opportunity to provide auxiliary heating and cooling in vehicle for whatever reason of their powertrain configuration they don't get adequate heating and cooling in what I will call the climate extremes of the north or the south. Hybrids are certainly on that list, as are diesel vehicles and which do not generate much heat in the winter because the engine is so efficient and in truth we're told by people working on powertrains going forward that even gasoline engines are going to become so efficient that heating will be difficult with just the heat from the engine. We see opportunities to prove out our technology to bring it to market in a way that's doesn't require our company to bet its chips that we can replace the entire heat-vac system, gain the experience and gain revenue on a curve towards where we ultimately expect and hope to go. I think that's probably as much as should be said.

Thank you. The rest of the questions have been answered during the Q&A session. Ian, do we have any more people queued up for questions, please?

All right. Sounds like all of our questions have been answered and addressed. I think we will go ahead.

I apologize, we have a question from Tyson Bauer with Wealth Monitors.

Got a quick one for you, Dan. You mentioned the five OEM customers that you have been with and you actually been with them for a little while. What do you anticipate or expect expansion as far as your OEM customers as opposed to just developing the lines within your existing customers.

2006.

Okay. Later this year we'll have something with new customers?

Yes, sir.

And Barry, since you don't provide cash flow statements in these year end numbers, can you walk us through what cash flow from operations were and also your year ending CapEx?

Sure. As I mentioned operating cash flow was the year was 2.5 million, roughly 1.1 million that number was reduced by about 1.1 million in working capital expenditures or increase. Capital expenditures for the year was 427,000, and we also spent about 200,000 in developing patents, and the only notable item here is proceeds from basically stock warrant exercises was 1.8 million.

Will you have your K filed today?

No, it is going to be early next week.

Okay. Thank you.

Once again, we thank everyone for attending. We try to limit these calls to about 30 minutes so we can keep everybody's attention span fresh. Again, we would like to thank all of our employees and associates and all of our vendors and customers for making this a very good year for Amerigon. It was a tough year. We had a lot of adverse at this in several market places. We had difficulties in trying to get materials and make sure our customers don't suffer from the problems that everybody sees in the marketplace. Several of our customers are under duress in the marketplace from the market factors and are in fact losing money themselves, so we trying to add new features that consumers are looking for to make all of the products for appealing, and it looks like we're beginning to make some traction and get some notice and recognition in the marketplace. Again, we thank you very much for attending. Come around again in about a quarter and we'll be talking about hopefully very good news in the first quarter of 2006. Operator, thank you very much.

Thank you. This does conclude today's Amerigon conference call. You may now disconnect your lines and have a great day.