Gentherm Inc (THRM) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Amerigon first-quarter results conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following today's presentation.

It is now my pleasure to turn the floor over to Jill Bertotti of Allen & Caron. Please go ahead.

Good morning and thank you, everyone, for joining us today for Amerigon, Inc. first-quarter results conference call. Before this morning's call, there's a few items I'd like to cover with each of you. First, today's news release was disseminated through PR Newswire this morning. If any of you need a copy of the news release, please go to Amerigon's website at www.amerigon.com or Allen & Caron's website at www.allencaron.com. Additionally, a replay of the conference call will be available on the Internet for one year via a link provided at Amerigon's website. And 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. 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 and Exchange Commission filings and reports, including but not limited to its Form 10-Q for the period ending March 31, 2006, and its Form 10-K for the year ended December 31, 2005.

On the call today from Amerigon we have Bud Marx, Chairman; Dan Coker, President and CEO; and Barry Steele, Chief Financial Officer. Management will provide a review of the results, after which there will be a question-and-answer period.

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

Good morning, Jill, and thank you very much, and thank you to everyone for dialing in this morning. We believe we have some reasonably good news to share with the world, which was published this morning at 7:30 Eastern time.

The first of my comments, I think, would be a very brief overview of some of our activities in the marketplace. Our first quarter '06 showed a record revenue number of $10,400,000, which is about 17% higher than the previous year's first-quarter results and about 5% higher than our fourth-quarter trailing quarter, fourth quarter of 2005. So we are quite delighted with the acceptance of the heated and cooled seat technology into the marketplace, and we feel that we are on schedule for making our penetration gains in all the major markets. We have shown very good strength in North America and in Asia. And as we have mentioned previously, we are now turning our attention and we are starting to see some good traction from our European customers.

Part of our story is the continuing success of our new models and the new model introductions. Some of the strengths for us in this first quarter compared to the previous year's first quarter -- we have the new Lincoln Zephyr, the new Buick Lucerne. The redesigned Cadillac DTS has also been a very strong performer, and the new Cadillac Escalade standard model has also generated a quite a bit of new business and volume for us compared to last year's first quarter. These four key new models generated about $4 million worth of additional revenue quarter to quarter.

With that good news, there's also some softening in the markets of some of our early existing models that are about to go through a model change. The Navigator/Expedition line, the Aviator, the Lexus LS 430 and some softness at Nissan have slightly offset our gains, but we still had about a $1.5 million volume increase quarter over year quarter.

The good news translates on the revenue side all the way to the bottom line, and we had our 10th straight profitable quarter. Barry, our CFO, will be giving you some details on those numbers in just a minute, but I would also point out that these numbers also include some income tax expense in our reporting calculations. So we need to listen up as to how we describe that.

Other highlights for us in the first quarter have been that we've moved to our new headquarters office from Dearborn, Michigan, in an old space that we had occupied for about four years, to a new office in the Northville, Michigan area, which is on the northwest suburbs. We are all quite delighted to be here; we have been here about a month.

Secondly, we would also like to remind everybody and invite everyone listening to please try to attend our 2006 annual shareholders' meeting, which will be held at our new headquarters office on Thursday morning, May 18th at approximately 10 AM in the morning.

With those general comments, I would like to now turn the turn the floor over to Barry Steele, who is our CFO, who will provide a little bit of detail as to our first-quarter results.

Thank you, Dan. I just want to talk about a few highlights in the financial statements. First of all, Dan already talked about the increase in our sales. The number of units we sold for the quarter were 144,000. That represented an increase over the prior year of about 11%. It also represented an increase over the fourth quarter of '05 of 7%. Unit selling price has increased by about $4 per unit from the prior year and about $1 per unit from the fourth quarter. As we've talked about in the past, our total content per seat is increasing as the mix in our products changes over time. Some of our customers buy greater content per seat than others do.

Our gross margins are continuing to increase. Our gross margin was 32% in the first quarter of '06, compared to 28% in the first quarter of '05. It also represented an increase over the fourth quarter, which we had a gross margin of 31%. This increase still is the result of our continued cost reduction programs, as well as a mix in the overall product portfolio that we have.

Moving on, another thing to point out on the income statement for the quarter is we have adopted new accounting for stock options, FAS 123(R), so we are now reporting stock option expense for all of our employee options. The expense for the quarter was 98,000. We recorded a tax benefit of about 12,000 to offset that in the net income number. We will be having quite extensive disclosure in the 10-Q, which will be filed later today, that you can go through. Also, I would like to point out that for the full year, we expect about $400,000 in stock compensation compensation.

Also, as Dan mentioned, we now have a tax provision. Our tax provision for the first quarter was 471,000. It represented an effective rate of 38%. That is slightly higher than what we have talked about in the past. We've talked about a 35% effective rate. The increase was due to the new accounting standard for stock options. Some of our stock options expense is not deductible for tax purposes, and that increased our overall rate slightly.

During the quarter, our share count, you will probably see, has increased substantially. That is because on January 31st of 2006, this year, roughly half of the preferred shares were converted to common stock. That was a voluntary conversion by the holders of the preferred shares. That had no impact, by the way, on our earnings per share because of the [two-stock] method in calculating earnings per share that we have.

A couple of other things to point out -- our operating cash flow for that quarter was favorable, $165,000, even as we grew sales. That compares to unfavorable operating cash flow in the prior-year quarter of 526,000. So our cash and short-term investment reserves are still about $11 million.

And I will turn it back over to Dan.

Thank you very much, Barry, for that very positive report. What we would like to do now is to shift out to our California R&D offices, where our Chairman, Bud Marx, is going to give us an update on the BSST program.

Thank you, Dan. Good morning, everyone. It is, I would say, important and symbolic that I am talking to you from our headquarters for technical operations in Irwindale because, certainly, we have made very good progress over the last three months in the incorporation of our new technology into prototypes which we are now producing and delivering to customers, both automotive and non-automotive, that incorporate BSST's twice-as-efficient technology.

So in the broadest sense, I think BSST is moving from an R position to the D position, if you think about R&D. So we are very much focused on product development of prototype products that will ultimately, we expect, give us participation in a variety of different markets with both our present development partners, Visteon and UTRC, but also people with positions in other industries where we believe thermoelectrics will make a significant contribution as they gain in efficiency.

With that in mind, it's my expectation that we will begin investing in a prototype line that will be capable of producing these prototypes on a more efficient basis than hand-soldering them. That will also, in our judgment, begin to enable us to develop proprietary technology in the manufacturing and process side. So we see considerable advantage to be gained by this, and sometime over the next six to eight months, I think, is the right time to make that investment and make our processes actually a part of our technology development.

The second thing that we're seeing that I think is very interesting is the continuous development by a number of entities and people in the materials world, with a focus on bringing new materials to a level where they are not lab curiosities but rather available for incorporation -- and, in our case, incorporation with our BSST proprietary technology to enhance the efficiency of thermoelectrics -- which means that their potential for making an impact in the very large markets that we're pursuing is enhanced and, in our mind, is closer to fruition than as we have been looking at this seemed a year ago. And so I think it is very likely that we will be spending some money with these very promising people in the materials development world to enhance their ability to bring these products to a point where they are not lab curiosities, and also to enable us, with that participation and support that we give them, to gain some advantage in the either beta use of their materials or some way of having, let's say, a preferred access to the materials as they come to the stage of development that they will be useful to us.

I think that's really about as much as I would like to say on the subject of BSST. But we continue to be encouraged by the progress both of our own technology and of the technology that will complement it.

Thank you very much for the report, Bud. And we're all very excited about the progress you're making on the technical front as well. At this point, I think we would like to go ahead and kind of curtail our comments and open the floor for questions. I'm sure there's a lot of eager people out there with clever points that they would like to have clarified. Operator?

(OPERATOR INSTRUCTIONS). Steve Denault, Northland Securities.

The R&D investment you referenced on the materials side for BSST -- let me get this straight. Is this an expense item or something that would be capitalized?

I think it will definitely -- there will be elements of both. As we are planning, invest in a prototype line, that would be a capital expenditure, although in our opinion not a huge one. And we're not intending, on the materials side, to be developing these materials ourselves, but rather to provide judicious support to others as they bring these materials forward. That would be an expense item.

I may have missed -- the number of units shipped in the first quarter of '05 was what?

144,000.

In the first quarter of '05, it was something less than that. (Multiple speakers).

It was 130,000 last year.

Yes, it was 129,900 in first quarter of '05.

What is your sense in terms of your ASP, per se, as it continues to rise nicely? Is that something that continues, in your mind?

What's happening there is that, as we mentioned in previous calls, we are being asked to do more and more content by our customers. Some of them are allowing us to actually provide the electronic controlling devices, which are rather expensive electronic circuits that manage our devices. That obviously has more content for us, and allows us to increase our average selling price. So we're continuing to see more of that happen in the future, and we think that will be a continuing trend, yes.

And if I can just say it, on the gross margin side, very strong in the quarter. Is that something you see as sustainable, that 31, 32% level?

That's certainly our objective.

Saul Rosenthal, Rosenthal Investments.

I think that either it's a misprint or something that I don't understand, but you have 1.2 million of pre-tax earnings and 768,000 of after-tax. And if you divide that by 18.3 million, you get $0.04 a share of fully-diluted after-tax earnings, and I'm not sure why you said $0.03.

The reason there is we are using a method for calculating earnings per share called the two-class method. In doing so, we prorate our net income to both the common shares and the preferred shares. So you don't actually use the net income number in a diluted calculation. You have to use a proration of that net income that would be applicable to the common shares.

I see. And how many preferred shares are there?

The weighted average preferred shares for the quarter were 3.6 million. So the amount of net income that was weighted, if you will, or prorated to net income in the calculation was 637,000.

That makes more sense. Thank you.

It's important to point out on that convertible preferred stock that the number for the prior year's quarter was 5,373,000, and about half of that was converted. So on a going basis, the 5.373 goes to 2.687 or some number like that. But since that conversion took place in the first quarter of '06, that number is sort of weighted at 3.612 million shares. Does that clear it up?

Yes, I think so. And if you add back in the 98,000 that was taken out because of the options, that puts you back up to $0.04, I would presume.

That is correct. Because of the rounding, it's very close; we were very close to $0.04.

(OPERATOR INSTRUCTIONS). Tyson Bauer, Wealth Monitors, Inc.

Another fine quarter. Given the environment that we read every day in the automotive industry, whether it's Delphi or GM or rising gas prices, are you witnessing any OEM production schedule changes or any delays in cross-platform introductions?

Actually, so far, I think we have already suffered the impact that we're going to see from the ricing gas prices. The rest of the impacts of the industry don't directly affect us. Some of the suppliers, the Tier 1's, are in dire straits because of their business models. The OEMs are introducing new models; and, as I mentioned earlier, the Lincoln Zephyr, the Buick Lucerne, the new Cadillac DTS and the new Cadillac Escalades are selling quite briskly. And we are very pleased to be a part of those programs.

Our model is to get on -- right now, we are a market penetration model. The more models and programs we get on, the better our story is. And that's actually what we're seeing. We are seeing a strong growth pattern for Amerigon over the next two to three years, as we continue to penetrate new and more exciting models.

I know you will not break out per vehicle volumes, but in this context, can you respond? Volumes based on vehicles that have been in production over a year and a half, the Expeditions, those in that class as opposed to the Zephyr, the newer ones that have been less than a year and a half how would you break out the volume split between those two categories?

Well, as I mentioned in my opening comments, several of our platforms are nearing the end of a model run. Some of them have been around for five years -- as an example, the Expedition and the Lexus LS 430. A few of them are actually being faded out. In its current format, the Aviator is an example of that. It's being faded out as its current standard SUV, and will be reintroduced later this year as a new kind of a crossover vehicle with that same nameplate. So we are seeing some softness in some of the older vehicles, yes, and that is being more than offset by the newer models. And in many of those cases, there are new versions of those same models coming out even yet this year.

With new models, you always have the benefit of some pipeline filling as they ramp up those production schedules. What effect did that have for you in Q1, and what is the outlook going through the rest of this year?

The favorable effect for us, yes, continues slightly in Q1. Most of these models were introduced in the fourth quarter of last year, so most of the pipe fill gain was made last year for the truly new models. And you're right, some of the -- as an example, a new model that was introduced last year, in 2005's first quarter, the Nissan programs were very, very strong for us as they filled the pipeline and as those vehicles hit the market with much applause. And our sales to the Nissan programs this year are slightly lower than they were last year during that introduction phase.

And with these new models, are you a standard feature for certain option packages of these new models? Or is it still an accessory type item, and what kind of take rates are you experiencing, especially with the Cadillacs, some of the newer ones that you have introduced?

We are, in fact, an option on all of the new platforms that have been identified. And we're quite delighted with the take rate that the market is applying to our particular option and feature. We still are averaging in the 70% range of the number of people who buy a particular model -- about 70% of those people choose to buy the heated and cooled seat feature. And we expect that to continue. But we don't necessarily see a lot of applications where we are, in fact, a standard feature. We are much more likely to be an optional feature for each of the programs we're on.

And Bud, you talked about R&D. Feel free to spread that out to R&D and apps, where we see sales or some positive contribution from the BSST line. Do you anticipate that in '07, after your prototype manufacturing is set up?

I think what I said in the last quarter meeting was I thought the revenue would first begin to flow in '08. And that is, I think, my continued expectation, if we get lucky in certain applications where there are short lead development requirements which are not typical. So I would say that the predominant pattern is that there are several-year development patterns with the main body of customers that we're working with. If we get some short lead programs, which we're working on, we might find some modest impact in '07, but I really think the more prudent forecast is that '08 and then '09 will be the years where we ought to see revenue flowing.

(OPERATOR INSTRUCTIONS). There appear to be no further questions. I'll turn the floor back to you for any further or closing remarks.

Well, we thank you very much for your kind attention and participation in our conference call. Our first quarter of 2006 has gotten off to what we consider to be a rousing start. As most of you are probably aware, we have given indications that we feel the topline revenue growth for 2006 compared to 2005 will be in the 25 to 30% range. Our first-quarter results confirm that belief, and we see the actions and models introductions into the marketplace that lead us to, we believe, a very good, strong year of growth, both in revenue and in the bottom line.

We have some very exciting things happening for us at our BSST subsidiary, and we believe that we are going to start seeing some revenue, as we said in our press release, we believe, in late '08 and in maybe '09. And there are some possibilities, as Bud points out, that we could get lucky and get something to happen in late '07. But we're currently concentrating on programs that we'd bring out in '08 and '09. We continue to focus on bringing thermoelectrics too broad market applications, and we think that when people experience the benefits and the comfort, in most cases, from heating and cooling applications, they are willing to step up and buy these types of products.

Again, we have had a very good quarter. We would like to think all of our employees and our vendors for helping us have another good, solid quarter. Thank you very much for calling.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.