Gentherm Inc (THRM) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen. My name is Mia, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the Amerigon Second Quarter 2006 Results Conference Call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks then there are a questions/answers period. If you would like to ask a question during this time, please press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you.

It is now my pleasure to transfer over to your host, Rene Caron of Allen & Caron. Sir, you may begin your conference.

Thank you, Mia, and good morning, everyone. And I, too, would like to thank you for joining us for the Amerigon, Incorporated 2006 Second Quarter 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 PR Newswire this morning's news release announcing Amerigon's results for its second quarter and first six months ended June 30, 2006, an email copy of the release was also sent to a number of conference call participants. If any of you need a copy of the news release, you may download a copy from either the Amerigon website at www.amerigon.com or the Allen & Caron website at www.allencaron.com. Or you may call Nathan [Obler] in our California office at 949-474-4300, and we will email or fax you a copy.

Additionally, a replay of the conference call will be available on the Internet for one year via a link provided at Amerigon's website.

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 differ. 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 factors as well.

Please also refer to Amerigon's Security & Exchange Commission filings and reports, included but not limited to its Form 10-Q for the period ending June 30, 2006, and its Form 10-K for the year ended December 31, 2005.

On the call today from Amerigon we have Bud Marks, 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'd now like to turn the call over to Dan. Good morning, Dan, and congratulations on a great quarter.

Thank you very much, Rene, and we thank everybody for joining us. We're going to have a brief set of comments by management, and then we're going to open the floor for questions.

We would like to note that 2006 has been a year of records for Amerigon. As you recall, about 90 days ago we released our first quarter 2006 results and declared them as record results for our Company. Today we have announced that the second quarter of 2006 is a new record for Amerigon, and we're very pleased with the results.

Starting with revenues of approximately $12,409,000 on units of 171,450 pieces compared to last year's second quarter 2005 revenue of $8,562,000 on units of 125,000 units. Revenues were clearly up about 45% for the period versus the previous period and compared to our first quarter 2006 numbers of $10,441,000 on 143,800 units.

The six month numbers for 2006 now total $22,850,000 versus approximately $17,500,000 for the same period in 2005, up approximately 30%.

The strong revenue gain is being driven primarily based upon very strong new model successes at General Motors. The new Buick Lucerne, the redesigned Cadillac DTS Escalade, Escalade ESV, and Escalade EXT are selling great, and the CCS take rates are very, very strong.

We also saw a dramatic change in our capital structure as our preferred shareholders voluntarily converted the last of our outstanding preferred shares, which leaves us with a much simpler capital structure and an increased public float, which has enhanced our trading liquidity. There is no impact on the earnings per share due to this change and the fact that we have been using a dual stock accounting method.

Now we'll be asking Barry Steele to guide us through some of the base numbers of the business in more detail followed by an update on our BSST subsidiary by our Chairman, Bud Marks. Barry, are you with us?

Yes, I am. Thank you, Dan. Just a couple things to point out. As Dan mentioned, the sales are very strong with high percentage gains for the quarter, and that is partly driven by our new program launches.

There were some offsets, however. There were two models that we did not have sales for in this year versus the prior because they were discontinued by the OEMs without immediate replacement for those vehicles. I think it's important to point out that there wasn't an immediate replacement, and that's why you don't have new sales on those particular programs.

There also were a couple programs that were redesigned during the quarter with replacements that we did carry forward. That's the Lincoln Navigator, Expedition, and Lexus LS460 versus the former model, the LS430.

Moving on to our gross margin, the gross margin percent for the quarter was 31% compared to 29% for the previous year and 31% for the full six months versus 28% for the previous year. These are increases due largely to product mix as well as overall cost savings, but I think it's important to also point out that we are starting to level off in the gross margin percentage as we had 32% gross margin in the first quarter of this year and 31% in the fourth quarter of last year. So I think we've talked about in the past that the 30 to 31% gross margin is sort of our target for the Company.

Our net R&D expenses for the quarter were $890,000 versus $656,000 for the first quarter of the prior year. That represents a fairly significant increase of $234,000, also the increase for the full six months was $239,000.

As we've mentioned in the past, we are beginning to spend additional monies on our advance thermal electric development, which Bud Marks will talk about in a moment, and that's the beginning of some of those increases.

Moving on to SG&A, we also had increases in SG&A for the quarter. We spent $1.8 million versus $1.4 million in the first quarter of the prior year, an increase of $384,000 or 26%, and for the full year to date period we spent $3.4 million versus $2.9 million in the prior year, or a $512,000 increase.

There are a couple things that are driving this increase. Number One, our stock option compensation is now being recorded in our P&L versus the prior year where we did not under the new accounting rules.

The expense for the second quarter was $114,000 whereas for the full six months it was $212,000. Additionally, because of the increase in our stock appreciation and our overall market cap, we do expect to be an accelerated filer for this year, and we are working very diligently in implementing our Sarbanes-Oxley requirements. There are costs associated with that, and they were about $112,000 for the quarter.

We also increased our bad debt reserve and there was a provision recorded on the P&L of $80,000. So those are a number of things that have driven the increase in SG&A for the period.

Also as Dan pointed out, our share count has increased fairly substantially as the preferred stock was converted to common and, as Dan mentioned, that will not have an impact on the diluted earnings per share we're at because we're disclosing or calculating earnings per share using a two-stock method in the past. That's where we prorate the earnings between the two different equity shares. The total share count at the end of the quarter was 21,276,000 shares.

A couple other things to point out, working capital increased from $15.6 million at December 31, 2005, to $18.6 million at June 30, 2006. A couple things driving that, first of all, the increased sales has caused an increase in our accounts receivable of $2.2 million for the quarter.

In looking at the period of time where we would have receivables - a previous 60-day period to each of those balance sheet dates, our sales have actually increased by $2.3 million.

Accounts payable also increased but not at the same rate, therefore, the higher working capital number.

Finally, I just want to mention that our amortization and depreciation for the full six-month period was $233,000. And I guess I'll turn it over to Bud.

Thank you, Barry. I am not in Japan. I'm in Laguna Beach, which is a good place to be. BSST is continuing on the path that we've outlined and talked about over the last six months to a year. I think notable is that we're expecting to put in place a prototype line in the next six months to meet expected demand by our customers and partners for prototypes to begin or continue development work on the various products that we are working on with them, so I view that as a positive sign and a sign that we are moving down the track from being a research organization to being a product development and product company.

I think that's really the most salient thing that's taking place in BSST. We are also spending money to accelerate the progress of new materials because we are encouraged by the things we're seeing. We think that's a prudent expenditure of funds in order to get the high performance material that will enable a number of the products that we expect to be able to bring to market.

I think that's the sum and substance of the news from BSST, Barry.

All right. Thank you very much, gentlemen, and I guess at this point we will turn this back over to Mia and open the floor for questions.

[OPERATOR INSTRUCTIONS.]

Our first question is coming from Steve Denault, Northland Securities.

Hello, everybody. This is a question targeted for Barry. The SG&A in the quarter, $1.8, stock options, we can expect that to continue. The accelerated filer of $112,000 including some stocks, how much of that is one-time in nature versus what would go away in the following quarters?

Probably about a third is one time in nature. We are using a consultant to help us get through a lot of the managment responsibilities, and that would go away. The rest of it is increases for our fees with our auditors, which will be fairly significant this year and taper back a little bit next year, but I don't have exact numbers on that.

Okay. And did I hear you right, there was a bad debt expense of $80,000?

Yes. Obviously, our accrual has gone up substantially and in conjunction with that our bad debt reserve, we decided to make an increase there.

Oh, okay. The accrual?

Yes.

Okay. Should we then - okay, in regards to R&D expense, I guess it's not news that you've spoken about increasing that in the past. Is this in relation to BSST that's not covered or subsidized by your partners, or is this something incremental to the BSST initiative? Where was the internal spending occurring I guess?

Yes, it's primarily at BSST.

Okay. For the materials that Bud spoke of?

That's correct. Yes.

Okay. Have you figured out what the economics would look like when you get to a point in time, call it late 2008, when you've got something that's commercially available in terms of the economics of the arrangement, shared revenue, shared margins, things like that?

This is Bud. Maybe I could answer that. Yes, we've taken a look at the economics. In general, we intend to be a provider of a thermal electric module to our customers. So we haven't - and that's one of the reasons we're very interested to get this prototype line in to understand cost to manufacture and understand all the elements that go into the equation of producing and selling a product.

So, we expect to have a good margin on that product so we're not just going to be a licensing and royalty company. That's kind of where we are.

I think based on what I've seen this will prove to be very good business for us, and our arrangements with our principal customers provide that as long as we are able to be competitive in quality and cost and delivery, and these are things that we've demonstrated we know how to do, that we would be their supplier of choice for an extended period of time.

So, that's the path we're on, and I think it should lead to good and economic business for BSST and Amerigon.

Okay. And one final question. Should the SG&A and R&D expense realized in the quarter - should we assume that's a good, long rate going forward?

I would say yes. R&D may be at a slight increase still.

Okay. Thank you.

Thank you. Your next question is coming from Steve [Dyer] from CraigHallum.

Good morning, guys. Thanks for taking my question. I have several questions here actually. Your guidance for the back half of the year, I should say affirming your 25 to 30% guidance, sort of implies that you anticipate maybe seeing some seasonality in the back half of the year as you have in the past, is that fair to say?

Well, what it is fair to say is that we give very limited overall guidance, and we said last year that we saw 25 to 30%. Obviously, the first half has been a little bit ahead of that schedule. Traditionally, the third quarter is a little bit softer than some of the rest quarters in the automotive related sectors, fourth quarter being strong again.

So I think you would have to look at it and say that Amerigon has not reviewed the guidance any further but we're a very conservative group.

Okay. Fair enough. Then with respect to BSST, is there any way you can give us any sort of a flavor as to what - I mean, I understand you're going to be providing the TED module, but is there any kind of a flavor you can give us as to what kind of products that these things may end up going into?

This is Bud. Well, we're working with a number of customers in a number of industries. It's not a secret, so I can describe it that we have a development agreement with Visteon for automotive product and a development agreement with UTRC, which is the research arm of United Technologies Corporation and its division carrier, which is obviously engaged in the stationary heating and cooling.

So those are two arenas where we're working and where we do expect to have our development agreements ultimately lead to product. There are a number of other companies that we're working with that we can't disclose because we're working under confidentiality agreements, and I guess - and those will probably be quicker to market, quite honestly, because the lead times in these large systems oriented products are longer. So, I think, unfortunately, my flavor is the no for today.

Okay. That's fair enough. So I guess having a prototype ready somewhere towards the end of next year, and then revenue recognized towards the end of '08 kind of implies that, I don't know, sort of an 18-month test period. Is that what you're thinking?

Well, we've made handmade prototypes already. So, that work has been ongoing for some time, so I don't think it would be - I don't think it would be accurate to characterize it as an 18-month prototype period. But, we're expecting more demands for prototypes, both from initial success in demonstrating the handmade versions, and also from additional customers.

So, we've said we expect to see revenue from BSST sometime late in 2008, and I think that's still a reasonable forecast.

Okay. Okay, and then jumping back over to the car side, I guess my last question is is there any color that you can give other than what was in the press release as to how many models you expect, is it going to be skewed towards new OEMs or existing customers? Any color there would be appreciated by investors, I think.

Well certainly we can address that. We have already indicated that we expect a new European-based OEM to announce within the next 30 to 45 days a model coming out, one of their new models coming out, that's going to be adapting or offering the CCS technology on their new 2007 line.

In addition to that, I think Barry's mentioned that there's several products that have been using heated and cooled seats for the past few years that have new models, completely redesigned models, coming out here in the next few months. We do truly expect to see these new exciting fresh new vehicles to take off in the marketplace and with that continued strength for the climate control seat systems there.

We don't really give a platform number or an additional lead on what's happening in the marketplace because our customers like to lead that and we like to allow them the introductory flare to tell that they've added the features. So that's about all we can go through I think.

Okay. Fair enough. Thanks, guys.

All right. Thanks, Steve.

Thank you. Your next question is coming from Tyson Bauer of Wealth Monitors.

Good morning, gentlemen. Couple quick questions. First one's really bookkeeping, Barry. Share count going forward on a diluted basis with options, everything in the money, 22.2 is a good number?

That's actually just the common share count. We do have 1.5 million options outstanding, and for the year-to-date period, I believe the option count in the diluted number was about 770,000. That will vary from time to time just based on where our share sale price is in the market.

Right. But the number you gave in the press release did not include those options, so are you still around that 22 million level?

Correct. Yes.

Okay. Question for Bud. When you talk about the prototypes, what applications are you referring to? Is this military? Is this passenger? Is this something else, not even that realm? What kind of prototypes are you referencing and who is the integral partners in the near term prototypes?

I think I can't expand on my prior answer. I'm sorry about that, but we've described the Visteon relationship and the carrier and UTC relationship and we've indicated that we're working in the power generation side under a contract with the Department of Energy where we've been, I'd say, very successful.

Beyond that, the people that we're providing prototypes to we have confidentiality agreements with, so if I disclosed them I would be disclosing their product plans, which I can't do. So, I apologize, but I can't go beyond what I said previously.

In general, it will be related to transferring heat back into energy?

Yes.

Okay. I didn't want to get more specific than that.

Okay.

In the quarter, obviously you had a bunch of new either models or redesign activity, how much do you split across as far as pipeline filling of the new inventories for those models as the older models would have been worked off the sales lots, and do we enter into Q3 with further pipeline filling as far as those OEM inventories, or are we more reliant on the reorders at this point?

We are going to see more pipeline fill in the third quarter, perhaps even into the fourth quarter of this particular year. You haven't seen a lot of the pipeline fill for the brand new models that have come out. Most of these models that we referred to came out either in the fourth quarter of last year or early in the first quarter of this year. So, what you're seeing now is real volume driven by market demand, and what you are going to see probably in the third quarter I would recommend is a little bit of pipe fill on some of these redesign and new models that are yet to come.

Which makes it - usually Q2 is, as you stated, reliant on how well the sales flow is going through. Q3, Q4 we've been looking for not necessarily - or we should see, put it this way, incremental improvements?

It would be reasonable to expect that, yes.

Does that - in essence, are you dismissing your own guidance that you gave basically two quarters ago in saying that you have not reviewed guidance and given the way you just mentioned now the second half?

Well, let's see. We're not dismissing the guidance. We gave an overall projection two or three quarters ago that we saw 20 to 25% of growth this year, and it's certainly coming true. In fact, the market is a little stronger than we anticipated, but we've not - we don't like to get into a quarterly review of what we expect the numbers to be. So, we like to beat the numbers we give and we see those numbers being strong.

Okay. So you see that guidance being beatable, but you're not changing it?

We're not changing our guidance, but we're very conservative people, as we say.

Are you seeing any intra-platform movement, not giving us the actual model names of those? How is that environment or activity going especially with the new GM 900 platform? And then also, what kind of take rates are you seeing now that you've seen the initial pipeline being done last year and the reorders coming through the beginning of this year?

First to the take rate, yes, we are seeing continued strength in the take rates, even after the initial pipe fill push. The reorders are coming in and continuing to be strong. We're very pleased with the consumers' acceptance of heated and cooled seats and the fact that they keep coming back and asking for it.

The product's been out on the market for about five years and we continue to see people pushing and looking for more and more platforms with heated and cooled seats as options. With that, in answer to the first part of your question, yes, we do see more migration throughout the OEMs' lines as they find success and excitement for our feature in the marketplace. They continue to add it throughout their lines.

One other point, Tyson, you were mentioning 22 million shares in the release. I think it says 21,250,000, not 22 million.

Right. But I figured that was just your basic outstanding the way it read and did not include options that were in the money or using the treasury method to calculate that.

That's correct.

Right. I think it excludes about 500,000 options at this point and the current price.

Okay. Well that's relatively close.

Right.

Get your price up, we'll have it up to 22 million.

Thank you.

Okay. I'll get back in queue.

Thank you. [OPERATOR INSTRUCTIONS.]

Mr. Caron, there appears to be no further questions.

Thank you, Mia. Well, since there are no further questions, Dan, I'd like to turn it back to you for some closing remarks.

Well, I thank you very much for your attention and all of your very good and astute questions, as usual. There's nothing like getting exciting grilling at 1:00 in the morning here in Tokyo.

We have come a long way in Amerigon in the last three years, and we believe we've had two good, solid quarters here in 2006. We believe we're going to have good, solid second half of the year, and we believe that's going to continue to build on in 2007, 2008, 2009.

We're very excited about the commercial opportunities from our advance technology group in the BSST areas, and we continue to see broadened expansion of the heated and cooled seat technology throughout Europe and also continuing in the U.S. and in Asia.

For all of these reasons we believe that Amerigon is a strong, growing and vibrant and healthy company, and we certainly appreciate the market's interest in our products and the investment community's interest in our stocks.

With that, I think we thank everybody and we bid you good night.

Thank you. This concludes today's Amerigon Second Quarter 2006 Results Conference Call. You may now disconnect.