Gentherm Inc (THRM) 2006 Q4 法說會逐字稿

At this time, I would like to welcome everyone to the fourth quarter and year result conference call. [OPERATOR INSTRUCTIONS] Thank you. 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, for joining us today for the Amerigon 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 we disseminated the news this morning through PR news wire announcing the results if the fourth quarter and fiscal year ended December 31, 2006 an e-mail 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. Additionally a replay of this conference call will be made available on the Internet via link provided at Amerigon's website. Finally, I've been asked to make the following statements.

Certain matters discussed on this conference call are forward-looking statements and 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 ended September 30, 2006 and its Form 10-K for the year ended December 31, 2005.

On the call today from Amerigon, we have Dan Coker, President and CEO; and Barry Steele, Chief Financial Officer; Bud Marx, Chairman, is also expected to join the call. Management will provide a review of the results, after which there'll be a question and answer period. I would now like to turn the call over to Dan. Good morning, Dan.

Thank you very much, Jill. And we appreciate everyone joining us on this beautiful Valentine's Day. I'm just going to spend a few minutes giving some highlights, then we're going to ask Barry to give you a little bit more detail, or a little more color on the financial side and we're hoping Bud Marx joins us in a bit to give us an update on BSST activities.

2006 was a remarkable year for Amerigon and the fourth quarter was a very good quarter for us. And we're all quite pleased with the results in general. We had four record quarters sequentially during 2006, which obviously resulted in a record year. Our revenues broke $50 million for the first time in the history of the Company, which is a big milestone for us. And they were up about 42% over the previous year's record in 2005. We also were very encouraged by the continuing adoption of our products on vehicles as well as a development where the models that we have been on through the life cycle of one vehicle, our technology was picked up for the subsequent renovation of that model. This happened for us on several vehicles during 2006 and this helps our sales levels continue to be fresh on brand new models.

As an example, on the old Lincoln LS, was discontinued and it has been replaced in the model line by the Lincoln MKZ, which was earlier called the Zephyr. The Aviator, which was discontinued has been functionally replaced by the new Lincoln MKX. The Lexus LS 430 was replaced by the new LS460. And we have a revised new Navigator and Expedition. New to our line this year were our first entry in Europe with Land Rover, the flagship of the Range Rover line. The Cadillac Escalade EXT pickup and we had for the first time a full year for the standard Escalade, which is the higher volume of their models.

So in general, our performance on the top line was quite satisfactory with a 40% jump over the previous year. Our performance on an operational standpoint was very satisfactory in that we were able to adopt all of these new models and replacement models through the cycle in 2006, plus we had a very good shipping year and solid quality for the operations. Now I'm going to ask Barry if he could spend just a few minutes fleshing out some of the financial numbers for you and we'll be back to see if we've got Bud online for a BSST update. Barry?

Thank you, Dan. As Dan mentioned, our revenue for the quarter was 15 million, up 5.1 million or 51% from the prior year. For the full-year we had 50.6 million of revenue, up by 14.9 million or 42% for the prior year. Again, driven primarily by new program introductions and carryover from prior year program introductions. Our gross margins were 34.3% for the fourth quarter, of 2006 compared to 32.6% for the prior year quarter and 31.1% for the full year -- excuse me for the fourth quarter -- excuse me compared, I guess it was compared to 29.8% excuse me for the prior year.

Our gross margin was higher because of improved product mix as well as additional fixed cost coverage for the higher sales. R&D expenses increased by 129,000 for the quarter or 18% and 734,000 for the full year or 28%. That's primarily due to increased costs for our advanced thermal electric program for the current year. And as Dan will mention a little more a little later in the call.

Selling, general, and administrative expenses were 2.3 million for the quarter compared to 1.2 for the prior year. An increase of 1 -- a million dollars, for the full year SG&A was 7.6 million, an increase of 2.2 million over last year's $5.4 million. A couple things drove the SG&A increase this year, couple major things.

One is, this is the first year we are accelerated filer and we adopted Rule 404 and did all our Sarbanes-Oxley related exercises. As well as this is the first year we adopted FAS 123R, which required us to expense our stock options at fair market value. Those two things drove the increase in SG&A for this year.

Moving down to the tax line, in the prior year we had a $13.5 million benefit in the fourth quarter and the full year for taxes. That was because we recognized our deferred tax assets whereas in the past because we had a history of losses. We did not have those assets on our books. That was about a $0.62 per share increase in last year's earnings. Also, if you look at this year's earnings, we recorded a tax provision of 2.7 million and so that was actually a cost of about $0.17 per share. So there was quite a large swing in the taxes. If you focussed on the pretax earnings, you would see that we had increased pretax earnings of 103%, up to 6.2 million for the year.

One other thing to point out on the tax line is we had effective tax rate for the fourth quarter, actually for the full year of 43%. That compares to the tax rate we used for the first three quarters at 38%. The increase is primarily driven by the higher stock option costs that we had in the fourth quarter related to options that were issued December 29, that were not deductible for tax purposes.

Outstanding shares increased to 21.3 million versus 19.8 million for the prior year. Excuse me 21.3 million for the current quarter versus 15.8 million for the prior year quarter. And that increase was largely due to a conversion of our preferred shares during the year. However, that doesn't actually impact our earnings per share as we are using the two stock method to calculate earnings per share prior to that conversion.

Moving on to the balance sheet just for a moment. Our cash investment treasury is now 14.5 million versus 11.3 million at December 31, of the prior year. That's an increase of 3.2 million for the year. Our operating cash flows were 4.8 million for the full year versus 2.5 million for 2005. Much of those cash flows came in the fourth quarter, 4 million of them and that's largely due to the seasonality of our business. At the end of the year our working capital decreases because of year-end shutdowns. So we expect most of our cash flow to come in the fourth quarter.

Moving on just quickly about the working capital. We had working capital of 23.7 million for 2006 versus 15.6 million in 2005. That's an increase of 7.1 million. If you take out the effects of our excess -- or our cash reserves and deferred taxes, you'd see that our working capital is 5.4 million versus 2.8 million for the prior year. That's an increase of 2.5 million, that's largely driven by increase in inventory and accounts receivable, which is due to the increased sales levels. We're maintaining higher levels of both those assets to accommodate the higher revenue. And let's turn it back over to Dan.

Thank you, Barry. We would like to, I guess, Bud has not joined us, so I will briefly mention our BSST team's activities in the development of an advanced thermal electric system. And again in 2006 it was a very good year for the BSST team. We've continued to enjoy strong support from our development partners. And we are seeing some very exciting things happening in the material area of the advanced development process.

We believe that new materials are being worked on that will greatly help us achieve our goals of multiplying the efficiency levels of the existing standard thermal electric by a factor of four. And we are predicting that we believe sometime in late 2008 and early 2009 that we will see some early products coming from our development team projects with our current partners. With that, I think that we will briefly summarize saying that we think that 2006 was a very good year and we're certainly looking forward to 2007. And we'd like to turn the floor open for questions.

[OPERATOR INSTRUCTIONS] Your first question is coming from Casey Fagan of CJS Securities. You may go ahead.

Morning Dan and Barry, great quarter. In looking at your gross margin you have achieved margins significantly higher in the last two quarters than your previously stated target range of 30 to 31%. Should we expect this level going forward? And is there room for additional margin improvement?

Barry?

We would -- we are at sort of the high end of our range in Q4. I don't expect that next year we'll increase any further, it probably will sort of decrease a little bit. But we are in a comfortable range. We should be around 32, 33% for 2007.

Okay. Great. Thanks. And a current ad for Toyota Avalon is currently airing right now that promotes a heated and cooled seat feature, is this your seat?

I believe the ads currently refer to a heated and ventilated seat and it's not our design, it's something that Toyota has come up with, just adding fans to their typical heated seats.

On that same line, can you give us a little bit of color on the number of models you might expect coming out in '07? and whether you expect these models to come primarily from new OEMs or existing customers?

We don't really predict exactly how many new models. We do have a fairly good idea of what's coming up in 2007. We are going to have a fairly good year in 2007 with new model introductions. Most of those will come from existing customers as they continue to expand our product throughout their product line.

Okay. And lastly, and then I'll hop back in the queue. Your unit shipments increased significantly during the quarter and you mentioned that some of the increase was actually due to a pull from Q1. Can you give us a sense of how much of this increase is due to the early shipments and how it could affect Q1?

Actually, yes, we did have a very strong fourth quarter. Much stronger than we had originally anticipated as we had a couple of customers who are launching new models. It's fairly typical in the industry to have people push very hard on the early stages of a new model introductions. There's always quite a bit of excitement about a new model coming out. One of the strongest for us this year was the Lexus LS460, which was replacing the old LS430 and it had been about 5 years since a new vehicle came out. And Lexus always likes to wow the market with a dazzling new vehicle. The response from the market to this vehicle has been extraordinarily high. And Casey, we were concerned that some of the activity in the fourth quarter might be kind of a nervous pull ahead. But it's looking like it's been a pretty good solid sale so far. So we are not really seeing any negative impact. Perhaps maybe a few hundred thousand dollars worth of sales that were pulled into the fourth quarter from the first quarter just to cover schedules for the holiday shutdowns. But we're not concerned about it at all. We still see a very good solid first quarter.

Great. Thanks. I'll hop back in the queue.

Thank you, Casey.

Thank you, your next question is coming from Steve Denault of Northland Securities. You may go ahead.

Good morning, everybody. Nice quarter.

Morning, Steve.

Can you help provide a little bit of color around the CCS unit shipments were up 66%, revenue was up 51%, so a little bit more degradation in ASPs than maybe the most recent quarter. Is it new platform related?

I think it's actually more mix related in terms of the amount of content that we are shipping to each individual platform partner. We don't see any alarming trends there. And we did have a very strong fourth quarter in all areas. So we're quite pleased. And in fact, I should have mentioned in general our year-end number hit fairly close to our original target. Last year we wound up at about 500,000 units shipped. This year we wound up just under 720,000 units shipped. So there has been a huge, a huge surge and we're quite pleased with the response of our supply chain and our team to be able to deliver such a huge volume. This was our first real flex of our system in quite a while. And everything in the system performed fairly well. We're quite pleased with the performance.

Okay. What's a good level of R&D spending to assume in 2007?

Barry, you want to field that?

We're obviously going to increase the R&D spend as we continue to develop the advance thermal electrics, a lot of encouraging activities going on there. I would see -- say potentially as much as $1 million increased for 2007 in expense.

Okay. And what's a good tax rate to use?

Probably about 39%. I haven't done the analysis for 2007 yet, but it won't be as high as it was in the fourth quarter. We had unusually high nondeductible stock compensation in the quarter. That's more spread over the year for next year.

Perfect. Thank you.

Your next question is coming from Mark Tobin of Roth Capital Partners. Sir, you may go ahead.

Morning, guys. Again, congratulations on a great quarter. Getting back to the supply chain issue. Looking ahead, obviously we're still looking at some additional growth. Can you get -- just address the capability of your existing supply chain to be able to flex to support this growth? Is there additional investment needed?

Well, certainly that's a very good question actually, Mark. What we do, is we have very good downstream vision of what's happening in terms of the demand curves for our products. Our customers actually do a very good job of presenting to us the volumes and the timing on their cycles. And then we have sufficient time to be able to gear up and tool up in anticipation of that demand. As you can see from 2006, we did an awful lot of work in 2005 to get ready for the 2006 surge. We will be spending quite a bit of time and effort in 2007 getting for another very large surge in 2008 and 2009. So the capital spending for our business I don't think you'll see dramatically increase from 2006. But you will see a lot of activity as we prep the system. It's a fairly low capital intensive operation for us as our partners help us gear up for our increased volumes.

Okay. Do you see just as far as your existing supply chain, I mean are there additional facilities that they need to build or are they pretty well set as far as that goes?

We've had plans in place for three years to get ready for 2006 and '7. And we're continuing our expansion plans now for 2008 and 2009. And what happens is we do add lines, not really structural facilities. Our existing partners have sufficient room for us. But what we do do is we add production lines to produce and to deliver each individual component set assembly. We understand exactly what we have to do and these are primarily production lines with a sufficient capacity for assembly and tests. And we've got those in place.

Okay. Thank you.

Thank you, Mark.

Your next question is coming from Tyson Bauer of Wealth Monitors Inc. Sir, you may go ahead.

Good morning, gentlemen, and a great year in a very difficult environment. I think that shows the value of the product that you have for sale. Couple of quick comments jumping on a couple of questions that were asked earlier. The revenue per unit has declined through the year. I think you mentioned previously product mix, also you have now a controller that can control two seats instead of having two controllers, thus having much better margins. What's a good range as we walk into 2007 on kind of a revenue per unit basis?

Barry, you want to hit that? Somewhere between 70 and $72.

That sounds about right. Because certain customers do or don't take certain components, it does have about a $5 or $6 standard deviation from where we're at today. So I wouldn't see us changing that much really.

Okay. So we're basically settling in at what we've seen here lately going forward. The unit delivery you mentioned you had some that occurred in Q4 as opposed to Q1 although it doesn't look like we'll have a fall off in Q1. Just backing into those numbers from what your previous Q3 call. It would appear roughly 25,000 to 30,000 units occurred in Q4 above and beyond what you've previously expected? Is that ballpark?

That's a pretty good ballpark. And a lot of that, I think was increased demand--.

Right.

Over and above what we had forecasted as opposed to full pull ahead for anticipation of the holiday season in the states.

Dan you talked about a robust '08. When we had the last big increase for Amerigon, it was related to the expansion of vehicle platforms, specifically the GMT900. Is this a similar scenario where we're going to have a vehicle platform announcement? And what kind of time table should we expect the Company being able to make a public disclosure?

Yes. It's actually not something -- the GMT900 is kind of a monolithic structure in the industry worldwide. But there will be continued growth off of that particular platform for several years in the future as more and more vehicles built up from that base platform come online. But yes, we'll see -- we'll see a, I think a fairly good indication of what's happening here in the early fall for the 2008 calendar year. Plus we'll be getting a couple of fairly significant new platforms in 2008.

Excellent. And last bookkeeping questions. Barry do you have the D&A question for Q4? And secondly, last question, what kind of SG&A should we expect going forth in '07?

Okay. Q4 D&A was 172,000, 489,000 for the full year. I don't think that our SG&A is going to grow as it did in this past year. It went up quite a bit. We should see some decreases in some things, specifically our compliance costs. So I would look for modest increase between 5 and 10% for 2007.

Thank you.

[OPERATOR INSTRUCTIONS] Your next question is coming from Steve Dyer of Craig-Hallum. Sir, you may go ahead.

Morning guys, let me add my congratulations on a nice end to a good year. Couple of questions. First, Dan, I'm wondering if you're willing to talk at all about an upcoming heated and ventilated solution, your plans in that area when we may see some wins or some revenue there.

Well, we have been working, many of our customers see the middle market as a very large opportunity for seat temperature conditioning. But two things. Many of the middle market vehicles don't have sufficient electrical capacity to carry a full active HVAC system. And so we've been working with a couple of people to develop really an offshoot of our existing design, which uses our existing patented fan and air distribution technology that would allow a company to gear up a seat to do all the structural changes to put in the channeling and the air distribution system and the bracketry and then they could actually choose whether they wanted to use the active system for the high end vehicles or a passive system, which would be a Amerigon design and developed ventilation system. We are expecting to see some pretty strong activity on that beginning in late 2007 and then continuing on in 2008 and 2009. As many of our current customers and future customers are looking to introduce these types of products again to their middle market and entry level vehicles.

Great. Thanks. And then I'm wondering just if you could comment at all on your visibility into '08. I know you don't guide out that far other than to just say reaccelerating growth. I guess how confident are you? How much of the bookings do you have in hand at this point? Any color there?

We, as we've mentioned before, we have a pretty solid 3-year window and we're very solid on 12 months out, 24 months out we've got pretty good feel. I'd say that we're fairly confident in what's going on in 2008. The world is a changing place and a difficult environment to live in in the automotive industry these days. So we aren't actually putting champagne on ice, but we've got some beer in the refrigerator anticipating 2008.

Okay. Thanks. And then Barry, I'm just wondering for I can get a couple more housekeeping numbers from you. Do you have the stock comp expense for the quarter?

For the full-year was 822,000. For the quarter I don't have that right at my fingertips, but you should be able to calculate from Q3 though.

I don't know if I missed it or not, do you have cash flow from ops and CapEx in the quarter?

Cash flow for the full year from operations was 4.8 million. I think I mentioned before that for the quarter it was 2. -- excuse me, 4 million for just the quarter and CapEx for the full year was 1.5 million.

For full year?

Yes. It was full year, yes.

Great. That's all I have. Thank you.

Thank you, Steve. Any other questions?

At this time there seems to be no further questions. I will turn the floor back over to Jill Bertotti for any closing remarks.

Thank you, everybody for joining us today. If you have any questions, please feel free to give me a call at 949-474-4300. Dan, any closing remarks?

No, thank you, Jill. I think we just simply say that we'd thank everybody for spending this part of their Valentine's Day with us and we appreciate all of your time. We see 2007 as we said as a continuation of success in 2006. We've already said that we think revenues will increase 15 to 20% in 2007 and we see a much more significant jump in 2008. So we ask you all to stick with us and have a little patience and see how things turn out, but we think we've got a good story. Our product is being well received, we're expanding our products, the basic thermal electric technology into many other applications, which you're going to start seeing over here in the next 18 to 24 months. So we think -- we think it's a very exciting time. And we ask you to stick with us and enjoy the ride. Thank you very much for your time. We're done.

This concludes today's fourth quarter and year's end results conference call. You may now disconnect.